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 March 31, 2010




 ̈
            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
                
                65-0840545(State
      or Other Jurisdiction of
                
                (IRS
      EmployerIncorporation
      or Organization)
                
                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 x  No  ̈




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 $0.01 Par Value as of May 6, 2010: Issued 1,809,912 Shares; Outstanding:
1,770,139 Shares








Index





Part
      I. Financial InformationItem
      1.  Financial Statements (unaudited)Consolidated
      Balance Sheets as of March 31, 2010 and December 31, 2009
                    
                    3Consolidated
      Statements of Operations for the Three Months Ended March 31, 2010 and
      2009
                    
                    4Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2010 and
      2009
                    
                    5Consolidated
      Statements of Changes in Shareholders' Equity for the Three Months Ended
      March 31, 2010 and 2009
                    
                    6Notes
      to Consolidated Financial Statements
                    
                    7Item
      2.  Management's Discussion and Analysis of Financial Conditions
      and Results of Operations
                    
                    13Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
                    
                    24Item
      4T.  Controls and Procedures
                    
                    24Part
      II.       Other InformationItem
      1.  Legal Proceedings
                    
                    26Item
      1A. Risk Factors
                    
                    26Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                    
                    26Item
      3.  Defaults Upon Senior Securities
                    
                    26Item
      4.  Submission of Matters to a Vote of Security
      Holders
                    
                    26Item
      5.  Other Information
                    
                    26Item
      6.  Exhibits
                    
                    26







PART
I - FINANCIAL INFORMATION




Item 1.  Financial
Statements.





HORIZON
BANCORPORATION, INC.


Consolidated
Balance Sheets





March 31,
                    2010
                    (Unaudited)
                  
                  
                  December 31,
                    2009ASSETSCash
      and cash equivalentsCash
      and due from banks
                  
                  $
                  10,574,103
                  
                  
                  $
                  9,719,612Federal
      funds sold
                  
                  
                  —0—
                  
                  
                  
                  —0—Total
      cash and cash equivalents
                  
                  
                  10,574,103
                  
                  
                  
                  9,719,612Securities:Held
      to maturity, at amortized cost
                  
                  
                  10,909,566
                  
                  
                  
                  11,462,744Available-for-sale
      at fair value
                  
                  
                  12,450,146
                  
                  
                  
                  13,080,811Loans
      held for sale
                  
                  
                  —0—
                  
                  
                  
                  1,262,199Loans
      receivable, net
                  
                  
                  143,718,949
                  
                  
                  
                  151,127,759Property
      and equipment, net
                  
                  
                  3,665,084
                  
                  
                  
                  3,698,502Other
      real estate owned
                  
                  
                  6,776,662
                  
                  
                  
                  2,579,138Other
      assets
                  
                  
                  7,027,815
                  
                  
                  
                  6,568,241$
                  195,122,325
                  
                  
                  $
                  199,499,006LiabilitiesDepositsNoninterest-bearing
                  
                  $
                  11,415,503
                  
                  
                  $
                  9,686,614Interest-bearing
                  
                  
                  160,749,781
                  
                  
                  
                  164,889,658Total
      deposits
                  
                  
                  172,165,284
                  
                  
                  
                  174,576,272Federal
      Home Loan Bank borrowings
                  
                  
                  18,000,000
                  
                  
                  
                  18,000,000Note
      Payable
                  
                  
                  1,025,205
                  
                  
                  
                  1,065,205Other
      liabilities
                  
                  
                  35,232
                  
                  
                  
                  190,368Total
      liabilities
                  
                  
                  191,225,721
                  
                  
                  
                  193,831,845Shareholders'
      equityPreferred
      stock,  $.01 par value 1,000,000 shares authorized;
      none outstanding
                  
                  
                  -Treasury
      stock  outstanding 39,733 shares at March 31, 2010
      and December 31, 2009
                  
                  
                  (479,393
                  )
                  
                  
                  (479,393
                  )Common
      stock, $.01 par value 25,000,000 shares authorized; 1,809,912 Issued and
      1,770,139 outstanding at March 31, 2010 and December 31,
    2009
                  
                  
                  18,099
                  
                  
                  
                  18,099Additional
      paid in capital
                  
                  
                  10,440,895
                  
                  
                  
                  10,428,214Retained
      earnings
                  
                  
                  (5,877,088
                  )
                  
                  
                  (4,006,176
                  )Accumulated
      other comprehensive income (loss), net of tax
                  
                  
                  (205,909
                  )
                  
                  
                  (293,583
                  )Total
      shareholders' equity
                  
                  
                  3,896,604
                  
                  
                  
                  5,667,161$
                  195,122,325
                  
                  
                  $
                  199,499,006





See
accompanying notes to the financial statements


3


HORIZON
BANCORPORATION, INC.


Consolidated
Statements of Operations (Unaudited)





Three
      Months Ended March 31,2010
                  
                  
                  2009Interest
      incomeInterest
      and fees on loans
                  
                  $
                  2,285,300
                  
                  
                  $
                  2,711,003Interest
      on investment securities
                  
                  
                  277,350
                  
                  
                  
                  416,742Interest
      on federal funds
                  
                  
                  3,267
                  
                  
                  
                  782Total
      interest income
                  
                  
                  2,565,917
                  
                  
                  
                  3,128,527Interest
      expenseInterest
      on deposits
                  
                  
                  852,127
                  
                  
                  
                  1,329,086Interest
      on borrowings
                  
                  
                  210,393
                  
                  
                  
                  277,559Total
      interest expense
                  
                  
                  1,062,520
                  
                  
                  
                  1,606,645Net
      interest income
                  
                  
                  1,503,397
                  
                  
                  
                  1,521,882Provision
      for loan losses
                  
                  
                  2,697,973
                  
                  
                  
                  220,000Net
      interest income after provision for loan losses
                  
                  
                  (1,194,576
                  )
                  
                  
                  1,301,882Other
      incomeGain
      on sales of loans
                  
                  
                  200,000
                  
                  
                  
                  —0—Impairment
      loss, other real estate owned
                  
                  
                  (246,276
                  )
                  
                  
                  (1,631
                  )Impairment
      loss, securities
                  
                  
                  (61,081
                  )
                  
                  
                  —0—Gain
      on sale of servicing assets
                  
                  
                  —0—
                  
                  
                  
                  —0—Gain
      on sale of other assets
                  
                  
                  —0—
                  
                  
                  
                  7,500Gain
      on sale of  securities
                  
                  
                  995
                  
                  
                  
