Edgar Filing: GERMAN AMERICAN BANCORP, INC.

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2011

Commission File Number 001-15877

German American Bancorp, Inc.

(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 mark 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

YES o NO x

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 2, 2011
Common Shares, no par value	12,591,820

CAUTION REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

Information included in or incorporated by reference in this Quarterly Report on Form 10-Q, our other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contains or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the discussions of our forward-looking statements and associated risks in our annual report on Form 10-K for the year ended December 31, 2010, in Item 1, “Business – Forward-Looking Statements and Associated Risks” and our discussion of risk factors in Item 1A, “Risk Factors” of that annual report on Form 10-K, as updated from time to time in our subsequent SEC filings, including by Item 2 of Part I of this Report (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) at the conclusion of that Item 2 under the heading “Forward-Looking Statements and Associated Risks.”

*****

INDEX


PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Consolidated Balance Sheets – March 31, 2011 and December 31, 2010	4

	Consolidated Statements of Income and Comprehensive Income – Three Months Ended March 31, 2011 and 2010	5

	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010	6

	Notes to Consolidated Financial Statements – March 31, 2011	7-24

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25–33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33–34

Item 4.	Controls and Procedures	34

PART II.	OTHER INFORMATION	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 6.	Exhibits	35

SIGNATURES		36

INDEX OF EXHIBITS		37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, dollars in thousands except share and per share data)

	March 31,			December 31,
	2011			2010

ASSETS
Cash and Due from Banks	$	25,606		$	15,021
Federal Funds Sold and Other Short-term Investments		48,665			4,250
Cash and Cash Equivalents		74,271			19,271

Interest-bearing Time Deposits with Banks		10,372			—
Securities Available-for-Sale, at Fair Value		471,005			346,747
Securities Held-to-Maturity, at Cost (Fair value of $1,467 and $1,613 on March 31, 2011 and December 31, 2010, respectively)		1,444			1,604

Loans Held-for-Sale		2,862			11,850

Loans		1,097,707			918,718
Less: Unearned Income		(1,584	)		(1,482	)
Allowance for Loan Losses		(14,173	)		(13,317	)
Loans, Net		1,081,950			903,919

Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost		9,863			9,207
Premises, Furniture and Equipment, Net		35,550			25,974
Other Real Estate		3,434			2,095
Goodwill		19,170			9,835
Intangible Assets		5,785			2,624
Company Owned Life Insurance		28,509			24,822
Accrued Interest Receivable and Other Assets		17,424			17,940
TOTAL ASSETS	$	1,761,639		$	1,375,888

LIABILITIES
Non-interest-bearing Demand Deposits	$	242,159		$	184,204
Interest-bearing Demand, Savings, and Money Market Accounts		849,163			541,532
Time Deposits		393,624			361,550
Total Deposits		1,484,946			1,087,286

FHLB Advances and Other Borrowings		110,750			153,717
Accrued Interest Payable and Other Liabilities		14,609			13,351
TOTAL LIABILITIES		1,610,305			1,254,354

SHAREHOLDERS’ EQUITY
Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued		—			—
Common Stock, no par value, $1 stated value; 20,000,000 shares authorized		12,591			11,105
Additional Paid-in Capital		94,536			69,297
Retained Earnings		39,119			36,232
Accumulated Other Comprehensive Income		5,088			4,900
TOTAL SHAREHOLDERS’ EQUITY		151,334			121,534
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,761,639		$	1,375,888
End of period shares issued and outstanding		12,590,304			11,105,583

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(unaudited, dollars in thousands except share and per share data)

	Three Months Ended
	March 31,
	2011		2010
INTEREST INCOME
Interest and Fees on Loans	$	16,241	$	12,839
Interest on Federal Funds Sold and Other Short-term Investments		65		9
Interest and Dividends on Securities:
Taxable		2,844		2,465
Non-taxable		369		270
TOTAL INTEREST INCOME		19,519		15,583

INTEREST EXPENSE
Interest on Deposits		3,393		2,612
Interest on FHLB Advances and Other Borrowings		1,019		1,322
TOTAL INTEREST EXPENSE		4,412		3,934

NET INTEREST INCOME		15,107		11,649
Provision for Loan Losses		1,300		1,500
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		13,807		10,149

