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EX-31.1 - Manasota Group, Inc.v218856_ex31-1.htm
EX-32.1 - Manasota Group, Inc.v218856_ex32-1.htm
EX-31.2 - Manasota Group, Inc.v218856_ex31-2.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 

 
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2010
 
Commission File Number 333-71773
 
HORIZON BANCORPORATION, INC.
a Florida corporation
 
(IRS Employer Identification No. 65-0840565)
2504 64th Street Court East
Bradenton, Florida 34208
(941) 745-2101
 
Securities Registered Pursuant to Section 12(b)
of the Exchange Act:
 
None
 
Securities Registered Pursuant to Section 12(g)
of the Exchange Act:
 
Common Stock, $.01 par value
 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Yes o No x
 
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding twelve 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 o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained here, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-2 of the Exchange Act (Check one):
 
Large accelerated filer o        Accelerated filer o
 
Non-accelerated filer   o        Smaller reporting company x
(Do not check if smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
 
YES o NO x
 
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was $885.069.50.  Such value was computed by reference to the $0.50 closing price of the common stock on such date on the Over-the-Counter Bulletin Board inter-dealer trading system ("OTCBB") on the last business day of the registrant’s most recently completed second fiscal quarter.  For purposes of this determination, directors, executive officers and holders of 10% or more of the registrant's common stock were considered the affiliates of the registrant at that date.
 
The number of shares outstanding of the registrant's common stock as of March 10, 2011: 1,770,139 shares of common stock, par value $.01 per share (the "Common Stock").
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A in connection with the 2011 Annual Meeting of Shareholders to be held on June 15, 2011, are incorporated herein by reference into Part III of this report.
 
 
 

 
 
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements set forth in this Report or incorporated herein by reference, including, without limitation, matters discussed under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” are “forward-looking statements” within the meaning of the federal securities laws, including, without limitation, statements regarding our outlook on earnings, stock performance, asset quality, economic conditions, real estate markets and projected growth, and are based upon management’s beliefs as well as assumptions made based on data currently available to management.  In this Report, the terms “the Company”, “we”, “us”, or “our” refer to Horizon Bancorporation, Inc.  When words like “anticipate”, “believe”, “intend”, “plan”, “may”, “continue”, “project”, “would”, “expect”, “estimate”, “could”, “should”, “will”, and similar expressions are used, you should consider them as identifying forward-looking statements.  These forward-looking statements are not guarantees of future performance, and a variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements.  Many of these factors are beyond our ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements.  The following list, which is not intended to be an all-encompassing list of risks and uncertainties affecting us, summarizes several factors that could cause our actual results to differ materially from those anticipated or expected in these forward-looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins or the volumes or values of loans made by us; (3) general economic conditions (both generally and in our markets) may continue to be less favorable than expected, resulting in, among other things, a further deterioration in credit quality and/or a reduction in demand for credit; (4) continued weakness in the real estate market has adversely affected us and may continue to adversely affect us; (5) legislative or regulatory changes, including changes in accounting standards and compliance requirements, may adversely affect the businesses in which we are engaged; (6) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than we can; (7) our ability to attract and retain key personnel can be affected by the increased competition for experienced employees in the banking industry; (8) adverse changes may occur in the bond and equity markets; (9) our ability to raise capital to protect against further deterioration in our loan portfolio may be limited due to unfavorable conditions in the equity markets; (10) war or terrorist activities may cause further deterioration in the economy or cause instability in credit markets; (11) restrictions or conditions imposed by our regulators on our operations may make it more difficult for us to achieve our goals; (12) economic, governmental or other factors may prevent the projected population and commercial growth in the markets in which we operate; and (13) the risk factors discussed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”), including but not limited to, this Annual Report on Form 10-K (the “Report”).  We undertake no obligation to, and we do not intend to, update or revise these statements following the date of this filing, whether as a result of new information, future events or otherwise, except as may be required by law.
 
 
2

 
 
PART I
 
Item 1. Description of Business.
 
A. Business Development.
 
     Horizon Bancorporation, Inc. (hereinafter, the "Company" or the "Registrant") was incorporated in the State of Florida on May 27, 1998, under the name of Manasota Group, Inc., for the purpose of becoming a bank holding company owning all of the outstanding capital stock of Horizon Bank, a commercial bank chartered under the laws of Florida (the "Bank").  In anticipation of the filing for regulatory approval for the Bank, the Company amended its Articles of Incorporation on October 2, 1998, changing its name to Horizon Bancorporation, Inc., authorizing additional capital stock and adopting anti-takeover provisions typical of a bank holding company for a community bank.  All of the regulatory approvals necessary for the operation of the Company and the Bank were granted as of October 25, 1999.
 
     The Company began its initial public offering of the Common Stock at $5.50 per share on February 9, 1999, and completed its minimum offering of 1,023,638 shares on October 13, 1999. Of the total proceeds of $5,630,009, the Company used $5,280,000 to capitalize the Bank, which opened for business on October 25, 1999.  The Company raised an additional $673,414.50 as of December 31, 1999, when the offering closed, with a total of 1,146,077 shares of Common Stock sold for the aggregate amount of $6,303,423.50 (the "Initial Offering").
 
     To satisfy its needs for additional capital, in April 2003, the Company conducted a public offering solely to its existing shareholders (the "Rights Offering"), whereby each shareholder could purchase one unit for each 3.333 shares of the Company's common stock already owned.  Each unit consisted of one share of the Company's common stock and one warrant (expiring on July 6, 2005) to purchase one share of the Company's common stock for $7.00 per share, subject to certain limitations.  The Company sold 246,038 units for $6.00 per unit.  In an unrelated private placement, also during 2003, the Company sold 100,000 units, each consisting of one share of common stock and one warrant (expiring on August 12, 2005) to purchase one-half of one share of the Company's common stock at $3.50 (or $7.00 per share), for $6.00 per unit.  Total proceeds to the Company from the Rights Offering and the private placement, amounted to $2,043,012, net of direct selling expenses.
 
     On or about July 6, 2005, all of the warrants issued in the Rights Offering and the private placement were either exercised or expired. Total proceeds from such exercise amounted to $1,941,793.
 
     On May 10, 2004, the Company registered, by filing an SEC Form 8A, the Common Stock under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act").  Subsequently, in November 2004, the Common Stock began trading in the OTCBB under the Symbol "HZNB".     
 
The Company maintains its corporate offices at 2504 64th Street Court East, Bradenton, Florida 34208.
 
 
3

 
 
B. Business.
 
    Horizon Bancorporation, Inc., Bradenton, Florida (the "Company"), acted as a one-bank holding company with respect to Horizon Bank, Bradenton, Florida (the "Bank"), from October 25, 1999 when the Bank commenced operations, until September 10, 2010, when the Florida Office of Financial Regulation (the “OFR”) declared the Bank to be insolvent. The Bank was closed, with the FDIC being appointed as receiver therefor, and sold to Bank of the Ozarks.
 
In the short run, management intends to maintain the Company’s status as a reporting public company, which, if an appropriate opportunity arises, may engage in a transaction with an operating company.  There is no assurance that, in the long run, we will be able to maintain such status and consummate any such transaction.

Item 2. Description of Property.
 
     In August 2000, the Company moved its operations into a new one-story building located at 900 53rd Avenue East, in Bradenton (the “Building”).  The Building, after the addition of almost 2,000 square feet of interior space in August, 2004, consists of approximately 7,000 square feet of interior space, four interior teller windows, four exterior drive-through teller stations and 36 parking spaces.  The interior includes executive offices, work stations for support staff and safe deposit box storage areas.  The original total cost of the Building, including the costs of construction, landscaping, and furniture and equipment, was approximately $1.7 million. The 2004 addition cost the Company approximately $260,000, and the Company spent another approximately $40,000 to furnish the additional space with furniture and equipment.  Subsequently all furniture and equipment was taken into receivership by the FDIC.  At present, Bank of the Qzarks is operating out of this location.
 
Item 3. Legal Proceedings.
 
     Neither the Company nor the Bank is a party to, nor is any of their property the subject of, any material pending legal proceeding that is not routine litigation that is incidental to the business or any other material legal proceeding.

Item 4. Submission of Matters to a Vote of Security Holders.
 
     No matter was submitted to a vote of security-holders during the fourth quarter of the fiscal year covered by this Report.
 
 
4

 

PART II
 
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
    Market for Common Stock and Dividend Policy.
 
     Our Amended and Restated Articles of Incorporation authorize us to issue up to 25,000,000 shares of the Common Stock and 1,000,000 shares of preferred stock.  As of March 10, 2011, 1,809,912 shares of the Common Stock were issued, and 1,770,139 were outstanding and held by 586 holders of record.  No shares of preferred stock were then issued and outstanding.
 
     Since November 2004, the Common Stock has been trading on the OTCBB under the symbol "HZNB".  The following table sets forth the range of high and low bid information for the four quarters of 2010, as reported by Bloomberg.com:
 
Quarter ended
 
High
   
Low
 
March 31
    2.50       0.90  
June 30
    0.99       0.25  
September 30
    0.50       0.10  
December 31
    0.19       0.02  
 
     These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
   The following table sets forth the range of high and low bid information for the four quarters of 2009, as reported by Bloomberg.com:
 
Quarter ended
 
High
   
Low
 
March 31
    7.75       6.00  
June 30
    9.25       3.10  
September 30
    5.00       3.90  
December 31
    4.95       1.60  
 
     These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
       
Item 6. Selected Financial Data.
 
Not Applicable.
 
