German American Bancorp, Inc. (GABC) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to German American Bancorp, Inc.'s Annual Shareholder Meeting via conference call. [Operator Instructions] I now would like to turn the meeting over to Mr. Mark Schroeder, German American's Chairman and CEO. Please go ahead, sir.

All right. Thank you. Good evening, ladies and gentlemen. I am Mark Schroeder, Chairman and Chief Executive Officer of German American Bancorp, Inc., and I welcome you to the 2020 annual meeting of the corporation's shareholders. I will serve as Chairman of this meeting, and I also appoint Clay Ewing, who is the corporation secretary, to serve as secretary for the meeting to keep the minutes. As you are undoubtedly aware, this year's annual shareholders' meeting, much like today, is going to be different from prior year's meetings due to the impact of COVID-19. As announced on May 12, we have provided teleconference capabilities for this meeting in an attempt to protect the health and safety of our employees, directors and shareholders during the ongoing COVID-19 pandemic. As stated in the announcement, while those shareholders participating today via teleconference will be able to listen to this meeting, you will not be able to vote, revoke a proxy or ask questions. Shareholders of record that are in attendance this evening may still vote or revoke their proxies as will be described later in this meeting. We welcome all shareholders who have joined us this evening whether in person or by utilizing the remote teleconference access. At this time, I would like to introduce the directors of German American Bancorp, Inc. First, let me introduce the 4 directors who are standing for reelection to the Board of Directors at today's meeting. Standing for election for a term expiring at the 2023 annual meeting are: First, Chris A. Ramsey. Chris, who has served as a director of the company since 2011, brings valuable prior bank director experience and real estate expertise to the Board. He is the President of Ramsey Development, LLC and the owner of several businesses in the construction and real estate industry with over 39 years of real estate experience. Chris serves on the company's Asset Liability Finance Committee and on the company's nonbanking business units' subsidiary boards. Next, M. Darren Root. Darren was appointed as a director of the company effective January 1, 2013, and serves as its Audit Committee -- as chair of the Audit Committee, excuse me. Mr. Root is CEO of Rootworks LLC, a membership-based consulting firm dedicated to educating small- and mid-sized accounting firms on technology, practice management, marketing and branding. And he is the immediate past president and founding member of RootAdvisors LLC, a Bloomington, Indiana-based accounting firm. Mr. Root holds certified public accountant, certified information technology professional and charter global management accountant credentials. Darren also serves on the Corporate Technology Committee and is Board representative of our North Regional Advisory Board. His knowledge base in the areas of accounting, audit, finance and technology enhances Board and Audit Committee decision-making. Next, Jack W. Sheidler. Jack was appointed to our Board effective October 15, 2019, as a result of the merger with Citizens First Corporation. Mr. Sheidler, who was the Chairman of the Board of Citizens since 2009, has been an active real estate investor and developer for over 30 years. He is the CEO and principal of various real estate development and investment companies based in Bowling Green, Kentucky. His companies primarily focus on multifamily, retail and office acquisition and development throughout the Southeast. We believe that Jack's knowledge of the markets in which Citizens has operated and his familiarity with Citizens' personnel and history make his service as a director extremely valuable to our company. I am the final director candidate standing for election to a 3-year term. I have served as a director of the company since 1991, as Chief Executive Officer since 1999 and as Chairman of the company since 2009. I have over 45 years of day-to-day banking experience with the company, and my prior senior officer positions with the company have included serving as the Chief Lending Officer, Chief Financial Officer and Chief Operating Officer. These 4 nominees will be standing for reelection later in this meeting. Other directors of German American Bancorp, Inc. but who are not up for reelection this year are Zachary W. Bawel, Christina M. Ernst, Marc D. Fine, Jason M. Kelly, U. Butch Klem, J. David Lett, Lee A. Mitchell, Christina M. Ryan, Thomas W. Seger, Raymond W. Snowden and Tyson J. Wagler. Company advisers joining us via teleconference are Jennifer Monaghan, Kylie Cunningham, Emily Belcher and Ryan -- Bryan Clevenger with our external audit firm, Crowe LLP, and Jeremy Hill and Brad Arnett of Dentons Bingham Greenebaum LLP, our Corporate Counsel. Now before we proceed with the meeting, there are several preliminary matters to which to attend. First, we will need to determine that a quorum is present. Mr. Ewing, will you please report the number of shares entitled to vote and the number represented at this meeting?

