Jasper, Indiana: April 29, 2019 -- German American Bancorp, Inc. (NASDAQ: GABC) reported record quarterly earnings of $15.1 million, or $0.60 per share, for the quarter ending on March 31, 2019. This level of quarterly earnings performance was an increase of 36%, on a per share basis, compared with fourth quarter 2018 net income of $11.0 million, or $0.44 per share, and an increase of 18%, on a per share basis, compared with the first quarter 2018 net income of $11.8 million, or $0.51 per share.

These quarterly comparisons are inclusive of the Company’s 2018 five-branch acquisition in the greater Columbus, Indiana market area on May 18, 2018 and its acquisition of First Security, Inc. on October 15, 2018. First Security was based in Owensboro, Kentucky, and operated 11 retail banking offices in the Owensboro, Bowling Green, Franklin and Lexington, Kentucky market areas and in Evansville and Newburgh, Indiana market area.

The record first quarter 2019 earnings, as compared with the fourth quarter of 2018, were partially attributable to an increased level of net interest income during the current quarter, resulting from both increased average earning assets and an improved tax-equivalent net interest margin. The increased level of average earning assets during the first quarter of 2019, compared to the fourth quarter of 2018, was largely attributable to the effect of the acquisition of First Security on October 15, 2018.

Other factors contributing to the record first quarter earnings included the recording of $1.4 million in contingency insurance revenue during the quarter and a $3.1 million decline in the level of operating expenses, as compared to the fourth quarter of 2018. The decline in operating expenses was materially due to a reduced level of acquisition-related expenses in the first quarter. The first quarter of 2019 results of operations included acquisition-related expenses of approximately $544,000 ($407,000 or $0.02 per share, on an after-tax basis), compared to $3.1 million (or $2.3 million, or $0.09 per share, on an after-tax basis) in the fourth quarter of 2018.

End of period loans and deposits as of March 31, 2019, relative to December 31, 2018 year-end balances, were relatively flat to slightly lower, as March 31, 2019 total loans declined by 3% on annualized basis, while total deposits decreased by 1% on an annualized basis. The slight decrease in loans and deposits during the quarter was largely attributable to seasonality as the first quarter is historically a slower growth period for the Company, specifically related to seasonal pay-downs within the agricultural loan portfolio. Additionally, the Company repositioned a portion of the acquired loan portfolio during the quarter, resulting in an elevated level of loan payoffs, including within the residential mortgage loan portfolio.

Commenting on the Company’s record first quarter performance, Mark A. Schroeder, German American’s Chairman & CEO, stated, "We’re extremely pleased with the strong start we experienced during the first quarter of this year, both in terms of earnings growth and the continued integration of First Security. Additionally, we announced the pending acquisition of Citizens First Corporation of Bowling Green, Kentucky on February 21, 2019. The combination of First Security and Citizens First in the vibrant Bowling Green market will position German American as one of market share leaders in this dynamic market.”

Schroeder continued, “While balance sheet growth was limited during the quarter due to seasonal factors, we remain very encouraged about our ability to experience strong growth throughout the balance of this year. Our loan pipelines continue to be exceptionally strong, as evidenced by the 9% growth, on an annualized basis, that we saw within our Commercial & Industrial Loans during the first quarter. We also were very pleased with the approximately 5% annualized growth in end of period balances in Non-interest-bearing Demand Deposits. Even though the current economic recovery is approaching historic length, we’re continuing to see indications that economic growth will remain strong throughout 2019."

The Company also announced its Board of Directors declared a regular quarterly cash dividend of $0.17 per share, which will be payable on May 20, 2019 to shareholders of record as of May 10, 2019.

Balance Sheet Highlights

The Company completed a five-branch acquisition of locations of First Financial Bancorp (formerly branch locations of Mainsource Financial Group, Inc. prior to its merger with First Financial Bancorp) on May 18, 2018. Four of the branches are located in Columbus, Indiana, and one in Greensburg, Indiana. In addition, on October 15, 2018, the Company completed its acquisition of First Security, Inc. ("First Security") and its subsidiary bank, First Security Bank, Inc. First Security was based in Owensboro, Kentucky, and operated 11 retail banking offices in Owensboro, Bowling Green, Franklin and Lexington, Kentucky and in Evansville and Newburgh, Indiana.

