German American Bancorp, Inc.
Annual Report 2005

Plain-text annual report

FOCUS GENERATES RESULTS O U R M I S S I O N Building relationships that are mutually beneficial to our clients and our stakeholders. CONTENTS OUR VISION SHAREHOLDERS’ LETTER MOVING FORWARD - OUR EMPLOYEES, OUR COMMUNITIES LOCAL LEADERSHIP AND DECISION-MAKING OUR BOARD OF DIRECTORS LOCATIONS CORPORATE PROFILE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FIVE YEAR SUMMARY CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME DIRECTORS AND SENIOR OFFICERS STRONG TIES, STRONG SOLUTIONS 03 04-05 07 09 10-13 14-15 17 18 19 20 21 22-23 24 CONTENTS "Concentrate all your thoughts upon the work at hand. The sun's rays do not burn until brought to a focus." – ALEXANDER GRAHAM 03 our vision German American Bancorp will build a regional presence offering a full array of integrated financial products and services. We will always be mindful of our community roots and the importance of enhancing and growing the relationships we have with our shareholders, customers, employees and communities. Moving forward in our focus on executing a continuing strategy, because there is strength in numbers and in diversity, we will create new opportunities for growth among German American Bancorp stakeholders to share in the success of their Company. As trends continue to evolve and have transforming effects on German American Bancorp's expansion, to move forward requires a new awareness and new approaches that challenge us to "think outside of the box" to generate our desired results. FOCUS GENERATES RESULTS 04 principal non-banking subsidiaries, German American Financial Advisors & Trust Company and German American Insurance, Inc., our percentage of revenue generated from these specific areas of non-interest income sources ranks our organization near the top of similarly-sized banking companies nationwide. The creation and development of this strong and stable revenue component should continue to grow in importance in the coming years as we further expand these segments of our business, both geographically and across a broader spectrum of our existing customer base. 2005 was likewise a very good year in terms of improved operating fundamentals within our core banking segment. The dollar value of our net interest income earned during 2005 was the highest level reported since 2000 and our net interest margin of 3.92% was our highest level since 1998. Again, these very strong operating results were the fulfillment of our efforts to maintain a long-term perspective during recent years' historical low levels of interest rates. We positioned your Company to be poised to take advantage of the opportunities we believed would occur in a stronger and more normal economic environment. Clearly, our long-term perspective and prior years' balance sheet positioning was rewarded during this past year. Additionally, our continued focus on expansion of our commercial banking capabilities resulted in the eighth consecutive year of growth within the Company's portfolio of commercial/agricultural loans while our retail loan portfolio, consisting of residential mortgage loans and consumer loans, also demonstrated improvement in dollars outstanding. Within the funding portion of our balance sheet, transaction account deposits continued to demonstrate solid growth. This important component of our source of funds, which generally carry a much lower cost than other funding sources, is a key driver of the overall franchise value of our banking network. MARK A. SCHROEDER President and CEO of German American Bancorp DEAR SHAREHOLDERS We're very pleased to convey in this 2005 Summary Annual Report that your Company achieved record performance during the year, both in terms of net income and earnings per share. The theme of this year's Summary Annual Report- “Focus Generates Results”- appropriately builds upon last year's Summary Annual Report message of “Focused on our Core Strengths”. Our record level of financial performance during 2005 was the direct result of our steadfast commitment to and unwavering focus on the development of those critical operating fundamentals which we believe will enhance long-term shareholder value. Those efforts, put forth in 2005 and in the past several years, culminated in the achievement of these record results. It is extremely gratifying for our GABC team to have been able to deliver this record financial performance for the benefit of you, our shareholders. I will address several of our key accomplishments throughout the balance of my letter to shareholders and encourage you to review our 2005 results of operations in further detail in this Summary Annual Report and in our SEC 10-K Report. During 2005, we reported the fourth consecutive year of record levels of revenue generated from our trust and investment advisory services and from our insurance operations. As a result of the operations of our two 05 During this past year, we successfully completed the acquisition of Peoples Community Bank of Tell City, Indiana on October 1, 2005 and Stone City Bank of Bedford, Indiana on January 1, 2006. We also purchased approximately 10% of the common stock of Eclipse Bank, a community-based bank serving the St. Matthews area of the Louisville, Kentucky market and a similar ownership stake in Symphony Bancorp, the parent company of Symphony Bank which serves the Northern Indianapolis and Carmel, Indiana markets in Marion and Hamilton Counties. Our investments in community banks within select metropolitan markets provide us with a means to garner access to local banking expertise and