UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-Q/A

                                 (Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
                            EXCHANGE ACT of 1934

                For the quarterly period ended June 30, 2009

                                     OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
                           EXCHANGE ACT of 1934

     For the transition period from ______________ to __________________

                        Commission file number 0-27062

                           Horizon Financial Corp.
                           -----------------------
            (Exact name of registrant as specified in its charter)

                                 Washington
                                 ----------
       (State or other jurisdiction of incorporation or organization)

                                 91-1695422
                                 ----------
                   (I.R.S. Employer Identification No.)

                            1500 Cornwall Avenue
                           Bellingham, Washington
                           ----------------------
                  (Address of principal executive offices)

                                   98225
                                   -----
                                 (Zip Code)

Registrant's telephone number, including area code:    (360) 733-3050
                                                       --------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                  YES   X   NO
                                      ----     ----
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).

                                  YES       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 "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act:

      Large accelerated filer             Accelerated filer           X

                              ------                                ------
      Non-accelerated filer               Smaller reporting company
                              ------                                ------

Indicate by check mark whether the registrant is a shell corporation (as
defined in Rule 12b-2 of the Exchange Act).

                                 YES       NO  X
                                     ----     ----

As of August 3, 2009, 11,994,945 common shares, $1.00 par value, were
outstanding.

<PAGE>



                                   EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2009 ("Original Report") of Horizon Financial
Corp. ("Company"), and is being filed to correct a typographical error in the
Consolidated Statements of Stockholders' Equity.  The Consolidated Statements
of Stockholders' Equity on page 4 reported the retained earnings balance
incorrectly and has been corrected in this amendment.  No other changes to the
Original Report have been made.

<PAGE>



                             HORIZON FINANCIAL CORP.

INDEX                                                                 PAGE
-----                                                                 ----

PART 1       FINANCIAL INFORMATION

Item 1       Financial Statements (Unaudited)

             Consolidated Statements of Financial Position             2

             Consolidated Statements of Operations                     3

             Consolidated Statements of Stockholders' Equity           4

             Consolidated Statements of Cash Flows                    5-6

             Selected Notes to Consolidated Financial Statements      7-14


PART II      OTHER INFORMATION


Item  6      Exhibits                                                  15

             SIGNATURES                                                16

             Exhibit Index                                             17

1

<PAGE>



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements (unaudited)

                          HORIZON FINANCIAL CORP.
         Consolidated Statements of Financial Position (unaudited)

                                  ASSETS
                                                      June 30,     March 31,
(In thousands)                                          2009         2009
                                                     ----------   ----------

Cash and cash equivalents                            $   17,523   $   17,881
Interest-bearing deposits                               117,876      126,159
Investment securities
 Available-for-sale, at fair value                       63,420       66,865
 Held-to-maturity, at amortized cost                          8            8
Federal Home Loan Bank ("FHLB") stock                     7,247        7,247
Loans held for sale                                       2,982        4,745
Loans receivable, net of allowance for loan losses
 of $51,499 at June 30, 2009 and $38,981 at March
 31, 2009                                             1,034,776    1,123,660
Investment in real estate joint venture                  18,087       17,985
Accrued interest and dividends receivable                 6,345        6,629
Bank premises and equipment, net                         25,733       26,195
Net deferred income tax assets                                -       15,164
Income tax receivable                                    21,018       12,442
Real estate owned                                        22,537       19,227
Bank owned life insurance                                20,350       20,134
Other assets                                              3,133        3,630
                                                     ----------   ----------
TOTAL ASSETS                                         $1,361,035   $1,467,971
                                                     ==========   ==========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                             $1,172,178   $1,229,764
Other borrowed funds                                    109,456      114,348
Borrowing related to investment in real estate
 joint venture                                           24,500       24,440
Accrued interest payable and other liabilities            5,644        3,959
Advances by borrowers for taxes and insurance               172          377
Deferred compensation                                     1,726        1,923
                                                     ----------   ----------
Total liabilities                                     1,313,676    1,374,811
                                                     ----------   ----------

STOCKHOLDERS' EQUITY
 Serial preferred stock, $1 par value, 10,000,000
  shares, authorized; none issued or outstanding     $        -   $        -
 Common stock, $1 par value, 30,000,000 shares
  authorized; 11,994,945 and 11,980,796 issued and
  outstanding at June 30, 2009 and March 31, 2009,
  respectively                                           11,995       11,981
 Additional paid-in capital                              51,155       51,298
 Retained earnings (deficit)                            (17,368)      28,333
 Accumulated other comprehensive income                   1,458        1,414
 Noncontrolling interests                                   119          134
                                                     ----------   ----------
 Total stockholders' equity                              47,359       93,160
                                                     ----------   ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $1,361,035   $1,467,971
                                                     ==========   ==========

                (See Notes to Consolidated Financial Statements)

2

<PAGE>

                            HORIZON FINANCIAL CORP.
             Consolidated Statements of Operations (unaudited)

                                                        Three months ended
                                                             June 30,
(In thousands, except share data)                        2009        2008
                                                       --------    --------
INTEREST INCOME
 Interest and fees on loans                            $ 13,684    $ 20,446
 Interest on investment securities                          864         961
                                                       --------    --------
   Total interest income                                 14,548      21,407
                                                       --------    --------
INTEREST EXPENSE
 Interest on deposits                                     8,257       8,587
 Interest on other borrowings                               725       1,593
                                                       --------    --------
   Total interest expense                                 8,982      10,180
                                                       --------    --------
   Net interest income                                    5,566      11,227

