GERMAN AMERICAN BANCORP INC
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
GABC$50.08-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0000714395-24-000028
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000714395-24-000036
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 111 previous paragraphs and 143 current paragraphs.
73 unchanged; 30 reworded; 36 added; 8 removed; 0 previous and 4 current paragraphs rearranged.
Tables are not compared: 10 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (36)
Current report
Net income for the three and six months ended June 30, 2024 was impacted by the Company’s sale of substantially all of the assets of its wholly-owned subsidiary, German American Insurance, Inc. (“GAI”), to Hilb Group, an industry-leading insurance broker. The all-cash sale price totaled $40.0 million, and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.
Current report
Net income for the three and six months ended June 30, 2024 was also impacted by a securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified in late June 2024 to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.
Current report
For further information regarding the insurance asset sale and the securities portfolio restructuring, see Note 3 and Note 5, respectfully, in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.
Current report
On July 29, 2024, the Company entered into an Agreement and Plan of Reorganization with Heartland BancCorp (“Heartland”), pursuant to which Heartland agreed to merge with and into the Company. The merger agreement also provides that Heartland’s wholly-owned banking subsidiary, Heartland Bank, will be merged with and into German American’s wholly-owned banking subsidiary, German American Bank, immediately following the holding company merger.
Current report
Under the terms of the merger agreement, each record holder of Heartland common stock (other than dissenting shares and shares held in the Heartland 401(k) plan) will receive, for each share of Heartland common stock, 3.90 shares of the Company’s common stock in a tax-free exchange. Heartland Bank, as the administrator and record holder of shares of Heartland common stock held in the Heartland 401(k) plan, will receive in exchange for each share of Heartland common stock held in such plan, on behalf of the beneficial owners of such shares, a cash payment based on the 3.90 exchange ratio. Any option to acquire a share of Heartland common stock outstanding at the closing of the merger will be cancelled in exchange for a cash cancellation payment based on the 3.90 exchange ratio, less the option exercise price per share and any applicable withholding taxes.
Current report
Based on the number of shares of Heartland common stock currently outstanding, the Company expects to issue approximately 7.66 million shares of its common stock, and pay approximately $25 million in cash (based upon a $39.84 per share volume-weighted average price for the Company’s common stock over the 10-day trading period ended July 26, 2024, the business day immediately preceding the date that the merger was announced), in exchange for all of the issued and outstanding shares of Heartland common stock (including the shares held in the Heartland 401(k) plan) and in cancellation of all outstanding options to acquire Heartland common stock.
Current report
Heartland is a financial holding company headquartered in Columbus, Ohio. As of June 30, 2024, Heartland Bank operated 20 full-service banking offices and had approximately $1.9 billion of total assets, $1.5 billion of total loans and $1.6 billion of total deposits. Giving effect to the merger today, the combined organization will have more than $8.1 billion in assets and a banking office network of almost 94 rural, suburban and urban locations across Southern Indiana, Central and Northern Kentucky and Central and Southwest Ohio.
Current report
Consummation of the merger is subject to approval by federal and state banking regulatory authorities, approval by the shareholders of both the Company and Heartland, and certain other closing conditions. Assuming such approvals are timely secured, the Company expects that the merger will be completed in the first quarter of 2025.
Current report
For further information regarding this pending acquisition, see Note 16 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.
Current report
Net income for the quarter ended June 30, 2024 totaled $20,530,000, or $0.69 per share, a decrease of 8% on a per share basis compared with the second quarter 2023 net income of $22,123,000, or $0.75 per share. Net income for the six months ended June 30, 2024 totaled $39,552,000, or $1.33 per share, a decrease of 8% on a per share basis compared with the six months ended June 30, 2023 net income of $42,930,000, or $1.45 per share. The decline in both periods was largely driven by a reduced net interest margin.
Current report
Net income for the three and six months ended June 30, 2024 was impacted by the previously discussed sale of substantially all of the assets of German American Insurance, Inc. to Hilb Group, an industry-leading insurance broker. The all-cash sale price totaled $40.0 million and resulted in an after-tax gain, net of transaction costs, of approximately $27,476,000, or $0.93 per share.
Current report
Net income for the three and six months ended June 30, 2024 was also impacted by the aforementioned securities portfolio restructuring transaction whereby available securities totaling approximately $375.3 million in book value were identified to be sold. The approximate loss on these securities totaled $34,893,000, $27,189,000 after tax, or $0.92 per share, and was included in earnings for the second quarter of 2024.
Current report
During the quarter ended June 30, 2024, non-interest income totaled $18,923,000, an increase of $4,027,000, or 27%, compared with the second quarter of 2023. The second quarter of 2024 non-interest income was positively impacted by approximately $38,323,000 related to the net proceeds of the sale of the GAI assets and negatively impacted by $34,893,000 related to the net loss recognized on the securities restructuring transaction.
