FORM 11-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2007 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-27062
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
Horizon Bank Employee Stock Ownership Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Horizon Financial Corp.
1500 Cornwall Avenue
Bellingham, Washington 98226
Financial Statements and Exhibits
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(a) Financial Statements
The Horizon Bank Employee Stock Ownership Plan became effective as of
July 1, 1986. Filed as a part of this report on Form 11-K are the audited
financial statements of the Plan as of and for the years ended March 31, 2007
and 2006.
(b) Exhibit 23 - Consent of Independent Registered Public Accounting Firm
Signatures
The Plan. Pursuant to the requirements of the Securities and Exchange Act
of 1934, the trustees (or other persons who administer the employee benefit
plan) have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ Robert C. Diehl
---------------------------------
Member of the Horizon Bank Compensation
and Retirement Committee
Trustee, Horizon Bank Employee Stock
Ownership Plan
By: /s/ Robert C. Diehl
----------------------------
Robert C. Diehl (name)
---------------------------------
Director (title)
---------------------------------
Horizon Bank (bank)
Date: September 26, 2007
Horizon Bank
Employee Stock Ownership Plan
Report of Independent Registered Public Accounting Firm and
Financial Statements with Supplemental Information
March 31, 2007 and 2006
HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
MARCH 31, 2007 AND 2006
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PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-6
SUPPLEMENTAL SCHEDULE
Form 5500, Required Portions of Schedule H 7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
Horizon Bank Employee Stock Ownership Plan
We have audited the statement of net assets available for benefits of the
Horizon Bank Employee Stock Ownership Plan (the "Plan") as of March 31, 2007
and 2006, and the related statement of changes in net assets available for
benefits for the year ended March 31, 2007. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the statement of net assets available for benefits of
the Horizon Bank Employee Stock Ownership Plan as of March 31, 2007 and 2006,
and the related statement of changes in net assets available for benefits for
the year ended March 31, 2007, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule on page 7 is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements but is supplementary information required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. The supplemental
schedule is the responsibility of the Plan's management. The supplemental
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/Moss Adams LLP
Everett, Washington
September 26, 2007
HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
MARCH 31, 2007 AND 2006
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2007 2006
----------- -----------
ASSETS
Cash and cash equivalents $ 6,027 $ 2,676
Investment in Horizon Financial Corp.
common stock, at market value 5,762,805 5,824,745
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $ 5,768,832 $ 5,827,421
=========== ===========
See accompanying notes to these financial statements. 2
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HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR YEAR ENDED MARCH 31, 2007
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ADDITIONS TO NET ASSETS
Employer contributions $ 22,533
Dividends on Horizon Financial Corp.
common stock 133,385
Cash in lieu of fractional shares 6
Interest income 553
Net unrealized appreciation of
Horizon Financial Corp. common stock 408,959
------------
Total additions to net assets 565,436
------------
DEDUCTIONS FROM NET ASSETS
Fees 22,533
Horizon Financial Corp. 601,492
------------
Total deductions from net assets 624,025
------------
NET INCREASE (DECREASE) IN ASSETS (58,589)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 5,827,421
------------
End of year $ 5,768,832
============
See accompanying notes to these financial statements. 3
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HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
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NOTE 1 - DESCRIPTION OF PLAN
The following description of the Horizon Bank Employee Stock Ownership
Plan (the "Plan") provides only general information. Participants should
refer to the Plan Agreement for a more complete description of the Plan's
provisions.
General - The Plan was formed on July 1, 1986 to provide certain benefits
to the employees of Horizon Bank (the "Bank") and was subsequently
amended several times. The Plan operates as a leveraged employee stock
ownership plan ("ESOP"), and is designed to qualify under section 401(a)
and comply with Section 4975(e)(7) and the regulations thereunder of the
Internal Revenue Code (the "Code"). The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA"), and
subsequent amendments.
The Plan owns approximately 2.15% of the outstanding common shares of
Horizon Financial Corp. (the "Corporation"). The shares were purchased by
the ESOP with funds borrowed from the Bank.
Bank Contributions - The Bank may make discretionary contributions as
determined by the Board of Directors. There were no such contributions
made during the years ended March 31, 2007 and 2006.
Participation - All employees of the Bank are eligible to participate in
the Plan after 24 consecutive months of service provided they complete
1,000 hours of service during each of those two years. Enrollment in the
Plan occurs on the Entry Date, either April 1, or October 1, coincident
with or next following the date on which two years of eligible service is
completed. Participants who are employed on the last working day of the
Plan year are eligible for an allocation of Bank contributions for the
year, pursuant to Plan documents.
Participant Accounts - Two separate accounts are maintained for each
participant, a Participant's Employer Stock Account and an Other
Investment Account. The Participant Employer Stock Account maintained for
each participant will be credited annually with his or her allocable
share of Corporation common stock derived from contribution or dividends,
earnings, losses, expenses, and unrealized appreciation or depreciation.
The Other Investments Account's maintained for each participant is
credited annually with his or her allocable share of cash dividends and
any net income (or loss) earned by the Plan. The Plan had approximately
$6,027 and $2,676 in net cash assets allocated in such a manner at March
31, 2007 and 2006, respectively.
