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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended September 30, 2003
------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
-------------- ------------------
Commission file number 0-27062
Horizon Financial Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Chartered by the State of Washington
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
91-1695422
--------------------------------
(IRS Employer Identification No.)
1500 Cornwall Avenue
Bellingham, Washington
----------------------------------------
(Address of principal executive offices)
98225
----------
(Zip Code)
Registrant's telephone number including area code: (360) 733-3050
--------------
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 X NO
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
----- -----
As of September 30, 2003, 10,475,070 common shares, $1.00 par value, were
outstanding.
HORIZON FINANCIAL CORP.
INDEX PAGE
- ----- ----
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Financial Position 3
Consolidated Statements of Income 4-5
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4 Controls and Procedures 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
HORIZON FINANCIAL CORP.
Consolidated Statements of Financial Position
ASSETS
Sept 30, March 31,
2003 2003
(unaudited)
------------ ------------
Cash and cash equivalents $ 20,247,167 $ 15,083,505
Interest-bearing deposits 34,931,452 59,929,418
Investment securities
Available-for-sale 78,240,954 74,560,801
Held-to-maturity 369,368 369,292
Mortgage-backed securities
Available-for-sale 32,223,677 37,921,192
Held-to-maturity 1,953,293 2,793,089
Federal Home Loan Bank Stock 6,837,200 6,638,500
Loans receivable, net of allowance of loan
losses of $9,275,378 at September 30 and
$8,506,133 at March 31 601,748,130 582,269,145
Loans held for sale, at fair value 4,079,735 2,838,300
Accrued interest and dividends receivable 3,934,208 4,620,466
Bank premises and equipment, net 17,336,724 15,934,254
Real estate owned 63,432 1,072,341
Other assets 15,234,590 15,841,571
------------ ------------
TOTAL ASSETS $817,199,930 $819,871,874
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $641,563,708 $646,722,160
Accounts payable and other liabilities 10,499,526 8,048,477
Other borrowed funds 53,772,334 53,762,740
Advances by borrowers for taxes and insurance 426,177 986,702
Income tax currently payable 76,221 906,003
Net deferred income tax liabilities 1,246,674 1,531,504
Deferred compensation 1,709,794 1,670,770
------------ ------------
Total liabilities 709,294,434 713,628,356
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Serial preferred stock, $1 par value,
10,000,000 shares authorized; none issued
or outstanding - -
Common stock, $1 par value, 30,000,000 shares
authorized; 10,475,070 and 10,550,113 issued
and outstanding, respectively 10,475,070 10,550,113
Additional paid-in capital 57,110,592 57,352,824
Retained earnings 35,060,122 32,527,963
Unearned ESOP shares (216,309) (216,309)
Accumulated other comprehensive income,
net of tax 5,476,021 6,028,927
------------ ------------
Total stockholders' equity 107,905,496 106,243,518
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $817,199,930 $819,871,874
============ ============
(See Notes to Consolidated Financial Statements)
3
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended
September 30,
2003 2002
----------- -----------
INTEREST INCOME
Interest on loans $11,003,995 $11,059,918
Investment and mortgage-backed securities 1,206,498 1,565,149
----------- -----------
Total interest income 12,210,493 12,625,067
----------- -----------
INTEREST EXPENSE
Interest on deposits 3,375,101 4,578,203
Interest on other borrowings 557,164 432,945
----------- -----------
Total interest expense 3,932,265 5,011,148
----------- -----------
Net interest income 8,278,228 7,613,919
PROVISION FOR LOAN LOSSES 500,000 350,000
----------- -----------
Net interest income after provision for
loan losses 7,778,228 7,263,919
----------- -----------
NONINTEREST INCOME
Service fees 806,946 511,196
Other 498,602 367,387
Net gain (loss) on sales of loans - servicing
released 1,031,883 522,571
Net gain (loss) on sales of loans -
servicing retained 80,666 31,757
Net gain on sale of investment securities 40,000 36
----------- -----------
Total noninterest income 2,458,097 1,432,947
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 2,916,019 2,366,441
Building occupancy 697,984 595,936
Other expenses 1,279,928 976,381
Data processing 158,083 247,022
Advertising 210,730 178,170
----------- -----------
Total noninterest expense 5,262,744 4,363,950
----------- -----------
NET INCOME BEFORE PROVISION FOR INCOME TAX 4,973,581 4,332,916
PROVISION FOR INCOME TAX 1,632,861 1,421,061
----------- -----------
NET INCOME $3,340,720 $2,911,855
=========== ===========
BASIC EARNINGS PER SHARE $ .32 $ .27
=========== ===========
DILUTED EARNINGS PER SHARE $ .31 $ .27
=========== ===========
(See Notes to Consolidated Financial Statements)
4
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six months ended
September 30,
2003 2002
----------- -----------
INTEREST INCOME
Interest on loans $ 22,058,408 $ 22,172,172
Investment and mortgage-backed securities 2,646,672 3,010,943
----------- -----------
Total interest income 24,705,080 25,183,115
----------- -----------
INTEREST EXPENSE
Interest on deposits 6,947,556 9,535,509
Interest on other borrowings 1,121,161 794,023
----------- -----------
Total interest expense 8,068,717 10,329,532
----------- -----------
Net interest income 16,636,363 14,853,583
PROVISION FOR LOAN LOSSES 1,025,000 650,000
----------- -----------
Net interest income after provision for
loan losses 15,611,363 14,203,583
----------- -----------
NONINTEREST INCOME
Service fees 1,545,135 1,028,225
Other 990,736 799,156
Net gain (loss) on sales of loans - servicing
released 1,826,418 927,423
Net gain (loss) on sales of loans -
servicing retained 82,781 95,296
Net gain on sale of investment securities 44,348 62,258
----------- -----------
Total noninterest income 4,489,418 2,912,358
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits 5,695,155 4,610,799
Building occupancy 1,303,556 1,185,463
Other expenses 2,516,494 1,844,288
Data processing 240,432 494,648
Advertising 422,866 392,542
----------- -----------
Total noninterest expense 10,178,503 8,527,740
----------- -----------
NET INCOME BEFORE PROVISION FOR INCOME TAX 9,922,278 8,588,201
PROVISION FOR INCOME TAX 3,260,218 2,822,092
----------- -----------
NET INCOME $ 6,662,060 $ 5,766,109
=========== ===========
BASIC EARNINGS PER SHARE $ .63 $ .54
=========== ===========
DILUTED EARNINGS PER SHARE $ .62 $ .53
=========== ===========
(See Notes to Consolidated Financial Statements)
5
HORIZON FINANCIAL CORP.
