Horizon Bancorp, Inc. Announces Third Quarter 2020 Financial Results

MICHIGAN CITY, Ind., Oct. 28, 2020 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) Horizon Bancorp, Inc. (Horizon or the Company) announced its unaudited financial results for the three and nine months ending September 30, 2020.

Horizon is successfully navigating through these challenging times, thanks to our teams unwavering focus on our communities, customers and our culture of accountability and operating discipline, Chairman and CEO Craig M. Dwight said. In the third quarter, we saw a healthy recovery in earnings and meaningful growth in pretax, preprovision income, as Horizon maintained sound asset quality metrics and continued to conservatively build reserves, tightly managed operating expenses, stabilized net interest income and margin, and benefited from very strong performance from our mortgage business. In addition, in future periods, we expect to benefit from efforts initiated in the early fourth quarter to deleverage and optimize returns on earning assets.

Third Quarter 2020 Highlights

• Earned net income of $20.3 million, or $0.46 diluted earnings per share, compared to $14.6 million, or $0.33 diluted earnings per share, for the second quarter of 2020 and $20.5 million, or $0.46 diluted earnings per share, for the third quarter of 2019.
  

• Grew pretax, preprovision net income to $26.7 million for the quarter, compared to $23.7 million for the second quarter of 2020 and $24.9 million for the third quarter of 2019. This nonGAAP financial measure is utilized by banks to provide a greater understanding of pretax profitability before giving effect to credit loss expense. (See the NonGAAP Reconciliation of PreTax, PreProvision Net Income table below.)
  

• Reported return on average assets (ROAA) of 1.40% and return on average common equity (ROACE) of 12.08% in the quarter, as well as adjusted ROAA of 1.34% and adjusted ROACE of 11.55%, excluding the impact of gains on sale of investment securities, net of tax. (See the NonGAAP Reconciliation of Return on Average Assets and Return on Average Common Equity tables below.)
  

• Increased the allowance for credit losses (ACL) 2.2% during the quarter and 218.8% yeartodate to $56.3 million at period end, representing 1.39% of total loans, reflecting implementation of the Current Expected Credit Losses (CECL) accounting method and prudent increases in the Companys general reserves. ACL at period end also represented 1.51% of loans excluding $310.8 million in Federal Paycheck Protection Program (PPP) loans, and 192.1% of nonperforming loans.
  

• Maintained solid asset quality metrics, including nonperforming and delinquent loans representing 0.72% and 0.15% of total loans, respectively, at September 30, 2020, while net chargeoffs were 0.02% of average loans for the period.
  

• COVID19 deferral levels improved to 4.1% of total loans at period end, from 14.3% on June 30, 2020.
  

• Reported noninterest expense of $33.4 million, representing 2.30% of average assets on an annualized basis compared to 2.18% for the second quarter of 2020 and 2.34% for the third quarter of 2019.
  

• Improved the efficiency ratio in the period to 55.59% compared to 56.23% for the second quarter of 2020. (See the NonGAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio tables below.)
  

• Generated record gain on mortgage loan sales of $8.8 million, up 33.1% from the linked quarter and 226.2% from the prior year period, and originated $207.1 million in mortgage loans during the quarter, down 18.1% from the record second quarter of 2020 and up 71.0% from the third quarter of 2019.
  

• Reported net interest margin of 3.39% and adjusted net interest margin of 3.27%, with each declining by 8 basis points from the second quarter of 2020. (See the NonGAAP Reconciliation of Net Interest Margin table for the definition of this nonGAAP calculation). An estimated 1 basis points of compression is attributed to PPP lending and an estimated 10 basis points of compression is attributed to subordinated notes during the quarter, for both net interest margin and adjusted net interest margin.
  

• Horizons tangible book value per share increased from $10.63 at December 31, 2019 to $11.29 at September 30, 2020, which includes the accounting adjustment for CECL as of January 1, 2020. This represents the highest tangible book value per share in the Companys history. (See the NonGAAP Reconciliation of Tangible Stockholders Equity and Tangible Book Value per Share tables below.)
  

• Maintained strong liquidity position including approximately $1.3 billion in cash and investment securities, which is approximately 22.4% of total assets, and approximately $928.0 million in unused availability on lines of credit, at September 30, 2020.

Summary

		For the Three Months Ended
		September 30,				June 30,				September 30,
Net Interest Income and Net Interest Margin		2020				2020				2019
Net interest income		$	43,397			$	42,996			$	43,463
Net interest margin		3.39		%		3.47		%		3.82		%
Adjusted net interest margin		3.27		%		3.35		%		3.67		%

Mr. Dwight commented, Our team continues to actively manage our net interest margin by focusing on interest spreads for all loan portfolios and lowering deposit rates. As a result, Horizons third quarter net interest margin declined only 8 basis points from the second quarter of this year which includes an additional estimated 1 basis points of compression from PPP lending and an additional estimated 10 basis points of compression attributed to subordinated notes.

		For the Three Months Ended
		September 30,			June 30,			September 30,
Asset Yields and Funding Costs		2020			2020			2019
Interest earning assets		3.90	%		4.05	%		4.87	%
Interest bearing liabilities		0.67	%		0.74	%		1.35	%

		For the Three Months Ended
Noninterest Income and		September 30,				June 30,				September 30,
Mortgage Banking Income		2020				2020				2019
Total noninterest income		$	16,700			$	11,125			$	11,514
Gain on sale of mortgage loans		8,813				6,620				2,702
Mortgage servicing income net of impairment		(1,308		)		(2,760		)		444

		For the Three Months Ended
		September 30,				June 30,				September 30,
Noninterest Expense		2020				2020				2019
Total noninterest expense		$	33,407			$	30,432			$	30,060
Annualized noninterest expense to average assets		2.30		%		2.18		%		2.34		%

		For the Three Months Ended
		September 30,			June 30,			September 30,
Credit Quality		2020			2020			2019
Allowance for credit losses to total loans		1.39	%		1.38	%		0.49	%
Nonperforming loans to total loans		0.72			0.70			0.52
Percent of net chargeoffs to average loans outstanding for the period		0.02			0.01			0.02

						CECL Adoption
Allowance for		December 31,								January 1,				Net Reserve Build												September 30,
Credit Losses		2019				Impact				2020				1Q20				2Q20				3Q20				2020
Commercial		$	11,996			$	13,618			$	25,614			$	6,936			$	6,597			$	648			$	39,795
Retail Mortgage		923				4,048				4,971				683				178				(368		)		5,464
Warehouse		1,077								1,077				(22		)		135				60				1,250
Consumer		3,671				4,911				8,582				599				(260		)		889				9,810
Allowance for Credit Losses (ACL)		$	17,667			$	22,577			$	40,244			$	8,196			$	6,650			$	1,229			$	56,319
ACL / Total Loans		0.49		%						1.10		%														1.39		%
Acquired Loan Discount (ALD)		$	20,228			$	(2,786	)		$	17,442			$				$				$				$	12,933

Horizons asset quality metrics continued to remain favorable through the third quarter, with low levels of delinquency and other real estate owned and a moderate increase in nonperforming loans. Horizons reserve build reflects adoption of CECL on January 1, 2020 and the increase in our quarterly allocations to cover potential future loan losses related to economic factors and the nature and characteristics of our loan portfolios, primarily related to the impact on nonessential businesses caused by COVID19 closures and the slow pace of reopening and economic recovery. Through September 30, 2020, Horizon has not recorded any material specific loan losses attributed to COVID19 closures.

