Southern Indiana Business Report
JASPER – German American Bancorp, Inc. (Nasdaq: GABC) reported solid annual earnings of $85.9 million, or $2.91 per share, for the year ended Dec. 31, 2023, representing the second highest level of earnings per share in the company’s history, according to the latest earnings report.
This level of reported annual earnings resulted in a 14.7% return on average shareholders’ equity, marking the 19th consecutive fiscal year in which GAB has delivered a double-digit return on shareholders’ equity. The company also announced the declaration of an 8% increase in its quarterly cash dividend, marking the 12th consecutive year of increased cash dividends.
“We are extremely pleased with our operating results in 2023, especially given the challenging economic environment, as we continue our decades-long trend of exceptional financial performance,” said D. Neil Dauby, German American’s chairman and CEO in the release. “Thanks to the dedicated efforts of our relationship-focused team of professionals, we are confident that our strong community presence, healthy financial condition, and disciplined approach to risk management will continue to drive future profitability. We remain excited and committed to the vitality and future growth of our Indiana and Kentucky communities.”
Its 2023 reported net income represented an increase of $4.1 million, or approximately 5% on a per share basis, over 2022 net income of $81.8 million, or $2.78 per share, which was impacted by the one-time merger costs related to the 2022 acquisition of Citizens Union Bancorp of Shelbyville Inc.
The 2023 annual operating performance was highlighted by an expanded net interest margin of 13 basis points, which increased from 3.45% to 3.58% as rising deposit costs from continued Federal Reserve rate increases and shifting of deposit composition did not escalate meaningfully until the second half of 2023.
Growth in lending sector
In addition, 2023 was marked by solid organic loan growth across most lending categories, continued strong credit metrics, solid gains in non-interest income led by wealth management and interchange fees, and ongoing optimization of our non-interest expenses. The Company’s operating results were also positively impacted by the execution of qualitative strategic initiatives such as meaningful talent acquisitions and ongoing technology/digital investment.
Given the tumultuous year in the banking industry led by economic uncertainty and multiple bank failures, German American remained well positioned for long term success with strong capital levels and solid liquidity. The company’s combined enterprise, which encompasses 75 banking offices across two contiguous states, continues to benefit from its diversified footprint of rural, suburban and urban markets providing a strong deposit franchise base as well as significant organic growth opportunities.
On a quarter over quarter basis, fourth quarter 2023 net income of $21.5 million and earnings per share of $0.73 were consistent with third quarter 2023 net income of $21.5 million, or $0.73 per share. Net interest margin declined from 3.57% to 3.43%, or 14 basis points, quarter over quarter. This compression was driven by a lower level of accretion of discounts on acquired loans that negatively impacted the net interest margin by 7 basis points and an overall increase in the cost of funds. The margin compression was partially offset by exceptional credit metrics, with no provision for credit losses being taken in the fourth quarter, largely as a result of a fully-reserved, non-performing commercial relationship being paid off.
In addition, the fourth quarter 2023 operating performance was highlighted by strong organic loan and deposit growth. Total loans increased $84 million, or approximately 9% on an annualized basis, and were broad-based across most loan categories and markets. Deposits increased $117 million, or 2% on a linked quarter basis, with non-interest bearing accounts remaining at a solid 28.4% of total deposits. Non-interest income growth of 5% and flat non-interest expenses, in each case on a linked-quarter basis, also contributed to the solid fourth quarter operating performance.
German American also announced an 8% increase in the level of its regular quarterly cash dividend, as its Board of Directors declared a regular quarterly cash dividend of $0.27 per share.
Balance sheet highlights
Total assets for the company totaled $6.152 billion at Dec. 31, 2023, representing an increase of $146.5 million compared with Sept. 30, 2023 and a decline of $3.8 million compared with Dec. 31, 2022. The increase in total assets at Dec. 31, 2023 compared with Sept. 30, 2023 was largely related to an increase in the market value of the securities portfolio and an increase in total loans.
Total loans as of Dec. 31 increased $84.3 million, or 9% on an annualized basis, compared with Sept. 30, 2023 and increased $189.3 million, or 5%, compared with year-end 2022.
The composition of the loan portfolio has remained relatively stable and diversified. The portfolio is most heavily concentrated in commercial real estate loans at 53% of the portfolio, followed by commercial and industrial loans at 17% of the portfolio, and agricultural loans at 11% of the portfolio.