Consolidated Statements of Stockholders' Equity
Six Months Ended September 30, 2003 and 2002
(unaudited)
Accumu-
lated
Other
Common Stock Compre-
--------------------- Additional Unearned hensive Treasury
Number of Paid-In Retained ESOP Income Stock
Shares At Par Capital Earnings Shares (Loss) at Cost
--------- ----------- ----------- ----------- --------- ---------- ----------
BALANCE, March
31, 2002 8,607,117 $ 8,607,117 $60,428,238 $27,700,939 $(288,413) $4,151,710 $ -
Comprehensive income
Net income - - - 5,766,109 - - -
Other comprehensive
income
Change in unrealized
gains on available-
for-sale securities,
net of taxes of
$888,572 - - - - - 1,724,876 -
Total other compre-
hensive income - - - - - - -
Comprehensive income - - - - - - -
Cash dividends on com-
mon stock at
$.22/share - - - (2,350,553) - - -
25% stock split 2,138,190 2,138,190 (2,138,190) - - - -
Cash paid in lieu
of fractional
shares - - - (7,425) - - -
Stock options
exercised 83,762 83,762 524,004 - - - -
Dividend rein-
vestment plan 20,465 20,465 238,716 - - - -
Treasury stock
purchased - - - - - - (2,498,191)
Retirement of
treasury stock (184,700) (184,700) (1,257,952) (1,055,539) - - 2,498,191
---------- ----------- ------------ ------------ --------- ----------- -----------
BALANCE, September
30, 2002 10,664,834 10,664,834 $ 57,794,816 $ 30,053,531 $(288,413) $ 5,876,586 $ -
========== =========== ============ ============ ========= =========== ===========
BALANCE, March 31,
2003 10,550,113 $10,550,113 $ 57,352,824 $ 32,527,963 $(216,309) $ 6,028,927 $ -
Comprehensive
income
Net income - - - 6,662,060 - - -
Other comprehen-
sive income
Change in unreal-
ized gains on
available-for-
sale securities,
net of taxes
of $(284,830) - - - - - (552,906) -
Total other compre-
hensive income - - - - - - -
Comprehensive income - - - - - - -
Cash dividends on com-
mon stock at
$.24/share - - - (2,519,558) - - -
Stock options
exercised 67,266 67,266 372,241 - - - -
Dividend reinvest-
ment plan 20,091 20,091 311,369 - - - -
Treasury stock
purchased - - - - - - (2,698,585)
Retirement of
treasury stock (162,400) (162,400) (925,842) (1,610,343) - - 2,698,585
---------- ----------- ------------ ------------ --------- ----------- -----------
BALANCE, September
30, 2003 10,475,070 $10,475,070 $57,110,592 $ 35,060,122 $(216,309) $ 5,476,021 $ -
========== =========== ============ ============ ========= =========== ===========
Total
Stockholders Comprehensive
Equity Income
------------ --------------
BALANCE, March 31, 2002 $100,599,591
Comprehensive income
Net income 5,766,109 $ 5,766,109
Other comprehensive income
Change in unrealized gains on
available-for-sale securities,
net of taxes of $888,572 1,724,876 1,724,876
-----------
Total other comprehensive income - 1,724,876
-----------
Comprehensive income - $ 7,490,985
Cash dividends on common stock at ===========
$.22/share (2,350,553)
25% stock split -
Cash paid in leiu of fractional
shares (7,425)
Stock options exercised 607,766
Dividend reinvestment plan 259,181
Treasury stock purchased (2,498,191)
Retirement of treasury stock -
------------
BALANCE, September 30, 2002 $104,101,354
============
BALANCE, March 31, 2003 $106,243,518
Comprehensive income
Net income 6,662,060 $ 6,662,060
Other comprehensive income
Change in unrealized gains on
available-for-sale securities,
net of taxes of $(284,830) (552,906) (552,906)
-----------
Total other comprehensive income (552,906)
-----------
Comprehensive income - $ 6,109,154
Cash dividends on common stock ===========
at $.24/share (2,519,558)
Stock options exercised 439,507
Dividend reinvestment plan 331,460
Treasury stock purchased (2,698,585)
Retirement of treasury stock -
------------
BALANCE, September 30, 2003 $107,905,496
============
(See Notes to Consolidated Financial Statements)
6
HORIZON FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,662,060 $ 5,766,109
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,045,960 668,990
Stock dividends Federal Home Loan Bank stock (198,700) (187,000)
Provision for loan losses 1,025,000 650,000
Changes in assets and liabilities
Interest and dividends receivable 686,258 (74,365)
Net change in loans held for sale (1,241,435) (5,750,426)
Federal income tax (receivable) payable (829,782) (577,908)
Other assets 606,981 (5,246,068)
Other liabilities 1,885,803 8,109,099
----------- -----------
Net cash flows from operating activities 9,642,145 3,358,431
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in interest-bearing deposits, net 24,997,966 19,465,000
Purchases of investment securities - available-
for-sale (10,925,000) (28,483,880)
Proceeds from sales and maturities of
investment securities - available-for-sale 6,827,635 1,921,464
Purchases of mortgage-backed securities -
available-for-sale (12,829,904) (8,511,034)
Proceeds from maturities of mortgage-backed
securities - available-for-sale 18,106,635 4,977,734
Proceeds from maturities of mortgage-backed
