UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) I X I Quarterly Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 1997 Or I I Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from to ---------- ----------- Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code: (812) 482-1314 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 10, 1997 Common Stock, $10.00 par value 2,541,552 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- March 31, 1997 and December 31, 1996 Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996. Notes to Consolidated Financial Statements -- March 31, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3 Restated Articles of Incorporation 10.1 Form of Incentive Stock Option Agreement executed January 28, 1997 between the Registrant and George W. Astrike (2,284 shares). 10.2 Schedule of Incentive Stock Option Agreements between the Registrant and its executive officers. 27 Financial Data Schedule b) Reports on Form 8-K SIGNATURES PART 1.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (dollar references in thousands except share data) (unaudited) March 31, December 31, 1997 1996 ASSETS Cash and Due from Banks $16,848 $17,134 Federal Funds Sold 950 20,600 Cash and Cash Equivalents 17,798 37,734 Interest-bearing Balances with Banks 788 597 Other Short-term Investments 996 979 Securities Available-for-Sale,at market 103,734 98,557 Securities Held-to-Maturity, at cost 23,014 22,832 Loans 318,280 313,734 Less: Unearned Income (399) (452) Allowance for Loan Losses (6,386) (6,528) Loans, Net 311,495 306,754 Premises, Furniture and Equipment, Net 11,691 11,585 Other Real Estate 202 203 Intangible Assets 1,723 1,774 Accrued Interest Receivable and Other Assets 8,335 8,428 TOTAL ASSETS $479,776 $489,443 LIABILITIES Noninterest-bearing Deposits $47,050 $52,674 Interest-bearing Deposits 372,385 370,232 Total Deposits 419,435 422,906 Short-term Borrowings 7,109 12,527 FHLB Borrowings --- 1,000 Accrued Interest Payable and Other Liabilities 4,049 4,217 TOTAL LIABILITIES 430,593 440,650 SHAREHOLDERS' EQUITY Common Stock, $10 par value; 5,000,000 shares authorized, and 2,541,552 and 2,539,059 issued and outstanding in 1997 and 1996, respectively 25,416 25,390 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 3,839 3,649 Retained Earnings 19,910 19,259 Unrealized Appreciation on Securities Available-for-Sale, net of tax 18 495 TOTAL SHAREHOLDERS' EQUITY 49,183 48,793 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $479,776 $489,443 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Three Months Ended March 31, 1997 1996 INTEREST INCOME Interest and Fees on Loans $7,036 $6,785 Interest on Federal Funds Sold 101 180 Interest on Short-term Investments 27 85 Interest and Dividends on Securities 1,925 1,600 TOTAL INTEREST INCOME 9,089 8,650 INTEREST EXPENSE Interest on Deposits 4,162 3,921 Interest on Short-term Borrowings 99 133 TOTAL INTEREST EXPENSE 4,261 4,054 NET INTEREST INCOME 4,828 4,596 Provision for Loan Losses 139 23 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,689 4,573 NONINTEREST INCOME Income from Fiduciary Activities 66 51 Service Charges on Deposit Accounts 280 206 Investment Services Income 106 102 Other Charges, Commissions, and Fees 95 101 Gains on Sales of Loans and Other Real Estate --- 2 Gains on Sales of Securities --- --- TOTAL NONINTEREST INCOME 547 462 NONINTEREST EXPENSE Salaries and Employee Benefits 1,826 1,763 Occupancy Expense 279 241 Furniture and Equipment Expense 226 258 Computer Processing Fees 125 107 Professional Fees 212 79 Other Operating Expenses 651 641 TOTAL NONINTEREST EXPENSE 3,319 3,089 Income before Income Taxes 1,917 1,946 Income Tax Expense 643 626 Net Income $1,274 $1,320 Earnings Per Share (Note 2) $.50 $.52 Dividends Paid Per Share (Note 2) $.21 $.19 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar references in thousands) (unaudited) Three Months Ended March 31, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $1,274 $1,320 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments (36) (30) Depreciation and Amortization 282 289 Provision for Loan Losses 139 23 Gains on Sales of Securities 0 0 Gains on Sales of Loans and Other Real Estate 0 (2) Change in Assets and Liabilities: Unearned Income (53) (81) Deferred Loan Fees (26) (1) Interest Receivable (834) 329 Other Assets 928 (386) Deferred Taxes` 21 109 Interest Payable 469 143 Other Liabilities (637) (19) Total Adjustments 253 374 Net Cash from Operating Activities 1,527 1,694 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks (191) 98 Proceeds from Maturities of Other Short-term Investments 0 3,000 Purchase of Other Short-term Investments 0 (979) Proceeds from Maturities of Securities Available-for-Sale 7,336 8,973 Proceeds from Sales of Securities Available-for-Sale 0 0 Purchase of Securities Available-for-Sale (12,971) (9,126) Proceeds from Maturities of Securities Held-to-Maturity 318 1,726 Proceeds from Sales of Securities Held-to-Maturity 0 0 Purchase of Securities Held-to-Maturity (500) (342) Purchase of Loans 0 (24) Loans Made to Customers net of