 
5

 
 
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's consolidated financial statements and related notes which are included under Item 8 below.
 
A. Results of Operations.

For the twelve months ended December 31, 2010, the Company reported a net loss of $5,770,000, compared to a net loss of $8,127,000 for the same period in 2009.  Basic and diluted loss per share were $3.26 for the twelve months ended December 31, 2010, compared to losses of $4.59 for the twelve months ended December 31, 2009.  The loss is attributable almost entirely, to the extent of $5,693,000, to the closure of the Bank.
 
B. Balance Sheet Analysis

Total Assets

As of December 31, 2010, total assets of the Company were $1,263,620 compared to $199,499,006 at December 31, 2009, a decrease of $198.2 million.  The decrease is primarily due to the closure of the Bank.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable
 
Item 8. Financial Statements and Supplementary Data.
   
 
The following financial statements are contained in this Item 7:
   
 
Independent Auditors' Report
 
Consolidated Balance Sheets as of December 31, 2010 and 2009
 
Consolidated Statements of Income for the years ended December 31, 2010 and 2009
 
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2010 and 2009
 
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
 
Notes to Consolidated Financial Statements
 
 
6

 
 
HORIZON BANCORPORATION, INC.
BRADENTON, FLORIDA

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2010 AND 2009

 
F-i

 

TABLE OF CONTENTS
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    F-1  
         
CONSOLIDATED FINANCIAL STATEMENTS
       
         
Consolidated Balance Sheets
    F-2  
         
Consolidated Statements of Operations
    F-3  
         
Consolidated Statements of Changes in Shareholders' Equity
    F-4  
         
Consolidated Statements of Cash Flows
    F-5  
         
Notes to Consolidated Financial Statements
    F-6  
 
 
F-ii

 
 
Report of Independent Registered Public Accounting Firm
 
Board of Directors and Shareholders
Horizon Bancorporation, Inc.
Bradenton, Florida
 
We were engaged to audit the accompanying balance sheet of Horizon Bancorporation, Inc., Bradenton, Florida (the “Company”), as of December 31, 2010, and the related statements of operations, comprehensive (loss), changes in shareholders’ equity and cash flow for the year then ended (the “2010 financial statements”).  The 2010 financial statements are the responsibility of the Company’s management.
 
On September 10, 2010, the Company’s sole subsidiary, Horizon Bank, was closed by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corporation was appointed as receiver of the Horizon Bank. Because the FDIC would not release Horizon Bank’s records to the Company’s management, we were unable to apply necessary procedures that are significant to the 2010 financial statements audit.
 
Due to our inability to access necessary accounting records, as well as obtain sufficient appropriate evidential matter with respect to the 2010 financial statements, we are unable to express, and do not express, an opinion on the 2010 financial statements.
 
We have audited the accompanying consolidated balance sheet of the Company as of December 31, 2009, and the related consolidated statements of income, comprehensive (loss), changes in shareholders' equity and cash flows for the year then ended (the “2009 financial statements”).  The consolidated 2009 financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated 2009 financial statements based on our audit.
 
We conducted the 2009 financial statements audit 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 the 2009 financial statements audit provides a reasonable basis for our opinion.
 
In our opinion, the consolidated 2009 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Horizon Bancorporation, Inc., and subsidiary at December 31, 2009, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed under Note 2 to the financial statements, the Company has suffered heavy losses in calendar years 2010 and 2009, reducing its capital accounts significantly.  Moreover, federal and state regulators, in 2009, imposed a Written Agreement on the Bank mainly due to increasing levels in non-performing assets and eroding regulatory capital.  The above, combined with the closing of the subsidiary bank raises substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are described under Note 2.  The accompanying financial statements do not include any adjustments that would be necessary should the Company be unable to continue as a going concern.
 
/S/ Francis & Co., CPA's
 
Atlanta, Georgia
April 14, 2011
 
 
F-1

 
HORIZON BANCORPORATION, INC.
BRADENTON, FLORIDA
Consolidated Balance Sheets
 
   
As of December 31,
 
   
2010
   
2009
 
ASSETS            
Cash and due from banks
  $ 13,440     $ 376  
                 
Property and equipment, net
    1,247,180       1,299,722  
Assets of discontinued operations
   
-----0-----
      198,172,453  
Other assets
    3,000       26,455  
Total Assets
  $ 1,263,620     $ 199,499,006  
LIABILITIES & SHAREHOLDERS' EQUITY
               
Liabilities:
               
Liabilities of discontinued operations
   
------0-----
      192,766,640  
Note payable
    981,782       1,065,205  
Other liabilities
    91,000      
------0-----
 
Total Liabilities
  $ 1,072,782     $ 193,831,845  
Shareholders' Equity:
               
Preferred stock, $.01 par value, 1.0 million shares authorized; zero shares issued and outstanding
  $     $  
Treasury Stock: 39,773 shares
    (479,393 )     (479,393 )
Common stock, $.01 par value,  25,000,000 shares authorized;  1,809,912 issued and 1,770,139 outstanding at December 31, 2010 and 2009.
    18,099       18,099  
Paid-in-capital
    10,428,214       10,428,214  
Retained (deficit)
    (9,776,082 )     (4,006,176 )
Accumulated other comprehensive income/(loss), net of tax
   
-----0-----
      (293,583 )
Total Shareholders' Equity
  $ 190,838     $ 5,667,161  
Total Liabilities and Shareholders' Equity
  $ 1,263,620     $ 199,499,006  
 
Refer to notes to the consolidated financial statements.
 
 
F-2

 
 
HORIZON BANCORPORATION, INC.
BRADENTON, FLORIDA
Consolidated Statements of Operations
 
   
Year Ended December 31,
 
   
2010
   
2009
 
Operating Income
           
Gain on sale of asset
    58,148      
------0------
 
Other miscellaneous income
    36      
------0------
 
Total operating income
  $ 58,184     $
------0------
 
Operating Expenses
               
Interest expense on note
    54,753       59,147  
Other operating expenses
    80,641       123,009  
  Total operating expenses
  $ 135,394     $ 182,156  
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION
  $ (77,210 )   $ (182,156 )
Income tax provision/(benefit)
   
------0------
      (28,401 )
LOSS FROM CONTINUING OPERATIONS
  $ (77,210 )   $ (153,755 )
DISCONTINUED OPERATIONS
               
Loss from discontinued operations
    (5,692,696 )     (11,555,912 )
Income tax provision/(benefit)
   
------0------
      (3,582,329 )
LOSS ON DISCONTINUED OPERATIONS
    (5,692,696 )     (7,973,583 )
                 
NET LOSS
  $ (5,769,906 )   $ ( 8,127,338 )
Net (loss) per common share: basic and diluted, from:
               
Continuing operations
  $ (.04 )   $ (.09 )
Discontinued operations
    (3.22 )     (4.50 )
NET LOSS PER BASIC AND DILUTED SHARE
  $ (3.26 )   $ (4.59 )
Weighted average number of shares outstanding:
               
Basic and Diluted
    1,770,139       1,770,116  
 
Refer to notes to the consolidated financial statements
 
 
F-3

 
 
HORIZON BANCORPORATION, INC.
BRADENTON, FLORIDA
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 2010 and 2009
 
                                 
Accumulated
       
                                 
Other
       
   
Common Stock
   
Treasury
   
Paid in
   
Retained
   
Comprehensive
       
   
Shares
   
Par Value
   
Stock
   
Capital
   
Earnings
   
Income
   
Total
 
Balance December 31 , 2008
    1,768,446     $ 18,082     $ (479,393 )   $ 10,358,919     $ 4,116,602     $ (1,219,680 )   $ 12,794,530  
Prior period adjustment
                                  $ 4,560             $ 4,560  
Comprehensive Income:
                                                       
Net income/(loss), twelve-month period ended December 31, 2009
                                  $ (8,127,338 )           $ (8,127,338 )
Net unrealized income on securities from discontinued operations, twelve-month period ended December 31, 2009
                                            926,097     $ 926,097  
Total comprehensive income/(loss),net of tax
                                                    (7,201,241 )
Exercise of stock options/warrants
    1,693     $ 17             $ 9,295                     $ 9,312  
Stock Options Expense
                          $ 60,000                       60,000  
Balance December 31 , 2009
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (4,006,176 )   $ (293,583 )   $ 5,667,161  
                                                         
Comprehensive Income:
                                                       
Net income/(loss), twelve-month period ended December 31, 2010
                                    (5,769,906 )           $ (5,769,906 )
Net unrealized income on securities from discontinued operations, twelve-month period ended December 31, 2010
                                            293,583     $ 293,583  
Total comprehensive income/(loss),net of tax
                                                  $ (5,476,323 )
Balance December 31 , 2010
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (9,776,082 )    
------0------
    $ 190,838  
 
Refer to notes to the consolidated financial statements.
 
