SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                  FORM 10-Q

                                 (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, 2004

                                     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)

                    Chartered by the State of Washington
                    ------------------------------------
      (State or other jurisdiction of incorporation or organization)

                                 91-1695422
                                 ----------
                     (IRS 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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 YES   X   NO
                                    -------   -------

As of  June 30, 2004,  10,303,013 common shares, $1.00 par value, were
outstanding.

1

<PAGE>


                             HORIZON FINANCIAL CORP.

INDEX                                                                PAGE
-----                                                                ----

PART 1        FINANCIAL INFORMATION

Item 1        Financial Statements

              Consolidated Statements of Financial Position           3

              Consolidated Statements of Income                       4

              Consolidated Statements of Stockholders' Equity         5

              Consolidated Statements of Cash Flows                   6

              Notes to Consolidated Financial Statements             7-8

Item 2        Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                 9-14

Item 3        Quantitative and Qualitative Disclosures About
                 Market Risk                                          14

Item 4        Controls and Procedures                                 14

PART II       OTHER INFORMATION

Item 1        Legal Proceedings                                       15

Item 2        Changes in Securities, Use of Proceeds, and
                 Issuer Purchases of Equity Securities                15

Item 3        Defaults Upon Senior Securities                         15

Item 4        Submission of Matters to a Vote of  Security Holders    15

Item 5        Other Information                                       15

Item 6        Exhibits and Reports on Form 8-K                        15


                 SIGNATURES                                           16

2

<PAGE>



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

                             HORIZON FINANCIAL CORP.
                 Consolidated Statements of Financial Position

                                    ASSETS

                                                     June 30,     March 31,
                                                       2004         2004
                                                   (unaudited)
                                                  ------------  ------------
Cash and cash equivalents                         $ 17,888,032  $ 18,431,964
Interest-bearing deposits                           10,421,232    20,767,398
Investment securities
  Available-for-sale                                83,756,442    85,183,872
  Held-to-maturity                                     369,482       369,444
Mortgage-backed securities
  Available-for-sale                                22,718,625    27,759,813
  Held-to-maturity                                   1,398,013     1,544,034
Federal Home Loan Bank Stock                         7,084,600     7,014,900
Loans receivable, net of allowance of loan
 losses of $10,534,187 at June 30 and
 $10,121,532 at March 31                           690,508,898   658,226,144
Loans held for sale, at fair value                   3,277,670     1,333,500
Accrued interest and dividends receivable            3,988,689     4,032,007
Bank premises and equipment, net                    18,784,627    17,193,671
Deferred income tax receivables                      1,595,590       831,123
Real estate owned                                       63,432        63,432
Other assets                                        15,687,434    16,124,579
                                                  ------------  ------------

TOTAL ASSETS                                      $877,542,766  $858,875,881
                                                  ============  ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                          $679,918,924  $670,259,218
Accounts payable and other liabilities               5,847,769     8,301,761
Other borrowed funds                                79,832,863    67,468,842
Advances by borrowers for taxes and insurance          195,879       416,899
Income tax currently payable                         2,403,061     1,375,274
Deferred compensation                                1,765,445     1,746,894
                                                  ------------  ------------
     Total liabilities                             769,963,941   749,568,888
                                                  ------------  ------------

COMMITMENTS AND CONTINGENCIES

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; 10,303,013 and 10,405,331 issued and
   outstanding, respectively                        10,303,013    10,405,331
  Additional paid-in capital                        56,336,087    56,893,824
  Retained earnings                                 37,460,871    36,925,836
  Unearned ESOP shares                                (144,205)     (144,205)
  Accumulated other comprehensive income,
   net of tax                                        3,623,059     5,226,207
                                                  ------------  ------------
     Total stockholders' equity                    107,578,825   109,306,993
                                                  ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $877,542,766  $858,875,881
                                                  ============  ============

                 (See Notes to Consolidated Financial Statements)

3

<PAGE>



                             HORIZON FINANCIAL CORP.
                  CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                      Three months ended
                                                            June 30,
                                                        2004        2003
                                                    -----------  -----------

INTEREST INCOME
  Interest on loans                                 $11,065,554  $11,054,413
  Interest on investments and mortgage-backed
   securities                                         1,112,656    1,440,174
                                                    -----------  -----------
     Total interest income                           12,178,210   12,494,587
                                                    -----------  -----------

INTEREST EXPENSE
  Interest on deposits                                3,142,172    3,572,455
  Interest on other borrowings                          589,050      563,997
                                                    -----------  -----------
     Total interest expense                           3,731,222    4,136,452
                                                    -----------  -----------
     Net interest income                              8,446,988    8,358,135

PROVISION FOR LOAN LOSSES                               300,000      525,000
                                                    -----------  -----------
     Net interest income after provision for
      loan losses                                     8,146,988    7,833,135
                                                    -----------  -----------

NONINTEREST INCOME
  Service fees                                          844,418      738,189
  Other                                                 262,162      492,134
  Net gain on sales of loans - servicing released       335,104      794,535
  Net gain on sales of loans - servicing retained         9,983        2,115
  Net gain on sale of investment securities             317,311        4,348
                                                    -----------  -----------
     Total noninterest income                         1,768,978    2,031,321
                                                    -----------  -----------

NONINTEREST EXPENSE
  Compensation and employee benefits                  3,010,924    2,779,136
  Building occupancy                                    642,506      605,572
  Other expenses                                      1,178,639    1,236,566
  Data processing                                       192,478       82,349
  Advertising                                           189,274      212,136
                                                    -----------  -----------
     Total noninterest expense                        5,213,821    4,915,759
                                                    -----------  -----------