PROVISION FOR LOAN LOSSES                                35,521       3,000
                                                       --------    --------
   Net interest income (loss) after provision for
    loan losses                                         (29,955)      8,227
                                                       --------    --------
NONINTEREST INCOME
 Service fees                                               830         960
 Net gain on sales of loans - servicing released            481         204
 Net gain on sales of loans - servicing retained              4           -
 Net gain on sales of investment securities                   -         579
 Other-than-temporary impairment on investment securities  (204)          -
 Other noninterest income                                   462         512
                                                       --------    --------
   Total noninterest income                               1,573       2,255
                                                       --------    --------
NONINTEREST EXPENSE
 Compensation and employee benefits                       3,376       4,503
 Building occupancy                                       1,086       1,126
 Real estate owned/collection expense                     4,503          85
 FDIC insurance                                           1,768          45
 Data processing                                            260         244
 Advertising                                                139         219
 Other noninterest expense                                1,138       1,363
                                                       --------    --------
   Total noninterest expense                             12,270       7,585
                                                       --------    --------
NET INCOME (LOSS) BEFORE PROVISION (BENEFIT)
 FOR INCOME TAX                                         (40,652)      2,897

Provision (benefit) for income tax                      (14,336)        881
Deferred tax valuation allowance                         19,400           -
                                                       --------    --------
NET INCOME (LOSS)                                      $(45,716)   $  2,017
Less:  Net income (loss) attributable to
 noncontrolling interests                                   (15)         (3)
                                                       --------    --------
NET INCOME (LOSS) ATTRIBUTABLE TO HORIZON
 FINANCIAL CORP.                                       $(45,701)   $  2,020
                                                       ========    ========

BASIC EARNINGS (LOSS) PER SHARE                          $(3.81)      $0.17
                                                         ======       =====
DILUTED EARNINGS (LOSS) PER SHARE                        $(3.81)      $0.17
                                                         ======       =====

                  (See Notes to Consolidated Financial Statements)

3

<PAGE>



<TABLE>
                                           HORIZON FINANCIAL CORP.
                               Consolidated Statements of Stockholders' Equity
                                  Three Months Ended June 30, 2009 and 2008
                                                (unaudited)
                                                                  Accumulated
                                                                     Other                            Total
                             Common Stock                           Compre-                          Compre-
                           ----------------  Additional  Retained   hensive     Non-      Stock-     hensive
                           Number of          Paid-In    Earnings   Income   controlling  holders'   Income
(In thousands)              Shares   At Par   Capital    (Deficit)  (Loss)   Interests    Equity     (Loss)
                           --------  ------   -------    ---------  ------   ---------    -------    ------


                         <c>     <c>       <c>         <c>      <c>         <c>       <c>        <c>
BALANCE, March 31, 2008     11,892  $11,892   $50,597     $63,906  $ 1,922     $ 164     $128,481
Comprehensive income
Net income                       -        -         -       2,020        -        (3)       2,017  $  2,017
Other comprehensive income
 (loss)
  Reclassification for net
   gains realized  in
   income, net tax expense
   of $203                       -        -         -           -     (376)        -         (376)     (376)
  Change in unrealized
   losses on available-for-
   sale securities, net tax
   benefit of $569               -        -         -           -   (1,057)        -       (1,057)   (1,057)
                                                                                                   --------
  Total other comprehensive
   loss                                                                                              (1,433)
                                                                                                   --------
 Comprehensive income                                                                              $    584
                                                                                                   ========
Cash dividends on common
 stock at $.135/sh               -        -         -      (1,608)       -         -       (1,608)
Stock options exercised          5        5        22           -        -         -           27
Stock award plan                20       20        87           -        -         -          107
                            ------  -------   -------    --------  -------     -----     --------
BALANCE, June 30, 2008      11,917  $11,917   $50,706    $ 64,318  $   489     $ 161     $127,591
                            ======  =======   =======    ========  =======     =====     ========

BALANCE, March 31, 2009     11,981  $11,981   $51,298     $28,333  $ 1,414       134     $ 93,160
Comprehensive loss
Net loss                         -        -         -     (45,701)       -       (15)     (45,716) $(45,716)
Other comprehensive income
 (loss)
  Reclassification for net
   losses realized in
   income, net tax benefit
   of $71                        -        -         -           -      133         -          133       133
  Change in unrealized
   losses on available-for-
   sale securities, net
   tax benefit of $48            -        -         -           -      (89)        -          (89)      (89)
                                                                                                   --------
  Total other comprehensive
   income                                                                                                44
                                                                                                   --------
 Comprehensive loss                                                                                $(45,672)
                                                                                                   ========
Stock award plan                14       14      (143)          -        -                   (129)
                            ------  -------   -------    --------  -------     -----     --------
BALANCE, June 30, 2009      11,995  $11,995   $51,155    $(17,368)  $ 1,458     $ 119     $ 47,359
                            ======  =======   =======    ========  =======     =====     ========

                                   (See Notes to Consolidated Financial Statements)
</TABLE>

4

<PAGE>



                            HORIZON FINANCIAL CORP.
               Consolidated Statements of Cash Flows (unaudited)

