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 June 30, 2015

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 ¨

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   x      NO ¨

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 ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

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

YES   ¨      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 August 1, 2015
Common Shares, no par value	13,259,594

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, 2014, 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.”

2

*****

INDEX

PART I.            FINANCIAL INFORMATION		4
Item 1.	Unaudited Financial Statements	4
	Consolidated Balance Sheets – June 30, 2015 and December 31, 2014	4
	Consolidated Statements of Income – Three Months Ended June 30, 2015 and 2014	5
	Consolidated Statements of Income – Six Months Ended June 30, 2015 and 2014	6
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014	7
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014	8
	Notes to Consolidated Financial Statements – June 30, 2015	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	51
PART II.           OTHER INFORMATION		52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	53
SIGNATURES		53
INDEX OF EXHIBITS		54

3

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)

	June 30, 2015			December 31, 2014
ASSETS
Cash and Due from Banks	$	31,538		$	33,481
Federal Funds Sold and Other Short-term Investments	20,729			8,965
Cash and Cash Equivalents	52,267			42,446
Interest-bearing Time Deposits with Banks	100			100
Securities Available-for-Sale, at Fair Value	618,796			630,995
Securities Held-to-Maturity, at Cost (Fair value of $95 and $186 on June 30, 2015 and December 31, 2014, respectively)	95			184
Loans Held-for-Sale, at Fair Value	10,622			6,311
Loans	1,476,468			1,451,990
Less: Unearned Income	(3,822		)	(4,008		)
Allowance for Loan Losses	(15,258		)	(14,929		)
Loans, Net	1,457,388			1,433,053
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost	8,122			7,040
Premises, Furniture and Equipment, Net	38,707			39,930
Other Real Estate	317			356
Goodwill	20,536			20,536
Intangible Assets	1,627			2,074
Company Owned Life Insurance	32,467			32,043
Accrued Interest Receivable and Other Assets	18,642			22,031
TOTAL ASSETS	$	2,259,686		$	2,237,099
LIABILITIES
Non-interest-bearing Demand Deposits	$	425,547		$	428,016
Interest-bearing Demand, Savings, and Money Market Accounts	1,014,013			1,018,320
Time Deposits	323,205			333,425
Total Deposits	1,762,765			1,779,761
FHLB Advances and Other Borrowings	240,072			206,064
Accrued Interest Payable and Other Liabilities	19,799			22,450
TOTAL LIABILITIES	2,022,636			2,008,275
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value; 500,000 shares authorized, no shares issued	—			—
Common Stock, no par value, $1 stated value; 30,000,000 shares authorized	13,259			13,216
Additional Paid-in Capital	109,178			108,660
Retained Earnings	114,190			104,058
Accumulated Other Comprehensive Income	423			2,890
TOTAL SHAREHOLDERS’ EQUITY	237,050			228,824
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,259,686		$	2,237,099
End of period shares issued and outstanding	13,259,594			13,215,800

See accompanying notes to consolidated financial statements.

4

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited, dollars in thousands except per share data)

	Three Months Ended   June 30,
	2015		2014
INTEREST INCOME
Interest and Fees on Loans	$	16,537	$	16,142
Interest on Federal Funds Sold and Other Short-term Investments	4		3
Interest and Dividends on Securities:
Taxable	2,219		2,654
Non-taxable	1,418		1,026
TOTAL INTEREST INCOME	20,178		19,825
INTEREST EXPENSE
Interest on Deposits	1,022		1,037
Interest on FHLB Advances and Other Borrowings	450		467
TOTAL INTEREST EXPENSE	1,472		1,504
NET INTEREST INCOME	18,706		18,321
Provision for Loan Losses	250		200
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	18,456		18,121
NON-INTEREST INCOME
Trust and Investment Product Fees	939		905
Service Charges on Deposit Accounts	1,220		1,191
Insurance Revenues	1,515		1,482
Company Owned Life Insurance	207		192
Interchange Fee Income	563		512
Other Operating Income	631		590
Net Gains on Sales of Loans	784		386
Net Gains on Securities	262		244
TOTAL NON-INTEREST INCOME	6,121		5,502
NON-INTEREST EXPENSE
Salaries and Employee Benefits	8,259		7,886
Occupancy Expense	1,201		1,198
Furniture and Equipment Expense	482		500
FDIC Premiums	284		276
Data Processing Fees	870		947
Professional Fees	642		553
Advertising and Promotion	484		544
Intangible Amortization	202		325
Other Operating Expenses	1,891		1,910
TOTAL NON-INTEREST EXPENSE	14,315		14,139
Income before Income Taxes	10,262		9,484
Income Tax Expense	2,937		2,797
NET INCOME	$	7,325	$	6,687
Basic Earnings Per Share	$	0.55	$	0.51
Diluted Earnings Per Share	$	0.55	$	0.51
Dividends Per Share	$	0.17	$	0.16

