SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               Amendment No. 2 to
                                   FORM 10-K/A
(Mark One)
/X/  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

                For the fiscal year ended December 31, 2000 or
                                -----------------

/  /  Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

                        Commission file number 000-29829

                        PACIFIC FINANCIAL CORPORATION
            (Exact Name of Registrant as specified in its Charter)


WASHINGTON                                                     91-1815009
(State or Other Jurisdiction                   (IRS Employer Identification No.)
 of Incorporation or Organization)


                             300 EAST MARKET STREET
                         ABERDEEN, WASHINGTON 98520-5244
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's telephone number, including area code: (360) 533-8870

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $1.00 per share

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  periods that the  Registrant  was
required to file such  reports),  and (2) has been subject to such  requirements
for the past 90 days.
                                 Yes X No ______

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K [ X ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of February 28, 2001, was $54,811,960.

As of February 28, 2001,  there were issued and outstanding  2,503,130 shares of
the Registrant's Common Stock.
<PAGE>

This  Amendment  No. 2 on Form 10-K is being  filed to correct  the  independent
auditors report included in Item 8.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors Report

Board of Directors
Pacific Financial Corporation
Aberdeen, Washington


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Pacific
Financial  Corporation  and Subsidiary as of December 31, 2000 and 1999, and the
related  consolidated  statements of income,  shareholders equity and cash flows
for each of the  three  years in the  period  ended  December  31,  2000.  These
consolidated  financial  statements  are  the  responsibility  of  the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Pacific Financial
Corporation  and Subsidiary as of December 31, 2000 and 1999, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2000,  in  conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated   financial   statements  taken  as  a  whole.  The   supplementary
information  is  presented  for  purposes  of  additional  analysis and is not a
required part of the basic consolidated financial statements.  The supplementary
information has been subjected to the auditing  procedures applied in the audits
of the basic consolidated  financial  statements and, in our opinion,  is fairly
stated in all material respects in relation to the basic consolidated  financial
statements taken as a whole


/s/ Knight Vale & Gregory PLLC
KNIGHT VALE & GREGORY PLLC
Tacoma, Washington
January 26, 2001
                                       2
<PAGE>

Consolidated Balance Sheets
------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999
(Dollars in Thousands)
<TABLE>
                                                       2000           1999
                                                       ----           ----

Assets
<S>                                                <C>            <C>
   Cash and due from banks                         $   8,619      $  13,080
   Interest bearing deposits in banks                    480          1,744
   Federal funds sold                                    570            - -
   Securities available for sale                      57,258         65,625
   Securities held to maturity
     (market value $1,376 and $1,615)                  1,376          1,615

   Loans                                             177,168        152,664
   Allowance for credit losses                         2,026          1,930
   Loans - net                                       175,142        150,734

   Premises and equipment                              4,122          3,510
   Foreclosed real estate                                - -            177
   Accrued interest receivable                         2,302          2,004
   Cash surrender value of life insurance              2,435          2,330
   Other assets                                        1,009          1,370
                                                    --------       --------
   Total assets                                     $253,313       $242,189


Liabilities and Shareholders Equity

Liabilities
   Deposits:
     Demand                                         $ 32,510       $ 34,359
     Savings and interest-bearing demand             100,143        104,831
     Time                                             80,858         66,949
   Total deposits                                    213,511        206,139

   Accrued interest payable                              779            549
   Short-term borrowings                              11,358          9,675
   Other liabilities                                   4,922          4,388
                                                    --------       --------

   Total liabilities                                 230,570        220,751

Commitments and Contingencies                            - -

Shareholders Equity
   Common stock (par value $1); authorized:  25,000,000 shares;
     issued and outstanding:  2000 - 2,503,130 shares; 1999 - 496,770
     shares 2,503 497

   Surplus                                             9,859         11,420
   Retained earnings                                  10,572         10,473
   Accumulated other comprehensive loss                 (191)          (952)
   Total shareholders equity                          22,743         21,438
                                                    --------       --------
   Total liabilities and shareholders equity        $253,313       $242,189
</TABLE>

See notes to consolidated financial statements.

                                      3
<PAGE>



Consolidated Statements of Income
------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts)
                                                 2000        1999         1998
                                                 ----        ----         ----

Interest Income
   Loans                                        $16,425    $14,062      $14,366
   Federal funds sold and deposits in banks         148        570          877
   Securities available for sale:
     Taxable                                      2,812      2,767        1,925
     Tax exempt                                     789        847          663
   Securities held to maturity - tax exempt          98        108          121
                                                 ------     ------       ------
   Total interest income                         20,272     18,354       17,952

Interest Expense
   Deposits                                       8,020      6,712        6,586
   Short-term borrowings                            577        212          266
                                                 ------     ------       ------
   Total interest expense                         8,597      6,924        6,852

   Net interest income                           11,675     11,430       11,100

Provision for Credit Losses                         635         60          110

Net interest income after provision
   for credit losses                             11,040     11,370       10,990

Non-Interest Income
   Service charges on deposit accounts              677        745          685
   Mortgage loan origination fees                     9         36           35
   Net gain on sales of securities
    available for sale                              - -          9           17
   Other operating income                           531        465          544
                                                 ------     ------       ------
   Total non-interest income                      1,217      1,255        1,281

Non-Interest Expense
   Salaries                                       3,182      3,250        3,150
   Employee benefits                                953        621          551
   Occupancy                                        388        367          379
   Equipment                                        751        646          643
   State taxes                                      228        235          242
   Other                                          2,028      1,892        1,722
                                                 ------     ------       ------
   Total non-interest expense                     7,530      7,011        6,687
                                                 ------     ------       ------
   Income before income taxes                     4,727      5,614        5,584

Income Taxes                                      1,424      1,692        1,590
                                                 ------     ------       ------
   Net income                                  $  3,303   $  3,922     $  3,994


Earnings Per Share
   Basic                                          $1.33      $1.60        $1.64
   Diluted                                         1.32       1.59         1.61

See notes to consolidated financial statements.