Current report
(1) n/m = not meaningful
Current report
Insurance revenues declined $624,000, or 29%, during the quarter ended June 30, 2024, compared with the second quarter of 2023. The decline during the second quarter of 2024 compared with the second quarter of 2023 was the result of the sale of the assets of GAI effective June 1, 2024, with only two months of revenue being recognized by the Company during the second quarter of 2024.
Current report
As previously discussed, the second quarter of 2024 included the sale of substantially all of the assets of GAI which totaled $38,323,000 in net proceeds. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.
Current report
Net gains on sales of loans increased $339,000, or 54%, compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely related to a higher volume of sales. Loan sales totaled $33.0 million during the second quarter of 2024 compared with $24.8 million during the second quarter of 2023.
Current report
The net loss on securities during the second quarter of 2024 totaled $34,893,000 and was related to the net loss recognized on the securities restructuring transaction previously discussed.
Current report
During the six months ended June 30, 2024, non-interest income totaled $34,745,000, an increase of $4,882,000, or 16%, compared with the first six months of 2023. The first six months of 2024 non-interest income was positively impacted by the aforementioned net proceeds of the sale of the GAI assets totaling approximately $38,323,000 and negatively impacted by $34,893,000 related to the net loss recognized on the securities restructuring transaction.
Current report
(1) n/m = not meaningful
Current report
Wealth management fees increased $1,593,000, or 29%, during the first half of 2024 compared with the same period of 2023. The increase during the first half of 2024 was largely attributable to increased assets under management due to healthy capital markets and strong new business results as compared with the first half of 2023.
Current report
Insurance revenues declined $881,000, or 17%, during the first six months of 2024 compared with the same period of 2023. The decline during the first six months of 2024 compared with the same period of 2023 was the result of the sale of the assets of GAI effective June 1, 2024, with only five months of revenue being recognized by the Company during the first six months of 2024. In addition, insurance revenues in the first six months of 2024 was lower than the first six months of 2023 due to contingency revenue of $395,000 during the first half of 2024 compared with $955,000 during the first half of 2023.
Current report
The second quarter of 2024 includes $38,323,000 in net proceeds for the sale of the GAI assets. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.
Current report
As previously discussed, the first half of 2024 included the sale of substantially all of the assets of GAI which totaled $38,323,000 in net proceeds. For additional information on this sale, see Note 3 in the Notes to the Consolidated Financial Statements included in Item 1 of this Report.
Current report
The net loss on securities during the six months ended June 30, 2024 totaled $34,858,000 and was related to the net loss recognized on the securities restructuring transaction previously discussed.
Current report
During the quarter ended June 30, 2024, non-interest expense totaled $37,674,000, an increase of $1,948,000, or 5%, compared with the second quarter of 2023. The increase in non-interest expenses during the second quarter of 2024 was primarily the result of professional fees related to the GAI asset sale and the recently announced pending merger transaction with Heartland, which totaled approximately $1,904,000.
Current report
Data processing fees increased $216,000, or 8%, during the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely driven by costs associated with enhancements to the Company’s digital banking systems.
Current report
Professional fees increased $1,848,000, or 114%, in the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 compared with the second quarter of 2023 was largely attributable to the professional fees associated with the sale of assets of GAI and the recently announced pending merger transaction with Heartland totaling $1,904,000.
Current report
Advertising and promotion expense declined $352,000, or 28%, in the second quarter of 2024 compared with the second quarter of 2023. The decline during the second quarter of 2024 compared with the second quarter of 2023 was largely attributable to the timing of sponsorships and contributions to organizations within the Company’s markets.
Current report
During the six months ended, June 30, 2024, non-interest expense totaled $74,412,000, an increase of $1,070,000, or 1%, compared to the first half of 2023. The increase in non-interest expenses during the first half of 2024 was primarily the result of professional fees related to the previously mentioned GAI asset sale and the recently announced pending merger transaction with Heartland, which totaled approximately $1,904,000.
Current report
Data processing fees increased $272,000, or 5%, during the first half of 2024 compared with the first half of 2023, largely driven by costs associated with enhancements to the Company’s digital banking systems.
Current report
Professional fees increased $1,881,000, or 59%, during the six months ended June 30, 2024 compared with the same period of 2023. The increase during the first six months of 2024 compared with the first six months of 2023 was largely attributable to the professional fees associated with the sale of assets of GAI and the recently announced pending merger transaction with Heartland totaling $1,904,000.
Current report
Advertising and promotion expense declined $381,000, or 16%, in the first half of 2024 compared with the same period of 2023. The decline during the first half of 2024 compared with the first half of 2023 was largely attributable to the timing of sponsorships and contributions to organizations within the Company’s markets.
