UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended: December 31, 1997 OR | ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________to_____________________ Commission File Number 0-11244 GERMAN AMERICAN BANCORP - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Box 810, Jasper, Indiana 47546 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (812) 482-1314 Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of each exchange on which registered NONE Not Applicable - --------------------- ------------------------------------ Securities registered pursuant to Section 12 (g) of the Act: Common Shares, $10.00 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of the voting stock held by nonaffiliates of the Registrant (assuming solely for purposes of this calculation that all directors and executive officers of the Registrant are affiliates) valued at the last trade price reported by NASDAQ as of March 6, 1998 was approximately $132,556,000. As of March 6, 1998, there were outstanding 5,350,161 common shares, $10.00 par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Annual Report to Shareholders of German American Bancorp for 1997, to the extent stated herein, are incorporated by reference into Parts I and II. (2) Portions of the Proxy Statement of German American Bancorp for the Annual Meeting of its Shareholders to be held April 23, 1998, to the extent stated herein, are incorporated by reference into Part III. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | X |
PART I Item 1. Business General German American Bancorp (referred to herein as the "Company", the "Corporation", or the "Registrant") is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana ("German American Bank"), First State Bank, Southwest Indiana, Tell City, Indiana ("First State Bank"), and German American Holdings Corporation ("GAHC"), an Indiana corporation that owns all of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana ("Community Bank") and The Peoples National Bank and Trust Company of Washington, Washington, Indiana ("Peoples"). The Company, through its four bank subsidiaries, (sometimes referred to herein as the "Banks") operate 20 banking offices in six contiguous counties in southwestern Indiana and had total consolidated assets at year-end 1997 of approximately $499,000,000. German American Bank was organized under the law of Indiana in 1910. At December 31, 1997, German American Bank was the second largest of the six commercial banks with offices in Dubois County, Indiana, in terms of total assets and total deposits. German American Bank conducts its banking operations from its principal banking office in Jasper, Indiana, and from seven branch office locations throughout Dubois County. Peoples, organized under the National Bank Act in 1888, was acquired by the Company on March 4, 1997 pursuant to a merger of the parent corporation of Peoples into GAHC. Simultaneously with and as an integral part of this merger, The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged with and into Peoples. Peoples, at December 31, 1997, ranked second in asset size among the five commercial banks and thrifts headquartered in Martin and Daviess Counties, Indiana. The Union Bank had been acquired by the Registrant on March 8, 1993. On April 1, 1993, the Registrant purchased all the shares of Winslow Bancorporation, Winslow, Indiana, (which was in 1996 renamed German American Holdings Corporation), and its subsidiary Southwestern Indiana Bank in a cash transaction. On April 1, 1994, the Registrant issued 113,286 shares in exchange for all the outstanding shares of The Otwell State Bank. Following the completion of this transaction, Otwell and Southwestern were merged into Community Trust Bank, a combined banking institution operating in the Pike County, Indiana market through three offices. On October 28, 1994, the Registrant acquired three branches of Regional Federal Savings Bank of New Albany, Indiana. The Huntingburg, Indiana branch was combined with an existing branch of the Registrant's lead bank, German American Bank. The other two former branches in Tell City and Rockport, Indiana were acquired by a new subsidiary bank of the Registrant named First State Bank, Southwest, Indiana. Each of the Company's subsidiary banks engages in a wide range of commercial and personal banking services, and German American Bank and Peoples provide a wide range of personal and corporate trust-related services. In addition, several of the Company's subsidiary banks provide investment services through a full-service brokerage operation. The Company and its subsidiary banks operate primarily in the banking industry, which accounts for over ninety percent (90%) of the Company's consolidated revenues, operating income and identifiable assets. Through its banking subsidiaries, the Company generates commercial, installment and mortgage loans and receives deposits from customers located primarily in the local market area. The overall loan portfolio is diversified among a variety of individual borrowers; however, a significant portion of such debtors depend upon the agriculture, poultry and wood furniture manufacturing industries for employment. Although wood manufacturers employ a significant number of people in the Company's market area, the Company does not have a concentration of credit to companies engaged in that industry. The majority of the Company's loans are secured by specific items of collateral including business assets, consumer assets and real property.