See accompanying notes to consolidated financial statements.

5

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited, dollars in thousands except per share data)

	Six Months Ended   June 30,
	2015		2014
INTEREST INCOME
Interest and Fees on Loans	$	32,836	$	32,086
Interest on Federal Funds Sold and Other Short-term Investments	7		6
Interest and Dividends on Securities:
Taxable	4,654		5,413
Non-taxable	2,681		2,001
TOTAL INTEREST INCOME	40,178		39,506
INTEREST EXPENSE
Interest on Deposits	2,015		2,073
Interest on FHLB Advances and Other Borrowings	908		916
TOTAL INTEREST EXPENSE	2,923		2,989
NET INTEREST INCOME	37,255		36,517
Provision for Loan Losses	500		550
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	36,755		35,967
NON-INTEREST INCOME
Trust and Investment Product Fees	1,923		1,827
Service Charges on Deposit Accounts	2,357		2,252
Insurance Revenues	4,060		4,038
Company Owned Life Insurance	412		393
Interchange Fee Income	1,046		959
Other Operating Income	1,207		980
Net Gains on Sales of Loans	1,533		862
Net Gains on Securities	725		472
TOTAL NON-INTEREST INCOME	13,263		11,783
NON-INTEREST EXPENSE
Salaries and Employee Benefits	17,084		16,310
Occupancy Expense	2,427		2,514
Furniture and Equipment Expense	961		1,009
FDIC Premiums	566		551
Data Processing Fees	1,707		1,957
Professional Fees	1,286		1,245
Advertising and Promotion	927		1,022
Intangible Amortization	447		673
Other Operating Expenses	3,743		3,948
TOTAL NON-INTEREST EXPENSE	29,148		29,229
Income before Income Taxes	20,870		18,521
Income Tax Expense	6,239		5,529
NET INCOME	$	14,631	$	12,992
Basic Earnings Per Share	$	1.11	$	0.98
Diluted Earnings Per Share	$	1.10	$	0.98
Dividends Per Share	$	0.34	$	0.32

See accompanying notes to consolidated financial statements.

6

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, dollars in thousands)

	Three Months Ended   June 30,
	2015			2014
NET INCOME	$	7,325		$	6,687
Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Securities
Unrealized Holding Gain (Loss) Arising During the Period	(8,955		)	4,647
Reclassification Adjustment for Losses (Gains) Included in Net Income	(262		)	(244		)
Tax Effect	3,253			(1,566		)
Net of Tax	(5,964		)	2,837
Total Other Comprehensive Income (Loss)	(5,964		)	2,837
COMPREHENSIVE INCOME	$	1,361		$	9,524

	Six Months Ended   June 30,
	2015			2014
NET INCOME	$	14,631		$	12,992
Other Comprehensive Income (Loss):
Unrealized Gains (Losses) on Securities
Unrealized Holding Gain (Loss) Arising During the Period	(3,087		)	8,380
Reclassification Adjustment for Losses (Gains) Included in Net Income	(725		)	(472		)
Tax Effect	1,345			(2,807		)
Net of Tax	(2,467		)	5,101
Total Other Comprehensive Income (Loss)	(2,467		)	5,101
COMPREHENSIVE INCOME	$	12,164		$	18,093

See accompanying notes to consolidated financial statements.

