Note 9 – Mergers and Acquisition Activity

Effective January 1, 2011, the Company acquired American Community Bancorp, Inc., and its subsidiaries, including the Bank of Evansville, pursuant to an Agreement and Plan of Reorganization dated October 4, 2010, as amended. The acquisition was accomplished by the merger of American Community into the German American Bancorp, Inc., immediately followed by the merger of Bank of Evansville into German American Bancorp, Inc.’s bank subsidiary (German American Bancorp). The Bank of Evansville operated three banking offices in Evansville, Indiana. American Community’s consolidated assets and equity (unaudited) as of December 31, 2010 totaled $340.3 million and $18.4 million, respectively, and its consolidated net income (loss) (unaudited) totaled ($632) for the year ended December 31, 2010. The acquired assets and liabilities were recorded at fair value at the date of acquisition and were reflected in the June 30, 2011 financial statements as such.

In accordance with ASC 805, the Company has expensed approximately $493 of direct acquisition costs and recorded $9.3 million of goodwill and $3.7 million of intangible assets. The intangible assets are related to core deposits and are being amortized on an accelerated basis over 6 years. For tax purposes, goodwill totaling $9.3 million is non-deductible. The following table summarizes the fair value of the total consideration transferred as a part of the American Community acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

January 1, 2011

Consideration
Cash for Options & Warrants and Fractional Shares	$	2,042
Equity Instruments		29,344

Fair Value of Total Consideration Transferred	$	31,386

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

Cash	$	6,621
Federal Funds Sold and Other Short-term Investments		51,201
Interest-bearing Time Deposits with Banks		12,284
Securities		29,441
Loans		218,926
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost		1,350
Premises, Furniture & Equipment		9,397
Other Real Estate		1,155
Core Deposit Intangible		3,678
Company Owned Life Insurance		3,334
Accrued Interest Receivable & Other Assets		5,011
Deposits		(302,742	)
FHLB Advances and Other Borrowings		(14,762	)
Accrued Interest Payable and Other Liabilities		(2,843	)

Total Identifiable Net Assets	$	22,051

Goodwill	$	9,335

Under the terms of the merger agreement, the Company issued approximately 1,449,000 shares of its common stock to the former shareholders of American Community. Each American Community common shareholder of record at the effective time of the merger became entitled to receive 0.725 shares of common stock of the Company for each of their former shares of American Community common stock.

The Company at the effective time of the merger owned 199,939 shares of American Community’s outstanding common stock (approximately 9.1% of American Community’s common shares then outstanding). All of these shares were cancelled at the effective time of the merger and were not exchanged for shares of the Company in the merger.

In connection with the closing of the merger, American Community paid to its shareholders of record at the close of business on December 15, 2010, a special cash dividend of $2.00 per American Community share (an aggregate of $3,997 to shareholders other than the Company) and the Company paid (or accrued an obligation to pay in 2011) approximately $2,038 to persons who held in-the-money options and warrants to purchase American Community common stock (all of which rights were cancelled at the effective time and were not assumed by the Company).

This acquisition was consistent with the Company’s strategy to build a regional presence in Southern Indiana. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2010 after giving effect to certain adjustments. The unaudited pro forma information for the three months and six months ended June 30, 2010, includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

	Pro forma		Pro forma
	Three Months		Three Months
	Ended		Ended
	6/30/2011		6/30/2010

Net Interest Income	$	16,264	$	15,254
Non-interest Income		4,362		4,004
Total Revenue		20,626		19,258
Provision for Loan Losses Expense		1,300		1,000
Non-interest Expense		11,985		12,190
Income Before Income Taxes		7,341		6,068
Income Tax Expense		2,304		1,165
Net Income		5,037		4,903

Earnings Per Share and Diluted Earnings Per Share	$	0.40	$	0.39

	Pro forma		Pro forma
	Six Months		Six Months
	Ended		Ended
	6/30/2011		6/30/2010

Net Interest Income	$	31,371	$	29,926
Non-interest Income		9,331		8,735
Total Revenue		40,702		38,661
Provision for Loan Losses Expense		2,600		2,500
Non-interest Expense		24,598		24,474
Income Before Income Taxes		13,504		11,687
Income Tax Expense		4,108		2,671
Net Income		9,396		9,016

Earnings Per Share and Diluted Earnings Per Share	$	0.75	$	0.72

The above pro forma financial information includes approximately $885 and $1,355 of net income and $2,852 and $5,386 of total revenue related to the operations of the Bank of Evansville during the three and six months ended June 30, 2011, respectively. The above pro forma financial information related to 2011 excludes one-time non-recurring acquisition/integration costs and revenue. The excluded one-time costs totaled $286 and $1,543 on a pre-tax basis during the three and six months ended June 30, 2011. The excluded one-time revenue totaled $0 and $1,045 for the three and six months ended June 30, 2011. The above pro forma financial information excludes the American Community Bancorp, Inc. provision for loan loss recognized during the three and six months ended June 30, 2010. Under acquisition accounting treatment, loans are recorded at fair value which includes a credit risk component, and therefore the provision for loan loss recognized during the three and six months ended June 30, 2010 was presumed to not be necessary.