German American Bancorp, Inc.
Annual Report 2012

Plain-text annual report

Confident. Capable. Committed. SUMMARY ANNUAL REPORT 2012  the Numbers Total Assets (dollars in millions) $2,006 $1,874 $1,376 $1,191 $1,243 Total Loans, Net of Unearned Income (dollars in millions) Commercial and Agriculture Loans as % of Total Loans $1,205 $1,121 81% 83% $890 75% $878 77% $917 79% $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Total Deposits (dollars in millions) Non-Maturity Deposit Accounts as % of Total Deposits $1,641 $1,556 $942 62% $970 $1,087 66% 67% 76% 80% Total Shareholders’ Equity (dollars in millions) Annualized Return of Equity $185 $168 13.57% 12.67% $105 12.84% $122 $114 11.12% 11.18% $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Net Interest Income (Tax-Equivalent) (dollars in thousands) Net Interest Margin $65,202 $67,819 $45,323 $49,481 3.95% 3.98% $41,525 3.82% 3.84% 3.74% Net Income & Diluted Earnings Per Share (dollars in thousands) $24,055 $20,249 $12,803 $12,218 $13,405 $1.90 $1.61 $1.16 $1.10 $1.21 $25,000 $22,500 $20,000 $17,500 $15,000 $12,500 $10,000 $7,500 $5,00 $2,500 $0 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $75,000 $70,000 $65,000 $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Dear Shareholders: A LETTER TO OUR Shareholders Mark A. Schroeder Chairman and CEO Confident. Capable. Committed. Those three words describe where German American, your company, stands today as we look to the future and the opportunities before us. We are confident in our ability to meet all the financial needs of our clients with sophisticated products and services backed by the strength and stability of our Company, upon which our reputation has been built over the course of a century of service to the southern Indiana market area. Our financial professionals have spent their careers serving these markets. It is this level of local market knowledge and understanding which makes German American uniquely capable of assisting our clients in achieving their financial goals. We take pride in the capabilities of our financial professionals and in their ability to serve as trusted advisors to our many clients located throughout southern Indiana. We are committed to our clients and the communities we serve throughout our footprint. With our sole focus on southern Indiana, we recognize that our past, present, and future success as an organization is explicitly linked to the financial well-being of our clients and to the prosperity of the communities in which we do business. We are extremely pleased and proud to report that your Company has once again reported record earnings, with annual net income of $24.1 million, or $1.90 per fully diluted share, for the year ended on December 31, 2012. This level of earnings was an 18% increase on a per share basis over the prior year’s record performance. The continued level of strong financial performance in 2012 follows upon a period of exceptional performance during the past five years. The period of 2008-2012 represents the best five years in our Company’s history in terms of reported annual earnings. Our return on average shareholder equity of 13.57% in 2012 also was a record and represents the 8th consecutive year that German American has delivered double-digit returns on shareholders’ equity. During this past year, we also successfully continued our plan of disciplined growth by means of our initial presence in the Columbus, Indiana market with the opening of a commercial banking office in April. As we have in each of our new market entries in the past several years, we started in Columbus by partnering with a team of seasoned financial professionals who have served that market for a number of years and who are extremely well connected and well positioned within the community. This combination of local market knowledge, local market focus, and exceptional financial strength and stability has proven to be a winning combination for German American in the Evansville and Bloomington, Indiana markets, just as it has been for over a century in each of the other southern Indiana markets we serve. We are confident we will see a similar level of acceptance and success in the Columbus market. We also enjoyed in 2012 a continuation of the strong balance sheet growth we have experienced in recent years, as evidenced by the fact that our total assets, as of year-end 2012, eclipsed the $2 billion mark for the first time in our history. With the continued strengthening of the economic environment, our level of organic loan growth reached levels not seen since the economic downturn. Total loans outstanding increased $84.4 