UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
DC 20549
  Form
10-Q
  x
              Quarterly
      report under section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended June 30, 2009
   ̈
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT
  For the
transition period from ______ to ______
  Commission
file number 333-71773
  Horizon Bancorporation,
Inc.
 (Exact
Name of Registrant as Specified in Its Charter)
 
 Florida
                    (State
      or Other Jurisdiction of
                    Incorporation
      or Organization)
                  
                  65-0840545
                    (IRS
      Employer
                    Identification
      No.)
  900
53rd
Avenue East
 Bradenton, Florida
34203
 (Address
of Principal Executive Offices)
  941-753-2265
 (Registrant's
Telephone Number, Including Area Code)
  N/A
 (Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
  Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
  Yes  ̈  No 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
definition of “accelerated filer,” “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act) (Check one):
 
 Large
      Accelerated Filer  ̈
              
              Accelerated
      Filer  ̈Non-Accelerated
      Filer  ̈
              
              Smaller
      reporting company  ̈
 (Do not
check if a 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  ̈  No x
  Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
  Common
Stock Outstanding as of August 1, 2009, Common stock, $0.01 Par value: 1,770,139
Shares
  8
 
 Index
  Part
      I. Financial InformationItem
      1. Financial Statements (unaudited)Consolidated
      Balance Sheets as of June 30, 2009 and December 31, 2008
                    3Consolidated
      Statements of Income for the Six Months Ended June 30, 2009 and
      2008
                    4Consolidated
      Statements of Cash Flows for the Six Months Ended  June 30, 2009
      and 2008
                    5Consolidated
      Statements of Changes in Shareholders' Equity for the Six Months Ended
      June 30, 2009 and 2008
                    6Notes
      to Consolidated Financial Statements
                    7Item
      2.   Management's Discussion and Analysis of Financial
      Conditions  and Results of  Operations
                    13Item
      3.  Quantitative and Qualitative Disclosure About Market
      Risk
                    22Item
      4T.  Controls and Procedures
                    23Part
      II. Other InformationItem
      1.  Legal Proceedings
                    23Item
      1A. Risk Factors
                    23Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                    23Item
      3.  Defaults Upon Senior Securities
                    24Item
      4.  Submission of Matters to a Vote of Security
      Holders
                    24Item
      5.  Other Information
                    24Item
      6.  Exhibits
                    24
  2
  PART
I - FINANCIAL INFORMATION
  Item 1.  Financial
Statements.
 
 HORIZON
BANCORPORATION, INC.
 Consolidated
Balance Sheets
 
 June 30,
                        2009
                        (Unaudited)
                      
                      
                      December 31,
                        2008ASSETSCash
      and cash equivalentsCash
      and due from banks
                      
                      $
                      6,163,908
                      
                      
                      $
                      2,236,783Federal
      funds sold
                      
                      
                      —0—
                      
                      
                      
                      147,000Total
      cash and cash equivalents
                      
                      
                      6,163,908
                      
                      
                      
                      2,383,783Securities:Held
      to maturity, at amortized cost
                      
                      
                      14,104,712
                      
                      
                      
                      13,086,900Available-for-sale
      at fair value
                      
                      
                      16,108,289
                      
                      
                      
                      17,965,410Loans
      held for sale
                      
                      
                      —0—
                      
                      
                      
                      2,000,000Loans
      receivable, net
                      
                      
                      160,690,282
                      
                      
                      
                      166,027,061Property
      and equipment, net
                      
                      
                      2,288,004
                      
                      
                      
                      2,029,877Other
      real estate owned
                      
                      
                      2,121,333
                      
                      
                      
                      2,815,386Other
      assets
                      
                      
                      5,016,292
                      
                      
                      
                      2,989,837$
                      206,492,820
                      
                      
                      $
                      209,298,254LiabilitiesDepositsNoninterest-bearing
                      
                      $
                      9,266,642
                      
                      
                      $
                      8,572,582Interest-bearing
                      
                      
                      163,217,649
                      
                      
                      
                      157,705,963Total
      deposits
                      
                      
                      172,484,291
                      
                      
                      
                      166,278,545Federal
      Home Loan Bank borrowings
                      
                      
                      26,000,000
                      
                      
                      
                      29,000,000Notes
      Payable
                      
                      
                      1,030,764
                      
                      
                      
                      805,764Dividends
      Payable
                      
                      
                      —0—
                      
                      
                      
                      199,090Other
      liabilities
                      
                      
                      205,291
                      
                      
                      
                      220,325Total
      liabilities
                      
                      
                      199,720,346
                      
                      
                      
                      196,503,724Shareholders'
      equityPreferred
      stock,  $.01 par value 1,000,000 shares authorized; none
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Treasury
      stock  outstanding 39,733 shares at June 30, 2009 and December
      31, 2008
                      
                      
                      (479,393
                      )
                      
                      
                      (479,393
                      )Common
      stock, $.01 par value 25,000,000 shares authorized; 1,809,912 Issued
      and  1,770,139 outstanding at June 30, 2009 and 1,808,219 issued
      and 1,768,446 outstanding at  December 31, 2008
                      
                      
                      18,099
                      
                      
                      
                      18,082Additional
      paid in capital
                      
                      
                      10,398,214
                      
                      
                      
                      10,358,919Retained
      earnings/(losses)
                      
                      
                      (2,644,969
                      )
                      
                      
                      4,116,602Accumulated
      other comprehensive income (loss), net of tax
                      
                      
                      (519,477
                      )
                      
                      
                      (1,219,680
                      )Total
      shareholders' equity
                      
                      
                      6,772,474
                      
                      
                      
                      12,794,530$
                      206,492,820
                      
                      
                      $
                      209,298,254
 See
accompanying notes to the financial
statements
  3
  HORIZON
BANCORPORATION, INC.
 Consolidated
Statements of Income (Unaudited)
 
 Three
      Months Ended June 30,
                  
                  
                  Six
      Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Interest
      incomeInterest
      and fees on loans
                  
                  $
                  2
      ,657,392
                  
                  
                  $
                  2
      ,753,872
                  
                  
                  $
                  5,368,395
                  
                  
                  $
                  5,620,559Interest
      on investment securities
                  
                  
                  395,633
                  
                  
                  
                  481,315
                  
                  
                  
                  812,375
                  
                  
                  
                  934,667Interest
      on federal funds
                  
                  
                  923
                  
                  
                  
                  6,496
                  
                  
                  
                  1,705
                  
                  
                  
                  26,396Total
      interest income
                  
                  
                  3,053,948
                  
                  
                  
                  3,241,683
                  
                  
                  
                  6,182,475
                  
                  
                  
                  6,581,622Interest
      expenseInterest
      on deposits
                  
                  
                  1,226,605
                  
                  
                  
                  1,500,561
                  
                  
                  
                  2,555,691
                  
                  
                  
                  3,128,024Interest
      on borrowings
                  
                  
                  279,255
                  
                  
                  
                  262,720
                  
                  
                  
                  556,814
                  
                  
                  
                  527,510Total
      interest expense
                  
                  
                  1,505,860
                  
                  
                  
                  1,763,281
                  
                  
                  
                  3,112,505
                  
                  
                  
                  3,655,534Net
      interest income
                  
                  
                  1,548,088
                  
                  
                  
                  1,478,402
                  
                  
                  
                  3,069,970
                  
                  
                  
                  2,926,088Provision
      for loan losses
                  
                  
                  8,571,842
                  
                  
                  
                  120,000
                  
                  
                  
                  8,791,842
                  
                  
                  
                  215,000Net
      interest income/(loss) after provision for loan losses
                  
                  
                  (7,023,754
                  )
                  
                  
                  1,358,402
                  
                  
                  
                  (5,721,872
                  )
                  
                  
                  2,711,088Noninterest
      incomeGain
      on sales of loans
                  
                  
                  123,777
                  
                  
                  
                  —0—
                  
                  
                  
                  123,777
                  
                  
                  
                  —0—Gain
      on sale of servicing
                  
                  
                  200,392
                  
                  
                  
                  112,420
                  
                  
                  
                  200,392
                  
                  
                  
                  112,420Gain
      on sale of repossessed assets
                  
                  
                  3,630
                  
                  
                  
                  —0—
                  
                  
                  
                  1,999
                  
                  
                  
                  —0—Gain
      on sale of other assets, net
                  
                  
                  —0—
                  
                  
                  
                  —0—
                  
                  
                  
                  7,500
                  
                  
                  
                  167,500Recognized
      impairment of bank owned real estate
                  
                  
                  (365,188
                  )
                  
                  
                  —0—
                  
                  
                  
                  (365,188
                  )
                  
                  
                  —0—Recognized
      loss on securities available for sale
                  
                  
                  (1,014,848
                  )
                  
                  
                  —0—
                  
                  
                  
                  (1,014,848
                  )
                  
                  
                  —0—Service
      charges on deposit accounts
                  
                  
                  19,294
                  
                  
                  
                  21,854
                  
                  
                  
                  38,190
                  
                  
                  
                  45,990Miscellaneous
      , other
                  
                  
                  129,067
                  
                  
                  
                  39,795
                  
                  
                  