Additional information regarding the Company and its subsidiaries is included in the Company's Annual Report to Shareholders for 1997, selected portions of which are filed as Exhibit 13 to this Annual Report on Form 10-K (the "Shareholders' Report") and are incorporated herein by reference. Competition The banking business is highly competitive. The Company's subsidiary banks compete not only with financial institutions that have offices in the same counties but also compete with financial institutions that are located in other neighboring areas in obtaining deposits, making loans and providing many other types of financial services. The banking market in which the Company's banking subsidiaries operate is heavily influenced by larger financial institutions located in Evansville and Indianapolis, Indiana, Louisville, Kentucky and other cities. In addition to other commercial banks, the Company's subsidiary banks compete with savings and loan associations, savings banks, credit unions, production credit associations, federal land banks, finance companies, credit card companies, personal loan companies, money market funds, mortgage companies and other non-depository financial intermediaries. Recent changes in federal and state law have resulted in and are expected to continue to result in increased competition. The reductions in legal barriers to the acquisition of banks by out-of-state bank holding companies resulting from implementation of the Riegle-Neal Interstate Banking And Branching Efficiency Act of 1994 and other recent and proposed changes are expected to continue to further stimulate competition in the markets in which the Banks operate, although it is not possible to predict the extent or timing of such increased competition. Employees At January 31, 1998 the Company and its subsidiaries employed approximately 216 employees. There are no collective bargaining agreements, and employee relations are considered to be good. Regulation and Supervision The Company is subject to the Bank Holding Company Act of 1956, as amended ("BHC Act"), and is required to file with the Board of Governors of the Federal Reserve System ("FRB") annual reports and such additional information as the FRB may require. The FRB may also make examinations or inspections of the Company. The BHC Act prohibits a bank holding company from engaging in, or acquiring direct or indirect control of more than 5 percent of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities deemed by the FRB to be "closely related to banking." Under current regulations, bank holding companies and their subsidiaries are permitted to engage in such banking-related business ventures as sales and consumer finance, equipment leasing, computer service bureau and software operations, and mortgage banking. The BHC Act and Indiana law restrict banking expansion by banks and bank holding companies. Under current Indiana law, Indiana banks may establish an unlimited number of branches anywhere within the State of Indiana. A holding company may establish non-banking offices without geographical limitation. Under the BHC Act, the Company must receive the prior written approval of the FRB or its delegate before it may acquire ownership or control of more than 5 percent of the voting shares of another bank, and under Indiana law it may not acquire 25 percent or more of the voting shares of another bank without the prior approval of the Indiana Department of Financial Institutions ("DFI"). The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") provides for nationwide interstate banking and branching. Since September 30, 1995, well-capitalized bank holding companies have been authorized, pursuant to the legislation, to acquire banks and bank holding companies in any state. The Interstate Act also permits banks to merge across state lines, thereby creating a main bank in one state with branches in other states. Interstate branching-by-merger provisions became effective on June 1, 1997, unless a state took legislative action prior to that date. Effective March 14, 1996, Indiana "opted-in" to the interstate branching provisions of the Interstate Act. The Company's subsidiary banks are under the supervision of and subject to examination by the Indiana Department of Financial Institutions, the Office of Comptroller of Currency and the Federal Deposit Insurance Corporation ("FDIC"). Regulation and examination by banking regulatory agencies are primarily for the benefit of depositors rather than shareholders.
The earnings of commercial banks and their holding companies are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open-market operations in U.S. Government securities, varying the discount rate on bank borrowings, and setting reserve requirements against bank deposits. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits, and affect interest rates charged on loans and earned on investments or paid for time and savings deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future. The general effect, if any, of such policies upon the future business and earnings of the Company cannot accurately be predicted. The Company is required by the FRB and the FDIC to maintain minimum levels of capital. These required capital levels are expressed in terms of capital ratios, known as the leverage ratio and the capital to risk-based assets ratios. The Company significantly exceeds the minimum required capital levels for each measure of capital adequacy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Capital Resources," included in the Shareholders' Report. Also, FDIC regulations define five categories of financial institutions for purposes of implementing prompt corrective action and supervisory enforcement requirements of the Federal Deposit Insurance Corporation Improvements Act of 1991. The category to which the most highly capitalized institutions are assigned is termed "Well Capitalized." Institutions falling into this category must have a total risk-based capital ratio (the ratio of total capital to risk-weighted assets) of at least 10%, a Tier 1 risk-based capital ratio (the ratio of Tier 1, or "core", capital to risk-weighted assets) of at least 6%, a leverage ratio (the ratio of Tier 1 capital to total assets) of at least 5%, and must not be subject to any written agreement, order or directive from its regulator relative to meeting and maintaining a specific capital level. On December 31, 1997, the Company had a total risk-based capital ratio of 16.51%, a Tier 1 risk-based capital ratio of 15.24% (based on Tier 1 capital of $50,874,000 and total risk-weighted assets of $333,796,000), and a leverage ratio of 10.48%. The Company meets all of the requirements of the "Well Capitalized" category and, accordingly, the Company does not expect these regulations to significantly impact operations.
Statistical Disclosures The following statistical data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7), Selected Financial Data (Item 6), and the financial statements and notes (Item 8) included elsewhere herein through incorporation by reference to the indicated pages of the Shareholders' Report. Securities (in thousands) The following tables set forth the carrying amount of Securities at the dates indicated: <TABLE> December 31, 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> Securities Held-to-Maturity: U.S. Treasury and other U.S. Government Agencies and Corporations $1,500 $2,519 $5,037 State and Political Subdivisions 20,154 18,253 14,472 Mortgage-backed Securities 695 999 1,435 Corporate Securities 111 47 --- Other Securities 1,763 1,395 1,119 ----- ----- ----- Subtotal of Securities Held-to-Maturity $24,223 $23,213 $22,063 ======= ======= ======= Securities Available-for-Sale: U.S. Treasury and other U.S. Government Agencies and Corporations $57,815 $47,041 $31,719 State and Political Subdivisions 21,620 20,186 17,558 Mortgage-backed Securities 15,661 24,078 37,060 Corporate Securities 4,529 7,245 6,463 Other Securities 14 7 87 -- - -- Subtotal of Securities Available-for-Sale 99,639 98,557 92,887 ------ ------ ------- Total Securities $123,862 $121,770 $114,950 ======== ======== ======== </TABLE>
Statistical Disclosures (continued) The following table sets forth the contractual maturities of securities at December 31, 1997 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the maturity of each security.) Contractual maturities may differ from actual due to rights to prepay or call. Other securities totaling $1,764 are comprised of restricted stock which do not have contractual maturities and are excluded from the table below. <TABLE> Maturing --------- Within After One But After Five But After Ten One Year Within Five Years Within Ten Years Years --------- ------------------ ----------------- --------- Amount Yield Amount Yield Amount Yield Amount Yield ------- ------- -------- ------- -------- ------- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> U.S. Treasury and other Government Agencies and Corporations $11,498 5.45% $22,996 6.30% $24,801 6.87% --- --- State and Political Subdivisions 2,147 9.01% 10,250 9.16% 6,973 9.77% $21,182 9.21% Mortgage-backed Securities 85 5.00% 2,586 6.76% 3,241 5.94% 10,451 6.27% Corporate Securities 264 6.41% 1,585 7.55% 1,052 7.97% 1,738 7.02% --- ----- ----- ----- Totals $13,994 6.01% $37,417 7.17% $36,067 7.38% $33,371 8.18% ======= ======= ======= ======= </TABLE> A tax-equivalent adjustment using a tax rate of 34 percent was used in the above table.