Total assets for the Company totaled $3.896 billion at March 31, 2019, representing a decline of $33.6 million, or 3% on an annualized basis, compared with December 31, 2018 and an increase of $770.5 million, or 25%, compared with March 31, 2018. The increase in total assets as of March 31, 2019 compared to a year ago was driven largely by the acquisition of First Security and the five-branch network in the Columbus and Greensburg, Indiana markets, as well as organic loan growth.

March 31, 2019 total loans declined $19.3 million, or 3% on an annualized basis, compared with December 31, 2018 and increased $558.6 million, or 26%, compared with March 31, 2018.

The decline during the first quarter of 2019 was driven by a seasonal decline in agricultural loans of approximately $17.2 million, or 19% on an annualized basis, and a decline in retail loans of $17.8 million, or 12% on an annualized basis, partially mitigated by an increase of $12.2 million, or 9% on an annualized basis, of commercial and industrial loans, and an increase of $3.4 million, or 1% on an annualized basis, of commercial real estate loans.

Non-performing assets totaled $13.1 million at March 31, 2019 compared to $13.5 million at December 31, 2018 and $10.7 million at March 31, 2018. Non-performing assets represented 0.34% of total assets at each of March 31, 2019, December 31, 2018 and March 31, 2018. Non-performing loans totaled $12.4 million at March 31, 2019 compared to $13.2 million at December 31, 2018 and $10.6 million at March 31, 2018. Non-performing loans represented 0.46% of total loans at March 31, 2019 compared to 0.48% at December 31, 2018 and 0.49% at March 31, 2018.

The Company’s allowance for loan losses totaled $16.2 million at March 31, 2019 compared to $15.8 million at December 31, 2018 and $14.5 million at March 31, 2018. The allowance for loan losses represented 0.60% of period-end loans at March 31, 2019 compared with 0.58% of period-end loans at December 31, 2018 and 0.67% of period-end loans at March 31, 2018. From time to time, the Company has acquired loans through bank and branch acquisitions with the most recent being the First Security acquisition during the fourth quarter of 2018 and a five-branch acquisition in the second quarter of 2018. Under acquisition accounting treatment, loans acquired are recorded at fair value which includes a credit risk component, and therefore the allowance on loans acquired is not carried over from the seller. The Company held a net discount on acquired loans of $18.2 million at March 31, 2019, $19.5 million at December 31, 2018 and $7.3 million at March 31, 2018.

March 31, 2019 total deposits declined $7.5 million, or 1% on an annualized basis, compared with December 31, 2018 and increased $598.0 million compared with March 31, 2018.

Results of Operations Highlights – Quarter ended March 31, 2019

Net income for the quarter ended March 31, 2019 totaled $15,067,000, or $0.60 per share, an increase of 36% on a per share basis compared with fourth quarter 2018 net income of $10,980,000, or $0.44 per share, and an increase of 18% on a per share basis compared with the first quarter 2018 net income of $11,813,000, or $0.51 per share.

Net income for each quarter presented was impacted by merger and acquisition activity during 2018 and 2019. The first quarter of 2019 results of operations included acquisition-related expenses of approximately $544,000 ($407,000 or $0.02 per share, on an after tax basis), while the the fourth quarter of 2018 results of operations included acquisition-related expenses of approximately $3,107,000 ($2,343,000 or $0.09 per share, on an after tax basis) and the first quarter of 2018 included approximately $186,000 ($139,000 or less than $0.01 per share on an after tax basis).

During the quarter ended March 31, 2019, net interest income totaled $33,591,000, which represented an increase of $608,000, or 2%, from the quarter ended December 31, 2018 net interest income of $32,983,000 and an increase of $7,981,000, or 31%, compared with the quarter ended March 31, 2018 net interest income of $25,610,000. The increased level of net interest income during the first quarter of 2019 compared with both the fourth quarter of 2018 and the first quarter of 2018 was driven primarily by a higher level of average earning assets and an improved tax equivalent net interest margin. The increased level of average earning assets during

the first quarter of 2019 compared with the fourth quarter of 2018, was driven primarily by the completed acquisition of First Security on October 15, 2018.

