German American Bancorp, Inc.
Annual Report 2013

Plain-text annual report

STRENGTH based on Core Values Summary Annual Report 2013 THE Numbers Total Assets (dollars in millions) $2,164 $2,006 $1,874 $1,376 $1,243 Total Loans, Net of Unearned Income (dollars in millions) Commercial and Agriculture Loans as % of Total Loans $1,382 $1,205 $1,121 $878 77% $917 79% 81% 83% 81% $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 Total Deposits (dollars in millions) Non-Maturity Deposit Accounts as % of Total Deposits $1,812 $1,556 $1,641 $1,087 $970 66% 67% 80% 81% 76% Total Shareholders’ Equity (dollars in millions) Annualized Return of Equity $200 $185 $168 $114 $122 11.12% 11.18% 13.57% 13.40% 12.67% $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 Net Interest Income (Tax-Equivalent) (dollars in thousands) Net Interest Margin $65,202 $67,819 $70,319 $49,481 $45,323 3.95% 3.98% 3.84% 3.74% 3.67% Net Income & Diluted Earnings Per Share (dollars in thousands) $24,055 $25,413 $20,249 $1.61 $1.98 $1.90 $12,218 $13,405 $1.21 $1.10 $27,500 $25,000 $22,500 $20,000 $17,500 $15,000 $12,500 $10,000 $7,500 $5,000 $2,500 $0 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 $2,200 $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $2,000 $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 A LETTER TO OUR Shareholders Dear Shareholders: Each year we choose a theme and design for our Summary Annual Report that we believe best describes the year’s performance. Strength based on Core Values captures the essence of your Company’s performance in 2013 and for the past decade. On the cover is the work of a craftsman stonecutter carving the German American shield. Much like the steady hand of the stonecutter working carefully and methodically to turn a block of limestone into a work of art, the German American team has worked carefully and methodically over the course of the past decade to stay true to our Core Values of following a safe, sound, and secure approach to doing business. By doing so, we have crafted German American into one of the best performing community banking institutions in the nation. Over the course of the past several years, German American has received numerous industry recognitions for consistently having posted top 10% performance among the nation’s publicly traded community banks. Within the past year, your Company was recognized by two separate banking research groups as being among the top 10 publicly-traded financial institutions in the United States within this top 10% of community banks. Once again in 2013, your Company achieved record earnings, with annual net income of $25.4 million, or $1.98 per fully-diluted share, for the year ended on December 31, 2013. This level of record performance was approximately a 4% increase, on a per share basis, over the prior year’s 2012 record performance of $24.1 million, or $1.90 per share, and represented a 23% increase from the 2011 then record performance of $20.2 million, or $1.61 per share. The period of 2008-2013 represents the best 6 years in the Company’s 103 year history in terms of reported annual earnings, and our return on average shareholder equity of 13.40% in 2013 represents the 9th consecutive year that German American has delivered double-digit returns on shareholders’ equity. Consistently staying true to our Core Values of a safe, sound, disciplined approach to doing business has been a driving force behind a quite challenging year from an operating perspective. The continued downward pressure on yields on loans and investments, driven by a prolonged period of historically low market interest rates along with a competitive environment for lending opportunities, resulted in continued decline in our net interest margin. In spite of the negative impact of lower margin pressures, German American was able to achieve record performance by benefiting from the efforts put forth in prior years, resulting in an increased level of net interest income, driven by a higher level of earning assets, and more specifically by a significant increase in the Company’s loan portfolio. We posted increased levels of non- interest income from our wealth management activities within our investment, trust, and insurance divisions and from higher levels of gains related to the sale of securities. We also benefited from a materially reduced level of provision for loan loss expense in 2013, as our historically strong asset quality showed further continued improvement during the year. Mark A. Schroeder Chairman and CEO We opened our first agricultural lending office in 2013. It is located in the western part of our footprint, which has an extensive agricultural base. Ag lending has always been one of our key industry segments and this Ag Services Office is indicative of the opportunities we see in the future of agriculture. In October of 2013, we successfully continued our