Payments Received (4,822) (4,795) Property and Equipment Expenditures (337) (171) Proceeds from Sales of Other Real Estate 0 15 Net Cash from Investing Activities (11,167) (1,625) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits (3,471) (402) Change in Short-term Borrowings (5,418) (2,602) Change in Long-term Borrowings (1,000) 2,000 Dividends Paid (404) (402) Purchase of Fractional Shares (5) 0 Exercise of Stock Options 2 6 Purchase and Retire Common Stock 0 0 Net Cash from Financing Activities (10,296) (1,400) Net Change in Cash and Cash Equivalents (19,936) (1,331) Cash and Cash Equivalents at Beginning of Year 37,734 32,601 Cash and Cash Equivalents at End of Period $17,798 $31,270 Cash Paid During the Year for: Interest $3,975 3,911 Income Taxes 171 188 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. All adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1996 Annual Report to Shareholders. German American Bancorp (referred to herein as the ``Company,'' the `Corporation,'' or the ``Registrant'') is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana (`German American Bank''), First State Bank, Southwest Indiana, Tell City, Indiana (`First State Bank''), and German American Holdings Corporation (`GAHC''), an Indiana corporation that owns all of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana (`Community Bank'') and The Peoples National Bank and Trust Company of Washington, Washington, Indiana (`Peoples''). The Company, through its four bank subsidiaries operates twenty banking offices in six contiguous counties in southwestern Indiana. Peoples, organized under the National Bank Act in 1888, was acquired by the Company on March 4, 1997 pursuant to a merger of the parent corporation of Peoples into GAHC. Simultaneously with and as an integral part of this merger, The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged with and into Peoples. At December 31, 1996 Peoples had assets of $91,937,000 and equity of $9,452,000. The Company's financial statements for all periods prior to the merger date have been retroactively restated to include the accounts of Peoples because the merger was recorded utilizing the pooling-of-interests method of accounting. Note 2 -- Per Share Data The weighted average number of shares used in calculating earnings and dividends per share amounts were 2,541,137 and 2,533,373 for the first quarters of 1997 and 1996, respectively. The weighted average number of shares have been retroactively restated for stock dividends and poolings of interests. Dividends paid per share amounts represent historical dividends declared without retroactive restatement for pooling. Note 3 -- Securities At March 31, 1997 and December 31, 1996, U.S. Government Agency structured notes with an amortized cost of $6,000,000 and $6,000,000, respectively and fair value of $5,927,000 and $5,901,000, respectively, are included in securities available-for-sale, consisting primarily of step-up and single-index bonds. Note 3 -- Securities (continued) The amortized cost and estimated market values of Securities as of March 31, 1997 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $56,227 $55,577 Obligations of State and Political Subdivisions 20,173 20,900 Corporate Securities 6,516 6,590 Mortgage-backed Securities 20,729 20,667 Total $103,645 $103,734 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,514 $2,496 Obligations of State and Political Subdivisions 18,117 18,514 Corporate Securities 40 32 Mortgage and Asset-backed Securities 948 927 Other Securities 1,395 1,395 Total $23,014 $23,364 The amortized cost and estimated market values of Securities as of December 31, 1996 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $47,181 $47,041 Obligations of State and Political Subdivisions 19,560 20,186 Corporate Securities 7,221 7,245 Mortgage-backed Securities 23,783 24,078 Other Securities 1 7 Total $97,746 $98,557 Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,519 $2,498 Obligations of State and Political Subdivisions 18,253 18,881 Corporate Securities 47 47 Mortgage and Asset-backed Securities 999 989 Other Securities 1,014 1,014 Total $22,832 $23,429 Note 4 -- Loans Loans, as presented on the balance sheet, are comprised of the following classifications: March 31, December 31, 1997 1996 (dollar references in thousands) Real Estate Loans Secured by 1-4 Family Residential Properties $96,712 $93,713 Agricultural Loans 53,853 57,073 Commercial and Industrial Loans 113,577 111,469 Loans to Individuals for Household, Family and Other Personal Expenditures 52,912 50,200 Lease Financing 1,226 1,279 Total Loans $318,280 $313,734 Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows: 1997 1996 (dollar references in thousands) Balance at January 1 $6,528 $6,893 Provision for Loan Losses 139 23 Recoveries of Prior Loan Losses 47 101 Loan Losses Charged to the Allowance (328) (70) Balance at March 31 $6,386 $6,947 Note 6 -- Subsequent Event During April 1997, the Company's Articles of Incorporation were amended to increase the number of authorized common shares from 5,000,000 shares to 