Former name, former address and former fiscal year, if changed since last report:N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. ~~(Check One):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~22,172,103~~22,214,898 shares of Common Stock, no par value, at ~~November 9, 2016.~~August 7, 2017.

The accompanying unaudited condensed consolidated financial statements include the accounts of Horizon Bancorp (“Horizon” or the “Company”) and its wholly-owned subsidiaries, including Horizon Bank ~~N.A.~~ (“Horizon Bank” or the “Bank”). Horizon Bank (formerly known as “Horizon Bank, N.A.”) was a national association until its conversion to an Indiana commercial bank effective June 23, 2017. All inter-company balances and transactions have been eliminated. The results of operations for the periods ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015~~2016 are not necessarily indicative of the operating results for the full year of ~~2016~~2017 or ~~2015.~~2016. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of Horizon’s management, necessary to fairly present the financial position, results of operations and cash flows of Horizon for the periods presented. Those adjustments consist only of normal recurring adjustments.

Certain information and note disclosures normally included in Horizon’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Horizon’s Annual Report on Form10-K for ~~2015~~2016 filed with the Securities and Exchange Commission on February ~~29, 2016.~~28, 2017. The condensed consolidated balance sheet of Horizon as of December 31, ~~2015~~2016 has been derived from the audited balance sheet as of that date.

On October 18, 2016, the Board of Directors of the Company approved athree-for-two stock split of the Company’s authorized common stock, no par value. All share and per share amounts in the condensed consolidated financial statements and notes thereto have been retroactively adjusted, where necessary, to reflect thisthree-for-two stock split. The effect of thethree-for-two stock split on the outstanding common shares is that shareholders of record as of the close of business on October 31, 2016, the record date, ~~will receive~~received an additional half share of common stock held, with shareholders receiving cash in lieu of any fractional shares. The additional shares issued in the stock split ~~are expected to be payable and~~were issued on November 14, 2016, and ~~that~~ the common shares ~~will begin~~began trading on a split-adjusted basis on or about November 15, 2016.

Basic earnings per share is computed by dividing net income available to common shareholders (net income less dividend requirements for preferred stock and accretion of preferred stock discount) by the weighted-average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. ~~The following table shows computation of basic and diluted earnings per share.~~

There were no shares for both the three and nine months ended September 30, 2016, respectively, and 3,750 for both the three and nine months ended September 30, 2015 which were not included in the computation of diluted earnings per share because they were non-dilutive.

There were zero shares for the three and six months ended June 30, 2017 and 2016 which were not included in the computation of diluted earnings per share because they werenon-dilutive.

Horizon has share-based employee compensation plans, which are described in the notes to the financial statements included in the December 31, ~~2015~~2016 Annual Report on Form10-K.

Certain reclassifications have been made to the 2016 condensed consolidated financial statements to be comparable to 2017. These reclassifications had no effect on net income.

On July 1, 2015, Horizon completed the acquisition of Peoples Bancorp, an Indiana corporation (“Peoples”) and Horizon Bank N.A.’s acquisition of Peoples Federal Savings Bank of DeKalb County (“Peoples FSB”), through mergers effective July 1, 2015. Under the terms of the acquisition, the exchange ratio was 1.425 shares of Horizon common stock (the “Exchange Ratio”) and $9.75 in cash for each outstanding share of Peoples common stock. Peoples shareholders owning fewer than 100 shares of common stock received $33.14 in cash for each common share. Peoples shares outstanding at the closing were 2,311,858, and the shares of Horizon common stock issued to Peoples shareholders totaled 3,288,303. Horizon’s stock price was $16.88 per share at the close of business on July 1, 2015. Based upon these numbers, the total value of the consideration for the acquisition was $78.1 million. The Company had approximately $4.9 million in costs related to the acquisition as of December 31, 2015. These expenses were classified in the non-interest expense section of the income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company increased its deposit base and reduced transaction costs. The Company also expects to reduce cost through economies of scale.

Under the purchase method of accounting, the total estimated purchase price is allocated to Peoples net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the Peoples acquisition is allocated as follows:

Of the total purchase price of $78.1 million, $4.4 million has been allocated to core deposit intangible. Additionally, $21.0 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over seven years on a straight line basis.

The Company acquired the $228.6 million loan portfolio at a fair value discount of $4.8 million. The performing portion of the portfolio, $223.4 million, had an estimated fair value of $220.0 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20.

The Company acquired certain loans in the acquisition and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

The loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and non-accrual status, borrower credit scores and recent loan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

Loans with specific credit-related deterioration, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.

~~The following table details the acquired loans that are accounted for in accordance with ASC 310-30 as of July 1, 2015.~~

The pro forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.Inc.

On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and Horizon Bank’s acquisition of Farmers State Bank, a state-chartered bank and wholly owned subsidiary of Kosciusko, through mergers effective June 1, 2016. Under the terms of the Merger Agreement, shareholders of Kosciusko had the option to receive $81.75 per share in cash or 4.5183 shares of Horizon common stock for each share of Kosciusko’s common stock, subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $16.57 per share of Horizon common stock, the transaction has an implied valuation of approximately $23.0 million. The Company has had approximately $1.6 million in costs related to the acquisition. These expenses are classified in thenon-interest expense section of the income statement and primarily located in the salaries and employee benefits, professional

services and other expense line items. As a result of the acquisition, the Company ~~will have an opportunity~~was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce ~~cost~~costs through economies of scale.

Of the total estimated purchase price of $23.0 million, $526,000 has been allocated to core deposit intangible. Additionally, $6.4 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ~~seven~~ten years on a straight line basis.

The Company acquired loans in the acquisition and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such aspast-due andnon-accrual status, borrower credit scores and recentloan-to-value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.

The following table details the acquired loans that are accounted for in accordance with ASC310-30 as of June 1, 2016.

Final estimates of certain loans, those for which specific credit-related deterioration, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected.

~~Pro-forma statements were not presented due to the immateriality of the transaction.~~

LaPorte Bancorp, Inc.On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (“LaPorte Bancorp”) and Horizon Bank’s acquisition of The LaPorte Savings Bank, a state-chartered savings bank and wholly owned subsidiary of LaPorte Bancorp, through mergers effective July 18, 2016. Under the terms of the Merger Agreement, shareholders of LaPorte Bancorp had the option to receive $17.50 per share in cash or 0.9435 shares of Horizon common stock for each share of LaPorte Bancorp’s common stock, subject to allocation provisions to assure that in aggregate, LaPorte Bancorp shareholders received total consideration that consisted of 65% stock and 35% cash. As a result of LaPorte Bancorp stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 3,421,488 shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $18.36 per share of Horizon common stock, less the consideration used to pay off LaPorte’s ESOP loan receivable, the transaction has an implied valuation of approximately $98.6 million. The Company has had approximately $4.0 million in costs related to the acquisition. These expenses are classified in thenon-interest expense section of the income statement and primarily located in the salaries and employee benefits, professional services and other expense line items. As a result of the acquisition, the Company was able to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the purchase price for the LaPorte Bancorp acquisition is detailed in the following table. Final estimates of fair value on the date of acquisition have not been received yet. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.

Of the total estimated purchase price of $98.6 million, $2.5 million has been allocated to core deposit intangible. Additionally, ~~$18.3~~$21.0 million has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over ~~seven~~ten years on a straight line basis.

The following table details an estimate of the acquired loans that are accounted for in accordance with ASC310-30 as of July 18, 2016. Final valuation estimates have not yet been determined for acquired loans as of September 30, 2016. If information becomes available which would indicate adjustments to the purchase price allocation, such adjustments would be made prospectively.

~~Estimates~~Final estimates of certain loans, those for which specific credit-related deterioration, since origination, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition of these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Goodwill was increased by $703,000 during the six months ended June 30, 2017 due to measurement period adjustments.

On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (“CNB”) and the Bank’s acquisition of The Central National Bank and Trust Company (“Central National Bank & Trust”), through mergers effective November 7, 2016. Under terms of the acquisition, shareholders of CNB received merger consideration in the form of cash. The total value of the consideration for the acquisition was $5.3 million.

Under the acquisition method of accounting, the total estimated purchase price is allocated to CNB’s net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on management’s preliminary valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the CNB acquisition is allocated as follows:

Of the total purchase price of $5.3 million, $190,000 has been allocated to core deposit intangible. Additionally, $609,000 has been allocated to goodwill and none of the purchase price is deductible. The core deposit intangible will be amortized over 10 years on a straight line basis.

The Company acquired the $10.8 million performing loan portfolio with an estimated fair value of $10.5 million. No loans were purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired.

The results of operations of CNB, LaPorte Bancorp and ~~The LaPorte Savings Bank~~Kosciusko have been included in the Company’s consolidated financial statements since the acquisition dates. The following schedule includes ~~pro forma~~pro-forma results for the ~~periods~~three and six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 as if the CNB, LaPorte Bancorp and ~~The LaPorte Savings Bank~~Kosciusko acquisitions had occurred as of the beginning of the comparable prior reporting periods.

The ~~pro forma~~pro-forma information includes adjustments for interest income on loans, amortization of intangibles arising from the transaction, interest expense on deposits acquired, premises expense for the banking centers acquired and the related income tax effects.

The ~~pro forma~~pro-forma financial information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

On February 3, 2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Company, in Bargersville, Indiana. Net cash of $10.9 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans acquired in the transaction of $3.4 million and a 3.0% premium on deposits. Customer deposit balances were recorded at $14.8 million and a core deposit intangible of $463,000 was recorded in the transaction, which will be amortized over ten years on a straight line basis. There was no goodwill generated in the transaction.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information, and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary. While these securities are held in the available for sale portfolio andheld-to-maturity, Horizon intends, and has the ability, to hold them until the earlier of a recovery in fair value or maturity.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. At ~~September~~June 30, ~~2016,~~2017, no individual investment security had an unrealized loss that was determined to be other-than-temporary.

The unrealized losses on the Company’s investments in securities of state and municipal governmental agencies, U.S. Treasury and federal agencies, federal agency collateralized mortgage obligations, and federal agency mortgage-backed pools were caused by interest rate volatility and not a decline in credit quality. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company expects to recover the amortized cost basis over the term of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity, the Company did not consider those investments to be other-than-temporarily impaired at ~~September~~June 30, ~~2016.~~2017.

The amortized cost and fair value of securities available for sale and held to maturity at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following table shows the gross unrealized losses and the fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

Information regarding security proceeds, gross gains and gross losses are presented below.

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves larger loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely

affected by conditions in the real estate markets, the general economy or fluctuations in interest rates. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type, and are monitored for concentrations of credit. Management monitors and evaluates commercial real estate loans based on collateral, cash flow and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versusnon-owner occupied loans.

With respect to residential loans that are secured by1-4 family residences and are generally owner occupied, the Company generally establishes a maximumloan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Horizon’s mortgage warehouse lending has specific mortgage companies as customers of Horizon Bank. Individual mortgage loans originated by these mortgage companies are funded as a secured borrowing with a pledge of collateral under Horizon’s agreement with the mortgage company. Each ~~individual~~ mortgage ~~and the related mortgagee are underwritten~~loan funded by Horizon undergoes an underwriting review by Horizon to the end investor guidelines and is assigned to Horizon until the loan is sold to the secondary market by the mortgage company. In addition, Horizon takes possession of each original note and forwards such note to the end investor once the mortgage company has sold the loan. At the time a loan is transferred to the secondary market, the mortgage company reacquires the loan under its option within the agreement. Due to the reacquire feature contained in the agreement, the transaction does not qualify as a sale and therefore is accounted for as a secured borrowing with a pledge of collateral pursuant to the agreement with the mortgage company. When the individual loan is sold to the end investor by the mortgage company, the proceeds from the sale of the loan are received by Horizon and used to pay off the loan balance with Horizon along with any accrued interest and any related fees. The remaining balance from the sale is forwarded to the mortgage company. These individual loans typically are sold by the mortgage company within 30 days and are seldom held more than 90 days. Interest income is accrued during this period and collected at the time each loan is sold. Fee income for each loan sold is collected when the loan is sold, and no costs are deferred due to the term between each loan funding and related payoff, which is typically less than 30 days.

Based on the agreements with each mortgage company, at any time a mortgage company can reacquire from Horizon its outstanding loan balance on an individual mortgage and regain possession of the original note. Horizon also has the option to request that the mortgage company reacquire an individual mortgage. Should this occur, Horizon would return the original note and reassign the assignment of the mortgage to the mortgage company. Also, in the event that the end investor would not be able to honor the purchase commitment and the mortgage company would not be able to reacquire its loan on an individual mortgage, Horizon would be able to exercise its rights under the agreement.

The following table shows the recorded investment of individual loan categories.

The Company acquired loans in acquisitions and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

The carrying amounts of those loans included in the balance sheet amounts of loans receivable are as follows:

Accretable yield, or income expected to be collected for the ~~nine~~six months ended ~~September~~June 30, is as follows:

During the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the Company ~~decreased~~increased the allowance for loan losses on purchased loans by a ~~recovery~~charge to the income statement of $0$71,000 and ~~$87,000,~~$0, respectively.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior one to five years. Management believes the five-year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The actual allowance for loan loss activity is provided below.

Certain loans are individually evaluated for impairment, and the Company’s general practice is to proactively charge down impaired loans to the fair value, which is the appraised value less estimated selling costs, of the underlying collateral.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except1-4 family residential properties and consumer, the Company promptlycharges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partialcharge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company ~~charges-off 1-4~~charges-off1-4 family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down or specific allocation of1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the value is known but no later than when a loan is 180 days past due. Pursuant to such guidelines, the Company alsocharges-off unsecuredopen-end loans when the loan is contractually 90 days past due, and charges down to the net realizable value other secured loans when they are contractually 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection in full will occur regardless of delinquency status, are not charged off.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment analysis:

The following table presents thenon-accrual, loans past due over 90 days still on accrual, and troubled debt restructured (“TDRs”) by class of loans:

Included in the ~~$10.1~~$8.8 million ofnon-accrual loans and the ~~$1.5 million~~$668,000 ofnon-performing TDRs at ~~September~~June 30, ~~2016~~2017 were ~~$1.2~~$3.9 million and ~~$238,000,~~$17,000, respectively, of loans acquired for which accretable yield was recognized.

From time to time, the Bank obtains information that may lead management to believe that the collection of payments may be doubtful on a particular loan. In recognition of this, it is management’s policy to convert the loan from an “earning asset” to anon-accruing loan. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date. Further, it is management’s policy to generally place a loan on anon-accrual status when the payment is delinquent in excess of 90 days or the loan has had the accrual of interest discontinued by management. The officer responsible for the loan and the Chief ~~Operations~~Credit Officer and/or the ~~senior collection officer~~Chief Operations Officer must review all loans placed onnon-accrual status. Subsequent payments onnon-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.Non-accrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal in accordance with the loan terms. The Company requires a period of satisfactory performance of not less than six months before returning anon-accrual loan to accrual status.

A loan becomes impaired when, based on current information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is classified as impaired, the degree of impairment must be recognized by estimating future cash flows from the debtor. The present value of these cash flows is computed at a discount rate based on the interest rate contained in the loan agreement. However, if a particular loan has a determinable market value for its collateral, the creditor may use that value. Also, if the loan is secured and considered collateral dependent, the creditor may use the fair value of the collateral. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Smaller-balance, homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by 1–4 family residences, residential construction loans, automobile, home equity, second mortgage loans and mortgage warehouse loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicate that underlying cash flows of a borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 30 days or more. Loans are generally moved tonon-accrual status when they are 90 days or more past due. These loans are often considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms, including TDRs, are measured for impairment. Allowable methods for determining the amount of impairment include ~~estimating fair value using~~ the ~~fair value of the collateral for collateral-dependent loans.~~three methods described above.

The Company’s TDRs are considered impaired loans and included in the allowance methodology using the guidance for impaired loans. At ~~September~~June 30, ~~2016,~~2017, the type of concessions the Company has made on restructured loans has been temporary rate reductions and/or reductions in monthly payments and there have been no restructured loans with modified recorded balances. Any modification to a loan that is a concession and is not in the normal course of lending is considered a restructured loan. A restructured loan is returned to accruing status after six consecutive payments but is still reported as TDR unless the loan bears interest at a market rate. As of ~~September~~June 30, ~~2016,~~2017, the Company had ~~$2.7~~$2.6 million in TDRs and ~~$1.5~~$1.9 million were performing according to the restructured terms and ~~zero~~$301,000 in TDRs were returned to accrual status during the first ~~nine~~six months of ~~2016.~~2017. There ~~was $84,000 of~~were zero specific reserves allocated to TDRs at ~~September~~June 30, ~~2016~~2017 based on the discounted cash flows or when appropriate the fair value of the collateral.

The following table presents commercial loans individually evaluated for impairment by class of loan:

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

Horizon Bank’s processes for determining credit quality differ slightly depending on whether a new loan or a renewed loan is being underwritten, or whether an existing loan is beingre-evaluated for credit quality. The latter usually occurs upon receipt of current financial information or other pertinent data that would trigger a change in the loan grade.

For new and renewed commercial loans, the Bank’s Credit Department, which acts independently of the loan officer, assigns the credit quality grade to the loan. Loan grades for loans with an aggregate credit exposure that exceeds the authorities in the respective markets (ranging from $1,000,000 to ~~$2,500,000)~~$3,500,000) are validated by the Loan Committee, which is chaired by the Chief Credit Officer (CCO).

Commercial loan officers are responsible for reviewing their loan portfolios and report any adverse material change to the CCO or Loan Committee. When circumstances warrant a change in the credit quality grade, loan officers are required to notify the CCO and the Credit Department of the change in the loan grade. Downgrades are accepted immediately by the CCO, however, lenders must present their factual information to either the Loan Committee or the CCO when recommending an upgrade.

The CCO, or his designee, meets weekly with loan officers to discuss the status ofpast-due loans and classified loans. These meetings are also designed to give the loan officers an opportunity to identify an existing loan that should be downgraded to a classified grade.

Monthly, senior management meets with the Watch Committee, which reviews all of the past due, classified, and impaired loans and the relative trends of these assets. This committee also reviews the actions taken by management regarding foreclosure mitigation, loan extensions, troubled debt restructures, other real estate owned and personal property repossessions. The information reviewed in this meeting acts as a precursor for developing management’s analysis of the adequacy of the Allowance for Loan and Lease Losses.

For residential real estate and consumer loans, Horizon uses a grading system based on delinquency. Loans that are 90 days or more past due, onnon-accrual, or are classified as a TDR are graded “Substandard.” After being 90 to 120 days delinquent a loan is charged off unless it is well secured and in the process of collection. If the latter case exists, the loan is placed onnon-accrual. Occasionally a mortgage loan may be graded as “Special Mention.” When this situation arises, it is because the characteristics of the loan and the borrower fit the definition of a Risk Grade 5 described below, which is normally used for grading commercial loans. Loans not graded Substandard are considered Pass.

Horizon Bank employs a nine-grade rating system to determine the credit quality of commercial loans. The first five grades represent acceptable quality, and the last four grades mirror the criticized and classified grades used by the bank regulatory agencies (special mention, substandard, doubtful, and loss). The loan grade definitions are detailed below.

Loans secured by liquid collateral, such as certificates of deposit, reputable bank letters of credit, or other cash equivalents; loans that are guaranteed or otherwise backed by the full faith and credit of the United States government or an agency thereof, such as the Small Business Administration; or loans to any publicly held company with a current long-term debt rating of A or better.

Loans to businesses that have strong financial statements containing an unqualified opinion from a CPA firm and at least three consecutive years of profits; loans supported by unaudited financial statements containing strong balance sheets, five consecutive years of profits, a five-year satisfactory relationship with the Bank, and key balance sheet and income statement trends that are either stable or positive; loans secured by publicly traded marketable securities where there is no impediment to liquidation; loans to individuals backed by liquid personal assets and unblemished credit history; or loans to publicly held companies with current long-term debt ratings of Baa or better.

Loans supported by financial statements (audited or unaudited) that indicate average or slightly below average risk and having some deficiency or vulnerability to changing economic conditions; loans with some weakness but offsetting features of other support are readily available; loans that are meeting the terms of repayment, but which may be susceptible to deterioration if adverse factors are encountered.

Loans may be graded Satisfactory when there is no recent information on which to base a current risk evaluation and the following conditions apply:

At inception, the loan was secured with collateral possessing a loan value adequate to protect the Bank from loss.

The loan has exhibited two or more years of satisfactory repayment with a reasonable reduction of the principal balance.

