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CORRESP
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filename1.htm

    hb_corresp0118.htm

    Via
      EDGAR

    January
      18, 2008

    Mr.
      Kevin
      W. Vaughn

    Accounting
      Branch Chief

    Securities
      and Exchange Commission

    Division
      of Corporation Finance

    100
      F
      Street, NE

    Washington,
      D.C. 20549

    Mail
      Stop
      - 4561

    Re:  Horizon
      Bancorp Form

    10-K
      for
      Fiscal Year Ended December 31, 2006

    Filed
      March 23, 2007,  File No. 000-10792

    Dear
      Mr.
      Vaughn

    This
      correspondence is Horizon Bancorp’s response to comments received from the
      Securities and Exchange Commission on December 31, 2007, regarding Horizon
      Bancorp's Form 10-K.  To assist you in reviewing our responses, we
      have included each comment as stated in your letter and, following each comment,
      we have provided our response.

    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation

    Allowance
      and Provision for Loan Losses/Critical Accounting Policy, page
      24

              1.

              Comment:  You
                disclose that “the identification of loans that may have potential losses
                is subjective; therefore, a general reserve is maintained to cover
                all
                potential losses within the entire loan portfolio.”  Disclosures
                that explain the allowance in terms of potential, possible, or future
                losses, rather than probable losses, suggest a lack of compliance
                with
                GAAP and are not appropriate and seems to contradict disclosure elsewhere
                in your filing, including in your footnotes.  Please revise your
                disclosure here and in your footnotes accordingly or advise
                us.  Additional information is available in Section II.P.1. of
                the November 30, 2006 Current Accounting and Disclosure Issues in
                the
                Division of Corporation Finance Outline available on the Sec’s
                web-site.

    Response:  The
      following disclosure on page 24, Allowance and Provision for Loan
      Losses/Critical Accounting Policy, will be revised in future filings to
      more accurately describe Horizon’s accounting policy and compliance with GAAP
      for Allowance and Provision for Loan Losses as follows (changes are indicated
      by
      underlining):

    Allowance
      and Provision for Loan Losses/Critical Accounting Policy

    An
      allowance for loan losses is maintained to absorb 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. 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.

    515
      FRANKLIN SQUARE, MICHIGAN CITY, INDIANA  46360

    219-879-0211

                Page
                  2

                January
                  18, 2008

    Financial
      Statements

    Note
      1
– Nature of Operations and Summary of  Significant Accounting
      Policies

    Mortgage
      Warehouse Loans, page 44

              2.

              Comment:  Based
                on your disclosures and current balance sheet presentation, it appears
                you
                account for the initial transfer of the loans from the mortgage companies
                as a sale under SFAS 140 rather than a secured borrowing with a pledge
                of
                collateral.  Please tell us how you determined each of the
                criteria in paragraph 9 of SFAS 140 was met for the initial transfer
                of
                loans from the mortgage company to
                you.

              a.

              Please
                tell us how you considered the fact that you use the stated interest
                rate
                in the agreement with each mortgage company for interest income
                recognition, and not the interest rates on the individual loans in
                your
                determination.  In your assessment of the criteria in paragraph
                9, specifically address how you considered whether you are eligible
                to
                retain the contractual cash flows of the underlying mortgage
                loans.

              b.

              Please
                tell us whether you or the initial transferor has obtained a valid
                legal
                sale opinion for these transfers.  Tell us whether your auditor
                has reviewed the legal opinion and concluded on its appropriateness
                as
                supporting evidence of your compliance with paragraph 9 of SFAS
                140.

              c.

              Considering
                your disclosure that the mortgage company has the right to repurchase
                the
                loan at par and considering the guidance in paragraph 52 of SFAS
                140 which
                states that a call or other right conveys more than a trivial benefit
                if
                the price to be paid is fixed, determinable, or otherwise potentially
                advantageous, please tell us how you determined that the criteria
                in
                paragraph 9(c)(2) was met.

              d.

              If
                you believe that the initial transfer of loans from the mortgage
                company
                to you should be accounted for as a secured borrowing with a pledge
                of
                collateral pursuant to paragraph 12 of SFAS 140, please revise to
                restate
                your financial statements for all periods presented and revise all
                related
                disclosure accordingly.  If you believe the effect of the
                correction of the error is not material and a restatement is not
                required,
                please provide us with your SAB 99 materiality analysis which addresses
                the guidance in SAB 108.

    Response
      to 2.a, b, c, and d:  Horizon believes that the loans
      originated through its mortgage warehousing business line are accounted for
      correctly and presented in the financial statements accurately.  These
      loans are included in the Loans, net of allowance for loan losses line
      item on Horizon’s Consolidated Balance Sheets.   This line
      item is supported in Note 4 – Loans and Allowance and includes mortgage
      warehouse loans as part of total loans.  The loan interest and fee
      income from mortgage warehouse loans are included with Interest Income, Loans
      receivable in Horizon’s Consolidated Statements of
      Income.  Also, in Horizon’s Consolidated Statements of Cash
      Flows, the change in the balance of mortgage warehouse loans from period to
      period is included in Investing Activities as part of the Net change
      in loans.

