German American Bancorp, Inc.
Annual Report 2020

Plain-text annual report

Mission-Driven 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. 2020 Summary Annual Report s r e b m u N Net Income & Earnings Per Share (dollars in thousands, except per share amounts) Earnings Per Share* 1 0 Ye a r E P S C A G R 1 1 . 2 % $35,184 $28,344 $30,064 $1.51 $1.57 $24,055 $25,413 $20,249 $1.32 $1.43 $1.27 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $1.07 $0 $62,210 $59,222 $2.29 $2.34 $46,529 $40,676 $1.99 $1.77 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 *Earnings Per Share adjusted for 3-for-2 stock split completed in 2017. Total Assets (dollars in millions) Return on Average Assets 1 0 Ye a r C A G R 1 3 . 7 % $4,978 $4,398 $3,929 $2,956 $3,144 $2,006 $2,164 $1,874 $2,237 $2,374 1.24% 1.25% 1.31% 1.33% 1.24% 1.11% 1.35% 1.38% 1.43% 1.32% 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 Tangible Book Value Per Share* 1 0 Ye a r C A G R 1 1 % $11.57 $11.94 $10.40 $8.62 $8.92 $7.64 $18.63 $16.49 $13.45 $13.81 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 *Tangible Book Value Per Share adjusted for 3-for-2 stock split completed in 2017. $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0 8th consecutive year of increased dividends 11th consecutive year German American has achieved record earnings 16th consecutive fiscal year of double-digit return on equity Letter from Mark A. Schroeder Chairman & CEO Dear Shareholders: At German American, we’ve always taken great pride in our mission of being a community- focused financial institution dedicated to helping individuals, families and businesses achieve greater prosperity and quality of life. Our team of financial professionals builds lasting client relationships based on integrity, responsive service, innovation and shared values. Additionally, we firmly believe we have an obligation to support the communities we serve. At German American, we believe that when a community thrives, its people prosper. As a community banking organization, we clearly understand that when the communities we serve thrive, our business also prospers. While we’ve held steadfast to that belief and commitment for over 110 years, 2020 was a year in which our mission-focused approach to doing business was necessarily taken to the next level. 1 continued... continued... Faced with a multitude of pandemic-related challenges, I’m pleased to report to you, our shareholders, that the German American TEAM was up to those challenges. Staying true to who we are as an organization, we elevated our efforts to help our clients survive the economic impact of the pandemic, while continuing to support our local communities which were facing extremely difficult social challenges. We built upon our ingrained mission-focused approach to doing business by adopting a mindset of being mission-driven! The Mission-Driven theme of our 2020 Summary Annual Report honors and recognizes the accomplishments of our team of financial professionals in the most difficult of circumstances. Detailed throughout this Report are facts and figures about all we have accomplished as an organization to care for our team, our customers and our communities during this historic period in which the pandemic thoroughly changed our way of life and tragically caused the loss of many lives. Just as our Company faced challenges yet continued to serve customers through the 1918 influenza pandemic, our team was there serving our customers and communities through the 2020 pandemic and once again proved the value of our business model. Our steadfast focus on doing well while doing good continued to deliver upon our promise of delivering exceptional performance for all our stakeholders, including our shareholders. I’m pleased to share that 2020 brought a record level of organic growth, as evidenced by deposit growth of approximately $675 million, or 20%, driving our total asset level to nearly $5 billion, representing 13% annual growth. From the shareholders’ perspective, we are extremely proud of the fact that, despite the headwinds of the pandemic, 2020 once again produced record financial results in terms of our 8th year of consecutive increased dividends, our 11th consecutive year of record earnings, and our 16th consecutive year of a double-digit return on shareholders’ equity. Clearly, our model of doing well while doing good has stood the test of time over the past 110 years and has now withstood the test of the pandemic of 2020. In my closing of the shareholders’ letter in last year’s Summary Annual Report, I noted that we were dealing with the unprecedented challenge of the initial phases of the COVID-19 pandemic and the unknown impact of the associated economic disruption throughout our nation and within our own market areas. I also shared that you, as shareholders, could take comfort in knowing that throughout our 110-year history, German American had weathered many difficult times. I also stated that, at that time, we remained humbly and quietly confident in our collective ability to work through whatever issues might arise due to the COVID-19 