                                      4

<PAGE>

Consolidated Statements of Shareholders Equity
------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
<TABLE>
                                                                                     Accumulated
                                    Shares of                                        Other
                                    Common       Common                Retained      Comprehensive
                                    Stock        Stock      Surplus    Earnings      Income (Loss)     Total
                                    ---------    ------     -------    --------      -------------     -----

<S>                <C>                <C>        <C>        <C>        <C>           <C>             <C>
Balance at January 1, 1998            487,267    $  487     $10,875    $  8,041      $   254         $19,657
                                     --------    ------     -------    --------      -------         -------
Comprehensive income:
   Net income                             - -       - -         - -       3,994         - -            3,994
   Other comprehensive income,
     net of tax:
       Change in fair value of
         securities available for sale    - -       - -         - -         - -          114             114

   Comprehensive income                                                                                4,108

Stock options exercised                 1,678         2          95         - -          - -              97
Sale of common stock                       24       - -           2         - -          - -               2
Dividends on common stock
   ($.97 per share)                       - -       - -         - -      (2,379)         - -          (2,379)
                                      --------    ------     -------    --------      -------         -------
   Balance at December 31, 1998       488,969       489      10,972       9,656          368          21,485

Comprehensive income:
   Net income                             - -       - -         - -       3,922          - -           3,922
   Other comprehensive loss,
     net of tax:
       Change in fair value of
         securities available for sale    - -       - -         - -         - -       (1,320)         (1,320)

   Comprehensive income                                                                                2,602

Stock options exercised                 8,000         8         472         - -          - -             480
Repurchase of common stock
   fractional shares                     (199)      - -         (24)        - -          - -             (24)
Dividends on common stock
   ($1.25 per share)                      - -       - -         - -      (3,105)         - -          (3,105)
                                      --------    ------     -------    --------      -------         ------
   Balance at December 31, 1999       496,770       497      11,420      10,473         (952)         21,438

Comprehensive income:
   Net income                             - -       - -         - -       3,303          - -           3,303
   Other comprehensive income,
     net of tax:
       Change in fair value of
         securities available for sale    - -       - -         - -         - -          761             761
                                                                                                      ------
   Comprehensive income                                                                                4,064

5-for-1 stock split                 1,987,110     1,987      (1,987)        - -          - -             - -
Stock options exercised                 2,750         3          30         - -          - -              33
Stock purchase of branch site          16,500        16         396         - -          - -             412
Dividends on common stock
   ($1.28 per share)                      - -       - -         - -      (3,204)         - -          (3,204)
                                    ---------    ------     -------    --------      -------         -------
   Balance at December 31, 2000     2,503,130    $2,503    $  9,859     $10,572      ($  191)        $22,743
</TABLE>

See notes to consolidated financial statements.

                                      5

<PAGE>

Consolidated Statements of Cash Flows
------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
<TABLE>
                                                           2000          1999        1998
                                                           ----          ----        ----
Cash Flows from Operating Activities
<S>                                                    <C>           <C>         <C>
   Net income                                          $  3,303      $  3,922    $  3,994
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                        568           496         518
       Provision for credit losses                          635            60         110
       Deferred income tax                                  (73)          (34)         17
       Stock dividends received                            (222)         (172)       (211)
       Gain on sales of securities available for sale       - -            (9)        (17)
       Gain (loss) on sales of foreclosed real estate       (32)            2          21
       Increase in interest receivable                     (298)         (140)       (224)
       Increase in interest payable                         230            66          73
       Other - net                                          477          (229)       (437)
                                                        -------        ------      ------
   Net cash provided by operating activities              4,588         3,962       3,844

Cash Flows from Investing Activities
   Net decrease in interest bearing deposits in banks     1,264         4,645         236
   Net (increase) decrease in federal funds sold           (570)       12,595      (7,900)
   Activity in securities available for sale:
     Sales                                                  - -        1,478          - -
     Maturities, prepayments and calls                   12,062       27,560       26,823
     Purchases                                           (2,423)     (43,322)     (41,974)
   Activity in securities held to maturity:
     Maturities                                             239          210          365
     Purchases                                              - -         (100)        (295)
   Proceeds from sales of loans                           1,293          468        2,657
   Increase in loans made to customers, net
     of principal collections                           (26,133)      (5,921)      (6,645)
   Purchases of premises and equipment                     (764)        (310)        (214)
   Proceeds from sales of foreclosed real estate            - -           26          151
                                                        -------        ------      ------
   Net cash used in investing activities                (15,032)      (2,671)     (26,796)