During the period that the loan has been outstanding, there has been no evidence of any credit weakness. Some examples of weakness include slow payment, lack of cooperation by the borrower, breach of loan covenants, or the borrower is in an industry known to be experiencing problems. If any of these credit weaknesses is observed, a lower risk grade may be warranted.

Loans in this category are considered to be of acceptable credit quality, but contain greater credit risk than Satisfactory loans. Borrower displays acceptable liquidity, leverage, and earnings performance within the Bank’s minimum underwriting guidelines. The level of risk is acceptable but conditioned on the proper level of loan officer supervision. Loans that normally fall into this grade include acquisition, construction and development loans and income producing properties that have not reached stabilization.

Loans in this category are considered to be of acceptable quality, but with above normal risk. Borrower displays potential indicators of weakness in the primary source of repayment resulting in a higher reliance on secondary sources of repayment. Balance sheet may exhibit weak liquidity and/or high leverage. There is inconsistent earnings performance without the ability to sustain adverse economic conditions. Borrower may be operating in a declining industry or the property type, as for a commercial real estate loan, may be high risk or in decline. These loans require an increased level of loan officer supervision and monitoring to assure that any deterioration is addressed in a timely fashion.

Loans which possess some credit deficiency or potential weakness which deserves close attention. Such loans pose an unwarranted financial risk that, if not corrected, could weaken the loan by adversely impacting the future repayment ability of the borrower. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk and (2) weaknesses are considered “potential,” not “defined,” impairments to the primary source of repayment. These loans may be to borrowers with adverse trends in financial performance, collateral value and/or marketability, or balance sheet strength.

One or more of the following characteristics may be exhibited in loans classified Substandard:

Loans which possess a defined credit weakness. The likelihood that a loan will be paid from the primary source of repayment is uncertain. Financial deterioration is under way and very close attention is warranted to ensure that the loan is collected without loss.

Loans are inadequately protected by the current net worth and paying capacity of the obligor.

The primary source of repayment is gone, and the Bank is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees.

Loans have a distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.

Unusual courses of action are needed to maintain a high probability of repayment.

The borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments.

The lender is forced into a subordinated or unsecured position due to flaws in documentation.

Loans have been restructured so that payment schedules, terms, and collateral represent concessions to the borrower when compared to the normal loan terms.

The lender is seriously contemplating foreclosure or legal action due to the apparent deterioration in the loan.

There is a significant deterioration in market conditions to which the borrower is highly vulnerable.

One or more of the following characteristics may be present in loans classified Doubtful:

Loans have all of the weaknesses of those classified as Substandard. However, based on existing conditions, these weaknesses make full collection of principal highly improbable.

The primary source of repayment is gone, and there is considerable doubt as to the quality of the secondary source of repayment.

The possibility of loss is high but because of certain important pending factors which may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

Loans are considered uncollectible and of such little value that continuing to carry them as assets is not feasible. Loans will be classified Loss when it is neither practical nor desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The Company transfers various securities to customers in exchange for cash at the end of each business day and agrees to acquire the securities at the end of the next business day for the cash exchanged plus interest. The process is repeated at the end of each business day until the agreement is terminated. The securities underlying the agreement remained under the Bank’s control.

The following table shows repurchase agreements accounted for as secured borrowings (in thousands):

As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into interest rate swap agreements for a portion of its floating rate debt. The agreements provide for the Company to receive interest from the counterparty at three month LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 6.14% on a notional amount of $30.5 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

The Company assumed additional interest rate swap agreements as the result of the LaPorte acquisition in July 2016. The agreements provide for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 2.31% on a notional amount of $30.0 million at June 30, 2017 and December 31, 2016. Under the agreements, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Management has designated the interest rate swap agreement as a cash flow hedging instrument. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. At ~~September~~June 30, ~~2016,~~2017, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current earnings. At ~~September~~June 30, ~~2016,~~2017, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

The change in fair value of both the hedge instruments and the underlying loan agreements are recorded as gains or losses in interest income. The fair value hedges are considered to be highly effective and any hedge ineffectiveness was deemed not material. The notional amounts of the loan agreements being hedged were ~~$118.1~~$149.7 million at ~~September~~June 30, ~~2016~~2017 and ~~$117.3~~$122.4 million at December 31, ~~2015.~~2016.

The Company enters intonon-hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At ~~September~~June 30, ~~2016,~~2017, the Company’s fair value of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans.

The following tables summarize the fair value of derivative financial instruments utilized by Horizon:

The effect of the derivative instruments on the condensed consolidated statements of income for the ~~three~~three- month and ~~nine month~~six-month periods ending ~~September~~June 30 is as follows:

FASB Accounting Standards Codification (“ASC”) Topic820-10-20 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic820-10-55 establishes a fair value hierarchy that emphasizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The Fair Value Measurements topic of the FASB ASC defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. There are three levels of inputs that may be used to measure fair value:

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated financial statements, as well as the general classification of such instruments pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended ~~September~~June 30, ~~2016.~~2017. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

When quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Treasury and federal agency securities, state and municipal securities, federal agency collateralized mortgage obligations and mortgage-backed pools and corporate notes. Level 2 securities are valued by a third party pricing service commonly used in the banking industry utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury yield curve, trade execution data, market consensus prepayment spreads and available credit information and the bond’s terms and conditions. The pricing provider utilizes evaluated pricing models that vary based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed-income securities do not trade on a daily basis, apply available information through processes such as benchmark curves, benchmarking of like securities, sector grouping, and matrix pricing. In addition, model processes, such as an option adjusted spread model, is used to develop prepayment and interest rate scenarios for securities with prepayment features.

Certain fixed rate loans have been converted to variable rate loans by entering into interest rate swap agreements. The fair value of those fixed rate loans is based on discounting the estimated cash flows using interest rates determined by the respective interest rate swap agreement. Loans are classified within Level 2 of the valuation hierarchy based on the unobservable inputs used.

The fair value of the Company’s interest rate swap agreements is estimated by a third party using inputs that are primarily unobservable including a yield curve, adjusted for liquidity and credit risk, contracted terms and discounted cash flow analysis, and therefore, are classified within Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated financial statements measured at fair value on a recurring basis and the level within the FASB ASC fair value hierarchy in which the fair value measurements fall at the following:

Realized gains and losses included in net income for the periods are reported in the condensed consolidated statements of income as follows:

Certain other assets are measured at fair value on a ~~nonrecurring~~non-recurring basis in the ordinary course of business and are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment):

Impaired (collateral dependent): Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Mortgage Servicing Rights (MSRs):MSRs do not trade in an active market with readily observable prices. Accordingly, the fair value of these assets is classified as Level 3. The Company determines the fair value of MSRs using an income approach model based upon the Company’smonth-end interest rate curve and prepayment assumptions. The model utilizes assumptions to estimate future net servicing income cash flows, including estimates of time decay, payoffs and changes in valuation inputs and assumptions. The Company reviews the valuation assumptions against this market data for reasonableness and adjusts the assumptions if deemed appropriate. The carrying amount of the MSRs’ fair value due to impairment decreased by ~~$193,000~~$23,000 during the first ~~nine~~six months of ~~2016~~2017 and decreased by ~~$51,000~~$46,000 during the first ~~nine~~six months of ~~2015.~~2016.

The following table presents qualitative information about unobservable inputs used in recurring and ~~nonrecurring~~non-recurring Level 3 fair value measurements, other than goodwill.

The estimated fair value amounts of the Company’s financial instruments were determined using available market information, current pricing information applicable to Horizon and various valuation methodologies. Where market quotations were not available, considerable management judgment was involved in the determination of estimated fair values. Therefore, the estimated fair value of financial instruments shown below may not be representative of the amounts at which they could be exchanged in a current or future transaction. Due to the inherent uncertainties of expected cash flows of financial instruments, the use of alternate valuation assumptions and methods could have a significant effect on the estimated fair value amounts.

The estimated fair values of financial instruments, as shown below, are not intended to reflect the estimated liquidation or market value of Horizon taken as a whole. The disclosed fair value estimates are limited to Horizon’s significant financial instruments at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. These include financial instruments recognized as assets and liabilities on the condensed consolidated balance sheet as well as certainoff-balance sheet financial instruments. The estimated fair values shown below do not include any valuation of assets and liabilities, which are not financial instruments as defined by the FASB ASC fair value hierarchy.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Held-to-Maturity Securities— For debt securities held to maturity, fair values are based on quoted market prices or dealer quotes. For those securities where a quoted market price is not available, carrying amount is a reasonable estimate of fair value based upon comparison with similar securities.

Net Loans— The fair value of portfolio loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amounts of loans held for sale approximate fair value.

FHLB and FRB Stock— Fair value of FHLB and FRB stock is based on the price at which it may be resold to the FHLB and FRB.

Deposits— The fair value of demand deposits, savings accounts, interest-bearing checking accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturity.

Borrowings— Rates currently available to Horizon for debt with similar terms and remaining maturities are used to estimate fair values of existing borrowings.

Subordinated Debentures— Rates currently available for debentures with similar terms and remaining maturities are used to estimate fair values of existing debentures.

Commitments to Extend Credit and Standby Letters of Credit— The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. Due to the short-term nature of these agreements, carrying amounts approximate fair value.

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall (unaudited).

Horizon and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certainoff-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined), or leverage ratio. For ~~September~~June 30, ~~2016,~~2017, Basel III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital (as defined in the regulation) to risk-weighted assets (as defined). Additionally, under Basel III rules, the decision was made toopt-out of including accumulated other comprehensive income in regulatory capital.

To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based, common equity Tier I risk-based ~~(September~~(June 30, ~~2016)~~2017) and Tier I leverage ratios as set forth in the table below. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Bank met all capital adequacy requirements to be considered well capitalized. There have been no conditions or events since the end of the ~~third~~second quarter of ~~2016~~2017 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well-capitalized status for bank holding companies.

Horizon and the Bank’s actual and required capital ratios as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 were as follows:

On February 1, 2016, Horizon completed the redemption (the “Redemption”) of all 12,500 outstanding shares of SeniorNon-Cumulative Perpetual Preferred Stock, Series B (the “SBLF Preferred Stock”) which were held by the U.S. Department of Treasury and issued pursuant to its Small Business Lending Fund (“SBLF”). The SBLF Preferred Stock was redeemed at its liquidation value of $1,000 per share, plus accrued dividends, for a total Redemption price of $12,510,416.67. Horizon funded the Redemption using cash on hand without borrowing and without a special dividend from the Bank. Following the Redemption, Horizon does not have any shares of its SeniorNon-Cumulative Perpetual Preferred Stock, Series B outstanding. The Redemption terminates Horizon’s participation in the SBLF.

On July 12, 2016, Horizon announced the acquisition of CNB Bancorp, parent company of The Central National Bank and Trust Company (“Central National Bank & Trust”). Under the terms of the Merger Agreement, stockholders of CNB Bancorp will receive cash consideration consisting of a special dividend calculated as capital in excess of 8% of CNB Bancorp’s total assets, less certain after tax transaction costs, and an amount to be paid by Horizon equal to 120% of remaining capital. These amounts will be determined as of the end of the month prior to the closing of the merger. These amounts are dependent on CNB Bancorp’s earnings and other factors, but if the cash consideration for the stockholders were calculated based on the

~~March 31, 2016 financial information available at the time~~Note 15 – Business Combinations

On May 23, 2017, Horizon entered into an Agreement and Plan of ~~signing~~Merger (the “Merger Agreement”) providing for Horizon’s acquisition of Lafayette Community Bancorp (“Lafayette”). Pursuant to the Merger Agreement, Lafayette would merge with and into Horizon, with Horizon surviving the ~~stockholders~~merger (the “Merger”), and Lafayette Community Bank, a wholly-owned subsidiary of Lafayette, would merge with and into a wholly-owned subsidiary of Horizon, Horizon Bank, with Horizon Bank as the surviving bank.

The boards of directors of each of Horizon and Lafayette have approved the Merger and the Merger Agreement. Subject to the approval of the Merger by Lafayette shareholders, regulatory approvals and other closing conditions, the parties anticipate completing the Merger during the third quarter of 2017.

In connection with the Merger, shareholders of Lafayette will receive fixed consideration of 0.5878 shares of Horizon common stock and $1.73 in cash for each share of Lafayette common stock. Shareholders owning less than 100 shares of Lafayette common stock will receive $17.25 in cash for each share. On December 29, 2016, Horizon purchased 90,574 shares, or 4.65%, of Lafayette’s outstanding common stock from a Lafayette shareholder. Based on the ~~aggregate,~~closing price of Horizon’s common stock on May 22, 2017 of $25.38 per share, the transaction value for the shares of common stock, owned by shareholders other than Horizon, is approximately $32.0 million.

Subject to certain terms and conditions, the board of directors of Lafayette has agreed to recommend the approval and adoption of the Merger Agreement to the Lafayette shareholders and will solicit proxies voting in favor of the Merger from Lafayette’s shareholders.

The Merger Agreement also provides for certain termination rights for both Horizon and Lafayette, and further provides that upon termination of the Merger Agreement under certain circumstances, Lafayette will be obligated to pay Horizon a ~~$6.7 million special dividend and a $5.3 million payment from Horizon.~~ termination fee.

As of ~~September 30, 2016, CNB Bancorp~~March 31, 2017, Lafayette had total assets of approximately ~~$56.4~~$172.1 million and total deposits of approximately $149.2 million and total loans of approximately $135.2 million. ~~Horizon anticipates closing the acquisition in early November 2016.~~

On ~~October 4, 2016,~~June 13, 2017, Horizon ~~announced~~entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for Horizon’s acquisition of Wolverine Bancorp, Inc. (“Wolverine”). Pursuant to the ~~signing~~Merger Agreement, Wolverine would merge with and into Horizon, with Horizon surviving the merger (the “Merger”), and Wolverine Bank, a wholly-owned subsidiary of Wolverine, would merge with and into a ~~definitive agreement~~wholly-owned subsidiary of Horizon, Horizon Bank, with Horizon Bank as the surviving bank.

The boards of directors of each of Horizon and Wolverine have approved the Merger and the Merger Agreement. Subject to ~~purchase certain loans and substantially all~~the approval of the Merger by Wolverine shareholders, regulatory approvals and other closing conditions, the parties anticipate completing the Merger during the fourth quarter of 2017.

In connection with the Merger, shareholders of Wolverine will receive fixed consideration of 1.0152 shares of Horizon common stock and $14.00 in cash for each share of Wolverine common stock. Based on the closing price of Horizon’s common stock on June 13, 2017 of $27.50 per share, the transaction value has an implied valuation of approximately $91.8 million.

Subject to certain terms and conditions, the board of directors of Wolverine has agreed to recommend the approval and adoption of the Merger Agreement to the Wolverine shareholders and will solicit proxies voting in favor of the Merger from Wolverine’s shareholders.

The Merger Agreement also provides for certain termination rights for both Horizon and Wolverine, and further provides that upon termination of the Merger Agreement under certain circumstances, Wolverine will be obligated to pay Horizon a termination fee.

As of March 31, 2017, Wolverine reported total assets of approximately $379.3 million, total deposits of ~~a single branch located at 42 S. State Road 135, Bargersville, Indiana~~approximately $271.1 million and ~~owned by First Farmers Bank & Trust Co., an Indiana state chartered bank (“First Farmers”) and wholly owned subsidiary~~total loans of ~~First Farmers Financial Corporation, headquartered in Converse, Indiana. Under the terms of the agreement, Horizon anticipates purchasing~~ approximately $5.0 million dollars in loans and assuming approximately $15 million in deposits. The loans to be purchased are subject to review and acceptance by Horizon prior to closing. Horizon will not be purchasing fixed assets or assuming the underlying lease for the First Farmers branch.$315.9 million.

~~In February 2016, the~~Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)No. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities

The Financial Accounting Standards Board (FASB) issuedAccounting Standards Update (ASU) ~~2016-02, Leases (Topic 842). Topic 842 establishes~~No. 2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a ~~right of use model that requires a lessee~~premium. Specifically, the amendments require the premium to ~~record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will~~ be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale it transfers all of the risks and rewards, as well as control of the underlying asset,amortized to the ~~lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.~~

earliest call date. The amendments ~~are~~do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective ~~for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years~~ for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company continues to assess the impact of Topic 842 on its accounting and disclosures.

~~In March 2016, the FASB issued~~~~ASU 2016-07, Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting~~. The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.

The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

~~The amendments are effective for all~~ entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2016.~~2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied ~~prospectively upon their effective date~~on a modified retrospective basis, with a cumulative-effect adjustment directly to ~~increases in the level of ownership interest or degree of influence that result in the adoption~~retained earnings as of the ~~equity method. Earlier application~~beginning of the period of adoption. The amendments in this update were adopted on January 1, 2017 and did not have a material impact on the consolidated financial statements.

FASB Accounting Standards UpdatesNo. 2017-04,Intangibles – Goodwill and Other(Topic 350):Simplifying the Test for Goodwill Impairment

The FASB has issued Accounting Standards Update (ASU)No. 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance is ~~permitted.~~

intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In ~~March 2016,~~addition, the ~~FASB issued~~~~ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~~~. ASU 2016-09 requires all~~ income tax effects of ~~awards~~tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be ~~recognized~~applied on a prospective basis. The nature of and reason for the change in ~~the income statement when the awards vest~~accounting principle should be disclosed upon transition. The amendments in this update should be adopted for annual or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur.

~~The guidance is effective for public business entities for~~any interim goodwill impairment tests in fiscal years beginning after December 15, ~~2016,~~2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB Accounting Standards UpdatesNo. 2017-01,Business Combinations(Topic 805):Clarifying the Definition of a Business

The FASB has issued Accounting Standards Update (ASU)No. 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments in this update become effective for annual periods and interim periods within those ~~years. Early adoption is permitted.~~annual periods beginning after December 15, 2017. The ~~Company continues to assess ASU 2016-09 but does~~amendments in this update became effective on January 1, 2017 and did not ~~expect~~have a ~~significant~~material impact on ~~its accounting and disclosures.~~the consolidated financial statements.

~~In June 2016, the~~ FASB ~~issued~~Accounting Standards UpdatesNo. 2016-13,~~ASU 2016-13,~~ Financial ~~Instruments-Credit~~Instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments

The FASB has issued Accounting Standards Update (ASU)No. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Statements. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.~~Instruments. The ~~ASU~~main objective of this amendment is ~~intended~~ to ~~improve~~provide financial ~~reporting by requiring timelier recording of~~statement users with more decision-useful information about the expected credit losses on ~~loans~~financial instruments and other ~~financial instruments~~commitments to extend credit held by ~~financial institutions and other organizations.~~a reporting entity at each reporting date. The ~~ASU~~amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to ~~better inform~~enhance their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ~~ASU~~amendment requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses onavailable-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. Early adoption will be permitted beginning after December 15, 2018. We have formed a cross functional committee that is assessing our data and system needs and are evaluating the impact of adopting the new guidance. We expect to recognize aone-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any suchone-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

FASB Accounting Standards UpdatesNo. 2016-09,Compensation – Stock Compensation(Topic 718):Improvements to Employee Share-Based Payment Acounting

The FASB has issued Accounting Standards Update (ASU)No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.The amendments are intended to improve the accounting for employee share-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. The amendments in this update became effective on January 1, 2017 and resulted in a tax benefit of $19,000 for the three and six months ended June 30, 2017.

significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.FASB Accounting Standards UpdatesNo. 2016-02,Leases(Topic 842)

The ~~ASU~~FASB has issued Accounting Standards Update (ASU)No. 2016-02,Leases.Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) aright-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments in this update become effective for ~~SEC filers for fiscal years,~~annual periods and interim periods within those ~~fiscal years,~~annual periods beginning after December 15, ~~2019~~2018. Based on leases outstanding as of December 31, 2016, we do not expect the new standard to have a material impact on our balance sheet or income statement.

FASB Accounting Standards UpdatesNo. 2016-01,Financial Instruments – Overall (Subtopic825-10):Recognition and Measurement of Financial Assets and Financial Liabilities

The FASB has issued Accounting Standards Update (ASU)No. 2016-01,Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies,not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities.

Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;

Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;

Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., ~~January 1, 2020,~~securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;

Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for ~~calendar year entities. Early application will~~organizations that are not public business entities;

Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be ~~permitted~~disclosed for ~~all organizations~~financial instruments measured at amortized cost on the balance sheet; and

Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for ~~fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.~~

~~In August 2016, the FASB issued~~~~ASU 2016-15, Statement of Cash Flows (Topic 230)-Classification of Certain Cash Receipts and Cash Payments~~. ASU 2016-15 provides cash flow statement classification guidance for certain transactions including how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows.

financial instruments.