securities - held-to-maturity 839,981 952,225
Net change in loans (21,036,871) (6,388,600)
Purchases of bank premises and equipment (1,915,544) (668,710)
Net change in real estate owned 1,008,909 289,429
----------- -----------
Net cash flows from investing activities 5,073,807 (16,446,372)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (5,158,452) 8,470,039
Advances from other borrowed funds 9,594 11,384,054
Repayments of other borrowed funds - (319,542)
Common stock issued, net 490,865 886,947
Cash dividends paid (2,195,712) (2,217,555)
Treasury stock purchased (2,698,585) (2,498,191)
----------- -----------
Net cash flows from financing activities (9,552,290) 15,685,753
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,163,662 2,597,812
CASH AND CASH EQUIVALENTS, beginning of period 15,083,505 14,187,040
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $20,247,167 $16,784,852
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 8,069,291 $10,347,957
=========== ===========
Cash paid during the period for income tax $ 4,090,000 $ 3,400,000
=========== ===========
(See Notes to Consolidated Financial Statements)
7
HORIZON FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2003
(unaudited)
NOTE 1
Basis of Presentation
- ---------------------
The consolidated financial statements for the three months and six months
ended September 30, 2003, include the accounts of Horizon Financial Corp. (the
Corporation), Horizon Bank (the Bank), and other subsidiaries of the Bank.
Significant intercompany balances and transactions have been eliminated in
consolidation. The Corporation has engaged in no significant activity other
than holding the stock of the Bank.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in
the consolidated financial statements. Changes in these estimates and
assumptions are considered reasonably possible and may have a material impact
on the financial statements and thus actual results could differ from the
amounts reported and disclosed herein.
The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to the
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation are reflected in
the interim financial statements. The results of operations for the periods
ended September 30, 2003 and 2002 are not necessarily indicative of the
operating results for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto in the Horizon
Financial Corp. annual report for the year ended March 31, 2003.
Reclassification
- ----------------
Certain reclassifications have been made to prior financial statements to
conform with current presentation. Such reclassifications have no effect on
net income.
Net Income Per Share
- --------------------
Basic earnings per share for the three months ended September 30, 2003
and 2002 are calculated on the basis of 10,504,871 and 10,681,655 weighted
average shares outstanding. Diluted earnings per share for the three months
ended September 30, 2003 and 2002 are calculated on the basis of 10,714,723
and 10,870,688 weighted average shares outstanding, respectively. Basic
earnings per share for the six months ended September 30, 2003 and 2002 are
calculated on the basis of 10,528,093 and 10,711,811 weighted average shares
outstanding. Diluted earnings per share for the six months ended September 30,
2003 and 2002 are calculated on the basis of 10,742,826 and 10,893,958
weighted average shares outstanding, respectively. Diluted EPS figures are
computed by determining the number of additional shares that are deemed
outstanding due to stock options and warrants under the treasury stock method.
8
Stock Options
- -------------
The Company recognizes the financial effects of stock options under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25 Accounting for Stock Issued to Employees (APB 25). Generally, stock
options are issued at a price equal to the fair value of the Company's stock
as of the grant date.
Under APB 25, options issued in this manner do not result in the
recognition of employee compensation in the Company's financial statements.
Disclosures required by Statement of Financial Accounting Standard No. 123
Accounting for Stock-Based Compensation, as amended are as follows.
Pro forma disclosures:
For the quarter ended September 30,
2003 2002
---------- ----------
Net income as reported $3,340,720 $2,911,855
Additional compensation for fair value
of stock options (15,460) (18,104)
---------- ----------
Pro forma net income $3,325,260 $2,893,751
========== ==========
Earnings per share
Basic
As reported $ .32 $ .27
========== ==========
Pro forma $ .32 $ .27
========== ==========
Diluted
As reported $ .31 $ .27
========== ==========
Pro forma $ .31 $ .27
========== ==========
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
financial condition and results of operations of the Corporation and its
subsidiary. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and the accompanying
Notes contained herein.