                  164,301
                  
                  
                  
                  98,311Total
      noninterest income/(loss)
                  
                  
                  (903,876
                  )
                  
                  
                  174,069
                  
                  
                  
                  (843,877
                  )
                  
                  
                  424,221Noninterest
      expenseSalaries
      and benefits
                  
                  
                  575,276
                  
                  
                  
                  588,433
                  
                  
                  
                  1,204,674
                  
                  
                  
                  1,187,046Building
      and equipment expense
                  
                  
                  253,084
                  
                  
                  
                  181,216
                  
                  
                  
                  451,675
                  
                  
                  
                  362,141Professional
      fees
                  
                  
                  78,381
                  
                  
                  
                  77,916
                  
                  
                  
                  128,360
                  
                  
                  
                  131,445Data
      processing and software expense
                  
                  
                  101,309
                  
                  
                  
                  88,439
                  
                  
                  
                  195,946
                  
                  
                  
                  182,233Other
      noninterest expense
                  
                  
                  321,982
                  
                  
                  
                  225,999
                  
                  
                  
                  546,493
                  
                  
                  
                  437,249Total
      noninterest expense
                  
                  
                  1,330,032
                  
                  
                  
                  1,162,003
                  
                  
                  
                  2,527,148
                  
                  
                  
                  2,300,114Income/(Loss)
      before income tax
                  
                  
                  (9,257,662
                  )
                  
                  
                  370,468
                  
                  
                  
                  (9,092,897
                  )
                  
                  
                  835,195Income
      tax expense/(benefit)
                  
                  
                  (2,352,836
                  )
                  
                  
                  132,570
                  
                  
                  
                  (2,331,326
                  )
                  
                  
                  296,559Net
      Income/(Loss)
                  
                  $
                  ( 6,904,826
                  )
                  
                  $
                  237,898
                  
                  
                  $
                  (6,761,571
                  )
                  
                  $
                  538,636Basic
      earnings/(loss) per share
                  
                  $
                  (3.90
                  )
                  
                  $
                  0.13
                  
                  
                  $
                  (3.82
                  )
                  
                  $
                  0.30Diluted
      earnings/(loss) per share
                  
                  $
                  (3.86
                  )
                  
                  $
                  0.13
                  
                  
                  $
                  (3.77
                  )
                  
                  $
                  0.29
 See
accompanying notes to the financial
statements
  4
  HORIZON
BANCORPORATION, INC.
 Consolidated
Statements of Cash Flows (Unaudited)
 
 For the six months
                    ended June 30, 2009
                  
                  
                  For the six months
                    ended June 30, 2008Cash
      flows from operating activitiesNet
      cash provided by operating activities
                  
                  $
                  674,746
                  
                  
                  $
                  317,531Cash
      flows from investing activitiesProceeds
      from sale of other assets
                  
                  
                  162,969
                  
                  
                  
                  190,000Proceed
      from sale of loans
                  
                  
                  6,324,169
                  
                  
                  
                  —0—Purchase
      of securities held to maturity
                  
                  
                  (1,019,875
                  )
                  
                  
                  —0—Purchase
      of securities available for sale
                  
                  
                  —0—
                  
                  
                  
                  (2,165,307
                  )Proceeds
      from maturities and principal repayments of securities available for
      sale
                  
                  
                  1,709,521
                  
                  
                  
                  1,066,896Purchase
      of Federal Home Loan Bank Stock
                  
                  
                  125,750
                  
                  
                  
                  163,500(Increase)/decrease
      in other real estate owned
                  
                  
                  165,896
                  
                  
                  
                  (945,000
                  )Increase
      in loans held for sale
                  
                  
                  (4,000,000
                  )
                  
                  
                  (1,233,867
                  )Loan
      originations, net
                  
                  
                  (3,455,064
                  )
                  
                  
                  (2,426,660
                  )Property
      and equipment expenditures, net
                  
                  
                  (348,045
                  )
                  
                  
                  (56,228
                  )Net
      cash provided (used) by investing activities
                  
                  
                  (334,679
                  )
                  
                  
                  (5,406,666
                  )Cash
      flows from financing activitiesExercise
      of warrants and options
                  
                  
                  9,312
                  
                  
                  
                  —0—Increase
      in deposits
                  
                  
                  6,205,746
                  
                  
                  
                  16,805,588Increase/(decrease)
      in fed funds purchased
                  
                  
                  —0—
                  
                  
                  
                  (5,028,000
                  )Increase/(decrease)
      in borrowings, net
                  
                  
                  (3,000,000
                  )
                  
                  
                  (5,700,000
                  )Increase
      in note payable
                  
                  
                  225,000
                  
                  
                  
                  —0—Purchase
      of treasury stock
                  
                  
                  —0—
                  
                  
                  
                  (247,000
                  )Net
      cash provided by financing activities
                  
                  
                  3,440,058
                  
                  
                  
                  5,830,588Net
      change in cash and cash equivalents
                  
                  
                  3,780,125
                  
                  
                  
                  741,453Cash
      and cash equivalents at beginning of period
                  
                  
                  2,383,783
                  
                  
                  
                  3,009,201Cash
      and cash equivalents at end of period
                  
                  $
                  6,163,908
                  
                  
                  $
                  3,750,654
 See
accompanying notes to the financial
statements
  5
  HORIZON BANCORPORATION, INC.
 Consolidated
Statements of Changes in Shareholders' Equity (Unaudited)
 for the
six-month periods ended June 30, 2009 and 2008
 
 AccumulatedCommon
      Stock
                                                
                                                
                                                Treasury
                                                
                                                
                                                Paid
      in
                                                
                                                
                                                Retained
                                                
                                                
                                                OtherShares
                                                
                                                
                                                Par
      Value
                                                
                                                
                                                Stock
                                                
                                                
                                                Capital
                                                
                                                
                                                Earnings
                                                
                                                
                                                Income
                                                
                                                
                                                TotalBalance,
      December 31, 2007
                                                
                                                
                                                1,788,446
                                                
                                                
                                                $
                                                18,082
                                                
                                                
                                                $
                                                (232,393
                                                )
                                                
                                                $
                                                10,288,581
                                                
                                                
                                                $
                                                3,727,722
                                                
                                                
                                                $
                                                (648,467
                                                )
                                                
                                                $
                                                13,153,525Comprehensive
      Income:Net
      income, six-month period ended June 30, 2008
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                538,636
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                538,636Net
      unrealized gains on securities, six-month period ended June 30,
      2008
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (1,076,886
                                                )
                                                
                                                
                                                (1,076,886
                                                )Total
      comprehensive income/(loss),net of tax
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (538,250
                                                )Repurchase
      of common stock
                                                
                                                
                                                (20,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (247,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (247,000
                                                )Stock
      based Compensation
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                48,001
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                48,001Balance,
      June 30, 2008
                                                
                                                
                                                1,768,446
                                                
                                                
                                                $
                                                18,082
                                                
                                                
                                                $
                                                (479,393
                                                )
                                                
                                                $
                                                10,336,582
                                                
                                                
                                                $
                                                4,266,358
                                                
                                                
                                                $
                                                (1,725,353
                                                )
                                                
                                                $
                                                12,414,276Balance,
      December 31, 2008
                                                
                                                
                                                1,768,446
                                                
                                                
                                                $
                                                18,082
                                                
                                                
                                                $
                                                (479,393
                                                )
                                                
                                                $
                                                10,358,919
                                                
                                                
                                                $
                                                4,116,602
                                                
                                                
                                                $
                                                (1,219,680
                                                )
                                                
                                                $
                                                12,794,530Comprehensive
      Income:Net
      income/(loss), six-month period ended June 30, 2009
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                (6,761,571
                                                )
                                                
                                                
                                                —
                                                
                                                
                                                
                                                (6,761,571
                                                )Net
      unrealized gains on securities, six-month period ended June 30,
      2009
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                700,203
                                                
                                                
                                                
                                                700,203Total
      comprehensive income/(loss),net of tax
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (6,061,368
                                                )Exercise
      of warrants to purchase common stock
                                                
                                                
                                                1,693
                                                
                                                
                                                
                                                17
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                9,295
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                9,312Stock
      based Compensation
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                30,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                30,000Balance,
      June 30, 2009
                                                
                                                
                                                1,770,139
                                                
                                                
                                                $
                                                18,099
                                                
                                                
                                                $
                                                (479,393
                                                )
                                                
                                                $
                                                10,398,214
                                                
                                                
                                                $
                                                (2,644,969
                                                )
                                                
                                                $
                                                (519,477
                                                )
                                                
                                                $
                                                6,772,474
 6
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
 
 NOTE
1 – BASIS OF PRESENTATION
 
 The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial condition, results of operations, and cash flows in conformity with
U.S. generally accepted accounting principles.  However, all
adjustments, consisting of normal recurring accruals, which, in the opinion of
management, are necessary for fair presentation of the consolidated financial
statements have been included.  The results of operations for the
period ended June 30, 2009, are not necessarily indicative of the results which
may be expected for the entire fiscal year or for any other
period.  For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 2008 included
in Horizon Bancorporation's Form 10-K.
 