                  —0—Service
      charges on deposit accounts
                  
                  
                  20,815
                  
                  
                  
                  18,896Loan
      servicing income
                  
                  
                  48,570
                  
                  
                  
                  —0—Miscellaneous
      , other
                  
                  
                  52,815
                  
                  
                  
                  35,234Total
      other income
                  
                  
                  15,838
                  
                  
                  
                  59,999Other
      expensesSalaries
      and benefits
                  
                  
                  637,504
                  
                  
                  
                  629,398Building
      and equipment expense
                  
                  
                  237,584
                  
                  
                  
                  198,591Professional
      fees
                  
                  
                  142,531
                  
                  
                  
                  49,979FDIC
      insurance expense
                  
                  
                  188,922
                  
                  
                  
                  34,107Data
      processing and software expense
                  
                  
                  87,510
                  
                  
                  
                  94,637Other
      operating expense
                  
                  
                  275,752
                  
                  
                  
                  190,404Total
      operating expense
                  
                  
                  1,569,803
                  
                  
                  
                  1,197,116Income/(loss)
      before income taxes
                  
                  
                  (2,748,541
                  )
                  
                  
                  164,765Income
      tax expense/(benefit)
                  
                  
                  (877,629
                  )
                  
                  
                  21,510Net
      Income/(loss)
                  
                  $
                  (1,870,912
                  )
                  
                  $
                  143,255Basic
      income/(loss)  per share
                  
                  $
                  (1.06
                  )
                  
                  $
                  0.08Diluted
      income/(loss) per share
                  
                  $
                  (1.06
                  )
                  
                  $
                  0.08




See
accompanying notes to the financial statements


4


HORIZON
BANCORPORATION, INC.


Consolidated
Statements of Cash Flows (Unaudited)





For the
                    Three months
                    ended
                    March 31, 2010
                  
                  
                  For the
                    Three months
                    ended
                    March 31, 2009Cash
      flows from operating activitiesNet
      cash provided by operating activities
                  
                  $
                  (1,871,693
                  )
                  
                  $
                  (4,223,496
                  )Cash
      flows from investing activitiesProceeds
      from sale of other assets
                  
                  
                  97,769
                  
                  
                  
                  164,265Proceeds
      from sale of loans
                  
                  
                  4,200,000
                  
                  
                  
                  —0—Purchase
      of securities held to maturity
                  
                  
                  —0—
                  
                  
                  
                  (1,019,875
                  )Purchase
      of securities available for sale
                  
                  
                  —0—
                  
                  
                  
                  —0—Proceeds
      from sale of securities
                  
                  
                  551,115
                  
                  
                  
                  —0—Proceeds
      from maturities and principal repayments of securities available for
      sale
                  
                  
                  157,897
                  
                  
                  
                  137,660(Purchase)/Repayment
      of Federal Home Loan Bank Stock
                  
                  
                  —0—
                  
                  
                  
                  103,250(Increase)/decrease
      in Other real estate owned
                  
                  
                  (4,542,569
                  )
                  
                  
                  165,896Loan
      originations, net
                  
                  
                  4,710,837
                  
                  
                  
                  (646,753
                  )Property
      and equipment expenditures, net
                  
                  
                  2,123
                  
                  
                  
                  (139,474
                  )Net
      cash provided (used) by investing activities
                  
                  
                  5,177,172
                  
                  
                  
                  (1,235,031
                  )Cash
      flows from financing activitiesExercise
      of warrants and options
                  
                  
                  —0—
                  
                  
                  
                  9,312Increase/(decrease)  in
      deposits
                  
                  
                  (2,410,988
                  )
                  
                  
                  15,285,339Increase/(decrease)
      in fed funds purchased
                  
                  
                  —0—
                  
                  
                  
                  —0—Increase/(decrease)
      in borrowings, net
                  
                  
                  —0—
                  
                  
                  
                  (3,000,000
                  )Increase/(decrease)  in
      Note Payable by Parent
                  
                  
                  (40,000
                  )
                  
                  
                  225,000Purchase
      of treasury stock
                  
                  
                  —0—
                  
                  
                  
                  —0—Net
      cash provided by financing activities
                  
                  
                  (2,450,988
                  )
                  
                  
                  12,519,651Net
      change in cash and cash equivalents
                  
                  
                  854,491
                  
                  
                  
                  7,061,124Cash
      and cash equivalents at beginning of period
                  
                  
                  9,719,612
                  
                  
                  
                  2,383,783Cash
      and cash equivalents at end of period
                  
                  $
                  10,574,103
                  
                  
                  $
                  9,444,907





See
accompanying notes to the financial statements


5


HORIZON BANCORPORATION, INC.


Consolidated
Statements of Changes in Shareholders' Equity (Unaudited)


for the
Three-month periods ended March 31, 2010 and 2009





Paid
      in
                                        
                                        
                                        Retained
                                        
                                        
                                        AccumulatedCommon
      Stock
                                        
                                        
                                        Treasury
                                        
                                        
                                        Capital
                                        
                                        
                                        Earnings
                                        
                                        
                                        OtherShares
                                        
                                        
                                        Par
      Value
                                        
                                        
                                        Stock
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        Income
                                        
                                        
                                        TotalBalance,
      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, Three-month period ended March 31, 2009
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        143,255
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        143,255Net
      unrealized gain on securities, Three-month period ended March 31,
      2009
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        262,640
                                        
                                        
                                        
                                        262,640Total
      comprehensive income/(loss) net of tax
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        405,895Exercise
      of warrants
                                        
                                        
                                        1,693
                                        
                                        
                                        
                                        17
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,295
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,312Stock
      Based Compensation
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        15,000
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        15,000Balance,
      March 31, 2009
                                        
                                        
                                        1,770,139
                                        
                                        
                                        $
                                        18,099
                                        
                                        
                                        $
                                        (479,393
                                        )
                                        
                                        $
                                        10,383,214
                                        
                                        
                                        $
                                        4,259,857
                                        
                                        
                                        $
                                        (957,040
                                        )
                                        
                                        $
                                        13,224,737Balance,
      December 31, 2009
                                        
                                        
                                        1,770,139
                                        
                                        
                                        $
                                        18,099
                                        
                                        
                                        $
                                        (479,393
                                        )
                                        
                                        $
                                        10,428,214
                                        
                                        
                                        $
                                        (4,006,176
                                        )
                                        
                                        $
                                        (293,583
                                        )
                                        
                                        $
                                        5,667,161Comprehensive
      Income:Net
      income, Three-month period ended March 31, 2010
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1,870,912
                                        )
                                        
                                        
                                        —
                                        
                                        
                                        
                                        (1,870,912
                                        )Net
      unrealized gain on securities, Three-month period ended March 31,
      2010
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        87,674
                                        
                                        
                                        
                                        87,674Total
      comprehensive income/(loss) net of tax
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,783,238
                                        )Stock
      Based Compensation
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        12,681
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        12,681Balance,
      March 31, 2010
                                        
                                        
                                        1,770,139
                                        
                                        
                                        $
                                        18,099
                                        
                                        
                                        $
                                        (479,393
                                        )
                                        
                                        $
                                        10,440,895
                                        
                                        
                                        $
                                        (5,877,088
                                        )
                                        
                                        $
                                        (205,909
                                        )
                                        
                                        $
                                        3,896,604


6


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 March 31, 2010, 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, 2009 included
in Horizon Bancorporation, Inc.'s Form 10-K.