NET INCOME BEFORE PROVISION FOR INCOME TAX            4,702,145    4,948,697

PROVISION FOR INCOME TAX                              1,427,787    1,627,357
                                                    -----------  -----------

NET INCOME                                          $ 3,274,358  $ 3,321,340
                                                    ===========  ===========

BASIC EARNINGS PER SHARE                               $  .32       $  .31
                                                       ======       ======

DILUTED EARNINGS PER SHARE                             $  .31       $  .31
                                                       ======       ======


                  (See Notes to Consolidated Financial Statements)

4

<PAGE>


<TABLE>
                                         HORIZON FINANCIAL CORP.
                            Consolidated Statements of Stockholders' Equity
                                Three Months Ended June 30, 2004 and 2003
                                               (unaudited)

                                                                                        Accumu-
                                                                                        lated
                                                                                        Other
                            Common Stock                                                Compre-
                       ---------------------    Additional                Unearned      hensive   Treasury
                        Number of                 Paid-In     Retained      ESOP        Income      Stock
                         Shares       At Par      Capital     Earnings     Shares       (Loss)     at Cost
                       ---------  -----------  -----------  -----------  ---------   ----------  ----------

                   <c>         <c>          <c>          <c>          <c>         <c>         <c>
BALANCE, March 31,
 2003                 10,550,113  $10,550,113  $57,352,824  $32,527,963  $(216,309) $ 6,028,927   $       -
Comprehensive income
 Net income                    -            -            -    3,321,340          -            -           -
 Other comprehensive
  income
  Change in unrealized
   gains on available-
   for-sale securities,
   net of tax of $25,188       -            -            -            -          -       48,894           -
  Total other compre-
   hensive income              -            -            -            -          -            -           -
  Comprehensive income         -            -            -            -          -            -           -
Cash dividends on
 common stock at
 $.12/share                    -            -            -   (1,262,550)         -            -
Stock options exercised   37,301       37,301      250,919            -          -            -           -
Dividend reinvestment
 plan                      9,593        9,593      142,456            -          -            -           -
Treasury stock purchased       -            -            -            -          -            -  (1,249,149)
Retirement of treasury
 stock                   (77,300)     (77,300)    (440,687)    (731,162)         -            -   1,249,149
                      ----------  -----------  -----------  -----------  ---------  -----------  ----------
BALANCE, June 30,
 2003                 10,519,707  $10,519,707  $57,305,512  $33,855,591  $(216,309) $ 6,077,821  $        -
                      ==========  ============ ===========  ===========  =========  ===========  ==========

BALANCE, March 31,
 2004                 10,405,331  $10,405,331  $56,893,824  $36,925,836  $(144,205) $ 5,226,207  $        -
Comprehensive income
 Net income                    -            -            -    3,274,358          -            -           -
 Other comprehensive
  income
  Change in unrealized
   losses on available-
   for-sale securities,
   net taxes (benefit)
   of $(825,864)               -            -            -            -          -   (1,603,148)          -
  Total other compre-
   hensive income              -            -            -            -          -            -           -
Comprehensive income           -            -            -            -          -            -           -
Cash dividends on common
 stock at $.13/sh              -            -            -   (1,338,923)         -            -           -
Stock options exercised   23,079       23,079      157,151            -          -            -           -
Treasury stock purchased       -            -            -            -          -            -  (2,240,685)
Retirement of treasury
 stock                  (125,397)    (125,397)    (714,888)  (1,400,400)         -            -   2,240,685
                      ----------  -----------  -----------  -----------  ---------  -----------  ----------

BALANCE, June 30,
 2004                 10,303,013  $10,303,013  $56,336,087  $37,460,871  $(144,205) $ 3,623,059  $        -
                      ==========  ============ ===========  ===========  =========  ===========  ==========

                                  (See Notes to Consolidated Financial Statements)

</TABLE>

<TABLE>
                                                    Total
                            Stockholders'        Comprehensive
                               Equity               Income
                            ------------        --------------


                        <c>                  <c>
BALANCE, March 31,
 2003                       $106,243,518
Comprehensive income
 Net income                    3,321,340         $ 3,321,340
 Other comprehensive
  income
  Change in unrealized
   gains on available-
   for-sale securities,
   net of tax of $25,188          48,894              48,894
                                                 -----------
  Total other compre-
   hensive income                      -              48,894
                                                 -----------
  Comprehensive income                 -         $ 3,370,234
                                                 ===========
Cash dividends on
 common stock at
 $.12/share                   (1,262,550)
Stock options exercised          288,220
Dividend reinvestment
 plan                            152,049
Treasury stock purchased      (1,249,149)
Retirement of treasury
 stock                                 -
                            ------------
BALANCE, June 30,
 2003                       $107,542,322
                            ============

BALANCE, March 31,
 2004                       $109,306,993
Comprehensive income
 Net income                    3,274,358         $ 3,274,358
 Other comprehensive
  income
  Change in unrealized
   losses on available-
   for-sale securities,
   net taxes (benefit)
   of $(825,864)              (1,603,148)         (1,603,148)
                                                 -----------
  Total other compre-
   hensive income                      -          (1,603,148)
                                                 -----------
Comprehensive income                   -         $ 1,671,210
                                                 ===========
Cash dividends on common
 stock at $.13/sh             (1,338,923)
Stock options exercised          180,230
Treasury stock purchased      (2,240,685)
Retirement of treasury
 stock                                 -
                            ------------

BALANCE, June 30,
 2004                       $107,578,825
                            ============

                               (See Notes to Consolidated Financial Statements)