 

The tax equivalent net interest margin for the quarter ended March 31, 2019 was 3.88% compared with 3.83% in the fourth quarter of 2018 and 3.66% in the first quarter of 2018. Accretion of loan discounts on acquired loans contributed approximately 16 basis points to the net interest margin on an annualized basis in the first quarter of 2019, 13 basis points in the fourth quarter of 2018, and 4 basis points in the first quarter of 2018.

During the quarter ended March 31, 2019, the Company recorded a provision for loan loss of $675,000 compared with no provision for loan loss in the fourth quarter of 2018 and $350,000 in the first quarter of 2018. The provision during all periods was done in accordance with the Company's standard methodology for determining the adequacy of its allowance for loan loss.

During the quarter ended March 31, 2019, non-interest income totaled $11,658,000, an increase of $1,925,000, or 20%, compared with the quarter ended December 31, 2018, and an increase of $2,166,000, or 23%, compared with the first quarter of 2018.

Service charges on deposit accounts declined $172,000, or 8%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $429,000, or 29%, compared with the first quarter of 2018. The decline during the first quarter of 2019 compared with the fourth quarter of 2018 was largely related to seasonal declines

in deposit fees, while the increase during the first quarter of 2019 compared with first quarter of 2018 was largely attributable to the acquisitions completed during 2018.

Insurance revenues increased $1,328,000, or 71%, during the quarter ended March 31, 2019, compared with the fourth quarter of 2018 and increased $275,000, or 9%, compared with the first quarter of 2018. The increase during the first quarter of 2019 compared with each of the fourth quarter of 2018 and the first quarter of 2018 was primarily due to increased contingency revenue. Contingency revenue during the first quarter of 2019 totaled $1,375,000 compared with no contingency revenue during the fourth quarter of 2018 and $1,218,000 during the first quarter of 2018. The fluctuation in contingency revenue is a normal course of business variance and 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.

Company owned life insurance revenue increased $464,000, or 110%, during the quarter ended March 31, 2019, compared with the fourth quarter of 2018 and increased $572,000, or 183%, compared with the first quarter of 2018. The increases were largely related to death benefits of $554,000 received from life insurance policies during the first quarter of 2019.

Interchange fees declined $140,000, or 6%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $613,000, or 41%, compared with the first quarter of 2018. The increase during the first quarter of 2019 compared with the first quarter of 2018 was largely attributable to increased card utilization by customers and the acquisitions completed during 2018.

Other operating income increased $242,000, or 38%, during the quarter ended March 31, 2019 compared with the fourth quarter of 2018 and increased $267,000, or 44%, compared with the first quarter of 2018. The increase during the first quarter quarter of 2019 compared with both comparative periods was largely attributable to the gain realized on the sale of a former branch facility of $262,000.

Net gains on sales of loans increased $398,000, or 68%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $331,000, or 51%, compared with the first quarter of 2018. The increase during the first quarter of 2019 in the net gain on sale compared with both comparative periods was largely attributable to higher pricing levels on loans sold. Loan sales totaled $28.9 million during the first quarter of 2019, compared with $35.7 million during the fourth quarter of 2018 and $29.9 million during the first quarter of 2018.

During the quarter ended March 31, 2019, non-interest expense totaled $26,759,000, a decline of $3,055,000, or 10%, compared with the quarter ended December 31, 2018, and an increase of $6,304,000, or 31%, compared

with the first quarter of 2018. The first quarter of 2019 included acquisition-related expenses of $544,000 while the fourth quarter of 2018 included acquisition-related expenses of approximately $3,107,000 and the first quarter of 2018 included acquisition-related expenses of approximately $186,000.

Salaries and benefits increased $17,000, or less than 1%, during the quarter ended March 31, 2019 compared with the fourth quarter of 2018 and increased $2,918,000, or 24%, compared with the first quarter of 2018. The increase in salaries and benefits during the first quarter of 2019 compared with both the fourth quarter of 2018 and the first quarter of 2018 was primarily attributable to an increased number of full-time equivalent employees due in part to the acquisition transactions completed during 2018. The fourth quarter of 2018 also included approximately $474,000 of acquisition-related salary and benefit costs.