Income Statement Highlights

Net income for the third quarter of 2020 was $20.3 million, or $0.46 diluted earnings per share, compared to $14.6 million, or $0.33, for the linked quarter and $20.5 million, or $0.46, for the prior year period.

Adjusted net income for the third quarter of 2020 was $19.4 million, or $0.45 diluted earnings per share, compared to $14.4 million, or $0.32, for the linked quarter and $20.3 million, or $0.45, for the prior year period. Adjusted net income, which is not calculated according to generally accepted accounting principles (GAAP), is a measure that Horizon uses to provide a greater understanding of operating profitability.

The increase in net income for the third quarter of 2020 when compared to the second quarter of 2020 reflects an increase in noninterest income of $5.6 million, an increase of $401,000 in net interest income and a decrease in credit loss expense of $5.0 million, offset by an increase in noninterest expense of $3.0 million and an increase in tax expense of $2.3 million.

Third quarter 2020 noninterest income was reduced by a noncash mortgage servicing asset impairment of $1.5 million recorded to reflect the national increase in mortgage prepayment speeds and past due levels and determined based on a thirdparty valuation of Horizons mortgage servicing asset. This was more than offset by record income from the gain on sale of mortgage loans, which grew to a record $8.8 million in the third quarter of 2020, up from $6.6 million in the linked quarter and $2.7 million in the prior year period.

Noninterest expense of $33.4 million in the third quarter of 2020 reflected a $3.2 million increase in salaries and employee benefits expense from the linked quarter. The increase in salaries and employee benefits expense reflected a catch-up in bonus related expense and the deferral of approximately $1.1 million in PPP loan origination costs in the second quarter of 2020, which will be amortized over the life of the PPP loans and would be recognized when the loans are forgiven or paid off.

The decrease in net income for the third quarter of 2020 when compared to the same prior year period reflects an increase in noninterest expense of $3.3 million, an increase in credit loss expense of $1.7 million and an increase in income tax expense of $322,000, offset by an increase in noninterest income of $5.2 million.

Net income for the first nine months of 2020 was $46.6 million, or $1.06 diluted earnings per share, compared to $48.0 million, or $1.11 diluted earnings per share, for the first nine months of 2019. Adjusted net income for the first nine months of 2020 was $45.0 million, or $1.02 diluted earnings per share, compared to $52.1 million, or $1.21 diluted earnings per share for the first nine months of 2019. The decrease in net income for the first nine months of 2020 when compared to the same prior year period reflects an increase in the provision for credit loss expense of $16.1 million and an increase in noninterest expense of $3.6 million, offset by an increase in net interest income of $8.0 million, an increase in noninterest income of $8.8 million and a decrease in tax expense of $1.5 million.

NonGAAP Reconciliation of Net Income
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Net income as reported		$	20,312			$	14,639			$	11,655			$	18,543			$	20,537			$	46,606			$	47,995
Merger expenses																										5,650
Tax effect																										(987		)
Net income excluding merger expenses		20,312				14,639				11,655				18,543				20,537				46,606				52,658
(Gain) / loss on sale of investment securities		(1,088		)		(248		)		(339		)		(10		)						(1,675		)		85
Tax effect		228				52				71				2								352				(18		)
Net income excluding (gain) / loss on sale of investment securities		19,452				14,443				11,387				18,535				20,537				45,283				52,725
Death benefit on bank owned life insurance (BOLI)		(31		)						(233		)						(213		)		(264		)		(580		)
Net income excluding death benefit on BOLI		19,421				14,443				11,154				18,535				20,324				45,019				52,145
Adjusted net income		$	19,421			$	14,443			$	11,154			$	18,535			$	20,324			$	45,019			$	52,145

NonGAAP Reconciliation of Diluted Earnings per Share
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Diluted earnings per share (EPS) as reported		$	0.46			$	0.33			$	0.26			$	0.41			$	0.46			$	1.06			$	1.11
Merger expenses																										0.13
Tax effect																										(0.02		)
Diluted EPS excluding merger expenses		0.46				0.33				0.26				0.41				0.46				1.06				1.22
(Gain) / loss on sale of investment securities		(0.02		)		(0.01		)		(0.01		)										(0.04		)
Tax effect		0.01																				0.01
Diluted EPS excluding (gain) / loss on sale of investment securities		0.45				0.32				0.25				0.41				0.46				1.03				1.22
Death benefit on bank owned life insurance (BOLI)										(0.01		)						(0.01		)		(0.01		)		(0.01		)
Diluted EPS excluding death benefit on BOLI		0.45				0.32				0.24				0.41				0.45				1.02				1.21
Adjusted diluted EPS		$	0.45			$	0.32			$	0.24			$	0.41			$	0.45			$	1.02			$	1.21

NonGAAP Reconciliation of PreTax, PreProvision Income
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Pretax income		$	24,638			$	16,632			$	13,239			$	22,463			$	24,541			$	54,509			$	57,378
Credit loss expense		2,052				7,057				8,600				340				376				17,709				1,636
Pretax, preprovision income		$	26,690			$	23,689			$	21,839			$	22,803			$	24,917			$	72,218			$	59,014
Pretax, preprovision income		$	26,690			$	23,689			$	21,839			$	22,803			$	24,917			$	72,218			$	59,014
Merger expenses																										5,650
(Gain) / loss on sale of investment securities		(1,088		)		(248		)		(339		)		(10		)						(1,675		)		85
Death benefit on BOLI		(31		)						(233		)						(213		)		(264		)		(580		)
Adjusted pretax, preprovision income		$	25,571			$	23,441			$	21,267			$	22,793			$	24,704			$	70,279			$	64,169

Horizons net interest margin decreased to 3.39% for the third quarter of 2020 compared to 3.47% for the second quarter of 2020. The decrease in net interest margin reflects a decrease in the yield of interest earning assets of 15 basis points, offset by a decrease in the cost of interest bearing liabilities of 7 basis points. Interest income from acquisitionrelated purchase accounting adjustments was $65,000 lower during the third quarter of 2020 when compared to the second quarter of 2020.