expanded lending opportunities within these larger market areas. It is our current intent to continue to proactively seek partnerships with like- minded community-based financial institutions and insurance agencies within and adjacent to our existing geographic footprint. anticipation of Rich's election to the Board, we welcome him to the German American family and look forward to benefiting from his business insight and savvy as the newest member of the German American Bancorp Board of Directors. In closing, I would like to thank our officers and staff for all their hard work and efforts, not only over the course of the past year but also over the past several years. It is their commitment and dedication that has built the foundation for the record earnings we've enjoyed in 2005. I would also like to thank each of you, our shareholders. We are very thankful for your loyalty and dedication as shareholders, and remain confident that the strength of this past year's record financial performance, coupled with our expectations for strong future performance and our stock's very attractive dividend yield, will positively impact our long-term stock performance. Sincerely, Mark A. Schroeder President and Chief Executive Officer March 10, 2006 At this year's Annual Meeting in April, Joe Steurer, a long-time member of our Board of Directors, will be retiring as an active board member. Joe has diligently and faithfully served the shareholders of German American for over 20 years, having been a board member since 1983. While we will miss Joe's counsel and expertise, we wish him all the best in his well-deserved retirement. In anticipation of Mr. Steurer's retirement, the Board of Directors nominated Richard E. Forbes for election to the Board at this year's Annual Meeting. Rich currently serves as President & CEO of MasterBrand Cabinets, Inc., one of the largest employers in our market area. In TO OUR SHAREHOLDERS "I find the great thing in this world is, not so much where we stand, as in what direction we are moving." – JOHANN WOLFGANG VON GOETHE 07 German American Bancorp and its family of financial services companies employ talented, compassionate people throughout the organization, truly making German American special. We are large enough to serve the most sophisticated customer needs while being as customer-focused and agile as smaller organizations. Our customers benefit from the best of both worlds. Our employees bring relationship banking, with a community focus, to life each and every time they interact with customers. Whether we are helping a family plan for a comfortable retirement, or helping parents add on a baby's room to the house, we find great joy in serving our customers. Located in Southern Indiana, German American Bancorp’s community banking roots are firmly planted throughout the communities we serve. We understand that our organization has a responsibility and an opportunity to help build a healthy regional economy. The markets served provide a diverse regional economy that supports manufacturing, agriculture, tourism, retail, and a variety of service industries. German American and its family of affiliated financial services companies provide the necessary funding and financial management for all types of local businesses. For all types of families and individuals in the area as well, German American takes great pride in offering home ownership and financial planning. Moving forward - OUR EMPLOYEES, OUR COMMUNITIES "Change is inevitable, growth is intentional." – GLENDA CLOUD 09 German American Bancorp’s family of affiliated financial services companies each have local leadership in their respective markets. The local leadership allows our organization to make specific, timely decisions that benefit the customers and communities served in those markets. Plus, the local leadership has the resources of a holding company with nearly $1 billion in assets supporting them. We are large enough to serve the most sophisticated clients, and small enough to do so very quickly with a personal touch. Our local leadership has proven especially powerful for commercial lending growth. Business and agriculture customers appreciate our responsive decision-making by people they know and trust. LOCAL LEADERSHIP AND DECISION-MAKING 10 OUR BOARD OF DIRECTORS German American Bancorp’s Board of Directors, and those at our local community banks, are very active and successful community leaders. Our directors take their role of corporate governance and oversight very seriously; we feel that is a tremendous strength for our organization. The loyalty of our shareholders is frequently made apparent when we assist with shares that have been passed from generation to generation. This loyalty and allegiance to German American is greatly appreciated and recognized as something that must be earned. Our directors and management team take every step to ensure that we fully evaluate our opportunities to enhance shareholder value while maintaining a very prudent approach. "Leadership and learning are indispensible to each other." – JOHN FITZGERALD KENNEDY 11 WILLIAM R. HOFFMAN Bill is a retired farmer and a director of Patoka Valley Feeds, Inc. Bill was a director for the Bank of Ireland, which was German American Bancorp's first bank merger. Bill has held numerous leadership positions within his church and other civic clubs and organizations throughout the years. DOUGLAS A. BAWEL Doug is the President and CEO of Jasper Engines and Transmissions of Jasper, Indiana, a position that he has held since 1987. Other business interests include Penske Jasper Engines, Waltrip