NON-INTEREST INCOME
Trust and Investment Product Fees		464		391
Service Charges on Deposit Accounts		941		946
Insurance Revenues		2,049		1,686
Company Owned Life Insurance		353		202
Interchange Fee Income		353		256
Other Operating Income		400		780
Net Gains on Sales of Loans		409		318
Net Gain on Securities		1,045		—
TOTAL NON-INTEREST INCOME		6,014		4,579

NON-INTEREST EXPENSE
Salaries and Employee Benefits		7,401		5,549
Occupancy Expense		1,050		887
Furniture and Equipment Expense		805		652
FDIC Premiums		514		352
Data Processing Fees		1,105		359
Professional Fees		605		521
Advertising and Promotion		303		269
Supplies		182		195
Intangible Amortization		517		218
Other Operating Expenses		1,388		1,264
TOTAL NON-INTEREST EXPENSE		13,870		10,266

Income before Income Taxes		5,951		4,462
Income Tax Expense		1,306		1,211
NET INCOME	$	4,645	$	3,251

COMPREHENSIVE INCOME	$	4,833	$	4,150

Earnings Per Share and Diluted Earnings Per Share	$	0.37	$	0.29
Dividends Per Share	$	0.14	$	0.14

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, dollars in thousands)

	Three Months Ended
	March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	4,645		$	3,251
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Net Amortization on Securities		429			109
Depreciation and Amortization		1,326			963
Loans Originated for Sale		(23,620	)		(17,467	)
Proceeds from Sales of Loans Held-for-Sale		33,017			18,221
Loss in Investment in Limited Partnership		—			17
Provision for Loan Losses		1,300			1,500
Gain on Sale of Loans, net		(409	)		(318	)
Gain on Securities, net		(1,045	)		—
Loss (Gain) on Sales of Other Real Estate and Repossessed Assets		8			(358	)
Loss (Gain) on Disposition and Impairment of Premises and Equipment		5			(56	)
Increase in Cash Surrender Value of Company Owned Life Insurance		(353	)		(204	)
Equity Based Compensation		153			101
Change in Assets and Liabilities:
Interest Receivable and Other Assets		5,423			1,694
Interest Payable and Other Liabilities		(1,620	)		977
Net Cash from Operating Activities		19,259			8,430

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturity of Other Short-term Investments		1,890			—
Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale		20,331			10,511
Redemption of Federal Reserve Bank Stock		694			—
Purchase of Securities Available-for-Sale		(116,977	)		(19,022	)
Proceeds from Maturities of Securities Held-to-Maturity		161			674
Purchase of Loans		—			(175	)
Proceeds from Sales of Loans		—			1,325
Loans Made to Customers, net of Payments Received		38,868			8,522
Proceeds from Sales of Other Real Estate		532			1,405
Property and Equipment Expenditures		(1,063	)		(142	)
Proceeds from Sales of Property and Equipment		12			491
Acquisition of American Community Bancorp, Inc.		55,780			—
Net Cash from Investing Activities		228			3,589

CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits		95,002			3,352
Change in Short-term Borrowings		(52,696	)		3,557
Repayments of Long-term Debt		(5,035	)		(32	)
Dividends Paid		(1,758	)		(1,551	)
Net Cash from Financing Activities		35,513			5,326

Net Change in Cash and Cash Equivalents		55,000			17,345
Cash and Cash Equivalents at Beginning of Year		19,271			28,054
Cash and Cash Equivalents at End of Period	$	74,271		$	45,399

Cash Paid During the Period for
Interest	$	4,290		$	4,156
Income Taxes		410			3
Supplemental Non Cash Disclosures (1)
Loans Transferred to Other Real Estate	$	723		$	323

(1)	See Note 9 for non-cash transactions included in the acquisition of American Community Bancorp, Inc.

See accompanying notes to consolidated financial statements.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

Note 1 – Basis of Presentation

German American Bancorp, Inc. operates primarily in the banking industry. The accounting and reporting policies of German American Bancorp, Inc. and its subsidiaries conform to U.S. generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included in the accompanying unaudited consolidated financial statements, and all such adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform with current classifications. 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, Inc. December 31, 2010 Annual Report on Form 10-K.