 
F-4

 
 
HORIZON BANCORPORATION, INC.
BRADENTON, FLORIDA
Consolidated Statements of Cash Flows

   
Year ended December 31,
 
   
2010
   
2009
 
Cash flow from operating activities:
           
Net (loss)
  $ (5,769,906 )   $ (8,127,338 )
Adjustments to reconcile net (loss) to net cash provided by operating activities:
               
Depreciation
    11,845       13,018  
(Gain) on sale of other assets
    (58,148 )     -0-  
Decrease in other assets
    23,455       10,607  
Increase in other liabilities
    91,000       (199,090 )
Loss on discontinued operations, net
    5,692,696       7,973,583  
Net cash from operating Activities
  $ (9,058 )   $ (329,220 )
                 
Cash flow from investing activities:
               
Decrease in property and equipment
  $ 105,545     $ 51,541  
Net cash from investing activities
  $ 105,545     $ 51,541  
                 
Cash flow from financing activities:
               
(Decrease) in note payable
  $ (83,423 )   $ 259,441  
Exercise of Warrants/Options
    -0-       9,312  
Net cash from financing activities
  $ (83,423 )   $ 268,753  
                 
Net change in cash and cash equivalents
  $ 13,064     $ (8,926 )
Cash and cash equivalents, beginning of year
    376       9,302  
Cash and cash equivalents, end of year
  $ 13,440     $ 376  
                 
Supplemental Disclosure
               
Cash paid during the period for interest
  $ 54,753     $ 59,147  
 
Refer to notes to the consolidated financial statements.

 
F-5

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Note 1 - Organization and Summary of Significant Accounting Policies
 
Horizon Bancorporation, Inc., Bradenton, Florida (the "Company") was a one-bank holding company with respect to Horizon Bank, Bradenton, Florida (the "Bank").  The Company commenced banking operations on October 25, 1999 when the Bank opened for business.  On September 10, 2010, the Company ceased to be a bank holding company when the Florida Office of Financial Regulation (the “OFR”) closed the Bank and the Federal Deposit Insurance Corporation (the “FDIC”) was appointed as receiver.  The FDIC sold the Bank to the Bank of the Ozarks.  The Bank was primarily engaged in the business of obtaining deposits and providing commercial, consumer, and real estate loans to the general public.  Bank deposits were each insured up to $250,000 by the FDIC subject to certain limitations.
 
The Company is authorized to issue up to 25.0 million shares of its $.01 par value per share common stock.  Each share is entitled to one vote and shareholders have no preemptive or conversion rights.  As of December 31, 2010 and 2009 there were 1,809,912 shares issued and 1,770,139 shares of the Company's common stock outstanding.   As of December 31, 2010 and 2009 the Company held 39,773 shares of treasury stock.  Additionally, the Company has authorized the issuance of up to 1.0 million shares of its $.01 par value per share preferred stock. The Company's Board may, without further action by the shareholders, direct the issuance of preferred stock for any proper corporate purpose with preferences, voting powers, conversion rights, qualifications, special or relative rights and privileges which could adversely affect the voting power or other rights of shareholders of common stock.  Effective October 22, 2009, the Company’s Board designated, by amending the Articles of Incorporation, a series of preferred stock.  The series, designated as Series A Preferred Stock, consists of 5,000 shares with a liquidation preference of $1,000 per share.  As of December 31, 2010 and 2009, there were no shares of the Company's preferred stock issued or outstanding.
 
Basis of Presentation and Reclassification.  The consolidated financial statements include the accounts of the Company and its subsidiary.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain prior year's amounts have been reclassified to conform to the current year presentation; such reclassifications had no impact on net income or shareholders' equity.
 
Uses of Estimates.  The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for possible loan losses, the valuation of foreclosed real estate,  the fair value of financial instruments, other than temporary impairment analysis, and the realization of deferred tax assets.
 
 
F-6

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Cash and Cash Equivalents.  Cash and cash equivalents include cash, demand balances due from banks, federal funds sold, and interest bearing deposits due from other banks, all of which mature within 90 days.
 
Securities.  Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost.  Securities held for current resale are classified as trading securities and are reported at fair value, with unrealized gains and losses included in earnings.  Securities to be held for indefinite periods of time are classified as available-for-sale and carried at fair value with the unrealized holding gains/losses reported as a component of other comprehensive income, net of tax.  Generally, in the available-for-sale category are securities that are held to meet investment objectives such as interest rate risk, liquidity management and asset-liability management strategies among others.  The classification of investment securities as held-to-maturity, trading or available-for-sale is determined at the date of purchase.  The Company does not have trading securities at December 31, 2010 and 2009.  Securities with limited marketability, such as stock in the Federal Reserve Bank and the Federal Home Loan Bank, are classified as available for sale and recorded at cost.
 
The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities.  Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date.  Declines in the fair value of specific securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.
 
Management evaluates investment securities for other-than-temporary impairment on an annual basis.  A decline in the market value of any investment below cost that is deemed other-than-temporary is charged to earnings if the decline in value is deemed to be credit related.  The decline in value attributed to non-credit related factors is recognized in other comprehensive income and/or new cost basis in the security is established.  Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield.  Realized gains and losses for securities classified as available for sale and held to maturity are included in net income and derived using the specific identification method for determining the cost of the securities sold.
 
Loans Held For Sale.  Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.  In estimating fair value, consideration is given to commitments from investors and prevailing market prices
 
Loans.  Loans that management have the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or origination costs.  Interest income is accrued on the outstanding principal balance.  Loan origination fees, net of certain direct origination costs are deferred and recognized as an adjustment of the related loan yield on a straight line basis, which approximates the interest method.
 
 
F-7

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrued interest is recoverable through the liquidation of collateral.  Interest income on nonaccrual loans is recognized on the cash-basis or cost-recovery method until the loans are returned to accrual status.  Loans are returned to accrual status when all the principal and interest amounts are brought current and future payments are reasonably assured.
 
A loan is considered impaired when it is probable, based on current information and events, the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.  The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.  Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
 
Allowance for Loan Losses.  The allowance for loan losses is established through a provision for loan losses charged to expense.  Loan losses are charged against the allowance when management believes the collectability of the principal is unlikely.  Subsequent recoveries, if any, are credited to the allowance.
 
The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower's ability to pay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
 
The evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.  While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations.
 
 
F-8

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The allowance consists of specific, general and unallocated components.  The specific component relates to loans that are classified as either doubtful, substandard or special mention.  For such loans that are also classified as impaired, an allowance is established when the discounted cash flows, or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
 
Concentration of Credit Risk.  The company makes loans to individuals as well as to small and medium-sized enterprises located mainly in the Florida counties of Manatee and Sarasota.  While the loan portfolio is generally diversified, a large portion of the Company’s loans are secured by real estate located in the above counties.  As a result, significant decreases in real estate values in the Company’s geographical market could increase loan losses and have an adverse effect on future earnings.
 
Property and Equipment.  Building, leasehold improvements, furniture, and equipment are stated at cost, net of accumulated depreciation.  Land is carried at cost.  Depreciation is computed principally by the straight-line method based on the estimated useful lives of the related assets.  Maintenance and repairs are charged to operations, while major improvements are capitalized.  Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in operations.  The Company had no capitalized lease obligations at December 31, 2010 and 2009.
 
Other Real Estate Owned.  Other real estate owned represents property acquired by the Company in satisfaction of a loan.  Other real estate owned is carried at the lower of:  (i) cost or (ii) fair value less estimated selling costs.  Fair value is determined on the basis of current appraisals, comparable sales and other estimates of value obtained principally from independent sources.  Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a loan loss and charged against the allowance for loan losses.  Gain or loss on the sale of the property and any subsequent adjustments to reflect changes in fair value of the property are reflected in the income statement.  Recoverable costs relating to the development and improvement of the property are capitalized whereas routine holding costs are charged to expense.
 
Income Taxes.  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Company determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
 
 
F-9

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.  Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
 
On January 1, 2009, the Company adopted the recent accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.
 
Stock-Based Compensation.    Accounting principles require that the compensation cost relating to share-based payment transaction be recognized in the financial statements.  That cost will be measured based on the grant date fair value of the equity or liability instruments issued.  Accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period.  The Company uses the Black-Scholes Option-Pricing model to estimate the fair value of stock options and stock warrants.  No stock options or stock warrants were granted during calendar years 2010 and 2009.
 
Earnings Per Share.  Basic earnings per share are determined by dividing net income by the weighted-average number of common shares outstanding.  Diluted income per share is determined by dividing net income by the weighted average number of common shares outstanding increased by the number of common shares that would be issued assuming exercise of stock options.  This also assumes that only options with an exercise price below the existing market price will be exercised.  In computing net income per share, the Company uses the treasury stock method.
 
Comprehensive Income.  Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  Comprehensive income for calendar years 2010 and 2009 are shown in the consolidated statements of changes in shareholders' equity.
 
Discontinued Operations.  The Company’s primary asset at December 31, 2009, was its subsidiary bank.  On September 10, 2010, the Bank was closed by OFR and the FDIC was appointed as the receiver.  All balance sheet and operating data for the Bank are reflected as discontinued operations.
 
 
F-10

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
A summary of the results of operations of the discontinued Bank for the year ended December 31, 2009, follows:
 
Interest income
  $ 11,755,373  
Interest expense
    5,731,341  
Net interest income
    6,024,032  
Provision for possible loan losses
    11,196,661  
Net interest income after provision for loan losses
    (5,172,629 )
Non-interest income
    (866,736 )
Non-interest expense
    (5,516,547 )
Loss before income tax
    (11,555,912 )
Income tax (benefit)
    (3,582,329 )
Net (loss)
  $ (7,973,583 )
 
A summary of assets and liabilities of the discontinued Bank as of December 31, 2009, follows:
 
Cash and due from banks
  $ 9,719,236  
Federal funds sold
    ---0---  
   Total cash and cash equivalents
  $ 9,719,236  
Securities:
       
  Held to maturity, at amortized cost
    11,462,744  
  Available-for-sale, at fair value
    13,080,811  
Loans held for sale
    1,262,199  
Loans, net
    151,127,759  
Property and equipment, net
    2,398,780  
Other real estate owned
    2,579,138  
Other assets
    6,541,786  
  Total Assets from discontinued operations
  $ 198,172,453  
         
Liabilities:
       
Deposits:
       
  Non-interest bearing deposits
  $ 9,686,614  
  Interest bearing deposits
    164,889,658  
    Total deposits
  $ 174,576,272  
Federal Home Loan Bank borrowings
    18,000,000  
Other liabilities
    190,368  
  Total Liabilities from discontinued operations
  $ 192,766,640  
Net Assets of discontinued operations
  $ 5,405,813  
 
Recent Accounting Pronouncements
 
In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. Disclosures should be provided based on portfolio segment and class of financing receivable. Additional disclosures by class of financing receivable will be required relating to credit quality indicators, aging of past due financing receivables, and the nature and extent of troubled debt restructurings during the period. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.
 