                                                         Three Months Ended
(In thousands)                                                 June 30,
                                                          2009         2008
                                                       --------      --------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                     $(45,701)     $  2,020
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
 Depreciation and amortization                              786           630
 Provision for loan losses                               35,521         3,000
 Provision for loss - real estate owned                     695             -
 Loss on sale of real estate owned                        1,369             -
 Net gain on sale of investment securities                    -          (579)
 Other-than-temporary impairment on investment
  securities available for sale                             204             -
 Net gain on mortgage loans held for sale                  (481)         (204)
 Proceeds from sales of mortgage loans held for sale     42,068        16,269
 Origination of mortgage loans held for sale            (39,824)      (15,735)
 Stock award plan compensation                             (129)          107
 Deferred income taxes                                   (4,236)           75
 Valuation allowance on deferred income taxes            19,400             -
Changes in assets and liabilities:
 Interest and dividends receivable                          284           737
 Interest payable                                          (273)         (122)
 Federal income tax receivable                           (8,576)       (1,799)
 Other assets                                               281          (289)
 Other liabilities                                        1,542          (863)
                                                       --------      --------
   Net cash flows from operating activities               2,930         3,247
                                                       --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
 Investment in interest-bearing deposits, net             8,283            81
 Purchases of investment securities - available-
  for-sale                                                    -        (4,000)
 Proceeds from sales and maturities of
  investment securities - available-for-sale              3,284         5,487
 Proceeds from maturities of investment
   securities - held-to-maturity                              -            15
 Purchases of FHLB Stock                                      -        (1,148)
 Net change in loans                                     36,999       (59,321)
 Purchases of bank premises and equipment                   (52)         (104)
 Proceeds from the sale of real estate owned             10,718             -
 Net change in investment in joint venture                 (102)         (137)
                                                       --------      --------
   Net cash flows from investing activities              59,130       (59,127)
                                                       --------      --------

5

<PAGE>



                             HORIZON FINANCIAL CORP.
                 Consolidated Statements of Cash Flows (unaudited)
                                 (continued)
                                                       Three Months Ended
(In thousands)                                               June 30,
                                                       2009           2008
                                                     --------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Net change in deposits                               (57,586)        57,962
 Advances of other borrowed funds                      21,940        121,644
 Repayments of other borrowed funds                   (26,832)      (121,000)
 Borrowing related to investment in real estate
  joint venture                                            60            535
 Common stock issued                                        -             27
 Cash dividends paid                                        -         (1,605)
                                                     --------      ---------
   Net cash flows from financing activities           (62,418)        57,563
                                                     --------      ---------

NET CHANGE IN CASH AND CASH EQUIVALENTS                  (358)         1,683

CASH AND CASH EQUIVALENTS, beginning of period         17,881         22,412
                                                     --------      ---------
CASH AND CASH EQUIVALENTS, end of period             $ 17,523      $  24,095
                                                     ========      =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 Cash paid during the period for interest            $  9,256      $  10,302
                                                     ========      =========
 Cash paid during the period for income tax          $      -      $   2,700
                                                     ========      =========

NONCASH INVESTING AND FINANCING TRANSACTIONS
 Property taken in settlement of loans               $ 17,620      $   2,109
                                                     ========      =========
 Bank financed sale of other real estate owned       $  1,528      $       -
                                                     ========      =========


                (See Notes to Consolidated Financial Statements)

6

<PAGE>



                                HORIZON FINANCIAL CORP.
                  SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     THREE MONTHS ENDED JUNE 30, 2009 AND 2008
                                    (unaudited)

NOTE 1 - Basis of Presentation and Significant Accounting Policies

Basis of Presentation
---------------------

     The consolidated financial statements as of and for the three months
ended June 30, 2009 and 2008, include the accounts of Horizon Financial Corp.
("Horizon Financial" or the "Corporation"), and its wholly-owned subsidiary
Horizon Bank ("Horizon Bank" or the "Bank"), and other subsidiaries of the
Bank.  Significant intercompany balances and transactions have been eliminated
in consolidation. The Corporation has not engaged in any significant activity
other than holding the stock of the Bank.

     The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in
the consolidated financial statements. Changes in these estimates and
assumptions are considered reasonably possible and may have a material impact
on the financial statements and thus actual results could differ from the
amounts reported and disclosed herein.

     Certain reclassifications have been made to prior financial statements to
conform with the current presentation.  These reclassifications have no effect
on operations, equity, or earnings (loss) per share.

     The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to the
Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements.  In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation are reflected in
the interim financial statements.  The results of operations for the three
month periods ended June 30, 2009 and 2008 are not necessarily indicative of
the operating results for the full year.  For further information, refer to
the consolidated financial statements and footnotes thereto in the Horizon
Financial Corp. Annual Report on Form 10-K for the year ended March 31, 2009.

     In preparing these financial statements, the Corporation has evaluated
events and transactions for potential recognition or disclosure through August
7, 2009, the date the financial statements were issued. In management's
opinion, all accounting adjustments necessary to accurately reflect the
financial position and results of operations on the accompanying financial
statements have been made. These adjustments include normal and recurring
accruals considered necessary for a fair and accurate presentation. The
results for interim periods are not necessarily indicative of results for the
full year or any other interim period. Certain reclassifications of prior
period amounts have been made to conform with current classifications.

Consolidation of Real Estate Joint Venture
-------------------------------------------

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 46R, Consolidation of Variable Interest
Entities.  FIN 46R explains the concept of a variable interest entity and
requires consolidation by the primary beneficiary where the variable interest
entity does not have sufficient equity at risk to finance its activities
without additional subordinated financial support from other parties.  This
interpretation applies to variable interest entities in which an enterprise
holds a variable interest.  In October 2004, the Bank's wholly-owned
subsidiary, Westward Financial Services, Inc. ("Westward Financial"), entered
into a real estate development joint venture with Greenbriar Northwest LLC
("GBNW"), an established residential land development company headquartered in
Bellingham, Washington.  The Corporation believes that GBNW is a variable
interest entity with the Corporation as the primary beneficiary.  Under FIN
46R, GBNW is consolidated in the Corporation's consolidated balance sheet.
The investment in real estate is recorded as an asset and the related debt is
recorded as the Corporation's liability.  As of June 30, 2009, the real estate
joint venture had a carrying amount of approximately $18.1 million, with a
related borrowing of approximately $24.5 million after consolidation treatment
under FIN 46R.  During the process of consolidation, inter-company
transactions were eliminated; including $24.5 million loan receivable and the
associated $7.16 million in capitalized interest receivable from GBNW and
payable to Horizon Bank.

