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 September 30, 1999

                                 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
               ----    ----

As of  November 8, 1999, 8,559,047 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 Condition         3

          Consolidated Statements of Operations                  4-5

          Consolidated Statements of Stockholders' Equity        6

          Consolidated Statements of Cash Flow                   7-8

          Notes to Consolidated Financial Statements             9-10

Item  2   Management's discussion and Analysis of Financial
            Condition and Results of Operations                 10-16

PART II                OTHER INFORMATION

Item  1   Legal Proceedings                                     17

Item  2   Changes in Securities                                 17

Item  3   Defaults Upon Senior Securities                       17

Item  4   Submission of Matters to a Vote of  Security Holders  17

Item  5   Other Information                                     17

Item  6   Exhibits and Reports on Form 8-K                      17


          SIGNATURES

                            2

<PAGE>



                           HORIZON FINANCIAL CORP.
                 Consolidated Statements of Financial Condition

                                               Sept 30,          March 31,
                                                1999              1999  *
                                                ----              -------
                                             (Unaudited)        (Unaudited)
ASSETS:
-------
Cash and Due from Banks                     $ 11,376,609       $  10,889,530
Interest-Bearing Deposits                     11,227,381          15,572,363
Investment Securities-Available for Sale      21,492,856          27,631,904
Investment Securities-Held to Maturity         1,365,891           1,391,873
Mortgage-Backed Securities-Available for Sale 49,694,614          43,886,859
Mortgage-Backed Securities-Held to Maturity    9,135,237          10,959,539
Federal Home Loan Bank stock                   4,879,600           4,861,700
Loans Receivable                             551,858,140         533,649,169
Accrued Interest and Dividends Receivable      4,164,558           3,739,470
Property and Equipment, Net                   13,948,264          11,609,414
Goodwill                                         660,144             688,846
Other real estate owned                          323,468                   0
Other Assets                                   3,010,090           3,235,435
                                            ------------        ------------
     Total Assets                           $683,136,852        $668,116,102
                                            ============        ============
LIABILITIES:

Deposits                                    $537,499,728        $537,389,845
Securities sold under agreements
 to repurchase                                14,890,000          14,800,000
Borrowings                                    22,000,000           7,918,151
Accounts payable and other liabilities         6,741,011           6,034,947
Advances by Borrowers for Taxes
 and Insurance                                   986,701             928,618
Deferred Compensation                          1,291,650           1,260,100
Net Deferred Income Tax Liabilities            1,811,245           2,572,474
Income Tax Payable                               187,861             770,986
                                            ------------        ------------
     Total Liabilities                      $585,408,196        $571,675,121
                                            ============        ============
STOCKHOLDERS' EQUITY:
---------------------
Serial Preferred Stock, $1.00 Par Value,
  10,000,000 Shares Authorized;
  None Issued or Outstanding                       -                   -
Common Stock, $1.00 Par Value,
  30,000,000 shares Authorized;
   8,559,047 and 8,491,523 Shares Issued
   and Outstanding                         $  8,559,047         $  8,491,523
Paid-in Capital                              56,945,951           56,459,066
Retained Earnings                            30,910,682           28,638,576
Other Comprehensive Income                    1,817,701            3,201,816
Debt Related to ESOP                           <504,725>            <350,000>
                                           ------------         ------------
     Total Stockholders' Equity            $ 97,728,656         $ 96,440,981
                                           ------------         ------------
     Total Liabilities and Stockholders'
       Equity                              $683,136,852         $668,116,102
                                           ============         ============

     *     All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.

               (See Notes to Financial Statements)

                              3

<PAGE>



                         HORIZON FINANCIAL CORP.
              CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                        3 Months Ended
                                                           Sept 30,
                                                     1999            1998*
                                                     ----            -----
INTEREST INCOME:
----------------
  Interest on Loans                            $10,817,675        $10,234,754
  Interest and Dividends on Investment and
   Mortgage-Backed Securities                    1,391,857          1,630,514
                                               -----------        -----------
       Total Interest Income                    12,209,532         11,865,268