7

GERMAN AMERICAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, dollars in thousands)

	Six Months Ended   June 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	14,631		$	12,992
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Net Amortization on Securities	1,225			976
Depreciation and Amortization	2,207			2,422
Loans Originated for Sale	(76,344		)	(43,022		)
Proceeds from Sales of Loans Held-for-Sale	73,482			44,295
Provision for Loan Losses	500			550
Gain on Sale of Loans, net	(1,533		)	(862		)
Gain on Securities, net	(725		)	(472		)
Loss on Sales of Other Real Estate and Repossessed Assets	37			44
Loss on Disposition and Impairment of Premises and Equipment	29			—
Increase in Cash Surrender Value of Company Owned Life Insurance	(424		)	(413		)
Equity Based Compensation	509			320
Change in Assets and Liabilities:
Interest Receivable and Other Assets	3,472			(4,120		)
Interest Payable and Other Liabilities	(1,306		)	520
Net Cash from Operating Activities	15,760			13,230
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities, Calls, Redemptions of Securities Available-for-Sale	50,842			41,415
Proceeds from Sales of Securities Available-for-Sale	18,999			7,237
Purchase of Securities Available-for-Sale	(61,954		)	(47,284		)
Proceeds from Maturities of Securities Held-to-Maturity	89			84
Purchase of Federal Home Loan Bank Stock	(1,082		)	(92		)
Purchase of Loans	(1,852		)	—
Loans Made to Customers, net of Payments Received	(23,781		)	(27,673		)
Proceeds from Sales of Other Real Estate	800			1,036
Property and Equipment Expenditures	(499		)	(1,743		)
Net Cash from Investing Activities	(18,438		)	(27,020		)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Deposits	(16,988		)	(69,757		)
Change in Short-term Borrowings	29,021			64,453
Advances in Long-term Debt	25,000			21,500
Repayments of Long-term Debt	(20,087		)	(1,252		)
Issuance of Common Stock	52			50
Dividends Paid	(4,499		)	(4,222		)
Net Cash from Financing Activities	12,499			10,772
Net Change in Cash and Cash Equivalents	9,821			(3,018		)
Cash and Cash Equivalents at Beginning of Year	42,446			60,132
Cash and Cash Equivalents at End of Year	$	52,267		$	57,114
Cash Paid During the Year for
Interest	$	2,996		$	2,980
Income Taxes	2,976			1,769
Supplemental Non Cash Disclosures
Loans Transferred to Other Real Estate	$	798		$	986
Securities Transferred to Accounts Receivable	—			(3,323		)

See accompanying notes to consolidated financial statements.

8

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(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 (hereinafter collectively referred to as the "Company") 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. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. Certain items included in the prior period financial statements were reclassified to conform to the current presentation. There was no effect on net income or total shareholder’s equity based on these reclassifications.

NOTE 2 – Per Share Data

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

	Three Months Ended   June 30,
	2015		2014
Basic Earnings per Share:
Net Income	$	7,325	$	6,687
Weighted Average Shares Outstanding	13,256,026		13,210,150
Basic Earnings per Share	$	0.55	$	0.51
Diluted Earnings per Share:
Net Income	$	7,325	$	6,687
Weighted Average Shares Outstanding	13,256,026		13,210,150
Potentially Dilutive Shares, Net	7,578		20,662
Diluted Weighted Average Shares Outstanding	13,263,604		13,230,812
Diluted Earnings per Share	$	0.55	$	0.51

For the three months ended June 30, 2015 and 2014, there were no anti-dilutive shares.

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

	Six Months Ended   June 30,
	2015		2014
Basic Earnings per Share:
Net Income	$	14,631	$	12,992
Weighted Average Shares Outstanding	13,238,836		13,194,754
Basic Earnings per Share	$	1.11	$	0.98
Diluted Earnings per Share:
Net Income	$	14,631	$	12,992
Weighted Average Shares Outstanding	13,238,836		13,194,754
Potentially Dilutive Shares, Net	7,523		21,330
Diluted Weighted Average Shares Outstanding	13,246,359		13,216,084
Diluted Earnings per Share	$	1.10	$	0.98

For the six months ended June 30, 2015 and 2014, there were no anti-dilutive shares.