Statistical Disclosures (continued) The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates: <TABLE> (dollar references in thousands) 1997 compared to 1996 1996 compared to 1995 --------------------- --------------------- Increase / (Decrease) Due to (1) Increase / (Decrease) Due to (1) -------------------------------- --------------------------------- Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- <S> <C> <C> <C> <C> <C> <C> Interest Income: Federal Funds Sold $(92) $31 $(61) (103) (69) (172) Short-term Investments (114) 5 (109) (504) (63) (567) Taxable Securities 151 381 532 241 147 388 Nontaxable Securities (2) 374 (8) 366 547 (173) 374 Loans and Leases (3) 1,481 (11) 1,470 1,931 (274) 1,657 ------ ----- ------ ------ ----- ------ Total Interest Income 1,800 398 2,198 2,112 (432) 1,680 ----- ----- ------ ------ ----- ------ Interest Paid: Savings 7 94 101 163 (149) 14 Time Deposits 1,003 (62) 941 537 477 1,014 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase (51) (22) (73) (113) (78) (191) Demand Notes Issued to the U.S. Treasury (58) 18 (40) (61) (15) (76) Notes Payable (121) 30 (91) (16) (11) (27) ------- ---- ---- ---- --- ----- Total Interest Expense 780 58 838 510 224 734 ------ ---- --- --- --- ---- Net Interest Earnings $1,020 $340 $1,360 1,602 (656) 946 ======= ==== ====== ===== ===== ===== </TABLE> (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (2) Change in interest income include the effect of tax equivalent adjustments using a tax rate of 34 percent for all years presented. (3) Interest income on loans includes loan fees of $458, $516, and $339 for 1997, 1996, and 1995, respectively.
Statistical Disclosures (continued) The following is a schedule of loans by major category for each reported period: <TABLE> December 31, (dollar references in thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Real Estate Loans Secured by 1-4 Family Residential Properties $107,943 $93,713 $85,543 $82,810 $69,088 Loans to Finance Agricultural Production, Poultry and Other Loans to Farmers 53,110 57,073 61,251 67,162 75,556 Commercial and Industrial Loans 106,843 110,894 98,563 90,346 69,910 Loans to Individuals for Household, Family and Other Personal Expenditures 61,297 50,200 41,944 35,124 32,154 Economic Development Commission Bonds 500 575 608 625 762 Lease Financings 1,045 1,279 2,167 2,603 3,216 ----- ----- ----- ----- ----- Total Loans $330,738 $313,734 $290,076 $278,670 $250,686 ======== ======== ======== ======== ======== </TABLE> The following table indicates the amounts of loans (excluding residential mortgages on 1-4 family residences, installment loans and lease financing) outstanding as of December 31, 1997 which, based on remaining scheduled repayments of principal, are due in the periods indicated. <TABLE> Maturing (dollar references in thousands) -------------------------------- Within After One After One But Within Five Year Five Years Years Total <S> <C> <C> <C> <C> Commercial, Agricultural and Poultry $46,170 $30,674 $83,609 $160,453 </TABLE> <TABLE> Interest Sensitivity Fixed Variable Rate Rate ---- ---- <S> <C> <C> Loans maturing after one year $29,506 $84,777 </TABLE>
Statistical Disclosures (continued) The Provision for Loan Losses provides a reserve (the Allowance for Loan Losses) to which loan losses are charged as those losses become identifiable. Management determines the appropriate level of the Allowance for Loan Losses on a quarterly basis through an independent review by the Bank's credit review section done by employees who have no direct lending responsibilities. Through this review, all commercial loans with outstanding balances in excess of $25,000 are analyzed with particular attention paid to those loans which are considered by management to have an above-average level of risk. This analysis is evaluated by Senior Management and serves as the basis for determining the adequacy of the Allowance for Loan Losses. Through this review process a specific portion of the reserve is allocated to impaired loans and to those loans which are considered to represent significant exposure to risk, and estimated potential losses are provided based on historic loan loss experience for consumer loans, residential mortgage loans, and commercial loans not specifically reviewed. In addition, a balance of the reserve is unallocated to provide an allowance for risk, such as concentrations of credit to specific industry groups, which are difficult to quantify in an absolute dollar amount. The following table presents information concerning the aggregate amount of underperforming assets. Underperforming loans comprise: (a) loans accounted for on a nonaccrual basis ("nonaccrual loans"); (b) loans contractually past due 90 days or more as to interest or principal payments (but not included in the loans in (a) above) ("past due loans"); and (c) loans not included above which are "troubled debt restructuring" as defined in Statement of Financial Standards No. 15 "FASB 15", "Accounting by Debtors and Creditors for Troubled Debt Restructuring" ("restructured loans"). <TABLE> December 31, (dollar references in thousands) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Nonaccrual Loans $562 $1,370 $1,093 $1,305 $1,400 Past Due Loans 2,710 1,102 2,689 639 461 Restructured Loans --- --- 122 26 --- --- --- --- -- --- Total Underperforming Loans 3,272 2,472 3,904 1,970 1,861 Other Real Estate 146 203 286 497 698 --- --- --- --- --- Total Underperforming Assets $3,418 $2,675 $4,190 $2,467 $2,559 ====== ====== ====== ====== ====== </TABLE> Loans are placed on nonaccrual status when scheduled principal or interest payments are past due for 90 days or more, unless the loan is well secured and in the process of collection. The gross interest income that would have been recognized in 1997 on underperforming loans if the loans had been current in accordance with their original terms is $284. Interest income recognized on underperforming loans for 1997 was $231. Statements of Financial Accounting Standards No. 114 and No. 118 were adopted January 1, 1995. These standards require recognition of loan impairment if a loan's full principal or interest payments are not expected to be received. