LAKELAND FINANCIAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

OVERVIEW

Net income in the first nine months of 2020 was $59.7 million, down 7.9% from
$64.8 million for the comparable period of 2019. Diluted income per common share
was $2.33 in the first nine months of 2020, down 7.5% from $2.52 in the
comparable period of 2019. The decrease was primarily due to the Company
recording a provision for loan losses of $13.9 million for the first nine months
of 2020, an increase of $10.9 million, or 364.0%, compared to $3.0 million for
the first nine months of 2019. The higher provision in 2020 was driven by the
estimated potential negative impact to the Company's borrowers as a result of
the economic conditions resulting from the COVID-19 pandemic, which was
calculated using the incurred loss model. The provision expense for 2020 was
partially offset by a $2.1 million increase in net interest income, a $1.2
million increase in noninterest income and a $1.0 million decrease in
noninterest expense, in each case compared to the corresponding period for 2019.
Pretax pre-provision earnings in the first nine months of 2020 were $87.1
million, an increase of $4.3 million, or 5.2%, compared to $82.7 million for the
comparable period of 2019. Pretax pre-provision earnings is a non-GAAP measure
calculated by adding net interest income to noninterest income and subtracting
noninterest expense.

Annualized return on average total equity was 12.96% in the first nine months of
2020 versus 15.68% in the comparable period of 2019. Annualized return on
average total assets was 1.50% in the first nine months of 2020 versus 1.76% in
the comparable period of 2019. The average equity to average assets ratio was
11.59% in the first nine months of 2020 versus 11.22% in the comparable period
of 2019.

Net income in the third quarter of 2020 was $22.8 million, an increase of $1.3
million, or 6.2% from $21.5 million for the comparable period of 2019. Diluted
income per common share was $0.89 in the third quarter of 2020, an increase of
$0.06, or 7.2%, from $0.83 in the comparable period of 2019. The increase was
primarily due to an increase of $2.4 million, or 21.8%, in noninterest income
for the third quarter of 2020 versus the comparable period of 2019. Pretax
pre-provision earnings in the third quarter of 2020 were $29.9 million, an
increase of $2.3 million, or 8.5%, compared to $27.6 million for the comparable
period of 2019.

Annualized return on average total equity was 14.36% in the third quarter of
2020 versus 14.78% in the comparable period of 2019. Annualized return on
average total assets was 1.64% in the third quarter of 2020 versus 1.72% in the
comparable period of 2019. The average equity to average assets ratio was 11.43%
in the third quarter of 2020 versus 11.65% in the comparable period of 2019.

Total assets were $5.551 billion as of September 30, 2020 versus $4.947 billion
as of December 31, 2019, an increase of $604.4 million, or 12.2%. This increase
was primarily due to a $524.1 million increase in gross loans, offset by an
increase in the allowance for loan losses of $10.1 million. In addition, this
increase was driven by $35.8 million of growth in securities available-for-sale,
a $29.7 million increase in cash and cash equivalents and a $15.2 million
increase in other assets, driven by higher valuations on the Company's
back-to-back interest rate swap portfolio. Loan growth was driven by Paycheck
Protection Program (PPP) loans originated primarily during the second quarter of
2020. The outstanding balance of PPP loans at September 30, 2020, was $557.9
million. Loans excluding PPP loans decreased by $33.8 million from $4.07 billion
at December 31, 2019 to $4.03 billion at September 30, 2020. The Paycheck
Protection Program has strengthened the company's borrowers' balance sheets and
improved their operating performance. It has further provided a valuable cash
injection for all clients who participated in the program. Yet, it has
contributed to a reduction in usage of available credit facilities by clients,
which decreased to 41% at September 30, 2020 from 46% at December 31, 2019.

Balance sheet growth was primarily funded through growth in deposits during
2020, which was driven by the deposit of PPP loan proceeds into borrower
accounts and government stimulus payments into individual accounts. Deposits
increased $634.1 million while total borrowings decreased by $84.5 million since
December 31, 2019. Total equity increased by $38.7 million due primarily to net
income of $59.7 million, an increase in accumulated other comprehensive income
of $13.2 million, offset by share repurchases of $10.0 million and dividends
declared and paid of $0.90 per share totaling $23.0 million.

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Impact of COVID-19. The progression of the COVID-19 pandemic in the United
States has had an impact on our financial condition and results of operations as
of and for the three and nine month periods ended September 30, 2020, and may
have a complex and significant adverse impact on the economy, the banking
industry and our Company in future fiscal periods, all subject to a high degree
of uncertainty. As a result of the pandemic, our financial condition, capital
levels and results of operations have been and could continue to be
significantly adversely affected, as described in further detail below.

During the second quarter, Lake City Bank focused on its response to the crisis
for its employees and its customers. The Bank closed branch lobbies on March 21,
2020 and directed its clients and communities to its drive-up facilities and
by-appointment visits in addition to digital channels via online and mobile
banking. The Bank created a Branch Reopening Task Force, which established
guidelines under which the bank could safely open its offices. On June 15, 2020,
the Bank reopened all of its branch lobbies. During the third quarter most of
all Company employees returned to the workplace in a Lake City Bank facility.
The Company invested in personal protective equipment, installed protective
barriers and enhanced social distancing measures in order to prioritize the
safety of bank customers and employees. These investments have totaled
approximately $500,000 since the pandemic began. The Company will keep all
safety protocols in place until it determines that the public health risks posed
by COVID-19 no longer require them.

Active Management of Credit Risk

The Company's Commercial Banking and Credit Administration leadership continues
to review and refine the list of industries that the Company believes are most
likely to be materially impacted by the potential economic impact resulting from
the COVID-19 pandemic. The current assessment includes a smaller group of
industries as compared to the initial list of potentially affected industries
disclosed in the company's April 27, 2020 first quarter and July 27, 2020 second
quarter press releases. The Company's current list of industries under review
represents approximately 5.7%, or $228 million, of the total loan portfolio as
of September 30, 2020, versus $765 million, or 18.7%, as of April 27, 2020 and
$261 million, or 6.6% as of July 27, 2020, in each case excluding PPP loans. The
following industries are included in the 5.7% along with their respective
percentage of the loan portfolio: hotel and accommodations - 2.5%, dairy - 1.1%,
education - 0.9% entertainment and recreation - 0.8% and full-service
restaurants - 0.4%. The Company has no direct exposure to oil and gas and
limited exposure to retail shopping centers.

The Company's commercial loan portfolio is highly diversified, and no industry
sector represents more than 8% of the Bank's loan portfolio as of September 30,
2020. Agri-business and agricultural loans represented the highest specific
industry concentration at 8% of total loans. The Company's Commercial Banking
and Credit Administration teams continue to actively work with customers to
understand their business challenges and credit needs during this time.

COVID-19 Related Loan Deferrals

As detailed below, loan deferrals peaked on June 17, 2020, at $737 million,
which represented 16% of the total loan portfolio. As of October 21, 2020, total
deferrals attributable to COVID-19 were $110 million, representing 63 borrowers,
or 2% of the total loan portfolio. Total deferrals as of October 21, 2020
represented a decline in deferral balances of 85% from the peak levels. Of the
$110 million, 37 borrowers were commercial loan borrowers representing $107
million in loans, or 3% of total commercial loans and 26 borrowers were retail
loan borrowers representing $3 million, or 1% of total retail loans. All
COVID-19 related loan deferrals remain on accrual status, as each deferral is
evaluated individually, and management has determined that all contractual
cashflows are collectable at this time.

As of October 21, 2020, 38 borrowers with loans outstanding of $70 million were
in their second deferral period, most of which were additional 90 day deferrals.
Additionally, 17 borrowers with loans outstanding of $32 million were in their
third deferral period. Four borrowers represented 87% of the third deferral
population and were commercial real estate nonowner occupied loans supported by
adequate collateral and personal guarantors and consist of loans to the hotel
and accommodation industry.

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The Company's retail loan portfolio is comprised of 1-4 family mortgage loans,
home equity lines of credit and other direct and indirect installment loans. A
third-party vendor manages the Company's retail and commercial credit card
program and the Company does not have any balance sheet exposure with respect to
this program except for nominal recourse on limited commercial card accounts.




                                                           Total Loan Deferrals
                                                   Peak                                                                          % change
                                               June 17, 2020      June 30, 2020      September 30, 2020     October 21, 2020     from Peak
Borrowers                                                 487                384                     102                   63         (87) %
Amount (In millions)                          $           737    $           653    $                158    $             110         (85) %
% of Total Loan Portfolio                                  16 %               15 %                     3 %                  2 %         NA





                                                   Total Commercial Loans Deferrals
                                                Peak                                                                          % change
                                            June 17, 2020      June 30,

2020 September 30, 2020 October 21, 2020 from Peak Borrowers

                                              351                322                      71                   37         (89) %
Amount (In millions)                       $           730    $           647    $                155    $             107         (85) %
% of Commercial Loan Portfolio                          18 %              

16 %                     4                    3 %         NA





                                                       Total Retail Loan Deferrals
                                                   Peak                                                                          % change
                                               June 17, 2020      June 30, 2020     September 30, 2020      October 21, 2020     from Peak
Borrowers                                                 136                 62                     31                    26         (81) %
Amount (In millions)                          $             7    $             6    $                 3    $                3         (57) %
% of Retail Loan Portfolio                                  2 %                1 %                    1                     1 %         NA




Liquidity Preparedness

Throughout the COVID-19 crisis, the Company has monitored liquidity
preparedness. Critical to this effort has been the monitoring of commercial and
retail borrowers' line of credit utilization. The Company's commercial and
retail line of credit utilization at both September 30, 2020 and June 30, 2020
was 41% versus 48% at March 31, 2020 and 46% at December 31, 2019. The Company
has a long-standing liquidity plan in place that ensures there are appropriate
liquidity resources available to fund the balance sheet.