Cash Flows from Financing Activities
   Net increase (decrease) in deposits                    7,372       (4,511)      31,924
   Net increase (decrease) in short-term borrowings       1,683        9,589       (6,539)
   Common stock issued                                       33          480           99
   Cash dividends paid                                   (3,105)      (2,379)      (2,118)
   Repurchase of common stock fractional shares             - -          (24)         - -
                                                        -------        ------      ------
   Net cash provided by financing activities              5,983        3,155       23,366

   Net change in cash and due from banks                 (4,461)       4,446          414

Cash and Due from Banks
   Beginning of year                                     13,080        8,634        8,220
                                                        -------        ------      ------
   End of year                                         $  8,619      $13,080     $  8,634

Supplemental Disclosures of Cash Flow Information

   Interest paid                                        $8,367       $6,858       $6,779
   Income taxes paid                                     1,247        1,750        1,640

Supplemental Disclosures of Non-Cash Investing Activities
   Fair value adjustment of securities available
   for sale, net of tax                                 $  761      ($1,320)      $  114
   Transfer of loans to foreclosed real estate              26           74          274
   Stock purchase of branch site                           412          - -          - -
   Financed sales of foreclosed real estate                235          - -          - -
</TABLE>

See notes to consolidated financial statements.

                                      6

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated  financial statements include the accounts of Pacific Financial
Corporation  (formerly Harbor Bancorp,  Inc.) (the Company) and its wholly owned
subsidiary,  The Bank of the Pacific (the Bank).  All  significant  intercompany
transactions and balances have been eliminated.

NATURE OF OPERATIONS

The Company is a holding company which operates primarily through its subsidiary
bank.  The Bank  operates ten branches in Grays  Harbor,  Pacific and  Wahkiakum
Counties.  The Banks primary source of revenue is providing  loans to customers,
who are  predominately  small- and  middle-market  businesses and  middle-income
individuals. The Banks primary sources of funds are deposits from customers.

CONSOLIDATED FINANCIAL STATEMENT PRESENTATION

The  consolidated  financial  statements  have been prepared in accordance  with
generally  accepted  accounting  principles  and  practices  within the  banking
industry.  The  preparation of consolidated  financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  and the disclosure of contingent assets and liabilities, as of the
date of the balance  sheet,  and the  reported  amounts of revenues and expenses
during the reporting  period.  Actual results could differ from those estimates.
Material  estimates that are particularly  susceptible to significant  change in
the near term relate to the determination of the allowance for credit losses and
the valuation of foreclosed real estate and deferred tax assets.

Certain  prior  year  amounts  have been  reclassified  to  conform  to the 2000
presentation.  All dollar amounts,  except per share information,  are stated in
thousands.

SECURITIES AVAILABLE FOR SALE

Securities  available for sale consist of debt  securities  which may be sold to
implement the Banks  asset/liability  management  strategies  and in response to
changes in interest rates and similar  factors,  and certain equity  securities.
Securities  available for sale are reported at fair value.  Unrealized gains and
losses,  net of the related deferred tax effect, are reported as a net amount in
a  separate  component  of  shareholders'   equity  entitled  accumulated  other
comprehensive  income (loss).  Realized gains and losses on securities available
for sale, determined using the specific  identification  method, are included in
earnings.  Amortization of premiums and accretion of discounts are recognized in
interest income over the period to maturity.


(continued)

                                      7


<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SECURITIES HELD TO MATURITY

Debt  securities  for which the Company has the  positive  intent and ability to
hold to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts,  which are recognized in interest income over the period
to maturity.

Declines in the fair value of individual  securities available for sale and held
to maturity below their cost that are other than temporary result in write-downs
of the individual  securities to their fair value. Such write-downs are included
in earnings as realized losses.

LOANS

Loans are stated at the amount of unpaid principal,  reduced by an allowance for
credit losses.  Interest on loans is accrued daily based on the principal amount
outstanding.

Generally the accrual of interest on loans is discontinued  when, in managements
opinion,  the borrower may be unable to meet payments as they become due or when
they are past due 90 days as to either  principal or  interest,  unless they are
well  secured  and in the  process  of  collection.  When  interest  accrual  is
discontinued, all unpaid accrued interest is reversed against current income. If
management determines that the ultimate collectibility of principal is in doubt,
cash receipts on nonaccrual loans are applied to reduce the principal balance.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is maintained at a level considered  adequate to
provide for estimated losses based on evaluating known and inherent risks in the
loan portfolio.  The allowance is reduced by loans charged off, and increased by
provisions  charged to earnings and recoveries on loans previously  charged off.
The allowance is based on management's periodic evaluation of factors underlying
the quality of the loan portfolio, including changes in the size and composition
of the loan portfolio, the estimated value of any underlying collateral,  actual
loan loss experience,  current  economic  conditions,  and detailed  analysis of
individual  loans  for  which  full  collectibility  may  not be  assured.  This
evaluation  is  inherently   subjective  as  it  requires   estimates  that  are
susceptible to significant revision as more information becomes available.

When available  information confirms that specific loans or portions thereof are
uncollectible,  these  amounts are charged off against the  allowance for credit
losses.  The existence of some or all of the following  criteria will  generally
confirm that a loss has been incurred: the loan is significantly  delinquent and
the borrower has not  evidenced the ability or intent to bring the loan current;
the Bank has no  recourse  to the  borrower,  or if it does,  the  borrower  has
insufficient  assets  to pay the  debt;  the  estimated  fair  value of the loan
collateral is significantly below the current loan balance,  and there is little
or no near-term prospect for improvement.

