JASPER— German American Bancorp, Inc. (Nasdaq: GABC) reported first-quarter 2024 earnings of $19.0 million, or $0.64 per share, compared to earnings of $21.5 million, or $0.73 per share, for the fourth quarter 2023 and earnings of $20.8 million, or $0.71 per share, for the first quarter 2023.
First quarter 2024 operating performance was highlighted by strong linked quarter commercial real estate and retail organic loan growth, linked quarter non-public fund deposit growth, strong credit metrics,
controlling operating expenses, and a solid level of diversified non-interest income. However, from an earnings perspective, these increases were more than offset by lower net interest income due to modest net interest margin compression driven by higher deposit costs.
The net interest margin declined from 3.43% to 3.35%, or eight basis points, during the first quarter of 2024 on a linked quarter basis as the funding cost increase of 12 basis points outpaced the earning asset yield increase of 4 basis points. The rise in the cost of funds in the first quarter of 2024 was driven by the continued competitive deposit pricing in the marketplace and the ongoing re-mixing of the Company’s deposit composition as customers continued to move into time deposit accounts seeking higher yields.
First-quarter 2024 deposits declined approximately $33.6 million, or 3%, on an annualized linked quarter basis compared to year-end 2023, driven by a delayed seasonal outflow of public fund deposits into the first quarter of 2024. Non-public funds, however, continued to grow positively on a linked-quarter basis.
Overall, the core deposit base remains diverse, with approximately 21% of total deposits being exposed to stable and manageable uninsured and uncollateralized deposits and non-interest-bearing demand accounts remaining stable at 28%.
During the first quarter of 2024, loans remained stable and diversified, with commercial real estate and retail organic loan growth helping offset the larger seasonal reductions in agricultural lines of credit and ongoing reduced utilization in commercial and industrial lines. Credit quality remained strong as non-performing assets were 0.16% of period-end assets, and non-performing loans totaled 0.25% of period
end loans.
An increase in wealth management fees attributable to the ongoing growth and gathering of assets under management drove non-interest income for the first quarter 2024.
previously reported, this dividend rate represents an 8% increase over the rate in effect during 2023.
D. Neil Dauby, German American’s Chairman & CEO, stated, “Our Company delivered solid first quarter
results will kick off the 2024 year while maintaining strong capital levels and solid liquidity. During the quarter, we continued to add key talent to our team in both customer-facing and operational areas. We continued to invest in new digital platforms/systems to improve customer experience, drive customer acquisition/retention, and drive future revenues. Our talented team of “relationship-driven, value-added” professionals, innovative technology, and continuous improvement mindset will position us well for continued growth across our footprint.”
Balance Sheet Highlights
Total assets for the Company totaled $6.112 billion on March 31, 2024, representing a decline of $40.3
million compared with December 31, 2023, and an increase of $115.0 million compared with March 31, 2023. The modest decline in total assets on March 31, 2024, compared with year-end 2023, was largely
related to a decrease in the securities portfolio, while the increase in total assets on March 31, 2024, compared to March 31, 2023, was mainly attributable to an increase in total loans, partially offset by a decline in the securities portfolio quarter of 2023 was largely driven by an increase in the cost of funds.
Securities available for sale declined $57.6 million as of March 31, 2024, compared with December 31, 2023, and $131.0 million compared with March 31, 2023. The decline on March 31, 2024, in the available-for-sale securities portfolio compared with year-end 2023 and the end of the first quarter of 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.
Total loans remained relatively stable on March 31, 2024, compared with year-end 2023, increasing by $1.0 million, while total loans increased by $206.1 million, or 6%, compared with March 31, 2023. 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% annually, while retail loans grew $12.5 million, or 6% annually. 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.
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% and agricultural loans at 10%. The Company’s commercial lending is extended to various industries, including multi-family housing and lodging, agribusiness, manufacturing, health care, wholesale, and retail services. The Company’s commercial real estate portfolio has limited exposure to office real estate, with office exposure totaling approximately 4% of the total loan portfolio.
The Company’s allowance for credit losses totaled $43.8 million on March 31, 2024, and December 31, 2023, and totaled $44.3 million on March 31, 2023. The allowance for credit losses represented 1.10% of
period-end loans on both March 31, 2024, and December 31, 2023, and represented 1.18% of period-end loans on March 31, 2023.
Non-performing assets totaled $10.0 million on March 31, 2024, $9.2 million on December 31, 2023, and $14.6 million on March 31, 2023. Non-performing assets represented 0.16% of total assets at March 31, 2024, 0.15% at December 31, 2023, and 0.24% at March 31, 2023. Non-performing loans represented 0.25% of total loans at March 31, 2024, 0.23% at December 31, 2023, and 0.39% at March 31, 2023.
The cost of funds continued to March 31, 2024. Total deposits declined $33.6 million, or 3% on an annualized basis, compared to year-end 2023 and increased $64.5 million, or 1%, compared with March 31, 2023. The decline on 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 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 percentage of total deposits, with both March 31, 2024, and December 31, 2023, non-interest deposits totaling 28% compared with 31% on March 31, 2023.
On March 31, 2024, the capital levels for the Company and its subsidiary bank, German American Bank (the “Bank”), remained well over the minimum amounts needed for capital adequacy purposes, and the Bank’s capital levels met the requirements to be considered well-capitalized.