Jasper Racing, and Dubois County Flight Services. Doug is active in a variety of organizations including Patoka Valley Health Care Cooperative, Friends of Southern Hills, and many more. He was named the Indiana Business Leader of the Year in 2003 and received the Indiana Entrepreneur of the Year Award for Manufacturing in 1997. CHRISTINA M. ERNST Chris is the President and Chairman of the Board for Miller Construction Company, Inc., a third generation family business based in Vincennes, Indiana, specializing in the building and maintenance of high voltage power lines for utility companies located throughout the Midwest. Chris holds a Bachelor of Science Degree and a Master of Science Degree from Indiana University. She also serves on the Knox County Community Foundation and the Vincennes University Foundation Boards of Directors. OUR CORPORATE BOARD OF DIRECTORS 12 U. BUTCH KLEM Butch is president and CEO of U.B. Klem Furniture Company located southeast of Jasper, IN. Butch founded the company in 1973, which specializes in restaurant furniture manufacturing for a variety of national franchisors. He was awarded the Indiana Entrepreneur of the Year Award for Manufacturing in 1995. J. DAVID LETT As a partner with Lett and Jones Attorneys at Law, Dave serves Loogootee and Martin County with his law practice. Dave received his Bachelor of Arts Degree from Franklin College and his Juris Doctor Degree from Thomas M. Cooley School of Law. GENE C. MEHNE Gene holds an Associates Degree from Vincennes University and graduated with distinction with a Bachelor of Science Degree from Purdue University. Gene is President and Manager of Mehne Farms, Inc., which operates in northern Dubois County. MARK A. SCHROEDER Mark Schroeder is the President and CEO of German American Bancorp. Mark earned an Associate of Science Degree in Banking and Finance from Vincennes University, a Bachelor of Science Degree in Financial Management from University of Evansville, and holds a Certified Public Accountant license from the State of Indiana. Mark is also a graduate of the ABA Commercial Lending Graduate School and the ABA Stonier Graduate School of Banking. Mark is a past chairman and a current member of the Board of Directors of the Community Bankers Association of Indiana. Mark also serves on the Board of Directors of the Independent Community Bankers of America, the national trade association for community banking. "Leadership is the capacity to translate vision into reality." – WARREN G. BENNIS 13 MICHAEL J. VOYLES Mike was awarded the Petersburg Pride Good Neighbor Business Award in 2005 for his efforts in giving back to the Petersburg community. Mike is the President of Voyles Supermarket. He earned his Bachelor of Science Degree in Electrical Engineering from Purdue University. JOSEPH F. STEURER Joe serves as the Chairman of JOFCO, Inc., a furniture manufacturing company located in Jasper, Indiana, and serves on the Memorial Hospital Board of Directors. Joe earned his Bachelor of Science Degree in Industrial Engineering from St. Louis University. LARRY J. SEGER Larry holds his Bachelor of Science Degree in Business Marketing from Indiana University. As the President of Wabash Valley Produce, Larry oversees sales exceeding $200 million with 800 employees in 7 locations. Larry also serves as the U. S. Egg Marketers President and Chairman. CHET L. THOMPSON Chet Thompson serves as the President of Thompson Insurance and Thompson Farms, both located in Daviess County, Indiana. Chet attended the University of Evansville and Garrett Theology Seminary. He has held numerous positions within his church and other civic clubs and organizations throughout the years. OUR CORPORATE BOARD OF DIRECTORS 14 GERMAN AMERICAN INSURANCE, INC. Main Office 518 East Main Street Petersburg, IN 47567 812.354.8888 www.germanamericaninsurance.com PEOPLES BANK Main Office 201 East Main Street Washington, IN 47501 812.254.4630 www.peoplesbankpb.com STONE CITY BANK Main Office 1502 I Street Bedford Indiana 47421 812.279.6604 www.stonecitybank.com CITIZENS STATE BANK Main Office 305 East Main Street Petersburg, IN 47567 812.354.8471 www.citizensstatebankcsb.com FIRST AMERICAN BANK Main Office Third and Busseron Streets Vincennes, IN 47591 812.882.4528 www.firstamericanbankfab.com FIRST STATE BANK Main Office 645 Main Street Tell City, IN 47586 812.547.7025 www.firststatebankfsb.com GERMAN AMERICAN BANK Main Office 711 Main Street Jasper, IN 47546 812.482.1314 www.germanamericanbank.com GERMAN AMERICAN FINANCIAL ADVISORS & TRUST COMPANY Main Office 711 Main Street Jasper, IN 47546 812.482.5808 www.germanamericanbancorp.com "No steam or gas drives anything until it is confined. No life ever grows great until it is focused, dedicated, disciplined." – HARRY EMERSON FOSDICK 15 ● BANK LOCATIONS ❖ INSURANCE LOCATIONS ◆ FINANCIAL ADVISORS LOCATIONS LOCATIONS "The achievements of an organization are the results of the combined effort of each individual." – VINCENT THOMAS "VINCE" LOMBARDI 17 German American Bancorp is headquartered in Jasper, Indiana, and is comprised of six banks (with a total of 29 banking locations), five insurance agency offices, and a financial advisory trust company. German American Bancorp services extend to customers in nine counties throughout Southern Indiana. Our family of community banks provides leading edge financial products and services to some 60,000 individuals, organizations and businesses. These products and services include a full line of Prestige checking accounts, savings accounts, 24-hour bank by phone, electronic banking, check cards, credit cards, and a complete