</TABLE>

5

<PAGE>



                             HORIZON FINANCIAL CORP.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                       Three Months Ended
                                                            June 30,
                                                        2004        2003
                                                    -----------  -----------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                        $ 3,274,358  $ 3,321,340
Adjustments to reconcile net income to net
cash provided by operating activities
  Depreciation and amortization                          40,715      507,909
  Stock dividends - Federal Home Loan Bank stock        (69,700)    (110,400)
  Provision for loan losses                             300,000      525,000
Changes in assets and liabilities
  Accrued interest and dividends receivable              43,318      369,622
  Interest payable                                          990      (13,322)
  Net change in loans held for sale                  (1,944,170)  (3,566,816)
  Federal income tax (receivable) payable             1,027,787    1,427,357
  Other assets                                          437,145      317,152
  Other liabilities                                  (2,695,695)   3,865,837
                                                    -----------  -----------
    Net cash flows from operating activities            414,748    6,643,679
                                                    -----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in interest-bearing deposits, net       10,346,166   31,601,663
  Purchases of investment securities -
   available-for-sale                                (9,285,000)  (7,359,977)
  Proceeds from sales and maturities of
   investment securities - available-for-sale         8,597,946    3,604,301
  Purchases of mortgage-backed securities -
   available-for-sale                                         -  (11,300,000)
  Proceeds from maturities of mortgage-backed
   securities - available-for-sale                    4,788,058    4,410,858
  Proceeds from maturities of mortgage-backed
   securities - held-to-maturity                        145,983      491,655
  Net change in loans                               (32,339,670) (19,308,387)
  Purchases of bank premises and equipment           (1,874,755)  (1,072,218)
  Net change in other real estate owned                       -      919,039
                                                    -----------  -----------
    Net cash flows from investing activities        (19,621,272)   1,986,934
                                                    -----------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in deposits                              9,659,706   (3,071,111)
  Advances from other borrowed funds                 19,364,021     (620,155)
  Repayments of other borrowed funds                 (7,000,000)           -
  Common stock issued, net                              180,230      304,684
  Cash dividends paid                                (1,300,680)  (1,077,863)
  Treasury stock purchased                           (2,240,685)  (1,249,149)
                                                    -----------  -----------
    Net cash flows from financing activities         18,662,592   (5,713,594)
                                                    -----------  -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                (543,932)   2,917,019

CASH AND CASH EQUIVALENTS, beginning of period       18,431,964   15,083,505
                                                    -----------  -----------

CASH AND CASH EQUIVALENTS, end of period            $17,888,032  $18,000,524
                                                    ===========  ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the period for interest          $ 3,730,232  $ 4,149,733
                                                    ===========  ===========
  Cash paid during the period for income tax        $   400,000  $   200,000
                                                    ===========  ===========

               (See Notes to Consolidated Financial Statements)

6

<PAGE>



                          HORIZON FINANCIAL CORP.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      THREE MONTHS ENDED JUNE 30, 2004
                                (unaudited)


NOTE 1 -

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


     The consolidated financial statements as of and for the three months
ended June 30, 2004, include the accounts of Horizon Financial Corp. (the
Corporation), Horizon Bank (the Bank), and other subsidiaries of the Bank.
Significant intercompany balances and transactions have been eliminated in
consolidation. The Corporation has engaged in no 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.

     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 periods
ended June 30, 2004 and 2003 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 for the year ended March 31, 2004.


Reclassification
----------------


     Certain reclassifications have been made to prior financial statements to
conform with current presentation.  Such reclassifications have no effect on
net income.


Net Income Per Share
--------------------


     Basic earnings per share (EPS) for the three months ended June 30, 2004
and 2003 are calculated on the basis of 10,360,624 and 10,551,570 weighted
average shares outstanding. Diluted EPS for the three months ended June 30,
2004 and 2003 are calculated on the basis of 10,524,783 and 10,770,467
weighted average shares outstanding, respectively.  Diluted EPS figures are
computed by determining the number of additional shares that are deemed
outstanding due to stock options and warrants under the treasury stock method.

7

<PAGE>



Stock Options
-------------

     The Corporation recognizes the financial effects of stock options under
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees (APB 25). Generally,
stock options are issued at a price equal to the fair value of the Company's
stock as of the grant date.

     Under APB 25, options issued in this manner do not result in the
recognition of employee compensation in the Corporation's financial
statements. Disclosures required by Statement of Financial Accounting Standard
No. 123 Accounting for Stock-Based Compensation, as amended are as follows:


Pro forma disclosures:


                                            For the quarter ended June 30,
                                                 2004           2003
                                             ----------      ----------
Net income as reported                       $3,274,358      $3,321,340
Additional compensation for fair value
 of stock options                               (11,932)        (27,324)
                                             ----------      ----------
Pro forma net income                         $3,262,426      $3,294,016
                                             ==========      ==========

Earnings per share

Basic

  As reported                                   $   .32         $   .31
                                                =======         =======
  Pro forma                                     $   .31         $   .31
                                                =======         =======

Diluted

  As reported                                   $   .31         $   .31
                                                =======         =======
  Pro forma                                     $   .31         $   .31
                                                =======         =======

8

<PAGE>



Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS


     The following discussion is intended to assist in understanding the
financial condition and results of operations of the Corporation and its
subsidiary. The information contained in this section should be read in
conjunction with the Consolidated Financial Statements and the accompanying
Notes contained herein.

Forward Looking Statements
--------------------------

     Management's Discussion and Analysis and other portions of this report
contain certain "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  This statement is for the express
purpose of availing the Corporation of the protections of such safe harbor
provisions of said Act with respect to all "forward looking statements."  The
Corporation has used "forward looking statements" to describe future plans and
strategies, including expectations of its potential future financial results.
Management's ability to predict results or the effect of future plans and
strategies is inherently uncertain.  Factors that could affect results
include, but are not limited to: the future level of interest rates, loan
demand, industry trends, general economic conditions, loan delinquency rates,
and changes in state and federal regulations.  These factors should be
considered when evaluating the "forward looking statements" and undue reliance
should not be placed on such statements.