million, or 8%, during 2012, with approximately $33.5 million of this growth generated from our expansion into the Columbus market. This 2012 loan growth was spread over many categories with commercial and industrial loans increasing by 14%, commercial real estate loans by 8%, agricultural loans by 7%, and residential mortgage loans by 3%. Further, our historic level of strong asset quality improved even further in 2012, as our ratio of net charge- offs to average loans outstanding and our ratio of non-performing loans to total loans at year-end were at pre-recessionary levels. Additionally, year-end total deposits increased $84.7 million, or 5%, and this growth was also spread over numerous deposit categories, with non-interest bearing demand deposits increasing by 24%, savings deposits growing by 17%, and money market deposits and interest-bearing demand deposits expanding by 6%. Core deposits, which are widely recognized as the most stable funding source for community banking organizations, continue to represent a significant source of funding for German American with approximately 87% of average total funding sources derived from core deposits during 2012. A further indication of the strengthing economic environment and our expanding client base was evidenced by the growth of our wealth management fee revenue during 2012. During the year, our trust and investment product fees increased by 24%, while our insurance revenue, exclusive of contigency revenue, increased by 10%, primarily driven by a 17% increase in commercial insurance revenues. From a shareholder perspective, in recognition of the strength of German American’s earnings and capital position, your Board of Directors earlier this year announced an increase in the level of your quarterly cash dividend to $0.15 per share, representing approximately a 7% increase of the quarterly cash dividend paid to shareholders. Additionally, we also announced the redemption of all $19.25 million of the outstanding 8% Redeemable Subordinated Debentures as of April 1, 2013. These Debentures, which constituted supplemental regulatory capital for the Company, were issued in April 2009 as a precautionary measure in the face of the looming economic crisis. Given the Company’s strong financial performance throughout the economic downturn and the stabilization and strengthening of the current economic environment, the Board of Directors determined this supplemental regulatory capital was no longer needed, and therefore, elected to invoke the early redemption feature of the debenture issue. Confident. Capable. Committed. This intersection of our exceptional financial performance and strength, our outstanding team of locally-focused, savvy financial professionals, and our proven plan of disciplined market expansion and organic growth, allows us to look to the future of German American. We are confident in our ability to build upon our past success with the knowledge that we are uniquely capable of assisting our clients in achieving their financial goals, while honoring our pledge to always be committed to our clients, the communities we serve, and to you, our shareholders. Sincerely, Mark A. Schroeder Chairman & CEO 1 Confident The strength and stability of our company enables us to serve our customers with CONFIDENCE. Our Executive Management Team Clay W. Ewing President, Commercial and Retail Banking Bradley M. Rust Executive Vice President, and Chief Financial Officer Mark A. Schroeder Chairman and Chief Executive Officer 2 Tom Acton Randy Braun Founded in 1910 in the heart of a southern Indiana community rich in German heritage, German American has grown to serve customers throughout southern Indiana with premier financial products and services. Our Laura Bogard reputation for excellence is recognized within the financial services industry, and we work diligently to continue to meet high standards in banking, insurance, investments and trust. The success of our customers is what drives us. Helping families buy and build homes, send children to college, retire comfortably, transfer wealth from one generation to another, and protect their hard-earned assets are the reasons we exist. Confidence is rooted in respect. To earn the respect of our customers and stakeholders, we manage our company the same way we recommend our customers manage their financial picture – with discipline and an eye on opportunities. Every opportunity provides us with potential to expand our customer base and work deeper into our vision of building a regional 2008, 2009, 2010, presence offering a full array of financial products and services. We will 2011, and 2012 have always be mindful of our community banking roots and the importance of enhancing and growing the relationships we have with our shareholders, been the best 5 years in our customers, employees and communities. company’s history. 