7

<PAGE>



NOTE 1 - Basis of Presentation and Significant Accounting Policies (continued)

     The Corporation adopted SFAS No. 160, Noncontrolling Interests on April
1, 2009.  As a result, we reclassified $119,000 of minority interest
liabilities from liabilities to equity on our balance sheet.  Noncontrolling
interests' share of net income (loss) was $(15,000) and $(3,000) for the three
months ended June 30, 2009 and 2008, respectively.

NOTE 2 - Regulatory Actions

     On February 26, 2009, the Bank entered into a Stipulation and Consent to
the Issuance of an Order to Cease and Desist ("Order") with the FDIC and the
Washington State Department of Financial Institutions ("DFI"). The Order was
effective March 2, 2009.

     The Order is a result of a regulatory examination conducted by the FDIC
in September 2008. Under the terms of the Order, the Bank cannot declare
dividends without the prior written approval of the FDIC and the DFI. Other
material provisions of the Order require the Bank to:

       Strengthen the Bank's board of directors' oversight of management and
       operations of the Bank;
       Increase and subsequently maintain specified capital levels;
       Enhance its practices and written policies for determining the adequacy
       of the allowance for loan and lease losses;
       Eliminate loans classified as "Loss" and "Doubtful" at its regulatory
       examination, and reduce the loans classified as "Substandard" as a
       percent of capital;
       Not extend additional credit to borrowers whose loan had been
       classified as "Loss" and is uncollected;
       Develop a plan to reduce delinquent loans;
       Develop a plan to reduce the amount of construction and land
       development loans;
       Develop a three year strategic plan outlining specific goals for loans,
       investments and deposits, acceptable to the FDIC;
       Enhance its written funds management and liquidity policy;
       Not increase brokered deposits and develop a plan to reduce brokered
       deposits; and
       Prepare and submit progress reports to the FDIC and the DFI.

     The Bank has implemented a comprehensive plan to achieve full compliance
with the Order. No monetary penalties were imposed or recommended by the FDIC
or DFI in connection with the Order. The Order will remain in effect until
modified or terminated by the FDIC and the DFI.

     In connection with the FDIC order, the Federal Reserve Bank of San
Francisco ("FRB") has notified the Corporation that neither the Corporation
nor the Bank may appoint any new director or senior executive officer or
change the responsibilities of any current senior executive officers without
notifying the FRB. In addition, neither the Corporation nor the Bank may make
indemnification and severance payments without complying with certain
statutory restrictions including prior written approval by the FRB and
concurrence from the FDIC.

     The Order contains target dates to achieve the above referenced
objectives, which are also outlined in the Form 8-K filing and in Horizon's
Form 10-K filing for its fiscal year ended March 31, 2009.  As of June 30,
2009, we have completed on-time and submitted to our regulators all
requirements that were due within 90 days of the Order's effective date.
There are two key objectives that remain outstanding and were given 270 days
for compliance.  The first is the requirement to reduce our balances of loans
which were classified "substandard" and "doubtful" as of the most recent
regulatory exam date to specified levels is expected to be completed by the
270 day target date.  The second requirement is to increase our Tier 1 capital
ratio to 10% within 270 days.  At June 30, 2009, Horizon Bank's Tier 1 capital
was $45.3 million, representing 3.17% of average assets.  We continue to work
with professional investment bankers and other qualified advisors to bring in
additional capital to meet the 10% regulatory requirement in accordance with
the terms of the agreement.

8

<PAGE>



NOTE 3 - Regulatory Capital

     The Bank's ratio of total capital to risk-weighted assets was 5.28% as of
June 30, 2009, which caused the Bank to be deemed "significantly
undercapitalized" as of that date under regulatory capital guidelines.  The
Bank's ratios of Tier 1 capital to average assets and Tier 1 capital to
risk-weighted assets were 3.17% and 3.97%, respectively, as of June 30, 2009.
In order to be "adequately capitalized" under regulatory capital guidelines,
an institution's ratios of total capital to risk-weighted assets, Tier 1
capital to risk-weighted assets and Tier 1 capital to average assets must be
at least 8.0%, 4.0% and 4.0%, respectively.

     As a result of the Bank's regulatory capital ratios being below the
adequately capitalized level, certain requirements and restrictions are
imposed on the Bank, including the following: (i) the Bank generally may not
make any capital distributions to the Corporation; (ii) the Bank must submit a
capital restoration plan to the FDIC for the FDIC's review and approval, and
the Corporation must guarantee the Bank's performance under that plan; (iii)
the Bank may not permit its average total assets during any calendar quarter
to exceed its average total assets during the preceding calendar quarter
unless (A) the FDIC has accepted the Bank's capital restoration plan, (B) any
increase in the Bank's total assets is consistent with the plan, and (C) the
Bank's ratio of tangible equity to assets increases during the calendar
quarter at a rate sufficient to enable the Bank to become adequately
capitalized within a reasonable time; and (iv) the Bank may not acquire any
interest in any company or other bank, establish or acquire any additional
branch office or engage in any new line of business without prior regulatory
approval.  The Bank is also prohibited from accepting, renewing or rolling
over brokered deposits and is restricted in the effective yield it can offer
on deposits.