Horizons net interest margin decreased to 3.39% for the third quarter of 2020 when compared to 3.82% for the third quarter of 2019. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 97 basis points offset by a decrease in the cost of interest bearing liabilities of 68 basis points.

Horizons net interest margin decreased to 3.48% for the first nine months of 2020 when compared to 3.72% for the same prior year period. The decrease in net interest margin reflects a decrease in the yield on interest earning assets of 68 basis points offset by a decrease in the cost of interest bearing liabilities of 55 basis points.

The net interest margin was impacted during the second and third quarters of 2020 due to the PPP loans that were originated. Horizon estimates that the PPP loans compressed the net interest margin by 3 and 4 basis points for the second and third quarters, respectively. This assumes these PPP loans were not included in average interest earning assets or interest income and were primarily funded by the growth in noninterest bearing deposits. The compression to the net interest margin for the first nine months of 2020 using the same assumptions was estimated to be 3 basis points.

The net interest margin was also impacted during the second and third quarters of 2020 due to the issuance of $60.0 million in subordinated notes in June 2020. Horizon estimates that the subordinated notes compressed the net interest margin by 1 and 10 basis points for the second and third quarters, respectively. This assumes the subordinated notes were not included in average interest bearing liabilities or interest expense and were primarily offset by a reduction in cash. The compression to the net interest margin for the first nine months of 2020 using the same assumptions was estimated to be 4 basis points.

NonGAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Net interest income as reported		$	43,397			$	42,996			$	40,925			$	41,519			$	43,463			$	127,318			$	119,272
Average interest earning assets		5,251,611				5,112,636				4,746,202				4,748,217				4,623,985				5,037,540				4,376,841
Net interest income as a percentage of average interest earning assets (Net Interest Margin)		3.39		%		3.47		%		3.56		%		3.58		%		3.82		%		3.48		%		3.72		%
Net interest income as reported		$	43,397			$	42,996			$	40,925			$	41,519			$	43,463			$	127,318			$	119,272
Acquisitionrelated purchase accounting adjustments (PAUs)		(1,488		)		(1,553		)		(1,434		)		(1,042		)		(1,739		)		(4,475		)		(4,548		)
Adjusted net interest income		$	41,909			$	41,443			$	39,491			$	40,477			$	41,724			$	122,843			$	114,724
Adjusted net interest margin		3.27		%		3.35		%		3.44		%		3.49		%		3.67		%		3.36		%		3.58		%

Net interest margin, excluding acquisitionrelated purchase accounting adjustments (adjusted net interest margin), was 3.27% for the third quarter of 2020 compared to 3.35% for the prior quarter and 3.67% for the third quarter of 2019. Interest income from acquisitionrelated purchase accounting adjustments was $1.5 million, $1.6 million and $1.7 million for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

Adjusted net interest margin was 3.36% for the first nine months of 2020 compared to 3.58% for the same prior year period. Interest income from acquisitionrelated purchase accounting adjustments was $4.5 million for both the nine months ended September 30, 2020 and 2019.

Lending Activity

Total loans were $4.04 billion, or $3.73 billion excluding PPP loans, on September 30, 2020. Total loans were $3.99 billion on June 30, 2020, $3.64 billion on December 31, 2019 and $3.67 billion on September 30, 2019. During the nine months ended September 30, 2020, commercial loans increased $275.0 million, mortgage warehouse loans increased $224.4 million, and loans held for sale increased $9.0 million, offset by a decrease in residential mortgage loans of $95.5 million and a decrease in consumer loans of $10.3 million.

Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
		September 30,				December 31,				Amount				Percent
		2020				2019				Change				Change
Commercial		$	2,321,608			$	2,046,651			$	274,957			13.4	%
Residential mortgage		675,220				770,717				(95,497		)		(12.4	)%
Consumer		658,884				669,180				(10,296		)		(1.5	)%
Subtotal		3,655,712				3,486,548				169,164				4.9	%
Loans held for sale		13,053				4,088				8,965				219.3	%
Mortgage warehouse		374,653				150,293				224,360				149.3	%
Total loans		$	4,043,418			$	3,640,929			$	402,489			11.1	%

Residential mortgage lending activity for the three months ended September 30, 2020 generated a record $8.8 million in income from the gain on sale of mortgage loans, an increase of $2.2 million from the second quarter of 2020 and $6.1 million from the third quarter of 2019. Total origination volume for the third quarter of 2020, including loans placed into the portfolio, totaled $207.1 million, representing a decrease of 18.1% from record second quarter 2020 levels, and an increase of 71.0% from the third quarter of 2019. As a percentage of total originations, 50% of the volume was for refinances and 50% was for new purchases during the third quarter of 2020. Total origination volume of loans sold to the secondary market totaled $166.4 million, representing a decrease of 13.5% from the second quarter of 2020 and an increase of 75.1% from the third quarter of 2019.

Expense Management

		Three Months Ended
		September 30,												June 30,
		2020												2020												Adjusted
Noninterest Expense		Actual				Merger Expenses				Adjusted				Actual				Merger Expenses				Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	18,832			$				$	18,832			$	15,629			$

$15,629 $3,203 20.5%Net occupancy expenses 3,107 — 3,107 3,190 — 3,190 (83) (2.6)%Data processing 2,237 — 2,237 2,432 — 2,432 (195) (8.0)%Professional fees 688 — 688 518 — 518 170 32.8%Outside services and consultants 1,561 — 1,561 1,759 — 1,759 (198) (11.3)%Loan expense 2,876 — 2,876 2,692 — 2,692 184 6.8%FDIC insurance expense 570 — 570 235 — 235 335 142.6%Other losses 114 — 114 193 — 193 (79) (40.9)%Other expense 3,422 — 3,422 3,784 — 3,784 (362) (9.6)%Total non–interest expense $33,407 $— $33,407 $30,432 $— $30,432 $2,975 9.8%Annualized non–interest expense to average assets 2.30% 2.30% 2.18% 2.18%

Total non–interest expense was $3.0 million higher in the third quarter of 2020 when compared to the second quarter of 2020. Increased salaries and employee benefits reflected higher performance–based compensation accruals following improved financial performance in the second half of this year, as well as the second quarter deferral of approximately $1.1 million in PPP loan origination costs that will be amortized over the life of the PPP loans and recognized when the loans are forgiven or paid off. Higher FDIC insurance expense reflected significant growth in deposits through the end of the third quarter of 2020. Loan expense and professional fees were partially offset by decreases in other expense, outside services and consultants and data processing.