General
-------

     Horizon Financial Corp. was formed under Washington law on May 22, 1995,
and became the holding company for Horizon Bank, effective October 13, 1995.
Effective June 19, 1999, the Corporation completed the acquisition of
Bellingham Bancorporation, whose wholly-owned subsidiary, Bank of Bellingham,
was merged with and into Horizon Bank.  At June 30, 2004, the Corporation had
total assets of $877.5 million, total deposits of $679.9 million and total
equity of $107.6 million.  The Corporation's business activities generally are
limited to passive investment activities and oversight of its investment in
the Bank.  Accordingly, the information set forth herein, including the
consolidated financial statements and related data, relates primarily to the
Bank and its subsidiary.

     The Bank was organized in 1922 as a Washington State chartered mutual
savings and loan association and converted to a federal mutual savings and
loan association in 1934.  In 1979, the Bank converted to a Washington State
chartered mutual savings bank, the deposits of which are insured by the
Federal Deposit Insurance Corporation (FDIC).  On August 12, 1986, the Bank
converted to a state chartered stock savings bank under the name "Horizon
Bank, a savings bank".  The Bank became a member of the Federal Home Loan Bank
(FHLB) of Seattle in December 1998.  Effective March 1, 2000, the Bank changed
its name to its current title, "Horizon Bank".

     The Bank's operations are conducted through 16 full-service office
facilities, located in Whatcom, Skagit and Snohomish counties in Northwest
Washington.  The acquisition of Bellingham Bancorporation increased the
Corporation's and the Bank's presence in Whatcom County.  During fiscal 2000,
the Bank purchased a bank site in Marysville.  In fiscal 2002, the Bank
acquired a bank site in Lynnwood, Washington, which was remodeled and opened
for business in March 2003.  The Bank  opened commercial banking/loan centers
in Bellingham, Snohomish and Everett and expanded its operations in Burlington
during the first quarter of fiscal 2004.  In June 2004, the Bank purchased a
building that was formerly occupied by another bank in the city of Lakewood,
located in Pierce County, just south of Tacoma.  The estimated opening for the
Lakewood office is January 2005.  Future plans for the Bank include the
opening of a full service office in Marysville during fiscal 2005 and a full
service office in Everett during fiscal 2006, which will replace the Bank's
existing Everett office.

     The Corporation's results of operations depend primarily on revenue
generated as a result of its net interest income and non-interest income.  Net
interest income is the difference between the interest income the Corporation
earns on its interest-earning assets (consisting primarily of loans and
investment securities) and the interest the Corporation pays on its
interest-bearing liabilities (consisting primarily of customer savings and
money market accounts, time deposits and borrowings).  Non-interest income
consists primarily of service charges on deposit and loan accounts, gains on
the sale of loans and investments, and loan servicing fees. The Corporation's
results of operations are also affected by its provisions for loan losses and
other expenses.  Other expenses consist primarily of non-interest expense,
including compensation and benefits, occupancy, equipment, data processing,
marketing, automated teller machine costs and, when applicable, deposit
insurance premiums.  The Corporation's results of operations may also be
affected significantly by general and local economic and competitive
conditions, changes in market interest rates, governmental policies and
actions of regulatory authorities.

9

<PAGE>



Operating Strategy
------------------

     The Corporation does not presently engage in any activities outside of
serving as a shell parent company for the Bank.  The operating strategy of the
Corporation has been to expand and diversify the consolidated operations of
the Corporation across a variety of companies and/or operating units that are
engaged in complementary, but different, businesses and/or operating
strategies.  This diversification strategy is expected to continue as
opportunities arise, although there are no specific acquisitions or new
business formations planned at this time.

     The primary business of the Bank is to acquire funds in the form of
deposits and wholesale funds, and to use the funds to make commercial,
consumer, and real estate loans in its primary market area.  In addition, the
Bank invests in a variety of investment grade securities including, but not
necessarily limited to U.S. Government and federal agency obligations,
mortgage-backed securities, corporate debt, equity securities, and municipal
securities.  The Bank intends to continue to fund its assets primarily with
retail and commercial deposits, although FHLB advances and other wholesale
borrowings may be used as a supplemental source of funds.

     The Corporation's profitability depends primarily on its net interest
income, which is the difference between the income it receives on the Bank's
loan and investment portfolio and the Bank's cost of funds, which consists of
interest paid on deposits and borrowings.

     Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities.  When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The
Corporation's profitability is also affected by the level of the Bank's other
income and expenses.  Other noninterest income includes income associated with
the origination and sale of mortgage loans, loan servicing fees and net gains
and losses on sales of interest-earning assets.  Other noninterest expenses
include compensation and benefits, occupancy and equipment expenses, deposit
insurance premiums, data servicing expenses and other operating costs.  The
Corporation's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation, regulation, and monetary and fiscal policies.

     The Bank's business strategy is to operate as a well-capitalized,
profitable and independent community bank, dedicated to commercial lending,
home mortgage lending, consumer lending, small business lending and providing
quality financial services to local personal and business customers.  The Bank
has sought to implement this strategy by: (i) focusing on commercial banking
opportunities;  (ii) continued efforts towards the origination of residential
mortgage loans, including one to four family residential construction loans;
(iii) providing high quality, personalized financial services to individuals
and business customers and communities served by its branch network; (iv)
selling many of its fixed rate mortgages to the secondary market; (v) focusing
on asset quality; (vi) containing operating expenses; and (vii) maintaining
capital in excess of regulatory requirements combined with prudent growth.