INTEREST EXPENSE:
-----------------
  Interest on Deposits                           5,986,201          6,212,902
  Interest on Borrowings                           339,702            159,014
                                               -----------        -----------
       Total Interest Expense                    6,325,903          6,371,916
                                               -----------        -----------
       Net Interest Income                       5,883,629          5,493,352
                                               -----------        -----------
Provision for Loan Losses                           36,000             33,000
                                               -----------        -----------
       Net Interest Income After Provision
       For Loan Losses                           5,847,629          5,460,352
                                               -----------        -----------
NON-INTEREST INCOME:
--------------------
  Service Fees                                     428,061            427,025
  Net Gain (Loss) on Sale of Loans                       0            <21,970>
  Net Gain (Loss) on Sale of Investments             2,237              3,030
  Other                                            146,255            411,752
                                               -----------        -----------
       Total Non-Interest Income                   576,553            819,837
                                               -----------        -----------
NON-INTEREST EXPENSE:
---------------------
  Compensation and Employee Benefits             1,660,091          1,420,126
  Building Occupancy                               522,064            383,461
  Other Expenses                                   899,989            958,483
                                               -----------        -----------
       Total Non-Interest Expense                3,082,144          2,762,070
                                               -----------        -----------
  Income Before Provision for
   Income Taxes                                  3,342,038          3,518,119
  Provision for Income Taxes                     1,188,269          1,195,354
                                               -----------        -----------
  Net Income                                   $ 2,153,769        $ 2,322,765
                                               ===========        ===========
  Earnings Per Share:
   Basic Earnings Per Share                           $.25               $.27
   Diluted Earnings Per Share                         $.25               $.27

     *     All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.

                   (See Notes to Financial Statements)
                                4

<PAGE>


                        HORIZON FINANCIAL CORP.
              CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                         6 Months Ended
                                                            Sept. 30,
                                                       1999           1998*
                                                       ----           -----
INTEREST INCOME:
----------------
  Interest on Loans                                  $21,351,456  $20,376,247
  Interest and Dividends on Investment
   and Mortgage-Backed Securities                      2,958,484    3,162,265
                                                     -----------  -----------
     Total Interest Income                            24,309,940   23,538,512

INTEREST EXPENSE:
-----------------
  Interest on Deposits                                11,974,685   12,357,544
  Interest on Borrowings                                 651,104      240,650
                                                     -----------  -----------
     Total Interest Expense                           12,625,789   12,598,194
                                                     -----------  -----------
     Net Interest Income                              11,684,151   10,940,318
                                                     -----------  -----------

  Provision for Loan Losses                               80,000      377,500
                                                     -----------  -----------
     Net Interest Income After Provision
     for Loan Losses                                  11,604,151   10,562,818
                                                     -----------  -----------

NON-INTEREST INCOME:
--------------------
  Service Fees                                           971,167      882,789
  Net Gain (Loss) on Sale of Loans                       <44,641>    <136,682>
  Net Gain (Loss) Sale of Investments                    187,255      304,866
  Other                                                  260,708      771,505
                                                     -----------  -----------
     Total Non-Interest Income                         1,374,489    1,822,478
                                                     -----------  -----------
NON-INTEREST EXPENSE:
---------------------
  Compensation and Employee Benefits                   3,314,129    2,702,611
  Building Occupancy                                   1,054,631      764,999
  Other Expenses                                       2,178,233    1,897,406
                                                     -----------  -----------
     Total Non-Interest Expense                        6,546,993    5,365,016
                                                     -----------  -----------

  Income Before Provision for
   Income Taxes                                        6,431,647    7,020,280
  Provisions for Income Taxes                          2,194,491    2,384,745
                                                     -----------  -----------
  Net Income                                          $4,237,156   $4,635,535
                                                     ===========  ===========
  Earnings Per Share:
   Basic Earnings Per Share                                 $.50         $.55
   Diluted Earnings Per Share                               $.49         $.54

     *     All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.

