GAB reports $9.1M first quarter earnings

German American Bancorp, Inc. (Nasdaq: GABC) reported first quarter earnings of $9.1 million, or $0.31 per share.

The current quarterly earnings include the results of Citizens Union Bancorp of Shelbyville, Inc. (“CUB”), which, as previously reported, was acquired by German American on January 1, 2022.

The first quarter of 2022 included one-time merger and acquisition costs of about $11.7 million and “Day 1” provision under the current expected credit loss (“CECL”) model for CUB of $6.3 million (total impact of $13.6 million, or $0.46 per share, on an after-tax basis). As a result, quarterly earnings declined by approximately $10.5 million, or 58% on a per-share basis, from 2021 first-quarter earnings of $19.6 million, or $0.74 per share. Total assets overall increased during the past year by $1.5 billion, or approximately 28% from March 31, 2021.

The company’s 2022 first-quarter financial position and performance, relative to the same quarter last year, was positively impacted by the inclusion of the CUB acquisition and ongoing organic loan and deposit growth, which were partially mitigated by the reduction of loans made under the Paycheck Protection Program (“PPP”).

End-of-period deposits over the first quarter of 2022 grew $1.1 billion mostly as a result of the CUB acquisition. However, excluding the CUB acquisition, GAB continued to generate solid deposit growth into 2022 with an increase of $191 million, or 16% annualized, in organic deposits. First-quarter 2022 net interest income increased $8.0 million, or approximately 21 percent, compared to the same period of 2021 driven by the company’s higher level of average earning assets.

Operating income increased $1.2 million or 8 percent quarter over prior year’s same quarter. Deposit service charge fees and interchange income improved 40 percent resulting from the higher utilization by existing customers as well as the expanded customer base from the acquisition. Other positive drivers include an increase of 12 percent in wealth management fees and a 13 percent increase in insurance services revenue. Net gains on sales of loans declined 35% as volume declined due to the overall slowing of the home mortgage refinance sector.

Operating expenses increased $16.9 million or 54% compared to the first quarter 2021, of which nearly $12 million was related to the previously noted acquisition-related expenses in connection with CUB. The majority of the remaining increase was primarily attributable to the operating costs associated with CUB during the first quarter of 2022. The 2022 first quarter results also included a $6.7 million increase to the Company’s provision for credit losses as compared to the first quarter 2021.

During the quarter ended March 31, 2022, the Company recorded a provision for credit losses of $5.2 million compared with a negative provision for credit losses of $1.5 million during the first quarter of 2021.

“While the first-quarter results were impacted by the significant acquisition-related expenses and provision in connection with the completion of the Citizens Union Bank merger, we were very pleased with the level of incremental quarter over quarter growth in revenue, within both net interest income and various categories of non-interest income,” D. Neil Dauby, German American’s President and CEO, stated, “The incrementally higher level of non-interest expenses in the first quarter 2022 was also largely attributable to the inclusion of both acquisition-related expenses and general operating expenses of CUB. Those expenses are expected to be reduced going forward, as the operations of CUB are fully integrated into GABC”.

Dauby continued, “Further, the level of asset quality within our loan portfolio and that of CUB’s remains strong, as indicated by our end of quarter non-performing asset ratio of 0.23%. Total end of period loans during the first quarter increased $648 million mostly as a result of the CUB acquisition. Excluding CUB and PPP loans, commercial loans increased approximately $35 million or 7% annualized (16% C&I and 4% CRE). We experienced a seasonal decline in agricultural loans of $32 million for the quarter. Although the first quarter is typically a down cycle for agricultural loans, the significant increase in corn and soy bean commodity pricing has led to outsized pay downs on agricultural lines. We are encouraged by the strength of our commercial/agricultural loan pipeline throughout most of our geographic footprint. However, continued rising inflation could be a deterrent to future loan growth. We are excited about the growth opportunities in our newly acquired markets and believe we are well positioned to execute on our High Touch- High Tech business strategy throughout our entire footprint.”

The Company also announced its Board of Directors declared a regular quarterly cash dividend of $0.23 per share, which will be payable on May 20, 2022, to shareholders of record as of May 10, 2022.