Current report
During June 2024, the Company commenced a securities portfolio restructuring transaction whereby available-for-sale securities totaling approximately $375 million in book value were identified to be sold. As of June 30, 2024, $175 million of securities had been sold with the remaining $200 million sold during early July 2024. The tax-equivalent yield on the bonds sold was approximately 3.12% with a duration of approximately 7 years. Approximately $80 million of the proceeds of the securities sold were reinvested into the securities portfolio as of June 30, 2024. It is anticipated the remainder of the proceeds from the sale will be reinvested back into the securities portfolio.
Current report
The composition of the loan portfolio has remained relatively stable and diversified over the past several years, including 2024. The portfolio is most heavily concentrated in commercial real estate loans at 54% of the portfolio, followed by commercial and industrial loans at 16% of the portfolio, and agricultural loans at 10% of the portfolio.
Current report
•with respect to the proposed merger with Heartland: (i) failure to obtain necessary regulatory and shareholder approvals when expected or at all, the risk that regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction, or the failure of either company to satisfy any of the other closing conditions to the transaction on a timely basis or at all; (ii) the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement; and (iii) the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies, unexpected credit quality problems of the acquired loans or other assets, or unexpected attrition of the customer base of the acquired institution or branches, or as a result of the strength of the economy, competitive factors in the areas where the Company and Heartland do business, or as a result of other unexpected factors or events.
Removed paragraphs (8)
Previous report
Net income for the quarter ended March 31, 2024 totaled $19,022,000, or $0.64 per share, a decline of 10% on a per share basis compared with the first quarter 2023 net income of $20,807,000, or $0.71 per share. The decline in net income compared to the first quarter of 2023 was primarily attributable to lower net interest income as a result of modest net interest margin compression driven by higher deposit costs. Non-interest income increased $855,000, an increase of 6%, comparing the three months ended March 31, 2024 to the same period of 2023 which was largely attributable to increased wealth management fees. For the quarter ended March 31, 2024, non-interest expense declined $878,000, a decrease of 2%, compared with the same period of 2023 which was largely driven by a decline in salary expense.
Previous report
During the first quarter of 2024, loans remained stable with commercial real estate and retail organic loan growth helping to offset the larger seasonal reductions in utilization of agricultural lines of credit and ongoing reduced utilization in commercial and industrial lines. Total loans at March 31, 2024 increased by $1,019,000 compared with year-end 2023.
Previous report
First quarter 2024 deposits declined approximately $33,600,000 million, or 3%, on an annualized linked quarter basis compared to December 31, 2023, driven by a delayed seasonal outflow of public fund deposits into first quarter 2024. Non-public funds, however, continued to grow positively compared to year end 2023. The overall core deposit base remains diverse with stable and manageable exposure to uninsured and uncollateralized deposits of approximately 21% and non-interest bearing demand accounts remaining stable at 28% of total deposits.
Previous report
Net Income:
Previous report
During the quarter ended March 31, 2024, non-interest income totaled $15,822,000, an increase of $855,000, or 6%, compared with the first quarter of 2023. The increase in non-interest income during the first quarter of 2024 compared to the first quarter of 2023 was in large part attributable to increased wealth management fees.
Previous report
Insurance revenues declined $257,000, or 8%, during the quarter ended March 31, 2024, compared with the first quarter of 2023. The decline during the first quarter of 2024 compared with the first quarter of 2023 was related to a decline in contingency revenue, partially mitigated by increased commercial lines revenue. Contingency revenue during the first quarter of 2024 totaled $391,000 compared with $945,000 during the first quarter of 2023. Contingency revenue is reflective of claims and loss experience with insurance carriers that the Company represents through its property and casualty insurance agency. Typically, the majority of contingency revenue is recognized during the first quarter of the year.
Previous report
Other operating income increased $151,000, or 12%, during the first quarter of 2024 compared with the first quarter of 2023. The increase during the first quarter of 2024 compared with the same period of the prior year was primarily related to a higher level of fees associated with interest rate swap transactions with loan customers.
Previous report
During the quarter ended March 31, 2024, non-interest expense totaled $36,738,000, a decline of $878,000, or 2%, compared with the first quarter of 2023.
Reworded paragraphs (30)
Previous wording
German American Bancorp, Inc. is a Nasdaq-traded (symbol: GABC) financial holding company based in Jasper, Indiana. The Company, through its banking subsidiary German American Bank, operates 74 banking offices in 20 contiguous southern Indiana counties and 14 Kentucky counties. The Company also owns an investment brokerage subsidiary (German American Investment Services, Inc.) and a full line property and casualty insurance agency (German American Insurance, Inc.).