     As a result of the Bank's "significantly undercapitalized" status as of
June 30, 2009, a number of other requirements or restrictions can or will be
imposed on the Corporation and the Bank in addition to those described above.
These additional requirements and restrictions: (i) prohibit the Bank from
paying any bonus to a senior executive officer or providing compensation to a
senior executive officer at a rate exceeding the officer's average rate of
compensation (excluding bonuses, stock options and profit-sharing) during the
12 months preceding the month in which the Bank became undercapitalized,
without prior written approval from the FDIC; and (ii) require the FDIC to
impose one or more of the following on the Bank: (A) require a sale of Bank
shares or obligations of the Bank sufficient to return the Bank to adequately
capitalized status; (B) if grounds exist for the appointment of a receiver or
conservator for the Bank, require the Bank to be acquired or merged with
another institution; (C) impose additional restrictions on transactions with
affiliates beyond the normal restrictions applicable to all banks; (D)
restrict interest paid on deposits to prevailing rates in the Bank's area as
determined by the FDIC; (E) impose more stringent growth restrictions than
those discussed in the immediately preceding paragraph, or require the Bank to
reduce its total assets; (F) require the Bank to alter, reduce or terminate
any activities the FDIC determines pose excessive risk to the Bank; (G) order
a new election of Bank directors; (H) require the Bank to dismiss any senior
executive officer or director who held office for more than 180 days before
the Bank became undercapitalized; (I) require the Bank to employ "qualified"
senior executive officers; (J) prohibit the Bank from accepting, renewing or
rolling over deposits from correspondent institutions; (K) prohibit the
Corporation from making capital distributions without Federal Reserve Board
approval; (L) require the Corporation to divest the Bank if the regulators
determine that the divestiture would improve the Bank's financial condition
and future prospects; and (M) require the Bank to take any other action that
the FDIC determines will better carry out the purposes of the statute
requiring the imposition of one or more of the restrictions described in
(A)-(L) above.   The FDIC also has the discretion to impose certain
restrictions applicable to a "critically undercapitalized" institution (which
is an institution which has a ratio of tangible equity to total assets of 2.0%
or less), including requiring prior regulatory approval for material
transactions outside the usual course of business, extending credit for a
highly leveraged transactions, amending the Bank's charter or bylaws, making a
material change to accounting methods, paying excessive compensation or
bonuses, and paying interest on new or renewed liabilities at a rate that
would increase the Bank's weighted average cost of funds to a level
significantly exceeding the prevailing rates on interest on deposits in the
Bank's normal market areas).

9

<PAGE>



NOTE 4 - Stockholders' Equity

Earnings (Loss) Per Share
-------------------------

     The following table illustrates the reconciliation of weighted average
shares, as adjusted, used for earnings (loss) per share for the noted periods:

                                                      Three Months Ended
                                                           June 30,
                                                    ---------------------
                                                      2009         2008
                                                    --------     --------

    Basic weighted average shares outstanding      11,981,529   11,893,813

    Dilutive shares                                         -       71,965
                                                   ----------   ----------
    Diluted weighted average shares outstanding    11,981,529   11,965,778
                                                   ==========   ==========
    Ant-dilutive shares outstanding related to
     options to acquire the Corporation's common
     stock                                            156,564       94,863
                                                   ==========   ==========

NOTE 5 - Stock Option and Restricted Stock Award Plans

Share Based Payment
-------------------

     The Corporation adopted Statement of Financial Accounting Standard
("SFAS" or "Statement") No. 123R, Share-Based Payment, on April 1, 2006 using
the "modified prospective" method.  Under this method, awards that are
granted, modified, or settled after March 31, 2006 are measured and accounted
for in accordance with Statement No. 123R.  Also under this method, expense is
recognized for unvested awards that were granted prior to April 1, 2006 based
upon the fair value determined at the grant date under Statement No. 123,
Accounting for Stock-based Compensation.   The Corporation recognized
compensation expense of $121,000 and $107,000, respectively, for the quarters
ended June 30, 2009 and 2008.  Also included in additional paid in capital for
the quarter ended June 30, 2009 was $149,000 of compensation expense reversals
due to pre-vesting forfeitures and $115,000 in tax shortfall due to the change
in the fair value of restricted stock awards.  As of June 30, 2009 and 2008,
there was approximately $85,000 and $395,000, respectively, of total
unrecognized compensation cost related to nonvested options and restricted
stock awards which is scheduled to amortize over the next three years.  The
Corporation measures the fair value of each stock option grant at the date of
grant, using the Black Scholes option pricing model.

     The Corporation may grant awards, typically options and restricted stock,
for a maximum of 937,500 shares, as adjusted, of authorized common stock to
certain officers and key employees under the 2005 Incentive Stock Plan.  These
awards may or may not vest immediately upon issuance based on the terms
established by the Board of Directors.  All awards are generally exercisable
within one to five years from the date of grant and, in the case of option
awards, expire after ten years.  Dividends are paid on restricted stock grants
during the restricted period.  All options are granted at an exercise price
equal to the fair market value (average of the high and low price for the day)
of the Corporation's common stock on the date of grant.  Dividends are not
paid on any option awards until the option is exercised by the recipient.