The Paycheck Protection Program

During the third quarter, the Company continued to fund PPP loans for its
customers. In addition, the Bank has engaged a third-party Fintech technology
partner to assist the Bank and its customers to automate the forgiveness
application process. The software solution provides tools to facilitate
communications with borrowers, gathering of information securely, calculation of
forgiveness amounts and electronic transmission to the SBA for approval. The
Company is utilizing a phased approach for the forgiveness application process
and has begun to process forgiveness applications for borrowers. As of October
21, 2020, Lake City Bank has 2,409 PPP loans outstanding representing $561.8
million in loan balances. Most of the PPP loans are for existing customers and
51% of the number of PPP loans are for amounts less than $50,000. As of October
21, 2020, the Bank submitted 36 loan forgiveness applications to the SBA in the
amount of $51 million, which represented 9% of total PPP loans outstanding. The
SBA has not yet approved any of the Bank's forgiveness applications.

CRITICAL ACCOUNTING POLICIES

Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Some of the facts and circumstances which could affect these
judgments include changes in interest rates, in the performance of the economy
or in the financial condition of borrowers. Management believes that its
critical accounting policies include determining the allowance for loan losses
and the valuation and other-than-temporary impairment of investment securities.

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Allowance for Loan Losses

The Company maintains an allowance for loan losses to provide for probable
incurred credit losses. Loan losses are charged against the allowance when
management believes that the principal is uncollectable. Subsequent recoveries,
if any, are credited to the allowance. Allocations of the allowance are made for
specific loans and for pools of similar types of loans, although the entire
allowance is available for any loan that, in management's judgment, should be
charged against the allowance. A provision for loan losses is taken based on
management's ongoing evaluation of the appropriate allowance balance. A formal
evaluation of the adequacy of the loan loss allowance is conducted monthly. The
ultimate recovery of all loans is susceptible to future market factors beyond
the Company's control.

The level of loan loss provision is influenced by growth in the overall loan
portfolio, emerging market risk, emerging concentration risk, commercial loan
focus and large credit concentration, new industry lending activity, general
economic conditions and historical loss analysis. In addition, management gives
consideration to changes in the allocation for specific watch list credits in
determining the appropriate level of the loan loss provision. Furthermore,
management's overall view on credit quality is a factor in the determination of
the provision.

The determination of the appropriate allowance is inherently subjective, as it
requires significant estimates by management. The Company has an established
process to determine the adequacy of the allowance for loan losses that
generally includes consideration of the following factors: changes in the nature
and volume of the loan portfolio, overall portfolio quality and current economic
conditions that may affect the borrowers' ability to repay. Consideration is not
limited to these factors although they represent the most commonly cited
factors. With respect to specific allocation levels for individual credits,
management considers the current valuation of collateral and the amounts and
timing of expected future cash flows as the primary measures. Management also
considers trends in adversely classified loans based upon an ongoing review of
those credits. With respect to pools of similar loans, allocations are assigned
based upon historical experience subject to a floor, unless the rate of loss is
expected to be greater than historical losses as noted below. A detailed
analysis is performed on loans that are classified but determined not to be
impaired which incorporates different scenarios where the risk that the borrower
will be unable or unwilling to repay its debt in full or on time is combined
with an estimate of loss in the event the borrower cannot pay to develop
non-specific allocations for such loan pools. These allocations may be adjusted
based on the other factors cited above. An appropriate level of general
allowance for pooled loans is determined by portfolio segment using historical
loss percentages subject to a floor, supplemented with other environmental
factors based on the risks present for each portfolio segment. These factors
include consideration of the following: levels of, and trends in, delinquencies
and impaired loans; trends in volume and terms of loans; effects of any changes
in risk selection and underwriting standards; other changes in lending policies,
procedure, and practices; experience, ability, and depth of lending management
and other relevant staff; national and local economic trends and conditions;
industry conditions; and effects of changes in credit concentrations. It is also
possible that the following could affect the overall process: social, political,
economic and terrorist events or activities. All of these factors are
susceptible to change, which may be significant. As a result of this detailed
process, the allowance results in two forms of allocations, specific and
general. These two components represent the total allowance for loan losses
deemed adequate to cover probable losses inherent in the loan portfolio.

Commercial loans are subject to a dual standardized grading process administered
by the credit administration function. These grade assignments are performed
independent of each other and a consensus is reached by credit administration
and the loan review officer. Specific allowances are established in cases where
management has identified significant conditions or circumstances related to an
individual credit that indicate the loan is impaired. Considerations with
respect to specific allocations for these individual credits include, but are
not limited to, the following: (a) does the customer's cash flow or net worth
appear insufficient to repay the loan; (b) is there adequate collateral to repay
the loan; (c) has the loan been criticized in a regulatory examination; (d) is
the loan impaired; (e) are there other reasons where the ultimate collectability
of the loan is in question; or (f) are there unique loan characteristics that
require special monitoring.

Allocations are also applied to categories of loans considered not to be
individually impaired, but for which the rate of loss is expected to be
consistent with or greater than historical averages. Such allocations are based
on past loss experience and information about specific borrower situations and
estimated collateral values. In addition, general allocations are made for other
pools of loans, including non-classified loans. These general pooled loan
allocations are performed for portfolio segments of commercial and industrial,
commercial real estate and multi-family, agri-business and agricultural, other
commercial, consumer 1-4 family mortgage and other consumer loans, and loans
within certain industry categories believed to present unique risk of loss.
General allocations of the allowance are primarily made based on a three-year
historical average for loan losses for these portfolios, subject to a floor, and
are adjusted for economic factors and portfolio trends.

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Due to the imprecise nature of estimating the allowance for loan losses, the
Company's allowance for loan losses includes an unallocated component. The
unallocated component of the allowance for loan losses incorporates the
Company's judgmental determination of inherent losses that may not be fully
reflected in other allocations, including factors such as the level of
classified credits, economic uncertainties, industry trends impacting specific
portfolio segments, broad portfolio quality trends and trends in the composition
of the Company's large commercial loan portfolio and related large dollar
exposures to individual borrowers.

Valuation and Other-Than-Temporary Impairment of Available-for-Sale Investment Securities

The fair values of securities available-for-sale are determined on a recurring
basis by obtaining quoted prices on nationally recognized securities exchanges
or pricing models, which utilize significant observable inputs such as matrix
pricing. This is a mathematical technique widely used in the industry to value
debt securities without relying exclusively on quoted prices for the specific
securities but rather by relying on the securities' relationship to other
benchmark quoted securities. Different judgments and assumptions used in pricing
could result in different estimates of value. The fair value of certain
securities is determined using unobservable inputs, primarily observable inputs
of similar securities.

At the end of each reporting period, securities held in the investment portfolio
are evaluated on an individual security level for other-than-temporary
impairment in accordance with current accounting guidance. Impairment is
other-than-temporary if the decline in the fair value of the security is below
its amortized cost and it is probable that all amounts due according to the
contractual terms of a debt security will not be received.

Significant judgments are required in determining impairment, which includes
making assumptions regarding the estimated prepayments, loss assumptions and the
change in interest rates.

We consider the following factors when determining other-than-temporary impairment for a security or investment:

? the length of time and the extent to which the market value has been less than

amortized cost;

? the financial condition and near-term prospects of the issuer;

? the underlying fundamentals of the relevant market and the outlook for such

market for the near future; and

? our intent and ability to hold the security for a period of time sufficient to

allow for any anticipated recovery in market value.

The assessment of whether a decline exists that is other-than-temporary,
involves a high degree of subjectivity and judgment and is based on the
information available to management at a point in time. If, in management's
judgment, other-than-temporary impairment exists, the cost basis of the security
will be written down to the computed net present value, and the unrealized loss
will be transferred from accumulated other comprehensive income as an immediate
reduction of current earnings (as if the loss had been realized in the period of
other-than-temporary impairment).

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RESULTS OF OPERATIONS

Overview

Selected income statement information for the three months and nine months ended September 30, 2020 and 2019 is presented in the following table:

                                                    Three Months Ended September 30,            Nine Months Ended September 30,
(dollars in thousands)                                2020                    2019                 2020                  2019
Income Statement Summary:
Net interest income                             $          39,913       $  

39,545 $ 118,295 $ 116,165 Provision for loan losses

                                   1,750                   1,000              13,850                 2,985
Noninterest income                                         13,115                  10,765              35,061                33,878
Noninterest expense                                        23,125                  22,737              66,293                67,302
Other Data:
Efficiency ratio (1)                                        43.61 %                 45.19 %             43.23 %               44.86 %
Dilutive EPS                                    $            0.89       $            0.83    $           2.33      $           2.52

Tangible capital ratio (2)                                  11.41 %                 11.74 %             11.41 %               11.74 %
Net charge-offs to average loans                             0.00 %                  0.09 %              0.12 %                0.03 %
Net interest margin                                          3.05 %                  3.38 %              3.16 %                3.40 %
Net interest margin excluding PPP loans (3)                  3.17 %                  3.38 %              3.22 %                3.40 %
Noninterest income to total revenue                         24.73 %                 21.40 %             22.86 %               22.58 %
Pretax Pre-Provision Earnings (4)               $          29,903       $          27,573    $         87,063                82,741

(1) Noninterest expense/Net interest income plus Noninterest income.

Non-GAAP financial measure. The Company believes that providing non-GAAP

financial measures provides investors with information useful to

understanding the company's financial performance. Additionally, these (2) non-GAAP measures are used by management for planning and forecasting

purposes, including measures based on "tangible common equity" which is

"total equity" excluding intangible assets, net of deferred tax, and

"tangible assets" which is "total assets" excluding intangible assets, net of

deferred tax . See reconciliation on the next page.

Non-GAAP financial measure. Calculated by subtracting the impact PPP loans

had on average earnings assets, loan interest income, average interest

bearing liabilities, and interest expense. Management believes this is an

important measure because it provide for better comparability to prior (3) periods, given the low fixed interest rate of 1.0% and because the accretion

of net loan fee income can be accelerated upon borrower forgiveness and

repayment by the SBA, management is actively monitoring net interest margin

on a fully tax equivalent basis with and without PPP loan impact for the

duration of this program. See reconciliation on the next page.