(continued)
                                      8
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ALLOWANCE FOR CREDIT LOSSES (CONCLUDED)

When management determines that it is probable that a borrower will be unable to
repay all amounts due  according to the terms of the loan  agreement,  including
scheduled interest payments, the loan is considered impaired. Factors considered
by management in  determining  impairment  include  payment  status,  collateral
value,  and the  probability  of  collecting  scheduled  principal  and interest
payments  when due.  Loans  that  experience  insignificant  payment  delays and
payment  shortfalls  are  generally  not  classified  as  impaired.   Management
determines  the  significance  of payment  delays and  payment  shortfalls  on a
case-by-case   basis,   taking  into  consideration  all  of  the  circumstances
surrounding  the loan and the borrower,  including the length of the delay,  the
reasons for the delay,  the borrowers  prior payment  record,  and the amount of
shortfall  in  relation  to the  principal  and  interest  owed.  The  amount of
impairment is measured based on the present value of expected  future cash flows
discounted at the loans  effective  interest rate or, when the primary source of
repayment  is  provided  by real  estate  collateral,  at the fair  value of the
collateral less estimated selling costs.

The  ultimate  recovery of all loans is  susceptible  to future  market  factors
beyond the Bank's  control.  These  factors  may result in losses or  recoveries
differing significantly from those provided for in the financial statements.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated  depreciation,  which
is computed on a  straight-line  method over the  estimated  useful lives of the
assets.  Leasehold  improvements  are amortized over the terms of the respective
leases or the  estimated  useful lives of the  improvements,  whichever is less.
Gains or losses on dispositions are reflected in earnings.

FORECLOSED REAL ESTATE

Real estate properties  acquired through,  or in lieu of,  foreclosure are to be
sold and are  initially  recorded  at the  fair  value  of the  properties  less
estimated  costs  of  disposal.  Any  write-down  to fair  value  at the time of
transfer  to other real  estate  owned is charged  to the  allowance  for credit
losses.  Properties are evaluated  regularly to ensure that the recorded amounts
are supported by their  current fair values,  and that  valuation  allowances to
reduce the carrying  amounts to fair value less  estimated  costs to dispose are
recorded as necessary.  Additions to or reductions from valuation allowances are
recorded in income.

TRANSFERS OF FINANCIAL ASSETS

Transfers of financial  assets are  accounted for as sales when control over the
assets has been  surrendered.  Control over  transferred  assets is deemed to be
surrendered  when (1) the  assets  have been  isolated  from the  Bank,  (2) the
transferee  obtains the right (free of conditions  that constrain it from taking
advantage of that right) to pledge or exchange the transferred  assets,  and (3)
the Bank does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.

(continued)
                                      9

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Deferred  tax  assets  and  liabilities  result  from  differences  between  the
financial   statement   carrying  amounts  and  the  tax  bases  of  assets  and
liabilities,  and are reflected at currently enacted income tax rates applicable
to the period in which the deferred tax assets or liabilities are expected to be
realized or settled.  The  deferred  tax  provision  represents  the  difference
between the net deferred tax  asset/liability  at the  beginning  and end of the
year.  As  changes  in tax laws or rates are  enacted,  deferred  tax assets and
liabilities are adjusted through the provision for income taxes.

The Bank provides for income taxes  separately and remits to the Company amounts
currently due.

STOCK-BASED COMPENSATION

The Company  accounts for  stock-based  awards to employees  using the intrinsic
value method,  in  accordance  with APB No. 25,  Accounting  for Stock Issued to
Employees.  Accordingly,  no  compensation  expense has been  recognized  in the
financial statements for employee stock arrangements.  However, the required pro
forma  disclosures of the effects of all options  granted on or after January 1,
1995  have  been  provided  in  accordance  with SFAS No.  123,  Accounting  for
Stock-Based Compensation.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments disclosed in these financial statements:

      CASH AND SHORT-TERM INSTRUMENTS
      The  carrying  amounts of  cash  and  short-term  instruments  approximate
      their fair value.

      SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
      Fair values  for  securities,  excluding restricted equity securities, are
      based  on  quoted  market  prices.  The  carrying   values  of  restricted
      equity securities approximate fair values.

      LOANS
      For  variable rate loans  that reprice  frequently and have no significant
      change  in credit risk,  fair  values are based on carrying  values.  Fair
      values for fixed rate  loans  are  estimated  using  discounted  cash flow
      analyses,  using  interest rates  currently  being  offered for loans with
      similar  terms  to borrowers of similar  credit  quality.  Fair  values of
      loans  held for sale are based on  their  estimated  market  prices.  Fair
      values for  impaired  loans  are  estimated  using   discounted  cash flow
      analyses or underlying collateral values, where applicable.


(continued)

                                      10

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FAIR VALUES OF FINANCIAL INSTRUMENTS (CONCLUDED)

      DEPOSITS
      The fair values  disclosed for  demand deposits are, by definition,  equal
      to the  amount  payable on  demand at the  reporting  date (that is, their
      carrying   amounts).  The carrying  amounts  of variable rate,  fixed term
      money  market  accounts and  certificates  of  deposit  approximate  their
      fair   values  at  the  reporting   date.  Fair  values  for   fixed  rate
      certificates   of deposit  are  estimated  using a   discounted  cash flow
      calculation  based  on interest rates  currently being  offered on similar
      certificates.