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. No increase to the allowance for loan losses was required at January 1, 1995 as a result of the adoption of these new standards. The total dollar amount of impaired loans at December 31, 1997 was $2,272,000. For additional detail on impaired loans, see Note 3 of the consolidated financial statements included in the Shareholders' Report (Exhibit 13.4). At December 31, 1997, the Company had a total of $9,790,000 of loans on its commercial loan watch list. All loans on the watch list that are on non-accrual or are past due 90 days or more are included in the table above. Loans may be placed on the watch list as a result of delinquent status, concern about the borrower's financial condition or the value of the collateral securing the loan, substandard classification during regulatory examinations or simply as a result of management's desire to monitor more closely a borrower's financial condition and performance.
It is management's belief that loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that are not included in the table and discussion above, do not represent or result from trends or uncertainties which will have a material impact on future operating results, liquidity or capital resources. At December 31, 1997 there were no material credits not already disclosed as underperforming, impaired and as watch list about which management is aware of possible credit problems of borrowers which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. This paragraph includes forward-looking statements that are based on management's assumptions concerning future economic and business conditions as they affect the local economy in general and the Company's borrowers in particular, which economic and business assumptions are inherently uncertain and subject to risk and may prove to be invalid. Readers are also cautioned that management relies upon the truthfulness of statements made by the borrowers, and that misrepresentation by borrowers is an inherent risk of the activity of lending money that could cause these forward-looking statements to be inaccurate.
Statistical Disclosures (continued) Summary of Loan Loss Experience (in thousands) The following table summarizes changes in the allowance for loan losses arising from loans charged-off and recoveries on loans previously charged-off, by loan category, and additions to the allowance which have been charged to expense. <TABLE> Year Ended December 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Balance of allowance for possible losses at beginning of period $6,528 $6,893 $6,602 $5,745 $4,496 Addition of Affiliate Banks --- --- --- 195 164 Loans charged-off: Real Estate Loans Secured by 1-4 Family Residential Properties 41 11 221 101 --- Loans to Finance Agricultural Production, Poultry and Other Loans to Farmers --- 286 --- --- 12 Commercial and Industrial Loans 316 372 52 99 378 Loans to Individuals for Household, Family and Other Personal Expenditures 242 205 122 65 69 Economic Development Bonds --- --- --- --- --- Term Federal Funds Sold --- --- --- --- --- --- --- --- --- --- Total Loans charged-off 599 874 395 265 459 --- --- --- --- --- Recoveries of previously charged-off Loans: Real Estate Loans Secured by 1-4 Family Residential Properties --- 14 6 6 14 Loans to Finance Agricultural Production, Poultry and Other Loans to Farmers 25 125 538 --- 514 Commercial and Industrial Loans 648 118 61 187 162 Loans to Individuals for Household, Family and Other Personal Expenditures 61 42 32 47 57 Economic Development Commission Bonds --- --- --- --- -- Term Federal Funds Sold --- --- --- --- --- --- --- --- --- --- Total Recoveries 734 299 637 240 747 --- --- --- --- --- Net Loans recovered / (charged-off) 135 (575) 242 (25) 288 --- ----- --- ---- --- Additions to allowance charged to expense (408) 210 49 687 797 ----- --- -- --- --- Balance at end of period $6,255 $6,528 $6,893 $6,602 $5,745 ====== ====== ====== ====== ====== Ratio of net recoveries / (charge-offs) during the period to average loans outstanding .04% (.19)% .08% (.01)% .12% ==== ====== ==== ====== ==== </TABLE>
Statistical Disclosures (continued) The following table indicates the breakdown of the allowance for loan losses for the periods indicated: <TABLE> (dollar references in thousands) December 31, December 31, December 31, 1997 1996 1995 ---- ---- ---- Allowance Ratio of Allowance Ratio of Allowance Ratio of Loans to Loans to Loans to Total Total Total Loans Loans Loans --------- -------- --------- -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> Residential Real Estate $270 32.64% $311 29.87% $202 29.49% Agricultural Loans 858 16.06% 1,250 18.19% 2,616 21.12% Commercial and Industrial Loans 2,394 32.62% 2,369 35.76% 2,067 34.72% Loans to Individuals 176 18.53% 303 16.00% 263 14.46% Economic Development Commission Bonds --- 0.15% --- 0.18% --- 0.21% Term Federal Funds Sold --- --- --- --- --- --- Unallocated 2,557 N/A 2,295 N/A 1,745 N/A ----- ----- ----- Totals $6,255 100.00% $6,528 100.00% $6,893 100.00% ====== ====== ====== </TABLE> <TABLE> (dollar references in thousands) December 31, December 31, 1994 1993 ---- ---- Allowance Ratio of Allowance Ratio of Loans to Loans to Total Total Loans Loans -------- -------- ---------- ------- <S> <C> <C> <C> <C> Residential Real Estate $186 29.72% $118 27.56% Agricultural Loans 2,172 24.10% 1,083 25.52% Commercial and Industrial Loans 1,283 33.36% 1,113 33.79% Loans to Individuals 218 12.60% 230 12.83% Economic Development Commission Bonds --- 0.22% --- .30% Term Federal Funds Sold --- --- --- --- Unallocated 2,743 N/A 3,201 N/A ----- ----- Totals $6,602 100.00% $5,745 100.00% ====== ====== </TABLE>