Current wording
German American Bancorp, Inc. is a Nasdaq-listed (symbol: GABC) financial holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 74 banking offices in 20 contiguous southern Indiana counties and 14 Kentucky counties.
Previous wording
This section presents an analysis of the consolidated financial condition of the Company as of March 31, 2024 and December 31, 2023 and the consolidated results of operations for the three months ended March 31, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Current wording
This section presents an analysis of the consolidated financial condition of the Company as of June 30, 2024 and December 31, 2023 and the consolidated results of operations for the three and six months ended June 30, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Previous wording
Net income for the quarter ended March 31, 2024 totaled $19,022,000, or $0.64 per share, a decline of 10% on a per share basis compared with the first quarter 2023 net income of $20,807,000, or $0.71 per share. The decline in net income compared to the first quarter of 2023 was largely the result of lower net interest income, driven by net interest margin compression, as higher deposit costs exceeded the improved yields on earning assets.
Current wording
Net income for the quarter ended June 30, 2024 totaled $20,530,000, or $0.69 per share, a decrease of 8% on a per share basis compared with the second quarter 2023 net income of $22,123,000, or $0.75 per share. Net income for the six months ended June 30, 2024 totaled $39,552,000, or $1.33 per share, a decrease of 8% on a per share basis compared with the six months ended June 30, 2023 net income of $42,930,000, or $1.45 per share. The decline in both periods was largely driven by a reduced net interest margin.
Previous wording
Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at March 31, 2024. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of March 31, 2024, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $339,000 and gross unrealized losses totaled approximately $299,980,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).
Current wording
Available-for-sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. For available-for-sale debt securities in an unrealized loss position, the Company assesses whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for sale debt securities that do not meet the criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. No allowance for credit losses for available-for-sale debt securities was needed at June 30, 2024. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses. As of June 30, 2024, gross unrealized gains on the securities available-for-sale portfolio totaled approximately $18,000 and gross unrealized losses totaled approximately $275,505,000. The net amount of these two items, net of applicable taxes, is included in other comprehensive income (loss).
Previous wording
During the first quarter of 2024, net interest income, on a non tax-equivalent basis, totaled $44,994,000, a decline of $4,015,000, or 8%, compared to the first quarter of 2023 net interest income of $49,009,000.
Current wording
During the second quarter of 2024, net interest income, on a non tax-equivalent basis, totaled $45,971,000, a decline of $2,287,000, or 5%, compared to the second quarter of 2023 net interest income of $48,258,000. During the first half of 2024, net interest income, on a non tax-equivalent basis, totaled $90,965,000, a decrease of $6,302,000, or 6%, compared to the first half of 2023 net interest income of $97,267,000. The decline in net interest income for both periods was primarily attributable to a decline in the Company’s net interest margin.
Previous wording
The decline in net interest income during the first quarter of 2024 compared with the first quarter of 2023 was primarily attributable to a decline in the Company’s net interest margin. The tax equivalent net interest margin for the quarter ended March 31, 2024 was 3.35% compared with 3.69% in the first quarter of 2023. The decline in the net interest margin during the first quarter of 2024 compared with first quarter of 2023 was largely driven by an increase in the cost of funds. The cost of funds continued to accelerate higher in the first quarter of 2024 due to highly competitive deposit pricing in the marketplace, customers actively looking for yield opportunities within and outside the banking industry and a continued shift in the Company’s deposit composition to a higher level of time deposits.
Current wording
The tax equivalent net interest margin for the quarter ended June 30, 2024 was 3.34% compared with 3.63% in the second quarter of 2023. The tax equivalent net interest margin for the six months ended June 30, 2024 was 3.34% compared with 3.66% for the same period of 2023. The cost of funds continued to accelerate higher in both periods due to highly competitive deposit pricing in the marketplace, customers actively looking for yield opportunities within and outside the banking industry and a continued shift in the Company’s deposit composition to a higher level of time deposits.
Previous wording
The Company’s net interest margin and net interest income have been impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $360,000 during the first quarter of 2024 and $530,000 during the first quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately 3 basis points to the net interest margin in the first quarter of 2024 and 4 basis points in the first quarter of 2023.
Current wording
The Company’s net interest margin and net interest income have been impacted by accretion of loan discounts on acquired loans. Accretion of discounts on acquired loans totaled $275,000 during the second quarter of 2024 and $716,000 during the second quarter of 2023. Accretion of discounts on acquired loans totaled $635,000 and $1,246,000 for the first half of 2024 and 2023, respectively. Accretion of loan discounts on acquired loans contributed approximately 2 basis points to the net interest margin in the second quarter of 2024 and 5 basis points in the second quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately 1 basis point to the net interest margin in the first half of 2024 compared to 5 basis points in the first half of 2023.
