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JASPER, Ind., April 25, 2022 (GLOBE NEWSWIRE) — German American Bancorp, Inc. (NASDAQ:GABC) reported first quarter earnings of $9.1 million, or $0.31 per share. The current quarterly earnings include the results of Citizens Union Bancorp of Shelbyville, Inc. ("CUB"), which, as previously reported, was acquired by German American on January 1, 2022. The first quarter of 2022 included one-time merger and acquisition costs of approximately $11.7 million and "Day 1" provision under the current expected credit loss ("CECL") model for CUB of $6.3 million (total impact of $13.6 million, or $0.46 per share, on an after-tax basis). As a result, quarterly earnings declined by approximately $10.5 million, or 58% on a per share basis, from 2021 first quarter earnings of $19.6 million, or $0.74 per share.
Total assets overall increased during the past year by $1.5 billion, or approximately 28% from March 31, 2021. Our 2022 first quarter financial position and performance, relative to the same quarter last year, was positively impacted by the inclusion of the CUB acquisition and ongoing organic loan and deposit growth, which were partially mitigated by the reduction of loans made under the Paycheck Protection Program ("PPP"). End of period deposits over the first quarter of 2022 grew $1.1 billion mostly as a result of the CUB acquisition. However, excluding the CUB acquisition, we continued to generate solid deposit growth into 2022 with an increase of $191 million, or 16% annualized, in organic deposits.
First quarter 2022 net interest income increased $8.0 million, or approximately 21%, compared to the same period of 2021 driven by the Company's higher level of average earning assets. Operating income increased $1.2 million or 8% quarter over prior year same quarter. Deposit service charge fees and interchange income improved 40% resulting from the higher utilization by existing customers as well as the expanded customer base from the acquisition. Other positive drivers include an increase of 12% in wealth management fees and a 13% increase in insurance services revenue. Net gains on sales of loans declined 35% as volume declined due to the overall slowing of the home mortgage refinance sector.
Operating expenses increased $16.9 million or 54% compared to the first quarter 2021, of which nearly $12 million was related to the previously noted acquisition-related expenses in connection with CUB. The majority of the remaining increase was primarily attributable to the operating costs associated with CUB during the first quarter of 2022.
The 2022 first quarter results also included a $6.7 million increase to the Company's provision for credit losses as compared to the first quarter 2021. During the quarter ended March 31, 2022, the Company recorded a provision for credit losses of $5.2 million compared with a negative provision for credit losses of $1.5 million during the first quarter of 2021.
D. Neil Dauby, German American's President and CEO, stated, “While the first quarter results were impacted by the significant acquisition-related expenses and provision in connection with the completion of the Citizens Union Bank merger, we were very pleased with the level of incremental quarter over quarter growth in revenue, within both net interest income and various categories of non-interest income. The incrementally higher level of non-interest expenses in the first quarter 2022 was also largely attributable to the inclusion of both acquisition-related expenses and general operating expenses of CUB. Those expenses are expected to be reduced going forward, as the operations of CUB are fully integrated into GABC."
Dauby continued, “Further, the level of asset quality within our loan portfolio and that of CUB's remains strong, as indicated by our end of quarter non-performing asset ratio of 0.23%. Total end of period loans during the first quarter increased $648 million mostly as a result of the CUB acquisition. Excluding CUB and PPP loans, commercial loans increased approximately $35 million or 7% annualized (16% C&I and 4% CRE). We experienced a seasonal decline in agricultural loans of $32 million for the quarter. Although the first quarter is typically a down cycle for agricultural loans, the significant increase in corn and soy bean commodity pricing has led to outsized pay downs on agricultural lines. We are encouraged by the strength of our commercial/agricultural loan pipeline throughout most of our geographic footprint. However, continued rising inflation could be a deterrent to future loan growth. We are excited about the growth opportunities in our newly acquired markets and believe we are well positioned to execute on our High Touch- High Tech business strategy throughout our entire footprint.”
The Company also announced its Board of Directors declared a regular quarterly cash dividend of $0.23 per share, which will be payable on May 20, 2022 to shareholders of record as of May 10, 2022.
Balance Sheet Highlights
On January 1, 2022, the Company completed the acquisition of Citizens Union Bancorp of Shelbyville, Inc. (“CUB”) CUB, headquartered in Shelbyville, Kentucky operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through its banking subsidiary, Citizens Union Bank of Shelbyville, Inc. As of the closing of the transaction, CUB had total assets of approximately $1.109 billion, total loans of approximately $683.8 million, and total deposits of approximately $930.5 million. The Company issued approximately 2.9 million shares of its common stock, and paid approximately $50.8 million in cash, in exchange for all of the issued and outstanding shares of common stock of CUB.
Total assets for the Company totaled $6.698 billion at March 31, 2022, representing an increase of $1.089 billion compared with year-end 2021 and an increase of $1.478 billion compared with March 31, 2021. The increase in total assets at March 31, 2022 compared with year-end 2021 and March 31, 2021 was in large part attributable to the acquisition of CUB as well as continued growth in deposits.