                  (See Notes to Financial Statements)

                                  5
<PAGE>



<TABLE>
                                 Consolidated Statements of Changes in Stockholder's Equity
                                        6 Months Ended Sept 30, 1999 and 1998 *
                                                      (unaudited)

                 Common Stock
                 ------------       Additional                Accum Other      Debt      Trea-
               Number                Paid-In      Retained   Comprehensive     Related   sury
             Of Shares     At Par    Capital      Earnings      Income         to ESOP   Stock   Total
             ---------     ------    -------     -----------    ------         -------   -----   -----

<S>          <C>        <C>         <C>          <C>          <C>            <C>         <C>   <C>
Balance at
3/31/98      8,446,958  $8,446,958  $55,591,677  $22,900,670  $3,135,677     $<400,000>  $   0 $89,674,982

Cash div
on common
stock at
$.22 per
share                                             <1,637,017>                                   <1,637,017>

Stock opts.
exercised       4,201        4,201       37,309                                                     41,510

DRIP           16,242       16,242      249,537                                                    265,779

Net change
in other
Compre-
hensive
income                                                         416,132                             416,132

Net income                                         4,635,535                                     4,635,535

Regulatory
reclassifi-
cation
(Bellingham
Bancorp)                                 300,000    <300,000>                                            0

Balance at
9/30/98      8,467,401  $8,467,401  $56,178,523  $25,599,188  $ 3,551,809   $<400,000>  $    0 $93,396,921
             ---------  ----------  -----------  -----------  -----------   ----------  ------ -----------

Balance at
3/31/99      8,491,523  $8,491,523  $56,459,066  $28,638,576  $ 3,201,816   $<350,000>  $    0 $96,440,981

Cash div
on common
stock at                                            <1,965,050>                                 <1,965,050>

$.23 per
share

Stock opts
exercised       48,148      48,148     269,505                                                     317,653

DRIP            19,376      19,376     217,380                                                     236,756

Net change
in other
comprehen-
sive income                                                   <$1,384,115>                      <1,384,115>

Loan to ESOP
                                                                            <154,725>             <154,725>
Net income                                         4,237,156                                     4,237,156

            ---------  ----------  -----------  -----------  ----------     ----------  -----  ------------
Balance at
9/30/99     8,559,047  $8,559,047  $56,945,951  $30,910,682  $1,817,701     $<504,725>  $   0  $97,728,656
            =========  ==========  ===========  ===========  ==========     ==========  =====  ============

     *     All prior year numbers have been restated to reflect the merger of Bellingham Bancorporation
effective June 19, 1999.

                                 (See Notes to Financial Statements)

                                                   6

</TABLE>
<PAGE>



                        HORIZON FINANCIAL CORP.
                CONSOLIDATED STATEMENT OF CASH FLOWS

                                                        6 Months Ended
                                                            Sept 30,
                                                        1999         1998 *
                                                        ----         ------


Cash Flows From Operating Activities:
  Net Income                                       $ 4,237,156    $4,635,535
  Adjustments to Reconcile Net Income
   to Net Cash Provided by Operating Activities:
     Depreciation                                      493,446       244,488
  Provision for loan losses                             80,000        57,500

  Changes in Assets and Liabilities:
     Interest & Dividends Receivable                 < 425,088>       32,459
     Interest Payable                                   92,853       114,682
     Federal Income Tax (rec) Payable                 <583,125>      884,745
     Other Assets                                      225,345      <160,299>
     Other Liabilities                                 647,800    <2,147,419>
     Goodwill                                           28,702        47,836
     Other Real Estate Owned                          <323,468>            0
                                                   -----------    -----------
  Net Cash Flows from Operating Activities           4,473,621     3,709,527
                                                   -----------    -----------

Cash Flows From Investing Activities:
  Inv in Interest-Bearing Deposits, Net              4,344,982    <1,001,167>
  FHLB Stock                                           <17,900>     <105,400>
  Purchases of Investment securities-AFS            <6,280,000>            -
  Proceeds from Sales and Mat of
  Investments securities - AFS                      11,901,997     8,869,018
  Purchases of Investment Securities-HTM                 -               -
  Proceeds from Sales & Mat of
  Investment Securities- HTM                            25,982       994,694
  Purchases of Mtge Backed Securities-AFS                -              -
  Proceeds from Sales and Mat of Mtge
  Backed Sec-AFS                                     3,144,244    10,346,349
  Purch of Mtg. Backed Securities-HTM                    -             -
  Proceeds from Sales and Mat of Mtge Backed
  Securities-HTM                                     1,824,302     2,102,597
  Net Change in Loans                              <28,968,945>  <48,868,343>
  Purchases of Bank Premises and Equipment         < 2,832,295>   <1,126,937>
                                                   -----------   -----------
  Net Cash Flows From Investing Activities         <16,857,633>  <28,789,189>
                                                   -----------   -----------

     *     All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.