		Three Months Ended
		September 30,												September 30,
		2020												2019												Adjusted
Non–interest Expense		Actual				Merger Expenses				Adjusted				Actual				Merger Expenses				Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	18,832			$	—			$	18,832			$	16,948			$	—			$	16,948			$	1,884			11.1	%
Net occupancy expenses		3,107				—				3,107				3,131				—				3,131				(24		)		(0.8	)%
Data processing		2,237				—				2,237				2,140				—				2,140				97				4.5	%
Professional fees		688				—				688				335				—				335				353				105.4	%
Outside services and consultants		1,561				—				1,561				1,552				—				1,552				9				0.6	%
Loan expense		2,876				—				2,876				2,198				—				2,198				678				30.8	%
FDIC insurance expense		570				—				570				(273		)		—				(273		)		843				(308.8	)%
Other losses		114				—				114				90				—				90				24				26.7	%
Other expense		3,422				—				3,422				3,939				—				3,939				(517		)		(13.1	)%
Total non–interest expense		$	33,407			$	—			$	33,407			$	30,060			$	—			$	30,060			$	3,347			11.1	%
Annualized non–interest expense to average assets		2.30		%						2.30		%		2.34		%						2.34		%

Total non–interest expense was $3.3 million higher in the third quarter of 2020 when compared to the third quarter of 2019. Increases in salaries and employee benefits, FDIC insurance expense, loan expense and professional fees were offset in part by a decrease in other expense.

		Nine Months Ended
		September 30,												September 30,
		2020												2019												Adjusted
Non–interest Expense		Actual				Merger Expenses				Adjusted				Actual				Merger Expenses				Adjusted				Amount Change				Percent Change
Salaries and employee benefits		$	51,052			$	—			$	51,052			$	48,365			$	(484	)		$	47,881			$	3,171			6.6	%
Net occupancy expenses		9,549				—				9,549				9,051				(75		)		8,976				573				6.4	%
Data processing		7,074				—				7,074				6,245				(360		)		5,885				1,189				20.2	%
Professional fees		1,742				—				1,742				1,426				(392		)		1,034				708				68.5	%
Outside services and consultants		5,235				—				5,235				6,737				(2,466		)		4,271				964				22.6	%
Loan expense		7,667				—				7,667				6,195				(2		)		6,193				1,474				23.8	%
FDIC insurance expense		955				—				955				252				—				252				703				279.0	%
Other losses		427				—				427				363				(71		)		292				135				46.2	%
Other expense		11,287				—				11,287				12,748				(1,800		)		10,948				339				3.1	%
Total non–interest expense		$	94,988			$	—			$	94,988			$	91,382			$	(5,650	)		$	85,732			$	9,256			10.8	%
Annualized non–interest expense to average assets		2.29		%						2.29		%		2.53		%						2.38		%

Total non–interest expense was $3.6 million higher for the first nine months of 2020 when compared to the same prior year period. Increases in salaries and employee benefits, loan expenses, data processing, FDIC insurance expense and net occupancy expenses were offset in part by decreases in outside services and consultants expense and other expense.

Annualized non–interest expense as a percent of average assets were 2.30%, 2.18% and 2.34% for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

Annualized non–interest expense as a percent of average assets were 2.29% and 2.53% for the nine months ended September 30, 2020 and 2019, respectively. Annualized non–interest expense, excluding merger expenses, as a percent of average assets were 2.29% and 2.38% for the nine months ended September 30, 2020 and 2019, respectively.

Income tax expense totaled $4.3 million for the third quarter of 2020, an increase of $2.3 million when compared to the second quarter of 2020 and an increase of $322,000 when compared to the third quarter of 2019. The increase in income tax expense in the third quarter of 2020 compared to the second quarter of 2020 and the third quarter of 2019 was primarily due to increases in income before taxes of $8.0 million and $97,000, respectively.

Income tax expense totaled $7.9 million for the nine months ended September 30, 2020, a decrease of $1.5 million when compared to the same prior year period. The decrease in income tax expense was primarily due to a decrease in income before taxes of $2.9 million.

Capital

The capital resources of the Company and Horizon Bank (the “Bank”) exceeded regulatory capital ratios for “well capitalized” banks at September 30, 2020. Stockholders’ equity totaled $670.3 million at September 30, 2020 and the ratio of average stockholders’ equity to average assets was 11.90% for the nine months ended September 30, 2020.

Capital levels benefited from the Company’s previously disclosed public offering of subordinated notes raising $60.0 million in June 2020. Horizon’s fortress balance sheet at September 30, 2020 maintained adequate regulatory capital ratios when stress testing for highly adverse scenarios.

The following table presents the actual regulatory capital dollar amounts and ratios of the Company and the Bank as of September 30, 2020.

		Actual							Required for Capital Adequacy Purposes							Required for Capital Adequacy Purposes with Capital Buffer							Well Capitalized Under Prompt Corrective Action Provisions
		Amount				Ratio			Amount				Ratio			Amount				Ratio			Amount				Ratio
Total capital (to risk–weighted assets)
Consolidated		$	640,728			14.38	%		$	356,455			8.00	%		$	467,847			10.50	%		N/A				N/A
Bank		514,974				11.56	%		356,383				8.00	%		467,753				10.50	%		$	445,479			10.00	%
Tier 1 capital (to risk–weighted assets)
Consolidated		601,331				13.49	%		267,456				6.00	%		378,896				8.50	%		N/A				N/A
Bank		475,588				10.67	%		267,435				6.00	%		378,866				8.50	%		356,580				8.00	%
Common equity tier 1 capital (to risk–weighted assets)
Consolidated		485,235				10.89	%		200,510				4.50	%		311,905				7.00	%		N/A				N/A
Bank		475,588				10.67	%		200,576				4.50	%		312,007				7.00	%		289,721				6.50	%
Tier 1 capital (to average assets)
Consolidated		601,331				10.82	%		222,304				4.00	%		222,304				4.00	%		N/A				N/A
Bank		475,588				8.57	%		221,978				4.00	%		221,978				4.00	%		277,473				5.00	%

“The strength and resilience of Horizon’s business is demonstrated by the Company’s strong operating fundamentals, ability to consistently generate retained earnings and growth in tangible book value per share and the Company’s healthy capital position overall,” said Mr. Dwight. “Accordingly, we will continue to be opportunistic with share repurchases under our current buyback authorization, and we remain committed to maintaining our current quarterly cash dividend.”