pandemic. I’m very pleased to close this year’s letter by sharing we are currently very hopeful that the worst of the economic impact of the pandemic is largely behind us. While we’re still in the early phases of the economic recovery on a local and national level, all signs indicate the U.S. economy may be poised for dramatic growth in the coming years. Please be assured that at German American, we are working hard to adapt to the changes in customer habits, which have been accelerated by the impact of the pandemic in terms of how they prefer to access our financial products and services. While the way we do business has likely forever changed, the one constant will be our mission-driven focus on doing well by doing good. Just as we have always done, we are planning for how we can lead the way for our customers, communities and shareholders to achieve greater economic prosperity and quality of life in the coming years. Thank you for your continued commitment to and investment in German American. Sincerely, Mark A. Schroeder Chairman & CEO 2 s e u l a V d n a n o i s s i M r u O Our Mission United in 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 German American’s reputation relies on integrity. Our team trusts each other in words and actions, which enables our customers to trust our brand. 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. Empathy towards others gives us a unique understanding and ability to provide internal and external service excellence. We value respect and courtesy for every person and believe in the power of positive attitudes. Relationships At German American, we develop relationships based on a strong foundation of trust and mutual respect to help create loyal customers and a loyal team. The relationships we develop enhance our unified goal of 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 culture encourages us to take initiative, accept challenges, and achieve goals. Our vast knowledge base and expertise enables us to work efficiently while providing customer service excellence to support strong performance. 3 BARTHOLOMEWMONROELAWRENCEDAVIESSMARTINKNOXGIBSONPIKEJACKSONJENNINGSRIPLEYJEFFERSONCLARKFLOYDWARRICKVANDERBURGHVANDERBURGHDECATURDAVIESSINDIANAKENTUCKYFAYETTEDUBOISPERRYSPENCERHENDERSONWARRENSIMPSONHARTBARRENJEFFERSON 0 2 0 2 f o y r o t S e h T Early in 2020, with the outbreak of the pandemic, our priorities quickly shifted to provide critical needs to our German American team, our customers, and our communities. Our team swiftly pivoted to new work environments, remote workspaces, and virtual meetings, while adapting to PPE and stringent sanitization and cleaning procedures. Following federal, state and local guidance, we modified our operations and supported each other as we remained open as an essential business to serve the financial needs of our customers and our communities. Our business customers relied on us to stay updated on the ever-changing guidelines of the Paycheck Protection Program (“PPP”) loans and to help them process both their PPP loans and, thereafter, their forgiveness applications. From stimulus payments to guidance on market fluctuations, our banking, insurance, investments and wealth management teams fulfilled our promise to be a financial resource for our customers. The strong connections of our local leaders in their local communities helped guide our 2020 community giving to make the greatest impact to help meet the needs of the citizens. We supported schools, food banks, the medical community, charitable organizations and local businesses which are the life blood of local communities. Our mission-driven approach to managing our Company through the 2020 year, along with our deep-seated business values of relationships, trust, people and performance, were key in achieving our 11th consecutive year of record performance. German American has experienced and outlasted the effects of wars, boom times, political changes, fluctuations in local, state and federal economics, the rise of a global economy, a plethora of changes in the banking landscape, and now we add on the 2020 pandemic. We firmly believe that our model of delivering financial services through local, financial professionals, who are also leaders in their communities and have a servant mindset to help communities thrive so their people can prosper, sets us apart from our competition. We live this belief and vision, setting our standards high to deliver it daily. 