                 (See Notes to Financial Statements)

                                    7

<PAGE>



                         HORIZON FINANCIAL CORP.
                   CONSOLIDATED STATEMENT OF CASH FLOWS

                                                          6 Months Ended
                                                             Sept 30,
                                                          1999        1998 *
                                                          ----        ------
Cash Flows From Financing Activities:
   Change in Deposits                                  109,883    11,726,059
   Borrowings                                       14,171,849    13,442,081
   Common Stock Issued, Net                            554,409       307,289
   Cash Dividends Paid                              <1,965,050>   <1,647,734>
   Treasury Stock purhased                                 -        <203,838>
                                                   -----------    ----------
   Net Cash Flows from Financing Activities         12,871,091    23,623,857
                                                   -----------    ----------
Net change in Cash and Cash Equivalents                487,079    <1,455,805>

Cash and Cash Equivalents,
   Beginning of Year                                10,889,530     9,841,417

Cash and Cash Equivalents,
   End of Year                                      11,376,609     8,385,612


SUPPLEMENTAL DISCLOSURE OF CASH
   FLOW INFORMATION

Cash Paid During the Period for:

   Interest Expense                                $12,017,442    12,326,851

   Income Taxes                                    $ 2,335,000     1,500,000


     *     All prior year numbers have been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.

                 (See Notes to Financial Statements)

                                 8

<PAGE>



                 HORIZON FINANCIAL CORP._PRIVATE __
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          THREE MONTHS AND SIX MONTHS ENDED SEPT 30, 1999
                           (unaudited)

NOTE A - Basis of Presentation
------------------------------
The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles 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 generally accepted accounting principles 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 September 30, 1999 and 1998 are not
necessarily indicative of the operating results for the full year.  The March
31, 1999, consolidated statement of financial condition presented with the
interim financial statements has been restated to reflect the merger of
Bellingham Bancorporation effective June 19, 1999.  For audited financial
results, refer to the consolidated financial statements and footnotes thereto
included in the Bank's annual report for the year ended March 31, 1999.

On October 13, 1995, Horizon Bank, a savings bank, ("Bank") reorganized into
the holding company form of ownership ("Reorganization"), resulting in the
Registrant becoming the sole stockholder of the Bank.  Each outstanding share
of common stock of the Bank and options to acquire shares of common stock of
the Bank, became outstanding shares of common stock of the Registrant and
options to acquire shares of common stock of the Registrant, respectively, as
a result of the Reorganization.  The consolidated financial statements for the
three months and six months ended September 30, 1999, include the accounts of
Horizon Financial Corp., the Bank and other subsidiaries of the Bank.
Significant intercompany balances and transactions have been eliminated in
consolidation.

Prior to Reorganization, Horizon Financial Corp. had no material assets or
liabilities and engaged in no business activity.  Subsequent to the
acquisition of the bank, Horizon Financial Corp. has engaged in no significant
activity other than holding the stock of the Bank.

On June 19, 1999 Bellingham Bancorporation merged into Horizon Financial Corp.
This transaction was accounted for as a pooling of interests.  983,186 shares
were issued as a result of the merger.  262,990 of these shares were reissued
after the retirement of the outstanding treasury shares which occurred just
prior to the merger.  As such, all prior year numbers have been restated to
reflect the merger.

NOTE B - Net Income Per Share
-----------------------------
Basic earnings per share for the three months ended September 30, 1999 and
1998 are calculated on the basis of 8,542,973 and 8,465,901 weighted average
shares outstanding. Diluted earnings per share

                                 9

<PAGE>



for the three months ended September 30, 1999 and 1998 are calculated on the
basis of 8,647,037 and 8,616,477 weighted average share outstanding,
respectively.  Diluted EPS figures are computed by determining the number of
additional shares that are deemed outstanding due to stock options under the
treasury stock method.

NOTE C - Reclassification
-------------------------
Certain reclassifications have been made to prior financial statements to
conform with current presentation.  Such reclassifications have no effect on
net income.  All prior year numbers have been restated to reflect the merger
with Bellingham Bancorporation.