      SHORT-TERM BORROWINGS
      The carrying  amounts  of  federal funds  purchased  and other  short-term
      borrowings  maturing  within 90  days approximate their fair values.  Fair
      values of  other  short-term  borrowings are  estimated  using  discounted
      cash flow  analyses  based on  the  Banks  current  incremental  borrowing
      rates for similar types of borrowing arrangements.

CASH AND CASH EQUIVALENTS

The Company  considers  all  amounts  included  in  the balance  sheets  caption
Cash and due from banks to be cash equivalents.

The Company  maintains  balances in  depository  institution  accounts which, at
times,  may exceed  federally  insured limits.  The Company  has not experienced
any losses in such accounts.

EARNINGS PER SHARE

Basic  earnings  per  share   exclude  dilution and are computed by dividing net
income  by the   weighted  average  number of common   shares  outstanding.  The
diluted  earnings per share reflect the potential  dilution  that could occur if
common  shares  were  issued  pursuant  to the  exercise  of  options  under the
Company's stock option plans.

COMPREHENSIVE INCOME

The  Company  applies  Statement of  Financial  Accounting   Standards  No. 130,
Reporting  Comprehensive   Income (SFAS No. 130), which  requires that an entity
report and  display   comprehensive  income in a  financial   statement  that is
displayed   with   the  same   prominence   as   other   financial   statements.
Comprehensive  income  is  defined  as  the  change  in   equity  of a  business
enterprise   during  a   period  from   transactions   and   other   events  and
circumstances  from  non-owner  sources.  It   includes  all  changes  in equity
during  a period  except  those   resulting  from  investments  by   owners  and
distributions  to  owners.  With regard to the  Company,   comprehensive  income
includes  the  net income  reported in the  statement of  income and any changes
in fair  value of  securities  available  for sale,  reported  as a component of
shareholders equity.

(continued)
                                      11

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative  Instruments  and Hedging  Activities.  This statement
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred  to as  derivatives)  and  for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  in its balance sheet and measure those  instruments  at fair value.
Under  this  statement,  an entity  that  elects to apply  hedge  accounting  is
required to establish  at the  inception of the hedge the method it will use for
assessing  the  effectiveness  of the  hedging  derivative  and the  measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent  with the entitys  approach to managing  risk.  This  statement is
effective for all fiscal years beginning after June 15, 2000. The Company had no
derivatives  as of December 31, 2000, nor does the Company engage in any hedging
activities.  The Company does not  anticipate  that the adoption of SFAS No. 133
will have a material effect on its financial position or results of operations.


NOTE 2 - BUSINESS COMBINATION

On December 15, 1999, Harbor Bancorp,  Inc. effected a business combination with
Pacific Financial  Corporation by exchanging  230,389 shares of its common stock
for all of the common stock of Pacific Financial Corporation, a one-bank holding
company based in Long Beach, Washington.  The combination was accounted for as a
pooling of interests and, accordingly,  all prior financial statements have been
restated to include Pacific Financial Corporation.  Following the merger, Harbor
Bancorp, Inc. changed its name to Pacific Financial  Corporation.  From the date
of the merger through November 7, 2000, the Companys two subsidiaries,  The Bank
of Grays Harbor and Bank of the Pacific, operated as separate banks. On November
8, 2000, the two subsidiary banks were merged into one bank, operating under the
name, The Bank of the Pacific.


NOTE 3 - RESTRICTED ASSETS

Federal  Reserve  Board  regulations  require  that the Bank  maintains  certain
minimum  reserve  balances on deposit with the Federal Reserve Bank. The average
amounts of such  balances  for the years ended  December  31, 2000 and 1999 were
approximately $2,575 and $1,396, respectively.


                                      12


<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 4 - DEBT AND EQUITY SECURITIES

Debt and equity securities have been classified according to managements intent.
The  carrying  amounts of  securities  and their  approximate  fair value are as
follows:
<TABLE>
                                                        Gross          Gross
                                           Amortized    Unrealized     Unrealized   Fair
                                           Cost         Gains          Losses       Value
                                           ---------    ----------     ----------   ------
Securities Available for Sale

December 31, 2000
   U.S. Treasury and Government
<S>                                        <C>          <C>            <C>         <C>
     agency securities                     $  28,324    $      18      $    229    $28,113
   Obligations of states and
     political subdivisions                   12,110          122            54     12,178
   Corporate bonds                            13,552           18           165     13,405
   Federal Home Loan Bank stock                3,562          - -           - -      3,562
                                           ---------    ----------     ----------   ------
                                           $  57,548    $     158      $    448    $57,258

December 31, 1999
   U.S. Treasury and Government
    agency securities                      $  35,597    $       5      $    950    $34,652
   Obligations of states and
    political subdivisions                    12,750           95           169     12,676
   Corporate bonds                            15,383          - -           426     14,957
   Federal Home Loan Bank stock                3,340          - -           - -      3,340
                                           ---------    ----------     ----------   ------
                                           $  67,070    $     100      $  1,545    $65,625

Securities Held to Maturity

December 31, 2000
   State and municipal securities          $   1,376    $     - -      $    - -    $ 1,376

December 31, 1999
   State and municipal securities          $   1,615    $     - -      $    - -    $ 1,615
</TABLE>

(continued)

                                      13
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 4 - DEBT AND EQUITY SECURITIES (CONCLUDED)