4 Mission-Driven for OUR TEAM: Continued to provide competitive and flexible compensation and benefits | Provided extended leave coverage including various options that considered child care needs, teledoc visits, and health care needs | Offered additional well-being resources to employees and their immediate family | Continued summer internship program with a hybrid model of virtual and in-person Mission-Driven for OUR CUSTOMERS: Processed 3,070 Paycheck Protection Program (“PPP”) loans in the amount of $351 million — By the end of year, a total amount of $165 million of these PPP loans were forgiven | 37% increase in online banking and mobile banking log ins in 2020 vs. 2019 | 14% increase in website visitors in 2020 vs. 2019 | 13% increase in Customer Care Center call volume in 2020 vs. 2019 | Named Best Bank in Indiana by Newsweek Magazine in the less than $10 billion in assets category (October 9 – 16th, 2020 publication) | 95% overall customer satisfaction rating in 2020 Mission-Driven for OUR COMMUNITIES: Donated $2.0 million back into our local communities in 2020 | Volunteered approximately 3,000 hours in local community activities | Donated approximately $60,000 to local schools participating in our School Spirit Check Card Program Mission-Driven for OUR SHAREHOLDERS: 8th consecutive year of increased dividends | 11th consecutive year of achieving record earnings | 16th consecutive year of double-digit return on equity 5 Mark A. Schroeder Chairman, Chief Executive Officer Clay W. Ewing Executive Vice Chairman m a e T t n e m e g a n a M r o i n e S Jane Balsmeyer Senior Vice President, Director of Marketing Brock Goggins Senior Vice President, Head of Retail Banking Brent Sternberg Senior Vice President, Wealth Management GABC Management Succession Effective January 1, 2021, in conjunction with our Company’s ongoing executive management succession plan, Clay W. Ewing assumed a senior advisory position as Executive Vice Chairman in anticipation of his retirement during the second quarter of 2021. At that time, D. Neil Dauby assumed the position of President & Chief Operating Officer. Clay Ewing joined German American in 1994 when our Company recruited him to assist with the formation of a new bank in our family of community banks. He served as President & CEO of that banking subsidiary before joining the corporate team in 1999, where he served in an executive capacity with responsibility for various aspects of the Company’s banking operations, culminating in his appointment as President, as well as Corporate Secretary of German American Bancorp, Inc. During his tenure with German American, Clay held the primary responsibility for the integration of multiple acquired banking institutions, as well as for the expansion of our branch banking network throughout our footprint. He has been an integral part of our growth and success for over twenty-five years during a time when our Company grew from approximately $500 million to now nearly $5 billion in total assets. Clay has also been dedicated to the advancement of the banking industry as proven by his involvement with the Indiana Bankers Association, for which he served on the board of directors, rising through the organization’s chairs to the position of chairman. In recognition of his contribution to the banking industry, Clay received the Sagamore of the Wabash award, Indiana’s highest honor, from Governor Eric Holcomb in September 2018. 6 D. Neil Dauby President, Chief Operating Officer Amy Jackson Senior Vice President, Director of Strategic Planning & Administrative Development Keith A. Leinenbach Executive Vice President, Chief Credit Officer Clay M. Barrett Senior Vice President, Technology & Operations Jeffrey T. Cash Senior Vice President, Chief Risk Officer Sarah Howard Senior Vice President, Finance Ed Erickson Senior Vice President, Director of Mortgage Services Michael Beckwith Divisional President John Lamb Divisional President Adrian Brown Divisional President Neil Dauby began his career at our Company in 2001 as President & CEO of the same banking subsidiary Clay helped form in 1994. He is a licensed CPA, and prior to joining German American, he provided accounting, audit and finance services to business clients throughout our current Kentucky market footprint. Neil’s strong financial background, combined with his dedication to building meaningful relationships with local business and community leaders on a personal and professional basis, enabled him to rise through the ranks. He served as a Regional President and as Executive Vice President & Chief Commercial Banking Officer prior to being promoted to his current role as President & Chief Operating Officer. Neil has a passion for developing talent within the German American team and for onboarding the top local financial professionals within each of the markets we serve. He also is an advocate for keeping German American at the leading edge of what is rapidly growing client demand for technologically advanced delivery channels for financial products and services. Neil is our Company’s biggest proponent for combining the best of digitalization with German American’s long tradition of exceptional customer service. “Our Company has been extremely fortunate to have had someone of Clay’s caliber and expertise to lead our banking operations for more than twenty years. Without his amazing management and organizational abilities, our successes of the past quarter century would not have been possible. As we take this initial step in our executive management succession plan, we’re extremely grateful to Clay for his many years of dedicated service to the Company and for his willingness to be in place to help us transition his responsibilities to our next generation of leadership,” states Mark Schroeder, Chairman & CEO. “We are also extremely grateful to Neil for stepping forward to assume senior executive management responsibilities within our Company in the coming years. Neil’s unique set of skills within both banking and finance, as well as his strong business relationships throughout our footprint in both Southern Indiana and Kentucky, make Neil the ideal person to step into the role of President & Chief Operating Officer.” 