                             HORIZON FINANCIAL CORP.

                       MANAGEMENT'S DISCUSSION AND ANALYSIS

General
-------
The Corporation was formed under Washington law on May 22, 1995, and became
the holding company of the Bank, effective October 13, 1995. As a bank holding
company, the Corporation has a number of additional options and operating
advantages over the Bank. These include, but are not limited to: expanded
business diversification options; flexibility in acquisitions; and the ability
to repurchase its own stock without incurring the adverse tax consequences of
recapturing portions of the Bank's bad debt reserve. 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 then converted to a state-chartered
stock savings bank. The primary business of the Bank is to acquire funds in
the form of savings deposits and to use the funds to make loans secured by
residential and commercial properties in the Bank's primary market area.

The Bank's operations are conducted through 16 full-service office facilities,
located in Whatcom, Skagit and Snohomish counties in northwest Washington. The
Bank is recently opened an additional office in Whatcom County, located in the
Barkley Village area of Bellingham, in the northeast portion of the city.  In
addition to serving the growing population in this area, this new office
(approximately 15,000 square feet) will serve as an operation center to
support additional growth for the Corporation. The Bank is also currently
builfing an office at Murphy's Corner near Mill Creek, which will replace the
Bank's current leased location in that area.  During the fiscal year ended
March 31, 1999, the Bank relocated its Edmonds office by purchasing the Dayton
Place building at the corner of 5th and Dayton in downtown Edmonds.  During
the quarter ended June 30, 1999, the Bank purchased a bank site in Marysville,
which will provide additional growth opportunities.  The Bank's management
continues to research sites for future development, with emphasis on locations
in the growing Snohomish County markets.

At its March 19, 1998 meeting, the Board of Directors authorized the
repurchase of up to 10% (approximately 747,000 shares) of the Corporation's
outstanding common stock over the subsequent 24

                               10

<PAGE>


month period. This repurchase plan was rescinded by the Board of Directors
effective January 18, 1999 with the signing of the definitive agreement to
merge with Bellingham Bancorporation..

In December 1998, the Bank became a member of the Federal Home Loan Bank of
Seattle.  One of the significant benefits of membership include the ability to
supplement the Bank's balance sheet with wholesale funds in order to meet
cyclical funding needs and to assist management in its interest rate risk
management efforts.

On January 18, 1999, the Corporation announced a definitive agreement to merge
with Bellingham Bancorporation.   The merger of Bellingham Bancorporation into
Horizon Financial Corp. was completed on June 19, 1999 and was accounted for
as a pooling of interests.  The historical numbers presented herein for
Horizon Financial Corp. have been restated to include Bellingham
Bancorporation's numbers.

Financial Condition
-------------------
Total consolidated assets for the Corporation as of September 30, 1999, were
$683,136,852, an increase of 2.25% from the March 31, 1999 level of
$668,116,102.  This increase in assets was due primarily to the growth in
loans receivable, which increased 3.41% to $551,858,140 at September 30, 1999,
from $533,649,169 at March 31, 1999.

Total liabilities increased 2.40% to $585,408,196 at September 30, 1999, from
$571,675,121 at March 31, 1999.  The increase in liabilities was due to the
growth in FHLB borrowings, which increased  to $22,000,000 from $7,918,151.
The primary reason for the growth in borrowings was to supplement a basically
flat period of deposit growth, which increased slightly to  $537,499,728 at
September 30, 1999 from $537,389,845 at March 31, 1999.

Total stockholders' equity showed a small increase to $97,728,656 at September
30, 1999, from $96,440,981 at March 31, 1999.

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 September 30, 1999, the Bank had liquid
assets (cash and marketable securities with maturities of one year or less)
with a book value of $29,724,865.

As of September 30, 1999, the total book value of investments and mortgage-
backed securities was $83,814,105 compared to a market value of  $86,590,923,
resulting in an unrealized gain of $2,776,818.  On March 31, 1999, the book
value of investments and mortgage-backed securities was $83,582,540 compared
to a market value of $88,721,979 resulting in an unrealized gain of
$5,139,439.  The primary reason for this difference at September 30, 1999
compared to March 31, 1999 was the overall higher level of interest rates,
which decreased the valuation of the bank's investment portfolio.