Non-GAAP financial measure. Pretax pre-provision earnings is calculated by

adding net interest income to noninterest income and subtracting noninterest (4) expense. Management believes this is an important measure because it may

enable investors to identify the trends in the Company's earnings exclusive

of the effects of tax and provision expense, which may vary significantly

    from period to period. See reconciliation on the next page.




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A reconciliation of non-GAAP measures is provided below (in thousands, except
for per share data).




                                                        Three Months Ended September 30,             Nine Months Ended September 30,

(dollars in thousands)                                     2020                  2019                   2020                 2019
Total Equity                                         $         636,839     $         584,436      $        636,839     $        584,436
Less: Goodwill                                                 (4,970)               (4,970)               (4,970)              (4,970)

Plus: Deferred tax assets related to goodwill                    1,176     

           1,191                 1,176                1,191
Tangible Common Equity                                         633,045               580,657               633,045              580,657

Total Assets                                         $       5,551,108     $       4,948,155      $      5,551,108     $      4,948,155
Less: Goodwill                                                 (4,970)               (4,970)               (4,970)              (4,970)

Plus: Deferred tax assets related to goodwill                    1,176                 1,191                 1,176                1,191
Tangible Assets                                              5,547,314             4,944,376             5,547,314            4,944,376

Tangible Common Equity/Tangible Assets                           11.41 %   

           11.74 %               11.41 %              11.74 %

Net Interest Income                                  $          39,913     $          39,545      $        118,295     $        116,165
Noninterest Income                                              13,115                10,765                35,061               33,878
Noninterest Expense                                           (23,125)              (22,737)              (66,293)             (67,302)

Pretax Pre-Provision Earnings                        $          29,903    

$          27,573      $         87,063     $         82,741

Impact of Paycheck Protection Program on Net Interest Margin FTE

                                                 Three Months Ended            Nine Months Ended
                                              Sep. 30,       Sep. 30,       Sep. 30,       Sep. 30,
                                                2020           2019           2020           2019

Total Average Earnings Assets                $ 5,282,569    $ 4,698,937    $ 5,078,509    $ 4,625,820
Less: Average Balance of PPP Loans               557,290              0        339,149              0
Total Adjusted Earning Assets                  4,725,279      4,698,937    

 4,739,360      4,625,820

Total Interest Income FTE                    $    46,589    $    55,308    $   145,045    $   164,449
Less: PPP Loan Income                            (3,294)              0        (6,323)              0

Total Adjusted Interest Income FTE                43,295         55,308    

138,722 164,449

Adjusted Earning Asset Yield, net of PPP
Impact                                              3.65 %         4.67 %  

3.91 % 4.75 %

Total Average Interest Bearing
Liabilities                                  $ 3,433,326    $ 3,356,436    $ 3,393,274    $ 3,408,766
Less: Average Balance of PPP Loans               557,290              0        339,149              0
Total Adjusted Interest Bearing
Liabilities                                    3,990,616      3,356,436      3,732,423      3,408,766

Total Interest Expense FTE                   $     6,066    $    15,224    $    24,954    $    46,733
Less: PPP Cost of Funds                            (350)              0          (630)              0

Total Adjusted Interest Expense FTE                5,716         15,224    

24,324 46,733

Adjusted Cost of Funds, net of PPP Impact           0.48 %         1.29 %  

0.69 % 1.35 %

Net Interest Margin FTE, net of PPP
Impact                                              3.17 %         3.38 %         3.22 %         3.40 %




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Net Income

Net income was $59.7 million in the first nine months of 2020, a decrease of
$5.1 million, or 7.9%, versus net income of $64.8 million in the first nine
months of 2019. The decrease was primarily due to the Company recording a
provision for loan losses of $13.9 million for the first nine months of 2020, an
increase of $10.9 million, or 364.0%, compared to $3.0 million for the first
nine months of 2019. The higher provision in 2020 was driven by the estimated
potential negative impact to the Company's borrowers as a result of the economic
conditions resulting from the COVID-19 pandemic, which was calculated using the
incurred loss model. The provision expense for 2020 was partially offset by a
$2.1 million increase in net interest income, a $1.2 million increase in
noninterest income and a $1.0 million decrease in noninterest expense, in each
case compared to the corresponding period for 2019.

Net income was $22.8 million in the third quarter of 2020, an increase of $1.3
million, or 6.2%, versus net income of $21.5 million in the third quarter of
2019. The increase was primarily due to a $2.4 million increase in noninterest
income as well as a $368,000 increase in net interest income. These increases
were partially offset by increases of $750,000 in the provision for loan losses,
a $388,000 increase in noninterest expense and a $258,000 increase in income tax
expense.

We anticipate that our net income for future fiscal periods will continue to be
impacted as a result of the economic developments resulting from the COVID-19
pandemic. Specifically, while we are not yet able to measure the impact of the
COVID-19 crisis on our borrowers, we anticipate provision expense may remain
elevated as the economic impact of COVID-19 continues to negatively affect some
borrowers, and such effects may not be addressed by any future governmental
policy responses. During the third quarter, provision expense declined relative
to the first and second quarter provision expense of 2020. This decline was a
result of stable asset quality trends and the declining balances of COVID-19
loan deferrals. However, the economic impact of the pandemic continues to evolve
and as a result we continue to monitor the impact to borrowers very closely.

In addition, due to the asset-sensitive nature of the Company's balance sheet,
declines in interest rates, including the Federal Reserve Bank's reductions to
the target Federal Funds Rate in the first quarter of 2020, have caused a
reduction in net interest margin in the second and third quarters of 2020. Net
interest income in 2020 has been negatively impacted by the net interest margin
compression, which has been offset by significant loan and deposit growth during
the year. Loan and investment security yields have been negatively impacted by
the decline in interest rates. Correspondingly, deposit rates have also
declined, however, it is possible that loan and investment yield declines may
not be fully offset by declines in cost of funds, resulting in potential further
net interest margin compression in 2021. Net interest margin compression will
further be impacted from the PPP loan program and the low fixed rate of 1.0% on
these loans. Borrowers that meet the loan forgiveness requirements outlined in
the SBA program will result in loan balance paydowns for the Bank and an
acceleration in unamortized PPP net loan fee income accretion through the income
statement. The timing and impact to net interest margin will be contingent on
how quickly the PPP loans are submitted for forgiveness by borrowers and
approved for forgiveness by the SBA. In addition, loans could be repaid by
borrowers in lieu of forgiveness over the course of the next few years. The
Company also anticipates that potential further federal stimulus payments to
retail customers or additional PPP loan program availability may impact net
utilization of fee-based financial services and impact net interest margin

further.

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Net Interest Income

The following table sets forth consolidated information regarding average
balances and rates:




                                                                 Nine Months Ended September 30,
                                                          2020                                      2019
                                           Average      Interest     Yield (1)/      Average      Interest     Yield (1)/
(fully tax equivalent basis, dollars
in thousands)                              Balance       Income         Rate         Balance       Income         Rate
Earning Assets
Loans:
Taxable (2)(3)                           $ 4,339,274    $ 130,759          4.03 %  $ 3,940,812    $ 149,094          5.06 %
Tax exempt (1)                                20,248          681          4.49         24,585          897          4.88
Investments: (1)
Available-for-sale                           625,887       13,313          2.84        601,098       13,501          3.00
Short-term investments                        32,671           67          0.27          6,751          114          2.26
Interest bearing deposits                     60,429          225          0.50         52,574          843          2.14
Total earning assets                     $ 5,078,509    $ 145,045          3.82 %  $ 4,625,820    $ 164,449          4.75 %
Less: Allowance for loan losses             (57,111)                       

          (49,829)
Nonearning Assets
Cash and due from banks                       60,695                                   137,700
Premises and equipment                        60,676                                    58,910
Other nonearning assets                      172,187                                   155,795
Total assets                             $ 5,314,956                               $ 4,928,396

Interest Bearing Liabilities
Savings deposits                         $   260,668    $     162          0.08 %  $   241,322    $     205          0.11 %
Interest bearing checking accounts         1,796,270        7,683          0.57      1,636,757       20,242          1.65
Time deposits:
In denominations under $100,000              268,485        3,569          1.78        276,283        3,914          1.89
In denominations over $100,000               969,362       12,910          1.78      1,142,633       19,770          2.31
Miscellaneous short-term borrowings           40,460          458          1.51         80,843        1,295          2.14
Long-term borrowings and subordinated
debentures                                    58,029          172          0.40         30,928        1,307          5.65
Total interest bearing liabilities       $ 3,393,274    $  24,954          0.98 %  $ 3,408,766    $  46,733          1.83 %
Noninterest Bearing Liabilities
Demand deposits                            1,252,112                                   923,253
Other liabilities                             53,660                                    43,411
Stockholders' Equity                         615,910                                   552,966
Total liabilities and stockholders'
equity                                   $ 5,314,956

$ 4,928,396

Interest Margin Recap
Interest income/average earning
assets                                                    145,045          3.82                     164,449          4.75
Interest expense/average earning
assets                                                     24,954          0.66                      46,733          1.35
Net interest income and margin                          $ 120,091          3.16 %                 $ 117,716          3.40 %

Tax exempt income was converted to a fully taxable equivalent basis at a 21

percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt

securities acquired after January 1, 1983 included the Tax Equity and Fiscal (1) Responsibility Act of 1982 ("TEFRA") adjustment applicable to nondeductible

interest expenses. Taxable equivalent basis adjustments were $1.8 million and

$1.6 million in the nine-month periods ended September 30, 2020 and 2019,

respectively.

Loan fees are included as taxable loan interest income. Net loan fees (2) attributable to PPP loans were $3.74 million for the nine months ended

September 30, 2020. All other loan fees were immaterial in relation to total

taxable loan interest income for the periods presented.