Liquidity

The Bank maintains a stable base of core deposits provided by long–standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, unpledged investment securities and borrowing relationships with correspondent banks, including the Federal Home Loan Bank of Indianapolis (the “FHLB”). At September 30, 2020, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately $928.0 million in unused credit lines with various money center banks, including the FHLB and the Federal Reserve Discount Window. The Bank had approximately $517.2 million of unpledged investment securities at September 30, 2020.

Branch Network and Customer Experience

Horizon continues to implement its disciplined approach to enhancing the efficiency of its branch network on an ongoing basis, while leveraging technology to enhance the customer experience. At the same time, the Bank continues to invest in growth opportunities within its Midwest footprint, converting its Troy, Michigan loan production office into a full–service branch during the third quarter of 2020.

During the third quarter, Horizon also fully implemented live online chat support. During the fourth quarter the Bank expects to implement fully online and mobile enabled deposit account opening capabilities, for the convenience of new and prospective customers.

Use of Non–GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non–GAAP financial measures relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for credit losses, tangible stockholders’ equity, tangible book value per share, efficiency ratio, the return on average assets, the return on average equity and pre–tax, pre–provision income. In each case, we have identified special circumstances that we consider to be non–recurring and have excluded them. We believe that this shows the impact of such events as acquisition–related purchase accounting adjustments, among others we have identified in our reconciliations. Horizon believes these non–GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and one–time costs of acquisitions and non–recurring items. These measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure. See the tables and other information below and contained elsewhere in this press release for reconciliations of the non–GAAP figures identified herein and their most comparable GAAP measures.

Non–GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share
(Dollars in Thousands, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Total stockholders’ equity		$	670,293			$	652,206			$	630,842			$	656,023			$	642,711
Less: Intangible assets		175,107				176,020				176,961				177,917				178,896
Total tangible stockholders’ equity		$	495,186			$	476,186			$	453,881			$	478,106			$	463,815
Common shares outstanding		43,874,353				43,821,878				43,763,623				44,975,771				44,969,021
Book value per common share		$	15.28			$	14.88			$	14.41			$	14.59			$	14.29
Tangible book value per common share		$	11.29			$	10.87			$	10.37			$	10.63			$	10.31

Non–GAAP Calculation and Reconciliation of Efficiency Ratio and Adjusted Efficiency Ratio
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Non–interest expense as reported		$	33,407			$	30,432			$	31,149			$	30,650			$	30,060			$	94,988			$	91,382
Net interest income as reported		43,397				42,996				40,925				41,519				43,463				127,318				119,272
Non–interest income as reported		$	16,700			$	11,125			$	12,063			$	11,934			$	11,514			$	39,888			$	31,124
Non–interest expense / (Net interest income + Non–interest income) (“Efficiency Ratio”)		55.59		%		56.23		%		58.79		%		57.34		%		54.68		%		56.81		%		60.76		%
Non–interest expense as reported		$	33,407			$	30,432			$	31,149			$	30,650			$	30,060			$	94,988			$	91,382
Merger expenses		—				—				—				—				—				—				(5,650		)
Non–interest expense excluding merger expenses		33,407				30,432				31,149				30,650				30,060				94,988				85,732
Net interest income as reported		43,397				42,996				40,925				41,519				43,463				127,318				119,272
Non–interest income as reported		16,700				11,125				12,063				11,934				11,514				39,888				31,124
(Gain) / loss on sale of investment securities		(1,088		)		(248		)		(339		)		(10		)		—				(1,675		)		85
Death benefit on BOLI		(31		)		—				(233		)		—				(213		)		(264		)		(580		)
Non–interest income excluding (gain) / loss on sale of investment securities and death benefit on BOLI		$	15,581			$	10,877			$	11,491			$	11,924			$	11,301			$	37,949			$	30,629
Adjusted efficiency ratio		56.64		%		56.49		%		59.43		%		57.35		%		54.89		%		57.48		%		57.19		%

Non–GAAP Reconciliation of Return on Average Assets
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Average assets		$	5,768,691			$	5,620,695			$	5,257,332			$	5,250,574			$	5,107,259			$	5,549,696			$	4,823,601
Return on average assets (“ROAA”) as reported		1.40		%		1.05		%		0.89		%		1.40		%		1.60		%		1.12		%		1.33		%
Merger expenses		—				—				—				—				—				—				0.16
Tax effect		—				—				—				—				—				—				(0.03		)
ROAA excluding merger expenses		1.40				1.05				0.89				1.40				1.60				1.12				1.46
(Gain) / loss on sale of investment securities		(0.08		)		(0.02		)		(0.03		)		—				—				(0.04		)		—
Tax effect		0.02				—				0.01				—				—				0.01				—
ROAA excluding (gain) / loss on sale of investment securities		1.34				1.03				0.87				1.40				1.60				1.09				1.46
Death benefit on BOLI		—				—				(0.02		)		—				(0.02		)		(0.01		)		(0.02		)
ROAA excluding death benefit on BOLI		1.34				1.03				0.85				1.40				1.58				1.08				1.44
Adjusted ROAA		1.34		%		1.03		%		0.85		%		1.40		%		1.58		%		1.08		%		1.44		%

Non–GAAP Reconciliation of Return on Average Common Equity
(Dollars in Thousands, Unaudited)
		Three Months Ended																				Nine Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,				September 30,				September 30,
		2020				2020				2020				2019				2019				2020				2019
Average common equity		$	668,797			$	649,490			$	667,588			$	653,071			$	640,770			$	660,278			$	589,766
Return on average common equity (“ROACE”) as reported		12.08		%		9.07		%		7.02		%		11.26		%		12.72		%		9.43		%		10.88		%
Merger expenses		—				—				—				—				—				—				1.28
Tax effect		—				—				—				—				—				—				(0.22		)
ROACE excluding merger expenses		12.08				9.07				7.02				11.26				12.72				9.43				11.94
(Gain) / loss on sale of investment securities		(0.65		)		(0.15		)		(0.20		)		(0.01		)		—				(0.34		)		0.02
Tax effect		0.14				0.03				0.04				—				—				0.07				—
ROACE excluding (gain) / loss on sale of investment securities		11.57				8.95				6.86				11.25				12.72				9.16				11.96
Death benefit on BOLI		(0.02		)		—				(0.14		)		—				(0.13		)		(0.05		)		(0.13		)
ROACE excluding death benefit on BOLI		11.55				8.95				6.72				11.25				12.59				9.11				11.83
Adjusted ROACE		11.55		%		8.95		%		6.72		%		11.25		%		12.59		%		9.11		%		11.83		%

Conference Call

As previously announced, Horizon will host a conference call to review its third quarter financial results and operating performance.

