German American Bancorp, Inc.
Annual Report 2021

Plain-text annual report

Shaping our Future SummaryAnnualReport2021Our Mission 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. United in Our Values Integrity People Relationships Performance Cautionary Note Regarding Forward-Looking Statements This Summary Annual Report, including our Letter to 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, 2022, and we do not promise anyone that it will be updated for changes or events after that date. 9th consecutive year of increased dividends 12th consecutive year German American has achieved record earnings 17th consecutive fiscal year of double-digit return on equity Letter to Our Shareholders Mark A. Schroeder Executive Chairman D. Neil Dauby President and CEO Dear Shareholders: 2021 was a time of transition for German American, as we continued our long-standing history of progress and financial success, while also developing plans and strategies focused on “shaping our future” as a company. In the face of continuing business and economic pressures resulting from the effects of the ongoing pandemic, we are pleased to report that 2021 was another record year for German American. During this past year, our support and investment in our clients and the local communities we serve reached record levels, as evidenced by the investment of approximately 3,000 hours of volunteer service to our communities by our team of financial professionals, in addition to corporately investing nearly $2.9 million in community support throughout our footprint. Our ability to drive continued record financial performance in 2021 was positively impacted by balance sheet growth of 13% in total assets, with year-end total assets reaching a record level of $5.6 billion. This level of impressive asset growth was fueled by 16% growth of our deposit base, as clients continued to trust German American with the safekeeping of their funds, bringing our level of total deposits to $4.7 billion as of year-end 2021. 1 continued... Net Income & Earnings Per Share (dollars in thousands, except per share amounts) Earnings Per Share* $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 1 0 Ye a r E P S C A G R 1 1 . 4 % $28,344 $30,064 $35,184 $24,055 $25,413 $84,137 $3.17 $59,222 $62,210 $46,529 $40,676 $2.29 $2.34 $1.99 $1.51 $1.57 $1.77 $10,000 $1.27 $1.32 $1.43 $0 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 12/31/21 *Earnings Per Share adjusted for 3-for-2 stock split completed in 2017. Letter to Our Shareholders continued... Loan volumes also remained very strong during 2021, as end of period total loans were in excess of $3.0 billion. In 2021, the Company also originated approximately 2,600 second round PPP loans totaling approximately $157.0 million to our business clients. Over the past two years, our 5,700 first and second round PPP loans totaled $508.3 million, and, as of the date of this letter, all but approximately $8.0 million of the total has been repaid or forgiven. We assisted our business clients to retain almost 20,000 employees, and to survive and thrive in the face of the economic challenges associated with the pandemic. In terms of financial performance, we are equally pleased to report that we provided you, our shareholders, with an outstanding return on your investment in 2021. For the 17th consecutive year, German American reported the achievement of a double-digit return on shareholders’ equity, combined with the 12th consecutive year of record net income and earnings per share. Additionally, 2021 represented our 9th consecutive year of increased cash dividends to our shareholders. Clearly, 2021 was a very successful year, which is reflective of this historic run of record performance. 2 2021 was also a year in which we were focused on positioning your Company for continued future growth and success. In July 2021, we announced the planned transition of the leadership of German American effective January 1, 2022. This natural leadership transition has been years in the making, designed to assure your Company will continue to be led by an extremely qualified executive management team for many years to come. We also announced in September 2021, and finalized as of January 1, 2022, the acquisition of Citizens Union Bancorp of Shelbyville, Kentucky. This acquisition will allow us to build upon our existing presence in the fast growing Greater Louisville market area. When combined with completed operating optimization and continuous improvement initiatives in 2021, the anticipated opening of a commercial loan production office in the Greater Indianapolis market area in early 2022, and our new 2022-2026 five-year strategic plan finalized in late 2021, we believe the acquisition of Citizens Union will provide us with opportunities to greatly enhance future balance sheet growth and operating performance. Total Assets (dollars in millions) Return on Average Assets $6,000 $5,000 $4,000 $3,000 $2,000 1 0 Ye a r C A G R 1 1 . 6 % $2,006 $2,164 $2,237 $2,374 $5,609 $4,978 $4,398 $3,929 $2,956 $3,144 1.35% 1.38% 1.43% 1.32% 1.57% $1,000 1.24% 1.25% 1.31% 1.33% 1.24% $0 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 12/31/21 1 0 Ye a r C A G R 1 0 . 