The new guidance is effective for public ~~business entities~~companies for fiscal years beginning after December 15, 2017, ~~and~~including interim periods within those fiscal ~~years~~years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and ~~should be applied retrospectively. Early adoption~~not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. Adoption of the ASU is ~~permitted, including adoption in an interim period. The Company is assessing ASU 2016-15 but does~~ not ~~expect~~expected to have a significant ~~impact~~effect on ~~its accounting and disclosures.~~the Company’s consolidated financial statements.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operation and cash flows of the Company.

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to Horizon Bancorp (“Horizon” or the “Company”) and Horizon Bank, N.A. (the “Bank”). Horizon intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for the purposes of these safe harbor provisions. Statements in this report should be considered in conjunction with the other information available about Horizon, including the information in the other filings we make with the Securities and Exchange Commission. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “expect,” “estimate,” “project,” “intend,” “plan,” “believe,” “could,” “will” and similar expressions in connection with any discussion of future operating or financial performance. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements.

Actual results may differ materially, adversely or positively, from the expectations of the Company that are expressed or implied by any forward-looking statement. Risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement include but are not limited to:

economic conditions and their impact on Horizon and its customers;

changes in the level and volatility of interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity;

rising interest rates and their impact on mortgage loan volumes and the outflow of deposits;

loss of key Horizon personnel;

increases in disintermediation, as new technologies allow consumers to complete financial transactions without the assistance of banks;

loss of fee income, as new technologies take a greater market share of the payment systems;

estimates of fair value of certain of Horizon’s assets and liabilities;

volatility and disruption in financial markets;

prepayment speeds, loan originations, credit losses and market values, collateral securing loans and other assets;

sources of liquidity;

potential risk of environmental liability related to lending activities;

changes in the competitive environment in Horizon’s market areas and among other financial service providers;

legislation and/or regulation affecting the financial services industry as a whole, and Horizon and its subsidiaries in particular, including the effects resulting from the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the adoption of regulations by regulatory bodies under the Dodd-Frank Act;

the possible impact of whole or partial dismantling of provisions of the Dodd-Frank Act under the administration of President Donald J. Trump;

the potential for changes in tax laws, particularly corporate income tax reform, that may affect current returns, Horizon’s deferred tax assets and liabilities, the ability to utilize federal and state net operating loss carryforwards, and the market’s perception on overall value;

the impact of the ~~new~~ Basel III capital rules;

changes in regulatory supervision and oversight, including monetary policy and capital requirements;

changes in accounting policies or procedures as may be adopted and required by regulatory agencies;

rapid technological developments and changes;

the risks presented by cyber terrorism and data security breaches;

containing costs and expenses;

the slowing or failure of economic recovery;

the ability of the U.S. federal government to manage federal debt limits; and

the risks of expansion through mergers and acquisitions, including unexpected credit quality problems with acquired loans, difficulty integrating acquired operations and material differences in the actual financial results of such transactions compared with Horizon’s initial expectations, including the full realization of anticipated cost savings.

The foregoing list of important factors is not exclusive, and you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents incorporated by reference, the dates of those documents. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on ~~behalf of us.~~our behalf. For a detailed discussion of the risks and uncertainties that may cause our actual results or performance to differ materially from the results or performance expressed or implied by forward-looking statements, see “Risk Factors” in Item 1A of Part I of our ~~2015~~2016 Annual Report on Form10-K and in the subsequent reports we file with the SEC.

Horizon is a registered bank holding company incorporated in Indiana and headquartered in Michigan City, Indiana. Horizon provides a broad range of banking services in Northern and Central Indiana, ~~and~~ Southwestern and Central Michigan and Central Ohio through its bank subsidiary. Horizon operates as a single segment, which is commercial banking. Horizon’s common stock is traded on the NASDAQ Global Select Market under the symbol HBNC. The Bank was originally chartered as a national banking association in 1873 and has operated continuously since that ~~time.~~time, however converted to an Indiana state-chartered bank in June 2017. The Bank is a full-service commercial bank offering commercial and retail banking services, corporate and individual trust and agency services, and other services incident to banking.

On June 14, 2017, Horizon and Wolverine Bancorp, Inc. (“Wolverine”) announced the execution on June 13, 2017 of a definitive agreement whereby Horizon will acquire Wolverine and its wholly-owned subsidiary, Wolverine Bank, through a stock and cash merger. Under the terms of the merger agreement, shareholders of Wolverine will receive fixed consideration of 1.0152 shares of Horizon common stock and $14.00 in cash for each share of Wolverine’s common stock. As of March 31, 2017, Wolverine had total assets of approximately $379.3 million.

On May 23, 2017, Horizon and Lafayette Community Bancorp (“Lafayette”) announced the execution of a definitive agreement whereby Horizon will acquire Lafayette and its wholly-owned subsidiary, Lafayette Community Bank, through a stock and cash merger. Under the terms of the merger agreement, shareholders of Lafayette will receive fixed consideration of 0.5878 shares of Horizon common stock and $1.73 in cash for each share of Lafayette’s common stock. Lafayette shareholders owning less than 100 shares of common stock will receive $17.25 in cash for each share. As of March 31, 2017, Lafayette had total assets of approximately $172.1 million.

On February 3, 2017, Horizon completed the purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Company, located in Bargersville, Indiana. Net cash of $11.0 million was received in the transaction, representing the deposit balances assumed at closing, net of amounts paid for loans acquired in the transaction and a premium on deposits assumed in the transaction.

On November 7, 2016, Horizon completed the acquisition of CNB Bancorp, an Indiana corporation headquartered in Attica, Indiana (“CNB”) and the Bank’s acquisition of The Central National Bank and Trust Company (“Central National Bank & Trust”), through mergers effective November 7, 2016. Under the terms of the acquisition, shareholders of CNB received merger consideration in the form of cash. The total value of the consideration for the acquisition was $5.3 million.

On July 18, 2016, Horizon completed the acquisition of LaPorte Bancorp, Inc., a Maryland corporation (“LaPorte Bancorp”) and Horizon Bank’s acquisition of The LaPorte Savings Bank, a state-chartered savings bank and ~~wholly owned~~wholly-owned subsidiary of LaPorte Bancorp, through mergers effective July 18, 2016. Under the terms of the Merger Agreement, shareholders of LaPorte Bancorp had the option to receive $17.50 per share in cash or 0.9435 shares of Horizon common stock for each share of LaPorte Bancorp’s common stock, subject to allocation provisions to assure that in aggregate, LaPorte Bancorp shareholders received total consideration that consisted of 65% stock and 35% cash. As a result of LaPorte stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 3,421,488 shares of its common stock in the merger. Based upon the July 18, 2016 closing price of $18.36 per share of Horizon common stock, the transaction has an implied valuation of approximately $98.6 million.

On June 1, 2016, Horizon completed the acquisition of Kosciusko Financial, Inc., an Indiana corporation (“Kosciusko”) and Horizon Bank’s acquisition of Farmers State Bank, a state-chartered bank and wholly owned subsidiary of Kosciusko, through mergers effective June 1, 2016. Under the terms of the Merger Agreement, shareholders of Kosciusko had the option to receive $81.75 per share in cash or 4.5183 shares of Horizon common stock, or a combination of both, for each share of Kosciusko’s common stock, subject to allocation provisions to assure that in aggregate, Kosciusko shareholders received total consideration that consisted of 65% stock and 35% cash. Kosciusko shareholders owning fewer than 100 shares of common stock received $81.75 in cash for each common share. As a result of Kosciusko stockholder stock and cash elections and the related proration provisions of the Merger Agreement, Horizon issued 873,430 shares of its common stock in the merger. Based upon the June 1, 2016 closing price of $16.57 per share of Horizon common stock, the transaction has an implied valuation of approximately $23.0 million.

Following are some highlights of Horizon’s financial performance through the second quarter of 2017:

Net income for the second quarter of 2017 increased 43.4% to $9.1 million or $0.41 diluted earnings per share compared to $6.3 million or $0.35 diluted earnings per share for the second quarter of 2016.

Net income, excluding acquisition-related expenses, gain on sale of investment securities and purchase accounting adjustments (“core net income”), for the second quarter of 2017 increased 24.2% to $8.6 million or $0.39 diluted earnings per share compared to $6.9 million or $0.38 diluted earnings per share for the same period of 2016.

Net income for the first six months of 2017 was $17.3 million or $0.77 diluted earnings per share compared to $11.7 million or $0.64 diluted earnings per share for the same period in 2016.

Core net income for the first six months of 2017 increased 30.7% to $16.1 million or $0.71 diluted earnings per share compared to $12.3 million or $0.68 diluted earnings per share for the same period of 2016.

Return on average assets was 1.12% for the second quarter of 2017 compared to 0.94% for the same period of 2016.

Commercial loans, excluding acquired commercial loans, increased by an annualized rate of 13.4%, or $71.1 million, during the ~~acquisition~~first six months of Peoples Bancorp, an Indiana corporation (“Peoples”) and Horizon Bank’s acquisition of Peoples Federal Savings Bank of DeKalb County, a federally-chartered stock savings bank and wholly owned subsidiary of Peoples, through mergers effective July 1, 2015. Under the terms of the acquisition, the exchange ratio was 1.425 shares of Horizon common stock (the “Exchange Ratio”) and $9.75 in cash for each outstanding share of Peoples common stock. Peoples shareholders owning fewer than 100 shares of common stock received $33.14 in cash for each common share. Peoples shares outstanding at the closing were 2,311,858, and the shares of Horizon common stock issued to Peoples shareholders totaled 3,288,303. Horizon’s stock price was $16.88 per share at the close of business on July 1, 2015. Based upon these numbers, the total value of the consideration for the acquisition was $78.1 million.

~~Following are some highlights of Horizon’s financial performance through the third quarter of 2016:~~

~~Net income for the third quarter of 2016 was $6.6 million or $.30 diluted earnings per share compared to $4.3 million or $.24 diluted earnings per share for the third quarter of 2015.~~2017.

~~Excluding acquisition-related expenses and purchase accounting adjustments, net income for~~Consumer loans, excluding acquired commercial loans, increased by an annualized rate of 25.9%, or $51.2 million, during the ~~third quarter~~first six months of ~~2016 increased 29.6% compared to the same period of 2015 to $8.4 million or $.39 diluted earnings per share.~~2017.

~~Net income for~~Total loans, excluding acquired loans, increased by an annualized rate of 11.7%, or $124.3 million, during the first ~~nine~~six months of ~~2016 was $18.3 million or $.94 diluted earnings per share compared to $14.4 million or $.92 diluted earnings per share for the first nine months of 2015.~~

Excluding acquisition-related expenses and purchase accounting adjustments, gain on sale of investment securities and the death benefit on bank owned life insurance, net income for the first nine months of 2016 increased 32.1% compared to the same period of 2015 to $20.7 million or $1.07 diluted earnings per share.

~~Excluding the LaPorte Bancorp, Inc. (“LaPorte Bancorp”) acquisition, mortgage warehouse loans and loans held for sale, loans increased 4.1% on an annualized basis during the third quarter of 2016.~~2017.

Net interest income for the ~~first nine months~~second quarter of ~~2016~~2017 increased ~~19.3%~~$6.3 million, or ~~$10.5 million~~30.3%, compared to the same period in ~~2015.~~2016.

Net interest margin was 3.84% for the second quarter of 2017 compared to 3.80% for the prior quarter and 3.48% for the second quarter of 2016. The improvement in net interest margin was due to Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016, an increase in average interest-earning assets and an increase in loan yields.

Net interest margin, excluding the impact of ~~acquisitions~~purchase accounting adjustments (“core net interest margin”), was ~~3.31%~~3.71% for the ~~third~~second quarter of ~~2016~~2017 compared to ~~3.42%~~3.66% for the prior quarter and ~~3.44%~~3.42% for the ~~same period in 2015.~~

~~Non-interest income for the first nine months~~second quarter of ~~2016 increased 22.7% or $5.1 million compared to the same period in 2015.~~2016.

Horizon’s tangible book value per share rose to ~~$11.83~~$12.20 at ~~September~~June 30, ~~2016,~~2017, compared to ~~$11.02~~$11.48 at December 31, ~~2015 and $10.89 at September 30, 2015.~~2016.

Horizon’s Grand Rapids, Michigan loan production office converted into a full-service branch during the second quarter of 2017.

On May 4, 2017, Horizon ~~opened~~announced its ~~first~~entrance into central Ohio by opening a loan production office located in Dublin, Ohio, in the Columbus metropolitan area, which will provide a full-range of commercial ~~office~~products and services.

On May 23, 2017, Horizon announced the pending acquisition of Lafayette Community Bancorp (“Lafayette”) and its wholly-owned subsidiary, Lafayette Community Bank, headquartered in ~~Fort Wayne,~~Lafayette, Indiana.

On June 13, 2017, Horizon’s Board of Directors announced the approval of an 18% increase in the Company’s quarterly cash dividend from $0.11 to $0.13 per share, payable on July 21, 2017 to shareholders of record on July 7, 2017.

On June 14, 2017, Horizon announced the pending acquisition of Wolverine Bancorp, Inc. (“Wolverine”) and its wholly-owned subsidiary, Wolverine Bank, headquartered in Midland, Michigan.

On June 26, 2017, Horizon announced its wholly-owned subsidiary, Horizon Bank, N.A., converted from a national bank to an Indiana state-charterednon-member bank. The charter conversion became effective following the close of business on ~~September 14, 2016. The new location will offer commercial loans~~June 23, 2017 and ~~cash management services and will be led by Greg Haney, Horizon’s Fort Wayne Market President.~~the converted bank now operates under the name Horizon Bank.

Critical Accounting Policies

The notes to the consolidated financial statements included in Item 8 of the Company’s Annual Report on Form10-K for ~~2015~~2016 contain a summary of the Company’s significant accounting policies. Certain of these 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. Management has identified as critical accounting policies the allowance for loan losses, intangible assets, mortgage servicing rights, hedge accounting and valuation measurements.

Allowance for Loan Losses

An allowance for loan losses is maintained to absorb probable incurred loan losses inherent in the loan portfolio. The determination of the allowance for loan losses is a critical accounting policy that involves management’s ongoing quarterly assessments of the probable incurred losses inherent in the loan portfolio.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

~~management’s ongoing quarterly assessments of the probable incurred losses inherent in the loan portfolio.~~ The identification of loans that have probable incurred losses is subjective; therefore, a general reserve is maintained to cover all probable losses within the entire loan portfolio. Horizon utilizes a loan grading system that helps identify, monitor and address asset quality problems in an adequate and timely manner. Each quarter, various factors affecting the quality of the loan portfolio are reviewed. Large credits are reviewed on an individual basis for loss potential. Other loans are reviewed as a group based upon previous trends of loss experience. Horizon also reviews the current and anticipated economic conditions of its lending market as well as transaction risk to determine the effect they may have on the loss experience of the loan portfolio.

Goodwill and Intangible Assets

Management believes that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. FASB ASC350-10 establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At ~~September~~June 30, ~~2016,~~2017, Horizon had core deposit intangibles of ~~$9.6~~$9.1 million subject to amortization and ~~$74.3~~$77.6 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. Horizon’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of Horizon to provide quality, cost effective banking services in a competitive marketplace. The goodwill value is supported by revenue that is in part driven by the volume of business transacted. A decrease in earnings resulting from a decline in the customer base or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely affect earnings in future periods. FASB ASC350-10 requires an annual evaluation of goodwill for impairment. The evaluation of goodwill for impairment requires the use of estimates and assumptions. Market price at the close of business on ~~September~~June 30, ~~2016~~2017 was ~~$19.59~~$26.35 per share compared to a book value of ~~$15.55~~$16.11 per common share.

Horizon has concluded that, based on its own internal evaluation, the recorded value of goodwill is not impaired.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired through purchase or through the sale of financial assets on a servicing-retained basis. Capitalized servicing rights are amortized intonon-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated regularly for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying servicing rights by predominant characteristics, such as interest rates, original loan terms and whether the loans are fixed or adjustable rate mortgages. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. When the book value of an individual stratum exceeds its fair value, an impairment reserve is recognized so that each individual stratum is carried at the lower of its amortized book value or fair value. In periods of falling market interest rates, accelerated loan prepayment can adversely affect the fair value of these mortgage-servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, Horizon can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. Future changes in management’s assessment of the impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could impact Horizon’s financial condition and results of operations either positively or negatively.

Generally, when market interest rates decline and other factors favorable to prepayments occur, there is a corresponding increase in prepayments as customers refinance existing mortgages under more favorable interest rate terms. When a mortgage loan is prepaid, the anticipated cash flows associated with servicing that

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2016~~

loan are terminated, resulting in a reduction of the fair value of the capitalized mortgage servicing rights. To the extent that actual borrower prepayments do not react as anticipated by the prepayment model (i.e., the

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2017 and 2016

historical data observed in the model does not correspond to actual market activity), it is possible that the prepayment model could fail to accurately predict mortgage prepayments and could result in significant earnings volatility. To estimate prepayment speeds, Horizon utilizes a third-party prepayment model, which is based upon statistically derived data linked to certain key principal indicators involving historical borrower prepayment activity associated with mortgage loans in the secondary market, current market interest rates and other factors, including Horizon’s own historical prepayment experience. For purposes of model valuation, estimates are made for each product type within the mortgage servicing rights portfolio on a monthly basis. In addition, on a quarterly basis Horizon engages a third party to independently test the value of its servicing asset.

Derivative Instruments

As part of the Company’s asset/liability management program, Horizon utilizes, fromtime-to-time, interest rate floors, caps or swaps to reduce the Company’s sensitivity to interest rate fluctuations. These are derivative instruments, which are recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in the fair values of derivatives are reported in the consolidated income statements or other comprehensive income (“OCI”) depending on the use of the derivative and whether the instrument qualifies for hedge accounting. The key criterion for the hedge accounting is that the hedged relationship must be highly effective in achieving offsetting changes in those cash flows that are attributable to the hedged risk, both at inception of the hedge and on an ongoing basis.

Horizon’s accounting policies related to derivatives reflect the guidance in FASB ASC815-10. Derivatives that qualify for the hedge accounting treatment are designated as either: a hedge of the fair value of the recognized asset or liability or of an unrecognized firm commitment (a fair value hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (a cash flow hedge). For fair value hedges, the cumulative change in fair value of both the hedge instruments and the underlying loans is recorded innon-interest income. For cash flow hedges, changes in the fair values of the derivative instruments are reported in OCI to the extent the hedge is effective. The gains and losses on derivative instruments that are reported in OCI are reflected in the consolidated income statement in the periods in which the results of operations are impacted by the variability of the cash flows of the hedged item. Generally, net interest income is increased or decreased by amounts receivable or payable with respect to the derivatives, which qualify for hedge accounting. At inception of the hedge, Horizon establishes the method it uses for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. The ineffective portion of the hedge, if any, is recognized currently in the consolidated statements of income. Horizon excludes the time value expiration of the hedge when measuring ineffectiveness.

Valuation Measurements

Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities, residential mortgage loans held for sale and derivatives are carried at fair value, as defined in FASB ASC 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other post-retirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent, to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment speeds and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Horizon’s results of operations.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

Financial Condition

On ~~September~~June 30, ~~2016,~~2017, Horizon’s total assets were $3.3 billion, an increase of approximately ~~$673.2~~$180.0 million compared to December 31, ~~2015.~~2016. The increase was primarily in net loans of ~~$441.4~~$131.5 million, investment securities available for sale of ~~$112.2~~$65.2 million ~~cash~~and investment securities held to maturity of ~~$35.1~~$6.3 million ~~goodwill~~which were offset by decreases in Federal Reserve Bank stock of ~~$24.7~~$9.0 million, other assets of ~~$23.9~~$5.7 million, cash and due from banks of $4.8 million and ~~cash value~~loans held for sale of ~~life insurance of $19.2~~$4.4 million.

