German American Bancorp, Inc.
Annual Report 2014

Plain-text annual report

Headed for the Future 2014 Summary Annual Report THE Numbers Net Income & Diluted Earnings Per Share (dollars in thousands) $35,000 $30,000 $25,000 $20,000 $24,055 $25,413 $20,249 $28,344 $2.14 $15,000 $13,405 $10,000 $1.61 $1.98 $1.90 $5,000 $1.21 $0 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 Total Assets (dollars in millions) $2,006 $2,164 $2,237 $1,874 $2,500 $2,000 $1,500 $1,376 Total Loans, Net of Unearned Income (dollars in millions) Commercial and Agriculture Loans as % of Total Loans $1,448 $1,382 $1,205 $1,121 $917 79% 81% 83% 81% 81% $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 Total Deposits (dollars in millions) Non-Maturity Deposit Accounts as % of Total Deposits $1,556 $1,641 $1,812 $1,780 $1,087 67% 80% 81% 81% 76% Total Shareholders’ Equity (dollars in millions) Annualized Return of Equity $229 $200 $185 $168 13.57% 13.40% 13.21% 12.67% $250 $200 $150 $100 $50 $0 $122 11.18% 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 $1,000 $500 $0 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 A LETTER TO OUR Shareholders Mark A. Schroeder Chairman and CEO Dear Shareholders: For the 5th consecutive year, your Company posted record earnings by reporting annual net income of $28.3 million, or $2.14 per share in 2014. This record level of performance in 2014 was an improvement, on a per share basis, of approximately 8% over the previous record earnings level of $25.4 million, or $1.98 per share, achieved in 2013. The continued strong earnings performance in 2014 also resulted in a 13.21% return on shareholders’ equity, which represents the 10th consecutive year in which German American has delivered a double-digit return on shareholders’ equity. In 2014, we experienced strong growth across all four of our lines of business - banking, insurance, investment, and trust - as we saw a continued resurgence of the economic strength within our markets throughout Southern Indiana. This marked economic strength and stability was reflected in our ability, as a banking organization, to generate continued growth within our loan portfolio in 2014 while maintaining the level of superb asset quality that has been German American’s hallmark. The combination of a compound annual growth rate of earnings per share in excess of 14% over the course of the past seven years and a double-digit return on shareholders’ equity for the past decade has also resulted in a period of strong market performance for your Company’s stock. Our share price appreciation, measured as of year-end 2014 on a compound annual growth rate basis, was in excess of 13% over the course of both the past five and seven year periods. We recognize, however, that the future value of your investment in German American will not be determined by our past performance, but rather will be based on our ability to sustain a strong level of performance going forward. This is why we chose the theme of Headed for the Future for this year’s Summary Annual Report. Looking to the future, it is obvious that the world is going to be a very different place. We all understand that technology is expected to radically change how the financial services industry will deliver products and services to clients. It is for this reason that, during 2014, German American took some very important steps forward to position your Company to continue to grow and prosper in the future in the face of a rapidly changing landscape relative to the delivery of financial products and services. During this past year, we completed an extensive upgrade to our commercial and retail digital banking offerings, including the launch of mobile banking and mobile deposit for consumers. Staying current on the latest technology-based delivery channels will be critical to our ability to stay relevant in the coming years when we will be facing a fundamental change, driven by the millennial generation, in terms of how our clients will expect to access their financial assets. As we are Headed for the Future, we are also focused on how to continue to hold fast to the core principles that have been the secret to our success, both over the course of the last decade and the last century. Central to this strategy is our ability to always provide exceptional, personalized customer service to our clients regardless of whether they are accessing us through our branch network, by phone or computer, or through their tablet or smartphone. For German American, that means continuing our philosophy of developing and recruiting teams of the very best local financial professionals, who are fully committed to and exceedingly knowledgeable about their clients and local communities. We believe this strategy of holding fast to our core principles, while providing leading edge technology to our clients, will be a winning combination going forward for both our clients and our shareholders. We are obviously very proud of the level of long-term financial performance German American