Item 1. Business - -----------------
(a) General ------- Horizon Financial Corp. ("Horizon Financial" or the "Corporation") was incorporated in the State of Washington in 1995 for the purpose of becoming a bank holding company for Horizon Bank, a savings bank ("Horizon Bank" or the "Bank"). On July 25, 1995, the stockholders of the Bank approved a plan to reorganize the Bank into the holding company form of ownership. The reorganization was completed on October 13, 1995, on which date the Bank became the wholly-owned subsidiary of the Corporation, and the stockholders of the Bank became stockholders of the Corporation. Prior to completion of the reorganization, the Corporation had no material assets or liabilities and engaged in no business activities. Subsequent to the acquisition of Horizon Bank, the Corporation has engaged in no significant activity other than holding the stock of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank.
Horizon Bank was incorporated as a Washington state-chartered mutual savings bank in 1979 as a successor to Bellingham First Federal Savings and Loan Association, whose predecessor was originally organized in 1922 as a state-chartered savings and loan association which converted to a federal savings and loan association in 1934. The Bank is one of nine stock savings banks located in the State of Washington which are subject to regulation by the Washington Department of Financial Institutions, Division of Banks, and the Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposit accounts are insured by the FDIC under the Bank Insurance Fund ("BIF").
The business of the Bank consists primarily of attracting savings deposits from the general public and originating first mortgage loans on residential properties. The Bank also makes first mortgage loans on commercial and multi-family residential properties, and, to a limited extent, loans secured by savings accounts and consumer loans. The Bank also invests in federal government and agency obligations, corporate notes and bonds, municipal bonds, common stock, preferred stock, money market instruments and mortgage-backed obligations.
The Bank's principal sources of funds for lending and investment activities are savings deposits, repayment of loans, loan sales and borrowings. The Bank's principal sources of income are interest on loans and loan origination fees, commitment and servicing fees on loans, service charge income on accounts and interest and dividends on investment securities. Its principal expenses are interest paid on deposits, borrowings and general and administrative expenses.
The Bank's savings and lending operations are conducted through twelve full-service office facilities located in Whatcom, Skagit and Snohomish counties in Washington State. The Bank's main office is located at 1500 Cornwall Avenue, Bellingham, Washington and its telephone number is (360) 733-3050. See "Item 2.
Item 2. Properties - -------------------
The following table sets forth the location of the Bank's offices, as well as certain information relating to these offices.
Net Book Year Value as of Square Leased/ Opened March 31, 1997 Feet Owned ------ -------------- ---- ------
Bellingham Main Office. . . 1971 $1,062,558 19,179 Owned 1500 Cornwall Avenue Bellingham, WA 98225
Bellingham/Meridian . . . . 1987 782,808 4,650 Owned 4110 Meridian Bellingham, WA 98226
Ferndale Office . . . . . . 1976 391,349 3,692 Owned Third and Main Ferndale, WA 98248
Lynden Office . . . . . . . 1981 457,796 3,702 Owned Third and Grover Lynden, WA 98264
Blaine Office . . . . . . . 1976 587,631 3,610 Owned Fourth & "H" Streets Blaine, WA 98230
Mount Vernon Office . . . . 1976 240,040 3,275 Owned 1503 Riverside Dr. Mount Vernon, WA 98273
Anacortes Office. . . . . . 1987 893,906 3,650 Owned 1218 Commercial Avenue Anacortes, WA 98221
Snohomish Office. . . . . . 1987 193,768 1,388 Owned 620 2nd Street Snohomish, WA 98290
Everett Office. . . . . . . 1991 49,390 1,972 Leased 909 S.E. Everett Mall Way #E-500 Everett, WA 98208
(table continued on following page)
Net Book Year Value as of Square Leased/ Opened March 31, 1997 Feet Owned ------ -------------- ---- ------
Burlington Office . . . . . 1994 1,283,591 3,980 Owned 1020 S. Burlington Blvd Burlington, WA 98232
Edmonds Office. . . . . . . 1994 $ 74,150 1,597 Leased 315 Fifth Avenue South Suite A&B Edmonds, WA 98020
Mill Creek Office . . . . . 1995 113,696 1,945 Leased 13416 Bothell Everett Hwy. . . . . Suite 201 Mill Creek, WA 98012
At March 31, 1997, the aggregate book value of the Corporation's premises and equipment was $6,130,683.
