1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Robert Abbott
Robert Abbott
Articles (881)  | Author's Website |

German American Bancorp: A Resilient Regional

July 21, 2014 | About:

How many banks do we know that could write a sentence like this in their annual report for 2009, "While much of the financial industry was teetering on the edge of financial collapse, requiring capital infusions from the federal government, your Company again generated record or near record performance in numerous financial and shareholder measures."?

And, for good measure, it was able to boast in its 2012 annual report, "The period of 2008-2012 represents the best five years in our Company’s history in terms of reported annual earnings."

The company is German American Bancorp, Inc. (NASDAQ:GABC), a regional bank headquartered in Jasper, Indiana and serving southern Indiana. It came to our attention through the GuruFocus Undervalued Predictable screener.

GABC undervalued predictable


  • 1910: bank formed in Jasper, Indiana (an area with strong German-American roots) by a group of local citizens and area farmers;
  • 1985: change of structure to a bank holding company;
  • 1986: acquires Bank of Ireland (Ireland, Indiana);
  • 1987: enters the investment advisory business;
  • 1990: sets up its own insurance agency;
  • 1993: GABC lists on the NASDAQ exchange;
  • 1993-2000: acquires nine other banks and two insurance agencies;
  • 2005-2006: acquires two banks and another insurance agency;
  • 2010: placement on KBW Honor Roll for first time (more below)
  • 2010-2011: acquires two banks and two branches of a third bank;
  • 2013: acquired a bank, set up its first agricultural lending office;
  • 2014: member of the second annual Raymond James Community Bankers Cup, "...among the top 10 percent of U.S. community banks....based on profitability, operational efficiency and balance sheet metrics." (GABC news release)

Business Model

As noted, this is a bank holding company, which, "...through its banking subsidiary German American Bancorp, operates 37 retail and commercial banking offices in 13 southern Indiana counties. The Company also owns a trust, brokerage, and financial planning subsidiary (German American Financial Advisors & Trust Company) and a full line property and casualty insurance agency (German American Insurance, Inc.)." (10-K for 2013)

It provides a full menu of financial services, "...retail and commercial banking, comprehensive financial planning, full service brokerage and trust administration, and a full range of personal and corporate insurance products."

Where does the revenue come from? As the following excerpt from the 2013 10K shows, about three quarters comes from interest income (the difference between what the bank pays for money, and what it loans it out for)

GABC income sources

Growth Strategy

In its publications, German American Bancorp emphasizes a disciplined approach to organic growth, with careful shepherding of expenses and the quality of its loan portfolio.

Looking at its history, we see GABC also grows through acquisitions, of both banking and non-banking assets. Of particular interest is its growth, organic and non-organic, of insurance brokerage revenue.

Insurance, like wealth management and some of the other operations, naturally integrate. Customers who buy a new home or car need insurance, customers who have excess funds in their savings accounts can be encouraged to use the company's wealth management services. Cross-selling is an effective and generally inexpensive strategy for internal growth.

Here's a GuruFocus chart showing how revenue has grown overall, and per share, over the past 20 years:


Chairman & Chief Executive Officer: Mark A. Schroeder, age 60, has served in these positions since 1999;

Chief Financial Officer: Bradley M. Rust, age 47, Vice President and Controller since 1999;

Executive Vice President - Retail Banking: Clay W. Ewing has held this post since 1999;

Board of Directors: background or experience in: law, local business establishment and management, agriculture, construction and real estate, accounting and consulting, and health care management;

ISS Governance QuickScore: 7 out of 10 - on this scale 1 is a good score and 10 is a poor score - GABC receives red flags for Takeover Defences, Voting Formalities, and Use of Equity. It receives a green star for Equity Risk Mitigation.

KBW Honor Roll - 2010 through 2013 - Out of some 400 potentially qualifying banks, 31 met the Honor Roll criteria in 2013, "Honor Roll winners are publicly traded banking institutions with more than $500 million in total assets that meet the following three conditions:

  • No annual loss reported in net income per share before extraordinary items over the past 10 years;
  • 2013 annual reported net income per share before extraordinary items equal to or greater than peak net income per share over the past 10 years; and
  • Consecutive increases in net income per share before extraordinary items since 2009. (KBW press release, April 14, 2014)

GABC by the Numbers

GABC key statistics

Financial Strength

Turning to the GuruFocus Financial Strength and Profitability & Growth summaries, we see a Financial Strength rating of 7/10 and Profitability & Growth rating of 8/10:

GABC financial strength

Looking in more detail at the summaries, we see debt now vs its debt historically gets a red flag. In addition, one of the automatically generated Warning Signs warns of debt.