9

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

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 June 30, 2015 and December 31, 2014, were as follows:

Securities Available-for-Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2015
U.S. Treasury and Agency Securities	$	10,000	$	—	$	(110	)	$	9,890
Obligations of State and Political Subdivisions	178,386		4,812		(1,110		)	182,088
Mortgage-backed Securities - Residential	429,257		2,174		(4,966		)	426,465
Equity Securities	353		—		—			353
Total	$	617,996	$	6,986	$	(6,186	)	$	618,796
December 31, 2014
U.S. Treasury and Agency Securities	$	20,000	$	—	$	(439	)	$	19,561
Obligations of State and Political Subdivisions	147,321		6,515		(59		)	153,777
Mortgage-backed Securities - Residential	458,709		3,615		(5,020		)	457,304
Equity Securities	353		—		—			353
Total	$	626,383	$	10,130	$	(5,518	)	$	630,995

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 June 30, 2015 and December 31, 2014, were as follows:

Securities Held-to-Maturity:	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
June 30, 2015
Obligations of State and Political Subdivisions	$	95	$	—	$	—	$	95
December 31, 2014
Obligations of State and Political Subdivisions	$	184	$	2	$	—	$	186

The amortized cost and fair value of Securities at June 30, 2015 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.

Securities Available-for-Sale:	Amortized Cost		Fair Value
Due in one year or less	$	6,173	$	6,270
Due after one year through five years	18,574		18,694
Due after five years through ten years	65,573		68,131
Due after ten years	98,066		98,883
Mortgage-backed Securities - Residential	429,257		426,465
Equity Securities	353		353
Total	$	617,996	$	618,796

10

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 3 - Securities (continued)

Securities Held-to-Maturity:	Carrying Amount		Fair Value
Due in one year or less	$	95	$	95
Due after one year through five years	—		—
Due after five years through ten years	—		—
Due after ten years	—		—
Total	$	95	$	95

Proceeds from the Sales of Securities are summarized below:

	Three Months Ended		Three Months Ended
	June 30, 2015		June 30, 2014
Proceeds from Sales	$	9,191	$	6,983
Gross Gains on Sales	262		244
Income Taxes on Gross Gains	92		85

	Six Months Ended		Six Months Ended
	June 30, 2015		June 30, 2014
Proceeds from Sales	$	18,999	$	7,237
Gross Gains on Sales	725		472
Income Taxes on Gross Gains	254		165

Below is a summary of securities with unrealized losses as of June 30, 2015 and December 31, 2014, presented by length of time the securities have been in a continuous unrealized loss position:

	Less than 12 Months					12 Months or More					Total
June 30, 2015	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and Agency Securities	$	—	$	—		$	9,890	$	(110	)	$	9,890	$	(110	)
Obligations of State and Political Subdivisions	55,209		(1,102		)	351		(8		)	55,560		(1,110		)
Mortgage-backed Securities - Residential	122,094		(1,134		)	144,206		(3,832		)	266,300		(4,966		)
Equity Securities	—		—			—		—			—		—
Total	$	177,303	$	(2,236	)	$	154,447	$	(3,950	)	$	331,750	$	(6,186	)

	Less than 12 Months					12 Months or More					Total
December 31, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Treasury and Agency Securities	$	—	$	—		$	19,561	$	(439	)	$	19,561	$	(439	)
Obligations of State and Political Subdivisions	3,765		(25		)	4,298		(34		)	8,063		(59		)
Mortgage-backed Securities - Residential	26,606		(191		)	209,679		(4,829		)	236,285		(5,020		)
Equity Securities	—		—			—		—			—		—
Total	$	30,371	$	(216	)	$	233,538	$	(5,302	)	$	263,909	$	(5,518	)

11

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 3 - Securities (continued)

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.