Previous wording
The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended March 31, 2024, the Company recorded a provision for credit losses of $900,000 compared with a provision for credit losses of $1,100,000 during the first quarter of 2023.
Current wording
The Company provides for credit losses through regular provisions to the allowance for credit losses. The provision is affected by net charge-offs on loans and changes in specific and general allocations of the allowance. During the quarter ended June 30, 2024, the Company recorded a provision for credit losses of $625,000 compared with a provision for credit losses of $550,000 during the second quarter of 2023. During the six months ended June 30, 2024, the Company recorded a provision for credit losses of $1,525,000 compared with a provision for credit losses of $1,650,000 for the first half of 2023.
Previous wording
Net charge-offs totaled $911,000, or 9 basis points, on an annualized basis, of average loans outstanding during the first quarter of 2024 compared with $953,000, or 10 basis points of average loans during the first quarter of 2023.
Current wording
Net charge-offs totaled $433,000, or 4 basis points, on an annualized basis, of average loans outstanding during the second quarter of 2024 compared with $599,000, or 6 basis points, on an annualized basis, of average loans during the second quarter of 2023. Net charge-offs totaled $1,344,000, or 7 basis points, on an annualized basis, of average loans outstanding during the six months ended June 30, 2024 compared with $1,552,000, or 8 basis points, on an annualized basis, of average loans outstanding during the same period of 2023.
Previous wording
The provision for credit losses made during the three months ended March 31, 2024 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.
Current wording
The provision for credit losses made during the three and six months ended June 30, 2024 was made at a level deemed necessary by management to absorb expected losses in the loan portfolio. A detailed evaluation of the adequacy of the allowance for credit losses is completed quarterly by management, the results of which are used to determine provision for credit losses. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and reasonable and supportable forecasts along with other qualitative and quantitative factors.
Previous wording
Wealth management fees increased $722,000, or 27%, during the first quarter of 2024 compared with the first quarter of 2023. The increase during the first quarter of 2024 was largely attributable to increased assets under management within the Company’s wealth management group as compared with the first quarter of 2023.
Current wording
Wealth management fees increased $871,000, or 30%, during the second quarter of 2024 compared with the second quarter of 2023. The increase during the second quarter of 2024 was largely attributable to increased assets under management due to healthy capital markets and strong new business results as compared with the second quarter of 2023.
Previous wording
Net gains on sales of loans increased $164,000, or 28%, during the first quarter of 2024 compared with the same period of 2023. The increase in the first quarter of 2024 compared with the first quarter of 2023 was largely related to improved pricing levels on loans sold and fair value adjustments on commitments to sell loans. Loan sales totaled $24.0 million during the first quarter of 2024 compared with $23.4 million during the first quarter of 2023.
Current wording
Net gains on sales of loans increased $503,000, or 41%, during the first half of 2024 compared with the first half of 2023. The increase during the first half of 2024 compared with the same period of 2023 was largely related to a higher volume of sales and modestly higher prices. Loan sales totaled $57.0 million during the first half of 2024 compared with $48.2 million during the same period of 2023.
Previous wording
Salaries and benefits declined $668,000, or 3%, during the first quarter of 2024 as compared with the first quarter of 2023. The decline in salaries and benefits during the first quarter of 2024 compared with the first quarter of 2023 was primarily due to a lower level of full-time equivalent employees and lower incentive compensation.
Current wording
Salaries and benefits increased $854,000, or 4%, during the quarter ended June 30, 2024 compared with the second quarter of 2023. The increase in salaries and benefits during the second quarter of 2024 compared with the same period of 2023 was primarily related to an increase in costs of incentive compensation plans.
Previous wording
Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. The core deposit intangibles are generally amortized on an accelerated basis over a period of six to ten years. Intangible Amortization decreased $207,000, or 26%, during the quarter ended March 31, 2024 compared with the same period of the prior year. The decrease in the first quarter of 2024 compared with the same period of the prior year was primarily attributable to the accelerated amortization method for which the intangible assets are amortized.
Current wording
Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. The core deposit intangibles are generally amortized on an accelerated basis over a period of six to ten years. Intangible Amortization decreased $202,000, or 28%, during the quarter ended June 30, 2024 compared with the same period of the prior year. The decrease in the second quarter of 2024 compared with the same period of the prior year was primarily attributable to the accelerated method for which the intangible assets are amortized.
Previous wording
The Company’s effective income tax rate was 17.9% and 17.6%, respectively, during the three months ended March 31, 2024 and 2023. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.