Investment securities were comprised of the following as of (dollars in thousands):


	September 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
U.S. Treasury and federal agencies	$	27,383	$	27,422	$	5,940	$	5,926	$	20,020	$	19,966	$	8,051	$	7,989
State and municipal		62,825		64,039		73,829		75,095		136,539		138,486		117,327		116,592
Federal agency collateralized mortgage obligations		188,072		189,684		157,291		156,203		133,038		131,914		139,040		137,195
Federal agency mortgage-backed pools		272,144		275,973		206,970		207,704		212,154		210,881		180,183		176,726
Private labeled mortgage-backed pools										1,871		1,868		—		—
Corporate notes		32		95		32		54		1,233		1,936		1,238		1,329

Total available for sale investment securities	$	550,456	$	557,213	$	444,062	$	444,982	$	504,855	$	505,051	$	445,839	$	439,831


Held to maturity
U.S. Treasury and federal agencies	$	—	$	—	$	5,859	$	5,952
State and municipal		158,543		164,500		146,331		151,453	$	177,781	$	181,534	$	165,607	$	165,822
Federal agency collateralized mortgage obligations		6,828		6,972		9,051		8,954		6,102		6,114		6,530		6,490
Federal agency mortgage-backed pools		21,656		22,822		26,388		27,344		15,591		15,894		21,057		21,774

Total held to maturity investment securities	$	187,027	$	194,294	$	187,629	$	193,703	$	199,474	$	203,542	$	193,194	$	194,086

Total investment securities increased by approximately ~~$111.6~~$71.5 million at ~~September~~June 30, ~~2016~~2017 compared to December 31, ~~2015,~~2016, primarily due to the investing of cash received from the ~~closing of~~Bargersville branch purchase and the ~~LaPorte Bancorp acquisition.~~CNB merger and increasing earning assets due to lower mortgage warehouse balances.

Total loans increased ~~$441.4~~$127.4 million since December 31, ~~2015~~2016 to ~~$2.2~~$2.3 billion as of ~~September~~June 30, ~~2016.~~2017. This increase was the result of an increase in commercial loans of ~~$242.5~~$73.8 million, consumer loans of $51.8 million and residential mortgage loans of $18.1 million, offset by a decrease in mortgage warehouse loans of ~~$82.2 million, residential mortgage loans of $93.0~~$12.0 million and ~~consumer~~a decrease in loans held for sale of ~~$23.7~~$4.4 million. The growth inmarkets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo contributed total ~~loans~~loan growth of $83.1 million during the ~~nine~~first six months ~~ended September 30, 2016 is~~of 2017 leading to the ~~direct~~increase in commercial loans. Additionally, the consumer loan increase was the result of ~~increased calling efforts to increase Horizon’s market share within~~a new seasoned consumer loan portfolio manager hired in the ~~Company’s footprint~~third quarter of 2016 and ~~market expansion as well as~~increasing our focus on the ~~loans added through the Kosciusko and LaPorte Bancorp acquisitions.~~management of direct consumer loans.

Total deposits ~~increased $456.0~~decreased $52.4 million since December 31, ~~2015~~2016 to ~~$2.3~~$2.4 billion as of ~~September~~June 30, ~~2016. Non-interest~~2017. Interest bearing transaction accounts and time deposits decreased $46.5 million and $23.6 million, respectively, and were offset by increases in interest bearing deposit accounts ~~increased by $143.8~~of $5.7 million ~~interest-bearing~~andnon-interest bearing accounts of $12.1 million during the six months ended June 30, 2017. The decrease in interest bearing transaction accounts ~~increased by $189.6 million~~ and time deposits ~~increased by $122.6 million during~~is primarily due to the ~~nine months ended September 30, 2016.~~seasonality of certain municipal deposit accounts.

The Company’s borrowings increased ~~$120.6~~$217.8 million from December 31, ~~2015~~2016 to ~~$569.9~~$485.3 million as of ~~September~~June 30, ~~2016.~~2017. At ~~September~~June 30, ~~2016,~~2017, the Company had ~~$307.9~~$339.4 million in short-term funds borrowed compared to ~~$206.0~~$189.0 million at December 31, ~~2015.~~2016. The ~~Company has a debt reduction plan either through cash flow or possible early redemption.~~increase in borrowings was utilized to fund loan growth of $127.4 million and offset the decrease in total deposits of $52.4 million since December 31, 2016.

Stockholders’ equity totaled ~~$345.7~~$357.3 million at ~~September~~June 30, ~~2016~~2017 compared to ~~$266.8~~$340.9 million at December 31, ~~2015.~~2016. The increase in stockholders’ equity during the period was the result of the generation of net income, net of dividends declared. At June 30, 2017, the ratio of average stockholders’ equity to average assets was 10.94% compared to 10.59% at December 31, 2016. Book value per common share at June 30, 2017 increased to $16.11 compared to $15.37 at December 31, 2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

income, net of dividends declared, as well as the stock issued in the Kosciusko and LaPorte Bancorp acquisitions. At September 30, 2016, the ratio of average stockholders’ equity to average assets was 10.18% compared to 10.32% at December 31, 2015. Book value per common share at September 30, 2016 increased to $15.61 compared to $14.20 at December 31, 2015.

Results of Operations

Overview

Consolidated net income for the three-month period ended ~~September~~June 30, ~~2016~~2017 was ~~$6.6~~$9.1 million compared to ~~$4.3~~$6.3 million for the same period in ~~2015.~~2016. Earnings per common share for the three months ended ~~September~~June 30, ~~2016~~2017 were ~~$0.31~~$0.41 basic and ~~$0.30~~ diluted, compared to ~~$0.24~~$0.35 basic and ~~$0.24~~ diluted for the same three-month period in the previous year. The increase in net income and earnings per share from the previous year reflects an increase in net interest income ~~and non-interest income~~ of ~~$4.6~~$6.3 million, ~~and $1.7 million, respectively,~~ partially offset by a decrease innon-interest income of $1.1 million and increases innon-interest expense of ~~$2.6~~$1.5 million, income tax expense of ~~$1.2 million~~$895,000 and the diluted shares outstanding primarily due to the stock issued in the Kosciusko Financial, Inc. and LaPorte Bancorp, Inc. acquisitions.Non-interest expenses increased primarily due to an increase in salaries, employee benefits, net occupancy expenses, data processing expense ~~professional fees, loan expenses~~ and other expense. Excluding acquisition-related expenses, gain/losses on sale of investment securities and purchase accounting adjustments, net income for the ~~third~~second quarter of ~~2016~~2017 was ~~$8.4~~$8.6 million or $0.39 diluted earnings per share compared to ~~$6.5~~$6.9 million or ~~$0.36~~$0.38 diluted earnings per share in the same period of ~~2015.~~2016.

Consolidated net income for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2016~~2017 was ~~$18.3~~$17.3 million compared to ~~$14.3~~$11.7 million for the same period in ~~2015.~~2016. Earnings per common share for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 were ~~$0.95~~$0.78 basic and ~~$0.94~~$0.77 diluted, compared to ~~$0.95~~$0.65 basic and ~~$0.92~~$0.64 diluted for the samesix-month period ~~of 2015.~~in the previous year. The increase in net income and earnings per share from the previous year reflects an increase in net interest income ~~and non-interest income~~ of ~~$10.5 million and $5.1 million, respectively, and a decrease in the provision for loan losses of $1.6~~$12.1 million, partially offset by a decrease innon-interest income of $882,000 and increases innon-interest expense of ~~$11.2~~$3.8 million, ~~and~~ income tax expense of ~~$2.2~~$2.0 million and the diluted shares outstanding primarily due to the stock issued in the Kosciusko Financial, Inc. and LaPorte Bancorp, Inc. acquisitions.Non-interest ~~expenses~~ expense increased primarily due to an increase in salaries, employee benefits, net occupancy expenses, data processing expense ~~professional fees, outside services and consultants’ expense, loan expense, FDIC deposit insurance, other losses~~ and other expense. Excluding acquisition-related expenses, ~~and purchase accounting adjustments, gain~~gains/losses on sale of investment securities and ~~the death benefit on bank owned life insurance,~~purchase accounting adjustments, net income for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 was ~~$20.7~~$16.1 million or ~~$1.07~~$0.72 diluted earnings per share compared to ~~$15.7~~$12.3 million or ~~$0.99~~$0.68 diluted earnings per share in the same period of ~~2015.~~2016.

Net Interest Income

The largest component of net income is net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on deposits and borrowings. Changes in the net interest income are the result of changes in volume and the net interest spread, which affects the net interest margin. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Net interest margin refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.

Net interest income during the three months ended ~~September~~June 30, ~~2016~~2017 was ~~$24.4~~$27.2 million, an increase of ~~$4.6~~$6.3 million from the ~~$19.8~~$20.9 million earned during the same period in ~~2015.~~2016. Yields on the Company’s interest-earning assets ~~decreased~~increased by 1923 basis points to ~~3.98%~~4.33% for the three months ending ~~September~~June 30, ~~2016~~2017 from ~~4.17%~~4.10% for the three months ended ~~September~~June 30, ~~2015.~~2016. Interest income increased ~~$5.4~~$6.2 million from ~~$23.6~~$24.7 million for the three months ended ~~September~~June 30, ~~2015~~2016 to ~~$29.0~~$30.8 million for the same period in 2017. This was due to an increase in average interest-earning assets through organic and acquisition-related growth. Interest income from acquisition-related purchase accounting adjustments was $939,000 for the three months ending June 30, 2017 compared to $397,000 for the same period of 2016. ~~This~~

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

increase was due to an increase in interest-earning assets, partially offset by lower yields on loans and investment securities. Interest income from acquisition-related purchase accounting adjustments was $459,000 for the three months ending September 30, 2016 compared to $402,000 for the same period of 2015.

Rates paid on interest-bearing liabilities decreased by 5 basis points for the three-month period ended September 30, 2016 compared to the same period in 2015 due to the continued low interest rate environment and shift in mix on interest-bearing liabilities. Interest expense increased $750,000 compared to the three-month period ended September 30, 2015 to $4.6 million for the same period in 2016. This increase was due to higher average balances of interest-bearing deposits and borrowings, partially offset by lower rates paid on interest-bearing deposits and borrowings. The net interest margin decreased 14 basis points from 3.51% for the three-month period ended September 30, 2015 to 3.37% for the same period in 2016. The decrease in the margin for the three-month period ended September 30, 2016 compared to the same period in 2015 was due to a reduction in the yield on interest-earning assets. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments, the margin would have been 3.31% for the three-month period ending September 30, 2016 compared to 3.44% for the same period in 2015.

The following are the average balance sheets for the three months ending (dollars in thousands):

Three Months Ended
September 30, 2016

Three Months Ended
September 30, 2015

   Average
Balance Interest    Average
Rate Average
Balance Interest    Average
Rate
ASSETS

Interest-earning assets

Federal funds sold
   $ 35,492    $ 20       0.22 % $ 23,086    $ 2       0.03 %
Interest-earning deposits
   55,047    32       0.23 % 16,340    5       0.12 %
Investment securities - taxable
   530,228    2,446       1.84 % 401,702    2,149       2.12 %
Investment securities - non-taxable (1)
   186,074    1,151       3.73 % 154,050    1,125       4.39 %
Loans receivable (2)(3)
   2,151,103    25,313       4.69 % 1,709,337    20,297       4.72 %





Total interest-earning assets (1)
   2,957,944    28,962       3.98 % 2,304,515    23,578       4.17 %
Non-interest-earning assets

Cash and due from banks
   39,875       31,384
Allowance for loan losses
   (14,301 )    (16,427 )
Other assets
   290,100       206,545





   $ 3,273,618       $ 2,526,017





LIABILITIES AND SHAREHOLDERS’ EQUITY


Interest-bearing liabilities

Interest-bearing deposits
   $ 1,896,156    $ 1,875       0.39 % $ 1,568,777    $ 1,566       0.40 %
Borrowings
   510,738    2,128       1.66 % 303,521    1,729       2.26 %
Subordinated debentures
   37,092    549       5.89 % 32,737    507       6.14 %





Total interest-bearing liabilities
   2,443,986    4,552       0.74 % 1,905,035    3,802       0.79 %
Non-interest-bearing liabilities

Demand deposits
   462,253       343,780
Accrued interest payable and other liabilities
   34,144       14,891
Stockholders’ equity
   333,235       262,311





   $ 3,273,618       $ 2,526,017





Net interest income/spread
   $ 24,410       3.24 % $ 19,776       3.38 %





Net interest income as a percent of average interest earning assets (1)
      3.37 %    3.51 %

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2016~~


	Three Months Ended June 30, 2017								Three Months Ended June 30, 2016
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
ASSETS
Interest-earning assets
Federal funds sold	$	1,728		$	6		1.39	%	$	3,309		$	4		0.49	%
Interest-earning deposits		27,677			83		1.20	%		28,045			59		0.85	%
Investment securities - taxable		423,815			2,155		2.04	%		469,925			2,598		2.22	%
Investment securities -non-taxable (1)		290,494			1,766		3.40	%		182,886			1,195		3.70	%
Loans receivable (2)(3)		2,199,913			26,795		4.94	%		1,787,189			20,794		4.69	%

Total interest-earning assets (1)		2,943,627			30,805		4.33	%		2,471,354			24,650		4.10	%
Non-interest-earning assets
Cash and due from banks		42,331								35,435
Allowance for loan losses		(15,131	)							(14,350	)
Other assets		279,024								223,258

	$3,249,851								$2,715,697

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities
Interest-bearing deposits	$	1,980,025		$	1,721		0.35	%	$	1,625,024		$	1,557		0.39	%
Borrowings		359,462			1,338		1.49	%		400,585			1,721		1.73	%
Subordinated debentures		36,340			548		6.05	%		32,854			503		6.16	%

Total interest-bearing liabilities		2,375,827			3,607		0.61	%		2,058,463			3,781		0.74	%
Non-interest-bearing liabilities
Demand deposits		499,446								364,822
Accrued interest payable and other liabilities		19,143								22,574
Stockholders’ equity		355,435								269,838

	$3,249,851								$2,715,697

Net interest income/spread				$	27,198		3.73	%				$	20,869		3.36	%

Net interest income as a percent of average interest earning assets (1)							3.84	%							3.48	%

(1)	Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. Interest rate is presented on a tax equivalent basis.

(2)	Includes loan fees and late fees. The inclusion of these fees does not have a material effect on the average interest rate.

(3)	Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees.

Net interest income during the nine months ended September 30, 2016 was $65.1 million, an increase of $10.5 million from the $54.5 million earned during the same period in 2015. Yields on the Company’s interest-earning assets decreased by 20 basis points to 4.05% for the nine months ending September 30, 2016 compared to 4.25% for the same period of 2015. Interest income increased $12.3 million from $64.8 million for the nine months ended September 30, 2015 to $77.1 million for the same period in 2016. This increase was due to an increase in interest-earning assets, partially offset by lower yields on loans and investment securities and a decrease in interest income from acquisition-related purchase accounting adjustments from $2.3 million for the nine months ending September 30, 2015 to $1.4 million for the same period of 2016.

Rates paid on interest-bearing liabilities decreased by 513 basis points for the ~~nine-month~~three-month period ended ~~September~~June 30, ~~2016~~2017 compared to the same period in ~~2015~~2016 due to the continued low interest rate environment and shift in mix on interest-bearing liabilities. Interest expense ~~increased $1.8 million~~decreased $174,000 compared to the ~~nine-month~~three-month period ended ~~September~~June 30, ~~2015~~2016 to ~~$12.1~~$3.6 million for the same period in ~~2016.~~2017. This ~~increase~~decrease was due to ~~higher~~lower average balances of borrowings in addition to lower rates paid on interest-bearing deposits and borrowings, partially offset by ~~lower~~higher average balances of interest-bearing deposits. The rates paid on ~~interest-bearing deposits and borrowings. The net interest margin~~borrowings decreased ~~16 basis points from 3.59% for the nine-month period ended September 30, 2015~~as a result Horizon executing a strategy to ~~3.43% for the same period in 2016. The decrease~~reduce expensive funding costs in the ~~margin for the nine-month period ended September 30, 2016 compared to the same period in 2015 was due to a reduction in the yield on interest-earning assets and a decrease~~fourth quarter of approximately $878,000 of interest income from acquisition-related purchase accounting adjustments. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments, the margin would have been 3.36% for the nine-month period ending September 30, 2016 compared to 3.44% for the same period in 2015.2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

The net interest margin increased 36 basis points from 3.48% for the three-month period ended June 30, 2016 to 3.84% for the same period in 2017. The increase in the margin for the three-month period ended June 30, 2017 compared to the same period in 2016 was due to an increase in the yield on interest-earning assets and a reduction in the cost on interest-bearing liabilities. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments, the margin would have been 3.71% for the three-month period ending June 30, 2017 compared to 3.42% for the same period in 2016.

Net interest income during the six months ended June 30, 2017 was $52.8 million, an increase of $12.1 million from the $40.6 million earned during the same period in 2016. Yields on the Company’s interest-earning assets increased by 19 basis points to 4.29% for the six months ending June 30, 2017 from 4.10% for the six months ended June 30, 2016. Interest income increased $11.5 million from $48.2 million for the six months ended June 30, 2016 to $59.6 million for the same period in 2017. This was due to an increase in average interest-earning assets through organic and acquisition-related growth. Interest income from acquisition-related purchase accounting adjustments was $2.0 million for the six months ending June 30, 2017 compared to $944,000 for the same period of 2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2017 and 2016

The following are the average balance sheets for the ~~nine~~three months ending (dollars in thousands):


		Nine Months Ended September 30, 2016								Nine Months Ended September 30, 2015									Six Months Ended June 30, 2017								Six Months Ended June 30, 2016
		Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate				Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
ASSETS
Interest-earning assets
Federal funds sold		$	13,812		$	23		0.22	%	$	10,563		$	11		0.14	%		$	2,377		$	11		0.93	%	$	2,853		$	4		0.28	%
Interest-earning deposits			34,624			59		0.23	%		11,927			10		0.11	%			26,220			152		1.17	%		24,300			109		0.90	%
Investment securities - taxable			486,374			7,621		2.09	%		375,548			6,356		2.26	%			411,417			4,487		2.20	%		464,209			5,092		2.21	%
Investment securities - non-taxable (1)			183,142			3,583		3.63	%		145,576			3,281		3.96	%			280,563			3,403		3.40	%		181,660			2,432		3.64	%
Loans receivable (2)(3)			1,873,614			65,854		4.70	%		1,528,662			55,140		4.83	%			2,150,307			51,586		4.85	%		1,733,446			40,541		4.71	%

Total interest-earning assets (1)			2,591,566			77,140		4.05	%		2,072,276			64,798		4.25	%			2,870,884			59,639		4.29	%		2,406,468			48,178		4.10	%

Non-interest-earning assets
Cash and due from banks			36,220								30,729									41,788								34,246
Allowance for loan losses			(14,334	)							(16,557	)								(15,035	)							(14,350	)
Other assets			243,021								174,363									279,497								217,797


		$	2,856,473							$	2,260,811
																			$3,177,134								$2,644,161

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY																	LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities
Interest-bearing deposits		$	1,680,560		$	4,923		0.39	%	$	1,347,882		$	4,035		0.40	%		$	1,970,235		$	3,474		0.36	%	$	1,571,579		$	3,048		0.39	%
Borrowings			438,324			5,608		1.71	%		340,593			4,747		1.86	%			305,116			2,275		1.50	%		401,594			3,480		1.74	%
Subordinated debentures			34,144			1,556		6.09	%		32,698			1,504		6.15	%			36,315			1,124		6.24	%		32,653			1,007		6.20	%

Total interest-bearing liabilities			2,153,028			12,087		0.75	%		1,721,173			10,286		0.80	%			2,311,666			6,873		0.60	%		2,005,826			7,535		0.76	%

Non-interest-bearing liabilities
Demand deposits			387,768								303,309									495,262								350,157
Accrued interest payable and other liabilities			26,397								14,582									19,901								22,465
Stockholders’ equity			289,280								221,747									350,305								265,713

																			$3,177,134								$2,644,161
		$	2,856,473							$	2,260,811


Net interest income/spread					$	65,053		3.30	%				$	54,512		3.45	%					$	52,766		3.69	%				$	40,643		3.34	%


Net interest income as a percent of average interest earning assets (1)								3.43	%							3.59	%								3.81	%							3.47	%

(1)	Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. Interest rate is presented on a tax equivalent basis.

(2)	Includes loan fees and late fees. The inclusion of these fees does not have a material effect on the average interest rate.

(3)	Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loans fees.

Rates paid on interest-bearing liabilities decreased by 16 basis points for thesix-month period ended June 30, 2017 compared to the same period in 2016 due to the continued low interest rate environment and shift in mix on interest-bearing liabilities. Interest expense decreased $662,000 compared to thesix-month period ended June 30, 2016 to $6.9 million for the same period in 2017. This decrease was due to lower average balances of borrowings in addition to lower rates paid on interest-bearing deposits and borrowings, partially offset by higher average balances of interest-bearing deposits. The rates paid on borrowings decreased as a result Horizon executing a strategy to reduce expensive funding costs in the fourth quarter of 2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2017 and 2016

The net interest margin increased 34 basis points from 3.47% for thesix-month period ended June 30, 2016 to 3.81% for the same period in 2017. The increase in the margin for thesix-month period ended June 30, 2017 compared to the same period in 2016 was due to an increase in the yield on interest-earning assets and a reduction in the cost on interest-bearing liabilities. Excluding the interest income recognized from the acquisition-related purchase accounting adjustments, the margin would have been 3.67% for thesix-month period ending June 30, 2017 compared to 3.40% for the same period in 2016.