7 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors 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, 2020 and 2019, 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, 2020, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated February 26, 2021, 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 Louisville, Kentucky February 26, 2021 8 Five Year Summary The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2020. Dollars in thousands, except per share data Summary of Operations: Interest Income Interest Expense Net Interest Income Provision for Credit Losses Net Interest Income after Provision for Credit Losses Non-interest Income Non-interest Expense Income before Income Taxes Income Tax Expense Net Income Year-end Balances: Total Assets 2020 2019 2018 2017 2016 $ 174,369 $ 176,474 $ 133,749 $ 111,030 $ 103,365 19,126 155,243 17,550 137,693 54,474 117,123 75,044 12,834 31,249 145,225 5,325 139,900 45,501 114,162 71,239 12,017 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 $ 62,210 $ 59,222 $ 46,529 $ 40,676 $ 35,184 $ 4,977,577 $ 4,397,672 $ 3,929,090 $ 3,144,360 $ 2,955,994 Total Loans, Net of Unearned Income 3,088,072 3,077,091 2,728,059 2,141,638 1,989,955 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets 4,106,530 3,430,021 3,072,632 2,484,052 2,349,551 141,624 624,709 181,950 573,820 126,635 458,640 141,717 364,571 120,560 330,267 $ 4,729,006 $ 4,128,535 $ 3,380,409 $ 3,002,695 $ 2,841,096 Total Loans, Net of Unearned Income 3,185,542 2,899,939 2,339,089 2,036,717 1,904,779 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 3,860,397 3,293,934 2,716,712 2,395,146 2,249,892 594,781 519,010 385,476 350,913 321,520 $ $ $ 2.34 0.76 23.57 18.63 3,218 776 2.29 0.68 21.51 16.49 3,672 821 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 Weighted Average Number of Shares(1) 26,539,024 25,824,538 23,381,616 22,924,726 22,391,115 Selected Performance Ratios: Return on Assets Return on Equity Equity to Assets Dividend Payout Net Charge-offs (Recoveries) to Average Loans Allowance for Credit Losses to Loans Net Interest Margin 1.32 % 10.46 % 12.55 % 32.37 % 0.08 % 1.52 % 3.63 % 1.43 % 11.41 % 13.05 % 29.64 % 0.17 % 0.53 % 3.92 % 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) Share and Per Share Data includes the dilutive effect of stock options. 9 5 (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. Securities Available-for-Sale, at Fair Value (Amortized Cost $1,172,175, No Allowance for Credit Losses) 1,217,852 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 Other Investments Loans Held-for-Sale, at Fair Value Loans Less: Unearned Income Allowance for Credit 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 Common Stock, no par value, $1 stated value; 45,000,000 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. 10 December 31, 2020 2019 $ 57,972 $ 59,971 287,776 345,748 1,241 353 43,913 103,884 1,985 854,825 353 16,904 17,713 3,091,998 3,081,973 (3,926 ) (46,859 ) (4,882 ) (16,278 ) 3,041,213 3,060,813 13,168 96,593 325 121,956 8.984 69,250 43,990 13,968 96,651 425 121,306 12,656 68,883 44,210 $ 4,977,577 $ 4,397,672 $ 1,183,442 $ 832,985 2,428,636 1,965,640 494,452 631,396 4,106,530 3,430,021 194,529 51,809 349,686 44,145 4,352,868 3,823,852 26,502 274,385 288,447 35,375 26,671 278,954 253,090 15,105 624,709 573,820 $ 4,977,577 $ 4,397,672 26,502,157 26,671,368 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 Credit Losses NET INTEREST INCOME AFTER PROVISION FOR CREDIT 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 2020 Years Ended December 31, 2019 2018 151,658 382 10,447 11,882 174,369 13,696 5,430 19,126 155,243 17,550 137,693 8,005 7,334 8,922 2,307 10,529 3,388 9,908 4,081 54,474 68,112 10,033 3,991 740 6,889 3,998 3,589 3,539 16,232 117,123 75,044 12,834 62,210 2.34 2.34 0.76 $ 152,481 522 $ 13,910 9,561 176,474 23,805 7,444 31,249 145,225 5,325 139,900 7,278 8,718 8,940 2,005 9,450 3,229 4,633 1,248 112,084 308 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 45,501 37,070 63,885 9,988 3,788 533 7,927 4,674 4,230 3,721 15,416 114,162 71,239 12,017 59,222 2.29 2.29 0.68 $ $ $ $ $ $ $ $ 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 Board of Directors Zachary W. Bawel Marc D. Fine Jason M. Kelly U. Butch Klem J. David Lett Lee A. Mitchell Chris A. Ramsey M. Darren Root Christina M. Ryan Mark A. Schroeder Thomas W. Seger Jack W. Sheidler Raymond W. Snowden Tyson J. Wagler 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 February 26, 2021, and we do not promise anyone that it will be updated for changes or events after that date. 13 001CSN48E1 

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