 Certain
prior year amounts have been reclassified to conform to the 2009
presentation.
 
 NOTE
2 – SUMMARY OF ORGANIZATION
 
 Horizon
Bancorporation, Inc., Bradenton, Florida (the "Company"), is 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 commenced
operations. The Bank is primarily engaged in the business of obtaining deposits
and providing commercial, consumer and real estate loans to the general public.
The Bank's depositors are each insured up to $250,000 by the Federal Deposit
Insurance Corporation (the "FDIC") subject to certain limitations imposed by the
FDIC.  The Bank is a member bank of and is primarily regulated by the
Federal Reserve Bank of Atlanta (the “Federal Reserve”).
 
 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 June 30, 2009 and December 31, 2008,
there were 1,809,912 and 1,808,219 shares issued. As of June 30, 2009 and
December 31, 2008 there were 1,770,139 and 1,768,446 shares outstanding.
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 of
Directors 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. As of June 30, 2009, and December 31, 2008, there
were no shares of the Company's preferred stock issued or
outstanding.
 
 NOTE
3 – LOANS RECEIVABLE
 
 Loans
receivable consist of the following:
 
 June 30,
                      2009
                    
                    
                    December 31,
                      2008Real
      estate – commercial
                    
                    $
                    97,810,672
                    
                    
                    $
                    95,871,496Real
      estate – construction
                    
                    
                    1,500,663
                    
                    
                    
                    4,378,504Real
      estate – residential
                    
                    
                    35,797,332
                    
                    
                    
                    34,662,690Commercial
                    
                    
                    28,237,813
                    
                    
                    
                    30,036,270Consumer
                    
                    
                    2,451,267
                    
                    
                    
                    2,580,924Loans,
      gross
                    
                    
                    165,797,747
                    
                    
                    
                    167,529,884Deduct
      allowance for loan losses
                    
                    
                    (5,107,465
                    )
                    
                    
                    (1,502,823
                    )Loans,
      net
                    
                    $
                    160,690,282
                    
                    
                    $
                    166,027,061
  7
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
 
 NOTE
3 – LOANS RECEIVABLE (Continued)
 Activity
in the allowance for loan losses for the quarter ended June 30, are as
follows:
  2009
                    
                    
                    2008Balance
      at beginning of period
                    
                    $
                    1,652,301
                    
                    
                    $
                    1,349,893Provision
      for loan losses
                    
                    
                    8,571,842
                    
                    
                    
                    120,000Loans
      charged-off
                    
                    
                    (5,116,678
                    )
                    
                    
                    (12,945
                    )Recoveries
                    
                    
                    —0—
                    
                    
                    
                    11,331Balance
      at end of period
                    
                    $
                    5,107,465
                    
                    
                    $
                    1,468,279
 
 Activity
in the allowance for loan losses for the six months ended June 30, are as
follows
 
 2009
                      
                      
                      2008Balance
      at beginning of period
                      
                      $
                      1,502,823
                      
                      
                      $
                      1,402,843Provision
      for loan losses
                      
                      
                      8,791,842
                      
                      
                      
                      215,000Loans
      charged-off
                      
                      
                      (5,187,200
                      )
                      
                      
                      (160,895
                      )Recoveries
                      
                      
                      —0—
                      
                      
                      
                      11,331Balance
      at end of period
                      
                      $
                      5,107,465
                      
                      
                      $
                      1,468,279
 
 The
significant increases in both the Provision for loan losses and Loans
charged-off reflect the preliminary findings of a periodic examination of the
Bank conducted by the Federal Reserve in July of 2009.  Pending
further review and discussions with the Federal Reserve and the issuance of a
final examination report, a very significant portion, but not all, of these
preliminary findings were included in the Company’s results of operations for
the three-month and six-month periods ended June 30, 2009.  The
findings mandated by the final examination report will be reported in the third
quarter of 2009.
  8
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
  NOTE
4 – SECURITIES HELD-TO-MATURITY
  Information
pertaining to securities with gross unrealized losses at June 30, 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:
 
 Less Than
                  
                  
                  OverTwelve Months
                  
                  
                  Twelve Months
                  
                  
                  TotalFair
                    Value
                  
                  
                  Unrealized
                    Loss
                  
                  
                  Fair
                    Value
                  
                  
                  Unrealized
                    Loss
                  
                  
                  Fair
                    Value
                  
                  
                  Unrealized
                    LossState,
      Countyand
      Municipal
                  
                  $
                  4,553,491
                  
                  
                  $
                  (108,470
                  )
                  
                  $
                  6,826,686
                  
                  
                  $
                  (1,268,843
                  )
                  
                  $
                  11,380,177
                  
                  
                  $
                  (1,377,313
                  )Corporate
      Securities
                  
                  
                  —0—
                  
                  
                  
                  (—0—
                  )
                  
                  
                  690,000
                  
                  
                  
                  (310,000
                  )
                  
                  
                  690,000
                  
                  
                  
                  (310,000
                  )Total
                  
                  $
                  4,553,491
                  
                  
                  $
                  (108,470
                  )
                  
                  $
                  7,516,686
                  
                  
                  $
                  (1,578,843
                  )
                  
                  $
                  12,070,177
                  
                  
                  $
                  (1,687,313
                  )
  At
June 30, 2009 unrealized losses on held-to-maturity securities amounted to
$1,687,313 representing 12.0% of the total held to maturity
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 until maturity, or for the foreseeable future and due to the
fact that the unrealized losses relate primarily to the lack of liquidity in the
market rather than the expected cash flows of the underlying collateral or
issuer, no declines are deemed to be other than temporary.
 
 NOTE
5 – SECURITIES AVAILABLE FOR SALE
  Information
pertaining to securities with gross unrealized losses at June 30, 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:
 Less than
                          Twelve Months
                        
                        
                        Greater than
                          Twelve Months
                        
                        
                        TotalFair
                          Value
                        
                        
                        Unrealized
                          Loss
                        
                        
                        Fair
                          Value
                        
                        
                        Unrealized
                          Loss
                        
                        
                        Fair
                          Value
                        
                        
                        Unrealized
                          LossU.S. Agency
                        
                        $
                        982,380
                        
                        
                        $
                        (10,464
                        )
                        
                        $
                        —0—
                        
                        
                        $
                        —0—
                        
                        
                        $
                        982,380
                        
                        
                        $
                        (10,464
                        )Mortgage
      backedsecurities
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        746,528
                        
                        
                        
                        (748,981
                        )
                        
                        
                        746,528
                        
                        
                        
                        (748,981
                        )Collateralized
      mortgage securities
                        
                        
                        535,594
                        
                        
                        
                        (8,349
                        )
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        535,594
                        
                        
                        
                        (8,349
                        )Trust
      preferred securities & other corporate
      notes
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        1,342,600
                        
                        
                        
                        (302,682
                        )
                        
                        
                        1,342,600
                        
                        
                        
                        (302,682
                        )Total
                        
                        $
                        1,517,974
                        
                        
                        $
                        (18,813
                        )
                        
                        $
                        2,089,128
                        
                        
                        $
                        (1,051,663
                        )
                        
                        $
                        3,607,102
                        
                        
                        $
                        (1,070,476
                        )
  At June 30, 2009,
unrealized losses in the securities portfolio amounted to $1,070,476
representing 6.6 % 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 until maturity, or for the foreseeable future and due to the
fact that the unrealized losses relate primarily to the lack of liquidity in the
market rather than the expected cash flows of the underlying collateral or
issuer, no declines are deemed to be other than
temporary.
  9
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
 
 NOTE
6 - EARNINGS PER SHARE
 
 The
following summarizes the computation of basic and diluted earnings per
share.
 
 Three Months Ended June 30, 2009
                        
                        
                        Three Months Ended June 30, 2008Basic
      earnings/(loss) per shareNet
      income/(loss) applicable to common stock
                        
                        $
                        (6,904,826
                        )
                        
                        $
                        237,898Weighted
      average shares outstanding
                        
                        
                        1,770,139
                        
                        
                        
                        1,768,446Basic
      earnings/(loss) per share
                        
                        $
                        (3.90
                        )
                        
                        $
                        0.13Diluted
      earnings/(loss) per shareNet
      income/(loss) applicable to common stock
                        
                        $
                        (6,904,826
                        )
                        
                        $
                        237,898Weighted
      average shares outstanding
                        
                        
                        1,770,139
                        
                        
                        
                        1,768,446Dilutive
      effect of assumed exercise of stock options/warrants
                        
                        
                        18,200
                        
                        
                        
                        80,610Diluted
      average shares outstanding
                        
                        
                        1,788,339
                        
                        
                        
                        1,849,056Diluted
      earnings/(loss) per share
                        
                        $
                        (3.86
                        )
                        
                        $
                        0.13
 
 Six Months Ended June 30, 2009
                        
                        
                        Six Months Ended June 30, 2008Basic
      earnings/(loss) per shareNet
      income/(loss) applicable to common stock
                        
                        $
                        (6,761,571
                        )
                        
                        $
                        538,636Weighted
      average shares outstanding
                        
                        
                        1,770,092
                        
                        
                        