Mr. Chairman, as of the close of business, March 12, 2020, the record date of this meeting, a total of 22,671,368 (sic) [ 26,671,368 ] shares of the common stock of German American Bancorp, Inc. were outstanding and entitled to be voted, each of which is entitled to 1 vote. The total number of shares represented by proxy at this meeting is 22,612,391 which is 84.78% of the shares entitled to vote. The certificate of the election inspectors will include the votes if any of the shareholders voted in person today.

Thank you. A majority of the shares entitled to vote constitutes quorum. Since the shares represented here today exceed 50% of the shares entitled to vote, a quorum is present, and I now officially call the 2020 Annual Meeting of Shareholders of German American Bancorp, Inc. to order. Today's meeting is being held pursuant to a notice mailed to all shareholders of record as of the close of business on March 12, 2020. The notice, along with the 2019 annual report, proxy statement and a form of proxy, was mailed on or about April 16, 2020. Three shareholders of the corporation have been appointed to act as the election inspectors for the matters to be voted on at today's meeting. These 3 shareholders are Bradley Rust, Evelyn Rivas and Terri Eckerle. Each of them has signed an oath in connection with serving as an inspector, and the secretary will file the results with the minutes of this meeting. The proxies solicited by the Board of Directors designated Thomas W. Seger and Christina M. Ernst to vote the shares represented by those proxies. Mr. Seger will vote the proxies. The secretary has a true and complete list of all shareholders of the company entitled to vote at this meeting. This list will remain open for inspection during the course of the meeting. The polls are now open, and any shareholder of record present today whose shares were not already voted by proxy but who wishes to register a vote on any of the matters to be voted upon today or any shareholder wishing to change their previously delivered proxy vote may do so by visiting the election inspectors and completing the form ballot during the next 5 minutes. The election inspectors will remain open for this purpose during this time. The secretary will file the certificate of inspectors with the minutes of this meeting and will also retain ballots and forms of proxy with the records of the company. So this completes the preliminary matters, and we're ready to proceed with the business to be concluded at today's meeting. Now given the change of circumstances surrounding this year's annual shareholders' meeting, we're going to forego the more in-depth management review, which we have customarily presented at this meeting. In its place, I will make some short opening comments about our 2019 activities and performance as well as about your company's management outlook for 2020 and beyond. So in 2019, we continued our pattern of disciplined, steady growth through our second merger transaction in the Commonwealth of Kentucky. In July, we finalized our merger with Citizens First Corporation and its banking subsidiary, Citizens First Bank, Inc. Headquartered in Bowling Green, Kentucky, Citizens First operated 8 retail banking offices in Barren, Hart, Simpson and Warren counties. When combined with the October 2018 acquisition of First Security, Inc., which is based in Owensboro, Kentucky, German American has acquired nearly $1 billion in banking assets within the Commonwealth over the course of the past 18 months. We welcome the customers, employees and shareholders of Citizens First to the German American family. We're also pleased to report that we continued our history of exceptional financial performance in 2019. For the 10th consecutive year, your company achieved record earnings as 2019 net income of $59.2 million or $2.29 per share, representing an increase of 15.1% on a per share basis. And this is above the level of the prior year record 2018 earnings. We also achieved the milestone in 2019 of posting the 15th consecutive fiscal year of double-digit returns on shareholder equity. Very few banking organizations in the nation can match this level of financial performance, a decade of record net income and earnings per share as well as 1.5 decades of double-digit returns on shareholders' equity. This strong level of financial performance is reflected in the cumulative total return that shareholders have earned on their investment in GABC over the course of this period. To see the effect of this total return on your investment in German American, I encourage you to view the comparison of GABC's 5-year cumulative total return presented on Page 23 in our 2019 annual report that was included in the shareholder meeting packet previously mailed to you in connection with this meeting. Earlier this month, we released the results of our first quarter 2020 earnings. While the first quarter of 2020 continued to deliver strong operating performance, there are definitely strong pause on the economic horizon due to the impact of COVID-19 on the economy at the local, state and national levels. In anticipation of