NOTE 4 – Derivatives

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of these interest rate swaps and the offsetting counterparty derivative instruments were $21.2 million at June 30, 2015 and $23.1 million at December 31, 2014. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered stand alone derivatives and changes in the fair value of derivatives are reported in earnings as non-interest income. 

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company’s exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.

The following table reflects the fair value hedges included in the Consolidated Balance Sheets as of:

	June 30, 2015				December 31, 2014
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in Other Assets:
Interest Rate Swaps	$	21,192	$	440	$	23,104	$	507
Included in Other Liabilities:
Interest Rate Swaps	$	21,192	$	401	$	23,104	$	508

The following tables present the effect of derivative instruments on the Consolidated Statements of Income for the periods presented:

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2015		2014		2015		2014
Interest Rate Swaps:
Included in Interest Income / (Expense)	$	—	$	—	$	—	$	—
Included in Other Income / (Expense)	107		116		165		78

12

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 5 – Loans

Loans were comprised of the following classifications at June 30, 2015 and December 31, 2014: 

	June 30, 2015			December 31, 2014
Commercial:
Commercial and Industrial Loans and Leases	$	396,741		$	380,079
Commercial Real Estate Loans	584,426			583,086
Agricultural Loans	222,298			216,774
Retail:
Home Equity Loans	88,303			86,234
Consumer Loans	47,571			48,613
Residential Mortgage Loans	137,129			137,204
Subtotal	1,476,468			1,451,990
Less: Unearned Income	(3,822		)	(4,008		)
Allowance for Loan Losses	(15,258		)	(14,929		)
Loans, Net	$	1,457,388		$	1,433,053

The following table presents the activity in the allowance for loan losses by portfolio class for the three months ending June 30, 2015 and 2014:

June 30, 2015	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans		Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated		Total
Beginning Balance	$	4,747		$	7,229		$	1,142	$	318		$	389		$	673		$	671	$	15,169
Provision for Loan Losses	(114		)	54			81		57			5			128			39		250
Recoveries	26			43			—		6			54			9			—		138
Loans Charged-off	—			(11		)	—		(31		)	(66		)	(191		)	—		(299		)
Ending Balance	$	4,659		$	7,315		$	1,223	$	350		$	382		$	619		$	710	$	15,258

June 30, 2014	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans		Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated			Total
Beginning Balance	$	5,374		$	7,870		$	930	$	209		$	186		$	257		$	658		$	15,484
Provision for Loan Losses	365			(695		)	86		181			171			255			(163		)	200
Recoveries	9			27			—		42			39			4			—			121
Loans Charged-off	(87		)	(3		)	—		(14		)	(70		)	(81		)	—			(255		)
Ending Balance	$	5,661		$	7,199		$	1,016	$	418		$	326		$	435		$	495		$	15,550

13

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 5 - Loans (continued)

The following tables present the activity in the allowance for loan losses by portfolio class for the six months ending June 30, 2015 and 2014:

June 30, 2015	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans		Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated		Total
Beginning Balance	$	4,627		$	7,273		$	1,123	$	246		$	354		$	622		$	684	$	14,929
Provision for Loan Losses	(13		)	2			100		129			40			216			26		500
Recoveries	67			51			—		6			154			11			—		289
Loans Charged-off	(22		)	(11		)	—		(31		)	(166		)	(230		)	—		(460		)
Ending Balance	$	4,659		$	7,315		$	1,223	$	350		$	382		$	619		$	710	$	15,258

June 30, 2014	Commercial and Industrial Loans and Leases			Commercial Real Estate Loans			Agricultural Loans		Home Equity Loans			Consumer Loans			Residential Mortgage Loans			Unallocated			Total
Beginning Balance	$	3,983		$	8,335		$	946	$	239		$	188		$	281		$	612		$	14,584
Provision for Loan Losses	1,687			(1,752		)	70		181			219			262			(117		)	550
Recoveries	78			730			—		42			86			8			—			944
Loans Charged-off	(87		)	(114		)	—		(44		)	(167		)	(116		)	—			(528		)
Ending Balance	$	5,661		$	7,199		$	1,016	$	418		$	326		$	435		$	495		$	15,550

In determining the adequacy of the allowance for loan loss, general allocations are made for other pools of loans, including non-classified loans, homogeneous portfolios of consumer and residential real estate loans, and loans within certain industry categories believed to present unique risk of loss. General allocations of the allowance are primarily made based on historical averages for loan losses for these portfolios, judgmentally adjusted for current economic factors and portfolio trends. 