has attained, which has, in turn, resulted in German American being nationally recognized as one of the premier publicly-traded financial companies in the U.S. While honored to have received this level of national recognition, we fully acknowledge that this degree of long-term success was only possible because of our clients’ continued acceptance of our offerings of financial products and services, our staff’s dedication toward making good on our pledge of exceptional customer service, and, because of your, our shareholders’, unwavering willingness to invest in our Company. We sincerely thank you for your continued investment in German American, not only in the past but also as we are Headed for the Future! Sincerely, Mark A. Schroeder Chairman & CEO 1 2 TRUSTED Financial Partner 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 A genuine desire to provide financial solutions that help individuals, families and businesses thrive and prosper is key to our success. Our financial professionals are involved in the communities we serve. We engage in community conversations with key government and business leaders to ensure we understand the strengths and challenges facing our communities now and in the future. Clients value us as a confident and capable trusted financial advisor based on knowledge, expertise and being a true community partner. 5 years of record earnings 7 year compound annual growth rate in earnings per share of 14% Decade of double digit return on shareholders’ equity 3 CUSTOMER Solutions Technology has changed and will continue to change the delivery of financial services at a rapid pace. To keep our German American brand and the products and services we offer relevant, we remain focused on our customers. The financial solutions we offer our customers must be of the highest security, offer the best functionality with a superior user experience, and be capable of being supported by the German American team. Anticipating change keeps us focused on the future. In the past few years, German American has allocated financial and human resources to help us research and implement the latest technology solutions. The importance of creating a team environment of keen eyes for opportunity while providing every day customer service excellence is crucial to our success. We are committed to responsive, timely decision making to meet and exceed our customers’ expectations every day . . . now and in the future. Our customers’ success is what we care about. Providing strong financial solutions, based on a deep understanding of the needs of our customers, supports greater prosperity and quality of life for our shareholders, our customers, our communities and our team members. 4 Pictured: Terri Eckerle, Gaven Oexmann, Zach Sibrel, Rodney Russell, Jane Thoma, Jeff Cash, Gene Mattingly, Joel Smith, Tracey Gutgsell BANKING An investment into new platforms for both our retail and business digital banking systems enables us to offer our customers the most up-to-date online experiences available in today’s environment. Our consumer customers also have access to mobile banking, mobile bill pay, mobile deposit, Popmoney®, online home loan application, and sophisticated online and mobile financial calculators. Businesses throughout southern Indiana turn to German American for solid financial guidance and robust online solutions. From checking and savings accounts, check cards, home loans, home equity loans, credit cards, consumer loans, commercial loans, and more, the German American Banking Team is proficient in offering strong financial products and services. INSURANCE Our Insurance Team is dedicated to risk management expertise backed by a philosophy of careful analysis and personal service. We represent a variety of excellent insurance carriers, which helps our personal and commercial agents offer our clients cost-effective protection. INVESTMENTS Our experienced Investment Team is skilled in addressing the unique complexities and concerns individuals and business owners face. Having managed assets through a wide range of market cycles, we understand the importance of adopting a long-term perspective and maintaining a consistent approach. Our client relationships start with gaining a deep understanding of our clients’ values and unique perspective on finances before we design a customized investment and risk-management solution based upon the importance of prudent diversification and the central role of asset allocation in managing risk. TRUST Our Trust Team has a high level of expertise to help clients who have accumulated significant wealth manage and grow their assets. We determine clients’ goals, tolerance for risk, and financial vision before we invest any money, which keeps our clients as the top priority in our Trust relationship. Pictured: Rhonda Hopf, Michael Gerth, David Pleiss, Jean Emery, Alex Knepp, Mike Hayes, Tom Acton, Sherri Alley, Jay Baker, Jeremy Foster, Peggy Merkel 5 6 TALENTED Financial Team Pictured: Alvin Basham, Lisa Matheis, David Henson, Jake Memmer, Donna Sholtis, Michael Kern Randall L. Braun Senior Vice President, Retail Banking Clay W. Ewing President Mark A. Schroeder Chairman and Chief Executive Officer Keith A. Leinenbach Senior Vice President, and Chief Credit Officer Bradley M. Rust Executive Vice President, and Chief Financial Officer Pictured: Brent Sternberg, Laura Bogard, Joe Dedman, Tony Loudermilk, Everett Southern, Neil Dauby, John Lamb 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, pass wealth from one generation to the next, retire comfortably, and send children to college. 