German American Bancorp, Inc.
Annual Report 2018

Plain-text annual report

BUILDING BEST on the 2018 Summary Annual Report BUILDING ON THE BEST Strength in Numbers Net Income & Earnings Per Share (dollars in thousands, except per share amounts) Earnings Per Share $500,00 $45,000 $40,000 $35,000 $30,000 $28,344 $30,064 $46,529 $40,676 $35,184 $1.43 (1) $1.51 (1) $1.57 (1) $1.77 $1.99 Total Shareholders’ Equity (dollars in millions) Return on Average Equity $459 1 8 % C A G R 5 Y e a r $365 $330 $252 $229 13.21% 12.47% 10.94% 11.59% 12.07% $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 (1)Earnings Per Share adjusted for 3-for-2 stock split completed in 2017. Total Loans, Net of Unearned Income (dollars in millions) Commercial and Agriculture Loans as % of Total Loans $2,728 1 5 % 5 Y e a r C A G R $1,448 $1,564 $2,142 $1,990 81% 82% 81% 81% 78% $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Total Assets (dollars in millions) Return on Average Assets $3,929 1 3 % 5 Y e a r C A G R $2,956 $3,144 $2,237 $2,374 1.31% 1.33% 1.24% 1.35% 1.38% 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 $25,000 $20,000 $15,000 $10,000 $5,000 $0 $3,000 $2,750 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 9th consecutive year German American has achieved record earnings 14th (cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:564)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) year of double-digit return on equity 15% increase in quarterly cash dividend Letter from Mark A. Schroeder Chairman and CEO Dear Shareholders: In keeping with the theme of this year’s Summary Annual Report, Building on the Best, 2018 was a year of continued growth and expansion for German American. In May, we completed the acquisition of a five-branch office network in the Columbus, Indiana market area, consisting of approximately $116 million in loans and a $176 million in deposits. The opportunity to combine this branch network with our existing branch network in the greater Columbus area greatly strengthened our market position and enhanced our ability to drive future organic growth in this important segment of our total market area. continued... 1 continued... Following upon the completion of this branch acquisition, we also moved forward with our initial expansion into the Commonwealth of Kentucky. In October, we finalized the merger transaction with First Security, Inc., based in Owensboro, Kentucky, which operated eight retail banking offices in Owensboro, Bowling Green, Franklin and Lexington, Kentucky, and three offices in Evansville and Newburgh, Indiana. As of the closing of the transaction, First Security held total assets of approximately $553 million, total loans of approximately $390 million, and total deposits of approximately $424 million. Through this acquisition, German American’s unique brand of community banking is now offered in three of the largest, most economically vibrant markets in the Commonwealth. We anticipate significant future growth opportunities within the Commonwealth of Kentucky, both through acquisitions and organic growth, in the coming years. We were pleased to report, for the ninth consecutive year, your Company achieved record earnings. On an operating basis, in 2018, we achieved $46.5 million, or $1.99 per share, representing an increase of 12.4%, on a per share basis, above the level of 2017 record earnings. This level of annual earnings performance resulted in a double-digit return on shareholders’ equity in 2018, marking the 14th consecutive fiscal year in which the Company has delivered double-digit returns on shareholders’ equity. Inclusive of the two aforementioned acquisitions and approximately 5% organic growth within the Company’s existing Indiana operations, German American’s 2018 year-end total assets grew to $3.9 billion, total loans increased to $2.7 billion, and total deposits reached $3.1 billion, representing approximately 25% overall 2018 combined acquisition and organic growth. 2 Our theme of this year’s Summary Annual Report, Building on the Best, signifies that while German American is certainly interested in continued growth and expansion, we will do so with a focus on delivering the very best in banking, insurance, investment and wealth advisory products and services for each customer and in each community we serve. While appreciative of the recognition German American has received as one of the best community banking organizations in the nation, we are focused on what we need to do going forward to continue to deliver the very best, certainly in terms of exceptional customer service and a commitment to the communities we serve, but also by investing in the latest technology-based delivery channels that enhance our ability to serve clients when, where, and how they prefer, always with a personalized, custom approach. This combination of the traditional customer service excellence from local financial professionals with a focus on their local communities and leading edge technologically-driven delivery channels will ensure our ability to maintain our status as one of the nation’s leading community banking