3 Capable Our financial professionals are CAPABLE of serving the most sophisticated clients with strong financial solutions. Our financial professionals know the pulse of the communities and businesses in southern Indiana. They respect the hard working individuals in our region and consider it an honor to help the financial future of families, businesses, non-profits and municipalities. We believe in investing in our people through training, higher education opportunities, health and wellness benefits and opportunities to engage in the communities we serve. Technology continues to create new tools and resources for our customers to do business with us. We are investing in new technology that will give our customers enhanced capabilities and services, including a robust business online banking system, mobile banking, and enhanced personal online banking. Mike Hayes German American is recognized as one of the strongest and most financially sound financial institutions and has been listed on the KBW Honor Roll in 2010 and 2011 and named as a Sandler O’Neill Small Bank All Star in 2012. With our significant resources including strong earnings, significant capital, and considerable talent, we are well-positioned for growth. We are confident and capable in serving the financial needs of southern Indiana. 4 BANKING German American has served the banking needs of southern Indiana for 103 years. We have helped our customers weather depressions and recessions and thrive in strong economic times. Our banking professionals are proficient in offering our customers products and services that fit the unique needs of individuals and businesses. Our products and services include checking and savings accounts, check cards, home loans, home equity loans, consumer loans, commercial loans, personal and business online banking, treasury management services, merchant services, credit cards, and health saving accounts. Our customers enjoy the convenience of our 35 banking offices and 37 ATMs located throughout southern Indiana and our banking professionals stay true to our community banking roots by being highly engaged in the communities we serve. INSURANCE Our insurance professionals realize that insuring you and your assets is much more than merely replacing material items. It’s peace of mind knowing that all of your hard work and dreams can continue even in unfortunate circumstances. We represent a variety of excellent insurance carriers, which helps our personal and commercial agents find the best coverage for each particular client at the most affordable price. Our insurance professionals are dedicated to our philosophy of careful analysis, cost-effective protection, thorough risk management, and personal service. INVESTMENTS and TRUST We believe that creating a sound wealth management strategy for our clients is a process that takes a very comprehensive approach to understanding their goals and objectives. Personal and business clients appreciate our clear vision to help them develop effective financial plans to achieve retiring comfortably, sending children to college, transfering wealth from one generation to the next, and making sound financial decisions. 5 Bev Herron Jay Baker Alvin Basham Committed DAVIESS COUNTY Odon/Cannelburg Vincennes Washington KNOX COUNTY Loogootee MARTIN COUNTY Bloomington MONROE COUNTY Bedford LAWRENCE COUNTY Petersburg Ireland Princeton GIBSON COUNTY Oakland City VANDERBURGH VANDERBURGH COUNTY COUNTY Winslow PIKE COUNTY WARRICK COUNTY Evansville Newburgh Rockport Dubois Jasper DUBOIS COUNTY Huntingburg Holland Ferdinand SPENCER COUNTY PERRY COUNTY Tell City BARTHOLOMEW COUNTY Columbus Banking Investments Insurance Bedford Ferdinand Newburgh Tell City 1502 I Street 2606 16th Street 1410 L Street Bloomington 2614 E. 3rd Street 504 N. College Avenue 1020 Main Street 3933 Venetian Drive Holland Oakland City 405 N. Meridian 1100 W. Morton Street Huntingburg 309 E. 13th Street Odon/Cannelburg 7721 N. CR 900 E. Columbus Ireland 445 5th Street, Suite B 5138 W. State Road 56 Dubois 4541 N. 4th Street Evansville 4424 Vogel Road 3150 Lynch Road 530 N. St. Joseph Avenue 515 Dixie Lane 961 S. Hebron Avenue 6 Jasper 711 Main Street 209 3rd Avenue Highway 231 & 2nd Street 3585 Newton Street Loogootee 100 Charles Street Petersburg 305 E. Main Street 518 E. Main Street Princeton 231 W. Broadway Rockport 704 N. 5th Street 645 Main Street 1508 12th Street 