     The following table summarizes the stock option activity for the three
months ended June 30, 2009:

                                                        Weighted
                                            Weighted     average
                                  Out-       average    remaining   Aggregate
                                standing    exercise   contractual  intrinsic
                                 under        price       term      value (in
Stock Options                    plan       per share  (in years)   thousands)
-------------                   -------     ---------  ----------   ---------

Balance,  March 31, 2009        156,256       $12.61
   Granted                            -            -
   Exercised                          -            -
   Forfeited, expired or
    cancelled                    (2,478)       20.46
                                -------       ------      ----        -----
Balance,  June 30, 2009         153,778       $12.49      4.23        $   -
                                =======       ======      ====        =====

Exercisable, June 30, 2009      128,311       $12.26      3.44        $   -
                                =======       ======      ====        =====


10

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     The total intrinsic value, the amount by which the fair value of the
underlying stock exceeds the exercise price of an option on the exercise date,
of options exercised for the three months ended June 30, 2009 and 2008 was $0
and $6,500, respectively.

     The following table summarizes the award activity for the three months
ended June 30, 2009 under the 2005 stock plan:

                                                        Weighted
                                            Weighted     average
                                  Out-       average    remaining
                                standing      grant    contractual
                                 under        price       term
Restricted Stock Awards          plan       per share  (in years)
-----------------------         -------     ---------  ----------

Balance,  March 31, 2009         23,708       $20.58       0.47
   Granted                            -            -
   Released                     (14,149)       21.37
   Forfeited, expired or
    cancelled                    (3,593)       20.50
                                 ------       ------       ----
Balance,  June 30, 2009           5,966       $18.73       0.75
                                 ======       ======       ====

NOTE 6 - Fair Value Measurements

     FSP No. FAS 107-1 and APB 28-1, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the consolidated financial
statements.  The following table presents estimated fair values of our
financial instruments at June 30, 2009 (in thousands):

                                                     Carrying
(In thousands)                                        Amount      Fair Value
                                                    ----------   ------------
Financial Assets
  Cash and cash equivalents                        $   17,523    $   17,523
  Interest-bearing deposits                           117,876       117,876
  Investment securities                                63,428        63,431
  Federal Home Loan Bank stock                          7,247         7,247
  Loans held-for-sale                                   2,982         2,982
  Loans receivable                                  1,034,776     1,044,620
  Investment in real estate joint venture              18,087        21,800
  Bank owned life insurance                            20,350        20,350
  Accrued interest and dividends receivable             6,345         6,345

Financial Liabilities
  Demand and savings deposits                         315,903       315,903
  Time deposits                                       856,275       863,640
  Accrued interest payable                              1,617         1,617
  Other borrowed funds                                109,456       110,576
  Borrowing related to investment in real
   estate joint venture                                24,500        24,500

     We determined the estimated fair value amounts using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessary to interpret market data in the development of the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.

     The following methods and assumptions were used to estimate the fair
value of the following classes of financial instruments (under SFAS No. 157)
and for estimating the fair value for financial instruments not recorded at
fair value (under SFAS No. 107):

     Cash Equivalents and Interest-Bearing Deposits - Due to the relatively
short period of time between the origination of these instruments and their
expected realization, the carrying amount is estimated to approximate fair
value.

11

<PAGE>



NOTE 6 - Fair Value Measurements (continued)

     Investment and Mortgage-Backed Securities - Securities fair values are
determined by obtaining quoted prices on nationally recognized securities
exchanges (Level 1) or through the use of alternative approaches, such as
matrix or model pricing, when market quotes are not readily available (Level
2). Available for sale securities are carried at fair value.  Held to maturity
securities are carried at cost on the financial statements.

     Federal Home Loan Bank of Seattle Stock - FHLB stock is carried at $100
par value. This investment is considered restricted, at a minimum, the
investment must be maintained in order to obtain borrowing commitments from
FHLB. The Corporation may redeem its investment only at par value, which is
used as the estimated market value. In January 2009, the FHLB announced it
suspended excess FHLB stock redemptions and dividend payments. As a result of
the FHLB's announcement, we evaluated the carrying value of our FHLB stock
investment for impairment based on the FHLB of Seattle's May 20, 2009 press
release and filing date of the March 31, 2009 Form 10-Q.  Our review of its
financial statement disclosures, capital position, and bond ratings resulted
in our conclusion that such investment was not impaired at June 30, 2009.

     Loan Receivables - The fair value of loans generally is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.  The fair value calculation, however, does not take into
consideration the ultimate collectibility of the loan.  For certain
homogeneous categories of loans, such as those written to FHLMC standards,
fair value is estimated using the quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics. For
variable rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying values.

     Loans Held for Sale - The fair value of loans held for sale is based on
the estimated value at which the loans could be sold in the secondary market.

     Impaired Loans - A loan is considered impaired when, based upon currently
known information, it is deemed probable that the Corporation will be unable
to collect all amounts due as scheduled according to the original terms of the
agreement. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, based on the loan's observable market price or the fair
value of the collateral based on an appraisal, if the loan is collateral
dependent. Impaired loans, which are collateral dependent, are included in the
nonrecurring basis table below.

     Investment and Borrowing in Investment in Real Estate Joint Venture - The
fair value of the investment in real estate in a joint venture was determined
based on an appraisal of the underlying collateral. The borrowing associated
with the investment is an adjustable rate borrowing; therefore, the recorded
book value is believed to approximate fair value.

     Real Estate Owned - The fair value of foreclosed real estate is generally
based on estimated market prices from independently prepared appraisals or
negotiated sales prices with potential buyers and are included in the
nonrecurring basis table below.

     Bank Owned Life Insurance - The fair value of Bank owned life insurance
policies are based on cash surrender value of the insurance contract, less any
applicable surrender charges.

     Accrued Interest Income and Expense Accounts - Due to the short-term
nature of these amounts, recorded book value is believed to approximate fair
value.