Participants may access the live conference call on October 29, 2020 at 7:30 a.m. CT (8:30 a.m. ET) by dialing 877–317–6789 from the United States, 866–450–4696 from Canada or 412–317–6789 from international locations and requesting the “Horizon Bancorp Call.” Participants are asked to dial in approximately 10 minutes prior to the call.

A telephone replay of the call will be available approximately one hour after the end of the conference through November 5, 2020. The replay may be accessed by dialing 877–344–7529 from the United States, 855–669–9658 from Canada or 412–317–0088 from other international locations, and entering the access code 10148396.

About Horizon Bancorp, Inc.

Horizon Bancorp, Inc. is an independent, commercial bank holding company serving northern and central Indiana, and southern and central Michigan through its commercial banking subsidiary, Horizon Bank. Horizon may be reached online at www.horizonbank.com. Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Forward Looking Statements

This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward–looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward–looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance.

Although management believes that the expectations reflected in such forward–looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizon’s reports filed with the Securities and Exchange Commission, including those described in Horizon’s Annual Report on Form 10–K and its quarterly reports on Form 10–Q. Further, statements about the effects of the COVID–19 pandemic on our business, operations, financial performance, and prospects may constitute forward–looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward–looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us. Undue reliance should not be placed on the forward–looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward–looking statement to reflect the events or circumstances after the date on which the forward–looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

Financial Highlights
(Dollars in Thousands, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Balance sheet:
Total assets		$	5,790,143			$	5,739,262			$	5,351,325			$	5,246,829			$	5,186,714
Investment securities		1,195,613				1,126,075				1,099,943				1,042,675				977,536
Commercial loans		2,321,608				2,312,715				2,050,402				2,046,651				2,046,165
Mortgage warehouse loans		374,653				300,386				223,519				150,293				155,631
Residential mortgage loans		675,220				704,410				757,529				770,717				796,497
Consumer loans		658,884				660,871				675,849				669,180				668,332
Earning assets		5,262,054				5,143,978				4,835,934				4,706,051				4,667,668
Non–interest bearing deposit accounts		1,016,646				981,868				709,978				709,760				756,707
Interest bearing transaction accounts		2,600,691				2,510,854				2,264,576				2,245,631				2,173,100
Time deposits		718,952				814,877				907,717				975,611				986,150
Borrowings		587,473				583,073				704,613				549,741				516,591
Subordinated notes		58,566				58,824				—				—				—
Junior subordinated debentures issued to capital trusts		56,491				56,437				56,374				56,311				56,250
Total stockholders’ equity		670,293				652,206				630,842				656,023				642,711

Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
		Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Income statement:
Net interest income		$	43,397			$	42,996			$	40,925			$	41,519			$	43,463
Credit loss expense		2,052				7,057				8,600				340				376
Non–interest income		16,700				11,125				12,063				11,934				11,514
Non–interest expense		33,407				30,432				31,149				30,650				30,060
Income tax expense		4,326				1,993				1,584				3,920				4,004
Net income		$	20,312			$	14,639			$	11,655			$	18,543			$	20,537
Per share data:
Basic earnings per share		$	0.46			$	0.33			$	0.26			$	0.41			$	0.46
Diluted earnings per share		0.46				0.33				0.26				0.41				0.46
Cash dividends declared per common share		0.12				0.12				0.12				0.12				0.12
Book value per common share		15.28				14.88				14.41				14.59				14.29
Tangible book value per common share		11.29				10.87				10.37				10.63				10.31
Market value – high		11.48				12.44				18.79				19.42				17.77
Market value – low		$	9.05			$	8.40			$	7.97			$	16.60			$	15.93
Weighted average shares outstanding – Basis		43,862,435				43,781,249				44,658,512				44,971,676				45,038,021
Weighted average shares outstanding – Diluted		43,903,881				43,802,794				44,756,716				45,103,065				45,113,730
Key ratios:
Return on average assets		1.40		%		1.05		%		0.89		%		1.40		%		1.60		%
Return on average common stockholders’ equity		12.08				9.07				7.02				11.26				12.72
Net interest margin		3.39				3.47				3.56				3.58				3.82
Allowance for credit losses to total loans		1.39				1.38				1.30				0.49				0.49
Average equity to average assets		11.59				11.56				12.70				12.44				12.55
Bank only capital ratios:
Tier 1 capital to average assets		8.57				8.48				9.43				9.49				9.35
Tier 1 capital to risk weighted assets		10.67				10.49				11.83				12.20				11.62
Total capital to risk weighted assets		11.56				11.74				12.67				12.65				12.08

Financial Highlights
(Dollars in Thousands Except Share and Per Share Data and Ratios, Unaudited)
		Nine Months Ended
		September 30,				September 30,
		2020				2019
Income statement:
Net interest income		$	127,318			$	119,272
Credit loss expense		17,709				1,636
Non–interest income		39,888				31,124
Non–interest expense		94,988				91,382
Income tax expense		7,903				9,383
Net income		$	46,606			$	47,995
Per share data:
Basic earnings per share		$	1.06			$	1.12
Diluted earnings per share		1.06				1.11
Cash dividends declared per common share		0.36				0.34
Book value per common share		15.28				14.29
Tangible book value per common share		11.29				10.31
Market value – high		18.79				17.82
Market value – low		$	7.97			$	15.50
Weighted average shares outstanding – Basis		44,099,862				42,995,082
Weighted average shares outstanding – Diluted		44,165,650				43,070,095
Key ratios:
Return on average assets		1.12		%		1.33		%
Return on average common stockholders’ equity		9.43				10.88
Net interest margin		3.48				3.72
Allowance for credit losses to total loans		1.39				0.49
Average equity to average assets		11.90				12.23
Bank only capital ratios:
Tier 1 capital to average assets		8.57				9.35
Tier 1 capital to risk weighted assets		10.67				11.62
Total capital to risk weighted assets		11.56				12.08