 
F-11

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
In January 2011, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosure about Troubled Debt Restructurings in Update 2010-20. The amendments in ASU 2011-01 temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.
 
Note 2 – Regulatory Matters, Going Concern Consideration and Equity Offering
 
Regulatory Matters
 
(a)           Written Agreement
 
On November 10, 2009, the Federal Reserve Bank of Atlanta (the “FRB”), the OFR and the Bank have mutually agreed to enter into a Written Agreement (“the Agreement”).  The Agreement contains a list of strict requirements with which the Bank must comply.  A summary of the Agreement is as follows:
 
 
·
Submit a written plan to strengthen Board oversight of the management and operations of the Bank.
 
 
·
Submit a written plan to strengthen the Bank’s management of commercial real estate concentrations, including steps to reduce the risk of concentrations.
 
 
·
Submit a written plan to strengthen credit risk management practices.
 
 
·
Submit a written plan to strengthen lending and credit administration policies, procedures, and practices.
 
 
·
Retain an independent and acceptable (to FRB, OFR) consultant to assess the level of risk or exposure in the portion of the Bank’s loan portfolio not reviewed at the most recent regulatory examination.
 
 
F-12

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
 
·
Submit a written plan to provide for the ongoing review and grading of the Bank’s loan portfolio by a qualified independent party.
 
 
·
The Bank shall not, directly or indirectly, extend or renew any credit to or for the benefit of any borrower, including related interest of the borrower, who is obligated to the Bank on any extension of credit that have been charged off by the Bank, or classified “loss” in the most recent report of examination or in any subsequent report of examination so long as such credit remains uncollected.
 
 
·
The Bank shall not, directly or indirectly, extend or renew any credit to or for the benefit of any borrower, including related interest of the borrower, whose extension of credit has been classified as “doubtful” or “substandard” in the most recent report of examination or in any subsequent report of examination without the prior approval of the Bank’s Board of Directors.
 
 
·
Submit a written plan for each problem loan and for other real estate exceeding $250,000 that is designed to improve the Bank’s position with respect to the above assets.
 
 
·
Provide a written report after each calendar quarter updating each asset improvement plan; in addition, provide the problem loan list, a listing of past due/non-accrual loans, and a list of all loan renewals and extensions for which the Bank did not collect the full interest.
 
 
·
Eliminate from the Bank’s balance sheet all assets or portions of assets classified “loss” in the most recent report of examination as well as in future reports of examination.
 
 
·
Review and revise the methodology used to construct the allowance for loan and lease losses (“the ALLL”).  Upon completion, submit the ALLL methodology to the regulators for their review.
 
 
·
Submit a written plan for the maintenance of an adequate ALLL, with periodic updates incorporating all changes.
 
 
·
Submit a written plan for maintaining sufficient capital at the Bank, including an analysis of current and future capital needs as well as compliance with capital adequacy guidelines and ratios.  In measuring capital adequacy, consideration of the volume and severity of classified credits, portfolio concentration, adequacy of the ALLL, projected growth in assets and earnings, among others, should be taken into account.
 
 
·
Notify the regulators, in writing, shortly after the end of each calendar quarter if any of the Bank’s capital ratios (total risk-based, Tier 1, or Leverage) had fallen below the approved capital plan’s minimum ratios.  Contemporaneously, provide a plan that details steps to be taken by the Bank to increase the affected capital ratios to or above the approved capital plan’s minimums.
 
 
·
Provide a written plan to strengthen the oversight of the Bank’s audit program by the Audit Committee.
 
 
·
Submit a written plan to improve management of the Bank’s liquidity position and funds management practices.  A contingency funding plan should be provided as well.
 
 
·
Submit written policies and procedures to strengthen the management of the Bank’s investment portfolio.
 
 
·
Submit a business plan for calendar year 2010 to improve the Bank’s earnings and overall condition.  The plan shall include a realistic and comprehensive operational budget and balance sheet projections.
 
 
F-13

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
 
·
The Bank shall not declare or pay dividends without the prior approval of FRB and OFR.
 
 
·
Ascertain full compliance with respect to appointments of new directors, and new executive officers, including the assumption of new responsibilities by an existing executive officer.  Also, ascertain compliance with restrictions on indemnification and severance payments.
 
 
·
Form a new Board Committee, the Compliance Committee, to monitor and coordinate the Bank’s compliance with the provisions of the Agreement.  The Compliance Committee shall include a majority of outside directors who are not executive officers or principal shareholders.  Shortly after the end of each calendar quarter, the Bank shall submit a written progress report detailing the form and manner of all actions taken to secure compliance with the Agreement.
 
 
·
All written plans, programs, policies and procedures that are submitted by the Bank, shall be acceptable to FRB and OFR, and within the prescribed time period.  Once approved by the regulators, the Bank shall adopt the approved plans, programs, policies and procedures within ten days and implement them promptly.
 
With the exception of one item, management believes that the Bank was in compliance with the Agreement.  The one unresolved item was the requirement to increase capital to acceptable levels.
 
(b)           Prompt Corrective Action Directive
 
On March 9, 2010, the Board of Governors of the Federal Reserve System (the ”Board of Governors”) delivered to Horizon Bank, the Company’s wholly-owned subsidiary (the “Bank”), a Prompt Corrective Action Directive Issued Pursuant to Section 38 of the Federal Deposit Insurance (“FDI”) Act, As Amended (the “PCA Directive”).  The PCA Directive, which was dated March 4, 2010, states that the Bank has been undercapitalized and has not filed an acceptable capital restoration plan.  Accordingly, the PCA Directive directs the Bank, the Company and the Bank’s Board to:
 
 
·
Not later than 45 days from March 4, 2010, increase the Bank’s equity through the sale of shares or contribution to surplus sufficient to make the Bank adequately capitalized, enter into and close a contract to be acquired or combine with another depository institution, or take other necessary measures to make the Bank adequately capitalized.
 
 
·
Comply fully with the provisions of Section 38 of the FDI Act restricting the Bank from making any capital distributions.
 
 
·
Refrain, without prior written approval of the FRB, from soliciting, accepting or renewing time deposits bearing an interest rate exceeding the prevailing interest rates in the Bank’s market area, and, within 30 days, submit an acceptable plan and timetable to the FRB for conforming such interest rates to the prevailing interest rates.
 
 
·
Comply with the provisions of Section 38 of the FDI Act requiring that all transactions between the Bank and any affiliate comply with Section 23A of the Federal Reserve Act.
 
 
·
Comply with the provisions of Section 38 of the FDI Act restricting the payment of bonuses to senior executive officers and increases in compensation of such officers, and
 
 
F-14

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
 
·
Comply with the provisions of Section 38 of the FDI Act restricting asset growth, acquisitions, branching and new lines of business.
 
Any material failure to comply with the provisions of the Agreement or PCA Directive could result in further enforcement actions by the regulators.  Such additional enforcement actions may include the placement of the Bank into receivership/conservatorship.  On September 10, 2010, the regulators closed the Bank due to the Bank’s inability to comply with the capital requirements detailed under the Agreement and the PCA Directive.
 
(c)           Bank Closing and Current Dealings with the FDIC
 
On September 10, 2010, the Bank was closed by the OFR and placed into receivership with the FDIC.  The inability to comply with regulatory capital directives together with the increasing levels in non-performing assets were the primary causes of the Bank’s failure.
 
The original Bank building is the main asset that is currently owned by the Company.  In the past few months, the FDIC has contested the Company’s ownership of the building.  However, the FDIC is also in negotiations with the Company for leasing the building.  If the negotiations are successful, rent receipts will be sufficient to cover the monthly mortgage obligations as well as, possibly, other operational expenses.  The building is shown as an asset in the Company’s balance sheet as of December 31, 2010 and 2009.
 
Prior to the Bank’s closing, the Company filed for an income tax refund in the amount of approximately $1.6 million.  The FDIC claims that since the substantial majority of the refund amount is due to the Bank’s, as opposed to the Company’s prior losses, the substantial majority of the refund thereof belongs to the Bank and, by extension, to the FDIC as the receiver of the Bank.  Since it is unclear as to what portion of the tax refund belongs to the Company, a matter that is currently being negotiated with the FDIC, the tax refund is not shown as a receivable in the Company’s balance sheet as of December 31, 2010.
 
Going Concern Consideration
 
In the past two calendar years, the Company has experienced heavy losses that caused the capital accounts to be reduced by approximately 98%.  The Bank, the Company’s sole subsidiary, was closed by the banking regulators.  Moreover, the ownership of the Company’s primary asset, a building, is being contested by the FDIC.  For the reasons enumerated above, there exist substantial doubt about the Company’s ability to continue as a going concern.  As discussed earlier, the Company is in negotiation with the FDIC concerning ownership, whole or in part, with respect to two items: (i) a building that is on the Company’s 2010 and 2009 financial statements and (ii) a tax refund in the approximate amount of $1.6 million that is not part of the Company’s 2010 financial statements.  The FDIC is also in negotiations with the Company about leasing the above building for three years.  Should the lease negotiations prove successful, the lease payments will cover the current mortgage payments as well as, possibly, other operational expenses.  The overall plan is to liquidate all of the Company assets, pay all debts and return excess funds, if available, to shareholders.
 