                        1,770,314Basic
      earnings/(loss) per share
                        
                        $
                        (3.82
                        )
                        
                        $
                        0.30Diluted
      earnings per shareNet
      income/(loss) applicable to common stock
                        
                        $
                        (6,761,571
                        )
                        
                        $
                        538,636Weighted
      average shares outstanding
                        
                        
                        1,770,092
                        
                        
                        
                        1,770,314Dilutive
      effect of assumed exercise of stock options/warrants
                        
                        
                        24,961
                        
                        
                        
                        83,571Diluted
      average shares outstanding
                        
                        
                        1,795,053
                        
                        
                        
                        1,853,885Diluted
      earnings/(loss) per share
                        
                        $
                        (3.77
                        )
                        
                        $
                        0.29
  NOTE
7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
  Assets
and liabilities are grouped for fair value in six level based on the markets in
which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value.  These levels
are:
 
 Level 1 -
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted
assets or liabilities;
 
 Level 2
-  Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially
the full term of the asset or liability;
 
 Level 3 -
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no
market activity).
  10
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
  The
following table summarizes fair value measurements as of June 30, 2009: (in
thousands)
 
 Fair Value Measurements UsingQuoted Prices in
                            Active Markets
                            for Identical
                            Assets
                          
                          
                          Significant Other
                            Observable Input
                          
                          
                          Significant
                            Unobservable
                            InputsDescriptions
                          
                          6/30/2009
                          
                          
                          (Level 1)
                          
                          
                          (Level 2)
                          
                          
                          (Level 3)Held
      to maturity securities
                          
                          $
                          14,105
                          
                          
                          
                          
                          
                          $
                          14,105Available-for-sale
      securities
                          
                          $
                          16,108
                          
                          
                          $
                          984
                          
                          
                          $
                          15,124Impaired
      Loans
                          
                          $
                          5,420
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          5,420Total
                          
                          $
                          35,633
                          
                          
                          $
                          984
                          
                          
                          $
                          29,229
                          
                          
                          $
                          5,420
 
 The types
of instruments valued based on quoted market prices in active markets include
most U.S. Government debt and agency debt securities. Such instruments are
generally classified within level 1 or level 2 of the fair value hierarchy.
As required by SFAS No. 157, the Company does not adjust the quoted price
for such instruments.
 
 The types
of instruments valued based on quoted prices in markets that are not active,
broker or dealer quotations, or
 alternative
pricing sources with reasonable levels of price transparency include state and
municipal obligations, mortgage backed securities and collateralized
mortgage obligations. Such instruments are generally classified within level 2
of the fair value hierarchy.
 
 Impaired
loans are evaluated and valued at the time the loan is identified as impaired,
at the lower of cost or market value, and classified at level 3 in the fair
value hierarchy. Market value is measured based on the value of the collateral
securing these loans or techniques that are not supported by market activity for
loans that are not collateral
 dependent
and require management’s judgment. Collateral may be real estate and/or
business assets including equipment, inventory and/or accounts receivable. The value of real estate
collateral is determined based on appraisals by qualified licensed appraisers
hired bythe
Company. The value of business equipment may be based on an appraisal by
qualified licensed appraisers hired by the Company if significant, or may be
valued based on the equipment’s net book value on the business’ financial
statements. Inventory and accounts receivable collateralmaybe valued based on independent field
examiner review or aging reports, if significant.Field examiner reviews
may be conducted based on the loan exposure and reliance on this type of
collateral. Appraised and reported values may be discounted based on
management’s historical knowledge, changes in market conditions from the
time of valuation, and/or management’s expertise and knowledge of the
client and client’s business. Impaired loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly, based on the same
factorsidentified above.
  NOTE
8 - RECENT ACCOUNTING PRONOUNCEMENTS
  On April
9, 2009, the Financial Accounting Standard Board (“FASB”) issued six FASB Staff
Positions (“FSP”) intended to provide additional application guidance and
enhance disclosures regarding fair value measurements and impairments of
securities:
  1.
              FSP
      FAS 107-1 and APB 28-1, Interim Disclosures about Fair
      Value of Financial Instruments, amends FASB Statement No. 107,
      Disclosures about Fair
      Value of Financial Instruments, to require an entity to provide
      quantitative and qualitative disclosures about fair value of any financial
      instruments for interim reporting periods as well as in annual financial
      statements.  Prior to issuing this FSP, fair values for these
      assets and liabilities were only disclosed annually. This FSP also amends
      APB Opinion No. 28, Interim Financial
      Reporting, to require those disclosures in summarized financial
      information at interim reporting periods.  We adopted FSP 107-1
      and APB 28-1 for the quarter ending June 30,
  2009.
  11
 
 HORIZON
BANCORPORATION, INC.
 Notes to
the Consolidated Financial Statements (Unaudited)
  2.
              FSP
      FAS 115-2 and FAS 124-2, Recognition and Presentation
      of Other-Than-Temporary Impairments, is intended to bring greater
      consistency to the timing of impairment recognition, and provide greater
      clarity to investors about the credit and non-credit components of
      impaired debt securities that are not expected to be
      sold.  Further, it replaces the existing requirement that the
      entity’s management assert it has both the intent and ability to hold an
      impaired security until recovery with a requirement that management
      assert: (a) it does not have the intent to sell the security; and (b) it
      is more likely than not it will not have to sell the security before
      recovery of its cost basis.  The FSP also requires increased and
      more timely disclosures sought by investors regarding expected cash flows,
      credit losses, and an aging of securities with unrealized losses. When
      adopting FSP FAS 115-2 and FAS 124-2, an entity is required to record a
      cumulative-effect adjustment as of the beginning of the period of adoption
      to reclassify the non-credit component of a previously recognized
      other-than-temporary impairment from retained earnings to accumulated
      other comprehensive income if the entity does not intend to sell the
      security and it is more likely than not that the entity will not be
      required to sell the security before recovery.  FSP FAS 115-2
      and FSP 124-2 FSP will be effective for us for the quarter ending June 30,
      2009.  Adoption of this FSP did not have a significant impact on
      our financial condition or results of
  operations.
  3.
              FSP
      FAS 157-4,Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly,reaffirms the objective of fair value measurement
      stated in FASB Statement No. 157, Fair Value Measurements
      (“SFAS No. 157”) to reflect how much an asset would be sold for in an
      orderly transaction (as opposed to a distressed or forced transaction) at
      the date of the financial statements under current market
      conditions.  Specifically, it reaffirms the need to use judgment
      to ascertain if a formerly active market has become inactive and in
      determining fair values when markets have become inactive.  It
      also requires an entity to base its conclusion as to whether a transaction
      was not orderly on the weight of the evidence.  FSP FAS 157-4
      will be effective for us for the quarter ending June 30,
      2009.  Adoption of this FSP did not have a significant impact on
      our financial condition or results of
  operations.
  On
October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not
Active.  The FSP clarifies the application of SFAS No. 157 in a
market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  FSP FAS 157-3 is
effective upon issuance, including prior periods for which financial statements
have not been issued. Revisions resulting form a change in the valuation
technique or its applications should be accounted for as a change in accounting
estimate following the guidance in SFAS No. 154, Accounting Changes and Error
Corrections.  However, the disclosure provisions in SFAS No.
154 for a change in accounting estimate are not required for revisions resulting
from a change in valuation techniques or its application.  Adoption of
FSP FAS 157-3 did not have a significant Impact on our financial condition or
results of operations.
  12
 