(3) Nonaccrual loans are included in the average balance of taxable loans.

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                                                                Three Months Ended September 30,
                                                          2020                                      2019
                                           Average      Interest     Yield (1)/      Average      Interest     Yield (1)/
(fully tax equivalent basis, dollars
in thousands)                              Balance       Income         Rate         Balance       Income         Rate
Earning Assets
Loans:
Taxable (2)(3)                           $ 4,541,608    $  42,056          3.68 %  $ 3,991,572    $  50,139          4.98 %
Tax exempt (1)                                15,204          130          3.40         24,201          292          4.78
Investments: (1)
Available-for-sale                           637,523        4,359          2.72        614,784        4,509          2.91
Short-term investments                         8,865            3          0.13          3,478           16          1.83
Interest bearing deposits                     79,369           41          0.21         64,902          352          2.15
Total earning assets                     $ 5,282,569    $  46,589          3.51 %  $ 4,698,937    $  55,308          4.67 %
Less: Allowance for loan losses             (59,519)                       

          (50,732)
Nonearning Assets
Cash and due from banks                       61,656                                    77,921
Premises and equipment                        60,554                                    59,268
Other nonearning assets                      175,601                                   156,109
Total assets                             $ 5,520,861                               $ 4,941,503

Interest Bearing Liabilities
Savings deposits                         $   282,456    $      53          0.07 %  $   235,957    $      62          0.10 %

Interest bearing checking accounts         1,827,061        1,405          0.31      1,667,690        6,712          1.60
Time deposits:
In denominations under $100,000              254,315          982          1.54        278,598        1,383          1.97
In denominations over $100,000               972,436        3,501          1.43      1,124,393        6,535          2.31
Miscellaneous short-term borrowings           22,058           51          0.92         18,870          113          2.38
Long-term borrowings and subordinated
debentures                                    75,000           74          0.39         30,928          419          5.37
Total interest bearing liabilities       $ 3,433,326    $   6,066          0.70 %  $ 3,356,436    $  15,224          1.80 %
Noninterest Bearing Liabilities
Demand deposits                            1,401,403                                   961,070
Other liabilities                             55,154                                    48,132
Stockholders' Equity                         630,978                                   575,865
Total liabilities and stockholders'
equity                                   $ 5,520,861

$ 4,941,503

Interest Margin Recap
Interest income/average earning
assets                                                     46,589          3.51                      55,308          4.67
Interest expense/average earning
assets                                                      6,066          0.46                      15,224          1.29
Net interest income and margin                          $  40,523          3.05 %                 $  40,084          3.38 %

Tax exempt income was converted to a fully taxable equivalent basis at a 21

percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt

securities acquired after January 1, 1983 included the Tax Equity and Fiscal (1) Responsibility Act of 1982 ("TEFRA") adjustment applicable to nondeductible

interest expenses. Taxable equivalent basis adjustments were $610,000 and

$539,000 in the three-month periods ended September 30, 2020 and 2019,
    respectively.

Loan fees are included as taxable loan interest income. Net loan fees (2) attributable to PPP loans were $1.87 million for the three months ended

September 30, 2020. All other loan fees were immaterial in relation to total

taxable loan interest income for the periods presented.

(3) Nonaccrual loans are included in the average balance of taxable loans.

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Net interest income increased $2.1 million, or 1.8%, for the nine months ended
September 30, 2020 compared with the first nine months of 2019. The increased
level of net interest income during the first nine months of 2020 was largely
driven by an increase in average earning assets of $452.7 million, due primarily
to loan growth of $394.1 million and growth in investment securities of $24.8
million. Average loans outstanding increased to $4.360 billion during the nine
months ended September 30, 2020 compared to $3.965 billion during the same
period of 2019, with most of the growth being in fixed rate PPP commercial
loans. The average balance of PPP loans was $339.1 million for the nine months
ended September 30, 2020. The earning asset growth was funded through an
increase in deposits. Average deposits increased $326.6 million to $4.547
billion during the nine months ended September 30, 2020, compared to $4.220
billion for the same period of 2019. During this same period average core
deposits increased $427.2 million and average brokered deposits decreased $100.6
million. We define "core deposits" as total deposits (including all deposits by
municipalities and other government agencies), excluding brokered deposits. PPP
loan proceeds to borrowers impacted the increase in deposits and core deposits
during the nine-months ended September 30, 2020 as loan proceeds were deposited
into borrower checking and savings accounts at the Bank. Average borrowings
decreased by $13.3 million to $98.5 million in the nine months ended September
30, 2020, compared to $111.8 million during the same period of 2019.

The tax equivalent net interest margin was 3.16% for the first nine months of
2020 compared to 3.40% during the first nine months of 2019. The yield on
earning assets totaled 3.82% during the nine months ended September 30, 2020
compared to 4.75% in the same period of 2019. Cost of funds (expressed as a
percentage of average earning assets) totaled 0.66% during the first nine months
of 2020 compared to 1.35% in the same period of 2019. The lower margin in the
first nine months of 2020 was due to lower yields on loans and securities,
partially offset by a lower cost of funds, driven by the Federal Reserve
decreasing the target Federal Funds Rate by 225 basis points since the second
half of 2019, inclusive of two Federal Reserve emergency cuts to the target
Federal Funds Rate during March 2020. The two emergency cuts reduced the target
Federal Funds Rate by 150 basis points and brought the target Federal Funds Rate
back to the zero-bound range of 0% to 0.25%. Additionally, the Company's net
interest margin was negatively impacted by six basis points during the first
nine months of 2020 due to the lower yield on PPP loans, and net interest margin
excluding PPP loans was 3.22% during the period.

Net interest income increased by $368,000, or 0.9%, for the three months ended
September 30, 2020 compared with the three months ended September 30, 2019. The
increased level of net interest income during the three months ended September
30, 2020 was caused by an increase in average earning assets offset by net
interest margin compression. Average earning assets increased by $583.6 million
for the three months ended September 30, 2020 compared with the same period of
2019. Average loans outstanding increased $541.0 million during the three months
ended September 30, 2020 compared with the same period of 2019, with most of the
growth being in fixed rate PPP commercial loans. The average balance of PPP
loans was $557.3 million for the three months ended September 30, 2020 and makes
up a majority of the loan growth relative to the comparable periods. In
addition, investment securities increased by $22.7 million. The earning asset
growth was funded through deposit growth as well as an increase in borrowings.
Average noninterest bearing demand deposits increased by $440.3 million while
average interest bearing deposits increased by $29.6 million and average
borrowings increased by $47.3 million.

The tax equivalent net interest margin was 3.05% for the third quarter of 2020
compared to 3.38% during the third quarter of 2019. The yield on earning assets
totaled 3.51% during the third quarter of 2020 compared to 4.67% in the same
period of 2019, while the cost of funds (expressed as a percentage of average
earning assets) totaled 0.46% during the third quarter of 2020 compared to 1.29%
in the same period of 2019. Additionally, the Company's net interest margin was
negatively impacted by 12 basis points during the third quarter of 2020 due to
the lower yield on PPP loans, and net interest margin excluding PPP loans was
3.17% during the period and during the second quarter of 2020. Earning asset
yields and cost of funds each declined by 11 basis points during the third
quarter of 2020.

Provision for Loan Losses

The Company elected to delay the adoption of FASB's new rule covering the
Current Expected Credit Loss ("CECL") standard as permitted by the CARES Act.
The Company expects to adopt CECL on the earlier of the termination of the
national emergency declaration, or December 31, 2020, whichever comes first,
with an effective date of January 1, 2020.

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Under the incurred loan loss methodology, the Company recorded provisions for
loan loss expense of $13.9 million and $1.8 million in the nine month and three
month periods ended September 30, 2020, respectively, compared to a provisions
of $3.0 million and $1.0 million during the comparable periods of 2019,
respectively. Net charge-offs were $3.8 million and $22,000 in the nine month
and three month periods ended September 30, 2020, respectively, compared to net
charge-offs of $810,000 and $936,000 during the comparable periods of 2019,
respectively. The net charge off activity in 2020 was driven primarily by one
commercial manufacturing borrower that was on nonaccrual status and had a loan
loss reserve allocation of $4.2 million as of December 31, 2019. The $3.7
million charge-off was due to the restructuring of this relationship during the
first quarter of 2020. The primary factor impacting management's decision to
record a higher provision in the nine month and three month periods of 2020 was
the potential negative impact to the Company's borrowers as a result of the
economic conditions resulting from the COVID-19 pandemic. Some of the Company's
commercial loan customers have been forced to temporarily suspend or reduce
operations and some of the Company's retail customers are currently without a
paycheck, which impairs their abilities to make debt payments. As a result, the
Company has granted loan deferrals to customers which peaked on June 17, 2020 at
$737 million or 16% of the loan portfolio. As of September 30, 2020, COVID-19
loan deferrals have declined and represent 4% of commercial loans and 1% of
retail loans. As of October 21, 2020, total deferrals attributable to COVID-19
were $110 million, representing 63 borrowers, or 2% of the total loan portfolio.
Total deferrals as of October 21, 2020 represented a decline in deferral
balances of 85% from the peak levels. Of the $110 million, 37 borrowers were
commercial loan borrowers representing $107 million in loans, or 3% of total
commercial loans and 26 borrowers were retail loan borrowers representing $3
million, or 1% of total retail loans In accordance with provisions of the CARES
Act as well as the interagency guidance, loan deferrals granted to our customers
that have been made as a result of the impact of COVID-19 and who were not past
due are not considered troubled debt restructurings and are therefore not
included in the troubled debt restructurings totals as of September 30, 2020.
See "Note 4 - Allowance for Loan Losses and Credit Quality." All COVID-19
related loan deferrals remain on accrual status, as each deferral is evaluated
individually, and management has determined that all contractual cashflows are
collectable at this time.