Provision for Loan Losses

Horizon assesses the adequacy of its Allowance for Loan and Lease Losses (“ALLL”) by regularly reviewing the performance of its loan portfolio. During the three-month period ended ~~September~~June 30, ~~2016,~~2017, a provision of ~~$455,000~~$330,000 was required to adequately fund the ALLL compared to ~~$300,000~~$232,000 for the same period of ~~2015.~~2016. Commercial loan net charge-offs during the three-month period ended ~~September~~June 30, ~~2016~~2017 were ~~negative $6,000, there were no~~$24,000, residential mortgage loan net charge-offs were negative $8,000 and consumer loan net charge-offs were ~~$163,000.~~$341,000. The increase in the provision for loan losses in the ~~third~~first quarter of ~~2016~~2017 compared to the same period of ~~2015~~2016 was due to increased loan ~~growth.~~balances. The ALLL balance at ~~September~~June 30, ~~2016~~2017 was ~~$14.5~~$15.0 million or 0.66% of total loans. This compares to an ALLL balance of ~~$14.5~~$14.8 million at December 31, ~~2015~~2016 or ~~0.83%~~0.69% of total loans. The decrease in the ratio at ~~September~~June 30, ~~2016~~2017 compared to December 31, ~~2015~~2016 was due to an increase in ~~total~~loan balances, excluding loans held for sale, of ~~$441.4 million from the Kosciusko and LaPorte Bancorp mergers and improving credit trends.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~$131.7 million.

For the ~~Three and Nine Months ended September 30, 2016~~

~~For the nine-month~~six-month period ended ~~September~~June 30, ~~2016,~~2017, the provision for loan losses totaled ~~$1.2 million~~$660,000 compared to ~~$2.8 million~~$764,000 in the same period of ~~2015.~~2016. The lower provision for loan losses infor the ~~third quarter of 2016~~six months ended June 30, 2017 compared to the same period of ~~2015~~2016 was due to ~~the improvement of non-performing loans and the charge-off of one commercial credit of $1.3 million~~a decrease in ~~the first nine months of 2015.~~net charge-offs.

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, stood at ~~0.87%~~0.82% as of ~~September~~June 30, ~~2016.~~2017. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was ~~1.40%~~1.18% as of ~~September~~June 30, ~~2016.~~2017. The table below illustrates Horizon’s loan loss reserve ratio composition as of ~~September~~June 30, ~~2016.~~2017.

~~Non-GAAP~~Non- GAAP Allowance for Loan and Lease Loss Detail

As of ~~September~~June 30, ~~2016~~2017

(Dollars in Thousands, Unaudited)


	Horizon Legacy			Heartland			Summit			Peoples			Kosciusko			LaPorte			Total			Horizon Legacy			Heartland			Summit			Peoples			Kosciusko			LaPorte			CNB			Total
Pre-discount loan balance	$	1,673,722		$	15,719		$	57,214		$	155,318		$	89,490		$	215,531		$	2,206,994		$	1,834,963		$	13,823		$	46,708		$	130,009		$	68,577		$	176,902		$	8,612		$	2,279,594

Allowance for loan losses (ALLL)		14,524			—			—			—			—			—			14,524			14,956			71			—			—			—			—			—			15,027
Loan discount		N/A			1,067			2,645			3,545			1,132			8,086			16,475			N/A			879			2,416			3,086			1,004			4,248			237			11,870

ALLL+loan discount		14,524			1,067			2,645			3,545			1,132			8,086			30,999			14,956			950			2,416			3,086			1,004			4,248			237			26,897

Loans, net	$	1,659,198		$	14,652		$	54,569		$	151,773		$	88,358		$	207,445		$	2,175,995		$	1,820,007		$	12,873		$	44,292		$	126,923		$	67,573		$	172,654		$	8,375		$	2,252,697


ALLL/ pre-discount loan balance		0.87	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.66	%		0.82	%		0.51	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.66	%
Loan discount/ pre-discount loan balance		N/A			6.79	%		4.62	%		2.28	%		1.26	%		3.75	%		0.75	%		N/A			6.36	%		5.17	%		2.37	%		1.46	%		2.40	%		2.75	%		0.52	%
ALLL+loan discount/ pre-discount loan balance		0.87	%		6.79	%		4.62	%		2.28	%		1.26	%		3.75	%		1.40	%		0.82	%		6.87	%		5.17	%		2.37	%		1.46	%		2.40	%		2.75	%		1.18	%

No assurance can be given that Horizon will not, in any particular period, sustain loan losses that are significant in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, including economic conditions and management’s ongoing quarterly assessments of the portfolio, will not require increases in the allowance for loan losses. Horizon considers the allowance for loan losses to be appropriate to cover probable incurred losses in the loan portfolio as of ~~September~~June 30, ~~2016.~~2017.

Non-performing loans totaled ~~$12.8~~$11.6 million as of ~~September~~June 30, ~~2016, down~~2017, up from ~~$16.7~~$10.7 million as of December 31, ~~2015. Compared to December 31, 2015, non-performing~~2016.Non-performing commercial, ~~and~~ real estate ~~loans decreased by $1.5 million~~ and ~~$3.1 million, respectively, and non-performing~~ consumer loans increased by ~~$813,000.~~

~~Other Real Estate Owned (OREO) totaled $3.7 million~~$362,000, $263,000 and $255,000, respectively, at ~~September~~June 30, ~~2016~~2017 compared to ~~$3.2 million on~~ December 31, ~~2015 and $1.3 million on September 30, 2015.~~2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

Other Real Estate Owned (OREO) totaled $2.2 million at June 30, 2017 compared to $3.2 million on December 31, 2016 and $3.5 million on June 30, 2016.

Non-interest Income

The following is a summary of changes innon-interest income ~~(three and nine month table~~(table dollar amounts in thousands):


	Three Months Ended
	September 30 2016		September 30 2015		Amount Change			Percent Change			Three Months Ended
Non-interest Income											June 30 2017			June 30 2016		Amount Change			Percent Change
Service charges on deposit accounts	$	1,483	$	1,359	$	124			9.1	%	$	1,566		$	1,417	$	149			10.5	%
Wire transfer fees		292		160		132			82.5	%		178			175		3			1.7	%
Interchange fees		2,016		1,625		391			24.1	%		1,382			978		404			41.3	%
Fiduciary activities		1,653		1,520		133			8.8	%		1,943			1,465		478			32.6	%
Gain on sale of investment securities												(3	)		767		(770	)		-100.4	%
Gain on sale of mortgage loans		3,528		2,794		734			26.3	%		2,054			3,529		(1,475	)		-41.8	%
Mortgage servicing net of impairment		409		246		163			66.3	%		359			500		(141	)		-28.2	%
Increase in cash surrender value of bank owned life insurance		449		374		75			20.1	%		408			351		57			16.2	%
Other income		226		322		(96	)		-29.8	%		325			84		241			286.9	%

Total non-interest income	$	10,056	$	8,400	$	1,656			19.7	%	$	8,212		$	9,266	$	(1,054	)		-11.4	%

Totalnon-interest income was ~~$1.7~~$1.1 million ~~higher in~~lower during the ~~third~~second quarter of ~~2016~~2017 compared to the same period of ~~2015.~~2016. Service charges on deposit accounts increased ~~$124,000, wire transfer fees increased $132,000,~~$149,000, interchange fees increased by ~~$391,000,~~$404,000, and fiduciary activities increased ~~$133,000~~$478,000 primarily due to overall company growth and increased volume. Residential mortgage loan activity during the ~~third~~first quarter of ~~2016~~2017 generated ~~$3.5~~$2.1 million of income from the gain on sale of mortgage loans, ~~up $734,000~~down $1.5 million from the same period in ~~2015.~~2016. The ~~increase~~decrease in the gain on sale of mortgage loans was due to a decrease in the volume of mortgage loans sold from $83.3 million in the second quarter of 2016 to $57.5 million in the same period of 2017 which was slightly offset by an increase in the percentage earned on the sale of these loans from ~~3.30%~~3.68% in the ~~third~~second quarter of ~~2015~~2016 to ~~3.91%~~3.84% in the same period of ~~2016. Mortgage servicing net of impairment~~2017. Other income increased ~~by $163,000 during~~$241,000 in the ~~third~~second quarter of ~~2016~~2017 when compared to the same period of ~~2015 primarily due~~2016. The Company recognized gains on other real estate owned properties of $65,000 in the second quarter of 2017 compared to losses on other real estate owned properties of $190,000 in the same period of 2016.

The following is a ~~larger portfolio~~summary of ~~mortgage loans serviced.~~changes innon-interest income (table dollar amounts in thousands):


	Nine Months Ended
	September 30 2016		September 30 2015		Amount Change			Percent Change			Six Months Ended
Non-interest Income											June 30 2017		June 30 2016		Amount Change			Percent Change
Service charges on deposit accounts	$	4,056	$	3,443	$	613			17.8	%	$	2,966	$	2,705	$	261			9.6	%
Wire transfer fees		588		493		95			19.3	%		328		296		32			10.8	%
Interchange fees		5,137		4,093		1,044			25.5	%		2,558		1,909		649			34.0	%
Fiduciary activities		4,753		4,033		720			17.9	%		3,865		3,100		765			24.7	%
Gain on sale of investment securities		875		124		751			605.6	%		32		875		(843	)		-96.3	%
Gain on sale of mortgage loans		9,171		7,815		1,356			17.4	%		3,968		5,643		(1,675	)		-29.7	%
Mortgage servicing net of impairment		1,356		725		631			87.0	%		806		947		(141	)		-14.9	%
Increase in cash surrender value of bank owned life insurance		1,145		889		256			28.8	%		872		696		176			25.3	%
Death benefit on officer life insurance		—		145		(145	)		100.0	%
Other income		708		892		(184	)		-20.6	%		376		482		(106	)		-22.0	%

Total non-interest income	$	27,789	$	22,652	$	5,137			22.7	%	$	15,771	$	16,653	$	(882	)		-5.3	%

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2017 and 2016

Totalnon-interest income was ~~$5.1 million higher~~$882,000 lower in the first ~~nine~~six months of ~~2016~~2017 when compared to the same period of ~~2015.~~2016. Service charges on deposit accounts increased ~~$613,000,~~$261,000, interchange fees increased ~~by $1.0 million~~$649,000 and fiduciary activities increased ~~$720,000,~~$765,000, primarily due to overall company growth and increased volume. Gain on sale of investment securities ~~increased $751,000~~decreased $843,000 due to gains realized in the first ~~nine~~six months of 2016 as ~~the~~a result of an analysis that determined market conditions provided the opportunity to add gains to capital without negatively impacting ~~long-term~~loan-term earnings. Residential mortgage loan activity during the first ~~nine~~six months of ~~2016~~2017 generated ~~$9.2~~$4.0 million ~~of income~~ from the gain on sale of mortgage loans, ~~up $1.4~~down $1.7 million from the same period in ~~2015.~~2016. The ~~increase~~decrease in the gain on sale of mortgage loans was due to a decrease in the volume of mortgage loans sold from $138.5 million in the first six months of 2016 to $107.5 million in the same period of 2017 which was slightly offset by an increase in the percentage earned on the sale of these loans from ~~3.19% during~~3.74% for the first ~~nine~~six months of ~~2015~~2016 to ~~3.81%~~3.89% in the same period of 2017.

Non-interest Expense

The following is a summary of changes innon-interest expense (table dollar amounts in thousands):


	Three Months Ended
	June 30		June 30		Amount			Percent
Non-interest expense	2017		2016		Change			Change
Salaries	$	9,116	$	7,250	$	1,866			25.7	%
Commission and bonuses		1,389		1,190		199			16.7	%
Employee benefits		1,961		1,877		84			4.5	%
Net occupancy expenses		2,196		1,901		295			15.5	%
Data processing		1,502		1,134		368			32.5	%
Professional fees		535		747		(212	)		-28.4	%
Outside services and consultants		1,265		2,198		(933	)		-42.4	%
Loan expense		1,250		1,409		(159	)		-11.3	%
FDIC deposit insurance		243		409		(166	)		-40.6	%
Other losses		78		136		(58	)		-42.6	%
Other expense		2,953		3,304		(351	)		-10.6	%

Totalnon-interest expense	$	22,488	$	21,555	$	933			4.3	%

Totalnon-interest expense was $933,000 higher in the second quarter of 2017 compared to the same period of 2016. Excluding merger-related expenses of $200,000 and $1.9 million recorded during the three months ended June 30, 2017 and 2016, ~~partially offset~~respectively, totalnon-interest expense increased $3.2 million, or 16.9%. Salaries increased by $1.9 million due to a larger employee base. Net occupancy expense increased $295,000 due to Horizon’s investment in growth markets and the Kosciusko, LaPorte Bancorp and CNB acquisitions. Data processing expenses increased $368,000 primarily due to company growth. Outside service and consultant, professional fees and other expense decreased $933,000, $212,000 and $351,000, respectively in the second quarter of 2017 when compared to the same period of 2016 primarily due toone-time expenses related to the Kosciusko and LaPorte Bancorp acquisitions. FDIC insurance expense was $166,000 lower in the second quarter of 2017 when compared to the same period of 2016 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016 and during 2017. Loan expenses decreased $159,000 primarily due to a decrease in ~~total loans sold of $2.4 million from $239.1 million~~loan collection expenses.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

during the first nine months of 2015 to $236.7 million in the same period of 2016. Mortgage servicing net of impairment increased by $631,000 during the first nine months of 2016 compared to the same period of 2015 primarily due to a larger portfolio of mortgage loans serviced. The cash surrender value of bank owned life insurance increased by $256,000 in the first nine months of 2016 compared to the same period in 2015 due to the addition of bank owned life insurance policies as a result of the Kosciusko and LaPorte Bancorp acquisitions. The death benefit on bank owned life insurance decreased by $145,000 compared to the previous year due to a $145,000 death benefit on officer life insurance realized during the first nine months of 2015.

~~Non-interest Expense~~

The following is a summary of changes innon-interest expense ~~(three and nine month table~~(table dollar amounts in thousands):


	Three Months Ended										Six Months Ended
	September 30 2016		September 30 2015		Amount Change			Percent Change			June 30		June 30		Amount			Percent
Non-interest expense
Non-interest Expense											2017		2016		Change			Change
Salaries	$	8,349	$	6,896	$	1,453			21.1	%	$	17,622	$	14,136	$	3,486			24.7	%
Commission and bonuses		1,799		1,958		(159	)		-8.1	%		2,450		2,265		185			8.2	%
Employee benefits		2,062		1,798		264			14.7	%		4,103		3,981		122			3.1	%
Net occupancy expenses		2,174		1,723		451			26.2	%		4,648		3,837		811			21.1	%
Data processing		1,616		1,281		335			26.2	%		2,809		2,239		570			25.5	%
Professional fees		612		409		203			49.6	%		1,148		1,578		(430	)		-27.2	%
Outside services and consultants		2,686		3,209		(523	)		-16.3	%		2,487		3,297		(810	)		-24.6	%
Loan expense		1,482		1,351		131			9.7	%		2,357		2,604		(247	)		-9.5	%
FDIC deposit insurance		465		423		42			9.9	%		506		814		(308	)		-37.8	%
Other losses		107		246		(139	)		-56.5	%		128		403		(275	)		-68.2	%
Other expense		3,468		2,941		527			17.9	%		5,751		6,148		(397	)		-6.5	%

Total non-interest expense	$	24,820	$	22,235	$	2,585			11.6	%	$	44,009	$	41,302	$	2,707			6.6	%

Totalnon-interest expense was ~~$2.6~~$2.7 million higher infor the ~~third quarter of 2016~~six months ended June 30, 2017 compared to the same period of ~~2015.~~2016. Excluding merger-related expenses of $200,000 and $2.5 million recorded during the six months of June 30, 2017 and 2016, respectively, totalnon-interest expense increased $6.1 million, or 16.2%. Salaries increased by ~~$1.5~~$3.5 million ~~and employee benefits increased by $264,000~~ due to a larger employee base. Net occupancy ~~expense~~expenses increased ~~$451,000~~$811,000 due to Horizon’s investment in growth markets and the ~~Peoples,~~Kosciusko, LaPorte Bancorp and CNB acquisitions. Data processing expenses increased $570,000 primarily due to company growth. Outside services and consultants, professional fees and other expenses decreased $810,000, $430,000 and $397,000, respectively, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due toone-time expenses related to the Kosciusko and LaPorte Bancorp acquisitions. ~~Data processing expenses increased $335,000, professional fees increased $203,000~~FDIC deposit insurance expense was $308,000 lower for the first six months of 2017 when compared to the same period in 2016 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016 and ~~loan expenses increased $131,000~~in 2017. Other losses decreased $275,000 for the six months ended June 30, 2017 when compared to the same period in 2016, primarily due to ~~company growth. Other expenses increased by $527,000 primarily due to company growth and one-time merger-related expenses. Outside services and consultants~~a decrease in debit card related expense. Loan expense decreased ~~by $523,000 due~~$247,000 as loan collection expenses were lower during the first six months of 2017 when compared to the ~~one-time fees associated with~~same period of 2016.

Income Taxes

Income tax expense for the ~~Peoples acquisition in the third~~second quarter of ~~2015. One-time non-interest expense related to the Kosciusko, LaPorte Bancorp and CNB Bancorp acquisitions in the third quarter of 2016 totaled $2.9~~2017 was $3.5 million compared to ~~$3.6~~$2.6 million ~~in one-time fees associated with~~for the ~~Peoples acquisition~~same period of 2016. The effective tax rate for the second quarter of 2017 was 28.0% compared to 29.3% in the same period of ~~2015.~~2016. The decrease in the effective tax rate for the second quarter of 2017 was primarily due to a lower level of non-tax deductible merger-related expenses when compared to the same period of 2016.

Income tax expense for the six months ended June 30, 2017 was $6.6 million compared to $4.6 million for the same period of 2016. The effective tax rate for the first six months of 2017 was 27.5% compared to 28.2% in the same period of 2016. The decrease in the effective tax rate for the six months ended June 30, 2017 was primarily due to a lower level of non-tax deductible merger-related expenses when compared to the same period of 2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

   Nine Months Ended
   September 30
2016    September 30
2015    Amount
Change    Percent
Change
Non-interest expense

Salaries
   $ 22,485       $ 18,522       $ 3,963       21.4 %
Commission and bonuses
   4,064       4,325       (261 )    -6.0 %
Employee benefits
   6,043       4,694       1,349       28.7 %
Net occupancy expenses
   6,011       4,649       1,362       29.3 %
Data processing
   3,855       3,170       685       21.6 %
Professional fees
   2,190       1,596       594       37.2 %
Outside services and consultants
   5,983       4,753       1,230       25.9 %
Loan expense
   4,086       3,975       111       2.8 %
FDIC deposit insurance
   1,279       1,099       180       16.4 %
Other losses
   510       351       159       45.3 %
Other expense
   9,616       7,819       1,797       23.0 %







Total non-interest expense
   $ 66,122       $ 54,953       $ 11,169       20.3 %

Total non-interest expenses were $11.2 million higher in the first nine months of 2016 compared to the same period of 2015. Salaries increased by $4.0 million and employee benefits increased by $1.3 million due to a larger employee base. Net occupancy expense increased $1.4 million due to Horizon’s investment in growth markets and the Peoples, Kosciusko and LaPorte Bancorp acquisitions. Data processing expenses increased $685,000, loan expense increased $111,000 and FDIC deposit insurance increased by $180,000 primarily due to company growth. Other losses increased by $159,000 primarily due to higher debit card losses and a trust settlement. Other expenses increased by $1.8 million primarily due to company growth and one-time merger-related expenses. Commission and bonuses decreased by $261,000 due to a decrease in loan volume and incentive pay. Outside services and consultants expense increased by $1.2 million due to the one-time fees associated with Kosciusko, LaPorte Bancorp and CNB Bancorp acquisitions. One-time non-interest expense related to the Kosciusko, LaPorte Bancorp and CNB Bancorp acquisitions totaled $5.5 million in the first nine months of 2016 compared to $4.4 million in one-time fees associated with the Peoples acquisition in the same period of 2015.