The
consolidated financial statements include the accounts of the Company and its
subsidiary.  Significant intercompany transactions and balances have
been eliminated in consolidation.





In
preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.





Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate, contingent assets and liabilities and
deferred tax assets.





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. This $250,000 limit is set to expire on December 31, 2013 and revert back
to $100,000 unless extended or voted in permanently by an act of
Congress.  The Bank has also chosen to opt in to the FDIC's "Temporary
Liquidity Guarantee Program" for unlimited deposit insurance coverage for
non-interest bearing transaction accounts.  This coverage is available
until June 30, 2010.





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 March 31, 2010, and December 31, 2009,
there were 1,809,912 shares issued respectively. As of March 31, 2010 and
December 31, 2009 there were1,770,139 shares outstanding, respectively.
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. Effective October 22, 2009, the Board of Directors
did designate, by amending the Company’s Articles of Incorporation, a series of
preferred stock.  The series, designated as Series A Preferred Stock,
consists of 5,000 shares with a liquidation preference of $1,000 per
share.  The shares of Series A Preferred Stock are, as of the date of
this Report, being offered for sale by the Company in a private
offering.  Further details about the offering are set forth in Note 9
and Part I, Item 2 of this Report. As of March 31, 2010, and December 31, 2009,
there were no shares of the Company's preferred stock issued or
outstanding.


7





NOTE
3 – LOANS RECEIVABLE





Loans
receivable consist of the following:





March 31,
                      2010
                    
                    
                    December 31,
                      2009Real
      estate – commercial
                    
                    $
                    92,288,381
                    
                    
                    $
                    97,783,166Real
      estate – construction
                    
                    
                    1,010,552
                    
                    
                    
                    1,369,987Real
      estate – residential
                    
                    
                    36,085,683
                    
                    
                    
                    37,438,678Commercial
                    
                    
                    17,098,495
                    
                    
                    
                    17,217,611Consumer
                    
                    
                    2,554,392
                    
                    
                    
                    2,049,597Loans,
      gross
                    
                    
                    149,037,503
                    
                    
                    
                    155,859,039Deduct
      allowance for loan losses
                    
                    
                    (5,318,554
                    )
                    
                    
                    (4,731,280
                    )Loans,
      net
                    
                    $
                    143,718,949
                    
                    
                    $
                    151,127,759





Activity
in the allowance for loan losses for the three months ended March 31, are as
follows





2010
                    
                    
                    2009Balance
      at beginning of period
                    
                    $
                    4,731,280
                    
                    
                    $
                    1,502,823Provision
      for loan losses
                    
                    
                    2,697,973
                    
                    
                    
                    220,000Loans
      charged-off
                    
                    
                    (2,138,045
                    )
                    
                    
                    (70,522
                    )Recoveries
                    
                    
                    27,346
                    
                    
                    
                    —0—Balance
      at end of period
                    
                    $
                    5,318,554
                    
                    
                    $
                    1,652,301




NOTE
4 – SECURITIES HELD-TO-MATURITY




Information
pertaining to securities with gross unrealized losses at March 31, 2010,
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,
      County and Municipal
                
                $
                529,707
                
                
                $
                (944
                )
                
                $
                6,179,713
                
                
                $
                (831,985
                )
                
                $
                6,709,420
                
                
                $
                (832,929
                )Corporate
      Securities
                
                
                —0—
                
                
                
                —0—
                
                
                
                853,200
                
                
                
                (76,800
                )
                
                
                853,200
                
                
                
                (76,800
                )Total
                
                $
                529,707
                
                
                $
                (944
                )
                
                $
                7,032,913
                
                
                $
                (908,785
                )
                
                $
                7,562,620
                
                
                $
                (909,729
                )




At March
31, 2010, unrealized losses on held-to-maturity securities amounted to $909,729,
representing 8.3% 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.


8





NOTE
5 – SECURITIES AVAILABLE FOR SALE




Information
pertaining to securities with gross unrealized losses at March 31, 2010,
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
                        
                        $
                        1,982,450
                        
                        
                        $
                        (10,722
                        )
                        
                        $
                        —0—
                        
                        
                        $
                        —0—
                        
                        
                        $
                        1,982,450
                        
                        
                        $
                        (10,722
                        )Collateralized
      Mortgage obligations
                        
                        
                        298,804
                        
                        
                        
                        (239
                        )
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        298,804
                        
                        
                        
                        (239
                        )Mortgage
      backed securities
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        774,178
                        
                        
                        
                        (118,567
                        )
                        
                        
                        774,178
                        
                        
                        
                        (118,567
                        )Trust
      preferred securities & other corporate
      notes
                        
                        
                        —0—
                        
                        
                        
                        —0—
                        
                        
                        
                        1,118,080
                        
                        
                        
                        (333,900
                        )
                        
                        
                        1,118,080
                        
                        
                        
                        (333,900
                        )Total
                        
                        $
                        2,281,254
                        
                        
                        $
                        (10,961
                        )
                        
                        $
                        1,892,258
                        
                        
                        $
                        (452,467
                        )
                        
                        $
                        4,173,512
                        
                        
                        $
                        (463,428
                        )





At
March 31, 2010, unrealized losses in the securities portfolio amounted to
$463,428, representing 3.7% of the total available for sale portfolio.
Generally, 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.  During the first three months of 2010,
management noted a decline in the credit quality of two private issue mortgage
backed securities held in the portfolio.  Management recognized an
impairment loss of $61,081 during the period with regards to these two
securities.





NOTE
6 - EARNINGS PER SHARE





The
following summarizes the computation of basic and diluted earnings per
share.