organizations in the coming years. In doing so, we will also continue Building on the Best - the best clients, the best communities, the best local financial professionals – to drive value for each of these stakeholders and for you, our shareholders. Sincerely, Mark A. Schroeder Chairman & CEO 3 BUILDING ON THE BEST The Communities We Serve As a community-minded financial services company, we exist to serve the financial needs of businesses, individuals and families, while engaging and contributing for the greater good of all. Our local financial professionals establish long term relationships within the communities we serve to actively help build the best places to live, work and raise families. Our financial strength enables us to make the greatest impact and demonstrates our commitment to corporate responsibility. We support education, social welfare and human services efforts, the arts, economic development and community organizations. Additionally, our employees commit to volunteering and teaching financial education in the local communities we serve. INDIANA DECATUR MONROE BARTHOLOMEW Greensburg Bloomington LAWRENCE Bedford Columbus Osgood JACKSON North Vernon RIPLEY JENNINGS Seymour Dupont JEFFERSON Madison Hanover CLARK KNOX DAVIESS MARTIN Odon/Cannelburg Loogootee Vincennes Washington Petersburg Otwell DUBOIS Dubois Sellersburg FLOYD Floyds Knobs Jeffersonville New Albany FAYETTE Lexington Banking location ATM New offices coming in 2019 Princeton GIBSON Fort Branch Oakland City VANDERBURGH PIKE WARRICK Evansville Newburgh Jasper Huntingburg Holland Ferdinand SPENCER PERRY Tell City Henderson HENDERSON Rockport Owensboro DAVIESS KENTUCKY WARREN Bowling Green SIMPSON Franklin 4 BUILDING ON THE BEST Our Brand Values We are a community bank with community values. In 1910, German American opened for business in the heart of an Ohio River Valley community rich in German-American heritage, Jasper, Indiana. We have grown a lot since then and now serve culturally diverse communities throughout the entire southern Indiana area, as well as, Owensboro, Bowling Green, Franklin and Lexington, Kentucky. Even as we have grown our brand into serving new communities, we remain committed to the traits rooted in our beginning including people first, hard work, integrity and pride in any community’s heritage. We believe these brand values set us apart in 1910 and continue to do so today. Our Mission Our Values German American is dedicated to helping individuals, families and businesses achieve greater prosperity and quality of life. Together, our financial team builds lasting client relationships based on integrity, responsive service, innovation, and shared values. We support the communities we serve and believe that when a community thrives, its people prosper. Integrity Our reputation relies on integrity. We value honesty, open communication, diverse perspectives, and high ethical principles. People People come first at German American. We invest in our communities and support social and economic development. We value respect and courtesy for every person and believe in the power of positive attitudes. Relationships We develop relationships based on a strong foundation of trust and mutual respect to help create loyal customers and a loyal team. Our unified goal is serving individuals, families and businesses to achieve financial success. Performance Performance is vital. German American employees must possess the determination and drive to succeed. Our vast knowledge base and expertise enables us to work efficiently while providing customer service excellence to support strong performance. 5 BUILDING ON THE BEST Our People Our growth and success are the result of the hard work, expertise and commitment of our people. They work tirelessly to deliver outstanding results for our customers, our communities, our shareholders and one another. We seek to attract, develop and retain local financial professionals in every market we serve to fulfill our promise of local, responsive decision making. We invest in our people with training and educational opportunities, competitive employee benefit packages, and tuition reimbursement programs. In 2018, we began a journey of a continuous coaching for success culture, which we believe will have a significant impact on the continued future success of our company. Within our family-like team culture, celebrating birthdays, retirements, anniversaries, and holidays are common occurrences which, we believe, enhances the overall satisfaction of employment with German American. 6 BUILDING ON THE BEST Financial Services From leading-edge banking, insurance, investment, and wealth advisory technology that is continually enhanced to stay abreast of the latest advancements, to local, responsive decision making by a talented team of financial professionals, German American is the ideal choice for financial services. There is no finish line to building on the best. Today’s customers need and want to do business differently, and German American is committed to meeting that demand. With a laser focus on operational excellence, superior customer service, and a keen eye on the future, your German American team continues to set higher standards in financial services delivery. 