Forward Looking Statements
- --------------------------
Management's Discussion and Analysis and other portions of this report
contain certain "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This statement is for the express
purpose of availing Horizon Financial to the protections of such safe harbor
provisions of said Act with respect to all "forward looking statements."
Horizon Financial has used "forward looking statements" to describe future
plans and strategies, including expectations of Horizon Financial's potential
future financial results. Management's ability to predict results or the
effect of future plans and strategies is inherently uncertain. Factors that
could affect results include, but are not limited to: the future level of
interest rates, industry trends, general economic conditions, loan delinquency
rates, and changes in state and federal regulations. These factors should be
considered when evaluating the "forward looking statements" and undue reliance
should not be placed on such statements.
General
------
Horizon Financial Corp. was formed under Washington law on May 22, 1995,
and became the holding company for Horizon Bank, effective October 13, 1995.
Effective September 19, 1999 the Corporation completed the acquisition of
Bellingham Bancorporation, whose wholly-owned subsidiary, Bank of Bellingham,
was merged with and into Horizon Bank. At September 30, 2003, the Corporation
had total assets of $817.2 million, total deposits of $641.6 million and total
equity of $107.9 million. The Corporation's business activities generally are
limited to passive investment activities and oversight of its investment in
the Bank. Accordingly, the information set forth herein, including the
consolidated financial statements and related data, relates primarily to the
Bank and its subsidiary.
The Bank was organized in 1922 as a Washington State chartered mutual
savings and loan association and converted to a federal mutual savings and
loan association in 1934. In 1979, the Bank converted to a Washington State
chartered mutual savings bank, the deposits of which are insured by the
Federal Deposit Insurance Corporation ("FDIC"). On August 12, 1986, the Bank
converted to a state chartered stock savings bank under the name "Horizon
Bank, a savings bank". The Bank became a member of the Federal Home Loan Bank
("FHLB") of Seattle in December 1998. Effective March 1, 2000, the Bank
changed its name to its current title, "Horizon Bank".
The Bank's operations are conducted through 16 full-service office
facilities and three loan centers, located in Whatcom, Skagit and Snohomish
counties in Northwest Washington. The acquisition of Bellingham
Bancorporation increased Horizon Financial's and Horizon Bank's presence in
Whatcom County. During fiscal 2000, the Bank purchased a bank site in
Marysville, which will provide potential additional growth opportunities. In
Fiscal 2002, the Bank acquired a bank site in Lynnwood, Washington, which was
remodeled and opened for business in March 2003. The Bank opened commercial
banking/loan centers in Bellingham, Snohomish, and Everett and expanded its
operations in Burlington during the first quarter of fiscal 2004.
Operating Strategy
- ------------------
The primary business of the Bank is to acquire funds in the form of
deposits and wholesale funds, and to use the funds to make commercial,
consumer, and real estate loans in the Bank's primary market area. In
addition, the Bank invests in a variety of investment grade securities
including, but not necessarily limited to U.S. Government and federal agency
obligations, mortgage-backed securities, corporate debt, equity securities,
and municipal securities. The Bank intends to continue to fund its assets
primarily with retail and commercial deposits, although FHLB advances, and
other wholesale borrowings, may be used as a supplemental source of funds.
The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings.
Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing
10
liabilities. When interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. The Bank's profitability is also affected by the level of other income
and expenses. Other non interest income includes income associated with the
origination and sale of mortgage loans, loan servicing fees, net gains and
losses on sales of interest-earning assets, and income earned on bank owned
life insurance. Other non interest expenses include compensation and
benefits, occupancy and equipment expenses, deposit insurance premiums, data
servicing expenses, and other operating costs. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation, regulation, and monetary and fiscal policies.
The Bank's business strategy is to operate as a well-capitalized,
profitable and independent community bank, dedicated to commercial lending,
home mortgage lending, consumer lending, small business lending and providing
quality financial services to local personal and business customers. The Bank
has sought to implement this strategy by: (i) focusing on commercial banking
opportunities; (ii) continued efforts towards the origination of residential
mortgage loans, including one- to- four family residential construction loans;
(iii) providing high quality, personalized financial services to individuals
and business customers and communities served by its branch network; (iv)
selling many of its fixed rate mortgages to the secondary market; (v) focusing
on asset quality; (vi) containing operating expenses; and (vii) maintaining
capital in excess of regulatory requirements combined with prudent growth.