Three
      Months Ended
                            March
      31, 2010
                          
                          
                          Three
      Months Ended
                            March
      31, 2009Basic
      earnings/(loss) per shareNet
      income/(loss) applicable to common stock
                          
                          $
                          (1,870,912
                          )
                          
                          $
                          143,254Weighted
      average shares outstanding
                          
                          
                          1,770,139
                          
                          
                          
                          1,770,045Basic
      earnings/(loss) per share
                          
                          $
                          (1.06
                          )
                          
                          $
                          0.08Diluted
      earnings/(loss) per shareNet
      income/(loss) applicable to common stock
                          
                          $
                          (1,870,912
                          )
                          
                          $
                          143,254Weighted
      average shares outstanding
                          
                          
                          1,770,139
                          
                          
                          
                          1,770,045Dilutive
      effect of assumed exercise of stock options/warrants
                          
                          
                          —0—
                          
                          
                          
                          31,432Diluted
      average shares outstanding
                          
                          
                          1,770,139
                          
                          
                          
                          1,801,477Diluted
      earnings/(loss) per share
                          
                          $
                          (1.06
                          )
                          
                          $
                          0.08




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;


9





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).




The
following table summarizes fair value measurements as of March 31, 2010: (in
thousands)





Fair Value Measurements
    UsingQuoted Prices in
                          Active Markets
                          for Identical
                          Assets
                        
                        
                        Significant Other
                          Observable Input
                        
                        
                        Significant
                          Unobservable
                          InputsDescriptions
                        
                        3/31/2010
                        
                        
                        (Level 1)
                        
                        
                        (Level 2)
                        
                        
                        (Level 3)Available-for-sale
      securities
                        
                        $
                        12,450
                        
                        
                        $
                        —
                        
                        
                        $
                        6,668
                        
                        
                        $
                        5,782Impaired
      Loans
                        
                        $
                        33,801
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        33,801Total
                        
                        $
                        46,251
                        
                        
                        $
                        —
                        
                        
                        $
                        6,668
                        
                        
                        $
                        39,583





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




Effective
July 1, 2009, the Company adopted a new accounting guidance related to U.S. GAAP
[FASB Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting
Principles].  This guidance establishes FASB ASC as the source
of authoritative U.S. GAAP recognized by FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants.  FASB ASC
supersedes all existing non-SEC accounting and reporting
standards.  All other non-grandfathered, non-SEC accounting literature
not included in the ASC has become non-authoritative.  FASB will no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASU”), which will serve to update the ASC, provide
background information about the guidance, and provide the basis for conclusions
on the changes to the ASC.  The ASC is not intended to change U.S.
GAAP or any requirements of the SEC.  This guidance is effective for
the Company as of December 31, 2009.


10




In April
2009, the FASB issued the following three FASB Staff Position (“FSPs”) intended
to provide additional application guidance and enhance disclosures regarding
fair value measurements and impairments of securities.




1)  FSP
SFAS No. 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,”
codification standard ASC 820-10-65-4 (“ASC 820”), transition related to FSP
SFAS No. 157-4, provides additional guidance for estimating fair value in
accordance with ASC 820 when the volume and level of activity for the asset or
liability have decreased significantly.  This ASC also provides
guidance on identifying circumstances that indicate a transaction is not
orderly.  The provisions of this ASC are effective for the Company’s
interim period ending on June 30, 2009.  The adoption of ASC 820 at
June 30, 2009 did not have a material impact on this Company’s financial
condition or results of operations.




2)  FSP
SFAS No. 107-1 and APB 28-1,  “Interim Disclosures about Fair
Value of Financial Instruments,” codification standard ASC 825-10-65-1,
transition related to FSP SFAS No. 107-1 and APB 28-1, requires disclosures
about fair value of financial instruments in interim reporting periods of
publicly traded companies that were  previously only required to be
disclosed in annual financial statements.  The provisions of this ASC
are effective for the Company’s interim period ending on June 30, 2009, and only
amend the disclosure requirements about fair value of financial instruments in
interim periods.




3)  FSP
SFAS No. 115-2 and SFAS No. 124-2,  “Recognition and Presentation of
Other-Than-Temporary Impairments,”codification standard ASC 320-10-65-1,
transition related to FSP SFAS No 115-2 and SFAS No. 124-2, amends current
other-than-temporary impairment guidance in GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  This ASC does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities.  The provisions of this ASC are effective for the
Company’s interim period ending on June 30, 2009.  Adoption of this
provision had a material impact on the Company’s financial condition or results
of operations.




In May
2009, the FASB issued SFAS no. 165, “Subsequent Events,”
codification standard ASC 855.  ASC 855 establishes general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued.  In particular, this statement sets forth:  (1) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date.  The Company adopted this standard effective for
the quarterly period ended June 30, 2009, and its adoption had no material
impact on the Company’s financial condition or results of
operations.




In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurements and
Disclosures,”codification standard ASC 820.  This ASU provides
amendments for fair value measurements of liabilities.  It provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more techniques.  ASU 2009-05 also
clarifies that when estimating a fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability.  ASU 2009-05 is effective for the first reporting period
(including interim periods) beginning after issuance of fourth quarter 2009
financial statement information.  The Company is assessing the impact
of ASU 2009-05 on its financial condition, results of operations, and
disclosures.




Other
accounting standards that have been issued or proposed by the FASB or other
standard-setting bodies are not expected to have a material impact on the
Company’s financial statements.


11




NOTE
9 –GOING CONCERN




As
described in detail under Item 2. - Management Discussion and Analysis
of Financial Condition and Results of Operations, the Company faces a
number of challenges that may be difficult to meet in a timely
manner.  These challenges include, but are not limited to, the
achievement of full compliance with the requirements of the PCA Directive, the
Written Agreement, as well as the payment or further extension of the Company’s
$1.1 million loan from 1st Manatee
Bank secured by 100% of the Bank’s common stock.  To meet these
challenges, a minimum of approximately $10.0 million of additional capital
raised by means of the Offering will be necessary.




The
Company’s ability to raise additional capital will depend on conditions in the
capital markets at this time, which are outside the Company’s control, and on
the Company’s financial performance.  Accordingly, the Company cannot
be certain of its ability to raise additional capital if needed or on terms
acceptable to the Company.  Inability to raise additional capital when
needed or comply with the terms of the PCA Directive, the Written Agreement and
the loan from 1st Manatee
Bank  raise substantial doubt about the Company’s ability to continue
as a going concern.