Item 3.
Item 3. Legal Proceedings - --------------------------
The Bank is not engaged in any legal proceedings of a material nature at the present time. From time to time it is a party to legal proceedings wherein it enforces its security interest in loans made by it.
Item 4.
Item 4. Submission of Matters to a Vote of Security-Holders - --------------------------------------------------------------
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------
The Corporation's common stock is traded on the Nasdaq Stock Market under the symbol "HRZB." The common stock began trading on the Nasdaq Stock Market at the time of the Bank's conversion to stock form in August 1986.
The following table presents the high and low closing bid prices from the Nasdaq Stock Market, and cash dividends per share paid, for the last two fiscal years. These prices represent quotations by dealers and do not necessarily represent actual transactions, and do not include retail markups, markdowns or commissions. The Corporation has approximately 5,000 beneficial stockholders at March 31, 1997.
1997 Fiscal Year
Quarter HIGH LOW DIVIDENDS PER SHARE ------- ---- --- ------------------- 4th $16.75 $13.25 $.10 3rd 14.00 12.25 .45 2nd 14.00 12.50 .10 1st 13.25 11.75 .10
1996 Fiscal Year
Quarter HIGH LOW DIVIDENDS PER SHARE ------- ---- --- ------------------- 4th $14.00 $11.75 $.08 3rd 13.75 12.25 .08 2nd 13.25 11.50 .08 1st 12.00 11.25 .08
Item 6.
Item 6. Selected Financial Data - --------------------------------
The information contained in "Item 1 - Business - Selected Financial Data" in this Form 10-K is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ----------------------------------------------------------
The information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Proxy Statement.
Item 8.
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
The financial statements contained in the Proxy Statement which are listed under Item 14 herein, are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ---------------------------------------------------------
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
The information contained under the section captioned "Proposal I -- Election of Directors" and "Compliance with Section 16(a) of the Exchange Act" in the Registrant's Proxy Statement.
The executive officers of the Corporation and the Bank are as follows:
Name Age Position - ----- --- --------
George W. Gust 67 Chairman of the Board of the Corporation and the Bank
V. Lawrence Evans 50 Chief Executive Officer and President of the Corporation and the Bank
Richard P. Jacobson 34 Vice President and Secretary of the Corporation and the Bank
Judy E. Boxx 55 Vice President of the Bank
Jeffrey H. Jansen 39 Vice President of the Bank
Karen A. LePage 56 Vice President of the Corporation and the Bank
(table continued on following page)
Name Age Position - ----- --- --------
Karla C. Lewis 50 Vice President of the Bank
Merwyn G. Murk 58 Vice President of the Bank
Donald A. Wolf 48 Vice President of the Bank
The following is a description of the principal occupation and employment of the executive officers of the Corporation and the Bank during at least the past five years:
GEORGE W. GUST joined the Bank in 1975 and has also served as the Chairman of the Board of Directors of the Bank since August 1984. Effective May 14, 1990, Mr. Gust resigned as President.
V. LAWRENCE EVANS joined the Bank in 1972 and served as the Bank's Executive Vice President/Finance from 1983 to May 14, 1990 at which time, Mr. Evans was appointed President of the Bank. On March 26, 1991, Mr. Evans was appointed Chief Executive Officer of the Bank.
RICHARD P. JACOBSON worked for Horizon Bank from 1985 to 1992. From April 1992 to May 1994, he worked as a real estate appraiser for a local appraisal company. He re-joined the Bank in May of 1994 and was appointed Vice President/Finance and Corporate Secretary in December 1994.
JUDY E. BOXX joined Horizon Bank in 1984. She has worked in the Loan Servicing/Collection Department since 1986. She was appointed Vice President and manager of the Loan Servicing Department in December of 1994.
JEFFREY H. JANSEN joined Horizon Bank in 1985 as the manager of the Bank's Lynden Office. He was appointed Vice President in December of 1994.
KAREN A. LEPAGE has been employed by the Bank since 1958. In December 1985, she was promoted to Vice President. She has been manager of the Accounting Department since 1977.
KARLA C. LEWIS joined Horizon Bank in 1973. From 1983 to December 1994, she was the Manager of the Loan Servicing Department. She was appointed Vice President in June 1987 and is currently the Bank's Chief Lending Officer.