Liquidity

The Bank maintains a stable base of core deposits provided by long-standing relationships with individuals and local businesses. These deposits are the principal source of liquidity for Horizon. Other sources of liquidity for Horizon include earnings, loan repayment, investment security sales and maturities, proceeds from the sale of residential mortgage loans, and borrowing relationships with correspondent banks, including the FHLB. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, cash and cash equivalents ~~increased~~decreased by approximately ~~$35.1~~$4.8 million. At ~~September~~June 30, ~~2016,~~2017, in addition to liquidity available from the normal operating, funding, and investing activities of Horizon, the Bank had approximately ~~$278.2~~$181.2 million in unused credit lines with various money center banks, including the FHLB and the FRB Discount Window compared to ~~$253.2~~$453.9 million at December 31, ~~2015~~2016 and ~~$328.0~~$300.6 million at ~~September~~June 30, ~~2015.~~2016.

Capital Resources

The capital resources of Horizon and the Bank exceeded regulatory capital ratios for “well capitalized” banks at ~~September~~June 30, ~~2016.~~2017. Stockholders’ equity totaled ~~$345.7~~$357.3 million as of ~~September~~June 30, ~~2016,~~2017, compared to ~~$266.8~~$340.9 million as of December 31, ~~2015.~~2016. For the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, the ratio of average stockholders’ equity to average assets was ~~10.18%~~11.03% compared to ~~10.32%~~10.22% for the ~~three~~twelve months ended December 31, ~~2015.~~2016. The increase in stockholders’ equity during the period was the result of the generation of net income, net of dividends ~~declared, as well as the stock issued in the Kosciusko and LaPorte Bancorp acquisitions.~~

~~HORIZON BANCORP AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of Financial Condition~~

~~And Results of Operations~~

~~For the Three and Nine Months ended September 30, 2016~~

declared.

On February 1, 2016, the Company paid off the $12.5 million in funds received through the Small Business Lending Fund with cash from the holding company, thereby ending its participation in the program, pursuant to which it issued preferred stock to the US Treasury. The funds were paid off due to an increase in the dividend cost that would have gone in effect at the end of February 2016. ~~For the nine months ending September 30, 2016, the dividend cost was $42,000 or 1.0% annualized and included the acceleration of interest due to the payoff.~~

Horizon declared common stock dividends in the amount of ~~$0.30~~$0.24 per share during the first ~~nine~~six months of ~~2016 compared to $0.29~~2017 and $0.20 per share for the same period of ~~2015.~~2016. The dividend payout ratio (dividends as a percent of basic earnings per share) was ~~31.6%~~30.8% and ~~30.2%~~30.8% for the first ~~nine~~six months of ~~2016~~2017 and ~~2015,~~2016, respectively. For additional information regarding dividends, see Horizon’s Annual Report on Form10-K for ~~2015.~~2016.

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and Six Months ended June 30, 2017 and 2016

Use ofNon-GAAP Financial Measures

Certain information set forth in this quarterly report on Form10-Q refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have includednon-GAAP financial measures of the net interest margin and the allowance for loan and lease losses excluding the impact of acquisition-related purchase accounting adjustments and net income and diluted earnings per share excluding the impact ofone-time costs related to acquisitions, acquisition-related purchase accounting adjustments and other events that are considered to benon-recurring. Horizon believes that thesenon-GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts andone-time costs of acquisitions andnon-core items, although these measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure.

Non-GAAP Reconciliation of Net Interest Margin

(Dollars in Thousands, Unaudited)


	Three Months Ended									Nine Months Ended
	September 30			June 30			September 30			September 30						Three Months Ended									Six Months Ended
	2016			2016			2015			2016			2015			June 30			March 31			June 30			June 30
Net Interest Margin As Reported																2017			2017			2016			2017			2016
Net interest income	$	24,410		$	20,869		$	19,776		$	65,053		$	54,512		$	27,198		$	25,568		$	20,869		$	52,766		$	40,643
Average interest-earning assets		2,957,944			2,471,354			2,304,515			2,591,566			2,072,276			2,943,627			2,797,429			2,471,354			2,870,884			2,406,468
Net interest income as a percent of average interest-earning assets (“Net Interest Margin”)		3.37	%		3.48	%		3.51	%		3.43	%		3.59	%		3.84	%		3.80	%		3.48	%		3.81	%		3.47	%

Impact of Acquisitions
Interest income from acquisition-related purchase accounting adjustments	$	(459	)	$	(397	)	$	(402	)	$	(1,404	)	$	(2,282	)	$	(939	)	$	(1,016	)	$	(397	)	$	(1,955	)	$	(944	)

Excluding Impact of Acquisitions
Excluding Impact of Prepayment Penalties and Acquisitions
Net interest income	$	23,951		$	20,472		$	19,374		$	63,649		$	52,230		$	26,259		$	24,552		$	20,472		$	50,811		$	39,699
Average interest-earning assets		2,957,944			2,471,354			2,304,515			2,591,566			2,072,276			2,943,627			2,797,429			2,471,354			2,870,884			2,406,468
Core Net Interest Margin		3.31	%		3.42	%		3.44	%		3.36	%		3.44	%		3.71	%		3.66	%		3.42	%		3.67	%		3.40	%

HORIZON BANCORP AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

Non-GAAP Reconciliation of Net Income and Diluted Earnings per Share

(Dollars in Thousands Except per Share ~~Data, Unaudited)~~Data)


	Three Months Ended						Nine Months Ended
	September 30						September 30						Three Months Ended						Six Months Ended
	2016			2015			2016			2015			June 30						June 30
Non-GAAP Reconciliation of Net Income													2017			2016			2017			2016
													(Unaudited)						(Unaudited)
Net income as reported	$	6,602		$	4,288		$	18,309		$	14,374		$	9,072		$	6,326		$	17,296		$	11,707
Merger expenses		2,953			3,648			5,472			4,364			200			1,881			200			2,520
Tax effect		(886	)		(1,219	)		(1,582	)		(1,402	)		(70	)		(531	)		(70	)		(696	)

Net income excluding merger expenses		8,669			6,717			22,199			17,336			9,202			7,676			17,426			13,531

Gain on sale of investment securities		—			—			(875	)		(124	)		3			(767	)		(32	)		(875	)
Tax effect		—			—			306			43			(1	)		268			11			306

Net income excluding gain on sale of investment securities		8,669			6,717			21,630			17,255			9,204			7,177			17,405			12,962

Death benefit on bank owned life insurance (“BOLI”)		—			—			—			(145	)
Tax effect		—			—			—			51

Net income excluding death benefit on BOLI		8,669			6,717			21,630			17,161


Acquisition-related purchase accounting adjustments (“PAUs”)		(459	)		(402	)		(1,404	)		(2,282	)		(939	)		(397	)		(1,955	)		(944	)
Tax effect		161			141			491			799			329			139			684			330

Net income excluding PAUs	$	8,371		$	6,456		$	20,717		$	15,678		$	8,594		$	6,919		$	16,134		$	12,348


Non-GAAP Reconciliation of Diluted Earnings per Share
Diluted earnings per share as reported	$	0.30		$	0.24		$	0.94		$	0.92		$	0.41		$	0.35		$	0.77		$	0.64
Merger expenses		0.14			0.20			0.28			0.28			0.01			0.10			0.01			0.14
Tax effect		(0.04	)		(0.07	)		(0.08	)		(0.09	)		(0.00	)		(0.03	)		(0.00	)		(0.04	)

Diluted earnings per share excluding merger expenses		0.40			0.37			1.14			1.11			0.42			0.42			0.78			0.74

Gain on sale of investment securities		—			—			(0.05	)		(0.01	)		0.00			(0.04	)		(0.00	)		(0.05	)
Tax effect		—			—			0.02			0.00			(0.00	)		0.01			0.00			0.02

Net income excluding gain on sale of investment securities		0.40			0.37			1.11			1.10			0.42			0.39			0.78			0.71

Death benefit on BOLI		—			—			—			(0.01	)
Tax effect		—			—			—			0.00

Net income excluding death benefit on BOLI		0.40			0.37			1.11			1.09


Acquisition-related PAUs		(0.02	)		(0.02	)		(0.07	)		(0.15	)		(0.04	)		(0.02	)		(0.09	)		(0.05	)
Tax effect		0.01			0.01			0.03			0.05			0.01			0.01			0.02			0.02

Diluted earnings per share excluding PAUs	$	0.39		$	0.36		$	1.07		$	0.99		$	0.39		$	0.38		$	0.71		$	0.68

Non-GAAP Reconciliation of Tangible Stockholders’ Equity and Tangible Book Value per Share

(Dollars in Thousands Except per Share Data)


											June 30		March 31		June 30
	September 30 2016		June 30 2016		March 31 2016		December 31 2015		September 30 2015		2017		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)				(Unaudited)		(Unaudited)				(Unaudited)
Total stockholders’ equity	$	345,736	$	281,002	$	261,417	$	266,832	$	264,738	$	357,259	$	348,575	$	281,002
Less: Preferred stock		—		—		—		12,500		12,500
Less: Intangible assets		83,891		65,144		56,695		56,971		57,248		86,726		87,094		65,144

Total tangible stockholder’s equity	$	261,845	$	215,858	$	204,722	$	197,361	$	194,990

Total tangible stockholders’ equity											$	270,533	$	261,481	$	215,858

Common shares outstanding		22,143,228		18,857,301		17,974,970		17,909,831		17,897,981		22,176,465		22,176,465		18,857,301

Tangible book value per common share	$	11.83	$	11.45	$	11.39	$	11.02	$	10.89	$	12.20	$	11.79	$	11.45

HORIZON BANCORP AND SUBSIDIARIES

Quantitative and Qualitative Disclosures About Market Risk

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We refer you to Horizon’s ~~2015~~2016 Annual Report on Form10-K for analysis of its interest rate sensitivity. Horizon believes there have been no significant changes in its interest rate sensitivity since it was reported in its ~~2015~~2016 Annual Report on Form10-K.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation Of Disclosure Controls And Procedures

Based on an evaluation of disclosure controls and procedures as of ~~September~~June 30, ~~2016,~~2017, Horizon’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Horizon’s disclosure controls (as defined in Exchange Act Rule13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on such evaluation, such officers have concluded that, as of the evaluation date, Horizon’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by Horizon in the reports it files under the Exchange Act is recorded, processed, summarized and reported within the time specified in Securities and Exchange Commission rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure.

Changes In Internal Control Over Financial Reporting

Horizon’s management, including its Chief Executive Officer and Chief Financial Officer, also have concluded that during the fiscal quarter ended ~~September~~June 30, ~~2016,~~2017, there have been no changes in Horizon’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Horizon’s internal control over financial reporting.

HORIZON BANCORP AND SUBSIDIARIES

Part II – Other Information

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

ITEM 1.

LEGAL PROCEEDINGS

Horizon and its subsidiaries are involved in various legal proceedings incidental to the conduct of their business. Management does not expect that the outcome of any such proceedings will have a material adverse effect on our consolidated financial position or results of operations.

ITEM 1A.

RISK FACTORS

There have been no material changes from the factors previously disclosed under Item 1A of Horizon’s Annual Report on Form10-K for ~~2015.~~2016.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.

OTHER INFORMATION

Not Applicable

HORIZON BANCORP AND SUBSIDIARIES

Part II – Other Information

For the Three and ~~Nine~~Six Months ended ~~September~~June 30, 2017 and 2016

ITEM 6.

EXHIBITS

(a)

Exhibits


Exhibit No.		Description

~~3.1~~2.1		~~Amended~~Agreement and ~~Restated Articles~~Plan of ~~Incorporation of~~Merger, dated June 13, 2017, between Horizon Bancorp ~~with October 19, 2016 Amendment~~and Wolverine Bancorp, Inc. (incorporated by reference to Exhibit ~~3.1~~2.1 to Registrant’s Form8-K filed ~~October 19, 2016)~~June 14, 2017)

10.1		Voting Agreement, ~~between Horizon Bank, N.A. and Kathie A. DeRuiter~~dated June 13, 2017 (incorporated by reference to Exhibit 10.1 to Registrant’s Form8-K filed ~~September 21, 2016~~June 14, 2017)

31.1		Certification of Craig M. Dwight

31.2		Certification of Mark E. Secor

32		Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


HORIZON BANCORP
				~~HORIZON BANCORP~~

Dated:	~~November~~ August 9, ~~2016~~	2017	/s/ Craig M. Dwight
			Craig M. Dwight
			Chief Executive Officer

Dated:	~~November~~ August 9, ~~2016~~	2017	/s/ Mark E. Secor
			Mark E. Secor
			Chief Financial Officer

INDEX TO EXHIBITS


Exhibit No.	Description	Location

Exhibit ~~3.1~~2.1	~~Amended~~Agreement and ~~Restated Articles~~Plan of ~~Incorporation of~~Merger, dated June 13, 2017, between Horizon Bancorp ~~with October 19, 2016 Amendment~~and Wolverine Bancorp, Inc.	Incorporated by reference to Exhibit ~~3.1~~2.1 to Registrant’s Form8-K filed ~~October 19, 2016~~June 14, 2017

Exhibit 10.1	Voting Agreement, ~~between Horizon Bank, N.A. and Kathie A. DeRuiter~~dated June 13, 2017	Incorporated by reference to Exhibit 10.1 to Registrant’s Form8-K filed ~~September 21, 2016~~June 14, 2017

Exhibit 31.1	Certification of Craig M. Dwight	Attached

Exhibit 31.2	Certification of Mark E. Secor	Attached

Exhibit 32	Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Attached

Exhibit 101	Interactive Data Files	Attached

6469


515 Franklin Square, Michigan City, Indiana		46360
(Address of principal executive offices)		(Zip Code)


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Income	4

	Condensed Consolidated Statements of Comprehensive Income	5

	Condensed Consolidated Statement of Stockholders’ Equity	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4447

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6065

Item 4.	Controls and Procedures	6065

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	6166

Item 1A.	Risk Factors	6166

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6166

Item 3.	Defaults Upon Senior Securities	6166

Item 4.	Mine Safety Disclosures	6166

Item 5.	Other Information	6166

Item 6.	Exhibits	6267

Signatures		6368

Index To Exhibits		6469


	September 30 2016		December 31 2015			June 30 2017			December 31 2016
	(Unaudited)					(Unaudited)
Assets
Cash and due from banks	$	83,721	$	48,650		$	65,993		$	70,832
Investment securities, available for sale		557,213		444,982			505,051			439,831
Investment securities, held to maturity (fair value of $194,294 and $193,703)		187,027		187,629
Investment securities, held to maturity (fair value of $203,542 and $194,086)							199,474			193,194
Loans held for sale		7,369		7,917			3,730			8,087
Loans, net of allowance for loan losses of $14,524 and $14,534		2,175,995		1,734,597
Loans, net of allowance for loan losses of $15,027 and $14,837							2,252,697			2,121,149
Premises and equipment, net		67,265		60,798			65,358			66,357
Federal Reserve and Federal Home Loan Bank stock		20,877		13,823			14,945			23,932
Goodwill		74,308		49,600			77,644			76,941
Other intangible assets		9,583		7,371			9,082			9,366
Interest receivable		12,702		10,535			13,316			12,713
Cash value of life insurance		73,661		54,504			75,006			74,134
Other assets		55,929		31,995			38,882			44,620

Total assets	$	3,325,650	$	2,652,401		$	3,321,178		$	3,141,156

Liabilities
Deposits
Non-interest bearing	$	479,771	$	335,955		$	508,305		$	496,248
Interest bearing		1,856,391		1,544,198			1,910,478			1,974,962

Total deposits		2,336,162		1,880,153			2,418,783			2,471,210
Borrowings		569,908		449,347			485,304			267,489
Subordinated debentures		37,418		32,797			37,562			37,456
Interest payable		1,015		507			559			472
Other liabilities		35,411		22,765			21,711			23,674

Total liabilities		2,979,914		2,385,569			2,963,919			2,800,301

Commitments and contingent liabilities
Stockholders’ Equity
Preferred stock, Authorized, 1,000,000 shares Series B shares $.01 par value, $1,000 liquidation value Issued 0 and 12,500 shares		—		12,500
Common stock, no par value Authorized, 66,000,000 shares (Restated - See Note 1) Issued, 22,172,103 and 17,992,986 shares (Restated - See Note 1) Outstanding, 22,143,228 and 17,909,831 shares (Restated - See Note 1)		—		—
Preferred stock, Authorized, 1,000,000 shares
Issued 0 and 0 shares							—			—
Common stock, no par value
Authorized 66,000,000 shares⁽¹⁾
Issued, 22,195,715 and 22,192,530 shares⁽¹⁾
Outstanding, 22,176,465 and 22,171,596 shares⁽¹⁾							—			—
Additional paid-in capital		181,901		106,370			182,552			182,326
Retained earnings		161,026		148,685			176,123			164,173
Accumulated other comprehensive income (loss)		2,809		(723	)
Accumulated other comprehensive loss							(1,416	)		(5,644	)

Total stockholders’ equity		345,736		266,832			357,259			340,855

Total liabilities and stockholders’ equity	$	3,325,650	$	2,652,401		$	3,321,178		$	3,141,156


	Three Months Ended September 30						Nine Months Ended September 30
	2016			2015			2016			2015			Three Months Ended June 30						Six Months Ended June 30
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			2017			2016			2017			2016
													(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net Income	$	6,602		$	4,288		$	18,309		$	14,374		$	9,072		$	6,326		$	17,296		$	11,707

Other Comprehensive Income (Loss)
Change in fair value of derivative instruments:
Change in fair value of derivative instruments for the period		803			(516	)		158			(334	)		46			(83	)		446			(645	)
Income tax effect		(281	)		181			(55	)		117			(16	)		29			(156	)		226

Changes from derivative instruments		522			(335	)		103			(217	)		30			(54	)		290			(419	)

Change in securities:
Unrealized appreciation (depreciation) for the period on AFS securities		(1,927	)		1,781			6,712			1,379
Amortization from transfer of securities from available-for-sale to held-to-maturity securities		(83	)		(203	)		(560	)		(475	)
Reclassification adjustment for securities gains realized in income		—			—			(875	)		(124	)
Unrealized appreciation for the period on AFS securities														3,638			2,691			6,235			8,637
Amortization from transfer of securities from available for sale to held to maturity securities														(58	)		(248	)		(146	)		(477	)
Reclassification adjustment for securities (gains) losses realized in income														3			(767	)		(32	)		(875	)
Income tax effect		704			(552	)		(1,848	)		(273	)		(1,252	)		(727	)		(2,119	)		(2,550	)

Unrealized gains (losses) on securities		(1,306	)		1,026			3,429			507
Unrealized gains on securities														2,331			949			3,938			4,735

Other Comprehensive Income (Loss), Net of Tax		(784	)		691			3,532			290
Other Comprehensive Income, Net of Tax														2,361			895			4,228			4,316

Comprehensive Income	$	5,818		$	4,979		$	21,841		$	14,664		$	11,433		$	7,221		$	21,524		$	16,023


									Accumulated
				Additional					Other
	Preferred			Paid-in		Retained			Comprehensive
	Stock			Capital		Earnings			Income (Loss)			Total
Balances, January 1, 2016	$	12,500		$	106,370	$	148,685		$	(723	)	$	266,832
Net income							18,309						18,309
Other comprehensive income, net of tax										3,532			3,532
Redemption of preferred stock		(12,500	)										(12,500	)
Amortization of unearned compensation					222								222
Stock option expense					247								247
Stock issued stock plans					286								286
Stock issued in KFI acquisition					14,470								14,470
Stock issued in LPSB acquisition					60,306								60,306
Cash dividends on preferred stock (1.00%)							(42	)					(42	)
Cash dividends on common stock ($.30 per share)							(5,926	)					(5,926	)

Balances, September 30, 2016	$	—		$	181,901	$	161,026		$	2,809		$	345,736


	Preferred Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances, January 1, 2017	$	—	$	182,326	$	164,173		$	(5,644	)	$	340,855
Net income						17,296						17,296
Other comprehensive income, net of tax									4,228			4,228
Amortization of unearned compensation				34								34
Exercise of stock options				34								34
Stock option expense				158								158
Cash dividends on common stock ($0.24 per share)						(5,346	)					(5,346	)

Balances, June 30, 2017	$	—	$	182,552	$	176,123		$	(1,416	)	$	357,259


	Three Months Ended June 30				Six Months Ended June 30
	2017		2016		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Basic earnings per share
Net income	$	9,072	$	6,326	$	17,296	$	11,707
Less: Preferred stock dividends		—		—		—		42