Vesting - Participants are always fully vested in their accounts under
the Plan. There are no special rules under the Plan with respect to the
service that will be credited for vesting purposes. Upon termination all
amounts in participants accounts are nonforfeitable.
Administration of Plan Assets - Plan assets are held and managed by the
Trustee of the Plan. The Trustee also handles Bank contributions and
distributions. Various other administrative functions are performed by a
third party administrator.
4
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HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
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NOTE 1 - DESCRIPTION OF PLAN (Continued)
Voting Rights - Each participant is entitled to exercise voting rights
attributable to the shares allocated to his or her account and is
notified by the Trustee prior to the time that such rights are to be
exercised. The Trustee is not permitted to vote any allocated shares for
which instructions have not been given by a participant. The Trustee is
required, however, to vote any unallocated shares, if any, on behalf of
the collective best interest of plan participants and beneficiaries.
Payment of Benefits - Upon retirement, death, disability, or termination,
a participant may elect to receive a lump sum amount or installment
payments over a fixed reasonable period not to exceed the life expectancy
of the employee's beneficiaries. Distribution of a participant's account
shall commence as soon as administratively feasible, but no later than
one year after the close the Plan year in which the participant
separates. All distributions shall be in the form of the Bank's common
stock, cash, or a combination thereof. Fractional shares may be
distributed in the form of cash.
Diversification - Diversification is offered to participants close to
retirement so that they may have the opportunity to move part of the
value of their investment in the Corporation's stock into investments
which are more diversified. Participants who are at least age 55 with at
least 10 years of participation in the Plan may elect to diversify a
portion of their account. Diversification is offered to each eligible
participant over a six-year period. In each of the first five years, a
participant may diversify up to 25 percent of the number of shares
allocated to his or her account, less any shares previously diversified.
In the sixth year, the percentage changes to 50 percent. As of March 31,
2007 no participants have elected to diversify in this manner.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
on the accrual basis of accounting.
Investment Valuation and Income Recognition - The common shares of
Horizon Financial Corp. are valued at market value as determined by
quoted market price.
Dividend income is accrued on the ex-dividend date. Purchases and sales
of securities are recorded on a trade-date basis. Realized gains and
losses from security transactions are reported on the average cost
method.
Tax Status - The Plan applied for and obtained a determination letter
dated July 1987 in which the IRS stated that the Plan, as designed, was
substantially in compliance with applicable requirements of the Internal
Revenue Code. The Plan has been amended since receiving the determination
letter. The Plan administrator believes that the Plan is designed and is
currently being operated in compliance with the applicable provisions of
the Internal Revenue Code. Therefore, the Plan administrator believes
they are qualified and the related trust is tax exempt as of the
financial statement date.
5
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HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Plan Termination - Although it has not expressed any intent to do so, the
Plan has the right to terminate the Plan at any time. Upon termination,
participants' accounts will be distributed in accordance with the Plan
documents.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Benefit Payments - The Plan recognizes benefit payments in the period it
is actually paid.
Operating Expenses - All expenses of maintaining the Plan are paid by the
Plan. The Plan is subsequently reimbursed by the Plan for the expenses in
the form of an employer contribution.
NOTE 3 - INVESTMENTS IN HORIZON FINANCIAL CORP. COMMON STOCK
The Plan's investments, at March 31, are presented as follows:
2007 2006
----------- ----------
Horizon Financial Corp.
Common shares:
Number of shares 263,262 286,764
============ ==========
Cost $ 1,603,028 $1,620,881
============ ==========
Market value $ 5,762,805 $5,824,745
============ ==========
During 2007, 23,750 shares of Horizon Financial Corp. common stock were
distributed to terminated participants representing the employer stock
account portion of their account balance. The shares were subsequently
redeemed by the Corporation.
During 2007, dividends were used to purchase 5,400 shares of Horizon
Financial Corp. common stock which were subsequently allocated to
participant's accounts.
The investment in Horizon Financial Corp. common stock represents an
investment in excess of 5% of Plan assets at March 31, 2007 and 2006.
6
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SUPPLEMENTAL SCHEDULE
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HORIZON BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EIN 91-1347394 PLAN NO. 002
FORM 5500, REQUIRED PORTIONS OF SCHEDULE H
MARCH 31, 2007
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Schedule H, Line 4i-Schedule of Assets (Held at End of Year)
(e)
(a) (b) (c) (d) Current
Issuer Investment Description Cost Value
--- --------------------- ------------------------ ---------- ----------
* Horizon Financial Corp. 263,262 Shares of $1.00 $1,603,028 $5,762,805
par common stock
* Horizon Bank Cash 6,027 6,027
* Party-in-interest as defined by ERISA
7
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EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consent of Independent Registered Public Accounting Firm
To the Board of Directors
Horizon Financial Corporation
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-88571) pertaining to the Bank of Bellingham 1993 Employee
Stock Ownership Plan of our report dated September 26, 2007, with respect to
the financial statements and schedules of the Horizon Bank Employee Ownership
Plan included in this Annual Report (Form 11-K) for the fiscal year ended
March 31, 2007.
/s/ MOSS ADAMS LLP
Everett, Washington
September 26, 2007