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, 2018 and 2017, 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, 2018, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 1, 2019, 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 LLP Indianapolis, Indiana March 1, 2019 8 Five Year Summary The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2018. Dollars in thousands, except per share data 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 2018 2017 2016 2015 2014 $ 133,749 $ 111,030 $ 103,365 $ 81,620 $ 80,386 19,139 114,610 2,070 112,540 37,070 93,553 56,057 9,528 11,121 99,909 1,750 98,159 31,854 77,803 52,210 11,534 8,461 94,904 1,200 93,704 32,013 76,587 49,130 13,946 6,068 75,552 - 75,552 27,444 61,326 41,670 11,606 6,047 74,339 150 74,189 23,937 57,713 40,413 12,069 $ 46,529 $ 40,676 $ 35,184 $ 30,064 $ 28,344 $ 3,929,090 $ 3,144,360 $ 2,955,994 $ 2,373,701 $ 2,237,099 Total Loans, Net of Unearned Income 2,728,059 2,141,638 1,989,955 1,564,347 1,447,982 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets 3,072,632 2,484,052 2,349,551 1,826,376 1,779,761 126,635 458,640 141,717 364,571 120,560 330,267 95,606 252,348 64,591 228,824 $ 3,380,409 $ 3,002,695 $ 2,841,096 $ 2,267,555 $ 2,170,761 Total Loans, Net of Unearned Income 2,339,089 2,036,717 1,904,779 1,483,752 1,406,000 Total Deposits Total Shareholders’ Equity Per Share Data: Net Income(1) Cash Dividends Book Value at Year-end Tangible Book Value Per Share(2) Other Data at Year-end: Number of Shareholders Number of Employees 2,716,712 2,395,146 2,249,892 1,825,913 1,783,348 385,476 350,913 321,520 241,018 214,496 $ $ $ 1.99 0.60 18.37 13.81 3,705 747 1.77 0.52 15.90 13.45 3,459 621 1.57 0.48 14.42 11.94 3,513 605 $ 1.51 $ 0.45 12.67 11.57 3,343 479 1.43 0.43 11.54 10.40 3,398 473 Weighted Average Number of Shares(1) 23,381,616 22,924,726 22,391,115 19,888,374 19,834,766 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 1.38 % 12.07 % 11.67 % 30.25 % 0.08 % 0.58 % 3.75 % 1.35 % 11.59 % 11.59 % 29.11 % 0.04 % 0.73 % 3.76 % 1.24 % 10.94 % 11.17 % 30.21 % 0.04 % 0.74 % 3.75 % 1.33 % 12.47 % 10.63 % 29.97 % 0.03 % 0.92 % 3.70 % 1.31 % 13.21 % 10.23 % 29.81 % (0.01) % 1.03 % 3.76 % (1) Share and Per Share Data includes the dilutive effect of stock options. 9 (2) Tangible Book Value per Share is defined as Total Shareholders’ Equity less Goodwill and Other Intangible Assets divided by End of Period Shares Outstanding. 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 Other Investments 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; 45,000,000 shares authorized Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive 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, 2018 2017 64,549 32,001 96,550 250 812,611 353 $ 47,266 23,093 70,359 - 740,641 353 4,263 6,719 2,731,741 2,145,019 (3,682 ) (15,823 ) (3,381 ) (15,694 ) 2,712,236 2,125,944 13,048 80,627 286 103,681 9,964 59,896 35,325 13,048 54,246 54 54,058 2,102 46,385 30,451 $ 3,929,090 $ 3,144,360 $ 715,972 $ 606,134 1,768,177 1,490,033 588,483 387,885 3,072,632 2,484,052 376,409 21,409 275,216 20,521 3,470,450 2,779,789 - 24,967 229,347 211,424 (7,098 ) - 22,934 165,288 178,969 (2,620 ) 458,640 364,571 $ 3,929,090 $ 3,144,360 24,967,458 22,934,403 Consolidated Statements of Income Dollars in thousands, except per share data 2018 Years Ended December 31, 2017 2016 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 Dividends per Share See Annual Report on Form 10-K. $ $ $ $ 11 112,084 308 12,398 8,959 133,749 13,625 5,514 19,139 114,610 2,070 112,540 6,680 7,044 8,330 1,243 7,278 2,785 3,004 706 $ 91,745 134 $ 10,898 8,253 111,030 7,094 4,027 11,121 99,909 1,750 98,159 5,272 6,178 7,979 1,341 4,567 2,641 3,280 596 86,202 74 9,638 7,451 103,365 5,187 3,274 8,461 94,904 1,200 93,704 4,644 5,973 7,741 987 3,627 3,703 3,359 1,979 37,070 31,854 32,013 51,306 7,735 3,142 1,033 6,942 5,362 3,492 1,752 12,789 93,553 56,057 9,528 46,529 1.99 1.99 0.60 $ $ $ $ 46,642 6,609 2,621 954 4,276 2,817 3,543 942 9,399 77,803 52,210 11,534 40,676 1.77 1.77 0.52 $ $ $ $ 43,961 6,297 2,261 1,151 5,686 3,672 2,657 1,062 9,840 76,587 49,130 13,946 35,184 1.57 1.57 0.48 Board of Directors Zachary W. Bawel Lonnie D. Collins Christina M. Ernst Marc D. Fine Jason M. Kelly U. Butch Klem J. David Lett Lee A. Mitchell Chris A. Ramsey M. Darren Root Mark A. Schroeder Thomas W. Seger Raymond W. Snowden 12 Cautionary Note Regarding Forward-Looking Statements This Summary Annual Report, including our CEO’s letter to our Shareholders beginning 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 those expectations 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 1, 2019, and we do not promise anyone that it will be updated for changes or events after that date. 13 001CSN3ABD Cover CCover photos from 2 CCCC r n h t into the CCommmmmo f ionon from 20 018 brand expansp n aa 20 r om 20m i 018 braand CCom c o nwealthh of eentu monwealth of Kentuc cky.ky. t 

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