3 % $20.37 $18.63 $16.49 $10.40 $11.57 $11.94 $13.45 $13.81 $8.62 $8.92 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 12/31/21 *Tangible Book Value Per Share adjusted for 3-for-2 stock split completed in 2017. Tangible Book Value Per Share* As shareholders of German American, you can be assured that the executive management team leading your Company isn’t resting on the history of our past successes. Rather, we are focused on “Shaping our Future”, which is the theme of this 2021 Summary Annual Report. The entire German American team is dedicated to helping individuals, families, businesses, communities and you, our shareholders, achieve greater prosperity and quality of life. This is both Our Mission, as a Company, and Our Focus, as an Executive Management Team. Sincerely, Mark A. Schroeder Executive Chairman D. Neil Dauby President and CEO 3 Shaping Our Future Commitment to Excellence The strategic vision shaping our future responds to the challenges and opportunities of the competitive financial services environment. We serve dynamic markets with incredible talent, a strong brand and a client centric customer experience. Client Experience Ease of doing business with us is a top priority. Combining technology with people advances our human-digital focused strategy to deliver a superior high touch-high tech customer experience. Building strong client relationships with local, responsive service is the backbone of our success. While technology will continue to be a prevalent driver to shape the future of client experience, German American is also committed to maintaining and enhancing the human element of local people helping local people. People and Culture Throughout our 111-year history, our people-first, team-first culture has been the foundation on which we’ve attracted and retained talent. In the past two years of the pandemic environment, we’ve strengthened our culture by offering a multitude of resources, including mental health, well-being, additional paid time off, flexible work arrangements, and enhanced tuition reimbursement for continuing education. With an unwavering commitment to our people and our culture, we will continue to execute a culture agenda that preserves our core values and empowers and engages our team. Growth and Financial Performance Maintaining strong financial performance is an unwavering commitment to our shareholders, clients, employees and the communities we serve. Superior financial performance affords us the opportunity to meet our growth objectives, invest in people and technology, and support the communities we serve. Operational Effectiveness Putting the right tools, resources and processes into the hands of our team members to deliver efficient, accurate and timely customer service excellence to our clients is imperative. Strengthening our mind-set of continuous improvement improves every critical aspect of meeting and exceeding our goals and objectives. 4 The Shape of Our Footprint INDIANA Greenwood Greensburg Columbus Seymour North Vernon Bloomington Bedford Odon/Cannelburg Loogootee Vincennes Washington Petersburg Ireland Dubois Princeton Oakland City Jasper Huntingburg Holland Ferdinand Newburgh Rockport Tell City Evansville Henderson Owensboro KENTUCKY Madison Hanover Warsaw New Liberty Owenton Sellersburg La Grange La Grange Floyds Knobs NewNew Albany Albany Jeffersonville Jeffersonville Louisville Simpsonville Shelbyville Taylorsville Mt. Washington Elizabethtown Munfordville Horse Cave Bowling Green Glasgow Franklin In 1910, German American Bank was founded in an Ohio River Valley community rich in German–American heritage, Jasper, Indiana. This founding heritage established the roots and values that remain in place today, including people first, hard work, family, community, integrity, and pride in any community’s heritage. Today, German American Bank is the combination of numerous like-minded community banking, insurance, and wealth management organizations and teams joining together to serve local communities. Our footprint covers southern Indiana and Kentucky, and our history of strong financial performance is a reflection of the success of this unique business model. 5 Executive Management Team Mark A. Schroeder Executive Chairman D. Neil Dauby President, Chief Executive Officer Bradley M. Rust Senior Executive Vice President, Chief Operating Officer and Chief Financial Officer Amy Jackson Executive Vice President, Chief Administrative Officer Keith A. Leinenbach Executive Vice President, Chief Credit Officer Randall L. Braun Executive Vice President, Chief Banking Officer Clay M. Barrett Executive Vice President, Chief Digital and Information Officer Board of Directors Zachary W. Bawel D. Neil Dauby Susan J. Ellspermann Marc D. Fine Jason M. Kelly J. David Lett Chris A. Ramsey M. Darren Root Christina M. Ryan Mark A. Schroeder Thomas W. Seger Jack W. Sheidler Tyson J. Wagler 6 Senior Management Team Ann Brown Senior Vice President, Director of Human Capital Vicki L. Schuler Senior Vice President, Principal Accounting Officer Brock Goggins Senior Vice President, Head of Retail Banking Michael Beckwith Senior Vice President, Chief Commercial Banking Officer Brent Sternberg Senior Vice President, Wealth Management and Insurance Jeffrey T. Cash Senior Vice President, Chief Risk Officer Zach Sibrel President, Chief Executive Officer German American Insurance Sarah Howard Senior Vice President, Finance John Lamb Senior Regional President Adrian Brown Senior Regional President Jane Balsmeyer Senior Vice President, Director of Marketing Ed Erickson Senior Vice President, Director of Mortgage Services Shaping Our Future By Doing Good Works Named Best Bank in Indiana by Newsweek Magazine in the less than $10 billion in assets category. 