Financial Condition
- -------------------
Total consolidated assets for the Corporation as of September 30, 2003,
were $817,199,930, a slight decrease from the March 31, 2003, level of
$819,871,874. This decrease in assets was due primarily to the decrease in
interest bearing deposits, which decreased 41.7% to $34,931,452 from
$59,929,418 at March 31, 2003. These funds were partially used to grow Loans
receivable to $601,748,130 at September 30, 2003 versus $582,269,145 at March
31, 2003. The following is an analysis of the loan portfolio by major type of
loans:
September 30, March 31,
2003 2003
------------ ------------
First mortgage loans
1-4 Family $228,114,300 $350,487,597
1-4 Family construction 28,510,293 28,035,560
Less participations (84,635,229) (137,172,801)
------------ ------------
Net first mortgage loans 171,989,364 241,350,356
Construction and land development 56,652,388 66,111,738
Residential commercial real estate 73,220,859 56,929,901
Non-residential commercial real estate 231,303,485 182,157,758
Commercial loans 76,707,600 54,132,254
Home equity secured 24,665,838 22,729,371
Other consumer loans 6,180,475 6,886,950
------------ ------------
Subtotal 468,730,645 388,947,972
------------ ------------
Subtotal 640,720,009 630,298,328
------------ ------------
Less:
Undisbursed loan proceeds (25,384,458) (34,678,121)
Deferred loan fees (4,312,043) (4,844,929)
Allowance for loan losses (9,275,378) (8,506,133)
------------ ------------
$601,748,130 $582,269,145
============ ============
Net Residential loans $152,334,666 25% $221,722,330 38%
Net Commercial loans 75,206,469 13% 53,081,805 9%
Net Commercial RE loans 343,947,365 57% 278,402,605 48%
Net Consumer loans 30,259,630 5% 29,062,405 5%
------------ --- ------------ ---
$601,748,130 100% $582,269,145 100%
============ === ============ ===
11
Also contributing to the decrease in assets was the change in investment and
mortgage-backed securities, which, combined, decreased 2.47% to $112,787,292
from $115,644,374 at March 31, 2003.
The tables below display the characteristics of the AFS and HTM portfolios as
of September 30, 2003:
Estimated
Amortized Net Fair
Cost Gain/(Loss) Value
------------- ----------- -------------
Available-For-Sale Securities ("AFS")
State and political subdivisions
and U.S. government agency
securities $ 44,959,361 $1,632,332 $ 46,591,693
Marketable equity securities 1,835,723 5,335,120 7,170,843
Mutual funds 5,000,000 (20,141) 4,979,859
Corporate debt securities 18,508,943 989,616 19,498,559
Mortage-backed securities and
CMO's 31,863,602 360,075 32,223,677
------------ ---------- ------------
Total available-for-sale
securities 102,167,629 8,297,002 110,464,631
------------ ---------- ------------
Held-To-Maturity Securities ("HTM")
State and political subdivisions
and U.S. government agency
securities 369,368 35,050 404,418
Mortgage-backed securities and
CMO's 1,953,293 159,721 2,113,014
------------ ---------- ------------
Total held-to-maturity
securities 2,322,661 194,771 2,517,432
------------ ---------- ------------
Total securities $104,490,290 $8,491,773 $112,982,063
============ ========== ============
Maturity Schedule of Securities
--------------------------------------------------------
Available-For-Sale Held-To-Maturity
--------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------ ------------ ---------- -----------
Maturities:
One year $11,014,291 $11,193,775 $ 2,860 $ 3,356
Two to five years 43,913,025 46,238,939 1,095,037 1,171,211
Five to ten years 9,015,773 9,279,686 893,377 944,303
Over ten years 31,388,817 31,601,529 331,387 398,562
------------ ------------ ---------- ----------
95,331,906 98,313,929 2,322,661 2,517,432
------------ ------------ ---------- ----------
Mutual funds and
Marketable equity
securities (liquid) 6,835,723 12,150,702 - -
------------ ------------ ---------- ----------
Total investment
securities $102,167,629 $110,464,631 $2,322,661 $2,517,432
============ ============ ========== ==========
Total liabilities also decreased slightly to $709,294,434 at September
30, 2003, from $713,628,356 at March 31, 2003. This decrease in liabilities
was due in large part to the decrease in deposits, to $641,563,708 from
$646,722,160 at March 31, 2003. The following is an analysis of the deposit
portfolio by major type of deposit at September 30, 2003 and March 31, 2003:
September 30 March 31
------------ ------------
Demand deposits
Savings $ 40,984,789 $ 38,455,124
Checking 66,048,005 66,169,430
Checking (noninterest-bearing) 35,526,577 28,052,250
Money Market 126,998,257 125,804,570
------------ ------------
269,557,628 258,481,374
------------ ------------
Time certificates of deposit
Less than $100,000 246,549,316 258,623,337
Greater than or equal to $100,000 125,456,764 129,617,449
------------ ------------
372,006,080 388,240,786
------------ ------------
Total deposits $641,563,708 $646,722,160
============ ============
12
Stockholders' equity at September 30, 2003 increased 1.56% to $107,905,496
from $106,243,518 at March 31, 2003. This increase was due primarily to the
increase in net income of $3,340,720 less dividends paid and shares
repurchased. The Corporation remains strong in terms of its capital position,
with a stockholder equity-to-assets ratio of 13.20% at September 30, 2003,
compared to 12.96% at March 31, 2003.
Liquidity and Capital Resources
- -------------------------------
The Bank maintains liquid assets in the form of cash and short-term
investments to provide a source to fund loans, savings withdrawals, and other
short-term cash requirements. At September 30, 2003, the Bank had liquid
assets (cash and marketable securities with maturities of one year or less)
with a book value of $82,904,647.