 Item
2: Management's Discussion and Analysis of Financial Condition and Operations
Forward Looking Statements
  This
Quarterly Report on Form 10-Q contains or incorporates by reference statements
that are “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended (the Securities Act) and Section 21E
of the Securities Exchange Act of 1934, as amended (the Exchange Act).
Forward-looking statements discuss future expectations, describe future plans
and strategies, contain projections of results of operations or of financial
condition or state other forward-looking information. Forward-looking statements
are generally identifiable by the use of forward-looking terminology such as
“anticipate,” “assume,” “believe,” “continue,” “could,” “would,” “endeavor,”
“estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,”
“potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and other
similar words and expressions of future intent.
  Our
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Although we believe that the expectations reflected in
such forward-looking statements are based on reasonable assumptions, our actual
results and performance could differ materially from those set forth in the
forward-looking statements. Factors that could cause actual results and
performance to differ from those expressed in our forward-looking statements we
make or incorporate by reference in this Quarterly Report on Form 10-Q include,
but are not limited to:
  ·
              the effects of the current global
      economic crisis, including, without limitation, the dramatic deterioration
      of real estate values, the subprime mortgage, credit and liquidity
      markets, as well as the Federal Reserve’s actions with respect to interest
      rates, may lead to a further deterioration in credit quality, thereby
      requiring continued increases in our provision for loan losses, or a
      reduced demand for credit, which will continue to negatively impact our
      earnings;
  ·
              the imposition of enforcement
      orders, capital directives or other enforcement actions by the Federal
      Reserve, including restrictions and limitations that might be placed on
      the Bank pursuant to the Proposed Written Agreement (as defined
      below);
  ·
              possible changes in trade,
      monetary and fiscal policies, as well as legislative and regulatory
      changes, including changes in accounting standards and banking, securities
      and tax laws and regulations and governmental intervention in the U.S.
      financial system, as well as changes affecting financial institutions’
      ability to lend and otherwise do business with
      consumers;
  ·
              increases in our nonperforming
      assets, or our inability to recover or absorb losses created by such
      nonperforming assets;
  ·
              our ability to effectively manage
      liquidity risk, interest rate risk and other market risk, credit risk and
      operational risk
  ·
              our ability to manage negative
      developments and disruptions in the credit and lending markets, including
      the impact of the ongoing credit crisis on our business and on the
      businesses of our customers as well as other financial institutions with
      which we have commercial
relationships;
  ·
              the continuation of the recent
      unprecedented volatility in the credit markets and overall
      economy;
  ·
              possible changes in the quality
      or composition of our loans or investment portfolios, including further
      adverse developments in the real estate markets, the borrowers’ industries
      or in the repayment ability of individual borrowers or
      issuers;
  ·
              changes in the interest rate
      yield curve such as flat, inverted or steep yield curves, or changes in
      the interest rate environment that impact interest margins and may impact
      prepayments on the mortgage-backed securities
      portfolio;
  ·
              our
      ability to manage fluctuations in the value of assets and liabilities and
      off-balance sheet exposure so as to maintain sufficient capital and
      liquidity to support our
business;
  13
  ·
              the failure of our assumptions
      underlying the establishment of allowances for loan losses and other
      estimates, or dramatic changes in those underlying assumptions or
      judgments in future periods, that, in either case, render the allowance
      for loan losses inadequate or require that further provisions for loan
      losses be made;
  ·
              unexpected outcomes of existing
      or new litigation;
  ·
              the threat or occurrence of war
      or acts of terrorism and the existence or exacerbation of general
      geopolitical instability and
uncertainty;
  ·
              management’s ability to develop
      and execute plans to effectively respond to the Orders and any unexpected
      events in the future; and
  ·
              other factors and information
      contained in this Quarterly Report on Form 10-Q and other reports that we
      file with the Securities and Exchange Commission (SEC) under the Exchange
      Act.
  The
cautionary statements in this Quarterly Report on Form 10-Q also identify
important factors and possible events that involve risk and uncertainties that
could cause our actual results to differ materially from those contained in the
forward-looking statements. These forward-looking statements speak only as of
the date on which the statements were made. We do not intend, and undertake no
obligation, to update or revise any forward-looking statements contained in this
Quarterly Report on Form 10-Q, whether as a result of differences in actual
results, changes in assumptions or changes in other factors affecting such
statements, except as required by law.
  Readers
should carefully review all disclosures we file from time to time with the
SEC.
 
 Overview
 
 The
Company serves as the holding company for the Bank.  The Bank’s
business activities involve attracting deposits from the general public and
using these funds to originate consumer, commercial, and real estate loans, from
its four offices, two in Bradenton, Florida, one in Brandon, Florida and one in
Palmetto, Florida.
  The
Company's earnings are primarily dependent upon three sources: net interest
income, which is the difference between interest earned on interest-earning
assets and interest paid on interest-bearing liabilities; fee income from
customers; and gains realized on sales of loans.  These revenues are
in turn significantly affected by factors such as changes in prevailing interest
rates and in the yield curve (that is, the difference between prevailing
short-term and long-term interest rates).
  As
described in Note 3 to the financial statements, the Company included in such
statements a very significant portion, but not all, of the adjustments resulting
from the preliminary findings communicated to the Bank by the Federal Reserve
immediately after the conclusion of a periodic examination of the Bank conducted
by the Federal Reserve in July 2009 (the “Federal Reserve’s Preliminary
Findings”).  As of the date of this Report, the Federal Reserve’s
Preliminary Findings are the subject of further review by the Federal Reserve in
response to additional information being supplied to the Federal Reserve by the
Company. The adjustments mandated by the final examination report will be
reflected in the Company’s financial statements for the three months and nine
months ending September 30, 2009.
  During
such discussions, members of the supervisory staff of the Federal Reserve did
state that, regardless of the adjustments mandated by the final report, the Bank
is likely to be required to enter into a Written Agreement with the Federal
Reserve (the “Proposed Written Agreement”).  The details of the
Proposed Written Agreement are not known as the date of the filing of this
Report.  Typically, however, such agreements require a member bank
to:
  ·
              Submit a written plan to
      strengthen risk management practices and assist the bank in meeting the
      requirements of any supervisory action imposed on it by the Federal
      Reserve.
 ·
              Refrain
      from paying dividends or receiving dividends from the bank without the
      prior written approval of the Federal
Reserve.
  14
 
 ·
              Refrain from making payments of
      interest or principal on subordinated debt or trust preferred securities
      without the prior written approval of the Federal
      Reserve.
 ·
              Refrain from incurring,
      increasing or guaranteeing any debt without the prior written approval of
      the Federal Reserve.
 ·
              Submit a written plan to maintain
      sufficient capital at the
bank.
 ·
              Refrain from increasing or
      imposing any new fees on the bank without prior written approval of the
      Federal Reserve.
 ·
              Furnish quarterly progress
      reports to the Federal
Reserve.
  There is
no assurance that the adjustments mandated by the final report and the
restrictions and reporting obligations under the Proposed Written Agreement will
not have a further material adverse effect on the Company’s liquidity, capital
resources and financial condition.
  Results
of Operations
 
 Overall Net
Income
 
 The
Company reported a net loss $6,905,000 for the quarter ended June 30, 2009,
compared to net income of $238,000 for the quarter ended June 30,
2008.  Basic and diluted loss per share were $3.90 and $3.86,
respectively for the three months ended June 30, 2009. Basic and diluted
earnings per share for the three months ended June 30, 2008 were $.13 and $.13,
respectively.
 
 For the
six months ended June 30, 2009, the Company reported a net loss of $6,762,000,
compared to net income of $539,000 for the same period in 2008.  Basic
and diluted loss per share were $3.82 and $3.77, respectively, for the six
months ended June 30, 2009, compared to earnings of $0.30 and $0.29,
respectively, for the six months ended June 30, 2008.
 
 Net Interest
Income.
 
 Net
interest income was $1.55 million and $1.48 million for the three months ended
June 30, 2009 and 2008, respectively.  Decreasing rates offset by
increased volumes led to this increase of $69,000 between these two
periods.  For the six months ended June 30, 2009 and 2008 net interest
income rounded was $3.07 million and $2.93 million,
respectively.  Decreasing rates offset by increased volumes led to
this increase of $143,000 between these two periods.
  The
effect on interest income, interest expenses and net interest income during the
periods indicated from changes in average balances and rates from the
corresponding prior period, is shown below.  The effect of a change in
average balance has been determined by applying the average rate in the earlier
period to the change in the average balance in the later
period.  Changes resulting from average balance/rate variances are
included in changes resulting from rate.  The balance of the change in
interest income or expense and net interest income has been attributed to a
change in average rate:
  15
 
 Three months ended June 30, 2009
                                    Compared with
                                    Three months ended June 30, 2008
                                  
                                  
                                  Six months ended June 30, 2009
                                    Compared with
                                    Sixmonths ended June 30, 2008(in thousands)
                                  
                                  
                                  (in thousands)Increase (decrease) due to:
                                  
                                  
                                  Increase (decrease) due to:Interest
      earned on:
                                  
                                  Volume
                                  
                                  
                                  Rate
                                  
                                  
                                  Total
                                  
                                  
                                  Volume
                                  
                                  
                                  Rate
                                  
                                  
                                  TotalTaxable/Nontaxable
      securities
                                  
                                  
                                  (44
                                  )
                                  
                                  
                                  (42
                                  )
                                  
                                  
                                  (86
                                  )
                                  
                                  
                                  (17
                                  )
                                  
                                  
                                  (106
                                  )
                                  
                                  
                                  (123
                                  )Federal
      funds sold
                                  
                                  
                                  5
                                  
                                  
                                  
                                  (10
                                  )
                                  
                                  
                                  (5
                                  )
                                  
                                  
                                  3
                                  
                                  
                                  
                                  (27
                                  )
                                  
                                  
                                  (24
                                  )Net
      loans
                                  
                                  
                                  179
                                  
                                  
                                  
                                  (276
                                  )
                                  
                                  
                                  (97
                                  )
                                  
                                  
                                  491
                                  
                                  
                                  
                                  (743
                                  )
                                  
                                  
                                  (252
                                  )Total
      Interest Income
                                  
                                  
                                  140
                                  
                                  
                                  
                                  (328
                                  )
                                  
                                  
                                  (188
                                  )
                                  
                                  
                                  477
                                  
                                  
                                  
                                  (876
                                  )
                                  
                                  
                                  (399
                                  )Interest
      paid on:NOW
      and money market deposits
                                  
                                  
                                  8
                                  
                                  
                                  
                                  (38
                                  )
                                  
                                  
                                  (30
                                  )
                                  
                                  
                                  11
                                  
                                  
                                  
                                  (97
                                  )
                                  
                                  
                                  (86
                                  )Savings
      deposits
                                  
                                  
                                  (11
                                  )
                                  