The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future, and do
not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets, and the amounts of classification of
liabilities that may result from the outcome of any regulatory action including
being placed into receivership or conservatorship.


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  Written Agreement described
      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).




Recent
Developments




1.  Regulatory Enforcement
Actions.




As
previously reported, for the last twelve months, similar to other financial
institutions, our business, financial condition, credit performance from loans
and operating results have been adversely affected by dramatic declines in the
real estate and capital markets in Manatee County.  As a result,
writeoffs and writedowns of loans and securities held for investment and
additions to the Bank’s Allowance for Loan and Lease Losses (“ALLL”) have caused
the Bank’s main three regulatory ratios to decline
significantly.  Following is a summary of the three ratios as of the
end of the quarters indicated and the corresponding status of the Bank under the
relevant designations established by the Board of Governors of the Federal
Reserve System (the “Board of Governors”).


14





Name of Ratio
                                            
                                            Ratio
                                            
                                            Corresponding Status6/30/09Leverage
      Ratio
                                            
                                            4.0
                                            %
                                            UndercapitalizedTotal
      Risk Assets-Based Ratio
                                            
                                            6.7
                                            %Tier
      1 Risk Assets-Based Ratio
                                            
                                            5.4
                                            %9/30/09Leverage
      Ratio
                                            
                                            4.1
                                            %
                                            UndercapitalizedTotal
      Risk Assets-Based Ratio
                                            
                                            6.9
                                            %Tier
      1 Risk Assets-Based Ratio
                                            
                                            5.6
                                            %12/31/09Leverage
      Ratio
                                            
                                            2.6
                                            %
                                            SignificantlyTotal
      Risk Assets-Based Ratio
                                            
                                            4.9
                                            %
                                            UndercapitalizedTier
      1 Risk Assets-Based Ratio
                                            
                                            3.6
                                            %3/31/10Leverage
      Ratio
                                            
                                            1.3
                                            %
                                            CriticallyTotal
      Risk Assets-Based Ratio
                                            
                                            3.1
                                            %
                                            UndercapitalizedTier
      1 Risk Assets-Based Ratio
                                            
                                            1.8
                                            %




The
deterioration in the Bank’s capital position has given rise to several
regulatory enforcement actions followed by responses from the Company and the
Bank.  Specifically:




·
            Based
      on the findings of the May 25, 2009 examination of the Bank by Federal
      Reserve Bank of Atlanta (the “Atlanta Fed”) and the Florida Office of
      Financial Regulation (the “OFR”), the Atlanta
  Fed




-
            by
      letter, dated May 28, 2009, prohibited, without prior approval, the
      incurring by the Company of any indebtedness, the purchasing or redeeming
      by the Company of any stock and the taking by the Company of any payment
      from the Bank representing a reduction in the Bank’s capital;
      and




-
            by
      letter, dated August 5, 2009, declared the Bank to be undercapitalized,
      required the Bank to submit a capital restoration plan and prohibited,
      without prior approval, the Bank from paying dividends, growing in total
      assets and expanding by acquisition, branching or new lines of
      business.




·
            In
      response, we submitted, on August 20, 2009, a capital restoration plan,
      which was deemed not to be acceptable by the Atlanta Fed on September 28,
      2009.  We then submitted, on October 9, 2009, a revised capital
      restoration plan, which was deemed not to be acceptable by the Atlanta Fed
      on January 27, 2010.




·
            On
      November 4, 2009, the Bank entered into a written agreement with the
      Atlanta Fed and the OFR (the “Written Agreement”).  As
      previously reported, under the Written Agreement, the Bank agreed to
      submit a host of written plans, conduct an independent review of its loan
      portfolio and several other measures, including another capital
      enhancement plan.  As of the date of this Report, the Bank has
      complied with all of the provisions of the Written Agreement and has not
      yet received a response to the capital enhancement plan
      submitted.




On
March 4, 2010, the Board of Governors issued to the Bank a Prompt Corrective
Action Directive Pursuant to Section 38 of the Federal Deposit Insurance Act, as
Amended (the “PCA”).  The PCA directed that the Bank immediately take
the following actions:




·
            No
      later than 45 days after the PCA, i.e. on or before April 19, 2010, (i)
      increase the Bank’s equity through sale of shares or contributions to
      surplus sufficient to make the Bank adequately capitalized, (ii) enter
      into or close a contract whereby the Bank is acquired by another financial
      institution or (iii) take other necessary measures to make the Bank
      adequately capitalized;




·
            Refrain
      from making any capital distributions, including
  dividends.




·
            Refrain
      from soliciting or accepting new deposits or renewing existing deposits
      bearing an interest rate that exceeds the prevailing rates on deposits in
      the Bank’s market area; and


15




·
            Comply
      with provisions of the FDI Act relating to transactions with affiliates,
      restricting payment of bonuses to senior executive officers and
      restricting asset growth, acquisitions branching and new lines of
      business.




As
previously reported, on March 22, 2010, we filed an appeal of the PCA with the
Board of Governors.  As of the date of this Report, we have received
no response from the Board of Governors with respect to the appeal.




In
March 2010, the Atlanta Fed and the OFR conducted another examination of the
Bank (the “March 2010 Examination”).  Based on the preliminary results
of the March 2010 Examination, the Bank amended its December 31, 2009 and its
March 31, 2010 Call Reports to further reduce its regulatory
capital.  The March 31, 2010 Call Report and the financial statements
included in this Report do not reflect an approximately $179,028 ($2,877,001 -
2,697,973) excess addition to the Bank’s ALLL claimed by the Atlanta Fed to be
necessary which we do not believe is necessary or appropriate.




On
April 21, 2010, at the request of the OFR, the Bank’s Board of Directors adopted
a series of resolutions pursuant to which, among other things, the
Bank:




·
            recognized
      that the OFR and the Board of Governors have reason to conclude that the
      Bank is threatened with imminent insolvency;
and




·
            consented
      (i) to the appointment of a receiver for the Bank as such time as the OFR
      determines in its sole discretion and (ii) when the OFR requests a
      judicial confirmation of the appointment of a receiver, to the OFR being
      allowed to represent to the relevant court that the Bank is not opposed to
      the OFR’s determination that the Bank is then imminently insolvent or
      insolvent.




As of
March 31, 2010, the Bank’s capital computed in accordance with the definition of
imminently insolvent, set forth in Florida Statutes Section 655.055(1)(k) is
2.54%, higher than the 2.0% treshhold below which the Bank would be considered
imminently insolvent.