Current wording
The Company’s effective income tax rate was 22.8% and 17.7%, respectively, during the three months ended June 30, 2024 and 2023. The Company’s effective income tax rate was 20.5% and 17.7%, respectively, during the six months ended June 30, 2024 and 2023. The increase in effective tax rate for the three months and six months ended June 30, 2024 as compared to the same periods of the prior year were primarily attributable to the previously mentioned sale of GAI assets and the securities restructuring transaction. The effective tax rate in all periods presented was lower than the blended statutory rate resulting primarily from the Company’s tax-exempt investment income on securities, loans and company-owned life insurance, income tax credits generated from affordable housing projects, and income generated by subsidiaries domiciled in a state with no state or local income tax.
Previous wording
Total assets for the Company totaled $6.112 billion at March 31, 2024, representing a decline of $40.3 million compared with December 31, 2023. The modest decline in total assets at March 31, 2024 compared with year-end 2023 was largely related to a decline in the securities portfolio.
Current wording
Total assets for the Company totaled $6.217 billion at June 30, 2024, representing an increase of $64.7 million compared with December 31, 2023. The increase in total assets at June 30, 2024 compared with December 31, 2023 was largely related to an increase in total loans and federal funds sold and other short-term investments, partially offset by a decline in the securities portfolio.
Previous wording
Securities available for sale declined $57.6 million as of March 31, 2024 compared with December 31, 2023. The decline at March 31, 2024 in the available for sale securities portfolio compared with year-end 2023 was primarily the result of the Company’s utilization of cash flows from the securities portfolio to fund loan growth and other balance sheet funding needs. Current projections indicate approximately $190.0 million in principal and interest cash flows from the portfolio over the next twelve months with rates unchanged.
Current wording
Securities available-for-sale declined $223.0 million as of June 30, 2024 compared with December 31, 2023. The decline at June 30, 2024 in the available-for-sale securities portfolio compared with year end 2023 was largely the result of the Company’s utilization of cash flows from the securities portfolio to fund loan growth in addition to the timing of the sale and reinvestment of proceeds related to the restructuring transaction.
Previous wording
Total loans remained relatively stable at March 31, 2024 compared with year-end 2023, increasing by $1.0 million. The modest increase during the first quarter of 2024 compared with year-end 2023 was largely attributable to increased commercial real estate loans and retail loans, partially offset by lower seasonal line utilization for agricultural loans and lower line utilization for commercial and industrial loans. Commercial real estate loans increased $27.0 million, or 5% on an annualized basis, while retail loans grew $12.5 million, or 6% on an annualized basis. Partially offsetting these increases was a decline in agricultural loans of $23.1 million, or 22% on an annualized basis, and a decline in commercial and industrial loans of $15.4 million, or 9% on an annualized basis, as line of credit utilization declined in both of these segments.
Current wording
June 30, 2024 total loans increased $66.4 million, or 3% on an annualized basis, compared with December 31, 2023. The increase during the first half of 2024 compared with December 31, 2023 was broad-based across most segments of the portfolio. Commercial and industrial loans increased $2.9 million, or 1% on an annualized basis, commercial real estate loans increased $50.6 million, or 5% on an annualized basis, and retail loans grew by $22.9 million, or 6% on an annualized basis. Partially offsetting these increases was a decline in agricultural loans of $10.1 million, or 5% on an annualized basis, as line of credit utilization declined in this segment.
Previous wording
The Company’s commercial real estate loan portfolio is further diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied at March 31, 2024 (which is 41% of the Company’s overall loan portfolio), and 24% of the CRE portfolio being owner occupied (which is 13% of the Company’s total loan portfolio). At December 31, 2023, the Company’s commercial real estate loan portfolio is diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied (which is 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which is 12% of the Company’s total loan portfolio).
Current wording
The Company’s commercial real estate loan portfolio is further diversified by occupancy type, with approximately 76% of the CRE portfolio being non-owner occupied at June 30, 2024 (which is 41% of the Company’s overall loan portfolio), and 24% of the CRE portfolio being owner occupied (which is 13% of the Company’s total loan portfolio). At December 31, 2023, the Company’s commercial real estate loan portfolio was diversified by occupancy type, with approximately 77% of the CRE portfolio being non-owner occupied (which was 41% of the Company’s overall loan portfolio), and 23% of the CRE portfolio being owner occupied (which was 12% of the Company’s total loan portfolio).
Previous wording
The Company’s allowance for credit losses totaled $43.8 million at both March 31, 2024 and December 31, 2023. The allowance for credit losses represented 1.10% of period-end loans at both March 31, 2024 and December 31, 2023. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of March 31, 2024, the Company held net discounts on acquired loans of $3.6 million.
Current wording
The Company’s allowance for credit losses totaled $43.9 million at June 30, 2024 compared to $43.8 million at December 31, 2023. The allowance for credit losses represented 1.09% of period-end loans at June 30, 2024 compared with 1.10% at December 31, 2023. Under the CECL model, certain acquired loans continue to carry a fair value discount as well as an allowance for credit losses. As of June 30, 2024, the Company held net discounts on acquired loans of $3.3 million.