Additional factors considered by management included key loan quality metrics,
including reserve coverage of nonperforming loans and economic conditions in the
Company's markets, and changes in the allocation for specific watch list
credits. Management's overall view on current credit quality was also a factor
in the determination of the provision for loan losses. The Company's management
continues to monitor the adequacy of the provision based on loan levels, asset
quality, economic conditions and other factors that may influence the assessment
of the collectability of loans.

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Noninterest Income

Noninterest income categories for the nine-month and three-month periods ended September 30, 2020 and 2019 are shown in the following tables:

                                                    Nine Months Ended
                                                      September 30,
                                                                Dollar      Percent
(dollars in thousands)                   2020        2019       Change      Change
Wealth advisory fees                   $  5,594    $  5,002    $     592       11.8 %
Investment brokerage fees                 1,148       1,300        (152)     (11.7)

Service charges on deposit accounts 7,452 12,791 (5,339)

 (41.7)
Loan and service fees                     7,470       7,403           67        0.9
Merchant card fee income                  1,933       1,982         (49)      (2.5)
Bank owned life insurance                 1,476       1,246          230       18.5
Interest rate swap fee income             4,105         847        3,258      384.7
Mortgage banking income                   2,945       1,256        1,689      134.5
Net securities gains                        363          94          269      286.2
Other income                              2,575       1,957          618       31.6
Total noninterest income               $ 35,061    $ 33,878    $   1,183        3.5 %
Noninterest income to total revenue       22.86 %     22.58 %





                                                    Three Months Ended
                                                      September 30,
                                                                Dollar      Percent
(dollars in thousands)                   2020        2019       Change      Change
Wealth advisory fees                   $  1,930    $  1,736    $     194       11.2 %
Investment brokerage fees                   421         386           35        9.1

Service charges on deposit accounts 2,491 3,654 (1,163)

 (31.8)
Loan and service fees                     2,637       2,518          119        4.7
Merchant card fee income                    670         690         (20)      (2.9)
Bank owned life insurance                   932         515          417       81.0
Interest rate swap fee income             2,143          77        2,066    2,683.1
Mortgage banking income                   1,005         636          369       58.0
Net securities gains                        314           6          308    5,133.3
Other income                                572         547           25        4.6
Total noninterest income               $ 13,115    $ 10,765    $   2,350       21.8 %
Noninterest income to total revenue       24.73 %     21.40 %




The Company's noninterest income increased $1.2 million, or 3.5%, to $35.1
million for the nine months ended September 30, 2020 compared to $33.9 million
in the prior year period. Noninterest income was positively impacted by a $3.3
million increase, or 384.7% growth, in swap fee income generated from commercial
lending transactions, a $1.7 million increase, or 134.5% growth, in mortgage
banking income, and a $592,000 increase, or 11.8% growth, in wealth management
fees over the corresponding prior year period. The credit valuation adjustments
on interest rate swaps, which is included in other income, increased noninterest
income by $1.2 million in the nine months ended September 30, 2020 compared to
the corresponding prior year period. Noninterest income was negatively impacted
by a $5.3 million, or 41.7%, decrease in service charges on deposit accounts.
Service charges on deposit accounts for the nine months ended September 30, 2019
included $4.5 million of fees from a former commercial customer.

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The Company's noninterest income increased $2.4 million, or 21.8%, to $13.1
million for the third quarter of 2020 compared to $10.8 million for the third
quarter of 2019. Noninterest income was positively impacted by a $2.1 million
increase in interest rate swap fee income, a $369,000 increase, or 58.0% growth,
in mortgage banking income and a $194,000 increase, or 11.2% growth, in wealth
management fees over the prior year third quarter. Bank owned life insurance
income increased $417,000, or 81.0%, primarily due to a variable bank owned life
insurance product that contains equity based investments. Net securities gains
increased $308,000 due to repositioning of the available-for-sale securities
portfolio. Offsetting these increases were decreases of $1.2 million, or 31.8%,
in service charges on deposit accounts driven by lower treasury management fees
and lower transaction-based fees. Overdraft fee income declined by $344,000, or
36%, during the third quarter as compared to the prior year third quarter, which
is included in service charges on deposit accounts.

Future noninterest income may continue to be impacted due to the effects of the
COVID-19 pandemic, and the scope of any future governmental policy responses.
For example, reduced economic activity may result in lower merchant card fee
income and lower interchange revenue that is reported in services charges on
deposits accounts and loan and service fees.

Noninterest Expense

Noninterest expense categories for the nine-month and three-month periods ended September 30, 2020 and 2019 are shown in the following tables:

                                                         Nine Months Ended
                                                           September 30,
                                                                     Dollar      Percent
(dollars in thousands)                        2020        2019       Change      Change
Salaries and employee benefits              $ 35,696    $ 36,539    $   (843)      (2.3) %
Net occupancy expense                          4,336       4,000          336        8.4
Equipment costs                                4,216       4,143           73        1.8
Data processing fees and supplies              8,736       7,619        1,117       14.7
Corporate and business development             2,324       3,376      (1,052)     (31.2)
FDIC insurance and other regulatory fees       1,224         566          658      116.3
Professional fees                              3,506       3,487           19        0.5
Other expense                                  6,255       7,572      (1,317)     (17.4)
Total noninterest expense                   $ 66,293    $ 67,302    $ (1,009)      (1.5) %





                                                        Three Months Ended
                                                          September 30,
                                                                    Dollar     Percent
(dollars in thousands)                        2020        2019      Change     Change

Salaries and employee benefits              $ 12,706    $ 12,478    $   228

       1.8 %
Net occupancy expense                          1,404       1,351         53        3.9
Equipment costs                                1,369       1,385       (16)      (1.2)

Data processing fees and supplies              3,025       2,620        405

15.5

Corporate and business development               586         999      (413)

(41.3)

FDIC insurance and other regulatory fees 554 (249) 803

     322.5
Professional fees                              1,306       1,479      (173)     (11.7)
Other expense                                  2,175       2,674      (499)     (18.7)
Total noninterest expense                   $ 23,125    $ 22,737    $   388        1.7 %




The Company's noninterest expense decreased by $1.0 million, or 1.5%, to $66.3
million in the first nine months of 2020 compared to $67.3 million in the
corresponding prior year period. The decrease was driven by corporate and
business development, which decreased $1.1 million, or 31.2%, due to reduced
business development and training expense. Salaries and employee benefits
decreased by $843,000, or 2.3%, primarily due to lower incentive-based
compensation expense. Offsetting the decreases were increases of $1.1 million,
or 14.7%, in data processing fees and supplies. In addition, FDIC insurance and
other regulatory fees increased $658,000, or 116.3%, as insurance assessment
credits have expired.

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The Company's noninterest expense increased $388,000, or 1.7%, to $23.1 million
in the third quarter of 2020, compared to $22.7 million in the third quarter of
2019. FDIC insurance and regulatory fees increased $803,000 as all FDIC deposit
insurance credits due the Company were received by the end of the first quarter
of 2020. Data processing fees increased $405,000, or 15.5%, driven by the
Company's continued investment in customer focused, technology-based solutions
and ongoing cybersecurity and data management enhancements. Offsetting these
increases were decreases in corporate and business development of $413,000, or
41.3%, due to reduced business development and training expense, which is deemed
temporary due to the pandemic.

The Company's efficiency ratio was 43.6% for the third quarter of 2020, compared
to 45.2% for the third quarter of 2019 and 41.6% for the linked second quarter
of 2020. The company's efficiency ratio was 43.2% for the nine months ended
September 30, 2020 compared to 44.9% in the prior year period due to revenue
growth outpacing expense growth during 2020.

As previously disclosed, in the third quarter of 2019 the Bank discovered
potentially fraudulent activity by a former treasury management client involving
multiple banks. The client subsequently filed a bankruptcy case, captioned In re
Interlogic Outsourcing, Inc. et al., which is pending in the United States
Bankruptcy Court for the Western District of Michigan. The Bank and the other
banks are currently subject to document and information requests in the
bankruptcy case, and various parties in the bankruptcy case have threatened to
bring claims against the Bank and other banks. Based on current information, the
Company has determined that a loss is neither probable nor estimable at this
time, and the Bank intends to vigorously defend itself if any claim is filed.

Future noninterest expense may continue to be reduced due to the COVID-19
pandemic. For example, continued protracted economic inactivity may reduce
balance sheet growth and resulting revenue growth which could decrease the
amount the Company pays in incentive-based compensation. In addition, elevated
provision expense may reduce net income and diluted earnings per share, another
key performance metric that impacts the incentive-based compensation targets.

The Company's income tax expense decreased $1.4 million and increased $258,000,
respectively, in the nine-month and three-month periods ended September 30, 2020
compared to the same periods in 2019. The effective tax rate was 18.4% and
19.1%, respectively, in the nine-month and three-month periods ended September
30, 2020, compared to 18.7% and 19.3% for the comparable periods of 2019. The
year-to-date effective tax rate for 2020 decreased as compared to the prior year
period primarily due a lower state tax rate as well as a higher percentage of
income being derived from tax-advantaged sources.

FINANCIAL CONDITION

Overview

Total assets of the Company were $5.551 billion as of September 30, 2020, an
increase of $604.4 million, or 12.2%, when compared to $4.947 billion as of
December 31, 2019. This increase was primarily due to a $524.1 million, or
12.9%, increase in gross loans, offset by an increase in the allowance for loan
losses of $10.1 million, or 19.9%. In addition, the balance sheet increased due
to growth in securities available-for-sale to $644.0 million at September 30,
2020 from $608.2 million at December 31, 2019, an increase of $29.7 million, or
29.9%, in cash and cash equivalents to $129.1 million at September 30, 2020 from
$99.4 million at December 31, 2019 and an increase of $15.2 million, or 37.0%,
in other assets driven by higher valuations on the Company's swap portfolio.
Total deposits increased $634.1 million, or 15.3%, while total borrowings
decreased by $84.5 million, or 49.7%. The increase in deposits was primarily
driven by growth in core deposits of $718.0 million offset by a decrease in
wholesale funding of $83.8 million. Core deposits were $4.738 billion as of
September 30, 2020 compared to $4.020 billion as of December 31, 2019, an
increase of $718.0 million, or 17.9%. Loan growth was driven by Paycheck
Protection Program (PPP) loans originated primarily during the second quarter of
2020. The outstanding balance of PPP loans at September 30, 2020, was $557.9
million. Loans excluding PPP loans decreased by $33.8 million, or -0.8%, from
$4.07 billion at December 31, 2019 to $4.03 billion at September 30, 2020.
Additionally, commercial deposits increased by $527.8 million, or 41.4%, to
$1.804 billion at September 30, 2020 compared to $1.276 billion at December 31,
2019. The increase in commercial and retail core deposits has resulted from
proceeds from the PPP loan program, federal stimulus payments made to
individuals and an increase in the savings rate during the pandemic.