Financial Condition
-------------------

     Total consolidated assets for the Corporation as of June 30, 2004, were
$877,542,766, a 2.2% increase from the March 31, 2004, level of $858,875,881.
This increase in assets was due primarily to the growth in loans receivable,
which increased 4.9% to $690,508,898 from $658,226,144 at March 31, 2004.  The
following is an analysis of the loan portfolio by major type of loans:

                                          June 30,            March 31,
                                            2004                2004
                                        ------------        ------------
First mortgage loans
  1-4 Family                            $172,724,444        $183,622,770
  1-4 Family construction                 78,074,789          75,941,688
  Less participations                    (63,198,787)        (74,278,637)
                                        ------------        ------------
     Net first mortgage loans            187,600,446         185,285,821
Construction and land development         84,639,372          78,273,205
Residential commercial real estate        60,619,970          53,135,324
Non-residential commercial real estate   265,809,598         257,074,876
Commercial loans                          86,407,069          77,960,168
Home equity secured                       27,798,525          26,296,475
Other consumer loans                       5,661,705           6,330,294
                                        ------------        ------------
     Subtotal                            530,936,239         499,070,342
                                        ------------        ------------

                        (table continues on following page)

10

<PAGE>



                                          June 30,            March 31,
                                            2004                2004
                                        ------------        ------------

     Subtotal                            718,536,685         684,356,163
                                        ------------        ------------
Less:
  Undisbursed loan proceeds              (13,204,799)        (11,962,770)
  Deferred loan fees                      (4,288,801)         (4,045,717)
  Allowance for loan losses              (10,534,187)        (10,121,532)
                                        ------------        ------------
                                        $690,508,898        $658,226,144
                                        ============        ============

Net Residential loans                   $174,005,909   25%  $174,345,886   26%
Net Commercial loans                      84,713,083   12%    76,415,588   12%
Net Commercial RE loans                  398,920,508   58%   375,440,228   57%
Net Consumer loans                        32,869,398    5%    32,024,442    5%
                                        ------------  ---   ------------  ---
                                        $690,508,898  100%  $658,226,144  100%
                                        ============  ===   ============  ===

Also contributing to the change in assets was the decline in available for
sale (AFS) investment and mortgage-backed securities, which, combined,
decreased to $106,475,067 from $112,943,685 at March 31, 2004.

The tables below display the characteristics of the AFS and held to maturity
(HTM) portfolios as of June 30, 2004:

                                                                Estimated
                                    Amortized        Net          Fair
                                      Cost       Gain/(Loss)      Value
                                  ------------   ----------    ------------
AFS Securities
 State and political subdivisions
  and U.S. government agency
  securities                      $ 59,802,660  $  (127,919)   $ 59,674,741
 Marketable equity securities        1,826,862    5,342,051       7,168,913
 Mutual funds                        5,000,000      (50,352)      4,949,648
 Corporate debt securities          11,719,809      243,331      11,963,140
 Mortage-backed securities and
  CMOs                              22,574,856      143,769      22,718,625
                                  ------------   ----------    ------------
  Total available-for-sale
   securities                      100,924,187    5,550,880     106,475,067
                                  ------------   ----------    ------------
HTM Securities
 State and political subdivisions
  and U.S. government agency
  securities                           369,482       20,350         389,832
 Mortgage-backed securities and
  CMOs                               1,398,013      108,552       1,506,565
                                  ------------   ----------    ------------
  Total held-to-maturity
   securities                        1,767,495      128,902       1,896,397
                                  ------------   ----------    ------------
  Total securities                $102,691,682   $5,679,782    $108,371,464
                                  ============   ==========    ============

                                     Maturity Schedule of Securities
                      --------------------------------------------------------
                          Available-For-Sale             Held-To-Maturity
                      ---------------------------     ------------------------
                       Amortized      Estimated       Amortized     Estimated
                          Cost        Fair Value         Cost       Fair Value
                      ------------   ------------     ----------   -----------
Maturities:
  One year            $ 16,131,139   $ 16,392,027     $      481   $      502
  Two to five years     49,867,644     49,941,430      1,461,331    1,542,645
  Five to ten years      7,151,591      7,246,115         69,548       73,978
  Over ten years        20,946,951     20,776,934        236,135      279,272
                      ------------   ------------     ----------   ----------
                        94,097,325     94,356,506      1,767,495    1,896,397
                      ------------   ------------     ----------   ----------

Mutual funds and
 Marketable equity
 securities (liquid)     6,826,862     12,118,561              -            -
                      ------------   ------------     ----------   ----------
Total investment
 securities           $100,924,187   $106,475,067     $1,767,495   $1,896,397
                      ============   ============     ==========   ==========

     Total liabilities also increased slightly to $769,963,941 at June 30,
2004, from $749,568,888 at March 31, 2004.  This increase in liabilities was
due in large part to the growth in other borrowed funds, which increased 18.3%
to $79,832,863 from $67,468,842 at March 31, 2004.  The Bank borrowed
additional funds from the FHLB to help fund the growth in net loans receivable
to $690,508,898.  Also contributing to the net change in total liabilities was
the slight increase in deposits, to

11

<PAGE>



$679,918,924 from $670,259,218 at March 31, 2004.  The following is an
analysis of the deposit portfolio by major type of deposit at June 30, 2004
and March 31, 2004:

                                                     June 30       March 31
                                                  ------------  ------------
Demand deposits
  Savings                                          $40,583,295   $40,526,619
  Checking                                          77,168,014    78,697,106
  Checking (noninterest-bearing)                    52,405,860    44,773,672
  Money Market                                     133,655,295   131,310,670
                                                  ------------  ------------
                                                   303,812,464   295,308,067
                                                  ------------  ------------