Statistical Disclosures (continued) The average amount of deposits is summarized for the periods indicated in the following table: <TABLE> (dollar references in thousands) December 31, 1997 1996 1995 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate ------- ---- ------- ---- ------- ---- <S> <C> <C> <C> <C> <C> <C> Demand Deposits Non-interest Bearing $47,335 --- $45,242 --- $40,200 --- Interest Bearing 52,000 2.04% 52,165 2.16% 53,907 2.27% Savings Deposits 74,861 3.23% 74,428 3.02% 66,696 3.20% Time Deposits 251,044 5.48% 232,729 5.50% 222,779 5.29% ------- ------- ------- Totals $425,240 4.05% $404,564 4.37% $383,582 4.24% ======== ======== ======== </TABLE> Maturities of time certificates of deposit of $100,000 or more are summarized as follows: December 31, 1997 (in thousands) 3 months or less $9,642 Over 3 through 6 months 8,950 Over 6 through 12 months 2,941 Over 12 months 4,128 ----- Total $25,661 ======= Return on Equity and Assets The ratio of net income to average shareholders' equity and to average total assets, and certain other ratios, are as follows: <TABLE> Year Ended December 31, 1997 1996 1995 ---- ---- ---- <S> <C> <C> <C> Percentage of Net Income to: Average Shareholders' Equity 12.13% 10.43% 11.32% Average Total Assets 1.26% 1.05% 1.09% Percentage of Dividends Declared per Common Share to Net Income per Common Share (1) 37.39% 42.39% 39.56% Percentage of Average Shareholders' Equity to Average Total Assets 10.39% 10.07% 9.63% </TABLE> (1) Based on historical dividends declared by German American Bancorp without restatement for pooling.
Forward-Looking Statements This Form 10-K and future filings made by the Company with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by the Company and the Banks, and oral statements made by executive officers of the Company and the Banks, may include forward-looking statements relating to such matters as (a) assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which the Banks do business, (b) expectations regarding revenues, expenses, and earnings for the Company and the Banks, (c) the impact of future or pending acquisitions, (d) deposit and loan volume, and (e) new products or services. Such forward-looking statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk. To comply with the terms of a "safe harbor" provided by the Private Securities Litigation Reform Act of 1995 that protects the making of such forward-looking statements from liability under certain circumstances, the Company notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements. These risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: (a) the risk of adverse changes in business and economic conditions generally and in the specific markets in which the Banks operate which might adversely affect credit quality and deposit and loan activity; (b) the risk of rapid increases or decreases in interest rates, which could adversely affect the Company's net interest margin if changes in its cost of funds do not correspond to the changes in income yields; (c) possible changes in the legislative and regulatory environment that might negatively impact the Company and the Banks through increased operating expenses or restrictions on authorized activities; (d) the possibility of increased competition from other financial and non-financial institutions; (e) the risk that borrowers may misrepresent information to management of the Banks, leading to loan losses, which is an inherent risk of the activity of lending money; and (f) the risk that banks that the Company may acquire in the future may be subject to undisclosed asset quality problems, contingent liabilities or other unanticipated problems; and (g) other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Corporation and the Banks do not undertake any obligation to update or revise any forward-looking statements subsequent to the date on which they are made. Item 2. Properties. German American Bank conducts its operations from its main office building at 711 Main Street, in Jasper, Indiana. The main office building is owned by German American and contains approximately 23,600 square feet of office space. There is no indebtedness on such property on which German American Bank's main office is located. German American Bank has seven branches, three of which are located in Jasper, and one each in the Dubois County towns of Huntingburg, Ferdinand, Dubois and Ireland. Of these branch facilities, five are owned by German American Bank and two are leased. Peoples operates from its main office in Washington, Indiana, which contains approximately 22,500 square feet, and three branch offices, all of which (except for one leased branch) are owned by Peoples, plus its Union Banking Division facilities. The office of the Union Banking Division of Peoples in Loogootee, Indiana, contains approximately 12,000 square feet of space. The facility was constructed in 1988 and is owned by Peoples. Community Bank conducts its operations from three locations, all of which are owned by Community Bank. Community Bank's principal banking office is located in Otwell, Indiana, in a building containing approximately 2,850 square feet. First State Bank's main office facility, located in Tell City, Indiana, constructed in 1981, contains approximately 13,900 square feet. First State has three branches, two of which are located in Tell City and one in Rockport, Indiana. Of these branch facilities, two are owned by First State, with one being leased. Item 3. Legal Proceedings. There are no pending legal proceedings, other than routine litigation incidental to the business of the Company's subsidiary banks, of a material nature in which the Company or any of its subsidiaries is involved. Item 4. Submission of Matters to a Vote of Security Holders. There was no matter submitted during the fourth quarter of 1996 to a vote of security holders, by solicitation of proxies or otherwise.