The  contractual  maturities of debt securities held to maturity and available
for sale at December 31, 2000 are as follows:
<TABLE>
                                        Held to Maturity            Available for Sale

                                        Amortized     Fair          Amortized    Fair
                                        Cost          Value         Cost         Value
                                        -------------------         ------------------
<S>                                    <C>          <C>            <C>          <C>
Due in one year or less                $     4      $     4        $11,975      $11,940
Due from one year to five years            130          130         26,893       26,741
Due from five to ten years                 821          821         11,381       11,264
Due after ten years                        421          421            740          738
Mortgage-backed securities                 - -          - -          2,997        3,013
                                        ------       ------         ------       ------
    Total                              $ 1,376      $ 1,376        $53,986      $53,696
</TABLE>

Securities  carried at approximately  $11,401 at December 31, 2000 and $14,385
at December  31, 1999 were  pledged to secure  public  deposits  and for other
purposes required or permitted by law.

NOTE 5 - LOANS

Loans at December 31 consist of the following:
<TABLE>
                                                         2000            1999
                                                       --------        --------
<S>                                                   <C>             <C>
Commercial and agricultural                           $  68,827       $  56,198
Real estate:
   Construction                                           6,118           3,325
   Residential 1-4 family                                31,611          29,526
   Multi-family                                           3,495           6,847
   Commercial                                            59,236          50,448
   Farmland                                               1,992           2,084
Consumer                                                  5,889           4,236

</TABLE>
                                                       $177,168         $152,664
(continued)
                                      14


<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 5 - LOANS (CONCLUDED)

Changes in the  allowance  for credit  losses for the years ended  December 31
are as follows:

                                              2000         1999          1998
                                             ------       ------        ------
Balance at beginning of year                 $1,930       $1,864        $1,937
Provision for credit losses                     635           60           110

Charge-offs                                    (568)        (134)         (221)
Recoveries                                       29          140            38
   Net (charge-offs) recoveries                (539)           6          (183)
                                             ------       ------        ------
   Balance at end of year                    $2,026       $1,930        $1,864

Following is a summary of information pertaining to impaired loans:

                                              2000         1999          1998
                                             ------       ------        ------
December 31
   Impaired loans without a
     valuation allowance                     $2,014       $  175        $   15
   Impaired loans with a
     valuation allowance                      1,114          - -           - -

   Total impaired loans                      $3,128       $  175        $   15

   Valuation allowance related
     to impaired loans                       $  412       $  - -        $  - -

Years Ended December 31
   Average investment in
     impaired loans                          $3,425       $   59        $  552
   Interest income recognized
     on a cash basis on impaired loans           31           11           - -

At December 31, 2000,  there were no  commitments  to lend  additional  funds to
borrowers  whose loans have been  modified.  Loans 90 days and over past due and
still  accruing  interest  totaled  $292 and $140 at December 31, 2000 and 1999,
respectively.

Certain related parties of the Bank, principally directors and their associates,
were loan customers of the Bank in the ordinary  course of business  during 2000
and 1999. Total loans  outstanding at December 31, 2000 and 1999 to key officers
and directors  were $2,581 and $1,882,  respectively.  During 2000, new loans of
$2,154 were made, and repayments totaled $1,455.



                                      15
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 6 - PREMISES AND EQUIPMENT

The components of premises and equipment at December 31 are as follows:

                                                     2000               1999
                                                    ------             ------
Land                                                $1,125            $   712
Premises                                             3,733              3,662
Equipment, furniture and fixtures                    4,297              3,609
                                                     9,155              7,983
Less accumulated depreciation                        5,033              4,473
                                                    ------             ------
   Total premises and equipment                     $4,122             $3,510

The  Company had a  three-year  lease for the  property  on which the  Montesano
Branch is located.  The lease  agreement  contained  an option to  purchase  the
property at any time prior to the  expiration  of the lease for 16,500 shares of
the Company's stock. The purchase  option was exercised in 2000.  Rental expense
under  this  lease was $5,  $12 and $12 for 2000,  1999 and 1998,  respectively,
which is included in occupancy expenses.


NOTE 7 - DEPOSITS

The aggregate  amount of  certificates of deposit with balances in excess of one
hundred thousand dollars was  approximately  $30,662 and $19,513 at December 31,
2000 and 1999, respectively.

Scheduled  maturities of certificates of deposit are as follows for future years
ending December 31:

   2001                                                          $75,349
   2002                                                            4,261
   2003                                                            1,024
   2004                                                              127
   2005 and thereafter                                                97
                                                                  ------
                                                                 $80,858

NOTE 8 - SHORT-TERM BORROWINGS

Short-term  borrowings  generally  mature  within  one to four  days  from the
transaction date.  Information  concerning short-term borrowings is summarized
as follows for the years ended December 31:

                                                       2000               1999
                                                      ------             ------

Average balance during the year                      $ 9,036             $4,091
Average interest rate during the year                  6.39%              5.18%
Maximum month-end balance during the year            $11,358             $9,675
Balance outstanding at year-end                      $11,358             $9,675
Average interest rate at year-end                      6.39%               5.59%



                                      16


<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 9 - INCOME TAXES

Income taxes are comprised of the following for the years ended December 31:

                                             2000          1999          1998
                                            ------        ------        ------
Current                                     $1,505        $1,726        $1,573
Deferred (benefit)                             (81)          (34)           17
                                            ------        ------        ------
   Total income taxes                       $1,424        $1,692        $1,590