future potential loan losses resulting from the financial impact of the virus on certain business sectors, we recorded a provision for loan loss of $5.2 million during the first quarter of this year. Inclusive of this elevated provision, our reported net income for the first quarter of 2020 was $12.5 million or $0.47 per share, which was a 22% decline on a per share basis from our 2019 first quarter earnings of $15.1 million or $0.60 per share. Just as German American has always done throughout our 110-year history, we remain committed to working with our clients to help them weather the coming financial challenges as a result of the COVID-19 pandemic. Since the rise of the effects of the pandemic in mid- to late March, we have granted our clients' loan deferral payments -- loan payment deferrals on approximately 10% of our commercial loans and 7% of our residential mortgage loans. Additionally, we have made nearly 2,500 Paycheck Protection Program loans to our small business clients, representing over $350 million in SBA federally guaranteed loans to help them retain staff and cover fixed operating costs during the economic shutdown and gradual reopening. We recognize that these actions represent just our first step in what will be an ongoing effort to help local businesses and families during these unprecedented times. As we look forward to the balance of 2020 and beyond, the reality is that given the Federal Reserve's actions in March to lower short-term market interest rates to at or near 0%, coupled with the potential for our long-term recovery period with relatively high unemployment rates as well as likely elevated future loan losses from business clients impacted by the drastic drop in demand for their products and services, which has resulted from the customers' reaction to the pandemic, we expect it will be extremely difficult, if not, impossible to sustain our decade-long period of success with annual record earnings. Now having said that, we are nevertheless confident in the collective ability of the German American team to deal with whatever challenges lie before us and to come out of this pandemic in a position of strength. While we may not be able to post record earnings in 2020 and perhaps for the next several years, we will work diligently to maintain our position as one of the highest performing financial institutions in the nation, albeit likely at a reduced level as compared to our record 2019 performance. So that gives you a bit of an overview of where we came from in 2019, where we stand here today in 2020 and what we see in front of us. Clearly, these are challenging times, but I'm proud to say that we have a strong team at German American. We have an experienced management group at German American. We have weathered downturns before and came out stronger on the other side of it, and we expect that we will do no less at this time. So let me now declare that the voting polls are officially closed. As set forth in our proxy statement, there are 5 proposals for consideration at today's meeting. Proposal #1. The first proposal is for the election of directors as more fully described beginning on Page 6 of our proxy statement. Our Board of Directors is divided into 3 classes with the terms of the members of 1 class expiring each year. At today's meeting, 4 directors are to be elected for a 3-year term to hold office until our 2023 annual meeting of shareholders and until their successors have been elected and qualified. The Board of Directors of the corporation has recommended the election of 4 persons who are listed in the proxy statement. These nominees who were introduced earlier are Chris A. Ramsey, M. Darren Root, Mark A. Schroeder and Jack W. Sheidler. Proposal #2. The second proposal is the approval of the amended and restated articles of incorporation of German American Bancorp, Inc., providing shareholders the right to amend the bylaws of German American Bancorp, Inc., as more fully described on Page 49 of our proxy statement. Proposal #3. The third proposal for consideration is the approval and adoption of the German American Bancorp, Inc. amended and restated 2019 employee stock purchase plan, as more fully discussed in our proxy statement beginning on Page 51. Proposal #4. The fourth proposal of our agenda is the approval by a nonbinding advisory vote of a resolution approving the compensation of the company's executive officers named in the company's proxy statement for the annual meeting. Additional information on this proposal can be found on Page 57 of our proxy statement. The holding of this advisory vote on compensation is sometimes called a say-on-pay vote. Proposal #5. The fifth and final item for voting today is the approval by a nonbinding advisory vote of the appointment of Crowe LLP as the corporation's independent registered public accounting firm for the year ending December 31, 2020, again, as more fully described on Page 58 of our proxy statement. With each matter having been identified, I do now ask Director Seger, a representative for the Proxy Committee, to provide a voting report as to the approval of each proposal.