line of loan services including mortgage, consumer and commercial credit. Our mortgage banking operation specializes in the origination of secondary market eligible loans. Many mortgage loan customers appreciate the one-stop shopping convenience of our mortgage services combined with the availability of our affiliate title insurance agency. Our full-service insurance agency offices provide a full range of personal and corporate property and casualty, title, credit life, and accident and health insurance benefits. Our financial advisor and trust company offers trust, investment and financial planning options to fit the needs of virtually every potential customer, putting money to work for clients at each affiliate bank. By combining traditional retail and commercial banking, brokerage and trust services, and full service insurance, German American Bancorp creates a unique opportunity for customers to meet a variety of needs with a single relationship. CORPORATE PROFILE 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated balance sheets of German American Bancorp as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated February 21, 2006, also appearing in the Annual Report on Form 10-K, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the condensed consolidated financial statements presented on pages 20 and 21 is fairly stated in all material respects in relation to the consolidated financial statements from which they have been derived. Crowe Chizek and Company LLC Indianapolis, Indiana February 21, 2006 AUDITOR’S REPORT 19 FIVE YEAR SUMMARY The following selected data should be read in conjunction with the company's Annual Report on Form 10-K for 2005 (dollars in thousands except per share data). Summary of Operations: Interest Income ...................................................... $ Interest Expense .................................................... Net Interest Income......................................... Provision for Loan Losses....................................... Net Interest Income after Provision For Loan Losses............................................... Non-interest Income .............................................. Non-interest Expense ............................................. Income before Income Taxes .................................. Income Tax Expense ............................................... Net Income............................................................. $ Year-end Balances: Total Assets ........................................................... $ Total Loans, Net of Unearned Income..................... Total Deposits ........................................................ Total Long-term Debt ............................................. Total Shareholders’ Equity ..................................... Average Balances: Total Assets ........................................................... $ Total Loans, Net of Unearned Income..................... Total Deposits ........................................................ Total Shareholders’ Equity ..................................... Per Share Data(4): Net Income............................................................. $ Cash Dividends...................................................... Book Value at Year-end.......................................... 2005 50,197 17,984 32,213 1,903 30,310 14,194 31,448 13,056 3,335 9,721 946,467 651,956 746,821 66,606 82,255 925,851 634,526 730,220 84,479 0.89 0.56 7.73 Other Data at Year-end: Number of Shareholders ........................................ Number of Employees ............................................ Weighted Average Number of Shares(4)................... 3,494 367 10,890,987 Selected Performance Ratios: Return on Assets.................................................... Return on Equity .................................................... Equity to Assets ..................................................... Dividend Payout ..................................................... Net Charge-offs to Average Loans ......................... Allowance for Loan Losses to Loans....................... Net Interest Margin................................................ 1.05 % 11.51 % 8.69 % 62.83 % 0.26 % 1.42 % 3.92 % $ $ $ $ $ 2004 47,710 16,471 31,239 2,015 29,224 9,620 (1) 30,609 8,235 996 7,239 942,094 629,793 750,383 69,941 83,669 927,528 622,240 731,467 82,558 0.66 0.56 7.68 $ $ $ $ $ 2003 50,619 21,084 29,535 811 28,724 12,934 32,219 (2) 9,439 1,271 8,168 925,946 611,866 717,133 76,880 (2) 83,126 (3) 938,992 618,340 711,310 87,703 (3) 0.73 (3) 0.53 7.60 (3) $ $ $ $ $ 2002 60,494 28,492 32,002 1,115 30,887 9,509 28,967 11,429 1,987 9,442 957,005 610,741 707,194 121,687 104,519 1,000,167 644,990 718,763 103,301 0.79 0.51 8.72 $ $ $ $ $ 2001 71,069 38,917 32,152 660 31,492 9,772 29,308 11,956 2,763 9,193 1,015,111 657,166 726,874 156,726 102,209 1,014,917 704,562 718,160 100,232 0.76 0.48 8.44 3,219 372 10,914,622 3,198 383 11,176,766 (3) 3,299 390 12,007,009 3,314 422 12,093,160 0.78 % 8.77 % 8.88 % 84.46 % 0.24 % 1.40 % 3.86 % 0.87 % 9.31 %(3) 8.98 %(3) 73.26 % 0.14 % 1.35 % 3.61 % 0.94 % 9.14 % 10.92 % 64.99 % 0.19 % 1.36 % 3.67 % 0.91 % 9.17 % 10.07 % 63.98 % 0.22 % 1.27 % 3.61 % (1) In 2004, the Company recognized a $3.7 million non-cash pre-tax charge (which reduced Non-interest Income) for the other-than-temporary decline in value of its FHLMC and FNMA preferred stock portfolio. (2) In 2003, the Company prepaid $40.0 million of FHLB borrowings within its mortgage banking segment. The prepayment fees associated with the extinguishment of these borrowings totaled $1.9 million. (3) In March 2003, the Company purchased 1,110,444 (approximately 9% of the number of shares that were then outstanding) of its common shares at $19.05 per share pursuant to a self tender offer at a total cost, including fees and expenses incurred in connection with the offer, of approximately $21.4 million. (4) Share and Per Share Data has been retroactively adjusted to give effect for stock dividends and excludes the dilutive effect of stock options. 