Special Item. Executive Officers of the Registrant. <TABLE> NAME AGE TITLE AND FIVE YEAR HISTORY ---- ----- ---------------------------- <S> <C> <C> George W. Astrike (62) Chairman and CEO of the Company since 1995; Chairman and President /CEO prior thereto. Chairman of German American Bank since 1995; Chairman and President prior thereto. Director of each of the other Banks since acquisition by the Company. Mark A. Schroeder (44) President / Chief Operating Officer of the Company since 1995; Vice President / Chief Financial Officer prior thereto. Director of each of the other Banks since acquisition by the Company. Richard E. Trent (39) Vice President / Chief Financial Officer of the Company since December, 1997; Vice President, Budgets & Financial Analysis of CNB Bancshares from January, 1997; Manager of Finance and Planning, Wells Fargo Bank from August, 1996; Various financial officer capacities within American General Finance, Inc. and Subsidiaries prior thereto. Urban Giesler (60) Treasurer and Secretary of the Corporation; Senior Vice President - Personal Banking of German American Bank since January, 1993; Senior Vice President - Retail Lending of German American Bank prior thereto. John M. Gutgsell (42) Vice President and Controller of the Company since 1995; Vice President and Controller of German American Bank prior thereto. Stan J. Ruhe (46) Executive Vice President - Credit Administration of the Company since 1995. Executive Vice President of German American Bank since 1995; Senior Vice President - Credit Administration prior thereto. James E. Essany (43) Senior Vice President - Marketing of the Company since 1995; Senior Vice President - Operations / Administration of German American Bank prior thereto. </TABLE> There are no family relationships between any of the officers of the Corporation. All officers are elected for a term of one year.
PART II The information in Part II of this report is incorporated by reference to the indicated sections of the Registrant's annual report to shareholders for the fiscal year ended December 31, 1997 ("Shareholders' Report"). Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. See "Market and Dividend Information" on page 38 of the Shareholders' Report which is filed as Exhibit 13.1 to this report and is incorporated herein by reference. Item 6. Selected Financial Data. See "Five Year Summary of Consolidated Financial Statements and Related Statistics" on page 1 of the Shareholders' Report which is filed as Exhibit 13.2 to this report and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 2 through 15 of the Shareholders' Report which is filed as Exhibit 13.3 to this report and is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committees and Boards of Directors of the holding company and its affiliate banks. Primary market risks which impact the Company's operations are interest rate risk and liquidity risk. Management's approach to monitoring and mitigating these risks are explained in detail in the Risk Management section of Management's Discussion and Analysis in the Company's Annual Report. The following table sets forth the expected maturities of interest sensitive assets and liabilities as of December 31, 1997. However, from a risk management perspective, the Company believes that a repricing schedule of interest sensitive assets and liabilities may be more relevant in analyzing the value of such instruments. The information presented is subject to various limitations. Certain assets and liabilities in the same expected maturity period may react at different times and/or in differing degrees from the amounts shown during a given change in market interest rates. Certain assets, such as adjustable rate mortgages, have features that restrict changes in interest rates on a short-term basis, and over the life of the loans. In addition, repricing of certain categories of assets and liabilities are subject to competitive and other pressures beyond the Company's control. As a result, assets and liabilities in a given maturity period may in fact mature in different periods and in differing amounts than indicated in the accompanying table. The information presented also includes various assumptions. With regard to investment securities, it is assumed that callable securities mature at the first call date. The schedule of maturities of non-callable asset-backed and mortgage-backed securities is based on composite national prepayment estimates. The investment portfolio also includes restricted stock, which does not have a contractual maturity. Loan maturities are based on scheduled contractual payments, with no estimation for prepayments. Given the Company's demonstrated ability to attract and retain core deposits, no decay rates are assumed in the deposit portfolio. The Company's money market securities and short-term borrowings at December 31, 1997 consisted principally of overnight investments and repurchase agreements.