The tax  effects  of  temporary  differences  that  give  rise to  significant
portions of deferred tax assets and liabilities at December 31 are:

                                                           2000         1999
                                                          ------       ------
Deferred Tax Assets
   Allowance for credit losses                            $  597       $  530
   Deferred compensation                                     247          243
   Unrealized loss on securities available for sale           98          494
   Other                                                     164          - -
                                                          ------       ------
   Total deferred tax assets                               1,106        1,267

Deferred Tax liabilities
   Depreciation                                               37           50
   Deferred revenue                                          933          766
                                                          ------       ------
   Total deferred tax liabilities                            970          816

   Net deferred tax assets                                $  136       $  451

The following is a reconciliation  between the statutory and effective federal
income tax rate for the years ended December 31:
<TABLE>
                           2000                    1999                  1998
                          ------------------      -----------------     ------------------
                                     Percent                Percent                Percent
                                     of Pre-tax             of Pre-tax             of Pre-tax
                          Amount     Income        Amount   Income       Amount    Income

Income tax at
<S>                       <C>          <C>         <C>          <C>      <C>        <C>
  statutory rate          $1,607       34.0%       $1,909       34.0%    $1,899     34.0%
Adjustments resulting
  from:
   Tax-exempt income        (236)      (5.0)         (261)      (4.6)      (251)    (4.5)
   Net earnings on
    life insurance policies  (36)       (.7)          (35)       (.6)       (28)     (.5)
   Non-deductible
    merger costs             - -        - -           106        1.9        - -      - -
   Other                      89        1.9           (27)       (.6)       (30)     (.5)
                           -----      -----        ------       -----     -----     -----
   Total income
    tax expense           $1,424      30.2%        $1,692       30.1%    $1,590     28.5%

</TABLE>

                                      17
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 10 - EMPLOYEE BENEFITS

INCENTIVE COMPENSATION PLAN

The Bank has a plan that provides incentive compensation to key employees if the
Bank meets certain performance  criteria  established by the Board of Directors.
The  cost of this  plan  was  $490,  $622  and  $599 in  2000,  1999  and  1998,
respectively.

401(K) PLANS

The Bank has  established a 401(k) profit  sharing plan for those  employees who
meet the eligibility  requirements set forth in the plan. Eligible employees may
contribute up to 15% of their compensation.  Matching  contributions by the Bank
are at the discretion of the Board of Directors.  Contributions totaled $94, $95
and $90 for 2000, 1999 and 1998, respectively.

DIRECTOR AND EMPLOYEE DEFERRED COMPENSATION PLANS

The Bank has director and employee deferred  compensation plans. Under the terms
of the plans, a director or employee may participate upon approval by the Board.
The  participant  may  then  elect  to defer a  portion  of his or her  earnings
(directors  fees or salary) as  designated  at the  beginning of each plan year.
Payments begin upon retirement, termination, death or permanent disability, sale
of the Bank, the ten-year anniversary of the participants participation date, or
at the  discretion  of the Bank.  There are currently  two  participants  in the
plans.  Total  deferrals plus earnings were $297,  $327 and $132 at December 31,
2000, 1999 and 1998, respectively.

In 1997,  the Board of Bank of the  Pacific  adopted two  deferred  compensation
plans for directors -- one plan  providing  retirement  income  benefits for all
directors  and the other,  a deferred  compensation  plan,  covering  only those
directors  who have chosen to  participate  in the plan. At the time of adopting
these plans, Bank of the Pacific purchased life insurance  policies on directors
participating  in both plans  which may be used to fund  payments  to them under
these plans.  Cash surrender  values on these policies were $2,435 and $2,330 at
December  31,  2000 and 1999,  respectively.  In 2000,  1999 and  1998,  the net
(benefit)/cost recorded from these plans, including the cost of the related life
insurance,  was $30, ($3) and $15, respectively.  Both of these plans were fully
funded and frozen as of September 30, 2000. Plan  participants  will be paid out
starting in 2001.

QUALIFIED NON-CONTRIBUTORY DEFINED BENEFIT PLAN

The  Bank   maintained  a   non-contributory   defined   benefit  plan  covering
substantially all employees of the former Bank of the Pacific,  which was frozen
and terminated on December 31, 2000. The Bank made annual  contributions  to the
plan equal to the amount  accrued for pension  expenses,  which were invested in
shares of registered  investment  companies.  Contributions  of $312, $33 and $2
were made in 2000, 1999 and 1998, respectively.

NON-QUALIFIED DEFERRED COMPENSATION PLAN

The Bank has a  non-qualified  deferred  compensation  plan to cover  selected
employees.  Its annual  contributions  to the plan totaled $22, $19 and $18 in
2000, 1999 and 1998,  respectively.  Covered  employees may also contribute to
the plan.  The plan was terminated in early 2001.

                                      18


<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal course of business to meet the financing needs of their customers.  These
financial  instruments  include commitments to extend credit and standby letters
of credit, and involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheets.