2.  The Company’s Loan From
1stManatee
Bank.




As
previously reported, on March 26, 2010, 1st Manatee
Bank and the Company entered into an amendment to the forbearance agreement
previously entered into on March 12, 2010, with respect to the failure by the
Company to repay an approximately $1.1 million loan, secured by all of the
outstanding stock of the Bank held by the Company, owed by the Company to 1st Manatee
Bank.  Pursuant to the forebearance agreement as amended, in
consideration of the payment of $104,000, the forebearance period with respect
to such failure has been extended to June 15, 2010.  In addition, if
the Bank receives a directive, on or before June 15, 2010, from the Atlanta Fed
and the OFR requiring the Bank to raise additional capital, the forebearance
period will be automatically extended for a period of time the Bank is given to
raise the required capital.




3.  Equity
Offering.




As
of the filing date of this Report, we are engaged in an urgent effort to raise
the equity capital which would allow the Bank to be restored to at least the
status of adequately capitalized.  For this purpose, since April 30,
2010, the Company has been conducting an equity offering (the “Offering”) of a
minimum of $10.0 million and a maximum of $12.5 million in shares of 7% Series A
Cumulative Convertible Preferred Stock (the “Series A Preferred
Stock”).  The shares of the Series A Preferred Stock, which are being
offered in a private placement to accredited investors only, have a liquidation
performance of $1,000, are entitled to cumulative dividends of 7% per annum,
accruing and payable semiannually, and are convertible into shares of the
Company’s common stock after the first anniversary of the issuance date at a
conversion price equal to the higher of (a) $2.50 per share or (b) book value
per share of the common stock at the time of conversion, but not to exceed $7.50
per share.




Under
the terms of the Offering, the proceeds may be released to the Company from
escrow only if the $10.0 million minimum is reached and the Atlanta Fed
and the OFR approve the capital restoration plan for the Bank based on the
Offering.  This means that the proceeds of the Offering will not be
released to the Company and, accordingly, the purchasers in the Offering will be
refunded their investment, unless the Atlanta Fed and the OFR approve the
Offering and any matters related thereto, e.g. change of control matters arising
from the number of shares of the Series A Preferred Stock acquired by a given
purchaser.  A copy of the Amended and Restated Confidential Private
Placement Memorandum, dated April 30, 2010, describing the Offering, is
available at the Company’s website at www.horizonbankfl.com.  The
Offering expires on June 20, 2010.


16




As
of the filing date of this Report, the Company has received subscriptions in the
Offering for approximately $1.1 million, with another $1.1 million to come from
a standby loan commitment undertaken by a group of investors, consisting mainly
of Company directors, who will use the loan proceeds to purchase Series A
Preferred Stock in the offering.  Also, as of the filing date of this
Report, the Company and the Bank are engaged in negotiations with a potential
purchaser of the Bank’s main banking facility, which sale is expected to
generate a $1.3 million net profit and addition to the Bank’s
capital.  Furthermore, on May 19, 2010, we have entered into a letter
of intent with Southport Asset Management, LLC, a San Diego-based investment
banking firm (“Southport”), pursuant to which Southport will arrange for both
(i) the purchase by an investor of up to $10.25 million of the Bank’s
nonperforming loans and other real estate owned at a purchase price equal to 68%
of the assets’ book value and (ii) the purchase by several investors of $3.0
million of the Series A Preferred Stock in the Offering.





4.  Summary.




As
shown under “Liquidity and Capital Resources” below, the net proceeds of the
minimum Offering, after using approximately $1.1 million thereof to repay the
1st
Manatee Bank loan, would be sufficient to bring the Bank’s main capital ratios
above the minimum required for purposes of the adequately capitalized status,
while the proceeds of the maximum Offering would be sufficient to bring such
capital ratios close to the ratios required in the Bank’s case for purposes of
the well capitalized status.  We are, however, engaged in a very
challenging race against time having to show to the Atlanta Fed and the OFR,
during the next
several weeks, that at least the minimum Offering is likely to be
successful and that we should thus be given additional time to close the
Offering, and, if appropriate, to sell the Bank’s building and/or the
nonperforming assets to the investor arranged by Southport.  We expect
that such showing is, realistically, likely to be accepted by the Atlanta Fed
and the OFR if and only if we receive during such short period of time a
combination of cash paid into escrow and executed binding subscription
agreements equal in the aggregate to the minimum Offering.




There
is no assurance that in spite of our best efforts the Company can achieve this
combination of cash paid into the escrow and subscription agreements during the
next several weeks.  Failure to do so will give the Atlanta Fed and
the OFR the basis for causing the appointment of the FDIC as the receiver for
the Bank’s assets and liabilities, most likely in conjunction with a sale of the
Bank to another financial institution.  Under such circumstances, our
existing shareholders will lose their entire investment in the
Company.





Results
of Operations





Overall Net
Income





The
Company reported a net loss of $1,871,000, including a $2,697,973 addition to
the ALLL, for the quarter ended March 31, 2010, compared to net income of
$143,000 for the quarter ended March 31, 2009.  Basic and diluted
losses per share were $1.06 for the three months ended March 31, 2010. Basic and
diluted earnings per share for the three months ended March 31, 2009 were
$0.08.





Net Interest
Income.





Net
interest income was $1.50 million and $1.52 million for the three months ended
March 31, 2010 and 2009, respectively.  Decreasing rates and volumes
led to the decrease of $19,000 between these two periods.


17




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:




Three
      months ended March 31, 2010
                                      Compared
      with
                                      Three
      months ended March 31, 2009(in
      thousands)Increase
      (decrease) due to:Volume
                                    
                                    
                                    Rate
                                    
                                    
                                    TotalInterest
      earned
    on:Taxable/Nontaxable
      securities
                                    
                                    
                                    (107
                                    )
                                    
                                    
                                    (33
                                    )
                                    
                                    
                                    (140
                                    )Federal
      funds sold
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2
                                    
                                    
                                    
                                    2Net
      loans
                                    
                                    
                                    (261
                                    )
                                    
                                    
                                    (164
                                    )
                                    
                                    
                                    (425
                                    )Total
      Interest Income
                                    
                                    
                                    (368
                                    )
                                    
                                    
                                    (195
                                    )
                                    
                                    
                                    (563
                                    )Interest
      paid on:NOW
      and money market deposits
                                    
                                    
                                    3
                                    
                                    
                                    
                                    (13
                                    )
                                    