As of September 30, 2003, the total book value of investments and
mortgage-backed securities was $104,490,290 compared to a market value of
$112,982,063 with an unrealized gain of $8,491,773. As of March 31, 2003 the
total book value of investments and mortgage-backed securities was
$106,509,636, compared to a market value of $115,867,756 with an unrealized
gain of $9,358,120. The Bank foresees no factors that would impair its
ability to hold debt securities to maturity.
As indicated on the Corporation's Consolidated Statement of Cash Flows,
the Bank's primary sources of funds are cash flow from operations, which
consist primarily of mortgage loan repayments, deposit increases, loan sales,
borrowings, and cash received from the maturity or sale of investment
securities. The Bank's liquidity fluctuates with the supply of funds and
management believes that the current level of liquidity is adequate at this
time. If additional liquidity is needed, the Bank's options include, but are
not necessarily limited to: 1) Selling additional loans in the secondary
market; 2) Entering into reverse repurchase agreements; 3) Borrowing from the
FHLB of Seattle; 4) Accepting additional jumbo and/or public funds deposits;
or 5) Accessing the discount window of the Federal Reserve Bank of San
Francisco.
Stockholders' equity as of September 30, 2003 was $107,905,496, or 13.20%
of assets, compared to $106,243,518, or 12.96% of assets at March 31, 2003.
The Bank continues to exceed the 5.0% minimum tier one capital required by the
FDIC in order to be considered well capitalized. The Bank's total
risk-adjusted capital ratio as of September 30, 2003 was 17.91%, compared to
18.70% as of March 31, 2003. These figures are well above the
well-capitalized minimum of 10% set by the FDIC.
The Corporation has been in various buy-back programs since August 1996.
At its October 24, 2000 meeting, the Board of Directors authorized the
repurchase of up to 10% (approximately 1,121,250 shares, as restated) of the
Corporation's outstanding Common Stock over a 24 month period. In total, the
Corporation repurchased 769,059 shares under this plan at a weighted average
price of $9.88.
At its October 22, 2002 meeting, the Board of Directors authorized its
fourth repurchase plan, allowing the repurchase of up to 10% (approximately
1,065,000 shares) of the Corporation's outstanding Common Stock over a 12
month period. During the quarter ended September 30, 2003, the Corporation
repurchased 85,100 shares at an average price of $17.03. In total, the
Corporation repurchased 358,100 under this plan, at a weighted average price
of $15.28.
At its September 23, 2003 meeting, the Board of Directors authorized its
fifth repurchase plan, allowing the repurchase of up to 10% (approximately
1,050,000 shares) of the Corporation's outstanding Common Stock over a 12
month period. No shares have been repurchased under this plan as of September
30, 2003.
Management intends to continue its stock buy-back programs from time to
time as long as repurchasing the stock is perceived to contribute to the
overall growth of shareholder value. The number of shares of stock that will
be repurchased and the price that will be paid is the result of many factors,
several of which are outside of the control of the Corporation. The primary
factors, however, are market and economic factors such as the price at which
the stock is trading in the market; the number of shares available in the
market; the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment; the ability to increase
the value and/or earnings per share of the remaining outstanding shares; and
the Bank's and the Corporation's liquidity and capital needs and regulatory
requirements. Presently, it is management's belief that purchases made under
the current Board approved plan will not materially affect the Bank's capital
or liquidity position.
13
Net Interest Income
- -------------------
Net interest income for the three months ended September 30, 2003,
increased 8.72% to $8,278,228 from $7,613,919 in the same time period of the
previous year. Interest on loans for the quarter ended September 30, 2003,
decreased 0.51% to $11,003,995, from $11,059,918. Included in these numbers
are $621,613 and $381,239, respectively of deferred fee income recognition as
a result of loan paydowns, payoffs, and loans sold from the portfolio. This
slight decrease in total interest on loans was due primarily to the overall
decline in interest rates. Interest and dividends on investments and
mortgage-backed securities decreased 22.91% to $1,206,498, from $1,565,149 for
the comparable quarter a year ago due to principal paydowns in the CMO and
mortgage backed securities portion of the Bank's investment portfolio and an
overall decline in interest rates. Total interest income decreased 3.28% to
$12,210,493 from $12,625,067.
Total interest paid on deposits decreased 26.28% to $3,375,101 from
$4,578,203. This decrease in interest expense is due to an overall decline in
interest rates. Interest on borrowings increased to $557,164 during the
quarter, compared to $432,945 for the comparable period one year ago. The
increased expense in the current year was due to a higher level of borrowings
outstanding of $53,772,334 at September 30, 2003 versus $40,185,241 at
September 30, 2002. The Bank continues to carry wholesale borrowings in order
to further leverage its balance sheet and better manage its interest rate risk
profile.
Total interest income decreased 1.90% to $24,705,080 from $25,183,115.
Total interest expense for the six-month period decreased 21.89% to $8,068,717
from $10,329,532. Net interest income for the six-month period ended September
30, 2003 increased 12.00% to $16,636,363 from $14,853,583 for the comparable
period one year ago due to the reasons stated above regarding the quarterly
results.