plan of disciplined growth and completed a merger transaction with United Commerce Bancorp of Bloomington, Indiana. This merger positions German American very well within the Bloomington market through the combined strength of German American’s and United Commerce’s existing exceptional teams of local financial professionals and solid base of deposit and loan clients. We are pleased to welcome United Commerce’s customers, employees, and shareholders to German American. We continued our planned expansion in the Columbus, Indiana market in December of 2013. Building upon our initial commercial banking presence in this market since 2012, we opened a new state-of-the-art financial center. This striking facility in the heart of the Columbus business district is part of an ongoing business plan to increase our visibility and client base in this dynamic market area and enables us to build our product and service offerings to include retail banking, insurance, investments, and trust for our growing base of clients. We also wish to thank Gene Mehne for his 35 years of service to your Company on our Board of Directors. Gene is not eligible for re-election at this year’s annual meeting because our bylaws impose an age limit on our eligible nominees. Gene’s insights into our heritage banking markets in and around Dubois County, and in particular into the needs of our agribusiness customers, will be missed, and we wish him the very best. Joining the German American Board in February of this year, Ray Snowden, Chairperson & CEO of Memorial Hospital & Health Care Center, brings to the board a perspective on health care, which is an important industry to our Company and to the communities we serve. We welcome Ray to the corporate board and look forward to his advice and counsel and to his contribution to our combined efforts toward our future success. Strength based on Core Values - This time-tested approach and philosophy of doing business allows us to look to the future of German American, confident in our ability to build upon our past success, while honoring our pledge to always be committed to our clients, the communities we serve, and to you, our shareholders, without whom, the success we’ve enjoyed would not have been possible. Your Company’s business philosophy has clearly delivered rewards for our shareholders. Our fully diluted earnings per share compound annual growth rate of 11.3% for the past 5 years and 10.5% over the past 10 years is indicative of the level of financial performance your Company has enjoyed as a result of adhering to the Core Values upon which German American was founded. Sincerely, Mark A. Schroeder Chairman & CEO 1 OUR EXECUTIVE Management Team Mark A. Schroeder Chairman and Chief Executive Officer Clay W. Ewing President Randall L. Braun Senior Vice President, Retail Banking Bradley M. Rust Executive Vice President, and Chief Financial Officer Keith A. Leinenbach Senior Vice President, and Chief Credit Officer 2 Our sole purpose is to serve Southern Indiana BARTHOLOMEW COUNTY Columbus Banking Investments Insurance Ag Services DAVIESS COUNTY Odon/Cannelburg Bloomington MONROE COUNTY Bedford LAWRENCE COUNTY Vincennes Washington KNOX COUNTY Loogootee MARTIN 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 Our Mission Our Vision We build relationships mutually beneficial to our clients and our shareholders. • We create custom financial solutions that help businesses and retail customers reach their financial goals. German American Bancorp, Inc. will build a regional presence offering a full array of integrated financial products and services. We will always be mindful of our community banking roots and the importance of enhancing and growing the relationships we have with our shareholders, customers, employees and communities. • We develop lifelong relationships that are based on mutual respect and supported by the strength and community ties of German American. • We support our customers and shareholders on their quest to greater prosperity and quality of life. We are deeply rooted and engaged within the communities we serve. The German American professionals build strong relationships that are based on a winning combination of discipline and conservative management with a keen eye for arising opportunities. 