Net income available to common shareholders	$	9,072	$	6,326	$	17,296	$	11,665
Weighted average common shares outstanding⁽¹⁾		22,176,465		18,268,880		22,175,998		18,096,503
Basic earnings per share	$	0.41	$	0.35	$	0.78	$	0.65

Diluted earnings per share
Net income available to common shareholders	$	9,072	$	6,326	$	17,296	$	11,665
Weighted average common shares outstanding⁽¹⁾		22,176,465		18,268,880		22,175,998		18,096,503
Effect of dilutive securities:
Restricted stock		30,091		31,082		33,205		31,575
Stock options		115,834		64,206		115,317		62,465

Weighted average shares outstanding		22,322,390		18,364,167		22,324,520		18,190,542
Diluted earnings per share	$	0.41	$	0.35	$	0.77	$	0.64


ASSETS
Cash and due from banks	$	205,054
Investment securities, held to maturity		2,038

Commercial		67,435
Residential mortgage		137,331
Consumer		19,593

Total loans		224,359

Premises and equipment, net		5,524
FRB and FHLB stock		2,743
Goodwill		21,424
Core deposit intangible		4,394
Interest receivable		1,279
Cash value of life insurance		13,898
Other assets		4,364

Total assets purchased	$	485,077


Common shares issued	$	55,506
Cash paid		22,641

Total estimated purchase price	$	78,147


Contractually required principal and interest at acquisition	$	5,730
Contractual cash flows not expected to be collected (nonaccretable differences)		715

Expected cash flows at acquisition		5,015
Interest component of expected cash flows (accretable discount)		647

Fair value of acquired loans accounted for under ASC 310-30	$	4,368


ASSETS
Cash and due from banks	$	38,950
Investment securities, held to maturity		1,191

Commercial		70,006
Residential mortgage		26,244
Consumer		6,319

Total loans		102,569

Premises and equipment, net		1,466
FRB and FHLB stock		582
Goodwill		6,443
Core deposit intangible		526
Interest receivable		636
Cash value of life insurance		2,745
Other assets		765

Total assets purchased	$	155,873


Common shares issued	$	14,470
Cash paid		8,513

Total estimated purchase price	$	22,983


Contractually required principal and interest at acquisition	$	2,682	$	2,682
Contractual cash flows not expected to be collected (nonaccretable differences)		25		25

Expected cash flows at acquisition		2,657		2,657
Interest component of expected cash flows (accretable discount)		634		634

Fair value of acquired loans accounted for under ASC 310-30	$	2,023	$	2,023


ASSETS
Cash and due from banks	$	154,849
Investment securities, held to maturity		23,779

Commercial		154,223
Residential mortgage		42,603
Consumer		16,801
Mortgage Warehousing		99,752

Total loans		313,379

Premises and equipment, net		6,022
FHLB stock		4,029
Goodwill		18,265
Core deposit intangible		2,514
Interest receivable		844
Cash value of life insurance		15,267
Other assets		7,822

Total assets purchased	$	546,770


Common shares issued	$	60,306
Cash paid		38,328

Total estimated purchase price	$	98,634


Contractually required principal and interest at acquisition	$	12,551	$	12,545
Contractual cash flows not expected to be collected (nonaccretable differences)		3,411		4,492

Expected cash flows at acquisition		9,140		8,053
Interest component of expected cash flows (accretable discount)		1,736		1,258

Fair value of acquired loans accounted for under ASC 310-30	$	7,404	$	6,795


June 30, 2017										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies										$	20,020	$	4	$	(58	)	$	19,966
State and municipal											136,539		2,454		(507	)		138,486
Federal agency collateralized mortgage obligations											133,038		213		(1,337	)		131,914
Federal agency mortgage-backed pools											212,154		509		(1,782	)		210,881
Private labeled mortgage-backed pools											1,871		—		(3	)		1,868
Corporate notes											1,233		703		—			1,936

Total available for sale investment securities										$	504,855	$	3,883	$	(3,687	)	$	505,051

Held to maturity
State and municipal										$	177,781	$	4,683	$	(930	)	$	181,534
Federal agency collateralized mortgage obligations											6,102		39		(27	)		6,114
Federal agency mortgage-backed pools											15,591		364		(61	)		15,894

Total held to maturity investment securities										$	199,474	$	5,086	$	(1,018	)	$	203,542

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2016	Cost		Gains		Losses			Value
December 31, 2016										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale
U.S. Treasury and federal agencies	$	27,383	$	54	$	(15	)	$	27,422	$	8,051	$	2	$	(64	)	$	7,989
State and municipal		62,825		1,321		(107	)		64,039		117,327		324		(1,059	)		116,592
Federal agency collateralized mortgage obligations		188,072		1,894		(282	)		189,684		139,040		254		(2,099	)		137,195
Federal agency mortgage-backed pools		272,144		4,240		(411	)		275,973		180,183		251		(3,707	)		176,726
Corporate notes		32		63		—			95		1,238		91		—			1,329

Total available for sale investment securities	$	550,456	$	7,572	$	(815	)	$	557,213	$	445,839	$	922	$	(6,929	)	$	439,831


Held to maturity
State and municipal	$	158,543	$	6,718	$	(761	)	$	164,500	$	165,607	$	2,700	$	(2,485	)	$	165,822
Federal agency collateralized mortgage obligations		6,828		144		—			6,972		6,530		31		(71	)		6,490
Federal agency mortgage-backed pools		21,656		1,166		—			22,822		21,057		897		(180	)		21,774

Total held to maturity investment securities	$	187,027	$	8,028	$	(761	)	$	194,294	$	193,194	$	3,628	$	(2,736	)	$	194,086


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2015	Cost		Gains		Losses			Value
Available for sale
U.S. Treasury and federal agencies	$	5,940	$	3	$	(17	)	$	5,926
State and municipal		73,829		1,299		(33	)		75,095
Federal agency collateralized mortgage obligations		157,291		567		(1,655	)		156,203
Federal agency mortgage-backed pools		206,970		2,080		(1,346	)		207,704
Corporate notes		32		22		—			54

Total available for sale investment securities	$	444,062	$	3,971	$	(3,051	)	$	444,982


Held to maturity
U.S. Treasury and federal agencies	$	5,859	$	93	$	—		$	5,952
State and municipal		146,331		5,375		(253	)		151,453
Federal agency collateralized mortgage obligations		9,051		27		(124	)		8,954
Federal agency mortgage-backed pools		26,388		1,141		(185	)		27,344

Total held to maturity investment securities	$	187,629	$	6,636	$	(562	)	$	193,703


	September 30			December 31			June 30			December 31
	2016			2015			2017			2016
Commercial
Working capital and equipment	$	440,599		$	381,245		$	579,288		$	539,403
Real estate, including agriculture		564,602			391,668			511,991			485,620
Tax exempt		12,621			8,674			18,094			15,486
Other		29,628			23,408			34,388			29,447

Total		1,047,450			804,995			1,143,761			1,069,956

Real estate
1–4 family		523,721			433,015			543,847			526,024
Other		6,441			4,129			6,150			5,850

Total		530,162			437,144			549,997			531,874

Consumer
Auto		167,541			168,397			210,093			174,773
Recreation		5,458			5,365			7,597			5,669
Real estate/home improvement		55,505			47,015			56,950			53,898
Home equity		140,156			127,113			153,323			144,508
Unsecured		4,230			4,120			3,610			3,875
Other		13,141			10,290			18,636			15,706

Total		386,031			362,300			450,209			398,429

Mortgage warehouse		226,876			144,692			123,757			135,727

Total loans		2,190,519			1,749,131			2,267,724			2,135,986
Allowance for loan losses		(14,524	)		(14,534	)		(15,027	)		(14,837	)

Loans, net	$	2,175,995		$	1,734,597		$	2,252,697		$	2,121,149


	Loan					Deferred			Recorded
September 30, 2016	Balance			Interest Due		Fees / (Costs)			Investment
June 30, 2017												Loan Balance			Interest Due		Deferred Fees / (Costs)			Recorded Investment
Owner occupied real estate	$	321,762		$	1,151	$	1,192		$	324,105		$	341,192		$	925	$	942		$	343,059
Non owner occupied real estate		457,555			627		529			458,711			489,978			594		2,271			492,843
Residential spec homes		7,949			20		6			7,975			3,454			7		—			3,461
Development & spec land loans		39,798			79		74			39,951			38,139			70		98			38,307
Commercial and industrial		218,414			1,992		171			220,577			267,214			1,943		473			269,630

Total commercial		1,045,478			3,869		1,972			1,051,319			1,139,977			3,539		3,784			1,147,300

Residential mortgage		506,545			1,599		2,556			510,700			529,632			1,546		2,942			534,120
Residential construction		21,061			38		—			21,099			17,423			31		—			17,454
Mortgage warehouse		226,876			498		—			227,374			123,757			480		—			124,237

Total real estate		754,482			2,135		2,556			759,173			670,812			2,057		2,942			675,811

Direct installment		66,495			178		(439	)		66,234			80,972			205		(503	)		80,674
Direct installment purchased		124			—		—			124			94			—		—			94
Indirect installment		147,829			296		—			148,125			186,837			373		177			187,387
Home equity		172,905			665		(883	)		172,687			183,741			713		(1,109	)		183,345

Total consumer		387,353			1,139		(1,322	)		387,170			451,644			1,291		(1,435	)		451,500

Total loans		2,187,313			7,143		3,206			2,197,662			2,262,433			6,887		5,291			2,274,611
Allowance for loan losses		(14,524	)		—		—			(14,524	)		(15,027	)		—		—			(15,027	)

Net loans	$	2,172,789		$	7,143	$	3,206		$	2,183,138		$	2,247,406		$	6,887	$	5,291		$	2,259,584


	Loan					Deferred			Recorded
December 31, 2015	Balance			Interest Due		Fees / (Costs)			Investment
December 31, 2016												Loan Balance			Interest Due		Deferred Fees / (Costs)			Recorded Investment
Owner occupied real estate	$	268,281		$	613	$	1,328		$	270,222		$	337,548		$	899	$	1,022		$	339,469
Non owner occupied real estate		326,399			306		497			327,202			461,897			624		2,176			464,697
Residential spec homes		5,018			9		17			5,044			5,006			8		(2	)		5,012
Development & spec land loans		18,183			33		26			18,242			31,228			56		119			31,403
Commercial and industrial		184,911			1,246		335			186,492			230,520			1,906		442			232,868


	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2016	Value		Losses			Value		Losses			Value		Losses

U.S. Treasury and federal agencies	$	6,594	$	(15	)	$	—	$	—		$	6,594	$	(15	)
State and municipal		26,360		(868	)		—		—			26,360		(868	)
Federal agency collateralized mortgage obligations		48,837		(184	)		12,304		(98	)		61,141		(282	)
Federal agency mortgage-backed pools		47,054		(365	)		6,779		(46	)		53,833		(411	)

Total temporarily impaired securities	$	128,845	$	(1,432	)	$	19,083	$	(144	)	$	147,928	$	(1,576	)


	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2015	Value		Losses			Value		Losses			Value		Losses

U.S. Treasury and federal agencies	$	5,468	$	(17	)	$	—	$	—		$	5,468	$	(17	)
State and municipal		17,353		(280	)		446		(6	)		17,799		(286	)
Federal agency collateralized mortgage obligations		89,459		(1,124	)		25,428		(655	)		114,887		(1,779	)
Federal agency mortgage-backed pools		113,244		(1,212	)		16,506		(319	)		129,750		(1,531	)

Total temporarily impaired securities	$	225,524	$	(2,633	)	$	42,380	$	(980	)	$	267,904	$	(3,613	)


													June 30 2017 Heartland		June 30 2017 Summit		June 30 2017 Peoples		June 30 2017 Kosciusko		June 30 2017 LaPorte		June 30 2017 Total
Commercial													$	658	$	4,814	$	607	$	1,505	$	1,128	$	8,712
Real estate														260		927		146		425		1,031		2,789
Consumer														—		—		—		—		36		36

Outstanding balance													$	918	$	5,741	$	753	$	1,930	$	2,195	$	11,537

Carrying amount, net of allowance of $71																							$	11,466
	September 30		September 30		September 30		September 30		September 30		September 30
	2016		2016		2016		2016		2016		2016
	Heartland		Summit		Peoples		Kosciusko		LaPorte		Total		December 31 2016 Heartland		December 31 2016 Summit		December 31 2016 Peoples		December 31 2016 Kosciusko		December 31 2016 LaPorte		December 31 2016 Total
Commercial	$	867	$	5,323	$	724	$	1,667	$	5,731	$	14,312	$	774	$	5,245	$	692	$	1,652	$	3,200	$	11,563
Real estate		605		989		204		492		1,673		3,963		534		967		165		457		1,114		3,237
Consumer		2		9		—		—		—		11		2		—		—		—		41		43

Outstanding balance	$	1,474	$	6,321	$	928	$	2,159	$	7,404	$	18,286	$	1,310	$	6,213	$	856	$	2,109	$	4,355	$	14,843

Carrying amount, net of allowance of $0											$	18,286											$	14,843


	December 31		December 31		December 31		December 31		December 31		December 31
	2015		2015		2015		2015		2015		2015
	Heartland		Summit		Peoples		Kosciusko		LaPorte		Total
Commercial	$	1,633	$	5,567	$	1,061	$	—	$	—	$	8,261
Real estate		693		1,216		179		—		—		2,088
Consumer		6		35		—		—		—		41

Outstanding balance	$	2,332	$	6,818	$	1,240	$	—	$	—	$	10,390

Carrying amount, net of allowance of $63											$	10,327


	Nine Months Ended September 30, 2016																	Six Months Ended June 30, 2017
	Heartland			Summit			Peoples			Kosciusko			LaPorte		Total			Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	795		$	708		$	555		$	—		$	—	$	2,058		$	557		$	502		$	389		$	530		$	1,479		$	3,457
Additions		—			—			—			634			1,736		2,370			—			—			—			—			—			—
Accretion		(127	)		(139	)		(92	)		(38	)		—		(396	)		(67	)		(182	)		(388	)		(58	)		(150	)		(845	)
Reclassification from nonaccretable difference		—			—			—			—			—		—			—			—			—			—			—			—
Disposals		(74	)		(35	)		(59	)		(23	)		—		(191	)		(6	)		(2	)		(1	)		(18	)		(153	)		(180	)

Balance at September 30	$	594		$	534		$	404		$	573		$	1,736	$	3,841
Balance at June 30																		$	484		$	318		$	—		$	454		$	1,176		$	2,432


	Nine Months Ended September 30, 2015																	Six Months Ended June 30, 2016
	Heartland			Summit			Peoples			Kosciusko			LaPorte		Total			Heartland			Summit			Peoples			Kosciusko			LaPorte			Total
Balance at January 1	$	2,400		$	1,268		$	—		$	—		$	—	$	3,668		$	795		$	708		$	555		$	—		$	—		$	2,058
Additions		—			—			647			—			—		647			—			—			—			950			—			950
Accretion		(272	)		(254	)		—			—			—		(526	)		(89	)		(103	)		(69	)		—			—			(261	)
Reclassification from nonaccretable difference		—			—			—			—			—		—			—			—			—			—			—			—
Disposals		(1,210	)		(237	)		—			—			—		(1,447	)		(24	)		(4	)		(58	)		—			—			(86	)

Balance at September 30	$	918		$	777		$	647		$	—		$	—	$	2,342
Balance at June 30																		$	682		$	601		$	428		$	950		$	—		$	2,661


September 30, 2016	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non- Performing TDRs		Performing TDRs		Total Non- Performing Loans
June 30, 2017											Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non- Performing TDRs		Performing TDRs		Total Non- Performing Loans
Commercial
Owner occupied real estate	$	566	$	—	$	—	$	—	$	566	$	746	$	—	$	—	$	—	$	746
Non owner occupied real estate		2,734		—		240		60		3,034		467		—		—		—		467
Residential development		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		137		—		—		—		137		107		—		—		—		107
Commercial and industrial		1,740		—		—		—		1,740		1,474		—		—		—		1,474

Total commercial		5,177		—		240		60		5,477		2,794		—		—		—		2,794

Real estate
Residential mortgage		1,094		44		870		863		2,871		3,176		—		471		1,412		5,059
Residential construction		—		—		238		—		238		—		—		—		226		226
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—

Total real estate		1,094		44		1,108		863		3,109		3,176		—		471		1,638		5,285

Consumer
Direct Installment		1,505		—		—		—		1,505		495		—		—		—		495
Direct Installment Purchased		—		—		—		—		—		—		—		—		—		—
Indirect Installment		970		15		—		—		985		957		73		—		—		1,030
Home Equity		1,345		—		175		241		1,761		1,389		87		197		286		1,959

Total Consumer		3,820		15		175		241		4,251		2,841		160		197		286		3,484

Total	$	10,091	$	59	$	1,523	$	1,164	$	12,837	$	8,811	$	160	$	668	$	1,924	$	11,563


December 31, 2015	Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non- Performing TDRs		Performing TDRs		Total Non- Performing Loans
December 31, 2016											Non-accrual		Loans Past Due Over 90 Days Still Accruing		Non- Performing TDRs		Performing TDRs		Total Non- Performing Loans
Commercial
Owner occupied real estate	$	1,749	$	—	$	—	$	—	$	1,749	$	1,532	$	183	$	—	$	—	$	1,715
Non owner occupied real estate		3,034		—		1,915		60		5,009		440		—		—		—		440
Residential development		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		71		—		—		—		71		118		—		—		—		118
Commercial and industrial		176		—		—		—		176		159		—		—		—		159

Total commercial		5,030		—		1,915		60		7,005		2,249		183		—		—		2,432

Real estate
Residential mortgage		4,354		1		824		808		5,987		2,959		—		576		1,254		4,789
Residential construction		—		—		250		—		250		—		—		233		—		233
Mortgage warehouse		—		—		—		—		—		—		—		—		—		—

Total real estate		4,354		1		1,074		808		6,237		2,959		—		809		1,254		5,022

Consumer
Direct Installment		541		—		—		—		541		512		—		—		—		512
Direct Installment Purchased		—		—		—		—		—		—		—		—		—		—
Indirect Installment		601		27		—		—		628		659		49		—		—		708
Home Equity		1,736		—		183		350		2,269		1,557		9		205		238		2,009

Total Consumer		2,878		27		183		350		3,438		2,728		58		205		238		3,229

Total	$	12,262	$	28	$	3,172	$	1,218	$	16,680	$	7,936	$	241	$	1,014	$	1,492	$	10,683


							Three Months Ending				Nine Months Ending										Three Months Ending				Six Months Ending
September 30, 2016	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
June 30, 2017															Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/ Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/ Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	994	$	995	$	—	$	1,029	$	—	$	1,062	$	—	$	1,591	$	1,592	$	—	$	1,538	$	22	$	1,233	$	22
Non owner occupied real estate		3,106		3,120		—		3,150		1		3,776		3		467		467		—		471		2		432		2
Residential development		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—		107		107		—		230		—		234		—
Commercial and industrial		1,740		1,740		—		1,984		—		878		—		1,474		1,474		—		1,023		16		619		16

Total commercial		5,840		5,855		—		6,163		1		5,716		3		3,639		3,640		—		3,262		40		2,518		40

With an allowance recorded
Commercial
Owner occupied real estate		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Non owner occupied real estate		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Residential development		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Total commercial		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Total	$	5,840	$	5,855	$	—	$	6,163	$	1	$	5,716	$	3	$	3,639	$	3,640	$	—	$	3,262	$	40	$	2,518	$	40


							Three Months Ending				Nine Months Ending										Three Months Ending				Six Months Ending
September 30, 2015	Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/Accrual Interest Income Recognized
June 30, 2016															Unpaid Principal Balance		Recorded Investment		Allowance For Loan Loss Allocated		Average Balance in Impaired Loans		Cash/ Accrual Interest Income Recognized		Average Balance in Impaired Loans		Cash/ Accrual Interest Income Recognized
With no recorded allowance
Commercial
Owner occupied real estate	$	1,235	$	1,238	$	—	$	1,262	$	1	$	1,041	$	10	$	1,054	$	1,054	$	—	$	1,062	$	—	$	1,079	$	—
Non owner occupied real estate		2,798		2,801		—		2,815		1		2,846		4		476		480		—		600		1		1,331		2
Residential development		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		239		239		—		583		4		415		4		71		71		—		320		—		325		—

Total commercial		4,272		4,278		—		4,660		6		4,302		18		1,601		1,605		—		1,982		1		2,735		2