Previous wording
Non-performing assets totaled $10.0 million at March 31, 2024 compared to $9.2 million at December 31, 2023. Non-performing assets represented 0.16% of total assets at March 31, 2024 compared to 0.15% at year-end 2023. Non-performing loans totaled $10.0 million at March 31, 2024 compared to $9.2 million at December 31, 2023. Non-performing loans represented 0.25% of total loans at March 31, 2024 compared to 0.23% at December 31, 2023. The modest increase in both commercial and industrial non-performing loans as well as commercial real estate non-performing loans was related to two credit relationships of less than $1.0 million each.
Current wording
Non-performing assets totaled $7.3 million at June 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing assets represented 0.12% of total assets at June 30, 2024 compared to 0.15% at year-end 2023. Non-performing loans totaled $7.3 million at June 30, 2024 compared to $9.2 million at December 31, 2023. Non-performing loans represented 0.18% of total loans at June 30, 2024 compared to 0.23% at December 31, 2023.
Previous wording
March 31, 2024 total deposits declined $33.6 million, or 3% on an annualized basis, compared to year-end 2023. The decline at March 31, 2024 compared to year-end 2023 was largely attributable to seasonal outflows of public entity funds. The Company has continued to see customer movement from both interest bearing and non-interest bearing transactional accounts to time deposits due primarily to a higher interest rate environment. Non-interest bearing deposits have remained relatively stable as a percent of total deposits with both March 31, 2024 and December 31, 2023 non-interest bearing deposits totaling 28% of total deposits. The deposit base remains diverse with stable and manageable exposure to uninsured and uncollaterized deposits of approximately 21% of total deposits.
Current wording
June 30, 2024 total deposits increased $60.6 million, or 2% on an annualized basis, compared to December 31, 2023. The increase at June 30, 2024 compared to December 31, 2023 was largely attributable to seasonal inflows of public entity funds. The Company has continued to see customer movement from both interest bearing and non-interest bearing transactional accounts to time deposits due primarily to a higher interest rate environment. Non-interest bearing deposits have remained relatively stable as a percent of total deposits with June 30, 2024 non-interest deposits totaling 27% of total deposits while non-interest deposits totaled 28% of total deposits at December 31, 2023. The deposit base remains diverse with stable and manageable exposure to uninsured and uncollaterized deposits of approximately 22% of total deposits.
Previous wording
As of March 31, 2024, shareholders’ equity declined by $8.3 million to $655.3 million compared with $663.6 million at year-end 2023. The decline in shareholders' equity was primarily attributable to a decline in accumulated other comprehensive income (loss) of $20.0 million related to the decrease in value of the Company’s available-for-sale securities portfolio driven by changes in market interest rates during the first three months of 2024. Partially mitigating the decline was increased retained earnings of $11.1 million due to net income of $19.0 million, which was partially offset by the payment of $8.0 million in shareholder dividends.
Current wording
As of June 30, 2024, shareholders’ equity increased by $24.3 million to $687.8 million compared with $663.6 million at year-end 2023. The increase in shareholders’ equity was primarily attributable to increased retained earnings of $23.6 million due to net income of $39.6 million. Partially offsetting the increase in retained earnings was the payment of $8.0 million in shareholder dividends.
Previous wording
Shareholders’ equity represented 11.0% of total assets at both March 31, 2024 and December 31, 2023. Shareholders’ equity included $186.0 million of goodwill and other intangible assets at March 31, 2024 compared to $186.7 million of goodwill and other intangible assets at December 31, 2023.
Current wording
Shareholders’ equity represented 11.0% of total assets at both June 30, 2024 and December 31, 2023. Shareholders’ equity included $184.1 million of goodwill and other intangible assets at June 30, 2024 compared to $186.7 million of goodwill and other intangible assets at December 31, 2023.
Previous wording
The Company adopted the CECL accounting standard under GAAP effective January 1, 2020. The regulatory capital rules applicable to the Company provided an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL. In addition, as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years. As a result, on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital. An additional 25% was phased in on each of January 1, 2023 and January 1, 2024, and another 25% will be phased in on January 1, 2025 (at which time the cumulative effects of adopting CECL will have been fully phased into our regulatory capital). Under the five-year transition option, the amount of adjustments to regulatory capital that could be deferred until the phase-in period began included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
Current wording
The Company adopted the CECL accounting standard under GAAP effective January 1, 2020. The regulatory capital rules applicable to the Company provided an optional three-year phase-in period for the day-one adverse regulatory capital effects of adopting CECL. In addition, as part of pandemic-related legislation enacted during 2020, banking organizations were further permitted to mitigate the estimated cumulative regulatory capital effects of CECL for up to an additional two years. As a result, on January 1, 2022, the Company began the required three-year phase-in by reflecting 25% of the previously deferred estimated capital impact of CECL in its regulatory capital. An additional 25% was phased in on each of January 1, 2023 and January 1, 2024, and another 25% will be phased in on January 1, 2025 (at which time the cumulative effects of adopting CECL will have been fully phased into our regulatory capital). Under the five-year transition option, the amount of adjustments to regulatory capital that could be deferred until the phase-in period began included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
Previous wording
The Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increased $8.1 million during the three months ended March 31, 2024 ending at $123.5 million. During the three months ended March 31, 2024, operating activities resulted in net cash inflows of $23.9 million. Investing activities resulted in net cash inflows of $28.1 million during the three months ended March 31, 2024. Financing activities resulted in net cash outflows for the three months ended March 31, 2024 of $43.8 million.