208 E. Highway 66 Vincennes 101 N. 3rd Street 2814 N. 6th Street 1700 Willow Street Washington 201 E. Main Street 205 E. Main Street Cherry Tree Plaza Winslow 300 Main Street We have every confidence in the strength of our company, the capabilities of our team and our COMMITMENT to southern Indiana. Engrained in our culture is a commitment to giving back to the communities we serve. You’ll find our financial professionals leading financial literacy classes in community schools and Rodney Russell volunteering to enhance the arts, education, economic development and overall community enrichment in our footprint. We have a long history of community involvement, from both a contributory standpoint and a dedication to hands-on volunteer efforts. We are committed to listening to our customers and accept challenges as growth opportunities. We empower our team to discover process improvements that help us work more efficiently. As we expand in our current footprint and grow into new markets, we are always mindful of our community banking roots and our commitment that we are people helping people throughout southern Indiana grow and thrive. 7 report of independent registered public Accounting firm We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated balance sheets of German American Bancorp, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 18, 2013, also appearing in the Annual Report on Form 10-K, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated balance sheets and consolidated statements of income presented on pages 10 and 11 is fairly stated, in all material respects, in relation to the consolidated financial statements from which they have been derived. Crowe Horwath LLP Indianapolis, Indiana March 18, 2013 8 five year Summary Dollars in thousands, except per share data 9 The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2012. Summary of Operations: Interest Income Interest Expense Net Interest Income Provision for Loan Losses Net Interest Income after Provision for Loan Losses Non-interest Income Non-interest Expense Income before Income Taxes Income Tax Expense Net Income Year-end Balances: Total Assets 2012 2011 2010 2009 2008 $ 77,160 $ 80,161 $ 64,193 $ 63,736 $ 67,845 10,912 66,248 2,412 63,836 21,811 50,923 34,724 10,669 16,180 63,981 6,800 57,181 21,576 50,782 27,975 7,726 15,522 48,671 5,225 43,446 16,943 41,361 19,028 5,623 19,223 44,513 3,750 40,763 15,859 40,391 16,231 4,013 26,908 40,937 3,990 36,947 18,210 36,716 18,441 5,638 $ 24,055 $ 20,249 $ 13,405 $ 12,218 $ 12,803 $ 2,006,300 $ 1,873,767 $ 1,375,888 $ 1,242,965 $ 1,190,828 Total Loans, Net of Unearned Income 1,204,866 1,120,993 917,236 1,640,931 1,556,198 1,087,286 89,472 185,026 90,974 167,610 81,016 121,534 877,822 969,643 113,320 113,549 890,436 941,750 105,608 105,174 Total Loans, Net of Unearned Income 1,147,891 1,114,181 906,127 $ 1,934,123 $ 1,823,703 $ 1,330,540 $ 1,230,596 $ 1,174,583 1,618,712 1,521,204 1,046,295 177,207 159,765 119,867 891,322 963,928 109,887 880,630 922,137 99,711 $ $ $ 1.91 0.56 14.64 3,105 439 1.61 0.56 13.31 3,221 417 1.21 0.56 10.94 3,194 359 $ 1.10 $ 0.56 10.25 3,364 332 1.16 0.56 9.54 3,684 348 Weighted Average Number of Shares(1) 12,622,049 12,581,646 11,098,836 11,065,917 11,029,519 Selected Performance Ratios: Return on Assets Return on Equity Equity to Assets Dividend Payout Net Charge-offs to Average Loans Allowance for Loan Losses to Loans Net Interest Margin (1) Share and Per Share Data excludes the dilutive effect of stock options. 1.24 % 13.57 % 9.22 % 29.38 % 0.19 % 1.29 % 3.74 % 1.11 % 12.67 % 8.95 % 34.80 % 0.43 % 1.37 % 3.84 % 1.01 % 11.18 % 8.83 % 46.36 % 0.32 % 1.45 % 3.98 % 0.99 % 11.12 % 9.14 % 50.71 % 0.25 % 1.25 % 3.95 % 1.09 % 12.84 % 8.83 % 48.25 % 0.29 % 1.07 % 3.82 % Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets Total Deposits Total Shareholders’ Equity Per Share Data(1): Net Income Cash Dividends Book Value at Year-end Other Data at Year-end: Number of Shareholders Number of Employees 10 consolidated Balance Sheets Dollars in thousands, except per share data Assets Cash and Due from Banks Federal Funds Sold and Other Short-term Investments Cash and Cash Equivalents Interest-bearing Time Deposits with Banks Securities Available-for-Sale, at Fair Value Securities Held-to-Maturity, at Cost (Fair value of $351 and $697 on December 31, 2012 and 2011, respectively) Loans Held-for-Sale, at Fair Value Loans Less: Unearned Income Allowance for Loan Losses Loans, Net Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost Premises, Furniture and Equipment, Net Other Real Estate Goodwill Intangible Assets Company Owned Life Insurance