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Uses of Funds

Total Cash and Cash Equivalents

Total cash and cash equivalents increased by $29.7 million, or 29.9% to $129.1
million at September 30, 2020, from $99.4 million at December 31, 2019. Cash and
cash equivalents at September 30, 2020 reflect larger items in the process of
clearing such as public funds checks outstanding for matured certificates of
deposit which were distributed in the form of checks and cash letter deposits in
transit. Short-term investments include cash on deposit that earn interest such
as excess liquidity maintained at the Federal Reserve Bank. Cash and cash
equivalents balances will vary depending on the cyclical nature of the bank's
liquidity position.

Investment Portfolio

The amortized cost and the fair value of securities as of September 30, 2020 and December 31, 2019 were as follows:

                                               September 30, 2020          December 31, 2019
                                             Amortized       Fair       Amortized       Fair
(dollars in thousands)                          Cost         Value         Cost         Value

U.S government sponsored agencies            $   10,000    $  10,026    $        0    $       0
Mortgage-backed securities: residential         238,062      248,266       283,817      288,181
Mortgage-backed securities: commercial           38,026       39,161        36,712       36,972
State and municipal securities                  324,237      346,581      

270,480      283,080
Total                                        $  610,325    $ 644,034    $  591,009    $ 608,233




At September 30, 2020 and December 31, 2019, there were no holdings of
securities of any one issuer, other than the U.S. government agencies and
government sponsored entities, in an amount greater than 10% of stockholders'
equity. Management is aware that, as interest rates rise, any unrealized loss in
the investment portfolio will increase, and as interest rates fall the
unrealized gain in the investment portfolio will rise. Since the majority of the
bonds in the investment portfolio are fixed-rate, with only a few
adjustable-rate bonds, we would expect our investment portfolio to follow this
market value pattern. This is taken into consideration when evaluating the gain
or loss of investment securities in the portfolio and the potential for
other-than-temporary impairment.

Purchases of securities available-for-sale totaled $89.9 million in the first
nine months of 2020. The purchases consisted primarily of state and municipal
securities and purchases of mortgage-backed securities issued by government
sponsored entities. Paydowns from prepayments and scheduled payments of $63.0
million were received in the first nine months of 2020, and the amortization of
premiums, net of the accretion of discounts, was $3.0 million. The increase in
net amortization expense from the prior year is being driven by increased
prepayment speeds given the current rate environment and prior period levels
were elevated due to the adoption of ASU 2017-08. Maturities and calls of
securities totaled $6.3 million in the first nine months of 2020. Sales of
securities totaled $6.4 million in the first nine months of 2020. No
other-than-temporary impairment was recognized in the first nine months of 2020.

Purchases of securities available for sale totaled $91.7 million in the first
nine months of 2019. The purchases consisted primarily of state and municipal
securities and purchases of mortgage-backed securities issued by government
sponsored entities. Paydowns from prepayments and scheduled payments of $37.0
million were received in the first nine months of 2019, and the amortization of
premiums, net of the accretion of discounts, was $2.9 million. Sales of
securities totaled $38.5 million in the first nine months of 2019. Maturities
and calls of securities totaled $14.0 million in the first nine months of 2019.
No other-than-temporary impairment was recognized in the first nine months of
2019.

The investment portfolio is managed by a third-party firm to provide for an
appropriate balance between liquidity, credit risk, interest rate risk
management and investment return and to limit the Company's exposure to credit
risk in the investment securities portfolio to an acceptable level. The Company
does not trade or invest in or sponsor certain unregistered investment companies
defined as hedge funds and private equity funds under what is commonly referred
to as the "Volcker Rule" of the Dodd-Frank Wall Street Reform and Consumer

Protection Act.

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Real Estate Mortgage Loans Held-for-Sale

Real estate mortgage loans held-for-sale increased by $5.6 million, or 123.0%,
to $10.1 million at September 30, 2020, from $4.5 million at December 31, 2019.
The balance of this asset category is subject to a high degree of variability
depending on, among other things, recent mortgage loan rates and the timing of
loan sales into the secondary market. The Company generally sells conforming
qualifying mortgage loans it originates on the secondary market. Proceeds from
sales of residential mortgages totaled $90.6 million in the first nine months of
2020 compared to $39.0 million in the first nine months of 2019. Mortgage loans
serviced for others are not included in the accompanying consolidated balance
sheets. The unpaid principal balances of these loans were $359.7 million and
$337.9 million, respectively, as of September 30, 2020 and December 31, 2019.

Loan Portfolio

The loan portfolio by portfolio segment as of September 30, 2020 and December 31, 2019 is summarized as follows:

                                                                                          Current
                                              September 30,          December 31,          Period
(dollars in thousands)                            2020                   2019              Change
Commercial and industrial loans            $ 1,849,413    40.2 %  $ 1,426,868    35.1 %  $  422,545
Commercial real estate and multi-family
residential loans                            1,860,308    40.4      1,673,322    41.1       186,986
Agri-business and agricultural loans           338,154     7.3        379,531     9.3      (41,377)
Other commercial loans                          97,533     2.1        112,302     2.8      (14,769)
Consumer 1-4 family mortgage loans             352,550     7.7        376,745     9.3      (24,195)
Other consumer loans                           105,285     2.3         98,617     2.4         6,668
Subtotal, gross loans                        4,603,243   100.0 %    4,067,385   100.0 %     535,858
Less: Allowance for loan losses               (60,747)               (50,652)              (10,095)
Net deferred loan fees                        (13,319)                (1,557)              (11,762)
Loans, net                                 $ 4,529,177            $ 4,015,176            $  514,001




Total loans, excluding real estate mortgage loans held-for-sale and deferred
fees, increased by $535.9 million to $4.603 billion at September 30, 2020 from
$4.067 billion at December 31, 2019. The increase was concentrated in the
commercial real estate and commercial and industrial categories and was driven
by $570.5 million in loans originated under the PPP, with $557.9 million of the
PPP loans remaining outstanding at September 30, 2020. We anticipate that the
portion of our loan portfolio attributable to PPP loans will continue to decline
in future quarters, as borrowers avail themselves of loan forgiveness
opportunities under the PPP. Total loans excluding PPP loans increased by $8.9
million, as of September 30, 2020 as compared to September 30, 2019. On a linked
quarter basis, total loans excluding PPP loans were $4.0 billion, an increase of
$96.2 million, or 2%, as of September 30, 2020 as compared to the second quarter
of 2020. The balance of net deferred loans fees attributable to PPP loans was
$11.5 million as of September 30, 2020.



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The following table summarizes the Company's non-performing assets as of September 30, 2020 and December 31, 2019:

                                                            September 30,      December 31,
(dollars in thousands)                                          2020               2019
Nonaccrual loans including nonaccrual troubled debt
restructured loans                                         $        13,478    $        18,675
Loans past due over 90 days and still accruing                          19 

               45
Total nonperforming loans                                  $        13,497    $        18,720
Other real estate owned                                                316                316
Repossessions                                                            0                  0
Total nonperforming assets                                 $        13,813    $        19,036

Impaired loans including troubled debt restructurings $ 22,484

$ 27,763

Nonperforming loans to total loans                                    0.29 %             0.46 %
Nonperforming assets to total assets                                  0.25 %             0.38 %

Performing troubled debt restructured loans                $         5,658    $         5,909
Nonperforming troubled debt restructured loans
(included in nonaccrual loans)                                       6,547              3,188
Total troubled debt restructured loans                     $        12,205

  $         9,097




Total nonperforming assets decreased by $5.2 million, or 27.4%, to $13.8 million
during the nine-month period ended September 30, 2020. The ratio of
nonperforming assets to total assets at September 30, 2020 decreased from 0.38%
at December 31, 2019 to 0.25% at September 30, 2020. The decrease in
nonperforming assets was primarily due to a $3.7 million charge-off taken on a
single commercial manufacturing borrower during the first quarter of 2020.

A loan is impaired when full payment under the original loan terms is not
expected. Impairment for smaller loans that are similar in nature and which are
not in nonaccrual or troubled debt restructured status, such as residential
mortgage, consumer, and credit card loans, is determined based on the class of
loans and impairment is determined on an individual loan basis for other loans.
If a loan is impaired, a portion of the allowance may be allocated so that the
loan is reported, net, at the present value of estimated future cash flows or at
the fair value of collateral if repayment is expected solely from the
collateral.

Total impaired loans decreased by $5.3 million, or 19.0%, to $22.5 million at
September 30, 2020 from $27.8 million at December 31, 2019. The decrease in the
impaired loans category was primarily due to the $3.7 million charge-off on the
single commercial relationship that was on nonaccrual status as of December 31,
2019.

As a result of the COVID-19 pandemic, we anticipate that our commercial,
commercial real estate, residential and consumer borrowers may continue to
encounter economic difficulties, which could lead to increases in our levels of
nonperforming assets, impaired loans and troubled debt restructurings in future
periods.