20 CONSOLIDATED BALANCE SHEETS DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA December 31, ASSETS Cash and Due from Banks .......................................................................................................................................... Federal Funds Sold and Other Short-term Investments............................................................................................... Cash and Cash Equivalents ................................................................................................................................... $ Securities Available-for-Sale, at Fair Value................................................................................................................. Securities Held-to-Maturity, at Cost (Fair value of $8,811 and $13,636 on December 31, 2005 and 2004, respectively) .......................................................................................................... Loans Held-for-Sale..................................................................................................................................................... Loans .......................................................................................................................................................................... Less: Unearned Income ............................................................................................................................................... Allowance for Loan Losses ................................................................................................................................. Loans, Net ................................................................................................................................................................... Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost ............................................................................ Premises, Furniture and Equipment, Net..................................................................................................................... Other Real Estate ........................................................................................................................................................ Goodwill ...................................................................................................................................................................... Intangible Assets ........................................................................................................................................................ Company Owned Life Insurance .................................................................................................................................. Accrued Interest Receivable and Other Assets............................................................................................................ TOTAL ASSETS..................................................................................................................................................... LIABILITIES Non-interest-bearing Demand Deposits ...................................................................................................................... Interest-bearing Demand, Savings, and Money Market Accounts ............................................................................... Time Deposits.............................................................................................................................................................. Total Deposits ......................................................................................................................................................... FHLB Advances and Other Borrowings ........................................................................................................................ Accrued Interest Payable and Other Liabilities ........................................................................................................... $ $ TOTAL LIABILITIES............................................................................................................................................... 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 .......................................................... Additional Paid-in Capital........................................................................................................................................... Retained Earnings....................................................................................................................................................... Accumulated Other Comprehensive Income / (Loss) ................................................................................................... TOTAL SHAREHOLDERS’ EQUITY.......................................................................................................................... 