The Bank's primary sources of funds are cash flow from operations, which
consist mainly of mortgage loan repayments; deposit increases; loan sales;
borrowings; and cash received from the maturity or sale of investment
securities.  These funds are primarily used to originate real estate secured
mortgage loans and commercial loans.

                               11
<PAGE>



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 Federal
Home Loan Bank 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 to total assets was 14.31% as of September 30, 1999, well
in excess of the 5.0% minimum required by the FDIC in order to be considered
well capitalized.


                         Comparative Results of Operations
                        For the Three and Six Months Ended
                           September 30, 1999 and 1998

Net Interest Income
-------------------
Net interest income for the three months ended September 30, 1999, increased
7.11% to $5,883,629 from $5,493,352 in the same time period of the previous
year.  Interest on loans for the quarter ended September 30, 1999, increased
5.70% to $10,817,675, from $10,234,754.  This increase was due primarily to an
overall growth in loans receivable.  Interest and dividends on investments and
mortgage-backed securities decreased 14.64% to $1,391,857, from $1,630,514 for
the comparable quarter a year ago due to in part to a decrease in the size of
the bank's investment portfolio.  Total interest income increased 2.90% to
$12,209,532 from $11,865,268.  This increase is primarily attributable to an
overall increase in interest earning assets over the prior period.

Total interest paid on deposits decreased 3.65% to $5,986,201 from $6,212,902
due in large part to a shift in the overall deposit mix, specifically the
growth in non-interest bearing checking accounts.  Interest on borrowings
increased to $339,702 during the quarter, compared to $159,014 for the
comparable period one year ago, due to a higher level of borrowings
outstanding.  During the quarter, the bank increased it's wholesale borrowings
in order to further leverage its balance sheet and fund loan receivable growth
due to a lack of growth in retail deposits.

Net interest income for the six-month period ended September 30, 1999
increased 6.80% to $11,684,151 from $10,940,318 for the comparable period one
year ago.  Total interest income increased 3.28% to $24,309,940 from
$23,538,512, due primarily to the increase in the Bank's earning assets.
Total interest expense for the six-month period increased slightly to
$12,625,789 from $12,598,194.

Provision for losses on loans

The provision for losses on loans for the three months ended September 30,
1999, increased 9.10% to $36,000 from $33,000 in the same time period of the
previous year.  The provision for losses for the six months ended September
30, 1999 decreased 78.81% to $80,000 from $377,500 for the same period one
year ago. The provision made during the six  months ended September 30, 1998,
represented 96% of the loan loss provisions for the entire fiscal year. At
September 30, 1999, the loan

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loss reserve balance was $4,517,922.  This represents .82% of loans
receivable, compared to .83% as of September 30, 1998.  The Bank's management
considers this to be an adequate level of reserves at this time.

As of September 30, 1999, the Bank had $254,364 in loans over 90 days
delinquent compared to $170,496 at September 30, 1998.  This is due in part to
the changing mix of loans on the Bank's balance sheet, which now includes more
commercial, consumer, VISA and other unsecured loans.

Non Interest Income
-------------------
Non interest income for the three months ended September 30, 1999, decreased
29.68% to $576,553 from $819,837 for the same time period a year ago. The
primary reason for the decline was due to the change in other income, which
decreased 64.48% to $146,255 from $411,752 at September 30, 1998. One
significant reason for this difference relates to the sale of mortgage
servicing rights.  Prior to the merger with Horizon, the Bank of Bellingham's
mortgage division sold its mortgage servicing rights at the time it sold loans
in the secondary market.  Horizon, however, retains the servicing rights on
the loans it sells, which defers income into future quarters as servicing fee
income. The quarter ended September 30, 1998 was an active quarter of
servicing released loan sales, therefore the non-interest income for that
period was higher than the quarter ended September 30, 1999.

Non interest income for the six months ended September 30, 1999 decreased
24.58% to $1,374,489 from $1,822,478. The net gain/loss on sale of loans
showed a loss of $44,641 during the six-months ended September 30, 1999,
compared to a loss of $136,682 in the prior period. This decline in losses is
due to an inactive period in loan sales.  The net gain/loss on sales of
investment securities decreased 38.58% to $187,255 from $304,866 for the
comparable period one year ago. These gains were due primarily to the sale of
selected common stocks and mortgage backed securities from the Bank's
investment portfolio during the periods.  Other non-interest income for the
six-month period decreased 66.21% to $260,708 from $771,505, due primarily to
the reasons stated in the discussion above regarding the sale of mortgage loan
servicing rights.