MERWYN G. MURK joined the Bank in 1969 and has been manager of the Savings Department since 1972. He was appointed Vice President in October 1977.
DONALD A. WOLF joined Horizon Bank in 1973. He has been the Bank's Operations manager since October 1984. Mr. Wolf was appointed Vice President in June 1987.
Item 11.
Item 11. Executive Compensation - --------------------------------
Information regarding management compensation and transactions with management and others is incorporated by reference to the section captioned "Proposal I - Election of Directors" in the Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Principal Holders Thereof" of the Proxy Statement.
(c) Changes in Control
The Corporation is not aware of any arrangements, including any pledge by any person of securities of the Corporation, the operation of which may at a subsequent date result in a change in control of the Corporation.
Item 13.
Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------
The information contained under the sections captioned "Voting Securities and Principal Holders Thereof" in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -----------------------------------------------------------------
(a) (1) Financial Statements --------------------
Independent Auditor's Report*
Consolidated Statement of Financial Position, March 31, 1997 and 1996*
Consolidated Statement of Income for the years ended March 31, 1997, 1996 and 1995*
Consolidated Statement of Stockholders' Equity for the years ended March 31, 1997, 1996 and 1995*
Consolidated Statement of Cash Flows for the years ended March 31, 1997, 1996 and 1995*
Notes to Consolidated Financial Statements* __________________ * Contained in the Corporation's Annual Meeting Proxy Statement filed with the Securities and Exchange Commission on June 20, 1997 and incorporated herein by reference. All schedules have been omitted as the required information is either inapplicable or contained in the Consolidated Financial Statements or related Notes contained in the Annual Meeting Proxy Statement.
(2) All required financial statement schedules are included in the Notes to Consolidated Financial Statements.
(b) The Corporation did not file any Current Reports on Form 8-K during the quarter ended March 31, 1997.
(c) 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)) (21) Subsidiaries of the Registrant (23) Consent of Auditors (27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HORIZON FINANCIAL CORP.
Date: June 27, 1997 By: /s/ George W. Gust -------------------------- George W. Gust, Chairman of the Board (Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ V. Lawrence Evans By: /s/ Fred R. Miller -------------------------- ----------------------- V. Lawrence Evans Fred R. Miller Director Director Principal Financial Officer, Chief Executive Officer and President
Date: June 27, 1997 Date: June 27, 1997
By: /s/Karen A. LePage By: /s/ L. M. Strengholt -------------------------- ----------------------- Karen A. LePage L. M. Strengholt Principal Accounting Director Officer
Date: June 27, 1997 Date: June 27, 1997
By: /s/ Robert C. Diehl By: /s/ Frank G. Uhrig -------------------------- ----------------------- Robert C. Diehl Frank G. Uhrig Director Director
Date: June 27, 1997 Date: June 27, 1997
By: /s/ George W. Gust By: /s/ Maurice D. Fox -------------------------- ----------------------- George W. Gust Maurice D. Fox Director and Chairman of Director the Board
Date: June 27, 1997 Date: June 27, 1997
By: /s/ Richard D. Haggen -------------------------- Richard D. Haggen Director
Date: June 27, 1997
Exhibit 21
Subsidiaries of the Registrant
Parent - ------
Horizon Financial Corp.
Jurisdiction Percentage or State of Subsidiaries (a) of Ownership Incorporation - ---------------- ------------ -------------
Horizon Bank, a savings bank 100% Washington
Westward Financial Services, Inc. (b) 100% Washington
- ---------- (a) The operation of the Corporation's wholly owned subsidiaries are included in the Corporation's Consolidated Financial Statements contained in the Annual Meeting Proxy Statement filed with the SEC on June 20, 1997 and incorporated herein by reference.
(b) Wholly-owned subsidiary of Horizon Bank, a savings bank.
Exhibit 23
Consent of Auditors
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-99780) of Horizon Financial Corp. of our report dated April 22, 1997 appearing in the Annual Meeting Proxy Statement of Horizon Financial Corp., dated June 20, 1997, which is incorporated by reference in Horizon Financial Corp.'s Annual Report on Form 10-K for the year ended March 31, 1997.
/s/MOSS ADAMS LLP MOSS ADAMS LLP
Bellingham, Washington June 25, 1997
Exhibit 27
Financial Data Schedule
PAGE