3 Core Values standing the test of time Since 1910 the people of southern Indiana have trusted German American to help purchase homes, protect, save and manage their money, grow businesses and farm operations, and pass wealth from one generation to the next. Throughout our 103 years of operation, we have grown to offering insurance services to protect assets for individuals and businesses and investment services to help clients send children to college, achieve financial goals, and retire comfortably. We have adapted to offering personal and business clients the latest technology including online and mobile banking and bill pay, account alerts, and text banking. Our office locations have grown from one office in Jasper, Indiana, a community rich in German American heritage Joe Dedman “During my career with German American, I have had the opportunity to work in various business lines and markets. One trait I value most with this company is the consistency of understanding that we are in the people business. We are relationship oriented and define success when we work with our customers to find the right financial products and services that fit their needs.” located in the heart of southwestern Indiana, to 37 offices throughout southern Indiana. What has remained from the beginning is the underlying understanding that we are in a people business. We are people helping people in the communities we serve to financially grow, prosper and thrive. We are a team of financial professionals who are available when our clients have questions. No matter what latest technology is offered to our clients, it is all backed by customer service excellence from our people. Clients can pick up a phone, send us an e-mail or visit our offices and they speak directly to a German American team member. 4 Pictured top to bottom: Laura Bogard, Peggy Merkel, Tom Acton, Jeff Cash, Gaven Oexmann, Joe Dedman, Gene Mattingly, Jane Thoma, Mike Hayes We believe in a safe, sound and secure approach to running our financial services company and spread this philosophy to our clients. Financial opportunities abound around each of us. We work with our clients to analyze opportunities to understand which ones are the best for each particular situation. Our clients are much more than an account with us. They are the lifeblood of our company, and we work hard to develop relationships to completely understand our clients’ needs and help them make the next best financial decision. Communities rely on businesses to help support quality of life for the individuals and families who reside in them. German American not only employs local people from throughout southern Indiana, we also give generously to community activities and civic and charitable organizations. Our team devotes many hours to community volunteer projects and events. Our strong belief in creating physically, emotionally and financially healthy communities is a driving force at German American. Discipline. Conservative. People. Relationships. Community. Opportunities. Professional. Hardworking. Customer Service Excellence. Strength based on Core Values helps us set higher standards in banking, insurance, investments and trust. Jeremy Foster “The German American brand signifies financial strength and stability. This company understands and appreciates the people and businesses who have been the backbone of its success. Even as we grow and expand the German American brand into new markets like Columbus, we are firmly grounded in the company’s vision of being a source of strength for businesses, individuals, families and organizations in southern Indiana.” John Lamb “A company that is financially strong and deeply committed to lasting core values enables its employees to serve their customers with confidence. Our company understands and is committed to every community it serves and invests whole heartedly into the community both from a contributory standpoint and a dedication to hands-on volunteer efforts.” Pictured top to bottom: Terri Eckerle, Tony Loudermilk, Tracy DeCosta, Jeremy Foster, Jay Baker, Alvin Basham, John Lamb, Tony Cochren 5 6th office in Evansville area opens on Hebron Avenue Sandler O’Neil Small- Cap Bank All Star Upgraded to the most sophisticated Business Online Banking System available New state-of-the- art office opens in Columbus Double-Digit Return on Equity for the Past 9 Consecutive Fiscal Years (13%+ in 2013) 3 1 0 2 F O S T H G I L H G I H Rhonda Hopf “In my career with German American, I have valued the company’s vision for conservative growth grounded on our core principals. Hard work and discipline are traits our customers have respected in us since our founding days in 1910. We appreciate that respect and do not take it for granted.” Mason Seay “German American has a rich history of serving the Agriculture community in southern Indiana. With the opening of our Ag Services Office in Ft. Branch, we have strengthened our commitment to this important industry and to the future of farming in our area. Farmers appreciate genuine service from hardworking people who are truly interested in the success of their operation. At German American, we strive to mirror these traits as we serve the financial needs of the farming community.” 