 
F-15

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
 
Equity Offering
 
The Company commenced an equity offering of shares of 7% Series A Cumulative Convertible Preferred Stock in late 2009.  The above offering was terminated in 2010 following the Bank closing, and all proceeds collected were returned.
 
Note 3 - Federal Funds Sold and Purchased
 
The Bank was required to maintain legal cash reserves computed by applying prescribed percentages to its various types of deposits.  When the Bank's cash reserves are in excess of the required amount, the Bank may lend the excess to other banks on a daily basis.  At December 31, 2010 and 2009, federal funds sold were $0 and $0, respectively.  Federal funds purchased represent unsecured borrowing from other financial institutions and generally mature daily.  At December 31, 2010 and 2009 the Bank had no Federal funds purchased.
 
Note 4 - Securities Held-to-Maturity
 
There were no securities held-to-maturity as of December 31, 2010.
 
The amortized costs and estimated market values of securities held-to-maturity as of December 31, 2009 follow:
 
Description
 
Amortized
Costs
   
Gains
   
Gross
Unrealized
Losses
   
Estimated
Market Values
 
State, County and Municipalities
  $ 10,532,744     $ 33,222     $ (823,808 )   $ 9,742,158  
Corporate Securities
    930,000       -0-       (154,800 )     775,200  
Total Securities
  $ 11,462,744     $ 33,222     $ (978,608 )   $ 10,517,358  
 
At December 31, 2010 and 2009, none of the securities were pledged to secure public funds, repurchase agreements, and for other purposes required or permitted by law.  Due to circumstances, the Company changed its intent to hold certain securities to maturity without calling into question the intent to hold other debt securities to maturity in the future.  Proceeds from sales of securities held-to-maturity for the years ended December 31, 2010 and 2009 were $0 and $2,586,770, respectively; net gains on the above sales were $0 and $16,895, respectively.  For the years ended December 31, 2010 and 2009, impairment charges were $0 and $70,000, respectively.
 
 
F-16

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Information pertaining to securities with gross unrealized losses at December 31, 2009, aggregated by investment category and further segregated by length of time (less than or over twelve months) that the securities have been in a continuous loss position follows:
 
December 31, 2009
 
   
Less Than
Twelve Months
   
Over
Twelve Months
   
Total
 
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
State, County and Municipal
  $ 1,509,541     $ (42,542 )   $ 5,230,215     $ (781,266 )   $ 6,739,756     $ (823,808 )
  Corporate Securities
    -0-       -0-       775,200       (154,800 )     775,200       (154,800 )
     Total
  $ 1,509,541     $ (42,542 )   $ 6,005,415     $ (936,066 )   $ 7,514,956     $ (978,608 )
 
Unrealized losses on held-to-maturity securities as of December 31, 2009, amounted to $978,608, representing 8.54% of the total held-to-maturity securities portfolio.  Management evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market concerns warrant such evaluation.  In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating entities have occurred, the severity and duration of the impairment and the volatility of the security's fair value.  As management has the intent and ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in fair value and due to the fact that the decline in fair value is attributable to changes in interest rates and not credit quality, these investments are not considered other-than-temporarily impaired.
 
Note 5 - Securities Available-for-Sale
 
There were no securities available-for-sale as of December 31, 2010.
 
The amortized costs and estimated market values of securities available-for-sale as of December 31, 2009 follow:
 
Description
 
Amortized
Costs
   
Gains
   
Gross
Unrealized
Losses
   
Estimated
Market Values
 
U.S. Agency
  $ 2,493,024     $ 445     $ (36,394 )   $ 2,457,075  
Collateralized Mortgage Obligations
    1,787,927       18,298       (162,136 )     1,644,088  
Mortgage Backed Securities
    220,723       7,041       -0-       227,764  
Corporate Securities
    7,165,270       129,480       (401,556 )     6,893,194  
Other Securities
    1,858,689       -0-       -0-       1,858,689  
Total Securities
  $ 13,525,633     $ 155,264     $ (600,086 )   $ 13,080,810  
 
Other securities include equity investments in FRB, FHLB, and one other bank whose owners are other financial institutions.  These restricted equity securities are recorded at cost because of the lack of a readily determinable fair value.
 
At December 31, 2010 and 2009, respectively, $0 and $2,998,000 agency securities were pledged to secure public funds, repurchase agreements, and for other purposes required or permitted by law.  Proceeds from sales of securities, available-for-sale, for the years ended December 31, 2010 and 2009 were $0 and $3,757,123, respectively; net gains on the above sales were $0 and $101,861, respectively.
 
 
F-17

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Information pertaining to securities with gross unrealized losses at December 31, 2009, aggregated by investment category and further segregated by the length of time (less than or over twelve months) that the securities have been in a continuous loss position follows:
 
December 31, 2009
 
   
Less Than
Twelve Months
   
Over
Twelve Months
   
Total
 
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
U.S. Agency
  $ 989,980     $ (10,020 )   $ 966,650     $ (26,374 )   $ 1,956,630     $ (36,394 )
Collateralized Mortgage obligations
    -0-       -0-       -0-       -0-       -0-       -0-  
Mortgage backed securities
    -0-       -0-       760,885       (162,136 )     760,885       (162,136  
Trust preferred securities & other corporate notes
    -0-       -0-       1,111,194       (401,556 )     1,111,194       (401,556 )
    Total
  $ 989,980     $ (10,020 )   $ 2,838,729     $ (590,066 )   $ 3,828,709     $ (600,086 )
 
Unrealized losses in the securities available for sale portfolio as of December 31, 2009, amounted to $600,086, representing 4.59% of the total available-for-sale portfolio.
 
Management evaluates securities for other-than-temporary impairment on a quarterly basis, or more frequently when economic or market concerns warrant such evaluation.  In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating entities have occurred, the severity and duration of the impairment and the volatility of the security's fair value.  As management has the intent and ability to hold the securities for a period of time sufficient to allow for any anticipated recovery in fair value and due to the fact that the decline in fair value is attributable to changes in interest rates and not to credit quality, these investments are not considered other-than-temporarily impaired.
 
During calendar year 2009, a decline in the fair value of certain securities was deemed to be other-than-temporarily impaired.  The impairments in fair value resulted from the decline in the credit quality of the issuer and not from fluctuations in interest rates.  Consequently, losses related to the above impairments in the amount of $2,213,807 were realized by the Company for the year ended December 31, 2009.
 
Note 6 - Loans
 
There are no loans outstanding as of December 31, 2010.
 
 
F-18

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The composition of net loans by major loan category, as of December 31, 2009, follows:
 
Real estate - commercial
  $ 97,783,166  
Real estate - construction
    1,369,987  
Real estate - residential
    37,438,678  
Commercial
    17,217,611  
Consumer
    2,049,597  
Loans, gross
  $ 155,859,039  
Deduct:
       
Allowance for loan losses
    (4,731,280 )
Loans, Net
  $ 151,127,759  
 
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual term of the loan.  Impaired loans include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
 
The following is a summary of information pertaining to impaired loans as of and for the year ended December 31, 2009:
 
Impaired loans without a valuation allowance
  $ 15,413,831  
Impaired loans with a valuation allowance
    8,796,449  
Total impaired loans
  $ 24,210,280  
Valuation allowance related to impaired loans
    2,043,000  
Average investment in impaired loans
    18,334,238  
Interest recognized on impaired loans
  $ 886,693  
 
Loans on non-accrual status amounted to $0 and $15,685,437 at December 31, 2010 and 2009, respectively.  Interest recognized on non-accruing loans at December 31, 2009 was $318,562.  Loans past due ninety days or more and still accruing interest amounted to $0 at December 31, 2010 and 2009.
 
Note 7 - Allowance for Possible Loan Losses
 
The allowance for possible loan losses (the "Allowance") is a valuation reserve available to absorb future loan charge-offs.  The Allowance is increased by provisions charged to operating expenses and by recoveries of loans which were previously written-off.  The Allowance is decreased by the aggregate loan balances, if any, which were deemed uncollectible during the year.
 
 
F-19

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Individual consumer loans are predominantly under secured, and the allowance for possible losses associated with these loans has been established accordingly.  Real estate, receivables, inventory, machinery, equipment, or financial instruments generally secure the majority of the non-consumer loan categories.  The amount of collateral obtained is based upon management's evaluation of the borrower.
 