Accrued Interest Receivable and Other Assets TOTAL ASSETS Liabilities Non-interest-bearing Demand Deposits Interest-bearing Demand, Savings, and Money Market Accounts Time Deposits Total Deposits FHLB Advances and Other Borrowings Accrued Interest Payable and Other Liabilities TOTAL LIABILITIES Shareholders’ Equity Preferred Stock, no par value; 500,000 shares authorized, no shares issued Common Stock, no par value, $1 stated value; 30,000,000 shares authorized Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY End of period shares issued and outstanding See Annual Report on Form 10-K. December 31, 2012 2011 $ 41,624 7,463 49,087 2,707 587,602 $ 28,366 32,737 61,103 5,986 516,844 346 690 16,641 21,485 1,207,901 1,123,549 (3,035 ) (15,520 ) (2,556 ) (15,312 ) 1,189,346 1,105,681 8,340 36,554 1,645 18,865 2,692 30,223 62,252 8,340 37,706 2,343 18,865 4,346 29,263 61,115 $ 2,006,300 $ 1,873,767 $ 349,174 962,574 329,183 $ 282,335 899,584 374,279 1,640,931 1,556,198 161,006 19,337 130,993 18,966 1,821,274 1,706,157 - 12,637 95,617 66,421 10,351 - 12,594 95,039 49,434 10,543 185,026 167,610 $ 2,006,300 $ 1,873,767 12,636,656 12,594,258  consolidated Statements of Income Dollars in thousands, except per share data 11 Interest Income Interest and Fees on Loans Interest on Federal Funds Sold and Other Short-term Investments Interest and Dividends on Securities: $ Taxable Non-taxable TOTAL INTEREST INCOME Interest Expense Interest on Deposits Interest on FHLB Advances and Other Borrowings TOTAL INTEREST EXPENSE NET INTEREST INCOME Provision for Loan Losses NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES Non-Interest Income Trust and Investment Product Fees Service Charges on Deposit Accounts Insurance Revenues Company Owned Life Insurance Interchange Fee Income Other Operating Income Net Gains on Sales of Loans Net Gain on Securities TOTAL NON-INTEREST INCOME Non-Interest Expense Salaries and Employee Benefits Occupancy Expense Furniture and Equipment Expense FDIC Premiums Data Processing Fees Professional Fees Advertising and Promotion Intangible Amortization Other Operating Expenses TOTAL NON-INTEREST EXPENSE Income before Income Taxes Income Tax Expense Net Income Basic Earnings per Share Diluted Earnings per Share See Annual Report on Form 10-K. 2012 Years Ended December 31, 2011 2010 $ 61,691 91 12,946 2,432 77,160 6,958 3,954 10,912 66,248 2,412 63,836 2,657 4,076 5,524 974 1,724 1,955 3,234 1,667 $ 64,445 216 13,677 1,823 80,161 11,986 4,194 16,180 63,981 6,800 57,181 2,145 4,154 5,819 1,100 1,501 1,452 2,381 3,024 53,266 76 9,812 1,039 64,193 10,561 4,961 15,522 48,671 5,225 43,446 1,582 4,065 5,347 806 1,243 1,740 2,160 - 21,811 21,576 16,943 29,086 4,277 2,787 1,116 1,071 2,247 1,714 1,655 6,970 50,923 34,724 10,669 24,055 1.91 1.90 $ $ $ 27,992 4,264 2,934 1,473 2,092 2,056 1,525 1,956 6,490 50,782 27,975 7,726 20,249 1.61 1.61 $ $ $ 22,070 3,492 2,591 1,455 1,411 2,285 1,255 898 5,904 41,361 19,028 5,623 13,405 1.21 1.21 $ $ $ board of Directors Douglas A. Bawel Thomas W. Seger M. Darren Root Mark A. Schroeder J. David Lett Chris A. Ramsey U. Butch Klem Christina M. Ernst Marc D. Fine Michael J. Voyles Richard E. Forbes Gene C. Mehne 12  CAUTIONARY NOTE REGARDING Forward-Looking Statements This Summary Annual Report, including our CEO’s letter to our Shareholders on Page 1, includes forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our expectations concerning our opportunities for future growth and expansion, financial performance, and other matters. Readers are cautioned that actual results and performance may differ materially from any of our present expectations that are expressed or implied by any forward-looking statement due to the inherent uncertainties in predicting the future, and risks affecting German American and its stock, including those that are described in Item 1, “Business - Forward Looking Statements and Associated Risks” and in Item 1A, “Risk Factors,” in our accompanying Annual Report on Form 10-K. You may review that document (and our other SEC filings) via the internet through the Investor Relations section of our website, www.germanamerican.com. This report speaks only as of March 18, 2013, and we do not promise anyone that it will be updated for changes or events after that date. 13 Back to Front, Left to Right: Keith Leinenbach, Sarah Chinn, Chris LeBeau, Chad Deckard, Gene Mattingly, Joe Dedman, Doug Lee, Vicki Schuler, Dave Mitchell, David Pleiss, Joel Smith, Gene Thewes, Dawn Andrews, David Henson, Sherri Alley, Zach Sibrel, Neil Dauby, Jane Thoma, Jeremy Foster, John Lamb 

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