Non Interest Expense
--------------------
Non interest expense for the three months ended September 30, 1999, increased
11.59% to $3,082,144 from $2,762,070.  Compensation and employee benefits
increased 16.90% for the quarter ended September 30, 1999, to $1,660,091 from
$1,420,126.  This is due primarily the overall growth in employment at the
Bank from the prior year period.  Building occupancy for the quarter ended
September 30, 1999 increased 36.15% to $522,064 from $383,461.  Factors
contributing to this increase include:  a new office in Bellingham opened
November 1999, a new office in Edmonds, opened in March 1999; a new office in
Bellingham, opened by the Bank of Bellingham in November 1998; and
considerable technology upgrades implemented over the past year, including the
replacement of most of the personal computers at the Bank, and the
installation of a wide area network.  Other non-interest expense decreased
6.10% to $899,989 from $958,483 for the same period one year ago.

Non interest expense for the six months ended September 30, 1999 increased
22.03% to $6,546,993 from $5,365,016.  Compensation and employee benefits
increased 22.63% to $3,314,129 from  $2,702,611.  Building occupancy expenses
for the six months increased 37.86% to $1,054,631 from $764,999.  Other
expenses increased 14.80% to $2,178,233 at September 30, 1999 compared to

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$1,897,406 for the prior period due primarily to the reasons stated in the
discussion above regarding the quarterly results.

Year 2000 Discussion
--------------------
General.   The year 2000 ("Y2K") issue centers on the potential inability of
computer systems and programs to recognize the year 2000.  Many existing
computer programs and systems originally were programmed to allow only two
digits to identify the calendar year in the date field.  If left unchanged,
these programs and systems might interpret "00" as the year 1900, rather than
as the year 2000.

Regulation.   Financial institution regulators have increased their focus upon
Year 2000 issues and have issued guidance concerning the responsibilities of
senior management and directors.  The sole subsidiary of Horizon Financial
Corp., Horizon Bank ("Bank") has been examined by the FDIC and the State of
Washington's Department of Financial Institutions on several occasions,
including both on-site and off-site exams.  The Bank's most recent exam was
conducted by the State of Washington in August of 1999.  Regulations do not
allow the Bank to make public the results of the State or FDIC examinations.
However, the Bank's Board of Directors reviews each report, and the Board is
satisfied with management's progress to date regarding Year 2000 issues.

The Federal Financial Institution Examination Council ("FFIEC") has issued
several interagency statements on Year 2000 issues.  These statements require
financial institutions to proceed through five phases of year 2000
preparedness.  The following sections summarize these phases, and the Bank's
progress to date in each phase:

Awareness Phase.  The Bank has established a formal Year 2000 plan and created
an internal Year 2000 committee, which has been meeting on this issue since
1997.  This phase focused on identifying those systems and programs that had
the potential of being affected by Year 2000 risks.  This phase also included
educating the Bank's employees about Year 2000 issues and resulted in a bank
wide effort to identify potential problems related to the Year 2000.  This
phase was substantially completed early in 1998.

Assessment Phase.  This phase focused on completing assessments of hardware,
software and other computer applications in order to identify risks and
monitor Year 2000 progress.  Further, this phase included a prioritization of
Year 2000 risks, to identify which systems were mission critical systems for
the Bank's business, and which were considered less important in terms of
potential adverse impact to the Bank.  This assessment was substantially
completed in mid 1998.

Renovation Phase.  Following the Assessment Phase, the Bank moved into the
renovation phase, which focused on identifying solutions to potential Year
2000 problems with its systems and programs.  During the fourth quarter of
1998, the Bank completed a major personal computer renovation, which included
new machines at all teller stations, and numerous other network upgrades.
While the primary purpose for this renovation was not related to the Year 2000
issue, compliance efforts were enhanced by this project, since computers with
older BIOS chips are more likely to be susceptible to Year 2000 problems than
newer computers.   The Bank decided, however, that even these new machines
would be tested for Year 2000 readiness.  The renovation phase is
substantially completed at this time.