With an allowance recorded
Commercial
Owner occupied real estate		2,967		2,966		598		2,968		—		2,191		55		—		—		—		—		—		—		—
Non owner occupied real estate		2,817		2,828		550		2,858		—		2,942		—		2,729		2,739		500		2,747		—		2,757		—
Residential development		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Development & Spec Land Loans		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Commercial and industrial		776		776		451		776		—		836		—		—		—		—		—		—		—		—

Total commercial		6,560		6,570		1,599		6,602		—		5,969		55		2,729		2,739		500		2,747		—		2,757		—

Total	$	10,832	$	10,848	$	1,599	$	11,262	$	6	$	10,271	$	73	$	4,330	$	4,344	$	500	$	4,729	$	1	$	5,492	$	2


September 30, 2016	30 - 59 Days Past Due			60 - 89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Loans Not Past Due			Total
Commercial
Owner occupied real estate	$	282		$	17		$	—		$	299		$	321,463		$	321,762
Non owner occupied real estate		180			103			—			283			457,272			457,555
Residential development		—			—			—			—			7,949			7,949
Development & Spec Land Loans		32			—			—			32			39,766			39,798
Commercial and industrial		361			267			—			628			217,786			218,414

Total commercial		855			387			—			1,242			1,044,236			1,045,478

Real estate
Residential mortgage		982			210			43			1,235			505,310			506,545
Residential construction		—			—			—			—			21,061			21,061
Mortgage warehouse		—			—			—			—			226,876			226,876

Total real estate		982			210			43			1,235			753,247			754,482

Consumer
Direct Installment		42			30			—			72			66,423			66,495
Direct Installment Purchased		—			—			—			—			124			124
Indirect Installment		805			49			15			869			146,960			147,829
Home Equity		436			26			—			462			172,443			172,905

Total consumer		1,283			105			15			1,403			385,950			387,353

Total	$	3,120		$	702		$	58		$	3,880		$	2,183,433		$	2,187,313

Percentage of total loans		0.14	%		0.03	%		0.00	%		0.18	%		99.82	%


September 30, 2016	Pass			Special Mention			Substandard			Doubtful			Total
June 30, 2017															Pass			Special Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	305,849		$	5,258		$	10,655		$	—		$	321,762	$	329,160		$	1,503		$	10,529		$	—		$	341,192
Non owner occupied real estate		450,811			344			6,400			—			457,555		484,025			450			5,503			—			489,978
Residential development		7,949			—			—			—			7,949		3,454			—			—			—			3,454
Development & Spec Land Loans		39,571			—			227			—			39,798		37,884			—			255			—			38,139
Commercial and industrial		207,998			1,419			8,997			—			218,414		253,670			3,730			9,814			—			267,214

Total commercial		1,012,178			7,021			26,279			—			1,045,478		1,108,193			5,683			26,101			—			1,139,977

Real estate
Residential mortgage		503,821			—			2,724			—			506,545		524,573			—			5,059			—			529,632
Residential construction		20,823			—			238			—			21,061		17,197			—			226			—			17,423
Mortgage warehouse		226,876			—			—			—			226,876		123,757			—			—			—			123,757

Total real estate		751,520			—			2,962			—			754,482		665,527			—			5,285			—			670,812

Consumer
Direct Installment		64,990			—			1,505			—			66,495		80,477			—			495			—			80,972
Direct Installment Purchased		124			—			—			—			124		94			—			—			—			94
Indirect Installment		146,844			—			985			—			147,829		185,807			—			1,030			—			186,837
Home Equity		171,152			—			1,753			—			172,905		181,782			—			1,959			—			183,741

Total Consumer		383,110			—			4,243			—			387,353		448,160			—			3,484			—			451,644

Total	$	2,146,808		$	7,021		$	33,484		$	—		$	2,187,313	$	2,221,880		$	5,683		$	34,870		$	—		$	2,262,433

Percentage of total loans		98.15	%		0.32	%		1.53	%		0.00	%				98.21	%		0.25	%		1.54	%		0.00	%

December 31, 2015	Pass			Special Mention			Substandard			Doubtful			Total
December 31, 2016															Pass			Special Mention			Substandard			Doubtful			Total
Commercial
Owner occupied real estate	$	257,181		$	4,954		$	6,146		$	—		$	268,281	$	322,924		$	4,960		$	9,664		$	—		$	337,548
Non owner occupied real estate		320,216			585			5,598			—			326,399		455,648			341			5,908			—			461,897
Residential development		5,018			—			—			—			5,018		5,006			—			—			—			5,006
Development & Spec Land Loans		18,112			—			71			—			18,183		31,057			—			171			—			31,228
Commercial and industrial		180,581			693			3,637			—			184,911		220,424			3,728			6,368			—			230,520

Total commercial		781,108			6,232			15,452			—			802,792		1,035,059			9,029			22,111			—			1,066,199

Real estate
Residential mortgage		408,937			—			5,987			—			414,924		503,444			—			4,789			—			508,233
Residential construction		19,501			—			250			—			19,751		20,378			—			233			—			20,611
Mortgage warehouse		144,692			—			—			—			144,692		135,727			—			—			—			135,727

Total real estate		573,130			—			6,237			—			579,367		659,549			—			5,022			—			664,571

Consumer
Direct Installment		53,800			—			541			—			54,341		70,638			—			512			—			71,150
Direct Installment Purchased		153			—			—			—			153		119			—			—			—			119
Indirect Installment		150,895			—			628			—			151,523		152,496			—			708			—			153,204
Home Equity		154,895			—			2,269			—			157,164		173,117			—			2,009			—			175,126

Total Consumer		359,743			—			3,438			—			363,181		396,370			—			3,229			—			399,599

Total	$	1,713,981		$	6,232		$	25,127		$	—		$	1,745,340	$	2,090,978		$	9,029		$	30,362		$	—		$	2,130,369

Percentage of total loans		98.20	%		0.36	%		1.44	%		0.00	%				98.15	%		0.42	%		1.43	%		0.00	%


September 30, 2016	Remaining Contractual Maturity of the Agreements
June 30, 2017																			Remaining Contractual Maturity of the Agreements
	Overnight and Continuous			Up to one year		One to three years		Three to five years		Five to ten years			Beyond ten years			Total			Overnight and Continuous		Up to one year		One to three years		Three to five years		Five to ten years		Beyond ten years		Total
Repurchase Agreements and repurchase-to-maturity transactions
Repurchase Agreements	$	62,703		$	35,000	$	50,000	$	10,000	$	—		$	—		$	157,703		$	53,484	$	—	$	—	$	—	$	—	$	—	$	53,484


Securities lending transactions
Securities pledged for Repurchase Agreements
U.S. Treasury and federal agencies		4,025			—		—		—		—			—			4,025			—		—		—		—		—		—		—
Federal agency collateralized mortgage obligations		50,255			—		316		258		21,514			30,621			102,964			43,106		—		—		—		—		—		43,106
Federal agency mortgage-backed pools		14,501			—		89		2,146		20,778			29,388			66,902			13,845		—		—		—		—		—		13,845

Total		68,781			—		405		2,404		42,292			60,009			173,891		$	56,951	$	—	$	—	$	—	$	—	$	—	$	56,951

Total borrowings	$	(6,078	)	$	35,000	$	49,595	$	7,596	$	(42,292	)	$	(60,009	)	$	(16,188	)

Gross amount of recognized liabilities for repurchase agreements and securities lending																$	157,703


	Asset Derivatives				Liability Derivatives
	September 30, 2016				September 30, 2016				Asset Derivatives June 30, 2017			Liability Derivatives June 30, 2017
Derivatives designated as hedging instruments (Unaudited)	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
Interest rate contracts		Loans	$	—		Other liabilities	$	4,563	Loans	$	—		Other liabilities	$	433
Interest rate contracts		Other Assets		4,563		Other liabilities		3,002	Other Assets		433		Other liabilities		2,686

Total derivatives designated as hedging instruments				4,563				7,565			433				3,119


Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		787		Other liabilities		—	Other assets		389		Other liabilities		22

Total derivatives not designated as hedging instruments				787				—			389				22

Total derivatives			$	5,350			$	7,565		$	822			$	3,141


	Asset Derivatives				Liability Derivatives				Asset Derivatives December 31, 2016			Liability Derivatives December 31, 2016
	December 31, 2015				December 31, 2015
Derivatives designated as hedging instruments (Unaudited)	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments									Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
Interest rate contracts		Loans	$	—		Other liabilities	$	1,782	Loans	$	—		Other liabilities	$	6
Interest rate contracts		Other Assets		1,782		Other liabilities		3,141	Other Assets		6		Other liabilities		3,132

Total derivatives designated as hedging instruments				1,782				4,923			6				3,138


Derivatives not designated as hedging instruments
Mortgage loan contracts		Other assets		642		Other liabilities		—	Other assets		602		Other liabilities		22

Total derivatives not designated as hedging instruments				642				—			602				22

Total derivatives			$	2,424			$	4,923		$	608			$	3,160


	Comprehensive Income on Derivative (Effective Portion)					Comprehensive Income on Derivative (Effective Portion)					Comprehensive Income on Derivative (Effective Portion)					Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended September 30					Nine Months Ended September 30					Three Months Ended June 30					Six Months Ended June 30
Derivative in cash flow hedging relationship	2016		2015			2016		2015			2017 (Unaudited)		2016 (Unaudited)			2017 (Unaudited)		2016 (Unaudited)
Derivative in cash flow hedging relationship	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Interest rate contracts	$	522	$	(335	)	$	103	$	(217	)	$	30	$	(54	)	$	290	$	(419	)


		Amount of Gain (Loss) Recognized on Derivative						Amount of Gain (Loss) Recognized on Derivative							Amount of Gain (Loss) Recognized on Derivative						Amount of Gain (Loss) Recognized on Derivative
		Three Months Ended September 30						Nine Months Ended September 30							Three Months Ended June 30						Six Months Ended June 30
Derivative in fair value hedging relationship	Location of gain (loss) recognized on derivative	2016			2015			2016			2015
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			Location of gain (loss) recognized on derivative	2017 (Unaudited)			2016 (Unaudited)			2017 (Unaudited)			2016 (Unaudited)
Interest rate contracts	Interest income - loans	$	(830	)	$	765		$	2,781		$	579		Interest income- loans	$	679		$	1,110		$	426		$	3,611
Interest rate contracts	Interest income - loans		830			(765	)		(2,781	)		(579	)	Interest income- loans		(679	)		(1,110	)		(426	)		(3,611	)

Total		$	—		$	—		$	—		$	—			$	—		$	—		$	—		$	—


		Amount of Gain (Loss) Recognized on Derivative						Amount of Gain (Loss) Recognized on Derivative							Amount of Gain (Loss) Recognized on Derivative						Amount of Gain (Loss) Recognized on Derivative
		Three Months Ended September 30						Nine Months Ended September 30							Three Months Ended June 30						Six Months Ended June 30
Derivative not designated as hedging relationship	Location of gain (loss) recognized on derivative	2016			2015			2016			2015			Location of gain (loss) recognized on derivative	2017 (Unaudited)			2016 (Unaudited)			2017 (Unaudited)			2016 (Unaudited)
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Mortgage contracts	Other income - gain on sale of loans	$	(324	)	$	(77	)	$	145		$	196		Other income - gain on sale of loans	$	(153	)	$	468		$	(212	)	$	471


Level 1		Quoted prices in active markets for identical assets or liabilities

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities


	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
September 30, 2016
June 30, 2017
Available-for-sale securities
U.S. Treasury and federal agencies											$	19,966		$	—	$	19,966		$	—
State and municipal												138,486			—		138,486			—
Federal agency collateralized mortgage obligations												131,914			—		131,914			—
Federal agency mortgage-backed pools												210,881			—		210,881			—
Private labeled mortgage-backed pools												1,868			—		1,868			—
Corporate notes												1,936			—		1,936			—

Totalavailable-for-sale securities												505,051			—		505,051			—
Hedged loans												149,676			—		149,676			—
Forward sale commitments												389			—		389			—
Interest rate swap agreements												(3,119	)		—		(3,119	)		—
Commitments to originate loans												(22	)		—		(22	)		—
December 31, 2016
Available-for-sale securities
U.S. Treasury and federal agencies	$	27,422		$	—	$	27,422		$	—	$	7,989		$	—	$	7,989		$	—
State and municipal		64,039			—		64,039			—		116,592			—		116,592			—
Federal agency collateralized mortgage obligations		189,684			—		189,684			—		137,195			—		137,195			—
Federal agency mortgage-backed pools		275,973			—		275,973			—		176,726			—		176,726			—
Corporate notes		95			—		95			—		1,329			—		1,329			—

Total available-for-sale securities		557,213			—		557,213			—		439,831			—		439,831			—

Hedged loans		113,558			—		113,558			—		122,345			—		122,345			—
Forward sale commitments		787			—		787			—		602			—		602			—
Interest rate swap agreements		(7,870	)		—		(7,870	)		—		(3,138	)		—		(3,138	)		—
Commitments to originate loans		—			—		—			—		(22	)		—		(22	)		—

December 31, 2015
Available-for-sale securities
U.S. Treasury and federal agencies	$	5,926		$	—	$	5,926		$	—
State and municipal		75,095			—		75,095			—
Federal agency collateralized mortgage obligations		156,203			—		156,203			—
Federal agency mortgage-backed pools		207,704			—		207,704			—
Corporate notes		54			—		54			—

Total available-for-sale securities		444,982			—		444,982			—

Hedged loans		115,472			—		115,472			—
Forward sale commitments		642			—		642			—
Interest rate swap agreements		(4,923	)		—		(4,923	)		—


	September 30, 2016
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs		June 30, 2017
	Amount		(Level 1)		(Level 2)		(Level 3)		Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and due from banks	$	83,721	$	83,721	$	—	$	—	$	65,993	$	65,993	$	—	$	—
Investment securities, held to maturity		187,027		—		194,294		—		199,474		—		203,542		—
Loans held for sale		7,369		—		—		7,369		3,730		—		—		3,730
Loans excluding loan level hedges, net		2,062,437		—		—		2,046,807		2,103,021		—		—		2,058,278
Stock in FHLB and FRB		20,877		—		20,877		—		14,945		—		14,945		—
Interest receivable		12,702		—		12,702		—		13,316		—		13,316		—

Liabilities
Non-interest bearing deposits	$	479,771	$	479,771	$	—	$	—	$	508,305	$	508,305	$	—	$	—
Interest-bearing deposits		1,856,391		—		1,873,377		—		1,910,478		—		1,823,434		—
Borrowings		569,908		—		566,880		—		485,304		—		481,796		—
Subordinated debentures		37,418		—		36,491		—		37,562		—		36,177		—
Interest payable		1,015		—		1,015		—		559		—		559		—

	December 31, 2015
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)
Assets
Cash and due from banks	$	48,650	$	48,650	$	—	$	—
Investment securities, held to maturity		187,629		—		193,703		—
Loans held for sale		7,917		—		—		7,917
Loans excluding loan level hedges, net		1,619,125		—		—		1,703,506
Stock in FHLB and FRB		13,823		—		13,823		—
Interest receivable		10,535		—		10,535		—

Liabilities
Non-interest bearing deposits	$	335,955	$	335,955	$	—	$	—
Interest-bearing deposits		1,544,198		—		1,461,314		—
Borrowings		449,347		—		441,547		—
Subordinated debentures		32,797		—		32,996		—
Interest payable		507		—		507		—


	Actual					Required For Capital¹ Adequacy Purposes					Well Capitalized Under Prompt¹ Corrective Action Provisions					Actual					Required For Capital¹ Adequacy Purposes					Required For Capital¹ Adequacy Purposes with Capital Buffer					Well Capitalized Under Prompt¹ Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2016

As of June 30, 2017
Total capital¹ (to risk-weighted assets)
Consolidated	$	317,012		13.39	%	$	204,318		8.63	%		N/A		N/A		$	327,323		13.44	%	$	194,837		8.00	%	$	210,180		8.63	%		N/A		N/A
Bank		315,040		13.34	%		203,808		8.63	%	$	236,162		10.00	%		323,752		13.31	%		194,639		8.00	%		209,966		8.63	%	$	243,298		10.00	%

Tier 1 capital¹ (to risk-weighted assets)
Consolidated		302,488		12.78	%		156,925		6.63	%		N/A		N/A			312,296		12.82	%		146,127		6.00	%		161,471		6.63	%		N/A		N/A
Bank		300,516		12.73	%		156,514		6.63	%		188,855		8.00	%		308,682		12.69	%		145,979		6.00	%		161,307		6.63	%		194,638		8.00	%

Common equity tier 1 capital¹ (to risk-weighted assets)
Consolidated		302,488		11.16	%		121,395		5.13	%		N/A		N/A			273,833		11.24	%		109,596		4.50	%		124,939		5.13	%		N/A		N/A
Bank		300,516		12.73	%		121,103		5.13	%		153,445		6.50	%		308,682		12.69	%		109,484		4.50	%		124,812		5.13	%		158,144		6.50	%

Tier 1 capital¹ (to average assets)
Consolidated		302,488		9.69	%		124,866		4.00	%		N/A		N/A			312,296		9.87	%		126,519		4.00	%		126,519		4.00	%		N/A		N/A
Bank		300,516		9.65	%		124,566		4.00	%		155,708		5.00	%		308,682		9.77	%		126,403		4.00	%		126,403		4.00	%		158,004		5.00	%

As of December 31, 2015

As of December 31, 2016
Total capital¹ (to risk-weighted assets)
Consolidated	$	264,452		13.99	%	$	151,223		8.00	%		N/A		N/A		$	316,576		13.87	%	$	182,596		8.00	%	$	196,976		8.63	%		N/A		N/A
Bank		237,348		12.57	%		151,057		8.00	%	$	188,821		10.00	%		319,013		13.98	%		182,541		8.00	%		196,916		8.63	%	$	228,176		10.00	%

Tier 1 capital¹ (to risk-weighted assets)
Consolidated		249,918		13.22	%		113,427		6.00	%		N/A		N/A			301,739		13.22	%		136,947		6.00	%		151,326		6.63	%		N/A		N/A
Bank		222,814		11.80	%		113,295		6.00	%		151,060		8.00	%		304,176		13.33	%		136,905		6.00	%		151,280		6.63	%		182,540		8.00	%

Common equity tier 1 capital¹ (to risk-weighted assets)
Consolidated		204,350		10.81	%		85,067		4.50	%		N/A		N/A			263,313		11.50	%		103,036		4.50	%		117,460		5.13	%		N/A		N/A
Bank		222,814		11.80	%		84,971		4.50	%		122,737		6.50	%		304,176		13.33	%��		102,679		4.50	%		117,054		5.13	%		148,314		6.50	%

Tier 1 capital¹ (to average assets)
Consolidated		249,918		9.82	%		101,800		4.00	%		N/A		N/A			301,739		10.44	%		115,609		4.00	%		115,609		4.00	%		N/A		N/A
Bank		222,814		8.77	%		101,626		4.00	%		127,032		5.00	%		304,176		9.93	%		122,521		4.00	%		122,521		4.00	%		153,151		5.00	%


	Three Months Ended September 30, 2016								Three Months Ended September 30, 2015
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
ASSETS
Interest-earning assets
Federal funds sold	$	35,492		$	20		0.22	%	$	23,086		$	2		0.03	%
Interest-earning deposits		55,047			32		0.23	%		16,340			5		0.12	%
Investment securities - taxable		530,228			2,446		1.84	%		401,702			2,149		2.12	%
Investment securities - non-taxable (1)		186,074			1,151		3.73	%		154,050			1,125		4.39	%
Loans receivable (2)(3)		2,151,103			25,313		4.69	%		1,709,337			20,297		4.72	%

Total interest-earning assets (1)		2,957,944			28,962		3.98	%		2,304,515			23,578		4.17	%

Non-interest-earning assets
Cash and due from banks		39,875								31,384
Allowance for loan losses		(14,301	)							(16,427	)
Other assets		290,100								206,545


	$	3,273,618							$	2,526,017


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities
Interest-bearing deposits	$	1,896,156		$	1,875		0.39	%	$	1,568,777		$	1,566		0.40	%
Borrowings		510,738			2,128		1.66	%		303,521			1,729		2.26	%
Subordinated debentures		37,092			549		5.89	%		32,737			507		6.14	%

Total interest-bearing liabilities		2,443,986			4,552		0.74	%		1,905,035			3,802		0.79	%

Non-interest-bearing liabilities
Demand deposits		462,253								343,780
Accrued interest payable and other liabilities		34,144								14,891
Stockholders’ equity		333,235								262,311


	$	3,273,618							$	2,526,017


Net interest income/spread				$	24,410		3.24	%				$	19,776		3.38	%


Net interest income as a percent of average interest earning assets (1)							3.37	%							3.51	%

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