NOTE 16 – Business Combinations, Goodwill and Intangible Assets

Business Combinations

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 December 31, 2011 financial statements as such.

In accordance with ASC 805, the Company has expensed approximately $507 of direct acquisition costs and recorded $9.0 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 $9.0 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		5,077
Deposits		(302,742	)
FHLB Advances and Other Borrowings		(14,762	)
Accrued Interest Payable and Other Liabilities		(2,604	)

Total Identifiable Net Assets	$	22,356

Goodwill	$	9,030

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 year ended December 31, 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.

	Unaudited		Unaudited
	Pro forma		Pro forma
	Year Ended		Year Ended
	12/31/2011		12/31/2010

Net Interest Income	$	63,981	$	60,158
Non-interest Income		20,531		17,489
Total Revenue		84,512		77,647
Provision for Loan Losses Expense		6,800		5,225
Non-interest Expense		49,199		51,111
Income Before Income Taxes		28,513		21,311
Income Tax Expense		8,353		6,842
Net Income		20,160		14,469

Basic Earnings Per Share and Diluted Earnings Per Share	$	1.60	$	1.15

Goodwill

The changes in the carrying amount of goodwill for the periods ended December 31, 2011, 2010, and 2009 were classified as follows:

	2011		2010		2009

Beginning of Year	$	9,835	$	9,655	$	9,655
Acquired Goodwill		9,030		180		—
Impairment		—		—		—
End of Year	$	18,865	$	9,835	$	9,655

Of the $18,865 carrying amount of goodwill, $17,533 is allocated to the core banking segment and $1,332 is allocated to the insurance segment for the period ended December 31, 2011. Of the $9,835 carrying amount of goodwill, $8,503 is allocated to the core banking segment and $1,332 is allocated to the insurance segment for the period ended December 31, 2010. Of the $9,655 carrying amount of goodwill, $8,323 is allocated to the core banking segment and $1,332 is allocated to the insurance segment for the period ended December 31, 2009.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2011, the Company’s reporting units had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting units exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.

Acquired Intangible Assets

Acquired intangible assets were as follows as of year end:	2011
	Gross		Accumulated
	Amount		Amortization
Core Banking
Core Deposit Intangible	$	6,952	$	3,346
Unidentified Branch Acquisition Intangible		257		257
Insurance
Customer List		5,199		4,459
Total	$	12,408	$	8,062

	2010
	Gross		Accumulated
	Amount		Amortization
Core Banking
Core Deposit Intangible	$	3,275	$	1,727
Unidentified Branch Acquisition Intangible		257		257
Insurance
Customer List		5,199		4,123
Total	$	8,731	$	6,107

Amortization Expense was $1,956, $898, and $909 for 2011, 2010, and 2009.

Estimated amortization expense for each of the next five years is as follows:

2012	$	1,655
2013		1,284
2014		774
2015		379
2016		152