Time certificates of deposit
  Less than $100,000                               245,099,406   245,608,118
  Greater than or equal to $100,000                131,007,054   129,343,033
                                                  ------------  ------------
                                                   376,106,460   374,951,151
                                                  ------------  ------------

Total deposits                                    $679,918,924  $670,259,218
                                                  ============  ============

     Stockholders' equity at June 30, 2004 decreased 1.6% to $107,578,825 from
$109,306,993 at March 31, 2004.  This decrease was due primarily to the
decrease in accumulated other comprehensive income to $3,623,059 at June 30,
2004 from $5,226,207 at March 31, 2004.  The primary reason for the decline
was the decrease in fair market value of various securities in the Bank's
portfolio due to rising interest rates.  The Corporation remains strong in
terms of its capital position, with a stockholder equity-to-assets ratio of
12.3% at June 30, 2004, compared to 12.73% at March 31, 2004.



Liquidity and Capital Resources
-------------------------------

     The Bank maintains liquid assets in the form of cash and short-term
investments to provide a source to fund loans, savings withdrawals, and other
short-term cash requirements.  At June 30, 2004, the Bank had liquid assets
(cash and marketable securities with maturities of one year or less) with a
book value of $71,033,843.

     As of June 30, 2004, the total book value of investments and
mortgage-backed securities was $102,691,682 compared to a market value of
$108,371,464 with an unrealized gain of $5,679,782.  As of March 31, 2004, the
total book value of investments and mortgage-backed securities was
$106,938,668, compared to a market value of $114,997,574 with an unrealized
gain of $8,058,906.   The Bank foresees no factors that would impair its
ability to hold debt securities to maturity.

     As indicated on the Corporation's Consolidated Statement of Cash Flows,
the Bank's primary sources of funds are cash flow from operations, which
consist primarily of mortgage loan repayments, deposit increases, loan sales,
borrowings and cash received from the maturity or sale of investment
securities.  The Bank's liquidity fluctuates with the supply of funds and
management believes that the current level of liquidity is adequate at this
time.  If additional liquidity is needed, the Bank's options include, but are
not necessarily limited to: 1) selling additional loans in the secondary
market; 2) entering into reverse repurchase agreements; 3) borrowing from the
FHLB of Seattle; 4) accepting additional jumbo and/or public funds deposits;
or 5) accessing the discount window of the Federal Reserve Bank of San
Francisco.

     Stockholders' equity as of June 30, 2004 was $107,578,825, or 12.26% of
assets, compared to $109,306,993, or 12.73% of assets at March 31, 2004.  The
Bank continues to exceed the 5.0% minimum tier one capital required by the
FDIC in order to be considered well capitalized.  The Bank's total
risk-adjusted capital ratio as of June 30, 2004 was 15.9%, compared to 16.6%
as of March 31, 2004.  These figures are well above the well-capitalized
minimum of 10% set by the FDIC.

     The Corporation has been in various stock buy-back programs since August
1996.  In March 2004, the Board of Directors approved a new stock repurchase
plan that runs concurrent with the 2005 fiscal year, allowing the Corporation
to repurchase up to 10% of total shares outstanding, or approximately 1.04
million shares.  This marked the Corporation's sixth stock repurchase plan.
During the quarter ended June 30, 2004, the Corporation repurchased 125,397
shares at an average price of $17.819.

     Management intends to continue its stock buy-back programs from time to
time as long as repurchasing the stock contributes to the overall growth of
shareholder value.  The number of shares of stock that will be repurchased and
the price that will be paid is the result of many factors, several of which
are outside of the Corporation's control.  The primary factors, however, are
market and economic factors such as the price at which the stock is trading in
the market, the number of shares

12

<PAGE>



available in the market; the attractiveness of other investment alternatives
in terms of the rate of return and risk involved in the investment; the
ability to increase the value and/or earnings per share of the remaining
outstanding shares and the Bank's and the Corporation's liquidity and capital
needs and regulatory requirements.  Presently, it is management's belief that
purchases made under the current Board approved plan will not materially
affect the Bank's capital or liquidity position.

Net Interest Income
-------------------

     Net interest income for the three months ended June 30, 2004 increased
1.1% to $8,446,988 from $8,358,135 in the same time period of the previous
year.  Interest on loans for the quarter ended June 30, 2004 increased
slightly to $11,065,554, from $11,054,413.  Included in these numbers are
$166,381 and $607,739, respectively of deferred fee income recognition as a
result of loan paydowns, payoffs, and loans sold from the available for sale
mortgage portfolio.  Interest and dividends on investments and mortgage-backed
securities decreased 22.7% to $1,112,656, from $1,440,174 for the comparable
quarter a year ago.  This decrease was due to an lower level of investments
and mortgage backed securities outstanding at June 30, 2004 of $125,748,394
versus $160,948,273 at June 30, 2003.  Total interest income decreased 2.5% to
$12,178,210 from $12,494,587 in the comparable period one year ago.

     Total interest paid on deposits decreased 12.0% to $3,142,172 at June 30,
2004 from $3,572,455 at June 30, 2003.  This decrease in interest expense is
due to an overall decline in interest rates.  Interest on borrowings increased
to $589,050 during the quarter ended June 30, 2004, compared to $563,997 for
the comparable period one year ago.  The increased expense in the current year
was due to a higher level of borrowings outstanding.  The Bank continues to
carry wholesale borrowings in order to further leverage its balance sheet and
better manage its interest rate risk profile.

Provision for losses on loans
-----------------------------

     Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered by management as adequate to
provide for known and inherent risks in the loan portfolio, based on
management's continuing analysis of factors underlying the quality of the loan
portfolio.  These factors include changes in portfolio size and composition,
actual loss experience, current economic conditions, detailed analysis of
individual loans for which full collectibility may not be assured, and
determination of the existence and realizable value of the collateral and
guarantees securing the loans.