                                  
                                  (43
                                  )
                                  
                                  
                                  (54
                                  )
                                  
                                  
                                  (16
                                  )
                                  
                                  
                                  (97
                                  )
                                  
                                  
                                  (113
                                  )Time
      deposits
                                  
                                  
                                  255
                                  
                                  
                                  
                                  (444
                                  )
                                  
                                  
                                  (189
                                  )
                                  
                                  
                                  601
                                  
                                  
                                  
                                  (973
                                  )
                                  
                                  
                                  (372
                                  )Other
      borrowings
                                  
                                  
                                  16
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  32
                                  
                                  
                                  
                                  (3
                                  )
                                  
                                  
                                  29Total
      interest Expense
                                  
                                  
                                  268
                                  
                                  
                                  
                                  (525
                                  )
                                  
                                  
                                  (257
                                  )
                                  
                                  
                                  628
                                  
                                  
                                  
                                  (1,170
                                  )
                                  
                                  
                                  (542
                                  )Change
      in net interest income
                                  
                                  $
                                  (128
                                  )
                                  
                                  $
                                  197
                                  
                                  
                                  $
                                  69
                                  
                                  
                                  $
                                  (151
                                  )
                                  
                                  $
                                  294
                                  
                                  
                                  $
                                  143
 
 Average Balance
Sheet
 
 The
following tables summarize the average yields earned on interest-earning assets
and the average rates paid on interest-bearing liabilities for the Bank and
helps to further explain the slight increase in net interest
income.
 
 Three months ended June 30,2009
                    
                    
                    2008Average
                      Volume
                    
                    
                    Interest
                    
                    
                    Yield/Cost
                    
                    
                    Average
                      Volume
                    
                    
                    Interest
                    
                    
                    Yield/CostASSETSInterest-earning
      assets:Federal
      funds sold
                    
                    $
                    1,477
                    
                    
                    $
                    1
                    
                    
                    
                    0.27
                    %
                    
                    $
                    1,019
                    
                    
                    $
                    6
                    
                    
                    
                    2.36
                    %Securities
                    
                    
                    31,258
                    
                    
                    
                    396
                    
                    
                    
                    5.07
                    
                    
                    
                    34,599
                    
                    
                    
                    482
                    
                    
                    
                    5.57Loans
      receivable
                    
                    
                    167,634
                    
                    
                    
                    2,657
                    
                    
                    
                    6.34
                    
                    
                    
                    158,731
                    
                    
                    
                    2,754
                    
                    
                    
                    6.94Total
      interest-earning assets
                    
                    $
                    200,369
                    
                    
                    
                    3,054
                    
                    
                    
                    6.10
                    
                    
                    $
                    194,349
                    
                    
                    
                    3,242
                    
                    
                    
                    6.67LIABILITIESInterest-bearing
      liabilities:Transactional
      accounts
                    
                    $
                    25,034
                    
                    
                    
                    81
                    
                    
                    
                    1.29
                    
                    
                    
                    23,448
                    
                    
                    
                    111
                    
                    
                    
                    1.89Savings
      deposits
                    
                    
                    14,690
                    
                    
                    
                    64
                    
                    
                    
                    1.74
                    
                    
                    
                    16,277
                    
                    
                    
                    118
                    
                    
                    
                    2.90Time
      deposits
                    
                    
                    129,311
                    
                    
                    
                    1,082
                    
                    
                    
                    3.35
                    
                    
                    
                    112,591
                    
                    
                    
                    1,271
                    
                    
                    
                    4.52Other
      borrowings
                    
                    
                    26,000
                    
                    
                    
                    279
                    
                    
                    
                    4.29
                    
                    
                    
                    24,523
                    
                    
                    
                    263
                    
                    
                    
                    4.29Total
      interest-bearing liabilities
                    
                    $
                    195,035
                    
                    
                    
                    1,506
                    
                    
                    
                    3.09
                    
                    
                    $
                    176,839
                    
                    
                    
                    1,763
                    
                    
                    
                    3.99Interest
      rate spread
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.01
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.68
                    %Net
      interest income and net interest Margin
                    
                    
                    
                    
                    
                    $
                    1,548
                    
                    
                    
                    3.09
                    %
                    
                    
                    
                    
                    
                    $
                    1,479
                    
                    
                    
                    3.04
                    %
 
 16
 
 Six months ended June 30,2008
                    
                    
                    2008Average
                      Volume
                    
                    
                    Interest
                    
                    
                    Yield/Cost
                    
                    
                    Average
                      Volume
                    
                    
                    Interest
                    
                    
                    Yield/CostASSETSInterest-earning
      assets:Federal
      funds sold
                    
                    $
                    1,850
                    
                    
                    $
                    2
                    
                    
                    
                    0.22
                    %
                    
                    $
                    $ 1,692
                    
                    
                    $
                    26
                    
                    
                    
                    3.07
                    %Securities
                    
                    
                    31,371
                    
                    
                    
                    812
                    
                    
                    
                    5.18
                    
                    
                    
                    31,955
                    
                    
                    
                    935
                    
                    
                    
                    5.85Loans
      receivable
                    
                    
                    169,066
                    
                    
                    
                    5,368
                    
                    
                    
                    6.35
                    
                    
                    
                    157,705
                    
                    
                    
                    5,620
                    
                    
                    
                    7.13Total
      interest-earning assets
                    
                    $
                    202,287
                    
                    
                    
                    6,182
                    
                    
                    
                    6.11
                    
                    
                    $
                    191,352
                    
                    
                    
                    6,581
                    
                    
                    
                    6.88LIABILITIESInterest-bearing
      liabilities:Transactional
      accounts
                    
                    $
                    24,749
                    
                    
                    
                    161
                    
                    
                    
                    1.30
                    
                    
                    
                    23,732
                    
                    
                    
                    247
                    
                    
                    
                    2.08Savings
      deposits
                    
                    
                    14,093
                    
                    
                    
                    125
                    
                    
                    
                    1.77
                    
                    
                    
                    15,219
                    
                    
                    
                    238
                    
                    
                    
                    3.13Time
      deposits
                    
                    
                    130,076
                    
                    
                    
                    2,270
                    
                    
                    
                    3.49
                    
                    
                    
                    112,110
                    
                    
                    
                    2,642
                    
                    
                    
                    4.71Other
      borrowings
                    
                    
                    26,413
                    
                    
                    
                    557
                    
                    
                    
                    4.22
                    
                    
                    
                    24,894
                    
                    
                    
                    528
                    
                    
                    
                    4.24Total
      interest-bearing liabilities
                    
                    $
                    195,331
                    
                    
                    
                    3,113
                    
                    
                    
                    3.19
                    
                    
                    $
                    175,955
                    
                    
                    
                    3,655
                    
                    
                    
                    4.15Interest
      rate spread
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.92
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.73
                    %Net
      interest income and net interest Margin
                    
                    
                    
                    
                    
                    $
                    3,069
                    
                    
                    
                    3.03
                    %
                    
                    
                    
                    
                    
                    $
                    2,926
                    
                    
                    
                    3.06
                    %
 
 Net
interest income represents the excess of income on interest-earning assets over
interest expense on interest bearing liabilities.  The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable.  Interest-bearing liabilities primarily consist of FHLB
borrowings, time deposits, interest-bearing checking accounts (NOW accounts),
savings deposits and money market accounts.  Funds attracted by these
interest-bearing liabilities are invested in interest-earning
assets.  Accordingly, net interest income depends upon the volume of
average interest-earning assets and average interest bearing liabilities and the
interest rates earned or paid on them.
 
 Noninterest
Income.
 
 A
noninterest loss of $904,000 was recorded for the three months ended June 30,
2009.  This loss compares to $174,000 of income for the same period in
2008, a decrease of $1,078,000.  During the three months ended June
30, 2009 the Bank realized security losses of $1,015,000 and impairment of other
real estate owned of $365,000.  These losses were offset by a gain on
sale of loans of $124,000 and a gain on sale of servicing of loans of
$200,000.  With the FDIC's closing of Silverton Bank (the Bank's
correspondent bank), the Company realized a loss of $425,000 for a Silverton
holding company trust preferred security it owned.  The Bank also had
to write off $87,000 in Silverton's common stock it held.  In
addition, the Bank realized a loss of $503,000 of a private issue mortgage
backed security it owns.  During the three months ended June 30, 2008,
the Bank realized a gain on the sale of servicing of $112,000 and no losses in
noninterest income were experienced.
 
 Noninterest
losses for the six months ended June 30, 2009 were $844,000.  This
loss compares to $424,000 of income for the same period in 2008, a decrease of
$1,268,000.  The items detailed above account for the majority of this
period to period change although in 2008 the bank realized gains on the sale of
an interest rate contract of $168,000 and gains on the sale of servicing of
$112,000.
 