2005 27,644 5,287 32,931 181,150 8,684 1,901 653,074 (1,118) (9,265) 642,691 14,095 20,233 506 3,813 2,388 19,067 19,008 946,467 130,383 307,664 308,774 746,821 105,394 11,997 864,212 – 10,643 63,784 9,391 (1,563) 82,255 $ $ $ 2004 23,312 24,354 47,666 181,676 13,318 3,122 631,043 (1,250) (8,801) 620,992 13,542 20,231 213 1,794 2,378 18,540 18,622 942,094 123,127 305,341 321,915 750,383 95,614 12,428 858,425 – 10,898 66,817 5,778 176 83,669 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ............................................................................................... $ 946,467 $ 942,094 End of period shares issued and outstanding............................................................................................................. 10,643,514 10,898,241 See Annual Report on Form 10-K. 21 CONSOLIDATED STATEMENTS OF INCOME DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA Years ended December 31, 2005 2004 2003 $ 41,751 316 $ 39,257 129 $ 41,781 270 INTEREST INCOME Interest and Fees on Loans................................................................................................................. Interest on Federal Funds Sold and Other Short-term Investments.................................................... Interest and Dividends on Securities: Taxable........................................................................................................................................... Non-taxable ................................................................................................................................... TOTAL INTEREST INCOME........................................................................................................... INTEREST EXPENSE Interest on Deposits ........................................................................................................................... Interest on FHLB Advances and Other Borrowings.............................................................................. TOTAL INTEREST EXPENSE.............................................................................................................. NET INTEREST INCOME....................................................................................................................... Provision for Loan Losses ................................................................................................................... NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........................................................... NON-INTEREST INCOME Trust and Investment Product Fees .................................................................................................... Service Charges on Deposit Accounts................................................................................................. Insurance Revenues ........................................................................................................................... Other Operating Income ..................................................................................................................... Net Gains on Sales of Loans and Related Assets ............................................................................... Net Gain / (Loss) on Securities........................................................................................................... 5,954 2,176 50,197 13,389 4,595 17,984 32,213 1,903 30,310 2,081 3,723 4,703 2,687 1,000 – TOTAL NON-INTEREST INCOME ....................................................................................................... 14,194 NON-INTEREST EXPENSE Salaries and Employee Benefits ......................................................................................................... Occupancy Expense ............................................................................................................................ Furniture and Equipment Expense...................................................................................................... Data Processing Fees ......................................................................................................................... Professional Fees................................................................................................................................ Advertising and Promotion ................................................................................................................. Supplies ............................................................................................................................................. Net Loss on Extinguishment of Borrowings ........................................................................................ Other Operating Expenses .................................................................................................................. TOTAL NON-INTEREST EXPENSE ..................................................................................................... Income before Income Taxes............................................................................................................... Income Tax Expense............................................................................................................................ NET INCOME ....................................................................................................................................... Earnings per Share............................................................................................................................. Diluted Earnings per Share ................................................................................................................ 