SCHEDULE OF ESTIMATED CONTRACTUAL MATURITIES as of December 31, 1997 <TABLE> Fair Less than 1-2 2-3 3-4 4-5 More than Market 1 Year Years Years Years Years 5 Years Total Value -------- ------- ----- ----- ----- --------- ----- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> EARNING ASSETS Federal Funds Sold and Other Short-term Investments $ 12,000 $ --- $ --- $ --- $ --- $ --- $ 12,000 $ 12,000 Investment Securities: Adjustable Rate 3,301 872 760 343 323 1,488 7,087 7,080 Fixed Rate 56,042 15,830 5,913 4,786 2,070 32,134 116,775 117,813 Loans (net of unearned): Adjustable Rate 51,427 14,975 14,657 13,067 12,213 100,588 206,927 209,929 Fixed Rate 45,235 19,296 15,552 9,528 5,788 28,143 123,542 123,542 ------ ------ ------ ------ ------ ------- ------- -------- TOTAL EARNING ASSETS $168,005 $ 50,973 $ 36,882 $ 27,724 $ 20,394 $ 162,353 $ 466,331 $ 470,364 ======== ======== ======== ======== ======== ========= ========= ======== INTEREST-BEARNING LIABILITIES Deposits: Adjustable Rate $ 56,528 $ 734 $ --- $ --- $ --- $ --- $ 57,262 $ 57,262 Fixed Rate 166,785 56,606 15,205 5,861 5,447 72,548 322,452 324,508 Short-term Borrowings 4,933 --- --- --- --- --- 4,933 4,933 ----- ------ ------ ------ ----- ------ -------- ------- TOTAL INTEREST BEARING LIABILITIES $228,246 $ 57,340 $ 15,205 $ 5,861 $ 5,447 $ 72,548 $ 384,647 $ 386,703 ======== ======== ======== ======= ======= ========= ========= ========= </TABLE> YEILDS AND RATES BY ESTIMATED CONTRACTUAL MATURITIES as of December 31, 1997 <TABLE> Less than 1-2 2-3 3-4 4-5 More than 1 Year Years Years Years Years 5 Years Total ------- ----- ----- ----- ----- -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> EARNING ASSETS Federal Funds Sold and Other Short-term Investments 5.84% --- --- --- --- --- 5.84% Investment Securities: Adjustable Rate 4.71 6.15% 5.29% 5.62% 5.59% 5.96% 5.35 Fixed Rate 6.58 6.59 7.31 7.74 8.97 8.49 7.23 Loans (net of unearned): Adjustable Rate 9.08 8.97 8.95 8.91 8.89 8.56 8.79 Fixed Rate 9.07 9.16 9.07 8.96 8.87 8.85 9.02 ---- ---- ----- ----- ---- ----- ----- TOTAL EARNING ASSETS 7.93% 8.25% 8.66% 8.68% 8.84% 8.57% 8.33% ===== ====== ===== ===== ===== ===== ===== INTEREST-BEARNING LIABILITIES Deposits: Adjustable Rate 4.11% 5.25% --- --- --- --- 4.13% Fixed Rate 5.45 5.74 6.04% 5.58% 5.84% 2.11% 4.79 Short-term Borrowings 4.05 --- --- --- --- --- 4.05 ----- ----- ----- ----- ---- ----- ---- TOTAL INTEREST BEARING LIABILITIES 5.09% 5.67% 6.04% 5.58% 5.84% 2.11% 4.67% ===== ====== ===== ===== ===== ====== ==== </TABLE> See also "Interest Rate Risk Management" in Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 14 through 15 of the Shareholders' Report filed as Exhibit 13.3 to this report and is incorporated by reference.
Item 8. Financial Statements and Supplementary Data. The financial statements of the Company and related notes on pages 16 through 36 of the Shareholders' Report and the Auditors' Report thereon on page 37 of the Shareholders' Report which are filed as Exhibit 13.4 to this report, are incorporated herein by reference. The Interim Financial Data on page 3 of the Shareholders' Report, which is included as Table 1 of "Management's Discussion and Analysis of Financial Condition and Results of Operations" filed as Exhibit 13.3 to this report, is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable.
PART III Item 10. Directors and Executive Officers of the Registrant. Information relating to Directors of the Corporation will be included under the caption "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 1997 which will be filed with the Commission within 120 days of the end of the fiscal year covered by this Report (the "1997 Proxy Statement"), which section is incorporated herein by reference in partial answer to this Item. Information relating to Executive Officers of the Corporation is included under the caption "Executive Officers of the Registrant" under Part I of this Report on Form 10-K. Item 11. Executive Compensation. Information relating to compensation of the Corporation's Executive Officers and Directors will be included under the captions "Executive Compensation" and "Election of Directors -- Compensation of Directors" in the 1998 Proxy Statement of the Corporation, which sections are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information relating to security ownership of certain beneficial owners and management of the Corporation will be included under the captions "Election of Directors" and "Principal Owners of Common Shares" of the 1998 Proxy Statement of the Corporation, which sections are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. Information responsive to this Item 13 will be included under the captions "Executive Compensation - Certain Business Relationships and Transactions" and "Executive Compensation - Compensation Committee Interlocks and Insider Participation" of the 1998 Proxy Statement of the Corporation, which sections are incorporated herein by reference.
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a) The following 1997, 1996, and 1995 consolidated financial statements of the Corporation, and the Auditors' Report thereon, included on pages 16 through 37 of the Shareholders' Reports, are incorporated into Item 8 of this report by reference. Location in 1. Financial Statements Shareholders' Report German American Bancorp and Subsidiaries Consolidated Balance Sheets at December 31, 1997 and December 31, 1996 Page 16 Consolidated Statements of Income, years ended December 31, 1997, 1996, and 1995 Page 17 Consolidated Statements of Cash Flows, years ended December 31, 1997, 1996, and 1995 Page 18 Consolidated Statements of Changes in Shareholders' Equity, years ended December 31, 1997, 1996, and 1995 Page 19 Notes to the Consolidated Financial Statements Pages 20 - 36 Independent Auditors' Report Page 37 2. Other financial statements and schedules are omitted because they are not required or because the required information is included in the consolidated financial statements or related notes. b) Reports on Form 8-K The following Report on Form 8-K was filed by the Registrant during the quarter ended December 31, 1997: <TABLE> Date Items Description ---- ------- ------------- <S> <C> <C> 11/12/97 5 & 7 Reported agreements to acquire CSB Bancorp and FSB Financial Corporation. </TABLE> c) Exhibits: The Exhibits described in the Exhibit List immediately following the "Signatures" page of this report (which is incorporated herein by reference) are hereby filed as part of this report.