Securities available for sale increased $34.0 million as of March 31, 2022 compared with year-end 2021 and increased $537.7 million compared with March 31, 2021. The increase in the securities portfolio in both the first quarter of 2022 and over the past year was largely the result of increased levels of deposits. The growth in the reported level of the available for sale securities portfolio was tempered by the fair value adjustments on the portfolio caused by the rapid rise in market interest rates during the first quarter of 2022.
March 31, 2022 total loans increased $648.1 million compared with December 31, 2021 and increased $535.1 million, or 17%, compared with March 31, 2021. The increase in total loans at March 31, 2022 compared with year-end 2021 was largely due to the acquisition of CUB. The increase at March 31, 2022 compared with March 31, 2021 was largely due to the acquisition of CUB and to organic loan growth from throughout the Company's existing market areas partially offset by a decrease in PPP loans. PPP loans, net of deferred fees, totaled $6.6 million at March 31, 2022 compared with $19.5 million at December 31, 2021 and $234.2 million at March 31, 2021. As of March 31, 2022, outstanding loans from the CUB acquisition totaled $659.2 million.
Excluding PPP loans and loans acquired through the CUB acquisition, total loans increased $1.7 million, or less than 1% on an annualized basis, at March 31, 2022 compared with December 31, 2021 and $103.5 million, or 4%, compared with March 31, 2021. Commercial and industrial loans increased approximately $21.2 million, or 16% on an annualized basis, during the first quarter of 2022 compared with year-end 2021, commercial real estate loans increased $13.2 million, or 4% on an annualized basis, while agricultural loans seasonally declined $32.3 million, or 36% on an annualized basis. During the first quarter of 2022 compared with year-end 2021, retail loans declined $0.4 million, or less than 1% on an annualized basis.
| End of Period Loan Balances | 3/31/2022 | 12/31/2021 | 3/31/2021 | ||||||
| (dollars in thousands) | |||||||||
| Commercial & Industrial Loans | $ | 636,519 | $ | 548,350 | $ | 728,014 | |||
| Commercial Real Estate Loans | 1,938,528 | 1,530,677 | 1,492,617 | ||||||
| Agricultural Loans | 387,764 | 358,150 | 347,231 | ||||||
| Consumer Loans | 351,083 | 307,184 | 285,485 | ||||||
| Residential Mortgage Loans | 342,140 | 263,565 | 267,634 | ||||||
| $ | 3,656,034 | $ | 3,007,926 | $ | 3,120,981 | ||||
| Net PPP Loans (included in Commercial & Industrial Loans above) | $ | 6,612 | $ | 19,450 | $ | 234,229 | |||
In response to requests from borrowers who had experienced pandemic-related business or personal cash flow interruptions, and in accordance with regulatory guidance, the Company began making short-term loan modifications involving both partial and full payment deferrals in April 2020. As of March 31, 2022, the Company has just one commercial real estate loan, in the principal amount of $3.5 million, with a payment modification that is still in effect, with such credit relationship making full interest payments.
The Company's allowance for credit losses totaled $45.1 million at March 31, 2022 compared to $37.0 million at year-end 2021 and $45.1 million at March 31, 2021. The allowance for credit losses represented 1.23% of period-end loans (1.24% excluding PPP loans) at March 31, 2022 and year-end 2021 and 1.45% of period-end loans (1.56% excluding PPP loans) at March 31, 2021.
The Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) ("CECL") on January 1, 2020. The Company added $9.4 million to the allowance for credit losses in conjunction with the closing of the CUB acquisition on January 1, 2022 related to the CUB loan portfolio. Of the increase in the allowance for credit losses for the CUB portfolio, $6.3 million was recorded through the provision for credit losses on "Day 1" under the CECL model.
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, 2022, the Company held net discounts on acquired loans of $9.2 million which included $4.6 million related to the CUB loan portfolio.
Non-performing assets totaled $15.3 million at March 31, 2022 compared to $14.8 million at year-end 2021 and $21.3 million at March 31, 2021. Non-performing assets represented 0.23% of total assets at March 31, 2022 compared to 0.26% at December 31, 2021 and 0.41% at March 31, 2021. Non-performing loans totaled $15.3 million at March 31, 2022 compared to $14.8 million at year-end 2021 and $21.3 million at March 31, 2021. Non-performing loans represented 0.42% of total loans at March 31, 2022 compared to 0.49% at December 31, 2021 and 0.67% at March 31, 2021. The increase in non-performing assets was primarily attributable to the CUB acquisition which totaled approximately $0.8 million at March 31, 2022.