6 Pictured top to bottom: Alex Knepp, Zach Sibrel, Rhonda Hopf, David Pleiss, Dawn Andrews, Mason Seay, Neil Dauby, David Henson 3 1 0 2 F O S T H G I L H G I H MERION Capital Group - Most Successful Publicly-Traded Banks (#1 in the Midwest and #11 in the US) Ag Services office opened in Fort Branch 3rd office in Bloomington with the joining of the United Commerce Bank team 2013 Record Earnings Peformance Highest Performing (Return on Equity) among Indiana- domiciled Publicly- Traded Financial Institutions Gene Thewes “Looking for opportunities to improve processes within our company has always been a mindset at German American. When employees come together as a team to discuss improved efficiencies, top of mind is always staying true to customer service excellence. This company firmly believes our people and our commitment to serving customers better than any other financial institution sets higher standards in banking, insurance, investments and trust.” Joel Smith “The future of financial services is in offering our customers the latest technology to access their accounts with us. Even with technology, German American will remain committed to our core value of customer service excellence provided by our people. A visit to our office, a phone call, or a question submitted through technology will be answered by a live person that lives right here in southern Indiana.” Pictured top to bottom: Rodney Russell, Gene Thewes, Mark Franklin, Dave Mitchell, Sherri Alley, Joel Smith, Jean Emery, Everett Southern 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, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 13, 2014, 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 13, 2014 8 FIVE YEAR Summary Dollars in thousands, except per share data The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2013. 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 2013 2012 2011 2010 2009 $ 75,672 $ 77,160 $ 80,161 $ 64,193 $ 63,736 7,155 68,517 350 68,167 23,615 54,905 36,877 11,464 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 $ 25,413 $ 24,055 $ 20,249 $ 13,405 $ 12,218 $ 2,163,827 $ 2,006,300 $ 1,873,767 $ 1,375,888 $ 1,242,965 Total Loans, Net of Unearned Income 1,382,382 1,204,866 1,120,993 917,236 1,812,156 1,640,931 1,556,198 1,087,286 87,237 200,097 89,472 185,026 90,974 167,610 81,016 121,534 877,822 969,643 113,320 113,549 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets $ 2,037,236 $ 1,934,123 $ 1,823,703 $ 1,330,540 $ 1,230,596 Total Loans, Net of Unearned Income 1,272,055 1,147,891 1,114,181 906,127 Total Deposits Total Shareholders’ Equity Per Share Data: Net Income(1) Cash Dividends Book Value at Year-end Other Data at Year-end: Number of Shareholders Number of Employees 1,695,796 1,618,712 1,521,204 1,046,295 189,689 177,207 159,765 119,867 $ $ $ 1.98 0.60 15.19 3,444 478 1.90 0.56 14.64 3,105 439 1.61 0.56 13.31 3,221 417 $ 1.21 $ 0.56 10.94 3,194 359 891,322 963,928 109,887 1.10 0.56 10.25 3,364 332 Weighted Average Number of Shares(1) 12,807,678 12,637,743 12,587,748 11,104,887 11,068,988 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 1.25 % 13.40 % 9.25 % 30.18 % 0.10 % 1.05 % 3.67 % 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) Share and Per Share Data includes the dilutive effect of stock options. 9 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 $271 and $351 on December 31, 2013 and 2012, 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 (Loss) TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY End of period shares issued and outstanding See Annual Report on Form 10-K. 10 $ December 31, 2013 2012 37,370 22,762 60,132 100 606,032 268 9,265 $ 41,624 7,463 49,087 2,707 587,602 346 16,641 1,385,212 1,207,901 (2,830 ) (14,584 ) (3,035 ) (15,520 ) 1,367,798 1,189,346 9,004 40,430 1,029 20,536 3,328 31,178 14,727 8,340 36,554 1,645 18,865 2,692 30,223 62,252 $ 2,163,827 $ 2,006,300 $ 400,024 $ 349,174 1,063,098 349,034 962,574 329,183 1,812,156 1,640,931 140,770 10,804 161,006 19,337 1,963,730 1,821,274 - 13,174 108,022 84,164 (5,263 ) - 12,637 95,617 66,421 10,351 200,097 185,026 $ 2,163,827 $ 2,006,300 13,173,793 12,636,656 CONSOLIDATED Statements of Income Dollars in thousands, except per share data 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. 2013 Years Ended December 31, 2012 2011 $ 61,632 30 11,091 2,919 75,672 4,697 2,458 7,155 68,517 350 68,167 3,358 4,144 6,217 965 1,854 2,003 2,645 2,429 $ 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 23,615 21,811 21,576 31,482 4,545 3,196 1,050 1,765 2,577 1,863 1,416 7,011 54,905 36,877 11,464 25,413 1.99 1.98 $ $ $ 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 11 BOARD OF Directors M. Darren Root Michael J. Voyles Mark A. Schroeder J. David Lett Chris A. Ramsey Thomas W. Seger Ray W. Snowden Douglas A. Bawel U. Butch Klem Christina M. Ernst Gene C. Mehne Marc D. Fine 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, 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 13, 2014, and we do not promise anyone that it will be updated for changes or events after that date. 13 001CSN167F 

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