Mr. Chairman, with respect to proposal #1 relating to the election of directors, based upon the votes cast by proxy and in person at this meeting, each nominee for director has received at least 16,945,489 shares voted in favor of their election.

Because these 4 nominees are the only nominees for the 4 seats on the Board of Directors that are open for election at this year's annual meeting and they have received at least the number of votes in favor of their election as reported at this meeting, each nominee received a plurality vote of the common shares represented in person or by proxy and entitled to vote at this meeting. As a result, I declare misters Ramsey, Root, Schroeder and Sheidler to be duly elected as directors of German American Bancorp, Inc. to serve the previously stated terms and until their successors have been elected and qualified. Mr. Seger, would you please continue with the voting report.

Mr. Chairman, with respect to the remaining 4 proposals based upon the votes cast by proxy and in person at this meeting, a majority of the votes cast were for or in favor of the approval of each proposal.

Thank you, Mr. Seger. Because the majority of the votes present in person or by proxy at this meeting has voted in favor of each proposal, I hereby declare that proposal #2 has passed. The amended and restated articles of incorporation of German American Bancorp, Inc. has been approved by the shareholders. Proposal #3 has passed. The German American Bancorp, Inc. amended and restated 2019 employee stock purchase plan has been approved and adopted by shareholders. Proposal #4 has passed. The compensation of the company's executive officers has been approved by shareholders. And proposal #5 has passed. The appointment of Crowe LLP as the corporation's independent registered public accounting firm for the year ending December 31, 2020, has also been approved by shareholders. Now before we adjourn for tonight's meeting, I would be remiss if I didn't recognize an individual, who has been an integral part of our transformation and our success over the past 1.5 decades and who is retiring from our corporate Board of Directors at the conclusion of tonight's meeting. Chris Ernst joined the corporate Board of Directors in 2004 after previously serving on the West Region Advisory Board based in Vincennes, Indiana for several years. Chris has been a tremendous asset to both her fellow Board members and to the management of the company. Utilizing her depth business knowledge and expertise gained through serving since 1988 as the CEO of Miller Construction Company, Inc., an electrical power line contractor based in Vincennes, Indiana, Chris has been a calm and a steady adviser with a keen eye for potential growth possibilities, both organic and through merger, while still maintaining a focus on protecting shareholder value. Chris possesses a rare and extremely valuable skill as a public company director of being supportive of management, which those of us in management greatly appreciate, yet able to ask the tough and important questions to probe and challenge management in an effort to protect the interest of all of you as shareholders. Chris, we will miss your advice, your counsel and wish you all the best as you retire from the Board. You really do have to give Chris a tremendous amount of credit for impeccable timing. During her 15-year tenure on the GABC Board, the company has posted its best level of overall financial performance in a 110-year history. So now, Chris, I do have a question for you. Are you sure you don't want to stay around for the next couple of years because I think we can really use your magic touch as we work through the impact of this pandemic that none of us have ever experienced before? So for everyone here and everyone listening in, it is with great gratitude that, on behalf of the shareholders, the Board of Directors, officers and staff at German America, that I am pleased to present Chris with this keepsake clock as a remembrance of her time as a member of the Board of Directors of German America. So Chris, the microphone is yours. There are probably 1,000 people listening in, so don't make me nervous. So Chris?

We all look at -- for silver linings during this crazy time, and one silver lining for all of you is that my -- what would have been a very long and lengthy boring speech is now pared down in proportion to the time of this meeting. So let me just say that there's really no words to express my -- the honor and the pride I've had for serving -- being associated with this amazing bank. The history is awesome. I love the theme of this year's meeting, the yesterday, today, tomorrow. It's just -- it's such an honor to have been part of that history for 15, 16 years. My respect for the leadership team -- the executive leadership team; my admiration for the entire team of -- the employees, the work ethic and the loyalty and the talent they have; my love of my fellow directors; and my passion for this bank, just I -- there's no words to describe that. So just know I'm going to miss this drive over to Jasper several times a month for the last 16 years. And I never thought a girl from Vincennes would come to love a city that my hometown does certainly have varying compliments. So thank you, and just know that I am thankful for many blessings, and being associated with this bank is near the top of that list. Thank you.

Now are there any other matters or questions to come before this annual meeting of the shareholders? Okay. Hearing none, if there are -- is nothing further to come before this meeting, I will now entertain a motion to adjourn. Can I have a motion, please? [Voting]

I have a motion. And a second? [Voting]

And second. So upon motion duly made and seconded, I declare this meeting of the General American Bancorp, Inc. shareholders adjourned. Thank you all for being so understanding of our need to conduct this year's annual meeting of shareholders in a condensed format. We look forward to seeing all of you, particularly all of you on the line, at next year's meeting when we can, hopefully, return to our traditional meeting format, including spending time socializing with all of you as shareholders to thank you for your continuing commitment to and investment in our company. Good night.

Thank you, sir. Ladies and gentlemen, this concludes today's shareholder meeting. We thank you for participating, and ask that you please disconnect your line.