                                    
                                    (10
                                    )Savings
      deposits
                                    
                                    
                                    8
                                    
                                    
                                    
                                    (4
                                    )
                                    
                                    
                                    4Time
      deposits
                                    
                                    
                                    (71
                                    )
                                    
                                    
                                    (400
                                    )
                                    
                                    
                                    (471
                                    )Other
      borrowings
                                    
                                    
                                    (100
                                    )
                                    
                                    
                                    33
                                    
                                    
                                    
                                    (67
                                    )Total
      interest Expense
                                    
                                    
                                    (160
                                    )
                                    
                                    
                                    (384
                                    )
                                    
                                    
                                    (544
                                    )Change
      in net interest income
                                    
                                    $
                                    (208
                                    )
                                    
                                    $
                                    189
                                    
                                    
                                    $
                                    (19
                                    )




18


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 March 31,2010
                
                
                2009Average
                  Volume
                
                
                Interest
                
                
                Yield/Cost
                
                
                Average
                  Volume
                
                
                Interest
                
                
                Yield/CostASSETSInterest-earning
      assets:Federal
      funds sold
                
                $
                2,999
                
                
                $
                3
                
                
                
                0.40
                %
                
                $
                2,228
                
                
                $
                1
                
                
                
                0.18
                %Securities
                
                
                23,982
                
                
                
                277
                
                
                
                4.62
                
                
                
                33,083
                
                
                
                417
                
                
                
                5.04Loans
      receivable
                
                
                153,858
                
                
                
                2,286
                
                
                
                5.94
                
                
                
                170,968
                
                
                
                2,711
                
                
                
                6.34Total
      interest-earning assets
                
                $
                180,839
                
                
                
                2,566
                
                
                
                5.68
                
                
                $
                206,279
                
                
                
                3,129
                
                
                
                6.07LIABILITIESInterest-bearing
      liabilities:Transactional
      accounts
                
                $
                25,285
                
                
                
                70
                
                
                
                1.11
                
                
                $
                24,461
                
                
                
                80
                
                
                
                1.31Savings
      deposits
                
                
                15,668
                
                
                
                65
                
                
                
                1.66
                
                
                
                13,490
                
                
                
                61
                
                
                
                1.81Time
      deposits
                
                
                122,627
                
                
                
                718
                
                
                
                2.34
                
                
                
                130,849
                
                
                
                1,189
                
                
                
                3.63Other
      borrowings
                
                
                19,065
                
                
                
                210
                
                
                
                4.41
                
                
                
                27,752
                
                
                
                277
                
                
                
                3.99Total
      interest-bearing liabilities
                
                $
                182,645
                
                
                
                1,063
                
                
                
                2.33
                
                
                $
                196,552
                
                
                
                1,607
                
                
                
                3.27Interest
      rate spread
                
                
                
                
                
                
                
                
                
                
                3.35
                %
                
                
                
                
                
                
                
                
                
                
                2.80
                %Net
      interest income and net interest Margin
                
                
                
                
                
                $
                1,503
                
                
                
                3.32
                %
                
                
                
                
                
                $
                1,522
                
                
                
                2.95
                %





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.





Other
Income.





A gain of
$16,000 was recorded for the three months ended March 31, 2010.  This
gain compares to $60,000 gain of other income for the same period in 2009, a
decrease of $44,000.  During the three months ended March 31, 2010,
the Bank realized security losses of $61,000, while a loss of $2,000 was
recorded in 2009.  An impairment of other real estate owned of
$246,000 was recorded in 2010, while an impairment of $2,000
was  recorded in 2009.  These losses were offset by a gain
on sale of loans of $179,000.  The impairments on other real estate
owned and securities in 2010 were offset by a $200,000 gain on the sale of loans
and loan servicing income of $49,000.  No such transactions were
recorded in 2009.





The gains
on loans 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.




19


Other
Expense.





Total
other expense for the three months ended March 31, 2010, was $1,570,000,
compared to $1,197,000 for the same period in 2009, an increase of approximately
$373,000.  The majority of this increase was attributable to an
$155,000 increase in FDIC insurance. Another $93,000 increase in professional
fees was attributable to increased legal fees in 2010. Expenses on other real
estate owned increased by $105,000 as properties were improved for resale and
taxes and insurance were brought current.





Balance
Sheet Analysis





The
following is a discussion of the consolidated balance sheet of the
Company.





Total
Assets





As of
March 31, 2010, total assets of the Company were $195,122,325 compared to
$199,499,006 at December 31, 2009, a decrease of $4.4 million. The decrease is
primarily due to decreased deposits of $2.4 million and a $2.7 million increase
in the allowance for loan losses.





Investment
Securities




As of
March 31, 2010, the securities portfolio comprised approximately 12% 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 March 31, 2010 and December 31,
2009, 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





March 31,
                        2010
                      
                      
                      December 31,
                        2009Available-for-Sale:U.S.
      Agency Bonds
                      
                      $
                      1,982
                      
                      
                      $
                      2,457Collateralized
      mortgage obligations
                      
                      
                      1,490
                      
                      
                      
                      1,644Mortgage-backed
      securities
                      
                      
                      219
                      
                      
                      
                      228Trust
      Preferred & Other Corporate Securities
                      
                      
                      6,900
                      
                      
                      
                      6,893Equity
      securities
                      
                      
                      1,859
                      
                      
                      
                      1,859Total
      Available-for-Sale Securities
                      
                      $
                      12,450
                      
                      
                      $
                      13,081Held-to-Maturity
Securities:Corporate
      Securities
                      
                      $
                      853
                      
                      
                      $
                      775General
      obligation bonds of municipalities
                      
                      
                      5,030
                      
                      
                      
                      5,595Revenue
      bonds of municipalities
                      
                      
                      4,141
                      
                      
                      
                      4,147Total
      Held-to-Maturity Securities
                      
                      $
                      10,025
                      
                      
                      $
                      10,517Total Portfolio
                      
                      $
                      22,475
                      
                      
                      $
                      23,598




20


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 and
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 March 31, 2010 and December 31, 2009, and the total amount
of all loans for such periods (in thousands):





Type
      of Loan
                                    
                                    March
      31,
                                      2010
                                    
                                    
                                    December
      31,
                                      2009Commercial
      real estate
                                    
                                    $
                                    92,288
                                    
                                    
                                    $
                                    97,783Residential
      real estate
                                    
                                    
                                    36,086
                                    
                                    
                                    
                                    37,439Construction
      loans
                                    
                                    
                                    1,011
                                    
                                    
                                    
                                    1,370Commercial
      loans
                                    
                                    
                                    17,098
                                    
                                    
                                    
                                    17,218Consumer
      loans
                                    
                                    
                                    2,554
                                    
                                    
                                    
                                    2,049Subtotal
                                    
                                    
                                    149,038
                                    
                                    
                                    
                                    155,859Allowance
      for loan losses
                                    
                                    
                                    (5,319
                                    )
                                    
                                    
                                    (4,731
                                    )Total
      (net of allowance)
                                    
                                    $
                                    143,719
                                    
                                    
                                    $
                                    151,128





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.