Activity within the Allowance accounts for the years ended December 31, 2009 follows:
 
Balance, beginning of year
  $ 1,502,823  
Add:  Provision for loan losses
    11,196,661  
Add:  Recoveries of previously charged off amounts
    236,274  
Total
  $ 12,935,758  
Deduct:  Amount charged off
    (8,204,478 )
Balance, end of year
  $ 4,731,280  
 
Note 8 - Property and Equipment
 
Building, furniture, equipment, and land improvements are stated at cost less accumulated depreciation.  Land is stated at cost.  Components of property and equipment included in the consolidated balance sheets at December 31, 2010 and 2009 follow:
 
   
December 31
 
   
2010
   
2009
 
Land
  $ 410,087     $ 410,087  
Land Improvements
    48,399       48,399  
Building
    1,056,552       1,053,009  
Holding Company Vehicle
    -----0------       39,041  
Property and equipment of discontinued operations
    -----0------       3,223,118  
     Property and equipment, gross
  $ 1,515,038     $ 4,773,654  
Deduct:
               
   Accumulated depreciation
    (267,858 )     (250,814 )
   Accumulated depreciation of discontinued operations
    -----0-----       (824,338 )
   Property and Equipment, net
  $ 1,247,180     $ 3,698,502  
 
 
F-20

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Depreciation expense for the year ended December 31, 2009 amounted to $204,731.  Depreciation is charged to operations over the estimated useful lives of the assets.  The estimated useful lives and methods of depreciation for the principal items follow:
 
Type of Asset
 
Life in Years
 
Depreciation method
Furniture and equipment
 
3 to 20
 
Straight-line
Leasehold improvements
 
5 to 10
 
Straight-line
Building
    40  
Straight-line
 
Note 9 - Commitments and Contingencies
 
In the normal course of business, there are various outstanding commitments to extend credit in the form of unused loan commitments and standby letters of credit that are not reflected in the consolidated financial statements.  Since commitments may expire without being exercised, these amounts do not necessarily represent future funding requirements.  The Company uses the same credit and collateral policies in making commitments as those it uses in making loans.
 
At December 31, 2010 and 2009, the Company had unused loan commitments of approximately $0 and $4.8 million, respectively.  Additionally, there were $0 in commitments under standby letters of credit at December 31, 2010 and 2009.  Various assets collateralize the majority of the loan commitments.  No material losses are anticipated as a result of these transactions.
 
On June 30, 1999, the Bank entered into a seven-year contractual agreement (the "Agreement") with a data processing provider.  That Agreement was renegotiated on May 11, 2001, with the new owner of the data processing company.  The Agreement was extended to August, 2008, with a renewal feature for an additional seven-year period.  In March, 2008 the contract was renegotiated with an expiration date of March, 2011.  The monthly service fee varies according to the services used and the number and type of transactions processed.  Expenses associated with the above and predecessor agreements associated with data processing services amounted to $240,349, for the year ended December 31, 2009.
 
The Company and its subsidiary are subject to claims and lawsuits that arise primarily in the ordinary course of business.  It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company except for the possible claims by the FDIC with respect to the building and the tax refunds discussed under Note 2.
 
Please refer to Note 15 concerning leases for branch offices from a partnership.
 
Please refer to Note 15 concerning warrants and options earned by directors and employees of the Bank.
 
 
F-21

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Note 10 - Deposits
 
No deposits were held by the Company as of December 31, 2010.
 
The following details deposit accounts at December 31, 2009:
 
Non-interest bearing deposits
  $ 9,686,614  
Interest bearing deposits:
       
  NOW accounts
    7,494,022  
  Money market
    18,364,649  
  Savings
    15,738,487  
  Time, less than $100,000
    97,385,541  
  Time, $100,000 and over
    25,906,959  
     Total deposits
  $ 174,576,272  
 
At December 31, 2010 and 2009, the Company held brokered time deposits in the amount of $0 and $11,647,000, respectively.  At December 31, 2010 and 2009, overdraft deposit accounts reclassified to loans aggregated $0 and $43,175, respectively.
 
Note 11 - Borrowings
 
During calendar year 2008, the Company obtained a $1.1 million line of credit (the “LOC”), of which $1,065,205 was outstanding at December 31, 2009.  The above LOC was secured by all of the Bank's issued and outstanding common stock; it carried a rate of published "Wall Street Journal" prime rate plus 1.00% with a floor of 6.00%.  The LOC provided for interest-only monthly payments until December 31, 2009, when principal and accrued interest became due.   Upon maturity, the LOC was subsequently extended for two additional weeks.  During calendar year 2010, the LOC was paid down to $969,000 and the maturity date was extended on several occasions.  On September 15, 2010, the LOC was converted to a note with an expiration date of September 15, 2015, and an interest rate of 6%.  The note is secured by the Company’s building.  The note provides for an interest reserve that accumulates and is added to the principal.  As of December 31, 2010, the note balance was $981,782.
 
During calendar year 2009, the Bank obtained several funding advances from the Federal Home Loan Bank (the "FHLB").  The above advances were secured by a blanket lien on all real estate mortgages held by the Bank.  The outstanding balance on the above funding advances amounted to $0 and $18,000,000, respectively, at December 31, 2010 and 2009.  Additional information concerning the outstanding advances as of December 31, 2009 follow.  Note that all interest rates are fixed:
 
Amounts
December 31, 2009
   
Interest Rate
   
Date of Maturity
 
$ 5,000,000       4.32       03-05-2012  
  3,000,000       4.48       05-18-2012  
  5,000,000       4.76       06-22-2012  
  5,000,000       3.35       07-23-2018  
$ 18,000,000       N/A       N/A  
 
 
F-22

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
During calendar year 2009, a $3.0 million advance matured and was paid-off.  Two other advances, aggregating $8.0 million were paid-off prior to maturity to improve the Bank’s liquidity position and reduce interest expense.  A penalty of approximately $413,000 was incurred by the Bank during calendar year 2009 to compensate the FHLB for the early prepayments of the advances.
 
Note 12 - Interest on Deposits and Borrowings
 
A summary of interest expense for the year ended December 31, 2009 follows:
 
Interest on NOW accounts
  $ 19,281  
Interest on money market accounts
    286,871  
Interest on savings accounts
    247,591  
Interest on CDs under 100,000
    3,139,675  
Interest on CDs $100,000 and over
    928,539  
Interest on borrowings
    1,168,531  
Total interest on deposits and borrowings
  $ 5,790,488  
 
Note 13 - Other Operating Expenses
 
A summary of other operating expenses for the year ended December 31, 2009 follows:
 
Postage and courier
  $ 69,299  
Advertising and promotion
    69,704  
Taxes and insurance
    97,809  
Telephone
    32,748  
Supplies and printing
    36,937  
Meetings and seminars
    46,027  
Correspondent bank charges
    36,849  
Other real estate expense
    85,739  
Directors' fees
    31,700  
Investment advisor expense
    31,222  
 FHLB prepayment penalties
    413,168  
Other
    217,827  
Total other operating expenses
  $ 1,169,029  
 
Note 14 - Income Taxes
 
As of December 31, 2010 and 2009, the Company's provision for income taxes consisted of the following:
 
   
2010
   
2009
 
Current
  $ -0-     $ (1,880,281 )
Deferred
    -0-       (1,730,449 )
    $ -0-     $ (3,610,730 )
 
 
F-23

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The Company’s income tax expense for the year ended December 31, 2009 differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes.  A reconciliation of the differences is as follows:
 
Tax provision at Federal statutory rate
  $ (3,990,943 )
Increase in valuation allowance
    367,081  
Other
    13,132  
   Income tax expense/(benefit)
  $ (3,610,730 )
 
The components of deferred income taxes are as follows:
 
   
December 31,
 
   
2010
   
2009
 
Deferred tax assets:
           
  Loan loss reserves
  $ -0-     $ 1,608,635  
  Other real estate owned (OREO)
    -0-       156,736  
  Securities, OTTI
    -0-       191,853  
  Stock options/warrants
    -0-       66,980  
  Loss carry forward
    -0-       913,031  
  Unrealized loss, AFS securities
    -0-       150,083  
      Total
    -0-       3,087,318  
Deferred tax liabilities:
               
  Depreciation
    -0-       143,605  
      Total
    -0-       143,605  
     Deferred tax asset, net
  $ -0-     $ 2,943,713  
     Valuation allowance
    -0-       (367,081 )
     Deferred tax assets, net of valuation
  $ -0-     $ 2,576,632  
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the deferred tax assets are deductible, management believes it is more likely than not that deferred tax assets, net of the valuation allowance, will be recognized in future years.
 
Note 15 - Related Party Transactions
 
Under the terms of the existing Stock Option Plan (the "Plan"), options to purchase shares of the Company's common stock may be granted to directors and employees at a price that is not less than the fair market value of such stock at the date of the grant.  Options granted to employees under the Plan may be designated as incentive stock options.  All options, as well as organizer warrants, expire no more than ten years from the date of the grant and fully vest over a period of between three-to-five years.
 
 
F-24

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
No options/warrants were granted during calendar years 2010 and 2009.
 
In connection with the initial offering of common stock, the Company granted warrants to certain organizers to purchase 206,280 shares of the Company’s common stock at an exercise price of $5.50 per share.  These warrants, which were fully vested as of December 31, 2002, have expired on October 25, 2009.
 
A summary of the options/warrants activity for the years ended December 31, 2010 and 2009 is presented below.
 
   
Number of
Shares
   
Weighted-Average
Exercise Price
 
Outstanding, December 31, 2008
    345,039     $ 6.86  
                 
Granted during 2009
    -0-     $ -0-  
Exercised during 2009
    (1,693 )     5.50  
Forfeited during 2009
    (217,869 )     5.51  
                 
Outstanding, December 31, 2009
    125,477     $ 9.20  
                 
Granted during 2010
    -0-     $ -0-  
Exercised during 2010
    -0-       -0-  
Forfeited during 2010
    -0-       -0-  
                 
Outstanding, December 31, 2010
    125,477     $ 9.20  
 
Lease of a Branch Office.  On February 9, 2001, the Bank entered into a lease agreement with Horizon Partnership, LLP, (the "Horizon Partnership") to lease approximately 3,800 square-feet of a new office building in Bradenton, Florida.  Four of the Company's board members are also the majority owners of the Horizon Partnership.  The lease, which commenced on June 1, 2001, is for a period of 10 years with two consecutive five-year extensions.  In addition to the monthly lease payment, the Bank is required to pay pro-rata real-estate taxes and special assessments that may be levied against the property.  The total monthly payment approximates $9,500, an amount that was paid beginning with the September 1, 2001 payment.  The monthly lease payments increase by 3% on the date of each anniversary.  For the year ended December 31, 2009, expenses associated with this lease amounted to $120,074.
 