Note 2 – Per Share Data

The computations of Earnings per Share and Diluted Earnings per Share are as follows:

	Three Months Ended
	March 31,
	2011		2010
Earnings per Share:
Net Income	$	4,645	$	3,251
Weighted Average Shares Outstanding		12,546,310		11,081,680
Earnings per Share	$	0.37	$	0.29

Diluted Earnings per Share:
Net Income	$	4,645	$	3,251

Weighted Average Shares Outstanding		12,546,310		11,081,680
Potentially Dilutive Shares, Net		8,566		6,707
Diluted Weighted Average Shares Outstanding		12,554,876		11,088,387
Diluted Earnings per Share	$	0.37	$	0.29

Stock options for 89,275 and 99,275 shares of common stock were not considered in computing diluted earnings per share for the quarters ended March 31, 2011 and 2010, respectively, because they were anti-dilutive.

Note 3 – Securities

The amortized cost, unrealized gross gains and losses recognized in accumulated other comprehensive income (loss), and fair value of Securities Available-for-Sale at March 31, 2011 and December 31, 2010, were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities Available-for-Sale:
March 31, 2011
U.S. Treasury and Agency Securities	$	24,640	$	61	$	(1	)	$	24,700
Corporate Securities		1,012		—		(1	)		1,011
Obligations of State and Political Subdivisions		37,008		1,508		(11	)		38,505
Mortgage-backed Securities - Residential		399,415		8,045		(1,487	)		405,973
Equity Securities		794		22		—			816
Total	$	462,869	$	9,636	$	(1,500	)	$	471,005
December 31, 2010
U.S. Treasury and Agency Securities	$	—	$	—	$	—		$	—
Corporate Securities		—		—		—			—
Obligations of State and Political Subdivisions		31,483		813		(118	)		32,178
Mortgage-backed Securities - Residential		304,935		7,614		(1,483	)		311,066
Equity Securities		2,418		1,085		—			3,503
Total	$	338,836	$	9,512	$	(1,601	)	$	346,747

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

Note 3 – Securities (continued)

Equity securities that do not have readily determinable fair values are included in the above totals, are carried at historical cost and are evaluated for impairment on a periodic basis. All mortgage-backed securities in the above table are residential mortgage-backed securities and guaranteed by government sponsored entities.

The carrying amount, unrecognized gains and losses and fair value of Securities Held-to-Maturity at March 31, 2011 and December 31, 2010, were as follows:


			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
	Amount		Gains		Losses		Value
Securities Held-to-Maturity:
March 31, 2011
Obligations of State and Political Subdivisions	$	1,444	$	23	$	—	$	1,467

December 31, 2010
Obligations of State and Political Subdivisions	$	1,604	$	9	$	—	$	1,613

The amortized cost and fair value of Securities at March 31, 2011 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay certain obligations with or without call or prepayment penalties. Mortgage-backed and Equity Securities are not due at a single maturity date and are shown separately.

	Amortized		Fair
	Cost		Value
Securities Available-for-Sale:
Due in one year or less	$	1,412	$	1,417
Due after one year through five years		24,878		25,168
Due after five years through ten years		12,898		13,183
Due after ten years		23,472		24,448
Mortgage-backed Securities - Residential		399,415		405,973
Equity Securities		794		816
Totals	$	462,869	$	471,005

	Carrying		Fair
	Amount		Value
Securities Held-to-Maturity:
Due in one year or less	$	170	$	172
Due after one year through five years		719		734
Due after five years through ten years		555		561
Due after ten years		—		—
Totals	$	1,444	$	1,467

Below is a summary of securities with unrealized losses as of March 31, 2011 and December 31, 2010, presented by length of time the securities have been in a continuous unrealized loss position:

	Less than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
At March 31, 2011:
U.S. Treasury and Agency Securities	$	992	$	(1	)	$	—	$	—	$	992	$	(1	)
Corporate Securities		1,011		(1	)		—		—		1,011		(1	)
Obligations of State and Political Subdivisions		1,511		(11	)		—		—		1,511		(11	)
Mortgage-backed Securities - Residential		95,332		(1,487	)		—		—		95,332		(1,487	)
Equity Securities		—		—			—		—		—		—
Total	$	98,846	$	(1,500	)	$	—	$	—	$	98,846	$	(1,500	)

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

Note 3 – Securities (continued)

	Less than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
At December 31, 2010:
U.S. Treasury and Agency Securities	$	—	$	—		$	—	$	—	$	—	$	—
Corporate Securities		—		—			—		—		—		—
Obligations of State and Political Subdivisions		5,175		(118	)		—		—		5,175		(118	)
Mortgage-backed Securities - Residential		70,123		(1,483	)		—		—		70,123		(1,483	)
Equity Securities		—		—			—		—		—		—
Total	$	75,298	$	(1,601	)	$	—	$	—	$	75,298	$	(1,601	)

Securities are written down to fair value when a decline in fair value is not considered temporary. In estimating other-than-temporary losses, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The Company doesn’t intend to sell or expect to be required to sell these securities, and the decline in fair value is largely due to changes in market interest rates, therefore, the Company does not consider these securities to be other-than-temporarily impaired. All mortgage-backed securities in the Company’s portfolio are guaranteed by government sponsored entities, are investment grade, and are performing as expected.