     The provision for loan losses was $300,000 for the quarter ended June 30,
2004 compared to $525,000 for the quarter ended June 30, 2003  This decrease
resulted from management's ongoing analysis of changes in loan portfolio
composition by collateral categories, overall credit quality of the portfolio,
peer group analysis and current economic conditions.  The reserve for loan
losses was $10,534,187, or 1.53% of net loans receivable at June 30, 2004,
compared to $8,768,273, or 1.46% of net loans receivable at June 30 2003.  The
increased reserve level at June 30, 2004 compared to the June quarter one year
ago was due to the continued loan portfolio growth in the higher-risk lending
categories of commercial and multi-family construction/permanent loans and
business loans during the period, which comprised $483.6 million, or 70.1% of
the portfolio at June 30, 2004, versus $402.6 million, or 67.0% at June 30,
2003.

     As of June 30, 2004, there were three loans in the Bank's portfolio over
90 days delinquent and no loans on nonaccrual status.  At June 30, 2004 total
non-performing loans were $133,030.  Real estate owned at June 30, 2004
totaled $63,432.  Total non-performing assets represented .02% of total assets
at June 30, 2004 compared to $502,412 or .06% of total assets at June 30,
2003.

                                                     As of June 30,
Non-Performing Assets                               2004         2003
                                                  --------     --------

Accruing loans - 90 days past due                 $133,030     $348,764
Non-accrual loans                                        -          346
                                                  --------     --------
Total non-performing loans                         133,030      349,110
Total non-performing loans/net loans                  0.02%        0.06%
Real estate owned                                   63,432      153,302
                                                  --------     --------
Total non-performing assets                        196,462      502,412
                                                  --------     --------
Total non-performing assets/total assets              0.02%        0.06%

13

<PAGE>



Noninterest Income
------------------

     Noninterest income for the three months ended June 30, 2004 decreased
12.9% to $1,768,978 from $2,031,321 for the same time period a year ago.
Service fee income increased 14.4% to $844,418 from $738,189.  The primary
reason for the increase over the prior year was increased deposit related fees
due to the growth in deposits outstanding and revisions to the Bank's fee
schedules during fiscal 2004.  The net gain on the sale of loans servicing
released decreased to $335,104 from $794,535 in the comparable period one year
ago. The recent low mortgage rate environment was the primary reason for the
increased amount in the prior year.  The net gain on sales of investment
securities increased to $317,311 in the quarter ended June 30, 2004 from
$4,348 in the quarter ended June 30, 2003.  The gains in the current period
were due primarily to the sale of selected common stocks from the AFS
investment portfolio.  Other non interest income for the quarter decreased
46.7% to $262,162 from $492,134.  The primary reason for the increase in the
prior period was the recognition of approximately $96,000 in profit from a
real estate development project from a joint venture of the Bank's wholly
owned subsidiary, Westward Financial Services Corporation and approximately
$61,000 recognized in profit on sale of other real estate owned.

Noninterest Expense
-------------------

     Noninterest expense for the three months ended June 30, 2004 increased
6.1% to $5,213,821 from $4,915,759.  Compensation and employee benefits
increased 8.3% for the quarter ended June 30, 2004 to $3,010,924 from
$2,779,136.  The increase in compensation and employee benefits was primarily
due to the overall growth in employment at the Bank, including key additions
to staff as the Bank continues its efforts to enhance its commercial banking
expertise.  Building occupancy for the quarter ended June 30, 2004 increased
6.1% to $642,506 from $605,572.  Data processing expenses increased 133.7% to
$192,478 from $82,349.  The primary reason for the lesser amount in the prior
period relates to a renegotiation of the Bank's contract with its core data
processor which included substantial concessions in the first quarter of
fiscal 2004, and a reduced monthly expense thereafter.   Advertising and
marketing expenses for the quarter ended June 30, 2004 decreased 10.8% to
$189,274 from $212,136.  The increased levels in the prior period were due
primarily to the transition to a new advertising and marketing agency, and the
development of a new brand strategy for the Bank.  Other non-interest expense
decreased slightly to $1,178,639 from $1,236,566 due a decreasing mortgage
servicing portfolio which results in less amortization related to the loan
service asset.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

     The Corporation continues to be exposed to interest rate risk.
Currently, the Corporation's assets and liabilities are not materially exposed
to foreign currency or commodity price risk.  At June 30, 2004, the
Corporation had no off-balance sheet derivative financial instruments, nor did
it have a trading portfolio of investments.  At June 30, 2004, there were no
material changes in the Corporation's market risk from the information
provided in the Form 10-K for the fiscal year ended March 31, 2004.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures
------------------------------------------------

     An evaluation of the Corporation's disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the participation of
the Corporation's Chief Executive Officer, Chief Financial Officer, and
several other members of the Corporation's senior management as of the end of
the period preceding the filing date of this quarterly report.  The
Corporation's Chief Executive Officer and Chief Financial Officer concluded
that the Corporation's disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
by the Corporation in the reports it files or submits under the Act is (i)
accumulated and communicated to the Corporation's management (including the
Chief Executive Officer and Chief Financial Officer) in a timely manner, and
(ii) recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms.

Changes in Internal Controls
----------------------------

     In the quarter ended June 30, 2004, the Corporation did not make any
significant changes in, nor take any corrective actions regarding, its
internal controls or other factors that could significantly affect these
controls.

14

<PAGE>



PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings
            Horizon Financial Corporation has certain litigation and/or
            negotiations in progress resulting from activities arising from
            normal operations.  In the opinion of management, none of these
            matters are likely to have a materially adverse effect on the
            Corporation's financial position or results of operation.