Current wording
The Consolidated Statement of Cash Flows details the elements of changes in the Company’s consolidated cash and cash equivalents. Total cash and cash equivalents increased $214.0 million during the six months ended June 30, 2024 ending at $329.3 million largely driven by the previously discussed sale of GAI assets and the securities restructuring transaction. During the six months ended June 30, 2024, operating activities resulted in net cash inflows of $42.6 million. Investing activities resulted in net cash inflows of $154.2 million during the six months ended June 30, 2024. Financing activities resulted in net cash inflows for the six months ended June 30, 2024 of $17.2 million.
Previous wording
The Company’s bank subsidiary is authorized by its Board to borrow up to $500 million at the FHLB, but availability at March 31, 2024 was limited to approximately $220 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $186 million at the Federal Reserve Bank as of March 31, 2024, based on the then pledged collateral. The capacity for borrowings from the FHLB and the Federal Reserve Bank could be increased, in each case, by the Company pledging additional available collateral. The Company’s Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary’s liquidity.
Current wording
The Company’s bank subsidiary is authorized by its Board to borrow up to 15% of total assets or approximately $932 million at the FHLB, but availability at June 30, 2024 was limited to approximately $463 million based on the then pledged collateral and outstanding borrowings. In addition, the Company had a borrowing capacity of approximately $215 million at the Federal Reserve Bank as of June 30, 2024, based on the then pledged collateral. The capacity for borrowings from the FHLB and the Federal Reserve Bank could be increased, in each case, by the Company pledging additional available collateral. The Company’s Asset/Liability Committee closely monitors the availability of these sources as part of its overall oversight and management of the bank subsidiary’s liquidity.
Previous wording
The parent company is a corporation separate and distinct from its bank and other subsidiaries. The Company uses funds at the parent-company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes including debt service. The parent company does not have access at the parent-company level to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the parent company by its bank subsidiary. The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings. As of March 31, 2024, the parent company had approximately $83.4 million of cash and cash equivalents available to meet its cash flow needs.
Current wording
The parent company is a corporation separate and distinct from its bank and other subsidiaries. The Company uses funds at the parent-company level to pay dividends to its shareholders, to acquire or make other investments in other businesses or their securities or assets, to repurchase its stock from time to time, and for other general corporate purposes including debt service. The parent company does not have access at the parent-company level to the deposits and certain other sources of funds that are available to its bank subsidiary to support its operations. Instead, the parent company has historically derived most of its revenues from dividends paid to the parent company by its bank subsidiary. The Company’s banking subsidiary is subject to statutory restrictions on its ability to pay dividends to the parent company. The parent company has, from time-to-time, supplemented the dividends received from its subsidiaries with borrowings. As of June 30, 2024, the parent company had approximately $93.7 million of cash and cash equivalents available to meet its cash flow needs.
Previous wording
•impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to Consumer Financial Protection Bureau rules and regulations; and
Current wording
•impacts resulting from possible amendments or revisions to the Dodd-Frank Act and the regulations promulgated thereunder, or to Consumer Financial Protection Bureau rules and regulations;
Previous wording
•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.
Current wording
•the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; and
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
The following table summarizes net interest income (on a tax-equivalent basis) for the six months ended June 30, 2024 and 2023. For tax-equivalent adjustments, an effective tax rate of 21% was used for both periods(1).
Current report — wording carried from elsewhere
(1)Effective tax rates were determined as though interest earned on the Company’s investments in municipal bonds and loans was fully taxable.
Current report — wording carried from elsewhere
(2)Loans held-for-sale and non-accruing loans have been included in average loans.
Current report — wording carried from elsewhere
Intangible amortization expense consists primarily of amortization associated with the core deposit intangible of acquired deposit portfolios. Intangible Amortization decreased $409,000, or 27%, during the six months ended June 30, 2024 compared with the same period of the prior year which was largely related to the accelerated method for which the intangible assets are amortized.