     Deposit Liabilities, Repurchase Agreements and Other Borrowed Funds - The
fair value of demand deposits, savings accounts, certain money market
deposits, and federal funds purchased, is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit,
repurchase agreements and other borrowed funds are estimated by discounting
the estimated future cash flows using the rates currently offered for these
instruments with similar remaining maturities.

     Off-Balance-Sheet Instruments - The Corporation's off-balance-sheet
instruments include unfunded commitments to extend credit and borrowing
facilities available to the Corporation. The fair value of these instruments
is not considered practicable to estimate because of the lack of quoted market
price and the inability to estimate fair value without incurring excessive
costs.

12

<PAGE>



NOTE 6 - Fair Value Measurements (continued)

     FASB Statement No. 157, Fair Value Measurements, establishes a new
framework for measuring fair value and expands related disclosures.  Statement
No. 157 framework requires fair value to be determined based on the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants.  The
Statement No. 157 establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.  The standard describes three levels of
inputs that may be used to measure fair value:

     Level 1:  Quoted prices for identical assets or liabilities in active
               markets that the entity has the ability to access as of the
               measurement date.
     Level 2:  Significant other observable inputs other than Level 1 prices,
               such as quoted prices for similar assets or liabilities, quoted
               prices in markets that are not active and other inputs that are
               observable or can be corroborated by observable market data.
     Level 3:  Significant unobservable inputs that reflect a company's own
               assumptions about the assumptions that market participants
               would use in pricing an asset or liability.

     The following table presents the Corporation's financial assets measured
at fair value on a recurring basis at June 30, 2009 (in thousands):

                                 Level 1     Level 2    Level 3    Total
                                 -------     -------    -------    -----
       Assets
       Available for Sale
       Investment securities     $1,042     $62,378    $    -     $63,420
                                 ------     -------    ------     -------
       Total                     $1,042     $62,378    $    -     $63,420
                                 ======     =======    ======     =======

     The following table presents the Corporation's assets measured at fair
value on a nonrecurring basis at June 30, 2009 and the total losses resulting
from these fair value adjustments for the three months ended June 30, 2009 (in
thousands):

                                                                        Total
                               Level 1   Level 2    Level 3   Total    Losses
                               -------   -------    -------   -----    ------
       Assets
       Impaired loans          $   -     $    -    $196,871  $196,871  $23,174
       Real estate owned           -          -      22,537    22,537    1,369
                               -----     ------    --------  --------  -------
       Total                   $   -     $    -    $219,408  $219,408  $24,543
                               =====     ======    ========  ========  =======

     In accordance with FASB Statement 114, Accounting by Creditors for
Impairment of a Loan, impaired loans, with carrying amounts of $154.9 million
had specific valuation allowances totaling $38.9 million at June 30, 2009,
which were included in the allowance for loan losses.  The remaining
difference between the $196.9 million of impaired loans and the $154.9 million
with specific valuation allowances is comprised of $42.0 million of impaired
loans with no measureable amount of probable loss.

NOTE 7 - Investments
--------------------

     The Corporation reviews securities for the presence of
other-than-temporary impairment ("OTTI") on an ongoing basis when economic or
market concerns warrant such evaluation. Consideration is given to: (1) the
length of time and extent to which the fair value has been less than cost, (2)
the financial condition and near term prospects of the issuer and (3) intent
and ability to retain a security for a period of time sufficient to allow for
any anticipated recovery in fair value. Declines in the fair value of
available for sale and held to maturity securities below their cost that are
deemed to be other-than-temporary are reflected in earnings as realized
losses.  During the quarter ended June 30, 2009, the Bank recognized a
$204,000 OTTI charge related to 19 non-agency private-label mortgage-backed
securities.  These private label mortgage-backed securities are included in
investments available for sale where the default rates, declines in investment
ratings and loss severities of the underlying collateral indicate credit
losses have occurred that are not expected to be recovered.  The measured loss
has been identified with the credit component of the securities and is not
reflective of a temporary change in market value.  These securities were
valued by third party pricing services using readily available market quotes.
There were no similar charges recorded during the three months ended March 31,
2009 and June 30, 2008.

13

<PAGE>



NOTE 8 - Income Taxes
---------------------

     At June 30, 2009, the Corporation had $19.4 million of net deferred tax
asset which were comprised of tax-affected cumulative temporary differences,
which have resulted, to a large extent, from the significant increase in the
provision for loan losses. In evaluating the need for a valuation allowance,
the Corporation considered all of the events and evidence available, including
the Corporation's cumulative loss position, income tax carry-back and
carry-forward benefits and the challenges in predicting future operating
results. Management concluded that it is more likely than not that the
majority of the net deferred tax asset will not be available as a benefit in
future periods due to uncertainties surrounding the Corporation's ability to
generate sufficient taxable income.  This determination was a result of recent
events in the market and the challenges we face in forecasting future profit
levels on a continuing basis.  Therefore, at June 30, 2009 the Corporation
recognized a valuation allowance to fully reserve against the net deferred tax
asset. The Corporation incurred an additional accounting income tax provision
in the amount of $19.4 million, primarily as a result of recognizing the
valuation allowance against the net deferred tax asset.

     The non-cash valuation allowance that has been established may be
partially or entirely reduced in future periods to the extent the Corporation
can generate taxable income sufficient to offset the tax deductions
represented by the net deferred tax asset.  If the valuation allowance is
reduced or eliminated, future tax benefits will be recognized that will have a
positive non-cash impact on the Corporation's net income and stockholders'
equity.