 The gains
on loans and servicing are related to loans that are partially guaranteed by an
agency of the United States government, such as the SBA (Small Business
Administration) and the USDA (United States Department of Agriculture).
Generally, we sell these loans neither because of credit quality deterioration
or liquidity but in order to mitigate the risk of early payoffs and thus the
risk of adverse impact on our net income.  Specifically, in case of a
government-guaranteed loan exceeding $1.5 million, we generally sell the
guaranteed portion and, at nearly the same time, acquire from an unrelated party
the guaranteed portion of several loans that are much smaller.  We
believe that by exchanging, in effect, the guaranteed portion of a large loan
for the guaranteed portion of several smaller loans we are spreading the risk of
an early pay-off.
  17
 
 Noninterest
Expense.
 
 Total
noninterest expense for the three months ended June 30, 2009, was $1,330,000,
compared to $1,162,000 for the same period in 2008, an increase of approximately
$168,000.  The majority of this increase was attributable to a
$118,000 increase in FDIC insurance (coupled with a special assessment by the
FDIC). Another $72,000 increase in building & equipment expense and a
$13,000 increase in data processing and software expense were related to the
opening of the Brandon branch in 2009.  These increases were offset by
a $31,000 decrease in OREO expense for the period and decreased correspondent
bank charges.
 
 Total
noninterest expense for the six months ended June 30, 2009, was $2,527,000,
compared to $2,300,000 for the same period in 2008, an increase of approximately
$227,000.  As described above, the majority of this increase $137,000
was attributable to the increased FDIC insurance
assessments.  Building & equipment expense increased $90,000 due
to the Brandon branch opening.
 
 Balance
Sheet Analysis
 
 The
following is a discussion of the consolidated balance sheet of the
Company.
 
 Total
Assets
 
 As of
June 30, 2009, total assets of the Company were $206,492,820 compared to
$209,298,254 at December 31, 2008, a decrease of $2.8 million.  The
decrease is primarily attributable to the $3.8 million increase in the Allowance
for Loan Losses, indentified in the Fed's Preliminary
Findings.   During this six month period deposits increased $6.2
million while other borrowings decreased $2.8 million, this net increase of $3.4
million was used to fund the purchase of $1.0 million of securities and increase
the bank's cash position at the Federal Reserve.
 
 Investment
Securities
  As
of June 30, 2009 the available-for-sale and held-to-maturity securities
comprised approximately 14.6% of the Company's assets. The Bank invests
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States and other taxable
securities.  In addition, the Bank enters into Federal Funds
transactions with its principal correspondent banks, and acts as a net seller of
such funds.  The sale of Federal Funds amounts to a short-term loan
from the Bank to another bank.
  The
following table presents, for the periods ended June 30, 2009 and December 31,
2008, the approximate market value of the Company's investments, classified by
category and by whether they are considered available-for-sale or
held-to-maturity (in thousands):
  Investment
Category
 
 June 30, 2009
                      
                      
                      December 31, 2008Available-for-Sale:U.S.
      agency bonds
                      
                      $
                      984
                      
                      
                      $
                      1,014Collateralized
      mortgage obligations
                      
                      
                      4,222
                      
                      
                      
                      4,708Mortgage-backed
      securities
                      
                      
                      2,399
                      
                      
                      
                      2,668Trust
      preferred & other corporate securities
                      
                      
                      6,608
                      
                      
                      
                      7,467Equity
      securities
                      
                      
                      1,895
                      
                      
                      
                      2,108Total
      Available-for-Sale Securities
                      
                      $
                      16,108
                      
                      
                      $
                      17,965
 18
 Held-to-Maturity
Securities:Corporate
      Securities
                      
                      $
                      690
                      
                      
                      $
                      550General
      obligation bonds of municipalities
                      
                      
                      7,452
                      
                      
                      
                      6,450Revenue
      bonds of municipalities
                      
                      
                      4,276
                      
                      
                      
                      4,451$
                      12,418
                      
                      
                      $
                      11,451Total
      Held-to-Maturity SecuritiesTotal Portfolio
                      
                      $
                      28,526
                      
                      
                      $
                      29,416
  Loans
Receivable
 The Bank
engages in a full complement of lending activities, including commercial,
consumer installment and real estate loans.
  Commercial
lending is directed principally towards businesses whose demands for funds fall
within the Company's legal lending limits and which are potential deposit
customers of the Bank.  These loans include loans obtained for a
variety of business purposes, and are made to individual, partnership or
corporate borrowers.  The Bank places particular emphasis on loans to
small and medium-sized businesses.
  The
Bank's consumer loans consist primarily of installment loans to individuals for
personal, family and household purposes, including automobile loans and
pre-approved lines of credit to individuals.  This category of loans
includes lines of credit and term loans secured by second mortgages on
residences for a variety of purposes, including home improvements, education and
other personal expenditures.
  The
Bank's real estate loans consist of residential and commercial first and second
mortgages.
  The
following table presents various categories of loans contained in the Bank's
loan portfolio as of June 30, 2009 and December 31, 2008 and the total amount of
all loans for such periods (in thousands):
 
 Type of Loan
                    
                    June 30, 2009
                    
                    
                    December 31, 2008Commercial
      real estate
                    
                    $
                    97,811
                    
                    
                    $
                    95,871Residential
      real estate
                    
                    
                    35,797
                    
                    
                    
                    34,663Construction
      loans
                    
                    
                    1,500
                    
                    
                    
                    4,379Commercial
      loans
                    
                    
                    28,238
                    
                    
                    
                    30,036Consumer
      loans
                    
                    
                    2,451
                    
                    
                    
                    2,581Subtotal
                    
                    
                    165,797
                    
                    
                    
                    167,530Allowance
      for loan losses
                    
                    
                    (5,107
                    )
                    
                    
                    (1,503
                    )Total
      (net of allowance)
                    
                    $
                    160,690
                    
                    
                    $
                    166,027
 
 Asset
Quality
 
 The Bank
has developed policies and procedures for evaluating the overall quality of our
credit portfolio and the timely identification of potential problem
loans.  The Bank's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events that it believes to be
reasonable, but which may or may not be valid.  Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the loan loss allowance will not be
required.
  19
  Asset
Classification.
 
 Commercial
banks are required to review and, when appropriate, classify their assets on a
regular basis.  The State of Florida and the Federal Reserve have the
authority to identify problem assets and, if appropriate, require them to be
classified.  There are six classifications for problem assets:
substandard, doubtful, and loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not
corrected.  Doubtful assets have the weaknesses of substandard assets
with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions, and
values questionable, and there is a high possibility of loss.  An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted.  If
an asset or portion thereof is classified as loss, the insured institution must
establish a specific reserve for the full amount of the portion of the asset
classified as loss.  All or a portion of general loss allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.  Assets that do not warrant classification in the
aforementioned categories, but possess weaknesses, must be classified as special
mention and monitored.
  The
following table presents information regarding non-accrual, past due and
restructured loans as of June 30, 2009 and December 31, 2008 (dollars in
thousands):
  
 June 30, 2009
                                    
                                    
                                    December 31, 2008Loans
      accounted for on a non-accrual basis:Number:
                                    
                                    Sixty-two
                                    
                                    
                                    Twenty-fourAmount:
                                    
                                    $
                                    15,407
                                    
                                    
                                    $
                                    7,289Accruing
      loans which are contractually past due 90 days or more as to principal and
      interest payments:Number:
                                    
                                    Four
                                    
                                    
                                    TwoAmount:
                                    
                                    $
                                    394
                                    
                                    
                                    $
                                    84Loans
      which were renegotiated to provide a reduction or deferral of interest or
      principal because of deterioration in the financial position of the
      borrower:Number:
                                    
                                    One
                                    
                                    
                                    OneAmount:
                                    
                                    $
                                    479
                                    
                                    
                                    $
                                    479Loans
      for which there are serious doubts as to the borrower's ability to comply
      with existing terms:Number:
                                    
                                    Thirty-seven
                                    
                                    
                                    TenAmount:
                                    
                                    $
                                    27,206
                                    
                                    
                                    $
                                    5,308
 
 At June
30, 2009, there were no loans classified for regulatory purposes as doubtful,
substandard or special mention that have not been disclosed in the above table,
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment
terms.
  20
 
 Allowance for Loan
Losses.
 
 The
allowance for loan losses is established through a provision for loan losses
charged against income.  Loans are charged against the allowance when
the Bank believes that the collectibility of principal is
unlikely.  The provision is an estimated amount that the Bank believes
will be adequate to absorb probable losses inherent in the loan portfolio based
on evaluations of its collectibility.  The evaluations take into
consideration such factors as changes in the nature and volume of the portfolio,
overall portfolio quality, specific problem loans and commitments, and current
anticipated economic conditions that may affect the borrower's ability to
pay.  While the Bank uses the best information available to recognize
losses on loans, future additions to the provision may be necessary based on
changes in economic conditions.
 