18,511 2,396 2,008 1,322 1,703 784 544 – 4,180 31,448 13,056 3,335 9,721 0.89 0.89 $ $ $ See Annual Report on Form 10-K. 5,455 2,869 47,710 11,747 4,724 16,471 31,239 2,015 29,224 2,046 3,537 4,666 2,074 975 (3,678) 9,620 17,814 2,121 2,171 1,186 1,690 888 527 – 4,212 30,609 8,235 996 7,239 0.66 0.66 $ $ $ 5,023 3,545 50,619 13,997 7,087 21,084 29,535 811 28,724 1,627 3,391 3,692 1,556 2,588 80 12,934 18,062 2,354 2,220 1,126 1,227 853 633 1,898 3,846 32,219 9,439 1,271 8,168 0.73 0.73 $ $ $ 22 GERMAN AMERICAN INSURANCE, INC. Directors: Douglas A. Bawel Joe A. Dedman Clay W. Ewing Terry W. Hoke Gene C. Mehne Stan J. Ruhe Mark A. Schroeder Larry J. Seger Joel B. Smith Senior Officer: Terry W. Hoke President GERMAN AMERICAN FINANCIAL ADVISORS & TRUST COMPANY Directors: Kenneth L. Sendelweck Chairman Douglas A. Bawel James W. Bobe D. Neil Dauby Gene C. Mehne Mark A. Schroeder Larry J. Seger Mark A. Stieve Joseph A. Wellman Senior Officer: Mark A. Stieve President GERMAN AMERICAN BANCORP Directors: Douglas A. Bawel Christina M. Ernst William R. Hoffman U. Butch Klem J. David Lett Gene C. Mehne Mark A. Schroeder Larry J. Seger Joseph F. Steurer Chet L. Thompson Michael J. Voyles Senior Officers: Mark A. Schroeder President and Chief Executive Officer Stan J. Ruhe Executive Vice President Credit Administration Clay W. Ewing Executive Vice President Banking Kenneth L. Sendelweck Secretary and Treasurer Tonya J. Brothers-Bridge Senior Vice President Retail Sales, Marketing and Training Diane S. Hasenour Senior Vice President Technology and Operations Bradley M. Rust Senior Vice President Chief Financial Officer Gene L. Thewes Senior Vice President Branch Administration "Diversity: the art of thinking independently together." – MALCOLM STEVENSON FORBES 23 CITIZENS STATE BANK Directors: Joe A. Dedman Robert C. Klipsch Michael B. McConnell W. Wyatt Rauch Stan J. Ruhe Mark A. Schroeder Wayne L. Stone Michael J. Voyles Gregory K. Willis Senior Officers: Joe A. Dedman President Floyd W. Alsman Senior Vice President Credit Administration FIRST AMERICAN BANK Directors: James W. Bobe Chairman Christina M. Ernst Clay W. Ewing Mark A. Schroeder Daniel L. Schuckman Joel B. Smith James W. Zeigler Senior Officer: Joel B. Smith President PEOPLES BANK Directors: Bryan S. Bullock David F. Crane Dan J. Gregory J. David Lett Michael B. Lett Mark A. Schroeder Chet L. Thompson David Waller Joseph A. Wellman Senior Officers: Joseph A. Wellman President Kenneth H. Frye Senior Vice President, Retail Banking & Community President STONE CITY BANK Directors: Donald G. Henderson Larry N. Ikerd David M. Parker Robert F. Richards Mark A. Schroeder Senior Officer: Robert F. Richards President FIRST STATE BANK Directors: Clay W. Ewing Chairman Gary D. Butler D. Neil Dauby Michael E. Hammack John A. Hargis Joseph E. LeClere Daniel P. Lutgring Mark L. Ress Mark A. Schroeder James G. Tyler Senior Officers: D. Neil Dauby President Carl Smith Executive Vice President GERMAN AMERICAN BANK Directors: Maureen B. Braun William R. Hoffman U. Butch Klem Greg W. Kuper Phil C. Schneider Mark A. Schroeder Kenneth L. Sendelweck Ray W. Snowden Joseph F. Steurer Brian J. Tretter Senior Officers: Kenneth L. Sendelweck President Charles L. Fleck Executive Vice President Keith A. Leinenbach Senior Vice President DIRECTORS AND SENIOR OFFICERS 24 German American consists of six community banks, a property and casualty insurance operation with five agencies, and a trust and investment advisory firm. Our approach to offering clients complete financial solutions has proven very successful for your Company. Our core banking group continues to expand our offerings of loans and other products and services to businesses and other customers in our communities, and we enjoy solid revenue from our financial advisory and insurance operations. We invite you to afford us the opportunity to both serve you as a customer and increase the value of your investment by allowing us to provide all your banking, insurance, and investment needs. Know that you can expect excellence, in all areas of financial services, where you see our Shield of Excellence. STRONG TIES, STRONG SOLUTIONS. "Infinite patience brings immediate results." – WAYNE W. DYER CAUTIONARY NOTE RE: FORWARD-LOOKING STATEMENTS This Summary Annual Report, including our President's letter to our Shareholders on pages 4 and 5, includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our expectations for financial and stock market performance (such as continued strength in our trust and investment advisory and insurance operations and continued attractive dividend yield) in the coming years. Readers are cautioned that actual results and performance may differ materially from any of our present expectations that are expressed or implied by any forward-looking statement due to the inherent uncertainties in predicting the future, and risks affecting the Company and it stock, including those that are described in Item 1, “Business - Forward Looking Statements and Associated Risks” and in Item 1A, “Risk Factors,” in our accompanying Annual Report on Form 10-K for 2005. If you did not receive a copy of the Form 10-K Annual Report with this Summary Annual Report, you may review that document (and our other SEC filings) via the Internet through the Investors section of our website, www.germanamericanbancorp.com. The President's letter speaks as of March 10, 2006, and we assume no duty to update the information included in that letter or elsewhere in this Summary Annual Report on account of subsequent events or developments. 711 Main Street | Post Office Box 810 | Jasper, IN 47547- 0810 812.482.1314 | www.germanamericanbancorp.com 

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