Occupancy, furniture and equipment expense increased $16,000, or less than 1%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $810,000, or 34%, compared to the first quarter of 2018. The increase during the first quarter of 2019 compared with the first quarter of 2018 was primarily due to operating costs related to the acquisitions completed during 2018 as well as other facilities the Company has placed into service over the past several quarters.

Data processing fees declined $1,525,000, or 49%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $456,000, or 40%, compared to the first quarter of 2018. The decline during the first quarter of 2019 compared with the fourth quarter of 2018 was driven by acquisition and conversion-related costs which totaled approximately $1,668,000 during the fourth quarter of 2018. The increase in data

processing fees during the first quarter of 2019 compared with the first quarter of 2018 was also related to the on-going operating costs associated with the acquisitions completed during 2018.

 

Professional fees declined $1,010,000, or 43%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $456,000, or 52%, compared to the first quarter of 2018. The decline during the first quarter of 2019 compared to the fourth quarter of 2018 was due in part to professional fees related to merger and acquisition activity during 2018 and to fees related to certain contract negotiations. The increase in professional fees during the first quarter of 2019 compared with 2018 was largely related to acquisition related professional fees. Merger and acquisition related professional fees totaled approximately $508,000 during the first quarter of 2019 compared with $730,000 in the fourth quarter of 2018 and $177,000 during the first quarter of 2018. Professional fees during the fourth quarter of 2018 also included approximately $930,000 in fees related to certain contract negotiations.

Intangible amortization increased $33,000, or 4%, during the quarter ended March 31, 2019 compared with the fourth quarter of 2018 and increased $637,000, or 309%, compared with the first quarter of 2018. The increase in intangible amortization was attributable to the previously discussed acquisitions completed during 2018.

Other operating expenses declined $427,000, or 11%, during the first quarter of 2019 compared with the fourth quarter of 2018 and increased $807,000, or 29%, compared with the first quarter of 2018. The decline in the first quarter of 2019 compared with the fourth quarter of 2018 was partially attributable to acquisition-related expenses that totaled approximately $176,000 during the fourth quarter of 2018. The increase during the first quarter of 2019 compared with the first quarter of 2018 was largely attributable to the operating costs related to the acquisitions completed in 2018.

About German American

German American Bancorp, Inc. is a NASDAQ-traded (symbol: GABC) bank holding company based in Jasper, Indiana. German American, through its banking subsidiary German American Bank, operates 65 banking offices in 20 contiguous southern Indiana counties and four counties in Kentucky. 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.).

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that, by their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties, and other factors. Actual results and experience could differ materially from the anticipated results or other expectations expressed or implied by these forward-looking statements as a result of a number of factors, including but not limited to, those discussed in this press release. Factors that could cause actual experience to differ from the expectations expressed or implied in this press release include the unknown future direction of interest rates and the timing and magnitude of any changes in interest rates; changes in competitive conditions; the introduction, withdrawal, success and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies; changes in customer borrowing, repayment, investment and deposit practices; changes in fiscal, monetary and tax policies; changes in financial and capital markets; potential deterioration in general economic conditions, either nationally or locally, resulting in, among other things, credit quality deterioration; capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; risks of expansion through acquisitions and mergers, such as unexpected credit quality problems of the acquired loans or other assets, unexpected attrition of the customer base of the acquired institution or branches, and difficulties in integration of the acquired operations; factors driving impairment charges on investments; the impact, extent and timing of technological changes; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities, including related costs, expenses, settlements and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; actions of the Federal Reserve Board; changes in accounting principles and interpretations; potential increases of federal deposit insurance premium expense, and possible future special assessments of FDIC premiums, either industry wide or specific to the Company’s banking subsidiary; actions of the regulatory authorities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the Federal Deposit Insurance Act and other possible legislative and regulatory actions and reforms; 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; the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends; and other risk factors expressly identified in the Company’s filings with the United States Securities and Exchange Commission. Such statements reflect our views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements. It is intended that these forward-looking statements speak only as of the date they are made. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.