The Company held a minority interest in American Community Bancorp, Inc., prior to the acquisition on January 1, 2011 (see Note 9 for further discussion). The Company recognized a gain of $1.045 million on the stock held of American Community Bancorp, Inc. as a result of the acquisition. No gains or losses were recognized during the quarter ended March 31, 2010.

Note 4 – Loans

Loans were comprised of the following classifications at March 31, 2011 and December 31, 2010:

	March 31,			December 31,
	2011			2010
Commercial:
Commercial and Industrial Loans and Leases	$	282,681		$	218,443
Commercial Real Estate Loans		444,531			339,555
Agricultural Loans		145,136			165,166
Retail:
Home Equity Loans		75,546			64,437
Consumer Loans		52,334			53,807
Residential Mortgage Loans		97,479			77,310
Subtotal		1,097,707			918,718
Less: Unearned Income		(1,584	)		(1,482	)
Allowance for Loan Losses		(14,173	)		(13,317	)
Loans, net	$	1,081,950		$	903,919

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending March 31, 2011:

	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans			Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated		Total
March 31, 2011
Beginning Balance	$	3,713		$	7,497		$	750		$	220		$	362		$	543		$	232	$	13,317
Provision for Loan Losses		105			572			(96	)		104			84			223			308		1,300
Recoveries		3			92			—			2			32			—			—		129
Loans Charged-off		(1	)		(453	)		—			(55	)		(46	)		(18	)		—		(573	)
Ending Balance	$	3,820		$	7,708		$	654		$	271		$	432		$	748		$	540	$	14,173

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

The following table presents the activity in the allowance for loan losses for the three months ended March 31, 2010:

Beginning Balance	$	11,016
Provision for Loan Losses		1,500
Recoveries		102
Loans Charged-off		(1,905	)
Ending Balance	$	10,713

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio class and based on impairment method as of March 31, 2011 and December 31, 2010:

	Total		Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated
March 31, 2011
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment	$	4,574	$	1,499	$	3,075	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		9,599		2,321		4,633		654		271		432		748		540
Total Ending Allowance Balance	$	14,173	$	3,820	$	7,708	$	654	$	271	$	432	$	748	$	540

Loans:
Loans Individually Evaluated for Impairment	$	17,460	$	3,817	$	13,588	$	55	$	—	$	—	$	—	$	—
Loans Collectively Evaluated for Impairment		1,085,711		279,776		432,267		147,448		75,813		52,542		97,865		—
Total Ending Loans Balance (1)	$	1,103,171	$	283,593	$	445,855	$	147,503	$	75,813	$	52,542	$	97,865	$	—

(1)	Total recorded investment in loans includes $5,464 in accrued interest.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

	Total		Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated
December 31, 2010
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment	$	4,583	$	1,387	$	3,196	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment		8,734		2,326		4,301		750		220		362		543		232
Total Ending Allowance Balance	$	13,317	$	3,713	$	7,497	$	750	$	220	$	362	$	543	$	232

Loans:
Loans Individually Evaluated for Impairment	$	16,833	$	3,421	$	13,357	$	55	$	—	$	—	$	—	$	—
Loans Collectively Evaluated for Impairment		907,525		215,840		327,413		167,933		64,652		54,048		77,639		—
Total Ending Loans Balance (1)	$	924,358	$	219,261	$	340,770	$	167,988	$	64,652	$	54,048	$	77,639	$	—

(1)	Total recorded investment in loans includes $5,640 in accrued interest.