Results of Operations Highlights – Quarter ended March 31, 2024
Net income for the quarter ended March 31, 2024, totaled $19,022,000, or $0.64 per share, a decline of 12% on a per share basis, compared with the fourth quarter 2023 net income of $21,507,000, or $0.73 per share, and 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.
During the first quarter of 2024, net interest income, on a non-tax-equivalent basis, totaled $44,994,000, a decline of $613,000, or 1%, compared to the fourth quarter of 2023 net interest income of $45,607,000 and a decline of $4,015,000, or 8%, compared to the first quarter of 2023 net interest income of $49,009,000. The decline in net interest income during the first quarter of 2024 compared with both the fourth quarter of 2023 and 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 3.43% in the fourth quarter of 2023 and 3.69% in the first quarter of 2023. The decline in the net interest margin during the first quarter of 2024 compared with both the fourth quarter of 2023 and the first accelerated 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.
The accretion of loan discounts on acquired loans has impacted the Company’s net interest margin and net interest income. Accretion of discounts on acquired loans totaled $360,000 during the first quarter of 2024, $280,000 during the fourth quarter of 2023, and $530,000 during the first quarter of 2023. Accretion of loan discounts on acquired loans contributed approximately three basis points to the net interest
margin in the first quarter of 2024, 2 basis points in the fourth quarter of 2023, and four basis points in the first quarter of 2023.
During the quarter ended March 31, 2024, the Company recorded a provision for credit losses of $900,000 compared with no provision in the fourth quarter of 2023 and a provision for credit losses of $1,100,000 during the first quarter of 2023. The lack of a provision in the fourth quarter of 2023 was largely related to the resolution, during the fourth quarter of 2023, of a single commercial borrowing relationship with minimal loss recognition for which the Company had established a significant reserve in previous periods.
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 $881,000, or 9 basis points on an annualized basis, of average loans during the fourth quarter of 2023 and $953,000, or 10 basis points, of average loans during the first quarter of 2023.
During the quarter ended March 31, 2024, non-interest income totaled $15,822,000, an increase of $228,000 or 1%, compared with the fourth quarter of 2023 and an increase of $855,000, or 6%, compared with the first quarter of 2023.
Wealth management fees increased $168,000, or 5%, during the first quarter of 2024 compared with the
fourth quarter of 2023 and increased $722,000, or 27%, 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 both the fourth quarter of 2023 and first quarter of 2023.
Insurance revenues increased $612,000, or 27%, during the quarter ended March 31, 2024, compared with
the fourth quarter of 2023, and declined $257,000, or 8%, compared with the first quarter of 2023. The
increase during the first quarter of 2024 compared with the fourth quarter of 2023 was primarily related to contingency revenue and to an increase in commercial lines insurance revenues. 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 no contingency revenue during the fourth quarter of 2023 and
$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.
Interchange fee income declined $284,000, or 7%, during the quarter ended March 31, 2024, compared with the fourth quarter of 2023, and declined $112,000, or 3%, compared with the first quarter of 2023. The decline in the first quarter of 2024 compared with the fourth quarter of 2023 was primarily related to a seasonally lower level of customer transaction volume.
Other operating income declined $525,000, or 28%, during the first quarter of 2024 compared with the
fourth quarter of 2023 and increased $151,000, or 12%, compared with the first quarter of 2023. The
decline during the first quarter of 2024 compared to the fourth quarter of 2023 was largely attributable to the gain on sale of real estate related to the consolidation of various branch office facilities during the fourth quarter of 2023, partially mitigated by improved fees and fair value adjustments associated with interest rate swap transactions with loan customers. The increase during the first quarter of 2024 compared with the same period of the prior year was related to a higher level of fees associated with interest rate swap transactions with loan customers.
Net gains on sales of loans increased $219,000, or 41%, during the first quarter of 2024 compared with the fourth quarter of 2023 and increased $164,000, or 28%, compared with the first quarter of 2023. The
increase during the first quarter of 2024 compared with both the fourth quarter of 2023 and 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 $27.0 million during the fourth quarter of 2023 and $23.4 million during the first quarter of 2023.
During the quarter ended March 31, 2024, non-interest expense totaled $36,738,000, an increase of $1,004,000, or 3%, compared with the fourth quarter of 2023, and a decline of $878,000, or 2%, compared with the first quarter of 2023.
Salaries and benefits increased $230,000, or 1%, during the quarter ended March 31, 2024, compared with the fourth quarter of 2023, and declined $668,000, or 3%, 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.
Occupancy, furniture, and equipment expenses increased $291,000, or 8%, during the first quarter of 2024
compared with the fourth quarter of 2023 and declined $16,000, or less than 1%, compared to the first
quarter of 2023. The increase during the first quarter of 2024 compared with the fourth quarter of 2023 was largely due to seasonal maintenance activities.
Professional fees increased $425,000, or 36%, in the first quarter of 2024 compared with the fourth quarter of 2023 and increased $33,000, or 2%, compared with the first quarter of 2023. The increase during the first quarter of 2024 compared with the fourth quarter of 2023 was largely attributable to the costs associated with services related to the Company’s year-end financial reporting processes, annual meeting preparations, and certain talent recruiting engagements.