20,000,000 shares. Note 7 -- Business Combinations On March 4, 1997, the Company acquired all of the outstanding shares of Peoples Bancorporation of Washington, Indiana (and its wholly owned subsidiary, The Peoples National Bank and Trust Company of Washington) in exchange for 615,285 shares of German American Bancorp common stock. Fractional interests were paid in cash of $5. The transaction was accounted for as a pooling of interests. The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp and Peoples Bancorporation of Washington for the periods prior to the acquisition: GERMAN AMERICAN PEOPLES BANCORP BANCORPORATION (as previously reported)OF WASHINGTON COMBINED For the period January 1, 1997 through February 28, 1997 Net interest income $2,558 $696 $3,254 Net income $698 $218 $916 For the three months ended March 31, 1996 Net interest income $3,654 $942 $4,596 Net income $1,091 $229 $1,320 ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp (``the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in twenty offices in Dubois, Daviess, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of March 31, 1997 and December 31, 1996 and the consolidated results of operations for the periods ended March 31, 1997 and 1996. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1996 Annual Report to Shareholders. Because of the Peoples National Bank acquisition on March 4, 1997 under the pooling-of-interests method of accounting, all financial statements have been retroactively restated for all periods. Also see Footnote 7 `Business Combinations.'' RESULTS OF OPERATIONS Net Income: The Company's earnings for the first quarter of 1997 were $1,274,000 or $.50 per share, a decrease of $46,000 (or 3.5%) from the Company's first quarter earnings for 1996 of $1,320,000 or $.52 per share. The comparison of first quarter 1997 earnings relative to those of the same period of 1996 was materially impacted by an increase in net interest income and Deposit Service Charges. These earnings improvements were offset by an increase in the Provision for Loan Losses and an increase in Professional fees largely related to the Company's merger and acquisition activities. Excluding the merger related expenses recorded in connection with the completion of the March 4, 1997 merger with Peoples, 1997 earnings were $1,408,000 or $.55 per share, an increase of $88,000 or 6.7% over 1996 earnings. Return on average assets (ROA) was 1.05% and return on average equity was 10.46% for the first quarter of 1997 versus 1.16% and 11.41%, respectively for the first three months of 1996. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis) for each of the periods presented herein. An effective tax rate of 34 percent is used on each period presented. Three Months Change from Ended March 31, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $9,384 $8,900 $484 5.4% Interest Expense 4,261 4,054 207 5.1% Net Interest Income $5,123 $4,846 $277 5.7% Net interest income is the difference between interest income (which includes yield-related fees) and interest expense. Net interest income on a tax-equivalent basis was $5,123,000 for this first quarter of 1997 compared with $4,846,000 for the same period of 1996. The increase in net interest income for the first quarter of 1997 compared to 1996 was primarily due to an increase in average earning assets. Net interest income on a tax-equivalent basis expressed as a percentage of average earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For the first quarter of 1997, the net interest margin was 4.51 percent compared to 4.58 percent for the comparable period of 1996. The decrease in the margin in 1997 compared with 1996 was primarily attributable to the mix of funding sources. The Company continues to experience a shift in deposit mix toward money market deposits and longer term certificates of deposits. This movement is largely attributable to customer reaction to the higher level of interest rates paid on these products relative to that paid on savings and interest-bearing checking accounts. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The consolidated provision for loan losses was $139,000 and $23,000 for the first quarters of 1997 and 1996, respectively. The lower level of provision during 1996 resulted from a $57,000 negative provision for loan losses at the former Union Bank (now merged into Peoples). The negative provision was due to collections of previous years' charged-off loans combined with management's determination that an adequate level of loan loss reserve existed prior to the loan recoveries. Because of the adequacy of the existing reserve, the recoveries resulted in the recording of a negative provision. The amount of future years' provision for loan loss will be subject to adjustment based on the findings of future evaluations of the adequacy of the loan loss reserve. Net charge-offs were $281,000 or 0.08 percent of average loans for the first three months of 1997. For the same period of 1996, net recoveries were $31,000. Underperforming loans, as a percentage of total loans were 0.60% and 0.79% on