Financial Highlights
(Dollars in Thousands Except Ratios, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Loan data:
Substandard loans		$	88,286			$	61,385			$	61,322			$	58,670			$	62,130
30 to 89 days delinquent		5,513				4,029				12,017				7,729				10,204
Non–performing loans:
90 days and greater delinquent – accruing interest		331				123				246				146				34
Trouble debt restructures – accruing interest		1,825				2,039				2,115				3,354				3,491
Trouble debt restructures – non–accrual		2,704				3,443				3,360				2,006				1,807
Non–accrual loans		24,454				22,451				18,281				15,679				13,823
Total non–performing loans		$	29,314			$	28,056			$	24,002			$	21,185			$	19,155
Non–performing loans to total loans		0.72		%		0.70		%		0.65		%		0.58		%		0.52		%

Allocation of the Allowance for Credit Losses
(Dollars in Thousands, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Commercial		$	39,795			$	39,147			$	32,550			$	11,996			$	12,082
Residential mortgage		5,464				5,832				5,654				923				1,449
Mortgage warehouse		1,250				1,190				1,055				1,077				1,041
Consumer		9,810				8,921				9,181				3,671				3,384
Total		$	56,319			$	55,090			$	48,440			$	17,667			$	17,956

Net Charge–offs (Recoveries)
(Dollars in Thousands Except Ratios, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Commercial		$	488			$	6			$	(20	)		$	146			$	192
Residential mortgage		136				24				17				40				(7		)
Mortgage warehouse		—				—				—				—				—
Consumer		199				377				407				443				540
Total		$	823			$	407			$	404			$	629			$	725
Percent of net charge–offs (recoveries) to average loans outstanding for the period		0.02		%		0.01		%		0.01		%		0.02		%		0.02		%

Total Non–performing Loans
(Dollars in Thousands Except Ratios, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Commercial		$	16,169			$	14,238			$	9,579			$	7,347			$	8,193
Residential mortgage		9,209				9,945				10,411				9,884				7,212
Mortgage warehouse		—				—				—				—				—
Consumer		3,936				3,873				4,012				3,954				3,750
Total		$	29,314			$	28,056			$	24,002			$	21,185			$	19,155
Non–performing loans to total loans		0.72		%		0.70		%		0.65		%		0.58		%		0.52		%

Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Commercial		$	2,191			$	2,374			$	2,464			$	3,698			$	3,972
Residential mortgage		70				249				336				28				48
Mortgage warehouse		—				—				—				—				—
Consumer		80				20				13				—				24
Total		$	2,341			$	2,643			$	2,813			$	3,726			$	4,044

Average Balance Sheets
(Dollars in Thousands, Unaudited)
		Three Months Ended											Three Months Ended
		September 30, 2020											September 30, 2019
		Average Balance				Interest				Average Rate			Average Balance				Interest				Average Rate
Assets
Interest earning assets
Federal funds sold		$	45,307			$	12			0.11	%		$	18,133			$	115			2.52	%
Interest earning deposits		28,428				53				0.74	%		17,823				93				2.07	%
Investment securities – taxable		447,762				1,639				1.46	%		478,764				2,949				2.44	%
Investment securities – non–taxable (1)		720,111				4,391				3.07	%		462,997				3,099				3.36	%
Loans receivable (2) (3)		4,010,003				44,051				4.39	%		3,646,268				49,455				5.41	%
Total interest earning assets		5,251,611				50,146				3.90	%		4,623,985				55,711				4.87	%
Non–interest earning assets
Cash and due from banks		94,039											66,970
Allowance for credit losses		(55,271		)									(18,277		)
Other assets		478,312											434,581
Total average assets		$	5,768,691										$	5,107,259
Liabilities and Stockholders’ Equity
Interest bearing liabilities
Interest bearing deposits		$	3,334,436			$	3,616			0.43	%		$	3,132,852			$	9,109			1.15	%
Borrowings		577,447				1,662				1.15	%		413,859				2,275				2.18	%
Subordinated notes		58,716				895				6.06	%		—				—				—	%
Junior subordinated debentures issued to capital trusts		56,458				576				4.06	%		54,433				864				6.30	%
Total interest bearing liabilities		4,027,057				6,749				0.67	%		3,601,144				12,248				1.35	%
Non–interest bearing liabilities
Demand deposits		996,427											818,164
Accrued interest payable and other liabilities		76,410											47,181
Stockholders’ equity		668,797											640,770
Total average liabilities and stockholders’ equity		$	5,768,691										$	5,107,259
Net interest income / spread						$	43,397			3.23	%						$	43,463			3.52	%
Net interest income as a percent of average interest earning assets (1)										3.39	%										3.82	%
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

Average Balance Sheets
(Dollars in Thousands, Unaudited)
		Nine Months Ended											Nine Months Ended
		September 30, 2020											September 30, 2019
		Average Balance				Interest				Average Rate			Average Balance				Interest				Average Rate
Assets
Interest earning assets
Federal funds sold		$	44,375			$	125			0.38	%		$	14,778			$	339			3.07	%
Interest earning deposits		25,083				216				1.15	%		21,938				284				1.73	%
Investment securities – taxable		476,735				6,582				1.84	%		469,330				8,929				2.54	%
Investment securities – non–taxable (1)		652,339				12,294				3.19	%		423,141				8,520				3.37	%
Loans receivable (2) (3)		3,839,008				132,927				4.64	%		3,447,654				136,862				5.32	%
Total interest earning assets		5,037,540				152,144				4.13	%		4,376,841				154,934				4.81	%
Non–interest earning assets
Cash and due from banks		85,511											58,890
Allowance for credit losses		(42,864		)									(18,053		)
Other assets		469,509											405,923
Total average assets		$	5,549,696										$	4,823,601
Liabilities and Stockholders’ Equity
Interest bearing liabilities
Interest bearing deposits		$	3,286,648			$	15,838			0.64	%		$	2,924,433			$	24,923			1.14	%
Borrowings		576,288				5,974				1.38	%		462,575				8,391				2.43	%
Subordinated notes		21,218				953				6.00	%		—				—				—	%
Junior subordinated debentures issued to capital trusts		56,398				2,061				4.88	%		48,666				2,348				6.45	%
Total interest bearing liabilities		3,940,552				24,826				0.84	%		3,435,674				35,662				1.39	%
Non–interest bearing liabilities
Demand deposits		879,840											760,717
Accrued interest payable and other liabilities		69,026											37,444
Stockholders’ equity		660,278											589,766
Total average liabilities and stockholders’ equity		$	5,549,696										$	4,823,601
Net interest income / spread						$	127,318			3.29	%						$	119,272			3.42	%
Net interest income as a percent of average interest earning assets (1)										3.48	%										3.72	%
(1) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3) Non–accruing loans for the purpose of the computation above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