| Non-performing Assets | ||||||||
| (dollars in thousands) | ||||||||
| 3/31/2022 | 12/31/2021 | 3/31/2021 | ||||||
| Non-Accrual Loans | $ | 14,929 | $ | 14,602 | $ | 20,994 | ||
| Past Due Loans (90 days or more) | 383 | 156 | — | |||||
| Total Non-Performing Loans | 15,312 | 14,758 | 20,994 | |||||
| Other Real Estate | 30 | — | 325 | |||||
| Total Non-Performing Assets | $ | 15,342 | $ | 14,758 | $ | 21,319 | ||
| Restructured Loans | $ | 102 | $ | 104 | $ | 109 | ||
March 31, 2022 total deposits increased $1.085 billion compared to year-end 2021 and increased $1.451 billion, or 33%, compared with March 31, 2021. The increase in total deposits at March 31, 2022 compared with both year-end 2021 and March 31, 2021 was largely attributable to the CUB acquisition and continued general inflows of customer deposits. As of March 31, 2022, deposits from the CUB acquisition totaled $893.9 million. Excluding the deposits related to the acquisition, total deposits increased $191.4 million, or 16% on an annualized basis, at March 31, 2022 compared with year-end 2021 and $557.1 million, or 13%, compared with March 31, 2021.
| End of Period Deposit Balances | 3/31/2022 | 12/31/2021 | 3/31/2021 | ||||||
| (dollars in thousands) | |||||||||
| Non-interest-bearing Demand Deposits | $ | 1,789,353 | $ | 1,529,223 | $ | 1,383,888 | |||
| IB Demand, Savings, and MMDA Accounts | 3,527,373 | 2,867,994 | 2,548,015 | ||||||
| Time Deposits < $100,000 | 278,477 | 201,683 | 239,911 | ||||||
| Time Deposits > $100,000 | 234,407 | 145,416 | 206,859 | ||||||
| $ | 5,829,610 | $ | 4,744,316 | $ | 4,378,673 | ||||
Results of Operations Highlights – Quarter ended March 31, 2022
Net income for the quarter ended March 31, 2022 totaled $9,067,000, or $0.31 per share, a decline of 58% on a per share basis compared with the fourth quarter 2021 net income of $19,272,000, or $0.73 per share, and a decline of 58% on a per share basis compared with the first quarter 2021 net income of $19,557,000, or $0.74 per share. The change in net income during the first quarter of 2022, compared with both the fourth quarter of 2021 and the first quarter of 2021, was largely impacted by acquisition-related expenses for the CUB transaction that closed on January 1, 2022.
The first quarter of 2022 results of operations included acquisition-related expenses of $11,705,000 ($8,908,000 or $.30 per share, on an after tax basis) and also included Day 1 provision for credit losses under the CECL model of $6,300,000 ($4,725,000 or $.16 per share, on an after tax basis). The fourth quarter of 2021 results of operations included acquisition-related expenses of approximately $184,000 ($138,000 or less than $0.01 per share, on an after tax basis).
| Summary Average Balance Sheet | |||||||||||||||||||||||||||
| (Tax-equivalent basis / dollars in thousands) | |||||||||||||||||||||||||||
| Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | March 31, 2021 | |||||||||||||||||||||||||
| Principal Balance | Income/ Expense | Yield/ Rate | Principal Balance | Income/ Expense | Yield/ Rate | Principal Balance | Income/ Expense | Yield/ Rate | |||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Federal Funds Sold and Other | |||||||||||||||||||||||||||
| Short-term Investments | $ | 594,901 | $ | 280 | 0.19 | % | $ | 444,325 | $ | 159 | 0.14 | % | $ | 337,981 | $ | 85 | 0.10 | % | |||||||||
| Securities | 1,986,917 | 11,533 | 2.32 | % | 1,783,811 | 10,147 | 2.28 | % | 1,295,630 | 7,327 | 2.26 | % | |||||||||||||||
| Loans and Leases | 3,667,082 | 39,022 | 4.31 | % | 3,007,279 | 34,115 | 4.50 | % | 3,107,902 | 35,164 | 4.58 | % | |||||||||||||||
| Total Interest Earning Assets | $ | 6,248,900 | $ | 50,835 | 3.28 | % | $ | 5,235,415 | $ | 44,421 | 3.37 | % | $ | 4,741,513 | $ | 42,576 | 3.63 | % | |||||||||
| Liabilities | |||||||||||||||||||||||||||
| Demand Deposit Accounts | $ | 1,739,351 | $ | 1,456,179 | $ | 1,268,409 | |||||||||||||||||||||
| IB Demand, Savings, and | |||||||||||||||||||||||||||
| MMDA Accounts | $ | 3,492,813 | $ | 872 | 0.10 | % | $ | 2,871,441 | $ | 702 | 0.10 | % | $ | 2,490,953 | $ | 637 | 0.10 | % | |||||||||
| Time Deposits | 528,452 | 457 | 0.35 | % | 364,669 | 403 | 0.44 | % | 467,310 | 805 | 0.70 | % | |||||||||||||||
| FHLB Advances and Other Borrowings | 184,481 | 1,038 | 2.28 | % | 193,522 | 1,149 | 2.35 | % | 183,376 | 1,151 | 2.55 | % | |||||||||||||||
| Total Interest-Bearing Liabilities | $ | 4,205,746 | $ | 2,367 | 0.23 | % | $ | 3,429,632 | $ | 2,254 | |||||||||||||||||
Full story available on Benzinga.com
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