2020 and 2021 Named “Best Bank” in community voting contests • Madison Area Chamber of Commerce - Best Bank (Madison, IN) • Reader’s Choice/Best of Hart County - Best Bank (Hart County, KY) • Dubois County Herald Best of Dubois County - Best Bank, Insurance Company, Financial Planning, Place to Work (Dubois County, IN) • Bloomington Community Innovation Awards - Best Places to Work (Bloomington, IN ) • The Republic Reader’s Choice - Best Financial Institution (Columbus, IN) • Courier & Press Evansville’s Community Choice - Best Bank Finalist (Evansville, IN) • Franklin Favorite Best of Franklin - Best Bank (Franklin, KY) 7 Our local team members logged approximately 3,000 hours volunteering in the communities we serve. In 2021, German American Bank invested nearly $2.9 million in community support throughout our footprint. German American Bank donated $175,000+ to local schools participating in our School Spirit Card program. 2016 - 2021 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, 2021 and 2020, 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, 2021, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 1, 2022, 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 March 1, 2022 8 Five Year Summary The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2021. Dollars in thousands, except share and 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 2021 2020 2019 2018 2017 $ 170,379 $ 174,369 $ 176,474 $ 133,749 $ 111,030 9,549 160,830 (6,500 ) 167,330 59,462 124,007 102,785 18,648 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 $ 84,137 $ 62,210 $ 59,222 $ 46,529 $ 40,676 $ 5,608,539 $ 4,977,577 $ 4,397,672 $ 3,929,090 $ 3,144,360 Total Loans, Net of Unearned Income 3,004,264 3,088,072 3,077,091 2,728,059 2,141,638 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets 4,744,316 4,106,530 3,430,021 3,072,632 2,484,052 83,855 668,459 141,624 624,709 181,950 573,820 126,635 458,640 141,717 364,571 $ 5,369,707 $ 4,729,006 $ 4,128,535 $ 3,380,409 $ 3,002,695 Total Loans, Net of Unearned Income 3,072,302 3,185,542 2,899,939 2,339,089 2,036,717 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 4,493,853 3,860,397 3,293,934 2,716,712 2,395,146 642,934 594,781 519,010 385,476 350,913 $ $ $ 3.17 0.84 25.17 20.37 3,109 724 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 Weighted Average Number of Shares(1) 26,537,311 26,539,024 25,824,538 23,381,616 22,924,726 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) Share and Per Share Data includes the dilutive effect of stock options. 1.57 % 13.09 % 11.92 % 26.41 % 0.11 % 1.23 % 3.31 % 9 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 % (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 share and 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 (Amortized Cost $1,869,198 for December 31, 2021; Amortized Cost $1,172,175 for December 31, 2020; No Allowance for Credit Losses) 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, 2021 2020 $ 47,173 $ 57,972 349,717 396,890 287,776 345,748 745 1,241 1,889,617 1,217,852 353 353 10,585 16,904 3,007,926 3,091,998 (3,662 ) (37,017 ) (3,926 ) (46,859 ) 2,967,247 3,041,213 13,048 88,863 - 121,761 5,845 70,070 43,515 13,168 96,593 325 121,956 8,984 69,250 43,990 $ 5,608,539 $ 4,977,577 $ 1,529,223 $ 1,183,442 2,867,994 2,428,636 347,099 494,452 4,744,316 4,106,530 152,183 43,581 194,529 51,809 4,940,080 4,352,868 26,554 276,057 350,364 15,484 26,502 274,385 288,447 35,375 668,459 624,709 $ 5,608,539 $ 4,977,577 26,553,508 26,502,157 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 Wealth Management and Investment Services Income 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. $ $ $ 11 2021 Years Ended December 31, 2020 2019 139,151 488 12,962 17,778 170,379 4,955 4,594 9,549 160,830 (6,500 ) 167,330 10,321 7,723 9,268 1,529 13,116 6,991 8,267 2,247 59,462 68,570 11,081 3,750 1,419 7,611 5,009 4,197 2,731 19,639 124,007 102,785 18,648 84,137 3.17 3.17 $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 16,232 152,481 522 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 45,501 63,885 9,988 3,788 533 7,927 4,674 4,230 3,721 15,416 117,123 114,162 75,044 12,834 62,210 2.34 2.34 $ $ $ 71,239 12,017 59,222 2.29 2.29 $ $ $ Tribute to Mark Schroeder Shaping Our Future 50 Years of Service 23 Years as CEO As announced on July 1, 2021, Mark Schroeder has passed the CEO responsibilities to D. Neil Dauby effective January 1, 2022. Mark then stepped into an executive management mentoring role as Executive Chairman and will continue as chairman of the Company’s Board until the completion of his current board term