Validation Phase.  This phase was designed to test the ability of hardware and
software to accurately process date sensitive data.  The Bank is working with
its data processor, Fiserv, as well as other vendors, to make sure that their
computers and software programs have been tested for Year 2000

                              14

<PAGE>



readiness. As an example, the Bank conducted extensive testing of the Fiserv
system in December 1998, with additional testing performed in April of 1999.
Based on the analysis of these test results, along with the extensive amount
of data received on the Year 2000 issue from Fiserv over the past two years,
the Bank is satisfied with the progress made by its service provider in its
Year 2000 efforts.  In addition, the Bank is satisfied with the results of the
testing of the Bank's other vendors and internal computer systems, along with
the renovations that have been completed to date.  Year 2000 testing expenses
are anticipated to total less than $50,000, the majority of which have already
been paid by the Bank.  Future expenses relating to Year 2000 issues are not
anticipated to have a material impact on the Bank's financial statements.  The
Validation phase is substantially complete at this time.

Implementation Phase.  The Bank has completed the implementation phase for all
systems currently being utilized.  Any new systems deployed prior to year-end
will also be reviewed for Year 2000 compliance.

Early in 1999, the Bank's Year 2000 focus shifted from the five phases
presented above, to the development of business resumption and contingency
plans.  Guidelines provided by the FFIEC set forth four phases in this
contingency planning process, and the paragraphs below set forth the Bank's
progress to date in these phases.

Organizational Planning Guidelines.  This phase focused on establishing
organizational planning guidelines that define the business continuity
planning strategy for the Bank, and the FDIC required institutions to complete
this phase prior to March 31, 1999.  The Bank completed this phase of the
Contingency Planning process prior to March 31, 1999.

Business Impact Analysis.  Irrespective of best efforts towards Year 2000
compliance, the possibility exists that there may be an interruption of
business around the turn of the century.  Therefore, the Bank has completed a
Business Impact Analysis, which assesses the effects of potential system
failures in each core business process, such as deposit taking, check cashing,
cash withdrawals and lending services.  This analysis sets forth Year 2000
event scenarios and considers the risks of both internal and external
infrastructure failures on each core business process and determines the
minimum acceptable level of outputs and services for each process.  While this
analysis will be an ongoing process during the remainder of 1999, the Business
Impact Analysis was substantially completed prior to March 31, 1999.

Business Resumption Contingency Plan.  Upon completion of the Business Impact
Analysis, the Bank's management began developing a Business Resumption
Contingency Plan.  This plan provides the framework to operate the Bank in the
event that any of the Bank's core business processes experience Year 2000
related problems.  Specifically, the plan sets forth logistical guidelines and
time frames to assist the Bank's personnel in its business resumption
contingency planning efforts.  This plan is considered a supplement to the
Bank's Disaster Recovery Plan, already in place.  The Business Resumption
Contingency Plan was completed prior to June 30, 1999.

Validation of Business Resumption Contingency Plan.  Finally, the Bank's
Internal Audit Department has designed methods to validate the Business
Resumption Contingency Plan to ensure that the plan will be effective, if
needed.  The Validation methods were substantially completed prior to June 30,
1999.  The Bank is now in the process of implementing these validation
procedures, along with communicating its Year 2000 efforts with its customers.

                                 15

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While there can be no guarantee of total Year 2000 compliance, be assured that
Horizon Bank is taking this issue very seriously and is working diligently to
minimize potential impacts to its customers and shareholders as a result of
the turn of the century.

Forward Looking Statements

In this document, Horizon has included 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 Horizon to the
protections of the safe harbor provisions of said Act with respect to all
"forward looking statements".  Horizon has used "forward looking statements"
to describe future plans and strategies, including expectations of Horizon's
potential future financial results.  Management's ability to predict results
or the effect of future plans and strategies is inherently uncertain.  Factors
that could effect results include, but are not limited to: the future level of
interest rates, 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.

                            16

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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 is likely to have a materially adverse effect on the
           Corporation's financial position or results of operation.

Item 2.  Changes in Securities

            None

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

            None


                               17

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                              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
                                        President and Chief Executive Officer


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


                                     Dated:          November 12, 1999
                                           ---------------------------

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