 A summary
of balances in the allowance for loan losses, nonperforming assets and key
ratios follows (dollars in thousands):
 
 For
      the Six
                                        
                                        
                                        For
      the TwelveMonths
      Ended
                                        
                                        
                                        Months
      EndedJune
      30,
                                        
                                        
                                        December,
      312009
                                        
                                        
                                        2008
                                        
                                        
                                        2008End
      of period loans (net of deferred fees)
                                        
                                        $
                                        165,798
                                        
                                        
                                        $
                                        159,154
                                        
                                        
                                        $
                                        167,530End
      of period allowance for loan losses
                                        
                                        $
                                        5,107
                                        
                                        
                                        $
                                        1,469
                                        
                                        
                                        $
                                        1,503%age
      of allowance for loan losses to total loans
                                        
                                        
                                        3.08
                                        %
                                        
                                        
                                        0.92
                                        %
                                        
                                        
                                        .90
                                        %Average
      loans for the period
                                        
                                        $
                                        173,166
                                        
                                        
                                        $
                                        157,705
                                        
                                        
                                        $
                                        162,671Net
      charge-offs as a percentage of average loansfor
      the period
                                        
                                        
                                        3.00
                                        %
                                        
                                        
                                        .10
                                        %
                                        
                                        
                                        .21
                                        %Nonperforming
      assetsNonaccrual
      loans
                                        
                                        $
                                        15,470
                                        
                                        
                                        $
                                        2,142
                                        
                                        
                                        $
                                        7,289Loans
      past due 90 days or more and still accruing
                                        
                                        $
                                        394
                                        
                                        
                                        $
                                        529
                                        
                                        
                                        $
                                        84Other
      real estate
                                        
                                        $
                                        2,121
                                        
                                        
                                        $
                                        2,070
                                        
                                        
                                        $
                                        2,815$
                                        17,879
                                        
                                        
                                        $
                                        4,741
                                        
                                        
                                        $
                                        10,188Nonperforming
      assets to period end loans
                                        
                                        
                                        10.85
                                        %
                                        
                                        
                                        2.98
                                        %
                                        
                                        
                                        6.08
                                        %Nonperforming
      assets to period end total assets
                                        
                                        
                                        8.71
                                        %
                                        
                                        
                                        2.33
                                        %
                                        
                                        
                                        4.87
                                        %
 
 Liquidity
and Capital Resources
 
 Liquidity
is the Company's ability to meet all deposit withdrawals immediately, while also
providing for the credit needs of customers. The June 30, 2009 financial
statements evidence a satisfactory liquidity position as total cash and cash
equivalents amounted to $6.2 million, representing 3% of total assets.
Investment securities, which amounted to $30.2 million or 14.6% of total assets,
provide a secondary source of liquidity because they can be converted into cash
in a timely manner. The Bank is a member of the Federal Reserve System and
maintains relationships with several correspondent banks and, thus, could obtain
funds from those banks on short notice. The Company's management closely
monitors and maintains appropriate levels of interest earning assets and
interest bearing liabilities, so that maturities of assets can provide adequate
funds to meet customer withdrawals and loan demand.
 
 Including
the adjustments identified in the Fed’s Preliminary Findings, the Bank’s capital
ratios as of June 30, 2009, compared to the minimum regulatory requirements were
as follows:
  21
 
 Bank's
                      
                      
                      Minimum
      RegulatoryJune 30, 2009
                      
                      
                      RequirementLeverage
      Ratio
                      
                      
                      4.0
                      %
                      
                      
                      4.0
                      %Total
      Risk Weighted ratio
                      
                      
                      6.7
                      %
                      
                      
                      8.0
                      %Tier
      1 Risk Weighted ratio
                      
                      
                      5.4
                      %
                      
                      
                      4.0
                      %
 
 In light
of the fact that for banks not rated a CAMELS 1, the regulators expect the
minimum leverage rate to be between 5.0% to 6.0%, and given that the Bank's
total weighted risk weighted ratio of 6.7% is below the required minimum,
the Bank is considered to be undercapitalized.
 
 Based on
the Federal Reserve’s Preliminary Findings, by letter dated August 5, 2009, the
Federal Reserve did deem the Bank to be in “troubled condition” and requested
that the Bank submit, on or before August 25, 2009, a capital restoration plan
that is acceptable.  The plan must specify the steps that the Bank
will take to become adequately capitalized and be based on realistic
assumptions.  The Company is currently in the process of preparing
such plan for timely submission to the Federal
Reserve.  Preliminarily, the Company is contemplating conducting, in
the next 60-90 days, a $4.0 million to$5.0 million private placement or other
offering of equity securities.
 
 There is
no assurance that this capital restoration plan would be accepted by the Federal
Reserve and, if accepted, that the Company would be successful in implementing
the private placement or other offering.  If the plan is accepted and
the Company is successful in implementing such plan, the private placement or
other offering is likely to have a dilutive effect on the existing
shareholders.  Moreover, even if the capital restoration plan is
accepted when submitted to the Federal Reserve, the adjustments mandated by the
final examination report and the provisions of the Proposed Written Agreement
might cause the Federal Reserve to require that the Company modify such capital
restoration plan.  If the ultimate applicable capital restoration plan
is not accepted by the Federal Reserve, or if the Company is not successful in
implementing an acceptable plan, the Federal Reserve will have the statutory
authority to impose on the Bank other corrective actions, including forcing a
sale of the Bank or dismissing directors or senior executive
officers.
 
 Other
than as stated above, the Company knows of no trends, demands, commitments,
events or uncertainties that will result in or are reasonably likely to result
in its liquidity increasing or decreasing in any material way.
 
 In the
normal course of business, the Bank has various commitments outstanding to
extend credit in the form of unused loan commitments and standby letters of
credit that are not reflected in the Company’s consolidated financial
statements.  Since these commitments may expire without being
exercised, they do not necessarily represent future funding
requirements.  The Bank uses the same credit and collateral policies
in making commitments as those it uses in making loans.
 
 As of
June 30, 2009, the Bank had outstanding loan commitments of approximately
$6.2 million and outstanding letters of credit of approximately $133
thousand.  Various assets collateralize the majority of these
commitments.  The Bank does not anticipate that it will suffer any
material losses as a result of these transactions.
 
 Item
3:  Quantitative and Qualitative Disclosure About Market
Risk
 
 Not
applicable.
  22
 
 Item
4T.  Controls and Procedures
 
 Evaluation of
Disclosure Controls and Procedures.
 
 The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.  Based upon management’s
evaluation of those controls and procedures performed within the 90 days
preceding the filing of this Report, the Chief Executive Officer and Chief
Financial Officer of the Company concluded that, subject to the limitations
noted below, the Company’s disclosure controls and procedures (as defined in
Rule 13a-14 under the Securities Exchange Act of 1934) are effective to ensure
that the information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
  Changes in Internal Controls
Over Financial Reporting.
  There
have been no changes in the Company’s internal control over financial reporting
during the first quarter of 2009 that have materially affected or are reasonably
likely to materially affect the Company’s internal control over financial
reporting.
 
 Limitations on the
Effectiveness of Controls.
  Our
management (including our Chief Executive Officer and Chief Financial Officer)
does not expect that our financial reporting, disclosure controls and other
internal controls will prevent all errors and all fraud.  A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.  These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override or the control.
  The
design of the system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.  Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
 
 PART
II. OTHER INFORMATION
 
 Item
1.   Legal Proceedings
 
 There
have been no material changes to the pending legal proceedings to which the
Company or the Bank is a party since the filing of the Registrant’s Form 10-K
for the year ended December 31, 2008.
 
 Item 1A.  Risk
Factors
 
 Not
applicable.
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
  Not
Applicable.
  23
  Item
3.   Defaults Upon Senior Securities
  Not
Applicable.
 
 Item
4.   Submission of Matters to a Vote of Security
Holders
 
 The
Company held its 2009 Annual Meeting of Shareholders on May 14,
2009.  The following directors were elected at the annual meeting to
serve a three year term:
 
 For
                        
                        
                        Withheld/AbstentionsMichael
      S. Glasgow
                        
                        
                        1,471,280
                        
                        
                        
                        3,733Barclay
      Kirkland, DDS
                        
                        
                        1,471,190
                        
                        
                        
                        3,823Bruce
      E. Shackelford
                        
                        
                        1,471,280
                        
                        
                        
                        3,733
 
 The
following directors did not stand for reelection at the 2009 Annual Meeting of
Shareholders as their term of office continued after the Annual Meeting: Charles
S. Conoley, C. Donald Miller, David K. Scherer, Elizabeth Thomason DMD, Mary Ann
Turner and Clarence R. Urban.
 
 A vote
was taken to ratify the appointment of Francis & Co., CPA's as independent
auditors for the fiscal year ending December 31, 2009.  The
appointment was approved by the following votes:  1,470,689 for and
4,323 against/abstentions.
 
 Item
5.   Other Information
 None
 
 Item
6.   Exhibits
 
 31.1
                
                Certification
      of Chief Executive Officer31.2
                
                Certification
      of Chief Financial Officer32.1
                
                Certification
      Pursuant to 18 U.S.C. Section 1350 as Adopted
                  Pursuant
      to Section 906 of the Sarbanes-Oxley Act of 200232.2
                
                Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
 
 SIGNATURES
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 /s/ Charles S. ConoleyCharles
      S. ConoleyPresident
      and Chief Executive Officer(Principal
      Executive Officer)/s/ Kathleen M. JepsonKathleen
      M. JepsonSenior
      Vice President and Chief Financial Officer(Principal
      Financial and Accounting
Officer)
 
 Date:
August 14, 2009
  24