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three months ended March 31, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Recognized
March 31, 2011
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	589	$	361	$	—	$	366	$	1	$	1
Commercial Real Estate Loans		2,715		1,760		—		2,773		3		3
Agricultural Loans		55		55		—		55		—		—

With An Allowance Recorded:
Commercial and Industrial Loans and Leases		3,415		3,456		1,499		4,638		3		3
Commercial Real Estate Loans		11,900		11,828		3,075		12,030		30		30
Agricultural Loans		—		—		—		—		—		—
Total	$	18,674	$	17,460	$	4,574	$	19,862	$	37	$	37

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	570	$	585	$	—
Commercial Real Estate Loans		2,243		2,231		—
Agricultural Loans		55		55		—

With An Allowance Recorded:
Commercial and Industrial Loans and Leases		2,779		2,836		1,387
Commercial Real Estate Loans		11,062		11,126		3,196
Agricultural Loans		—		—		—
Total	$	16,709	$	16,833	$	4,583

The following table presents information for loans individually evaluated for impairment as of March 31, 2010:

Average Balance of Individually Impaired Loans During Period	$	7,943
Interest Income Recognized During Impairment		16
Interest Income Recognized on Cash Basis		16

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2011 and December 31, 2010:

					Loans Past Due
					Over 90 Days
	Non-Accrual				& Still Accruing
	2011		2010		2011		2010

Commercial and Industrial Loans and Leases	$	3,699	$	514	$	—	$	547
Commercial Real Estate Loans		13,000		8,718		63		103
Agricultural Loans		55		55		—		—
Home Equity Loans		128		156		19		—
Consumer Loans		413		103		35		38
Residential Mortgage Loans		1,083		604		70		—
Total	$	18,378	$	10,150	$	187	$	688

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans by class of loans as of March 31, 2011 and December 31, 2010:

	Total		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
March 31, 2011
Commercial and Industrial Loans and Leases	$	283,593	$	512	$	110	$	3,544	$	4,166	$	279,427
Commercial Real Estate Loans		445,855		1,482		264		6,718		8,464		437,391
Agricultural Loans		147,503		215		—		55		270		147,233
Home Equity Loans		75,813		179		30		147		356		75,457
Consumer Loans		52,542		408		199		397		1,004		51,538
Residential Mortgage Loans		97,865		1,574		29		1,153		2,756		95,109
Total (1)	$	1,103,171	$	4,370	$	632	$	12,014	$	17,016	$	1,086,155

(1)	Total recorded investment in loans includes $5,464 in accrued interest.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

	Total		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due
December 31, 2010
Commercial and Industrial Loans and Leases	$	219,261	$	1,876	$	782	$	1,011	$	3,669	$	215,592
Commercial Real Estate Loans		340,770		149		700		5,843		6,692		334,078
Agricultural Loans		167,988		363		—		55		418		167,570
Home Equity Loans		64,652		132		12		156		300		64,352
Consumer Loans		54,048		604		95		108		807		53,241
Residential Mortgage Loans		77,639		2,112		580		604		3,296		74,343
Total (1)	$	924,358	$	5,236	$	2,169	$	7,777	$	15,182	$	909,176

(1)	Total recorded investment in loans includes $5,640 in accrued interest.

Troubled Debt Restructurings:

The Company has allocated $172 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2011. The Company had allocated $173 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2010. The Company has not committed to lending any additional amounts as of March 31, 2011 and December 31, 2010 to customers with outstanding loans that are classified as troubled debt restructurings.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company classifies loans as to credit risk by individually analyzing loans. This analysis includes commercial and industrial loans, commercial real estate loans, and agricultural loans with an outstanding balance greater than $100. This analysis is typically performed on at least an annual basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 or are included in groups of homogeneous loans. Based on the most recent analysis performed, the risk category of loans by class of loans is a follows:

			Special
March 31, 2011	Pass		Mention		Substandard		Doubtful		Total
Commercial and Industrial Loans and Leases	$	238,556	$	29,373	$	15,664	$	—	$	283,593
Commercial Real Estate Loans		362,014		54,000		29,841		—		445,855
Agricultural Loans		141,268		3,503		2,732		—		147,503

Total	$	741,838	$	86,876	$	48,237	$	—	$	876,951

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

			Special
December 31, 2010	Pass		Mention		Substandard		Doubtful		Total
Commercial and Industrial Loans and Leases	$	192,494	$	14,782	$	11,985	$	—	$	219,261
Commercial Real Estate Loans		295,863		27,304		17,603		—		340,770
Agricultural Loans		161,871		3,294		2,823		—		167,988

Total	$	650,228	$	45,380	$	32,411	$	—	$	728,019

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For home equity, consumer and residential mortgage loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in home equity, consumer and residential mortgage loans based on payment activity:

	Home Equity Loans		Consumer Loans		Residential Mortgage Loans
March 31, 2011
Performing	$	75,666	$	52,094	$	96,712
Nonperforming		147		448		1,153
Total	$	75,813	$	52,542	$	97,865

	Home Equity Loans		Consumer Loans		Residential Mortgage Loans
December 31, 2010
Performing	$	64,496	$	53,907	$	77,035
Nonperforming		156		141		604
Total	$	64,652	$	54,048	$	77,639

The following table presents financing receivable purchased and/or sold during the period by portfolio class:

	Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Total
March 31, 2011
Purchases	$	69,898	$	111,629	$	—	$	13,329	$	1,169	$	22,901	$	218,926

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:

	March 31, 2011

Commercial and Industrial Loans	$	2,529
Commercial Real Estate Loans		14,371
Home Equity Loans		22
Consumer Loans		203
Residential Mortgage Loans		191
Total	$	17,316

Carrying amount, Net of Allowance	$	17,316

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

NOTE 4 – Loans (continued)

Accretable yield, or income expected to be collected, is as follows:

	March 31, 2011

Balance at January 1, 2011	$	—
New Loans Purchased		684
Accretion of Income		(250	)
Balance at March 31, 2011	$	434

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the first three months of 2011. No allowances for loan losses were reversed during the same period.

Contractually required payments receivable of loans purchased during the year:

Commercial and Industrial Loans	$	5,515
Commercial Real Estate Loans		17,165
Home Equity Loans		35
Consumer Loans		220
Residential Mortgage Loans		212
Total	$	23,147


Cash Flows Expected to be Collected at Acquisition	$	18,337
Fair Value of Acquired Loans at Acquisition		17,653

Note 5 – Segment Information

The Company’s operations include three primary segments: core banking, trust and investment advisory services, and insurance operations. The core banking segment involves attracting deposits from the general public and using such funds to originate consumer, commercial and agricultural, commercial and agricultural real estate, and residential mortgage loans, primarily in the Company’s local markets. The core banking segment also involves the sale of residential mortgage loans in the secondary market. The trust and investment advisory services segment involves providing trust, investment advisory, and brokerage services to customers. The insurance segment offers a full range of personal and corporate property and casualty insurance products, primarily in the Company’s banking subsidiary’s local markets.

The core banking segment is comprised by the Company’s banking subsidiary, German American Bancorp, which operated through 33 retail banking offices at March 31, 2011. Net interest income from loans and investments funded by deposits and borrowings is the primary revenue for the core-banking segment. The trust and investment advisory services segment’s revenues are comprised primarily of fees generated by German American Financial Advisors & Trust Company. These fees are derived by providing trust, investment advisory, and brokerage services to its customers. The insurance segment primarily consists of German American Insurance, Inc., which provides a full line of personal and corporate insurance products from seven offices. Commissions derived from the sale of insurance products are the primary source of revenue for the insurance segment.

The following segment financial information has been derived from the internal financial statements of German American Bancorp, Inc., which are used by management to monitor and manage the financial performance of the Company. The accounting policies of the three segments are the same as those of the Company. The evaluation process for segments does not include holding company income and expense. Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the column labeled “Other” below, along with amounts to eliminate transactions between segments.

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited, dollars in thousands except share and per share data)

Note 5 – Segment Information (continued)

Three Months Ended March 31, 2011	Core Banking		Trust and Investment Advisory Services			Insurance		Other			Consolidated Totals
Net Interest Income	$	15,639	$	2		$	7	$	(541	)	$	15,107
Net Gains on Sales of Loans		409		—			—		—			409
Net Gain on Securities		—		—			—		1,045			1,045
Trust and Investment Product Fees		1		464			—		(1	)		464
Insurance Revenues		21		—			2,031		(3	)		2,049
Noncash Items:
Provision for Loan Losses		1,300		—			—		—			1,300
Depreciation and Amortization		1,145		8			136		37			1,326
Income Tax Expense (Benefit)		1,369		(26	)		315		(352	)		1,306
Segment Profit (Loss)		3,561		(38	)		450		672			4,645
Segment Assets at March 31, 2011		1,760,411		2,320			8,908		(10,000	)		1,761,639

Three Months Ended March 31, 2010	Core Banking		Trust and Investment Advisory Services		Insurance		Other			Consolidated Totals
Net Interest Income	$	12,086	$	2	$	8	$	(447	)	$	11,649
Net Gains on Sales of Loans		318		—		—		—			318
Net Gain