Provision for losses on loans
- -----------------------------
Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered by management as adequate to
provide for known and inherent risks in the loan portfolio, based on
management's continuing analysis of factors underlying the quality of the loan
portfolio. These factors include changes in portfolio size and composition,
actual loss experience, current economic conditions, detailed analysis of
individual loans for which full collectibility may not be assured, and
determination of the existence and realizable value of the collateral and
guarantees securing the loans.
The provision for loan losses was $500,000 for the quarter ended
September 30, 2003 compared to $350,000 for the quarter ended September 30,
2002. This increase resulted from management's ongoing analysis of changes in
loan portfolio composition by collateral categories, overall credit quality of
the portfolio, peer group analysis, and current economic conditions. The
reserve for loan losses was $9,275,378, or 1.54% of loans receivable at
September 30, 2003, compared to $6,452,294, or 1.12% of loans receivable at
September 30, 2002. The increased allowance level resulted from continued
loan portfolio growth in the higher-risk lending categories of commercial and
multi-family construction/permanent loans and business loans during the
period, which comprised $419.2 million, or 69.7% of the portfolio at September
30, 2003, versus $289.5 million, or 50.5% at September 30, 2002.
In addition, commercial and multi-family loans have larger individual
loan amounts, which have a greater single impact on the total portfolio
quality in the event of delinquency or default. The Bank considers these
increased provisions to be appropriate, due to the changing portfolio mix and
the uncertain regional economic environment. Northwest Washington's economy
has been adversely affected by a number of factors, including but not limited
to slowdowns in the aerospace, technology, and telecommunications industries.
As of September 30, 2003, there were 11 loans in the Bank's portfolio
over 90 days delinquent. At September 30, 2003 total non-performing loans
were $834,168. Real estate owned at September 30, 2003 totaled $63,432.
Total non-performing assets represented .11% of total assets at September 30,
2003 compared to $2,623,763 or .33% of total assets at September 30, 2002.
As of September 30,
Non-Performing Assets 2003 2002
-------- ----------
Accruing loans - 90 days past due $833,919 $2,341,232
Non-accrual loans 249 282,531
-------- ----------
Total non-performing loans 834,168 2,623,763
Total non-performing loans/gross loans 0.14% 0.46%
Real estate owned 63,432 -
-------- ----------
Total non-performing assets 897,600 2,623,763
-------- ----------
Total non-performing assets/total assets 0.11% 0.33%
14
Non Interest Income
- -------------------
Non interest income for the three months ended September 30, 2003,
increased 71.54% to $2,458,097 from $1,432,947 for the same time period a year
ago. Service fee income increased 57.85% to $806,946 from $511,196. The
primary reason for the increase over the prior year was increased escrow fee
income due to the higher volume of loan originations, both in the mortgage and
commercial loan divisions. The net gain/loss on the sale of loans servicing
released increased to $1,031,883 from $522,571 in the comparable period one
year ago. The recent low mortgage rate environment was the primary reason for
this increase over the prior year. The net gain/loss on the sale of loans on
a servicing retained basis (loans sold from the Bank's portfolio) showed a
gain of $80,666 during the three months ended September 30, 2003, compared to
$31,757 in the prior period. The net gain/loss on sales of investment
securities increased to $40,000 from $36 for the comparable period one year
ago. The gains in the period ended September 30, 2003 were due to the sale of
selected securities from the Bank's investment portfolio. Other non-interest
income for the quarter increased 35.72% to $498,602 from $367,387. The
primary reason for the increase in fiscal 2004 is the recognition of
approximately $187,000 in profit from a real estate development project from a
joint venture of the Bank's wholly owned subsidiary, Westward Financial
Services Corporation.
Non interest income for the six months ended September 30, 2003 increased
54.15% to $4,489,418 from $2,912,358. The net gain/loss on the sale of loans
servicing released increased to $1,826,418 from $927,423 in the comparable
period one year ago. The net gain/loss on the sale of loans on a servicing
retained basis (loans sold from the Bank's portfolio) showed a gain of $82,781
during the six months ended September 30, 2003, compared to $95,296 in the
prior period. The net gain/loss on sales of investment securities decreased
28.77% to $44,348 from $62,258 for the comparable period one year ago. The
gains in these periods were due primarily to the sale of selected securities
from the Bank's investment portfolio. Other non interest income for the
six-month period increased 23.97% to $990,736 from $799,156, due primarily to
the reasons stated in the discussion above regarding the real estate
development project.
Non Interest Expense
- --------------------
Non interest expense for the three months ended September 30, 2003,
increased 20.60% to $5,262,744 from $4,363,950. Compensation and employee
benefits increased 23.22% for the quarter ended September 30, 2003, to
$2,916,019 from $2,366,441. The increase in compensation and employee
benefits during the quarter ended September 30, 2003 was primarily due to the
overall growth in employment at the Bank, including key additions to staff as
the Bank continues its efforts to enhance its commercial banking expertise,
along with additional staff for the Lynnwood office and the new commercial
banking loan centers. Building occupancy for the quarter ended September 30,
2003 increased 17.12% to $697,984 from $595,936. This increase over the prior
year was due to the opening of our Lynnwood office, three new commercial
banking/loan centers in Bellingham, Snohomish, and Everett, and the expansion
of the Burlington office/commercial center. Data processing expenses
decreased 36.00% to $158,083 from $247,022. The primary reason for this
decline relates to a renegotiation of the Bank's contract with its core data
processor which included substantial concessions in the first quarter of
fiscal 2004. Advertising and marketing expenses for the quarter ended
September 30, 2003 increased 18.27% to $210,730 from $178,170. Other
non-interest expense increased 31.09% to $1,279,928 from $976,381 due to the
overall growth of the Bank and a decreasing mortgage servicing portfolio. The
increased refinance activity in the low rate environment resulted in an
increased amortization of the associated mortgage servicing asset. Also
contributing to the increase in fiscal 2004 was an increase in Business and
Occupation (B&O) tax expense due to the shift in the loan portfolio from 1-4
family mortgages, which are exempt from B&O tax, to B&O taxable commercial
loans.