To put the debt issue into context, take a look at the the following chart, which shows GABC's long-term debt (blue) and enterprise value (green) over the past 10 years:

As we can see, long-term debt has grown, but at the same time, enterprise value has grown even more.

We will disregard the warning signs for the Altman-Z score and Asset Growth; we normally ignore them when assessing companies in the financial sector (because of the nature of their assets).

GABC gets a high predictability rating from GuruFocus, 4.5 out of 5 stars. Backtesting has shown companies with this rating average gains of 10.6% per year, and only 10% will be in a loss position after 10 years.


As we can see below, the GuruFocus Fair Value Calculator assesses German American Bancorp discounted cash flow value at $33.71, which is 27% above its current price.

GABC discounted cash flow

Given the earnings' strength of GABC, we'll also take a look at it how it shapes up on a Peter Lynch chart:

GABC Peter Lynch chart

A Lynch-type valuation of $31.60 comes in at 19% more than the stock's current price.


This assessment of German American Bancorp turns up no obvious risks, other than those standard concerns listed in the most recent 10-K report:

  • The regulatory environment has changed dramatically in recent years, and may do so again;
  • General economic conditions may get worse before they get better - GABC fared well through 2008-09, but the next downturn will undoubtedly present different challenges ;
  • As a regional bank, it has an inherently narrow base;
  • If interest rates paid on deposits go up faster than rates on the loans it makes, it could face a cash squeeze;
  • Competition is intense, and a competitor that finds an edge may reduce GABC's book of business;
  • Technology - as recent data breaches at other organizations have shown us, cyber security cannot be taken for granted;
  • This company has made acquisitions a prominent part of its growth strategy - in takeovers GABC faces various risks, including unseen liabilities of the takeover targets. (Source: 10-K Report for 2013)


German American seems well positioned to deal with economic good times or bad times. It weathered the 2008 crisis without needing government support, and I would expect continued growth in coming years.

It seems likely the company will continue its two-pronged growth strategy of internal and external growth. Internally, it has a number of opportunities in and beyond banking. Insurance and wealth management, for example.

External growth seems likely as well, given its history of buying other banking assets on its home turf in southern Indiana.

When interest rates rise again, as eventually they must, GABC will have some new opportunities to widen its spreads. As noted in the Risks section, though, the potential of deposit rates gaining on loan rates could be a problem.

General economic growth across its region and across the country should also provide new growth opportunities. At the same time, general growth will also bring new competition.

As noted above, German American rates 4.5 out of 5 stars for predictability, so overall, we would expect consistent, healthy gains, which in turn should push prices up.


As a well-managed, well-capitalized bank, secure in its region, GABC should continue to grow in at least the next few years. Based on the GuruFocus predictability rating, we would expect double-digit growth in many years.

With a dividend yield of 2.3% and no buybacks recently or on the horizon, it will not excite income investors.

However, the money that would otherwise go into dividends and buybacks will likely be invested in new growth (internal or external), pushing up earnings and the share price.

Value investors looking for dependability and capital appreciation should give German American Bancorp, Inc. a close look.

About the author:

Robert Abbott
Robert F. Abbott has been investing his family’s accounts since 1995 and in 2010 added options -- mainly covered calls and collars with long stocks.

He is a freelance writer, and his projects include a website that provides information for new and intermediate-level mutual fund investors (whatisamutualfund.com).

As a writer and publisher, Abbott also explores how the middle class has come to own big business through pension funds and mutual funds, what management guru Peter Drucker called the "unseen revolution."

Visit Robert Abbott's Website

Rating: 4.7/5 (3 votes)



Gurufocus premium member - 6 years ago

For banks, we need to look at the Equity to Asset ratio, non-performing loans, reserves, and price/book ratio. Though valuation is not very low, but this is a high quality bank.

Please leave your comment:

Performances of the stocks mentioned by Robert Abbott

User Generated Screeners

pascal.van.garsseHigh FCF-M2
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)