Asset
Classification.


Commercial
banks are required to review and, when appropriate, classify their assets on a
regular basis.  The Federal Reserve and the OFR have the authority to
identify problem assets and, if appropriate, require them to be
classified.  There are three 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.


21




The
following table presents information regarding non-accrual, past due and
restructured loans as of March 31, 2010 and December 31, 2009 (dollars in
thousands):




March 31,
                                            2010
                                          
                                          
                                          December 31,
                                            2009Loans
      accounted for on a non-accrual basis:Number:
                                          
                                          Forty
                                          
                                          
                                          Thirty-threeAmount:
                                          
                                          $
                                          12,540
                                          
                                          
                                          $
                                          15,685Accruing
      loans which are contractually past due 90 days or more as to principal and
      interest payments:Number:
                                          
                                          Two
                                          
                                          
                                          NoneAmount:
                                          
                                          $
                                          2,248
                                          
                                          
                                          $
                                          0Loans
      which were renegotiated to provide a reduction or deferral of interest or
      principal because of deterioration in the financial position of the
      borrower:Number:
                                          
                                          None
                                          
                                          
                                          NoneAmount
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0Loan
      relationships for which there are serious doubts as to the borrower's
      ability to comply with existing terms: (Including those
    above)Number:
                                          
                                          Forty-one
                                          
                                          
                                          Forty-fourAmount:
                                          
                                          $
                                          20,563
                                          
                                          
                                          $
                                          24,210





At March
31, 2010, 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.





Allowance for Loan
Losses.





The ALLL
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.




22


A summary
of balances in the ALLL, nonperforming assets and key ratios follows (dollars in
thousands):





March
      31,
                
                
                December,
      312010
                
                
                2009
                
                
                2009End
      of period loans (net of deferred fees)
                
                $
                149,038
                
                
                $
                168,106
                
                
                $
                157,122End
      of period allowance for loan losses
                
                $
                5,319
                
                
                $
                1,652
                
                
                $
                4,731Percentage
      of allowance for loan losses to total loans
                
                
                3.57
                %
                
                
                0.98
                %
                
                
                3.01
                %Average
      loans for the period
                
                $
                153,858
                
                
                $
                170,968
                
                
                $
                168,569Net
      charge-offs as a percentage of average loans for the
      period
                
                
                1.39
                %
                
                
                .04
                %
                
                
                4.73
                %Nonperforming
      assetsNonaccrual
      loans
                
                $
                12,540
                
                
                $
                9,208
                
                
                $
                15,685Loans
      past due 90 days or more and still accruing
                
                $
                2,248
                
                
                $
                2,294
                
                
                $
                -0-Other
      real estate
                
                $
                6,777
                
                
                $
                2,649
                
                
                $
                2,580$
                21,565
                
                
                $
                14,151
                
                
                $
                18,265Nonperforming
      assets to period end loans
                
                
                14.47
                %
                
                
                8.42
                %
                
                
                11.62
                %Nonperforming
      assets to period end total assets
                
                
                10.96
                %
                
                
                6.43
                %
                
                
                9.14
                %





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 March 31, 2010 financial
statements evidence a marginally satisfactory liquidity position, as total cash
and cash equivalents amounted to $10.6 million, representing 5% of total assets.
Investment securities, which amounted to $23 million or 11.9% 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.





As stated
above, the Bank’s main capital ratios as of March 31, 2010, compared to the
minimum regulatory requirements were as follows:





Bank’s
                      March 31, 2010
                    
                    
                    Minimum
                      Regulatory
                      RequirementLeverage
      Ratio
                    
                    
                    1.3
                    %
                    
                    
                    4.0
                    %Total
      Risk Assets Based Ratio
                    
                    
                    3.1
                    %
                    
                    
                    8.0
                    %Tier
      1 Risk Assets Based Ratio
                    
                    
                    1.8
                    %
                    
                    
                    4.0
                    %





As a
result, under the relevant guidelines established by the Board of Governors, the
Bank is considered to be critically undercapitalized.





Following
are the relevant capital ratios computed on a pro-forma basis as of March 31,
2010, assuming the completion of the minimum and maximum Offering, compared to
the minimum regulatory requirement for an adequately capitalized institution and
for a well capitalized institution in the Bank’s position:


23




Assuming the
                  Minimum
                  Offering
                
                
                Assuming the
                  Maximum
                  Offering
                
                
                Adequately
                  Capitalized
                
                
                Well
                  CapitalizedLeverage
      Ratio
                
                
                6.01
                %
                
                
                7.31
                %
                
                
                4.0
                %
                
                
                5.0
                %Total
      Risk Assets-Based Ratio
                
                
                9.30
                %
                
                
                11.30
                %
                
                
                8.0
                %
                
                
                10.0
                %Tier
      1 Risk Assets-Based Ratio
                
                
                8.02
                %
                
                
                9.75
                %
                
                
                4.0
                %
                
                
                6.0
                %





As stated
above, there is no assurance that the Offering will be successful in time for
the Atlanta Fed and the OFR to accept it as part of a capital restoration
plan.  If the Offering is successful and is accepted as part of the
capital restoration plan, if and to the extent the shares of the Series A
Preferred Stock are converted into shares of common stock, the Offering may have
a dilutive effect on the existing shareholders.





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
March 31, 2010, the Bank had outstanding loan commitments of approximately $2.1
million.  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.





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 Three months of 2009 that have materially affected or are
reasonably likely to materially affect the Company’s internal control over
financial reporting.




24


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.




25


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, 2009.





Item 1A.  Risk
Factors





Not
applicable.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds




Not
Applicable.




Item
3.   Defaults Upon Senior Securities





Not Applicable.





Item
4.   Submission of Matters to a Vote of Security
Holders





None





Item
5.   Other Information





None





Item
6.   Exhibits





3.1
              Third
      Amended and Restated Articles of Incorporation31.1
              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




26


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:
      May 24, 2010




27