Non interest expense for the six months ended September 30, 2003
increased 19.36% to $10,178,503 from $8,527,740. Compensation and employee
benefits increased 23.52% to $5,695,155 from $4,610,799. Building occupancy
expenses for the six months increased 9.96% to $1,303,556 from $1,185,463.
Other expenses increased 36.45% to $2,516,494 at September 30, 2003 compared
to $1,844,288 for the prior period due primarily to the reasons stated in the
discussion above regarding the quarterly results. Also contributing to this
increase in fiscal 2004 was the recognition of approximately $57,000 in Other
Real Estate Owned expenses/losses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Currently, the Corporation's assets and liabilities are not materially
exposed to foreign currency or commodity price risk. At September 30, 2003,
the Corporation had no off-balance sheet derivative financial instruments, nor
did it have a trading portfolio of investments. The Corporation continues to
be exposed to interest rate risk; however, at September 30, 2003, there were
no material changes in the Corporation's market risk from the information
provided in the Form 10-K for the fiscal year ended March 31, 2003.
15
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the participation of
the Corporation's Chief Executive Officer, Chief Financial Officer, and
several other members of the Corporation's senior management within the 90-day
period preceding the filing date of this quarterly report. The Corporation's
Chief Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Corporation in the reports it files or submits under the Act is (i)
accumulated and communicated to the Corporation's management (including the
Chief Executive Officer and Chief Financial Officer) in a timely manner, and
(ii) recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms.
Changes in Internal Controls
- ----------------------------
In the quarter ended September 30, 2003, the Corporation did not make any
significant changes in, nor take any corrective actions regarding, its
internal controls or other factors that could significantly affect these
controls.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Horizon Financial Corporation has certain litigation and/or
negotiations in progress resulting from activities arising from
normal operations. In the opinion of management, none of these
matters is likely to have a materially adverse effect on the
Corporation's financial position or results of operation.
Item 2. Changes in Securities and Uses of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(3.1) Articles of Incorporation of Horizon Financial, Corp.
(incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K dated October 13,
1995)
(3.2) Bylaws of Horizon Financial Corp. (incorporated by
reference to Exhibit 3.2 to the Registrant's Current
Report on Form 8-K dated October 13, 1995)
(10.1) Amended and Restated Employment Agreement with V. Lawrence
Evans (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended March 31,
1996)
(10.2) Deferred Compensation Plan (incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year
ended March 31, 1996)
(10.3) 1986 Stock Option and Incentive Plan (incorporated by
reference to Exhibit 99.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-99780))
(10.4) 1995 Stock Option Plan (incorporated by reference to
Exhibit 99.2 to the Registrant's Registration Statement on
Form S-8 (File No. 33-99780))
(10.5) Bank of Bellingham 1993 Employee Stock Option Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8 (File No.
33-88571))
(10.6) Severance Agreement with Dennis C. Joines (incorporated by
reference to the Registrant's Annual Report on Form 10-K
for the year ended March 31, 2003)
(10.7) Severance Agreement with Richard P. Jacobson (incorporated
by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)
(10.8) Severance Agreement with Steven L. Hoekstra (incorporated
by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002)
(31) Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(32) Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
--------------------
None
17
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 FINANCIAL CORP.
By: V. Lawrence Evans
------------------------
V. Lawrence Evans
Chairman, President, and Chief Executive Officer
By: Richard P. Jacobson
-------------------------
Richard P. Jacobson
Chief Financial Officer
Dated: November 6, 2003
----------------------
18
Exhibit 31.1
Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, V. Lawrence Evans, certify that:
1. have reviewed this quarterly report on Form 10-Q of Horizon Financial
Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 6, 2003
/s/V. Lawrence Evans
--------------------------------
V. Lawrence Evans
Chairman, President, and Chief Executive Officer
19
Exhibit 31.2
Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934
I, Richard P. Jacobson, certify that:
1. have reviewed this quarterly report on Form 10-Q of Horizon Financial
Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 6, 2003
/s/Richard P. Jacobson
--------------------------------
Richard P. Jacobson
Chief Financial Officer, EVP
20
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF
HORIZON FINANCIAL CORP.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report of
Form 10-Q, that:
1. the report fully complies with the requirements of Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
2. the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
/s/V. Lawrence Evans /s/Richard P. Jacobson
- ------------------------------------ ------------------------------------
V. Lawrence Evans Richard P. Jacobson
Chairman, President, and Chief Financial Officer
Chief Executive Officer
Dated: November 6, 2003
21