Loans are charged against the allowance for loan losses when management believes
that the principal is uncollectible. Subsequent recoveries, if any, are credited
to the allowance. The allowance is an amount that management believes will be
adequate to absorb probable incurred credit losses relating to specifically
identified loans based on an evaluation of the loans by management, as well as
other probable incurred losses inherent in the loan portfolio. The evaluations
take into consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrower's ability to repay.
Management also considers trends in adversely classified loans based upon a
monthly review of those credits. An appropriate level of general allowance is
determined after considering the following factors: application of historical
loss percentages, emerging market risk, commercial loan focus and large credit
concentrations, new industry lending activity and current economic conditions.
Federal regulations require insured institutions to classify their own assets on
a regular basis. The regulations provide for three categories of classified
loans: Substandard, Doubtful and Loss. The regulations also contain a Special
Mention category. Special Mention applies to loans that do not currently expose
an insured institution to a sufficient degree of risk to warrant classification
as Substandard, Doubtful or Loss but do possess credit deficiencies or potential
weaknesses deserving management's close attention. The Company's policy is to
establish a specific allowance for loan losses for any assets where management
has identified conditions or circumstances that indicate an asset is impaired.
If an asset or portion thereof is classified as a loss, the Company's policy is
to either establish specified allowances for loan losses in the amount of 100%
of the portion of the asset classified loss or charge-off such amount.

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At September 30, 2020, the allowance for loan losses was 1.32% of total loans
outstanding, versus 1.25% of total loans outstanding at December 31, 2019. The
allowance for loan losses was 1.51% of total loans outstanding, excluding PPP
loans of $557.9 million, as of September 30, 2020. This reflects a more
comparable ratio to prior periods, as PPP loans are fully guaranteed by the SBA
and have not been allocated for within the allowance for loan losses
calculation. At September 30, 2020, management believed the allowance for loan
losses was at a level commensurate with the overall risk exposure of the loan
portfolio. However, if economic conditions fail to recover or continue to
deteriorate due to the COVID-19 pandemic, certain borrowers may experience
difficulty and the level of nonperforming loans, charge-offs and delinquencies
could rise and require increases in the allowance for loan losses. The process
of identifying probable incurred credit losses is a subjective process.
Therefore, the Company maintains a general allowance to cover probable credit
losses within the entire portfolio. The methodology management uses to determine
the adequacy of the loan loss reserve includes the considerations below.

The Company has a relatively high percentage of commercial and commercial real
estate loans extended to businesses with a broad range of revenue and within a
wide variety of industries. Traditionally, this type of lending may have more
credit risk than other types of lending because of the size and diversity of the
credits. The Company manages this risk by utilizing conservative credit
structures, by adjusting its pricing to the perceived risk of each individual
credit and by diversifying the portfolio by customer, product, industry and
market area.

As of September 30, 2020, based on management's review of the loan portfolio,
the Company had 97 credits totaling $221.3 million on the classified loan list
versus 103 credits totaling $181.2 million on December 31, 2019. The increase in
classified loans for the first nine months of 2020 resulted primarily from three
commercial borrowers recorded on the non-impaired portion of the watchlist. As
of September 30, 2020, the Company had $168.7 million of assets classified as
Special Mention, $52.7 million classified as Substandard, $0 classified as
Doubtful and $0 classified as Loss as compared to $96.6 million, $84.6 million,
$0 and $0, respectively, at December 31, 2019.

Allowance estimates are developed by management after taking into account actual
loss experience adjusted for current economic conditions. The Company has
regular discussions regarding this methodology with regulatory authorities.
Allowance estimates are considered a prudent measurement of the risk in the
Company's loan portfolio and are applied to individual loans based on loan type.
In accordance with the incurred loan loss reserve accounting guidance, the
allowance is provided for losses that have been incurred as of the balance sheet
date and is based on past events and current economic conditions and does not
include the effects of expected losses on specific loans or groups of loans that
are related to future events or expected changes in economic conditions. For a
more thorough discussion of the allowance for loan losses methodology see the
Critical Accounting Policies section of this Item 2.

The allowance for loan losses increased 19.9%, or $10.1 million, from $50.7
million at December 31, 2019 to $60.7 million at September 30, 2020. Pooled loan
allocations increased from $40.3 million at December 31, 2019 to $52.7 million
at September 30, 2020, which was primarily due to management's view of current
credit quality, the current economic environment, the impacts of COVID-19 and
loan growth. Impaired loan allocations were $8.0 million at September 30, 2020
and $10.4 million at December 31, 2019. The unallocated component of the
allowance for loan losses was $3.2 million at September 30, 2020 and $2.3
million at December 31, 2019. The Company believes that the unallocated
component is appropriate given the high level of uncertainty that exists
regarding near term economic conditions. The unallocated component of the
allowance for loan losses incorporates the Company's judgmental determination of
inherent losses that may not be fully reflected in other allocations, including
factors such as the level of classified credits, economic uncertainties,
industry trends impacting specific portfolio segments, broad portfolio quality
trends and trends in the composition of the Company's large commercial loan
portfolio and related large dollar exposures to individual borrowers.

Most of the Company's recent loan growth has been concentrated in the commercial
loan portfolio, which can result in overall asset quality being influenced by a
small number of credits. Management has historically considered growth and
portfolio composition when determining loan loss allocations. Management
believes that it is prudent to continue to provide for loan losses in a manner
consistent with its historical approach due to the loan growth described above
and current economic conditions.

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Total loans declined by $33.8 million for the first nine months of 2020,
excluding the $557.9 million in PPP loans. On a linked quarter basis, total
loans excluding PPP loans were $4.0 billion, an increase of $96.2 million, or
2%, as of September 30, 2020 as compared to the second quarter of 2020. Prior to
the pandemic, economic conditions in the Company's markets were stable. During
the last six months some industries have performed well during the pandemic,
while others have not. The Company is monitoring industries and borrowers
impacted by the pandemic as discussed. Watch list loans are $40.1 million higher
at $221.3 million compared to $181.2 million at December 31, 2019, which
represents 4.82% of total loans at September 30, 2020 compared to 4.43% at
December 31, 2019. When excluding PPP loans of $557.9 million as of September
30, 2020, watch list loans were 5.49% of total loans. This reflects a more
comparable ratio to prior periods, as PPP loans are fully guaranteed by the SBA
and have not been allocated for within the allowance for loan losses
calculation. Total impaired and watch list loans increased by $17.5 million, or
8.6%, to $221.3 million at September 30, 2020 versus $203.8 million as of
September 30, 2019. On a linked quarter basis, total impaired and watch list
loans increased by $13.1 million, or 6.3%, from $208.2 million at June 30, 2020.
The increase in total impaired and watch list loans was due primarily to an
increase in non-impaired watch list credits. Impaired watch list loans decreased
by $5.6 million, or 19.9%, to $22.5 million at September 30, 2020 versus
September 30, 2019. On a linked quarter basis, impaired watch list loans
decreased by $1.5 million, or 6.3%, from $24.0 million at June 30, 2020. The
Company's continued growth strategy promotes diversification among industries as
well as continued focus on the enforcement of a disciplined credit culture and a
conservative position in loan work-out situations.

As of September 30, 2020, total deferrals attributed to COVID-19 were $158.4
million representing 102 borrowers. This represented 3.4% of the total loan
portfolio. Of that total 71 were commercial loan borrowers representing $155.1
million in loans, or 3.7%, of commercial loans and 31 were retail loan borrowers
representing $3.3 million, or 0.9%, of total retail loans.

A summary of loan deferrals, by loan segment, as of September 30, 2020 is as
follows:




(dollars in thousands)                  Borrowers              Balance
CRE - Nonowner Occupied                        16     13.7 %  $  69,219     43.7 %

Commercial and industrial loans                32     27.3       36,944    

23.3
CRE - Owner Occupied                           24     20.5       33,588     21.2
CRE - Construction                              2      1.7        6,299      4.0
Other commercial loans                          3      2.6        5,119      3.2
Residential mortgage                           28     23.9        4,533      2.9
Installment - other consumer                    6      5.1        1,627      1.0

Agri-business and agricultural loans            1      0.9          346    

 0.2
Other consumer loans                            5      4.3          755      0.5
Total*                                        117    100.0 %  $ 158,430    100.0 %

* The number of borrowers in the table is higher due to one single borrower impacting multiple loan segments.

As of September 30, 2020, 77 borrowers with loans outstanding of $117 million
were in their second deferral period, most of which were additional 90 day
deferrals. Additionally, 12 borrowers with loans outstanding of $26 million were
in their third deferral period. Two borrowers represented 84% of the third
deferral population and were commercial real estate non-owner occupied loans
supported by adequate collateral and personal guarantors and consist primarily
of loans to the hotel and accommodation industry.

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Sources of Funds

The average daily deposits and borrowings together with average rates paid on
those deposits and borrowings for the nine months ended September 30, 2020 and
2019 are summarized in the following table:




                                            Nine months ended September 30,
                                              2020                   2019
(dollars in thousands)                   Balance      Rate      Balance      Rate

Noninterest bearing demand deposits $ 1,252,112 0.00 % $ 923,253

  0.00 %
Savings and transaction accounts:
Savings deposits                           260,668    0.08        241,322  

0.11

Interest bearing demand deposits 1,796,270 0.57 1,636,757

 1.65
Time deposits:
Deposits of $100,000 or more               969,362    1.78      1,142,633    2.31
Other time deposits                        268,485    1.78        276,283    1.89
Total deposits                         $ 4,546,897    0.71 %  $ 4,220,248    1.40 %

FHLB advances and other borrowings          98,489    0.85        111,771  

 3.11
Total funding sources                  $ 4,645,386    0.72 %  $ 4,332,019    1.44 %




Deposits and Borrowings

As of September 30, 2020, total deposits increased by $634.1 million, or 15.3%,
from December 31, 2019. Core deposits increased by $718.0 million to $4.738
billion as of September 30, 2020 from $4.020 billion as of December 31, 2019.
Total brokered deposits were $29.7 million at September 30, 2020 compared to
$113.5 million at December 31, 2019 reflecting an $83.8 million decrease during
the first nine months of 2020. PPP loan proceeds to borrowers impacted the
increase in deposits during 2020 as loan proceeds were deposited into borrower
checking and savings accounts at the Bank.