Item 2.   Changes in Securities, Use of Porceeds and Issuer Repurchases of
          Equity Securities

                                                                  (d) Maximum
                                                    (c) Total      Number (or
                                                    Number of     approximate
                                                       Shares    Dollar Value)
                                                    (or Units)  of shares (or
                                                    Purchased     Units) that
                       (a) Total                   as Part of      May Yet Be
                       Number of     (b) Average     Publicly       Purchased
                      Shares (or      Price Paid    Announced       Under the
                           Units)      Per Share     Plans or        Plans or
     Period            Purchased        (or Unit)    Programs        Programs
------------------    ----------     -----------   ----------   --------------

April 1, 2004 -
 April 30, 2004          3,200         $17.272        3,200       1,036,800
May 1, 2004 -
 May 31, 2004           76,100          17.428       79,300         960,700
June 1, 2004 -
 June 30, 2004          46,097          18.501      125,397         914,603
Total                  125,397          17.819      125,397         914,603

Item 3.   Defaults Upon Senior Securities
            None

Item 4.   Submission of Matters to a Vote of Security Holders
            None

Item 5.   Other Information
            None

Item 6.   Exhibits and Reports on Form 8-K

(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)   1986 Stock Option and Incentive Plan (incorporated by
                    reference to Exhibit 99.1 to the Registrant's Registration
                    Statement on Form S-8 (File No. 33-99780))
           (10.4)   1995 Stock Option Plan (incorporated by reference to
                    Exhibit 99.2 to the Registrant's Registration Statement on
                    Form S-8 (File No. 33-99780))
           (10.5)   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))
           (10.6)   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, 2004)
           (10.7)   Severance Agreement with Richard P. Jacobson (incorporated
                    by reference to the Registrant's Quarterly Report on Form
                    10-Q for the quarter ended June 30, 2002)
           (10.8)   Severance Agreement with Steven L. Hoekstra (incorporated
                    by reference to the Registrant's Quarterly Report on Form
                    10-Q for the quarter ended June 30, 2002)
           (31.1)   Certification of Chief Executive Officer Pursuant to
                    Section 302 of the Sarbanes-Oxley Act
           (31.2)   Certification of 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

(b)       Reports on Form 8-K:
          --------------------

          A Current Report on Form 8-K (Items 7 and 12) was filed on April 22,
          2004 regarding the Corporation's earnings for the fourth quarter and
          year ended March 31, 2003.

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/ V. Lawrence Evans
                              -------------------------------
                              V. Lawrence Evans
                              Chairman, President, and Chief Executive Officer


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



                          Dated:  August 5, 2004
                                --------------------

16

<PAGE>



                                    Exhibit 31.1

                                   Certification

I, V. Lawrence Evans, certify that:

1.   I have reviewed this Quarterly Report on  Form 10-Q of Horizon Financial
     Corp;

2.   Based on my knowledge, this report does not contain any untrue statement
     of a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered
     by this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as
     defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
     and have:

     (a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known
          to us by others within those entities, particularly during the
          period in which this report is being prepared;

     (b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about
          the effectiveness of the disclosure controls and procedures, as of
          the end of the period covered by this report based on such
          evaluation; and

     (c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the
          registrant's most recent fiscal quarter (the registrant's fourth
          fiscal quarter in the case of an annual report) that has materially
          affected, or is reasonably likely to materially affect, the
          registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based
     on our most recent evaluation of internal control over financial
     reporting, to the registrant's auditors and the audit committee of the
     registrant's board of directors (or persons performing the equivalent
     functions):

     (a)  All significant deficiencies and material weaknesses in the design
          or operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal control over financial reporting.

Date:  August 5, 2004

                              /s/V. Lawrence Evans
                              ----------------------------------
                              V. Lawrence Evans
                              Chairman, President, and Chief Executive Officer
17

<PAGE>



                                 Exhibit 31.2

                                Certification

I, Richard P. Jacobson, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Horizon Financial
     Corp;

2.   Based on my knowledge, this report does not contain any untrue statement
     of a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered
     by this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as
     defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
     and have:

     (a)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known
          to us by others within those entities, particularly during the
          period in which this report is being prepared;

     (b)  Evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about
          the effectiveness of the disclosure controls and procedures, as of
          the end of the period covered by this report based on such
          evaluation; and

     (c)  Disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the
          registrant's most recent fiscal quarter (the registrant's fourth
          fiscal quarter in the case of an annual report) that has materially
          affected, or is reasonably likely to materially affect, the
          registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based
     on our most recent evaluation of internal control over financial
     reporting, to the registrant's auditors and the audit committee of the
     registrant's board of directors (or persons performing the equivalent
     functions):

     (a)  All significant deficiencies and material weaknesses in the design
          or operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  Any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal control over financial reporting.

Date:  August 5, 2004

                              /s/Richard P. Jacobson
                              ----------------------------------
                              Richard P. Jacobson
                              Chief Financial Officer, EVP
18

<PAGE>

                                   Exhibit 32


    CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF
                            HORIZON FINANCIAL CORP.
           PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report of
Form 10-Q, that:

     1. the report fully complies with the requirements of Sections 13(a) and
        15(d) of the Securities Exchange Act of 1934, as amended, and

     2. the information contained in the report fairly presents, in all
        material respects, the company's financial condition and results of
        operations.

/s/V. Lawrence Evans                       /s/Richard P. Jacobson
--------------------------------           ----------------------------------
V. Lawrence Evans                          Richard P. Jacobson
Chairman, President, and                   Chief Financial Officer
 Chief Executive Officer

Dated:  August 5, 2004

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