On May 18, 2005, the Bank entered into a lease agreement with TCB,LLP, (the "TCB Partnership") to lease approximately 3,800 square-feet of a new office building in Palmetto, Florida.  Five of the Company's board members are also the majority owners of TCB, LLP.  The lease, which commenced on October 10, 2005, is for a period of 10 years with two consecutive five-year extensions.  In addition to the monthly lease payment, the Bank is required to pay pro-rata real estate taxes and special assessments that may be levied against the property.  The total monthly payment approximates $10,000, an amount that was paid beginning with the October 11, 2005 payment.  The monthly lease payments increase by 3% on the date of each anniversary.  For the year ended December 31, 2009, expenses associated with this lease amounted to $124,797.
 
 
F-25

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
On February 8, 2008, the Bank entered into a lease agreement with Horizon Partnership, LLP, (the "Horizon Partnership") to lease approximately 3,550 square-feet of a new office building in Brandon, Florida.  Four of the Company's board members are also the majority owners of the Horizon Partnership.  The lease, which commenced on March 19, 2009, is for a period of 10 years with two consecutive five-year extensions.  In addition to the monthly lease payment, the Bank is required to pay pro-rata real-estate taxes and special assessments that may be levied against the property.  The total monthly payment approximates $15,985, an amount that was paid beginning with the March 19, 2009 payment.  The monthly lease payments increase by 3% on the date of each anniversary.  For the year ended December 31, 2009, expenses associated with this lease amounted to $159,850.
 
As of December 31, 2010, the future minimum lease commitments are $0.
 
Payments to Directors.  One director received $7,897 and $27,230 for products and services sold to the Company during the years ended December 31, 2010 and 2009, respectively.  The aggregate fees to directors during the year ended December 31, 2009 amounted to $31,700.
 
Borrowings and Deposits by Directors and Executive Officers.  Certain directors, principal officers and companies with which they are affiliated are customers of and have banking transactions with the Bank in the ordinary course of business.  As of December 31, 2010 and 2009, loans outstanding to directors, their related interests and executive officers aggregated $0 and $7,935,266, respectively.  These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties.  In the opinion of management, loans to related parties did not involve more than normal credit risk or present other unfavorable features.
 
A summary of the related party loan transactions during the calendar year 2009 follows:
 
Balance, beginning of year
  $ 8,109,442  
New loans
    245,000  
Less: Principal reductions
    (419,176 )
Balance, end of year
  $ 7,935,266  
 
Deposits by directors, executive officers and their related interests, as of December 31, 2009 approximated $1,559,642.
 
Certain directors have advanced funds to the Company during calendar year 2010 to avoid default by the Company on its LOC.  The advances are interest-free and with no maturity date.  The aggregate amount of the advances is $91,000 as of December 21, 2010.
 
 
F-26

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Note 16 - Concentrations of Credit
 
The Company originates primarily commercial, residential, and consumer loans to customers in Manatee County, Florida, and surrounding counties.  The ability of the majority of the Company's customers to honor their contractual loan obligations is dependent on economic conditions prevailing at the time in Manatee County and the surrounding counties.
 
As of December 31, 2010, no loans were outstanding.
 
At December 31, 2009, eighty-two percent of the Company's loan portfolio was concentrated in loans secured by real estate, of which a substantial portion is secured by real estate in the Company's primary market area.  Accordingly, the ultimate collectability of the loan portfolio is susceptible to changes in market conditions in the Company's primary market area.  Another five percent or $8,473,726 of the Company's loan portfolio was concentrated in loans guaranteed by the United States Department of Agriculture.  The majority of these loans are secured by real estate and all are guaranteed with the full faith and credit of the United States government.  The other significant concentrations of credit by type of loan are set forth under Note 6.
 
The Company, as a matter of policy, did not generally extend credit to any single borrower or group of related borrowers in excess of 25% of the Bank's statutory capital, or approximately $1.9 million at December 31, 2009.
 
Note 17 - Regulatory Matters
 
As of December 31, 2010, the Company was no longer a bank holding company and, therefore, it was not supervised or regulated by either OFR, FRB or FDIC.  As of December 31, 2009, however, the Company was supervised and regulated by OFR and FRB.  The Bank was chartered by the State of Florida and was a member of the Federal Reserve System.  As such, the Bank was supervised and regulated by OFR and by the FRB.
 
Various requirements and restrictions under federal and state laws regulate the operations of banks and bank holding companies.  These laws, among other things, require the maintenance of reserves against deposits, impose certain restrictions on the nature and terms of the loans, restrict investments and other activities, and regulate mergers and the establishment of branches and related operations.  The ability of the parent company to pay cash dividends to its shareholders and service debt may be dependent upon cash dividends from its subsidiary bank.  The Bank was subject to limitations under state and federal laws in the amount of dividends it may declare.  At December 31, 2009, none of the Bank's retained earnings was available for dividend declaration.  During the year ended December 31, 2009 the Bank paid no dividends to its parent company.
 
The banking industry is also affected by the monetary and fiscal policies of regulatory authorities, including the FRB.  Through open market securities transactions, variations in the discount rate, the establishment of reserve requirements and the regulation of certain interest rates payable by member banks, the FRB exerts considerable influence over the cost and availability of funds obtained for lending and investing.  Changes in interest rates, deposit levels and loan demand are influenced by the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities.  Pursuant to the FRB's reserve requirements, the Bank was not required to maintain cash reserve balances at December 31, 2009.
 
 
F-27

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements (see Note 2).  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
 
Qualitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined).
 
The prompt corrective action regulations provide five capital categories, including (in descending order) well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.  These categories are not meant to represent overall financial conditions.  If adequately capitalized, regulatory approval is required to accept brokered deposits.  If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.
 
Below are the Bank’s and the Company’s three capital ratios, as of December 31, 2009, as well as the standardized ratio metrics associated with certain capital categories.  Note that RWA denotes risk-weighted assets.
 
               
Significantly
         
Adequately
 
December 31, 2009
 
Bank
   
Company
   
Undercapitalized
   
Undercapitalized
   
Capitalized
 
Tier 1 Leverage
   
2.6
%
   
2.1
%
   
< 3.0
%
   
< 4.0
%
   
≥ 4.0
%
Tier 1 to RWA
   
3.6
%
   
2.9
%
   
< 3.0
%
   
< 4.0
%
   
≥ 4.0
%
Total capital to RWA
   
4.9
%
   
4.2
%
   
< 6.0
%
   
< 8.0
%
   
≥ 8.0
%
 
As of December 31, 2009, the Bank was significantly undercapitalized based on two capital ratio standards, and adequately capitalized based on one capital ratio standard.  The Company is significantly undercapitalized based on two capital ratio standards and undercapitalized based on one capital ratio standard.  Refer to Note 2 for information concerning the Written Agreement and the PCA Directive.
 
 
F-28

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
The Company's and the Bank's actual capital amounts and ratios as of December 31, 2009, are presented in the following table:
 
         
Minimum Regulatory Capital Guidelines for Banks
 
   
Actual
   
Adequately
Capitalized
   
Well
Capitalized
 
(Dollars in thousands)
 
Amount
   
Ratio
   
Amount
     
Ratio
   
Amount
     
Ratio
 
As of December 31, 2009:
                                       
Total capital-risk-based
                                       
(to risk-weighted assets):
                                       
Bank
 
$
7,208
     
4.9
%
 
$
11,755
 
>
   
8
%
 
$
14,694
 
>
   
10
%
Consolidated
   
6,169
     
4.2
%
   
11,755
 
>
   
8
%
   
N/A
 
>
   
N/A
 
                                                     
Tier 1 capital-risk-based
                                                   
(to risk-weighted assets):
                                                   
Bank
 
$
5,335
     
3.6
%
 
$
5,878
 
>
   
4
%
 
$
8,816
 
>
   
6
%
Consolidated
   
4,297
     
2.9
%
   
5,877
 
>
   
4
%
   
N/A
       
N/A
 
                                                     
Tier 1 capital-leverage
                                                   
(to average assets):
                                                   
Bank
 
$
5,335
     
2.6
%
 
$
8,210
 
>
   
4
%
 
$
10,262
 
>
   
5
%
Consolidated
   
4,297
     
2.1
%
   
8,210
 
>
   
4
%
   
N/A
       
N/A
 
 
Note 18 - Fair Value of Financial Instruments
 
Determination of Fair Value
 
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  In accordance with the accounting standards for fair value measurements and disclosure, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
 
The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate.  In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.  The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
 
 
F-29

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value:
 
Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
 
Level 3:  Significant unobservable inputs that are supported by little or no market activity for the asset or liability:  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
 
Recurring Fair Value Changes
 
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classifications of such instruments pursuant to the valuation hierarchy.
 
Investment securities:  The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.
 
Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2009:
 
         
Fair Value Measurements at
 
         
December 31, 2009 Using
 
         
Quoted Prices
             
         
In Active
    Significant        
         
Markets for
   
Other
   
Significant
 
          Identical    
Observable
   
Unobservable
 
   
Carrying
   
Assets
   
Inputs
   
Inputs
 
 ($ in thousands)
 
Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Investment Securities
 
$
13,081
   
$
   
$
6,191
   
$
6,890
 
Loans Held for Sale
 
$
1,262
   
$
   
$
1,262
   
$
 
 
Nonrecurring Fair Value Changes
 
Certain assets and liabilities are measured at fair value on a nonrecurring basis.  These instruments are not measured at fair value on an ongoing basis, but subject to fair value in certain circumstances, such as when there is evidence of impairment that may require write-downs.  The write-downs for the Company’s more significant assets or liabilities measured on a nonrecurring basis are based on the lower of amortized or estimated fair value.
 
 
F-30

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Impaired loans and other real estate owned (“OREO”):  Impaired loans and OREO are evaluated and valued at the time the loan or OREO is identified as impaired, at the lower of cost or market value.  Market value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.  Collateral for impaired loans may be real estate and/or business assets, including equipment, inventory and/or accounts receivable.  Its fair value is generally determined based on real estate appraisals or other independent evaluations by qualified professionals.  Impaired loans and OREO are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.  Impaired loans measured on a nonrecurring basis do not include pools of impaired loans.
 
Assets and liabilities with an impairment charge during the current year and measured at fair value on a nonrecurring basis are summarized below as of December 31, 2009:
 
   
Carrying Values at December 31, 2009
 
                   
Total
 
($ in thousands)
 
Total
 
Level 1
Level 2
 
Level 3
   
Gain (loss)
 
     Impaired loans
 
$
22,167
 
$
$
 
$
22,167
   
$
(2,043
)
     OREO
 
$
2,579
 
$
$
 
$
2,579
   
$
(461
)
 
Fair Value Disclosures
 
Accounting standards require the disclosure of the estimated fair value of financial instruments including those financial instruments for which the Company did not elect the fair value option.  The fair value represents management’s best estimates based on a range of methodologies and assumptions.
 
Cash and due from banks, federal funds sold, loans held for sale, accrued interest receivable, all non-maturity deposits, short-term borrowings, subordinated debt and accrued interest payable have carrying amounts which approximate fair value primarily because of the short repricing opportunities of those instruments.
 
Following is a description of the methods and assumptions used by the Company to estimate the fair value of its financial instruments:
 
Investment securities:  Fair value is based upon quoted market prices if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.  Restricted equity securities are carried at cost because no market value is available.
 
Loans:  The fair value is estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, mortgage, and consumer loans.  The fair value of the loan portfolio is calculated by discounting contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loan.  The estimated fair value of the Bank’s off-balance sheet commitments is nominal since the committed rates approximate current rates offered for commitments with similar rate and maturity characteristics and since the estimated credit risk associated with such commitments is not significant.
 
 
F-31

 
 
Horizon Bancorporaiton, Inc.
Financial Statements
December 31, 2010 and 2009
 
Deposit liabilities:  The fair value of time deposits is estimated using the discounted value of contractual cash flows based on current rates offered for deposits of similar remaining maturities.
 
FHLB advances – long term:  The fair value is estimated using the discounted value of contractual cash flows based on current rates offered for debt of similar remaining maturities and/or termination values provided by the FHLB. The following table presents the carrying amounts and fair values of the specified assets and liabilities held by the Company at December 31, 2009 and 2008.  The information presented is based on pertinent information available to management as of December 31, 2009 and 2008.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since that time, and the current estimated fair value of these financial instruments may have changed since that point in time.
 
   
December 31, 2010
   
December 31, 2009
 
   
Carrying
Amount
   
Estimated
Fair Value
   
Carrying
Amount
   
Estimated
Fair Value
 
Financial assets:
                       
   Cash and due from banks
 
$
13,440
   
$
13,440
   
$
9,719,612
   
$
9,719,612
 
   Securities held-to-maturity
   
-0-
     
-0-
     
11,462,744
     
10,517,358
 
   Securities available-for-sale
   
-0-
     
-0-
     
13,080,811
     
13,080,811
 
   Loans, net
   
-0-
     
-0-
     
151,127,759
     
152,659,810
 
   Accrued interest receivable
   
-0-
     
-0-
     
1,184,830
     
1,184,830
 
                                 
Financial liabilities:
   
 -0-
     
-0- 
                 
   Deposits
 
$
-0-
   
$
-0-
   
$
174,576,272
   
$
172,678,983
 
   Borrowings
   
1,072,782
     
1,072,782
     
19,065,205
     
20,057,245
 
   Accrued Interest Payable
   
-0-
     
-0-
     
34,824
     
34,824
 
 
 
F-32

 

Item 9. Changes in and Disagreements With Accountants and Financial Disclosure.
 
The registrant did not change accountants in 2010 and continues to engage the independent accounting firm of Francis & Company, CPAs.
 
Item 9A(T). Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures.
 
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the Company's disclosure controls and procedures (as provided in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934).  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in periodic filings with the Securities and Exchange Commission.
 
Management’s Annual Report on Internal Control over Financial Reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our evaluation of internal control over financial reporting as of December 31, 2010, was conducted on the basis of framework in “Internal Control-Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission.  However, in the absence of access to necessary accounting records, management cannot conclude that material weaknesses in our internal control over financial reporting did not exist.  Consequently, management could not conclude that our internal control over financial reporting was effective as of December 31, 2010.
 
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
 
Changes in Internal Control Over Financial Reporting.
 
There has been no change in the Company's internal controls over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
 
 
7

 

Item 9B. Other Information.
 
There is no information that was required to be disclosed by the Company on Form 8-K during the fourth quarter of 2010, that was not reported.
 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance.
 
The Company has adopted a Code of Conduct for directors and officers, including its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer.  The Company will provide to shareholders and all other persons a copy of the Company's Code of Conduct upon request and without charge.  This document may be requested by writing to Horizon Bancorporation, Inc., 2504 64th Street Court East, Bradenton, Florida 34208, Attention: Charles S. Conoley.
 
The remaining information required by this Item is incorporated herein by reference to the applicable information in the definitive proxy statement for the Company's 2011 annual meeting, including the information set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance."
 
Item 11. Executive Compensation.
 
The information required by this Item is incorporated herein by reference to the applicable information in the definitive proxy statement for the Company's 2011 annual meeting, including the information set forth under the caption "Executive Compensation."
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The information required by this Item is incorporated herein by reference to the applicable information in the definitive proxy statement for the Company's 2011 annual meeting, including the information set forth under the captions "Beneficial Ownership of the Company's Common Stock."
 
Item 13. Certain Relationships and Related Transactions and Director Independence.
 
The information required by this Item is incorporated herein by reference to the applicable information in the definitive proxy statement for the Company's 2011 annual meeting, including the information set forth under the caption "Certain Relationships and Related Transactions."
 
Item 14. Principal Accountant Fees and Services.
 
The information required by this Item is incorporated herein by reference to the applicable information in the definitive proxy statement for the Company's 2011 annual meeting, including the information set forth under the caption "Fees Paid to Independent Auditors."
 
 
8

 
 
Item 15. Exhibits and Financial Statement Schedules.
 
Exhibit
Number
 
Sequential Description
3(i)
 
Third Amended and Restated Articles of Incorporation of registrant, dated October 22, 2009, incorporated by reference to Exhibit 3.1 of the Quarterly Report on From 10-Q, File No. 333-71773, filed on November 16, 2009.
     
3(ii)
 
Amended and Restated Bylaws of registrant, incorporated by reference to Exhibit 2.2 of Registration Statement on Form SB-1, File No. 333-71773, filed on February 9, 1999.
     
31.1
 
Certification of Chief Executive Officer
     
31.2
 
Certification of Acting Chief Financial Officer
     
32.1
 
Certification of Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
 
9

 
 
SIGNATURES
 
Pursuant to the requirements of  Section 13 or 15(d) 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 BANCORPORATION, INC.
(Registrant)
 
       
 
BY:
/S/ Charles S. Conoley  
   
Charles S. Conoley, President and
Chief Executive Officer
 
    (Principal Executive Officer)  
       
 
 
 
/S/ Kathleen M. Jepson  
   
Kathleen M. Jepson,
Acting Chief Financial Officer
 
   
(Principal Financial Officer and
Principal Accounting Officer)
 
                                                
Date:   April 14, 2011
 
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:
 
Signature
 
Title
 
Date
         
/S/ Charles S. Conoley
 
President, Chief Executive Officer and Director
 
April 14, 2011
Charles S. Conoley
       
         
/S/ Michael Shannon Glasgow
 
Director
 
April 14, 2011
Michael Shannon Glasgow
       
         
/S/ Barclay Kirkland, D.D.S.
 
Director
 
April 14, 2011
Barclay Kirkland, D.D.S.
       
         
/S/ C. Donald Miller, Jr.
 
Director
 
April 14, 2011
C. Donald Miller, Jr.
       
         
/S/ David K. Scherer
 
Director
 
April 14, 2011
David K. Scherer
       
         
/S/ Bruce E. Shackelford
 
Director
 
April 14, 2011
Bruce E. Shackelford
       
         
/S/ Elizabeth Thomason, D.M.D.
 
Director
 
April 14, 2011
Elizabeth Thomason, D.M.D.
       
         
/S/ Mary Ann P. Turner
 
Chairman of the Board of Directors
 
April 14, 2011
Mary Ann P. Turner
       
         
/S/ Clarence R. Urban
 
Director
 
April 14, 2011
Clarence R. Urban        
 
 
10