March 31, 1997 and December 31, 1996, respectively. See discussion headed `Financial Condition'' for more information regarding underperforming assets. Noninterest Income: Noninterest income, exclusive of gains realized on the sales of loans, for the first quarter of 1997 was $547,000. This was $85,000 or 18.4 percent greater than the $460,000 recorded for the same three months of 1996. Service charges on deposit accounts for 1997 rose $74,000 or 35.9 percent over 1996. The Company made an upward revision to its pricing structure based on a recent review. The Company had no security sales during the first quarters of 1997 or 1996. Noninterest Expense: Total noninterest expense for the first three months of 1997 was $3,319,000 which translates to a $230,000 or 7.4% increase over the $3,089,000 posted for the same period in 1996. Salaries and Employee Benefits expense constituted just over 55% of total noninterest expense. For the first three months of 1997 this amounted to $1,826,000. This was $63,000 or 3.6 percent more than the $1,763,000 recorded for the same period of the prior year. The Company's active full-time equivalent (FTE) staff was 217 at March 31, 1997. Occupancy expense combined with Furniture and Equipment expense for the first three months of 1997 equaled $505,000. This was only $6,000 or slightly more than one percent greater than the $499,000 posted for the same quarter of the prior year. These expenses are expected, however, to moderately increase throughout the remainder of 1997 largely as a consequence of a planned upgrading of computer systems. The Company has recently embarked upon a strategy to implement state-of-the-art computer processing to provide the opportunities to, over the long-term, better control the level of employee related expenses and improve the quality of customer service provided throughout the affiliate bank system. The upgrade of computer equipment at Peoples concurrent with the merger represents the Company's first step in this process. Systems at all affiliate banks will be upgraded on a systematic basis throughout 1997 and 1998. Professional fees for the first three months of 1997 was $212,000. This was $133,000 greater than the $79,000 recorded for the same period of 1996. The bulk of this increase stems directly from the March 4, 1997 merger of Peoples. FINANCIAL CONDITION Total assets at March 31, 1997 stood at $479,776,000. This was a decline from the December 31, 1996 total asset position despite an increase in 1997 in total loans of $4,546,000 and securities of $5,359,000. The bulk of the asset decline was in the holdings of Federal Funds Sold. Deposits at March 31, 1997 stood at $419,435,000 which was a decline of less than one percent from the total deposits held three months earlier. Short-term and Long-term Borrowings at March 31, 1997 were $7,109,000. At December 31, 1996, these borrowings amounted to $13,527,000. Interest-bearing Demand Notes issued to the U.S. Treasury at December 31, 1996 amounted to $2,127,000. German American Bank was the only affiliate with this type of borrowing and by March 31, 1997 had effectively discontinued participation in this arrangement due to operational considerations. All of the Company's Banks are either currently members of the Federal Home Loan Bank System (`FHLB'') or are in the process of obtaining membership. The banks' membership in the FHLB provides a ready alternative for both long and short-term borrowing needs. Underperforming Assets: The following analyzes German American Bancorp's underperforming assets at March 31, 1997 and December 31, 1996. March 31, 1997 December 31, 1996 (dollar references in thousands) Nonaccrual Loans $1,071 $1,370 Loans which are contractually past due 90 days or more 850 1,102 Renegotiated Loans --- --- Total Underperforming Loans 1,921 2,472 Other Real Estate 202 203 Total Underperforming Assets $2,123 $2,675 Allowance for Loan Loss to Underperforming Loans 332.43% 264.08% Underperforming Loans to Total Loans 0.60% 0.79% Underperforming loans at March 31, 1997 were 22.3% less than the $2,472,000 of underperforming loans at December 31, 1996. Stated as a percentage of total loans, underperforming loans were 0.60% and 0.79% for March 31, 1997 and December 31, 1996, respectively. The allowance for loan loss stated as a percentage of underperforming loans equaled 332.43% and 264.08% for the same two dates respectively. The overall loan portfolio is diversified among a variety of individual borrowers, with a substantial portion of debtors' ability to honor their contracts dependent on the agricultural, poultry and wood manufacturing industries. Although wood manufacturers employ a significant number of people in the Company's market area, the Company does not have a concentration of credit to companies engaged in that industry. The Company has historically been involved in the financing of poultry production. However, total poultry loans at March 31, 1997 of $14,276,000 represent only about 4.5 percent of total loans. The drop in the amount of poultry loans reflects a continuing decline in the