Condensed Consolidated Balance Sheets
(Dollars in Thousands)
		September 30, 2020				December 31, 2019
		(Unaudited)
Assets
Cash and due from banks		$	99,126			$	98,831
Interest earning time deposits		9,213				8,455
Investment securities, available for sale		1,015,343				834,776
Investment securities, held to maturity (fair value $191,612 and $215,147)		180,270				207,899
Loans held for sale		13,053				4,088
Loans, net of allowance for credit losses of $56,319 and $17,667		3,974,046				3,619,174
Premises and equipment, net		92,189				92,209
Federal Home Loan Bank stock		23,023				22,447
Goodwill		151,238				151,238
Other intangible assets		23,869				26,679
Interest receivable		20,456				18,828
Cash value of life insurance		96,198				95,577
Other assets		92,119				66,628
Total assets		$	5,790,143			$	5,246,829
Liabilities
Deposits
Non–interest bearing		$	1,016,646			$	709,760
Interest bearing		3,319,643				3,221,242
Total deposits		4,336,289				3,931,002
Borrowings		587,473				549,741
Subordinated notes		58,566				—
Junior subordinated debentures issued to capital trusts		56,491				56,311
Interest payable		2,481				3,062
Other liabilities		78,550				50,690
Total liabilities		5,119,850				4,590,806
Commitments and contingent liabilities
Stockholders’ equity
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares		—				—
Common stock, no par value, Authorized 99,000,000 shares Issued 43,899,422 and 45,000,840 shares, Outstanding 43,874,353 and 44,975,771 shares		—				—
Additional paid–in capital		362,180				379,853
Retained earnings		284,835				269,738
Accumulated other comprehensive income		23,278				6,432
Total stockholders’ equity		670,293				656,023
Total liabilities and stockholders’ equity		$	5,790,143			$	5,246,829

Condensed Consolidated Statements of Income
(Dollars in Thousands Except Per Share Data, Unaudited)
		Three Months Ended
		September 30,				June 30,				March 31,				December 31,				September 30,
		2020				2020				2020				2019				2019
Interest income
Loans receivable		$	44,051			$	43,918			$	44,958			$	46,769			$	49,455
Investment securities – taxable		1,704				2,321				2,898				3,054				3,157
Investment securities – non–taxable		4,391				4,105				3,798				3,575				3,099
Total interest income		50,146				50,344				51,654				53,398				55,711
Interest expense
Deposits		3,616				4,506				7,716				8,767				9,109
Borrowed funds		1,662				2,074				2,238				2,281				2,275
Subordinated notes		895				58				—				—				—
Junior subordinated debentures issued to capital trusts		576				710				775				831				864
Total interest expense		6,749				7,348				10,729				11,879				12,248
Net interest income		43,397				42,996				40,925				41,519				43,463
Credit loss expense		2,052				7,057				8,600				340				376
Net interest income after credit loss expense		41,345				35,939				32,325				41,179				43,087
Non–interest Income
Service charges on deposit accounts		2,154				1,888				2,446				2,766				2,836
Wire transfer fees		298				230				171				179				189
Interchange fees		2,438				2,327				1,896				1,996				2,138
Fiduciary activities		2,105				1,765				2,528				2,594				1,834
Gains / (losses) on sale of investment securities		1,088				248				339				10				—
Gain on sale of mortgage loans		8,813				6,620				3,473				3,119				2,702
Mortgage servicing income net of impairment		(1,308		)		(2,760		)		25				294				444
Increase in cash value of bank owned life insurance		566				557				554				566				556
Death benefit on bank owned life insurance		31				—				233				—				213
Other income		515				250				398				410				602
Total non–interest income		16,700				11,125				12,063				11,934				11,514
Non–interest expense
Salaries and employee benefits		18,832				15,629				16,591				16,841				16,948
Net occupancy expenses		3,107				3,190				3,252				3,106				3,131
Data processing		2,237				2,432				2,405				2,235				2,140
Professional fees		688				518				536				520				335
Outside services and consultants		1,561				1,759				1,915				1,415				1,552
Loan expense		2,876				2,692				2,099				2,438				2,198
FDIC insurance expense		570				235				150				—				(273		)
Other losses		114				193				120				377				90
Other expenses		3,422				3,784				4,081				3,718				3,939
Total non–interest expense		33,407				30,432				31,149				30,650				30,060
Income before income taxes		24,638				16,632				13,239				22,463				24,541
Income tax expense		4,326				1,993				1,584				3,920				4,004
Net income		$	20,312			$	14,639			$	11,655			$	18,543			$	20,537
Basic earnings per share		$	0.46			$	0.33			$	0.26			$	0.41			$	0.46
Diluted earnings per share		0.46				0.33				0.26				0.41				0.46

Condensed Consolidated Statements of Income
(Dollars in Thousands, Expect Per Share Data, Unaudited)
		Nine Months Ended
		September 30,
		2020				2019
Interest income
Loans receivable		$	132,927			$	136,862
Investment securities – taxable		6,923				9,552
Investment securities – non–taxable		12,294				8,520
Total interest income		152,144				154,934
Interest expense
Deposits		15,838				24,923
Borrowed funds		5,974				8,391
Subordinated notes		953				—
Junior subordinated debentures issued to capital trusts		2,061				2,348
Total interest expense		24,826				35,662
Net interest income		127,318				119,272
Credit loss expense		17,709				1,636
Net interest income after credit loss expense		109,609				117,636
Non–interest income
Service charges on deposit accounts		6,488				7,193
Wire transfer fees		699				474
Interchange fees		6,661				5,659
Fiduciary activities		6,398				5,986
Gains / (losses) on sale of investment securities		1,675				(85		)
Gain on sale of mortgage loans		18,906				6,089
Mortgage servicing income net of impairment		(4,043		)		1,620
Increase in cash value of bank owned life insurance		1,677				1,624
Death benefit on bank owned life insurance		264				580
Other income		1,163				1,984
Total non–interest income		39,888				31,124
Non-interest expense
Salaries and employee benefits		51,052				48,365
Net occupancy expenses		9,549				9,051
Data processing		7,074				6,245
Professional fees		1,742				1,426
Outside services and consultants		5,235				6,737
Loan expense		7,667				6,195
FDIC insurance expense		955				252
Other losses		427				363
Other expense		11,287				12,748
Total non–interest expense		94,988				91,382
Income before income taxes		54,509				57,378
Income tax expense		7,903				9,383
Net income		$	46,606			$	47,995
Basic earnings per share		$	1.06			$	1.12
Diluted earnings per share		$	1.06			$	1.11

Contract:	Mark E. Secor
	Chief Financial Officer
Phone:	(219) 873-2611
Fax:	(219) 874-9280
Date:	October 28, 2020