NOTE 9 - Impact of New Accounting Pronouncements
------------------------------------------------

     In June 2009, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles.  This Statement identifies the
sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles ("GAAP") in the United States (the GAAP hierarchy).  This Statement
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009, and is not expected to have a material impact
on our consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R) ("SFAS 167").  SFAS 167 changes how to determine when
an entity that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The determination of
whether to consolidate an entity is based on, among other things, an entity's
purpose and design and the Corporation's ability to direct the activities of
the entity that most significantly impact the entity's economic performance.
SFAS 167 requires additional disclosures about the Corporation's involvement
with variable interest entities and any significant changes in risk exposure
due to that involvement.  Required disclosures include how the involvement
with a variable interest entity affects the company's financial statements.
SFAS 167 is effective for fiscal years beginning after November 15, 2009, and
is not expected to have a material impact on our consolidated financial
statements.

     In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets ("SFAS 166").  SFAS 166 is a revision to Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and will require more information about transfers of financial
assets, including securitization transactions, and where companies have
continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a "qualifying special-purpose entity," changes the
requirements for derecognizing financial assets, and requires additional
disclosures.  SFAS 166 enhances information reported to users of financial
statements by providing greater transparency about transfers of financial
assets and a company's continuing involvement in transferred financial assets.
SFAS 166 is effective for fiscal years beginning after November 15, 2009, and
is not expected to have a material impact on our consolidated financial
statements.

14

<PAGE>


PART II.  OTHER INFORMATION


Item 6.  Exhibits

(a)      Exhibits
         --------
         (3.1)   Articles of Incorporation of Horizon Financial, Corp.
                 (incorporated by reference to Exhibit 3.1 to the Registrant's
                 Current Report on Form 8-K dated October 13, 1995)
         (3.2)   Bylaws of Horizon Financial Corp. (incorporated by reference
                 to Exhibit 3.2 to the Registrant's Current Report on Form 8-K
                 dated October 13, 1995)
         (10.1)  Amended and Restated Employment Agreement with V. Lawrence
                 Evans (incorporated by reference to the Registrant's Annual
                 Report on Form 10-K for the year ended March 31, 1996)
         (10.2)  Deferred Compensation Plan (incorporated by reference to the
                 Registrant's Annual Report on Form 10-K for the year ended
                 March 31, 1996)
         (10.3)  Bank of Bellingham 1993 Employee Stock Option Plan
                 (incorporated by reference to Exhibit 99 to the Registrant's
                 Registration Statement on Form S-8 (File No. 33-88571)
         (10.4)  Severance Agreement with Dennis C. Joines (incorporated by
                 reference to the Registrant's Annual Report on Form 10-K for
                 the year ended March 31, 2002)
         (10.5)  Severance Agreement with Richard P. Jacobson, as amended
                 (incorporated by reference to the Registrant's Current Report
                 on Form 8-K dated January 23, 2008)
         (10.6)  Severance Agreement with Steven L. Hoekstra (incorporated by
                 reference to the Registrant's Quarterly Report on Form 10-Q
                 for the quarter ended September 30, 2002)
         (10.7)  Stock Incentive Plan (incorporated by reference to Exhibit 99
                 to the Registrant's Registration Statement on Form S-8 (File
                 No. 333-127178))
         (10.8)  Form of Incentive Stock Option Award Agreement under the 2005
                 Stock Incentive Plan (incorporated by reference to Exhibit
                 99.1 contained in the Registrant's Current Report on Form 8-
                 K dated July 27, 2005)
         (10.9)  Form of Non-qualified Stock Option Award Agreement under the
                 2005 Stock Incentive Plan (incorporated by reference to
                 Exhibit 99.1 contained in the Registrant's Current Report on
                 Form 8-K dated July 27, 2005)
         (10.10) Form of Restricted Stock Award Agreement under the 2005 Stock
                 Incentive Plan (incorporated by reference to Exhibit 99.1
                 contained in the Registrant's Current Report on Form 8-K
                 dated July 27, 2005)
         (10.11) Form of Salary Continuation Agreement between Horizon Bank
                 and Executive Officers Steven L. Hoekstra, Richard P.
                 Jacobson and Dennis C. Joines (incorporated by reference to
                 Exhibit 99.1 contained in the Registrant's current Report on
                 Form 8-K dated June 27, 2006)
         (10.12) Amended Salary Continuation Agreement between Horizon Bank
                 and Richard P. Jacobson (incorporated by reference to Exhibit
                 10.1 contained in the Registrant's Current Report on Form 8-
                 K dated January 23, 2008)
         (10.13) Transition agreement with V. Lawrence Evans (incorporated by
                 reference to the registrant's Current Report on Form 8-K
                 dated March 25, 2008)
         (10.14) Severance Agreement with Greg B. Spear (incorporated by
                 reference to the Registrant's Current Report on Form 8-K
                 dated October 24, 2008)
         (14)    Code of Ethics (incorporated by reference to the Registrant's
                 Annual Report on Form 10-K for the year ended March 31, 2007)
         (31)    Certification of Chief Executive Officer and Chief financial
                 Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
         (32)    Certification of Chief Executive Officer and Chief Financial
                 Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

15

<PAGE>



                                  SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                               HORIZON FINANCIAL CORP.



                               By:  /s/ Richard P. Jacobson
                                    ------------------------
                                    Richard P. Jacobson
                                    Chief Executive Officer


                               Dated:  August 10, 2009

16

<PAGE>



                                Exhibit Index
                                -------------

Exhibit 31.1    Certification of Chief Executive Officer Pursuant to Section
                302 of the Sarbanes-Oxley Act
Exhibit 31.2    Certification of Chief Financial Officer Pursuant to Section
                302 of the Sarbanes-Oxley Act
Exhibit 32      Certification of Chief Executive Officer and Chief Financial
                Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

17

<PAGE>