at the 2023 annual shareholders’ meeting. This leadership transition was put into place by Mark and the Board of Directors over the course of several years to ensure the Company’s continued growth and success well beyond the year 2022. We are confident that Neil and his very capable executive and senior management team, along with the entire German American team, are well prepared to continue the forward momentum of our Company. We are grateful for Mark’s vision and integrity as he approached this important management succession plan. Knowing Mark’s commitment to our Company, our clients, and the communities served, we expected nothing less than extraordinary. Explaining what Mark means to our Company is no easy task. The legacy he built over the past five decades began with employment as vault teller, when the Bank’s total assets were approximately $50 million with about 40 employees, and ended with him serving for 23 years as CEO. He was named President of the Company and joined the Board of Directors on January 1, 1991 at the age of 36. Mark succeeded George Astrike as CEO on January 1, 1999. At that time, the Company’s total assets stood at approximately $900 million with 364 employees. Under Mark’s disciplined approach to growth and opportunities, the Company today has reported total assets of approximately $6.7 billion, inclusive of the Citizens Union Bank acquisition effective January 1, 2022, with 894 employees located throughout southern Indiana and central and southern Kentucky, providing a strong foundation on which to shape our future growth and prosperity. “The good-to-great leaders never wanted to become larger-than-life heroes. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results.” ― Jim Collins, Good to Great: Why Some Companies Make the Leap...and Others Don’t.” As a proclaimed disciple of Jim Collins, this quote captures Mark’s leadership style quite well. He would be the first to say that he did nothing on his own. He is a pillar in the financial services industry, 12 AMERICAN BANKER Best in Banking 2016 and is known, not just within our walls, yet throughout the entire country, as a consummate banking industry leader and professional. As he accepted awards and recognition throughout his career, Mark was quick to apply the recognition to the entire German American Team. One of the pinnacles of his career was being named as one of three nationwide Community Bankers of the Year for 2016 by American Banker magazine. In 2009, during the height of the great recession, Mark was chosen as one of twelve community bankers in the nation to meet with President Barack Obama at the White House to discuss local economies and small business lending challenges. As a life-long community banker who has served as Chairman of the Community Bankers of Indiana and in various capacities with the Independent Community Bankers of America on the national level, Mark has always clearly understood and advocated the importance of a community bank’s role and responsibility in the development and growth of the local market’s economic base. Under Mark’s leadership during his tenure, first as President and then CEO, the Company has successfully engineered twenty merger and acquisition transactions to bring like-minded community banks into the German American family. As the Company has grown its footprint, Mark remained steadfast in his vision to serve local markets with talented, local leadership teams who are ingrained in the local community. He has earnestly shared our view that, with boards of directors and management teams representing the local markets served, a community banking organization can scale and effectively compete against much larger financial institutions. And, in doing so, it can deliver both the essential value to its shareholders and personalized service excellence to clients. German American’s stock has performed extremely well under Mark’s leadership, generating 12 consecutive years of record earnings, 17 consecutive years of double-digit return on equity, and inclusive of 2022, 10 consecutive years of increased dividends. Mark has served our shareholders in an exceptional manner, as the Company’s stock has also delivered double-digit total returns to shareholders over the course of the past two decades and has provided the Company with a solid foundation for future growth. While Mark will no longer be involved in the day-to-day operations of the Company effective on the anniversary of his 50 years of service retirement date of May 22, 2022, he will continue as Chairman of the Board through his 2023 term. Mark will forever be part of the German American Bank family and the author of one of its greatest stories in shaping our future. In honor of Mark’s commitment to the shareholders of German American Bancorp, Inc. and his lasting contributions to the future of our Company and community banking, we invite you to attend a reception immediately following this year’s shareholders’ meeting to wish Mark well in his well-deserved retirement years and to greet Neil as the new CEO of our Company. The Board of Directors German American Bancorp, Inc. 13 001CSN4E80 

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