Summary of HORIZON FINANCIAL CORP

Item 1.01 Entry Into a Material Definitive Agreement.

FDIC Order

On February 26, 2009, Horizon Bank (the "Bank"), wholly-owned subsidiary of Horizon Financial Corp. ("Company") entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist with the Federal Deposit Insurance Corporation, or FDIC, and the Washington Department of Financial Institution, or
DFI.

Under the terms of the FDIC 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 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 FDIC order will remain in effect until modified or terminated by the FDIC and the DFI.

All customer deposits remain fully insured to the fullest extent permitted by the FDIC. The Bank expects to continue to serve its customers in all areas including making loans, establishing lines of credit, accepting deposits and processing banking transactions. Neither the Company nor the Bank admitted any wrongdoing in entering into the Stipulation and Consent to the Issuance of a Cease and Desist Order. The FDIC and DFI did not impose or recommend any monetary penalties.

The description of the Order and the Stipulation and Consent set forth in this Item 1.01 are qualified in their entirety by reference to the Order and Stipulation and Consent, copies of which are attached as Exhibits 10.1 and 10.2, respectively hereto and are incorporated by reference herein in their entirety.

FRB Notice

On February 6, 2009, the Federal Reserve Bank of San Francisco, or FRB, notified the Company and the Bank that in light of the seriousness of the supervisory concerns, immediate efforts by the board and management are essential to return the company to a satisfactory condition for purposes of Section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. As a result of this notification neither the Company 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 Company nor the Bank may make indemnification and severance payments without complying with certain statutory restrictions including prior written approval of the FRB and concurrence from the FDIC.

On March 2, 2009, the Company issued a press release with respect to the foregoing matters, a copy of which is attached hereto as Exhibit 99.1.