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. Our more experienced team members are working with our younger team members to mentor, teach and coach. Our team members live right here in southern Indiana. We empower our German American team to not only engage in conversations about challenges that face our communities, but to take action. You will find us teaching financial literacy, serving on non-profit boards, coaching youth sports, arts, and academic teams, running 5ks and mini marathons, participating in chamber events, and more. 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. • 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. 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 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. 7 REPORT OF INDEPENDENT REGISTERED PUBLIC Accounting Firm Board of Directors and Shareholders German American Bancorp, Inc. Jasper, Indiana 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, 2014 and 2013, 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, 2014, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 9, 2015, 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 9, 2015 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 2014. 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 2014 2013 2012 2011 2010 $ 80,386 $ 75,672 $ 77,160 $ 80,161 $ 64,193 6,047 74,339 150 74,189 23,937 57,713 40,413 12,069 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 $ 28,344 $ 25,413 $ 24,055 $ 20,249 $ 13,405 $ 2,237,099 $ 2,163,827 $ 2,006,300 $ 1,873,767 $ 1,375,888 Total Loans, Net of Unearned Income 1,447,982 1,382,382 1,204,866 1,120,993 917,236 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets 1,779,761 1,812,156 1,640,931 1,556,198 1,087,286 64,591 228,824 87,237 200,097 89,472 185,026 90,974 167,610 81,016 121,534 $ 2,170,761 $ 2,037,236 $ 1,934,123 $ 1,823,703 $ 1,330,540 Total Loans, Net of Unearned Income 1,406,000 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 1,783,348 1,695,796 1,618,712 1,521,204 1,046,295 214,496 189,689 177,207 159,765 119,867 $ $ $ 2.14 0.64 17.31 3,398 473 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 Weighted Average Number of Shares(1) 13,223,178 12,807,678 12,637,743 12,587,748 11,104,887 Selected Performance Ratios: Return on Assets Return on Equity Equity to Assets Dividend Payout Net Charge-offs (Recoveries) to Average Loans Allowance for Loan Losses to Loans Net Interest Margin (1) Share and Per Share Data includes the dilutive effect of stock options. 1.31 % 13.21 % 10.23 % 29.81 % (0.01) % 1.03 % 3.76 % 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 % 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 $186 and $271 on December 31, 2014 and 2013, 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, 2014 2013 33,481 8,965 42,446 100 630,995 184 6,311 $ 37,370 22,762 60,132 100 606,032 268 9,265 1,451,990 1,385,212 (4,008 ) (14,929 ) (2,830 ) (14,584 ) 1,433,053 1,367,798 7,040 39,930 356 20,536 2,074 32,043 22,031 9,004 40,430 1,029 20,536 3,328 31,178 14,727 $ 2,237,099 $ 2,163,827 $ 428,016 $ 400,024 1,018,320 1,063,098 333,425 349,034 1,779,761 1,812,156 206,064 22,450 140,770 10,804 2,008,275 1,963,730 - 13,216 108,660 104,058 2,890 - 13,174 108,022 84,164 (5,263 ) 228,824 200,097 $ 2,237,099 $ 2,163,827 13,215,800 13,173,793 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 Gains 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. 2014 Years Ended December 31, 2013 2012 $ 65,597 12 10,409 4,368 80,386 4,128 1,919 6,047 74,339 150 74,189 3,675 4,829 7,255 826 1,961 2,018 1,892 1,481 $ 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 23,937 23,615 21,811 32,710 5,094 1,953 1,113 3,675 2,294 1,977 1,254 7,643 57,713 40,413 12,069 28,344 2.15 2.14 $ $ $ 31,482 4,545 1,898 1,050 3,133 2,577 1,863 1,416 6,941 54,905 36,877 11,464 25,413 1.99 1.98 $ $ $ $ $ $ 29,086 4,277 1,979 1,116 1,879 2,247 1,714 1,655 6,970 50,923 34,724 10,669 24,055 1.91 1.90 11 12 BOARD OF Directors Douglas A. Bawel Christina M. Ernst Marc D. Fine U. Butch Klem J. David Lett Chris A. Ramsey M. Darren Root Mark A. Schroeder Thomas W. Seger Ray W. Snowden Michael J. Voyles 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 prosperity, 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 9, 2015, and we do not promise anyone that it will be updated for changes or events after that date. 13 001CSN1B94 

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