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. GERMAN AMERICAN BANCORP (Registrant) Date: March 30, 1998 By/s/George W. Astrike George W. Astrike, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 30, 1998 By/s/George W. Astrike George W. Astrike, Chairman of the Board and Director (Chief Executive Officer) Date: March 30, 1998 By/s/Mark A. Schroeder Mark A. Schroeder, President and Director (Chief Operating Officer) Date: March 30, 1998 By/s/David G. Buehler David G. Buehler, Director Date: March __, 1998 _______________________________ Michael B. Lett, Director Date: March __, 1998 _______________________________ Gene C. Mehne, Director Date: March 30, 1998 By/s/Robert L. Ruckriegel Robert L. Ruckriegel, Director Date: March 30, 1998 By/s/William R. Hoffman William R. Hoffman, Director Date: March 30, 1998 By/s/Joseph F. Steurer Joseph F. Steurer, Director Date: March 30, 1998 By/s/A.W. Place Jr. A. W. Place Jr., Director Date: March 30, 1998 By/s/Larry J. Seger Larry J. Seger, Director Date: March __, 1998 _______________________________ C.L. Thompson, Director Date: March __, 1998 _______________________________ David B. Graham, Director Date: March 30, 1998 By/s/John M. Gutgsell John M. Gutgsell, Controller (Principal Accounting Officer)
Executive Compensation Plans and Exhibit Arrangements* Number Exhibit List 2.1 Agreement of Merger dated December 8, 1997, among the Registrant, CSB Bancorp and the Citizens State Bank of Petersburg, as amended, is incorporated by reference from Appendix A to the CSB Bancorp and FSB Financial Corporation S-4. 2.2 Agreement of Merger dated January 30, 1998, among the Registrant, FSB Corporation and the FSB Bank of Francisco, as amended, is incorporated by reference from Appendix A to the CSB Bancorp and FSB Financial Corporation S-4. 3.1 Restated Articles of Incorporation of the Registrant as amended April 24, 1995 are Incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. 3.2 Restated Bylaws of the Registrant as amended August 14, 1990, are incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 1995. 10.1 Agreement and Plan of Reorganization by and among Peoples Bancorp of Washington, the Registrant, and certain affiliates, dated September 27, 1996, is incorporated by reference to Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.2 Sublease entered by and between Buehler Foods, Inc. and The German American Bank dated January 2, 1987 (Huntingburg Banking Center Branch) is incorporated by reference from Exhibit 10.5 to the Registrant's Registration Statement on Form S-4 filed February 28, 1994 (No. 33-75762.)
10.3 Sublease entered by and between Buehler Foods, Inc. and the Bank dated August 1, 1990 (The Crossing Shopping Center Branch) is incorporated by reference to Exhibit 10.12 of the Registrant's Report on Form 10-K for the year ended December 31, 1990. 10.4 Letter dated January 5, 1995 from the German American Bank to Buehler Foods, Inc. notifying Buehler Foods, Inc. of exercise of renewal option on The Crossing Shopping Center Branch is incorporated by reference to Exhibit 10.4 of the Registrant's Report on Form 10-K for the year ended December 31, 1994. X 10.5 The Company's 1992 Stock Option Plan is incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 filed January 21, 1993 (No. 33-55170) (the "Unibancorp S-4"). X 10.6 Schedule identifying material terms of options (including replacement options) granted to the Registrant's executive officers under the Registrant's 1992 Stock Option Plan. X 10.7 Executive Deferred Compensation Agreement dated December 1, 1992, between The German American Bank and George W. Astrike, is incorporated herein by reference from Exhibit 10.3 to the Unibancorp S-4. X 10.8 Director Deferred Compensation Agreement between The German American Bank and certain of its Directors, is incorporated herein by reference from Exhibit 10.4 to the Unibancorp S-4 (The Agreement entered into by George W. Astrike, a copy of which was filed as Exhibit 10.4 to the Unibancorp S-4, is substantially identical to the Agreements entered into by the other Directors.) The schedule following Exhibit 10.4 to the Unibancorp S-4 lists the Agreements with the other Directors and sets forth the material detail in which such Agreements differ from the Agreement filed as Exhibit 10.4 to the Unibancorp S-4. X 10.9 Sublease entered by and between Buehler Foods, Inc. and First State Bank, dated July 25, 1996 (Tell City Branch) is incorporated by reference to Exhibit 10.9 of the Registrant's Report on Form 10-K for the year ended December 31, 1996. 13.1 Market and Dividend Information (page 38) of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997. 13.2 Five Year Summary of Consolidated Financial Statements and Related Statistics (page 1) of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997. 13.3 Management's Discussion and Analysis of Financial Condition and Results of Operations (pages 2 through 15) of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997. 13.4 Consolidated financial statements and related notes (pages 16 through 36), Auditor's Report (page 37) of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997. 21 Subsidiaries of the Registrant. 23.1 Consent of Crowe, Chizek and Company LLP 23.2 Consent of Crowe, Chizek and Company LLP 27 Financial Data Schedule. *Exhibits that describe or evidence all management contracts or compensatory plans or arrangements required to be filed as exhibits to this Report are indicated by an "X" in this column.