JASPER, Ind., July 25, 2022 — German American Bancorp, Inc. (Nasdaq: GABC) reported strong operating performance in the second quarter of 2022, with earnings of $23.7 million, resulting in the Company’s second highest level of reported earnings per share at $0.81 per share. This level of quarterly earnings represented an increase of $14.7 million, or approximately 161% on a per share basis, from 2022 first quarter earnings of $9.1 million, or $0.31 per share. The first quarter of 2022 was impacted by one-time related merger and acquisition costs as a result of the January 1, 2022 merger with Citizens Union Bancorp of Shelbyville, Inc. (“CUB”). On a year-over-year basis, the current quarterly earnings, as compared to the second quarter 2021 of $23.8 million, or $0.90 per share, were comparable in dollars but decreased 10% on a per share basis as a result of the Company’s January 1, 2022 issuance of approximately 2.9 million shares of common stock as part of the merger consideration in the CUB transaction. The second quarter 2021 earnings were positively impacted by a reserve for credit loss release of $5 million and approximately $2.8 million of Paycheck Protection Program (“PPP”) fees equating to approximately $0.22 per share on an after-tax basis.
The second quarter 2022 earnings performance was driven by a number of factors including improved net interest margin and continued strong credit metrics, as well as increased interchange fee income and deposit service charges, and improved efficiencies in non-interest expenses resulting from the CUB merger.
German American Bancorp (NASDAQ:GABC) is an Indiana & Kentucky-based community-focused financial services organization. The bank has $5.3 billion in total banking assets and oversees $2.2 billion in investment and trust under management. With ~800 team members, the bank operates in 68 banking offices in its core markets.
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.
German American Bancorp has a long history of acquisitions. Since 2010, the bank has engaged in 10 acquisition exercises, growing its asset size from $1.9 billion by FYE2011 to YTD September 2021. The bank, for the first time, disclosed its tangible book value dilution earn-back period of less than ~3 years in its merger announcement of Citizen Union Bancorp. The street is expecting double-digit EPS accretion, which is likely to be achievable. Over time, GABC’s efficiency ratio has largely improved as the bank focuses on reducing the footprint of overlapped operations and improving profitability.
The market clearly recognizes and rewards GABC’s expertise as a recurring acquirer of depository institutes. As such, P/TBV has been consistently trading at a premium to its peers, suggesting that shareholders are in support of GABC’s strategy of expanding market presence utilizing expensive acquisition currency, i.e., GABC’s shares. On top of the advantage associated with its size and shareholder support over its peers, the Bank has shown the ability to cross-sell services and products, which drives additional revenue that will flow directly to the bottom line.
From a profitability perspective, the bank has generated consistent ROA and low-to-mid double-digit ROE. Given the level of profitability reported on the asset, the bank is reporting healthy ROTCE (ROE is skewed by goodwill from acquisitions). Lately, the management team has been focusing on driving a lower efficiency ratio and the bank has made some progress on that front.
GABC has a very strong credit profile for its loan portfolio. Provision for credit loss has consistently trended below 10 basis points, which is far superior to its peers.
The low cost of the deposit is one of the core advantages of the bank. From a deposit breakdown perspective, 61% of deposits are interest-bearing demand, saving & money market funds while 30% are non-interest-bearing demand deposits. The last 9% is comprised of time deposits.
Neil Dauby, German American’s President and CEO, stated, “We were very pleased with our ability to build upon our momentum from our first quarter acquisition with a strong operating performance in the second quarter. We are encouraged by our improving net interest margins as we anticipate continuing to realize the benefits from a rising rate environment as well as the strength of our lending pipelines throughout most of our existing and newly acquired geographic footprint. Although continued fears of inflation and recession may potentially slow future loan growth, we will be prepared to face the headwinds from future economic uncertainties.”
The Company also announced its Board of Directors has declared a regular quarterly cash dividend of $0.23 per share, which will be payable on August 20, 2022 to shareholders of record as of August 10, 2022.