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, 2008 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
- ---------------------------------
(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, 2008
and 2007.
(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, 2008
Horizon Bank
Employee Stock Ownership Plan
Report of Independent Registered
Public Accounting Firm
and Financial Statements
with Supplemental Information
March 31, 2008 and 2007
Horizon Bank
Employee Stock Ownership Plan
Table of Contents
March 31, 2008 and 2007
- ------------------------------------------------------------------------------
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, 2008
and 2007, and the related statement of changes in net assets available for
benefits for the year ended March 31, 2008. 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, 2008 and 2007,
and the related statement of changes in net assets available for benefits for
the year ended March 31, 2008, 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, 2008
1
Horizon Bank
Employee Stock Ownership Plan
Statement of Net Assets Available for Benefits
March 31, 2008 and 2007
- ------------------------------------------------------------------------------
2008 2007
----------- -----------
ASSETS
Cash and cash equivalents $ 13,050 $ 6,027
Investment in Horizon Financial Corp.
common stock, at market value 3,827,873 5,762,805
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $ 3,840,923 $ 5,768,832
=========== ===========
2
- ------------------------------------------------------------------------------
Horizon Bank
Employee Stock Ownership Plan
Statement of Changes in Net Assets Available for Benefits
For Year Ended March 31, 2008 and 2007
- ------------------------------------------------------------------------------
ADDITIONS TO NET ASSETS
Employer contributions $ 19,157
Dividends on Horizon Financial Corp.
common stock 137,245
Interest income 430
Net unrealized depreciation of
Horizon Financial Corp. common stock (1,981,362)
--------------
Total additions to net assets (1,824,530)
--------------
DEDUCTIONS FROM NET ASSETS
Fees (19,157)
Benefits paid to participants (84,222)
--------------
Total deductions from net assets (103,379)
--------------
NET DECREASE IN ASSETS (1,929,909)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 5,768,832
--------------
End of year $ 3,840,923
==============
3
- ------------------------------------------------------------------------------
Horizon Bank
Employee Stock Ownership Plan
Notes to Financial Statements
March 31, 2008 and 2007
- ------------------------------------------------------------------------------
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 an 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 2.24% of the outstanding common shares of Horizon
Financial Corp. (the "Corporation") at March 31, 2008.
Bank Contributions - The Bank may make discretionary contributions as
determined by the Board of Directors. There were contributions in the amount
of $19,157 during the year ended March 31, 2008, utilized to pay expenses of
the Plan.
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 Accounts 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 $13,050 and $6,027 in
net cash assets allocated in such a manner at March 31, 2008 and 2007,
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
- ------------------------------------------------------------------------------
Horizon Bank
Employee Stock Ownership Plan
Notes to Financial Statements
March 31, 2008 and 2007
- ------------------------------------------------------------------------------
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 of 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, 2008, 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.
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 Corporation for the expenses
in the form of an employer contribution.
5
- ------------------------------------------------------------------------------
Horizon Bank
Employee Stock Ownership Plan
Notes to Financial Statements
March 31, 2008 and 2007
- ------------------------------------------------------------------------------
Note 3 - Investments in Horizon Financial Corp. Common Stock
The Plan's investments, at March 31, are presented as follows:
2008 2007
----------- ----------
Horizon Financial Corp.
Common shares:
Number of shares 266,565 263,262
============ ==========
Cost $ 1,649,458 $1,603,028
============ ==========
Market value $ 3,827,873 $5,762,805
============ ==========
During 2008, 3,760 shares of Horizon Financial Corp. common stock were
distributed to terminated participants representing the employer stock account
portion of their account balance.
During 2008, dividends were used to purchase 7,063 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, 2008 and 2007.
Note 4 - 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.
Note 5 - Risks and Uncertainties
The Plan invests in investment securities. Investment securities are exposed
to various risks, such as interest rate, market volatility, and credit risks.
It is reasonably possible, given the level of risk associated with investment
securities, that changes in the near term could materially affect a
participant's account balance and the amounts reported in the financial
statements.
Note 6 - Plan Termination
Although it has not expressed any intent to do so, the Corporation has the
right to terminate the Plan at any time. Upon termination, participants'
accounts will be distributed in accordance with the Plan documents.
6
- ------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE
- ------------------------------------------------------------------------------
Horizon Bank
Employee Stock Ownership Plan
EIN 91-1347394 Plan No. 002
Form 5500, Required Portions of Schedule H
March 31, 2008
- ------------------------------------------------------------------------------
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. 266,565 Shares of $1.00 $1,649,458 $3,827,873
par common stock
* Horizon Bank Cash 13,050 13,050
* Party-in-interest as defined by ERISA
7
- ------------------------------------------------------------------------------
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, 2008, 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, 2008.
/s/ MOSS ADAMS LLP
Everett, Washington
September 26, 2008