                  Page
                    3

                  January
                    18, 2008

    Horizon’s
      mortgage warehousing business line has specific mortgage companies as customers
      of Horizon Bank.  Individual mortgage loans originated by these
      mortgage companies are funded as a secured borrowing with pledge of collateral
      under Horizon’s agreement with the mortgage company.  Each individual
      mortgage 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 repurchases the loan under its option
      within the agreement.  Due to the repurchase feature contained in the
      agreement, the transaction does not qualify as a sale under SFAS 140 paragraph
      9
      (c) and therefore is accounted for as a secured borrowing with pledge of
      collateral under paragraph 12 of SFAS 140 in accordance with 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 payoff 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 recorded
      when collected and no costs are deferred due to the term between each loan
      funding and related payoff is typically less than 30 days.

    Based
      on
      the agreements with each mortgage company, at any time a mortgage company can
      repurchase from Horizon their 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 repurchase 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 sales commitment and the mortgage
      company would not be able to repurchase its loan on an individual mortgage,
      Horizon would be able to exercise its rights under the agreement.

    On
      December 11, 2007, Horizon received correspondence from the Office of the
      Comptroller of the Currency (OCC) which brings final resolution to an issue
      first raised by the OCC during the course of a periodic examination that
      commenced in February 2003. At that time, examination personnel raised the
      issue
      of whether the Bank’s mortgage warehouse loans should be treated as “Other
      loans” rather than”Loans secured by real estate” for Call Report purposes. Since
      the inception of the mortgage warehousing business line Horizon has reported
      mortgage warehouse loans under Loans and leases held for sale on
Schedule RC – Balance Sheet in the Call Report.  Also, due to
      the underlying collateral for these loans being 1 – 4 family mortgage loans,
      they were considered Loans secured by real estate on Schedule RC–C –
Loans and Lease Financing Receivables and included in the 50% Risk Weight
      Category on Schedule RC–R – Regulatory Capital for regulatory capital
      calculations.

    Based
      on
      the position taken by the OCC in the correspondence Horizon received, mortgage
      warehouse loans will be reported in the December 31, 2007 and future Call
      Reports  as Loans and leases, net of unearned income on
Schedule RC – Balance Sheet.   These loans will now be
      reported as Other loans on Schedule RC-C – Loans and Lease Financing
      Receivables and included in the 100% Risk Weight Category on
Schedule RC–R – Regulatory Capital for regulatory capital
      calculations.  With the change in risk weighting Horizon will still be
“well capitalized” as of December 31, 2007.

    The
      following revisions will be made by Horizon in future filings of the annual
      report disclosures regarding these transactions to better clarify the nature
      of
      these financial instruments.  The disclosure on page 57, Note 10 -
Long Term Debt and the discussion in the MD&A on page 24 will be
      revised as follows:

                  Page
                    4

                  January
                    18, 2008

    Management’s
      Discussion and Analysis of Financial Condition and Results of Operation, page
      24

    Mortgage
      Warehouse Loans

    In
      November 1999, Horizon began a mortgage-warehousing repurchase
      program.  Horizon purchases loans, at its discretion,from
      mortgage companies to fund individual mortgage loans originated by the mortgage
      companies.  Each individual mortgage is required to be assigned to
      Horizon and when the loan is sold to the end investor by the mortgage company
      the assignment is simultaneously reassigned to the mortgage
      company.  Each mortgage loan is reviewed by the mortgage warehouse
      division prior to funding for evidence that the loan is of secondary
      market quality and that it meets Horizon’s internal underwriting
      guidelines.  In addition, Horizon takes possession of the original
      note (and other related documents) and forwards such note to the end
      investor once the mortgage company has sold the loan.  In the
      event that the end investor would not be able to honor this commitment to the
      mortgage company and the mortgage company would not be able to
repurchase the loan, Horizon would exercise its rights under the
      agreements.  The individual mortgage loans are typically sold by the
      mortgage companies within 30 days and are seldom held more than 90
      days.

    Note
      1
      0– Long Term Debt

    The
      Federal Home Loan Bank advances are secured by first and second mortgage
      loans and mortgage warehouse loans totaling approximately $436,088,000.
      Advances are subject to restrictions or penalties in the event of
      prepayment.

    Comment:  Assuming
      you are able to support that the initial transfer of loans from the mortgage
      company to you meets the criteria in paragraph 9 SFAS 140 and should receive
      “sale” accounting, we have the following comments:

              3.

              Please
                tell us why you do not classify your mortgage warehouse loans as
                held for
                sale reported at the lower of cost or market value considering that
                you
                disclose that they are generally held no more than 90 days and are
                typically resold within 30 days.  Refer to paragraph .08.a. of
                SOP 01-6.

              4.

              Tell
                us how you determined your use of the stated interest rate in the
                agreement with each mortgage company for interest income recognition,
                and
                not the interest rates on the individual loans is consistent with
                sale
                accounting.

              5.

              Please
                tell us how you account for the transferors “repurchase
                option.”  Specifically tell us how you considered whether the
                “repurchase option” met the definition of a derivative in SFAS 133 which
                should be accounted for at fair
                value.

              6.