Since December 31, 2019, the change in core deposits was comprised of increases
in commercial deposits of $527.8 million, retail deposits of $105.1 million and
public funds deposits of $85.0 million. Total public funds deposits, including
public funds transaction accounts, were $1.212 billion at September 30, 2020 and
$1.127 billion at December 31, 2019.

The following table summarizes deposit composition at September 30, 2020 and
December 31, 2019:




                                                                  Current
                           September 30,       December 31,        Period
(dollars in thousands)          2020               2019            Change
Retail                    $      1,722,248    $     1,617,133    $  105,115
Commercial                       1,803,872          1,276,048       527,824
Public funds                     1,212,131          1,127,111        85,020
Core deposits             $      4,738,251    $     4,020,292    $  717,959
Brokered deposits                   29,703            113,527      (83,824)
Total deposits            $      4,767,954    $     4,133,819    $  634,135




Total borrowings decreased by $84.5 million, or 49.7%, from December 31, 2019,
primarily due to FHLB advance net repayments of $95.0 million. The Company also
drew $10.5 million on its holding company line of credit with a correspondent
bank during the first quarter of 2020 to repurchase Company stock. The Company
utilizes wholesale funding, including brokered deposits and Federal Home Loan
Bank advances, to supplement funding of assets, which is primarily used for loan
and investment securities growth. Additionally, management has completed the
actions required to activate participation in the Federal Reserve Bank's
Paycheck Protection Program Lending Facility (PPPLF); however, there were no PPP
loans pledged to the PPPLF as of September 30, 2020. Management anticipates that
the Company's deposit balances may fluctuate more than usual during the
remainder of 2020 due to the impact of PPP loan fundings, which are made to PPP
loan recipient deposit accounts. In addition, there will be fluctuations due to
IRS stimulus payments direct deposited into the accounts of retail customers.
The timing and use of these funds in addition to draws on unfunded commitments
could impact our need to borrow throughout the year.

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Capital

As of September 30, 2020, total stockholders' equity was $636.8 million, an
increase of $38.7 million, or 6.5%, from $598.0 million at December 31, 2019. In
addition to net income of $59.7 million, other increases in equity during the
first nine months of 2020 included a $13.2 million increase in accumulated other
comprehensive income component of equity, which was primarily driven by a net
increase in the fair value of available-for-sale securities. Offsetting the
increases to stockholders' equity were decreases due to the repurchase of
289,101 common shares for $10.0 million under the share repurchase plan,
dividends declared and paid in the amount of $23.0 million and $2.0 million in
stock activity under equity compensation plans.

During the first quarter of 2020, the Company repurchased 289,101 shares of its
common stock for $10 million at a weighted average price per share of $34.63.
Share repurchases under the repurchase plan were suspended in March with $20
million of authorization remaining available under the plan. No shares were
repurchased under the plan during the second or third quarters of 2020. The
Company continues to evaluate the share repurchase program pursuant to its
previously established criteria for execution.

The impact on equity by other comprehensive income (loss) is not included in
regulatory capital. The banking regulators have established guidelines for
leverage capital requirements, expressed in terms of Tier 1, or core capital, as
a percentage of average assets, to measure the soundness of a financial
institution. In addition, banking regulators have established risk-based capital
guidelines for U.S. banking organizations. As of September 30, 2020, the
Company's capital levels remained characterized as "well-capitalized" under the
new rules.

The actual capital amounts and ratios of the Company and the Bank as of September 30, 2020 and December 31, 2019, are presented in the table below. Capital ratios for September 30, 2020 are preliminary until Call Report and FR Y-9C are filed.

                                                                                                                    Minimum Required to
                                                              Minimum Required        For Capital Adequacy          Be Well Capitalized
                                                                For Capital

Purposes Plus Capital Under Prompt Corrective

                                            Actual           Adequacy Purposes        Conservation Buffer           Action Regulations
(dollars in thousands)                 Amount      Ratio      Amount       Ratio       Amount         Ratio         Amount           Ratio
As of September 30, 2020:
Total Capital (to Risk Weighted
Assets)
Consolidated                          $ 662,267    14.90 %  $   355,578     8.00 %  $     466,696        N/A                N/A         N/A
Bank                                  $ 658,231    14.84 %  $   355,578     8.00 %  $     465,646      10.50 %  $       443,472       10.00 %
Tier I Capital (to Risk Weighted
Assets)
Consolidated                          $ 606,555    13.65 %  $   266,683     6.00 %  $     377,801        N/A                N/A         N/A
Bank                                  $ 602,642    13.59 %  $   266,083

6.00 % $ 376,951 8.50 % $ 354,778 8.00 % Common Equity Tier 1 (CET1) Consolidated

$ 606,555    13.65 %  $   200,012     4.50 %  $     311,130        N/A                N/A         N/A
Bank                                  $ 602,642    13.59 %  $   199,562     4.50 %  $     310,430       7.00 %  $       288,257        6.50 %
Tier I Capital (to Average Assets)
Consolidated                          $ 606,555    11.07 %  $   219,246     4.00 %  $     219,246        N/A                N/A         N/A
Bank                                  $ 602,642    11.02 %  $   218,751     4.00 %  $     218,751       4.00 %  $       273,439        5.00 %

As of December 31, 2019:
Total Capital (to Risk Weighted
Assets)
Consolidated                          $ 631,723    14.36 %  $   351,894     8.00 %  $     461,862        N/A                N/A         N/A
Bank                                  $ 616,386    14.04 %  $   351,227     8.00 %  $     460,985     10.500 %  $       439,034       10.00 %
Tier I Capital (to Risk Weighted
Assets)
Consolidated                          $ 580,982    13.21 %  $   263,921     6.00 %  $     373,887        N/A                N/A         N/A
Bank                                  $ 565,645    12.88 %  $   263,420

6.00 % $ 373,179 8.500 % $ 351,227 8.00 % Common Equity Tier 1 (CET1) Consolidated

$ 580,982    13.21 %  $   197,941     4.50 %  $     307,908        N/A                N/A         N/A
Bank                                  $ 565,645    12.88 %  $   197,565     4.50 %  $     307,324      7.000 %  $       285,372        6.50 %
Tier I Capital (to Average Assets)
Consolidated                          $ 580,982    11.67 %  $   199,099     4.00 %  $     199,099        N/A                N/A         N/A
Bank                                  $ 565,645    11.43 %  $   197,923     4.00 %  $     197,923       4.00 %  $       247,404        5.00 %










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FORWARD-LOOKING STATEMENTS

This document (including information incorporated by reference) contains, and
future oral and written statements of the Company and its management may
contain, forward-looking statements, within the meaning of such term in the
federal securities law. Forward-looking statements are not historical facts and
are generally identifiable by the use of words such as "believe," "expect,"
"anticipate," "project," "possible," "continue," "plan," "intend," "estimate,"
"may," "will," "would," "could," "should" or other similar expressions.
Additionally, all statements in this document, including forward-looking
statements, speak only as of the date they are made, and the Company undertakes
no obligation to update any statement in light of new information or future
events.

The Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain and, accordingly, the reader is cautioned not
to place undue reliance on any forward-looking statement made by the Company.
Actual results could differ materially from those addressed in the
forward-looking statements as a result of numerous factors, including, without
limitation:

the effects of the COVID-19 pandemic, including its effects on our customers,

? local economic conditions, our operations and vendors, and the responses of

federal, state and local governmental authorities;

? the effects of future economic, business and market conditions and changes,

both domestic and foreign, including the effects of federal trade policies;

? governmental monetary and fiscal policies and the impact the upcoming election

will have on these;

the timing and scope of any legislative and regulatory changes, including

? changes in banking, securities and tax laws and regulations and their

application by our regulators;

the risks of changes in interest rates on the levels, composition and costs of

? deposits, loan demand, and the values and liquidity of loan collateral,

securities and other interest sensitive assets and liabilities;

? the anticipated phase out of LIBOR by the end of 2021 and establishment of a

new reference rate

? changes in borrowers' credit risks and payment behaviors;

? changes in the availability and cost of credit and capital in the financial

markets;

? the effects of disruption and volatility in capital markets on the value of our

investment portfolio;

cyber-security risks and or cyber-security damage that could result from

? attacks on the Company's or third-party service providers networks or data of

the Company;

? changes in the prices, values and sales volumes of residential and commercial

real estate;

? the effects of competition from a wide variety of local, regional, national and

other providers of financial, investment and insurance services;

? changes in technology or products that may be more difficult or costly, or less

effective than anticipated;

the effects of war or other conflicts, acts of terrorism or other catastrophic

events, including storms, droughts, tornados and flooding, that may affect

? general economic conditions, including agricultural production and demand and

prices for agricultural goods and land used for agricultural purposes,

generally and in our markets;

? the risk of trade policy and tariffs could impact loan demand from the

manufacturing sector;

the failure of assumptions and estimates used in our reviews of our loan

? portfolio, underlying the establishment of reserves for possible loan losses,

our analysis of our capital position and other estimates;

? changes in the scope and cost of FDIC insurance, the state of Indiana's Public

Deposit Insurance Fund and other coverages;

? changes in accounting policies, rules and practices, including as a result of

   implementation of CECL;


   the risks of mergers, acquisitions and divestitures, including, without

limitation, the related time and costs of implementing such transactions,

? integrating operations as part of these transactions and possible failures to

achieve expected gains, revenue growth and/or expense savings from such

transactions;

? the effects of any employee or customer fraud; and

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the risks noted in the Risk Factors discussed under Item 1A of Part 1 of our

Annual Report on Form 10-K for the year ended December 31, 2019 and our

? Quarterly Reports on Form 10-Q for the months ended March 31, 2020 and June 30,

2020, as well as other risks and uncertainties set forth from time to time in

the Company's other filings with the SEC.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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