Loan impairment is reported when full repayment under the terms of the loan is not expected. This methodology is used for all loans, including loans acquired with deteriorated credit quality. For purchased loans, the assessment is made at the time of acquisition as well as over the life of loan. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. Commercial and industrial loans, commercial real estate loans, and agricultural loans are evaluated individually for impairment. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include real estate loans secured by one-to-four family residences and loans to individuals for household, family and other personal expenditures. Individually evaluated loans on non-accrual are generally considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

14

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 5 - Loans (continued)

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 June 30, 2015 and December 31, 2014:

June 30, 2015	Total		Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment	$	1,603	$	103	$	1,500	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment	13,645		4,556		5,805		1,223		350		382		619		710
Acquired with Deteriorated Credit Quality	10		—		10		—		—		—		—		—
Total Ending Allowance Balance	$	15,258	$	4,659	$	7,315	$	1,223	$	350	$	382	$	619	$	710
Loans:
Loans Individually Evaluated for Impairment	$	6,065	$	2,029	$	4,024	$	12	$	—	$	—	$	—	n/m(2)
Loans Collectively Evaluated for Impairment	1,468,603		395,321		575,765		224,579		88,639		47,700		136,599		n/m(2)
Loans Acquired with Deteriorated Credit Quality	7,217		403		5,934		—		—		—		880		n/m(2)
Total Ending Loans Balance(1)	$	1,481,885	$	397,753	$	585,723	$	224,591	$	88,639	$	47,700	$	137,479	n/m(2)

⁽¹⁾Total recorded investment in loans includes $5,417 in accrued interest.

⁽²⁾n/m = not meaningful

December 31, 2014	Total		Commercial and Industrial Loans and Leases		Commercial Real Estate Loans		Agricultural Loans		Home Equity Loans		Consumer Loans		Residential Mortgage Loans		Unallocated
Allowance for Loan Losses:
Ending Allowance Balance Attributable to Loans:
Individually Evaluated for Impairment	$	1,532	$	87	$	1,445	$	—	$	—	$	—	$	—	$	—
Collectively Evaluated for Impairment	13,343		4,540		5,818		1,123		246		354		578		684
Acquired with Deteriorated Credit Quality	54		—		10		—		—		—		44		—
Total Ending Allowance Balance	$	14,929	$	4,627	$	7,273	$	1,123	$	246	$	354	$	622	$	684
Loans:
Loans Individually Evaluated for Impairment	$	6,044	$	1,964	$	4,080	$	—	$	—	$	—	$	—	n/m(2)
Loans Collectively Evaluated for Impairment	1,443,363		378,533		573,961		219,640		86,570		48,614		136,045		n/m(2)
Loans Acquired with Deteriorated Credit Quality	8,361		354		6,385		—		—		118		1,504		n/m(2)
Total Ending Loans Balance(1)	$	1,457,768	$	380,851	$	584,426	$	219,640	$	86,570	$	48,732	$	137,549	n/m(2)

⁽¹⁾Total recorded investment in loans includes $5,778 in accrued interest.

⁽²⁾n/m = not meaningful

15

GERMAN AMERICAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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

NOTE 5 - Loans (continued)

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2015 and December 31, 2014:

June 30, 2015	Unpaid Principal Balance(1)		Recorded Investment		Allowance for Loan Losses Allocated
With No Related Allowance Recorded:
Commercial and Industrial Loans and Leases	$	502	$	498	$	—
Commercial Real Estate Loans	1,276		1,126		—
Agricultural Loans	12		12		—
Subtotal	1,790		1,636		—
With An Allowance Recorded:
Commercial and Industrial Loans and Leases	1,516		1,531		103