financing demands in that industry. Capital Resources: Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. Minimum levels of capital are required to be maintained in proportion to total risk-weighted assets and off-balance sheet exposures such as loan commitments and standby letters of credit. Tier 1, or core capital, consists of shareholders' equity less goodwill, core deposit intangibles, and certain tax receivables defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital. The minimum requirements under these standards are generally at least a 4.0% leverage ratio, which is Tier 1 capital divided by defined `total assets'', 4.0% Tier 1 capital to risk-adjusted assets and 8.0% total capital to risk- adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal regulatory agencies to define capital tiers. These are: well- capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under these regulations, a `well-capitalized'' entity must achieve a Tier One Risk-based capital ratio of at least 6.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0% and not be under a capital directive order. At March 31, 1997, management is not under such a capital directive nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated capital ratios under regulatory guidelines. RISK BASED CAPITAL STRUCTURE ($ in thousands) March 31, December 31, 1997 1996 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $49,183 $48,793 Add / (Subtract): Unrealized Depreciation / (Appreciation) on Securities Available-for-Sale (18) (495) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,872) (1,924) Total Tier 1 Capital 47,293 46,374 Tier 2 Capital: Qualifying Allowance for Loan Loss 4,091 4,028 Total Capital $51,384 $50,402 Risk-adjusted Assets $325,020 $319,718 To be Well Capitalized Under Prompt Minimum Corrective for Capital Action Adequacy Provisions Purposes (FDICIA) March 31, Dec. 31, 1997 1996 Leverage Ratio 4.00% 5.00% 9.79% 9.70% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 14.55% 14.50% Total Capital to Risk-adjusted Assets 8.00% 10.00% 15.81% 15.76% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first three months of 1997, the net cash from operating activities, including net income of $1,274,000 provided $1,527,000 of available cash. Major cash outflows experienced during this three month period of 1997 included dividends of $404,000, property and equipment purchases of $337,000 and the net funding outlay of loans in the amount of $4,822,000. The purchase of securities and short-term investments (net of proceeds from maturities) decreased cash by $5,817,000. Decreases occurring in deposits and short-term as well as long-term borrowings reduced cash by an additional $9,889,000. Total cash outflows for the period exceeded inflows by $19,936,000 leaving a cash and cash equivalent balance of $17,798,000 at March 31, 1997. PART II. -- OTHER INFORMATION Item 2. Changes in Securities (c) During the three months ended March 31, 1997, the Company issued and sold an aggregate of 11,737 shares of common stock to executive officers of the Company upon exercises by such executive officers of stock options for an aggregate purchase price of $346,945.02 . These issuances and sales were not registered under the Securities Act of 1933 in reliance upon the `private offering''exemption provided by Section 4(2) of the Securities Act because the offer of common shares under the Company's Stock Option Plan is made privately only to executive officers of the Company who have access to the same kind of information as registration would disclose and are able to fend for themselves in making their investment decisions. The purchase price was paid by the executive officers in the form of an aggregate of 10,285 shares of common stock of the Company previously owned by such executive officers. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 3 Restated Articles of Incorporation of German American Bancorp (as amended to increase authorized common shares from 5,000,000 to 20,000,000. 10.1 Form of Incentive Stock Option Agreement executed January 28, 1997 between the Registrant and George W. Astrike (2,284 shares) 10.2 Schedule of Incentive Stock Option Agreements between the Registrant and its executive Officers. 27 Financial Data Schedule for the period ended March 31, 1997. (b) Reports on Form 8-K A report on Form 8-K dated March 6, 1997 was filed reporting under Item 2 the March 4, 1997 acquisition by merger of Peoples Bancorp of Washington. A report on Form 8-K dated March 19, 1997 was filed under Item 2 and Item 7, which amended the March 6, 1997 filing to include the Financial Statements of the acquired entity as of and for certain years ended December 31, 1996 and pro forma financial information for the Company giving effect to the acquisition. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GERMAN AMERICAN BANCORP Date By/s/George W. Astrike ----------------- --------------------------- George W. Astrike Chairman Date By/s/John M. Gutgsell ----------------- --------------------------- John M. Gutgsell Controller and Principal Accounting Officer