The Banks  exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations as they do for on-balance-sheet  instruments. A summary of the Banks
commitments at December 31 is as follows:

                                                         2000             1999
                                                        ------           ------
Commitments to extend credit                           $14,473          $18,573
Standby letters of credit                                1,763            1,795

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since many
of the  commitments  are expected to expire  without being drawn upon, the total
commitment amounts do not necessarily  represent future cash  requirements.  The
Banks  experience has been that  approximately  67% of loan commitments is drawn
upon by customers.  The Bank  evaluates  each  customers  creditworthiness  on a
case-by-case  basis. The amount of collateral  obtained,  if deemed necessary by
the Bank upon extension of credit, is based on managements  credit evaluation of
the  party.  Collateral  held  varies,  but  may  include  accounts  receivable,
inventory, property and equipment, residential real estate, and income-producing
commercial properties.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.  Collateral held varies
as specified above, and is required in instances where the Bank deems necessary.

Certain executive officers have entered into employment  contracts with the Bank
which provide for contingent payments subject to future events.

The Bank has agreements  with  commercial  banks for lines of credit  totaling
$5,600,  none of which was used at December  31, 2000.  In addition,  the Bank
has a credit  line with the  Federal  Home Loan Bank  totaling  10% of assets,
$11,175  of  which  was used at  December  31,  2000.  These  borrowings  were
collateralized under blanket pledge agreements.

Because  of the  nature of its  activities,  the  Company  is subject to various
pending and  threatened  legal  actions  which arise in the  ordinary  course of
business.  In the opinion of management,  liabilities arising from these claims,
if any,  will  not have a  material  effect  on the  financial  position  of the
Company.

                                      19


<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 12 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

Most of the Banks business activity is with customers and governmental  entities
located in the State of Washington, including investments in state and municipal
securities. Loans are generally limited by federal and state banking regulations
to  20%  of  the  Banks  shareholders   equity,   excluding   accumulated  other
comprehensive income (loss). Standby letters of credit were granted primarily to
commercial  borrowers.  The Bank,  as a matter of practice,  generally  does not
extend  credit to any  single  borrower  or group of  borrowers  in excess of $4
million.


NOTE 13 - STOCK OPTIONS

At December 31, 2000, the Company has three stock-based  option plans, which are
described   below.   The  Company   applies  APB  Opinion  No.  25  and  related
interpretations in accounting for these plans. Accordingly, no compensation cost
has been recognized for the plans. Had compensation cost for the Company's stock
option  plans been  determined  based on the fair  value at the grant  dates for
awards  granted since December 31, 1994 under these plans,  consistent  with the
method of SFAS No. 123,  the  Company's net income and  earnings per share would
have been reduced to these pro forma amounts:

                                              2000          1999        1998
                                             ------        ------      ------
Net income:
   As reported                               $3,303        $3,922      $3,994
   Pro forma                                  3,268         3,914       3,988

Earnings per share:
   Basic:
     As reported                              $1.33        $ 1.60      $ 1.64
     Pro forma                                 1.32          1.60        1.64
   Diluted:
     As reported                               1.32          1.59        1.61
     Pro forma                                 1.30          1.58        1.61

The Company's three incentive  stock option plans provide for granting incentive
stock options,  as defined under current tax laws, to key  personnel.  Under the
first  plan,  options  are  exercisable  90 days from the date of  grant.  These
options  terminate if not exercised  within ten years from the date of grant. If
after six years from the date of grant fewer than 20% of the  options  have been
exercised,  they will expire at a rate of 20%  annually.  Under the second plan,
the options are  exercisable  one year from the date of grant,  at a rate of 10%
annually.  Options terminate if not exercised when they become available.  Under
the third plan, options become exercisable four years from the grant date. These
options  terminate if not exercised  between the sixth and the tenth years. Upon
reaching the sixth year from the date of grant,  if less than 20% of the options
have been  exercised,  at least 20% of the options must be  exercised  within 90
days,  and 20% of the options must be exercised  every  anniversary  thereafter.
Under the plans,  the Company may grant up to 25,000  shares of its common stock
to certain key employees.

(continued)
                                      20
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 13 - STOCK OPTION PLANS (CONCLUDED)

The fair  value of each  option  granted  in 1999 was  estimated  on the date of
grant,  based on the Black-Scholes  option pricing model and using the following
weighted-average assumptions.

Dividend yield                                                          4.63%
Expected life                                                           10 years
Risk-free interest rate                                                 6.6%

The weighted average fair value of options granted during 1999 was $2.87.

A summary of the status of the  Company's  stock option plans as of December 31,
2000,  1999 and 1998,  and changes  during the years ending on those  dates,  is
presented below:
<TABLE>
                            2000                  1999                1998
                                      Weighted            Weighted            Weighted
                                      Average             Average             Average
                                      Exercise            Exercise            Exercise
                           Shares     Price      Shares   Price      Shares   Price
                           ------     --------   ------   --------   ------   --------
Outstanding at beginning
<S>                        <C>         <C>       <C>      <C>        <C>      <C>
   of year                 78,550      $18.13    93,550   $13.14     101,940  $13.02
Granted                       - -         - -    25,000    27.00         - -     - -
Exercised                  (2,750)      12.00   (40,000)   12.00      (8,390)  11.62
Forfeited                  (1,250)      27.00       - -      - -         - -     - -
                           ------      ------    ------    -----     -------   -----
Outstanding at end
   of year                 74,550       18.21    78,550    18.13      93,550   13.14

Exercisable at
   end of year             34,030                13,390                 - -
</TABLE>

The following information summarizes information about stock options outstanding
and exercisable at December 31, 2000:

                                                  Weighted
                                                  Average
                                                  Remaining
              Exercise        Number              Contractual        Number
              Price           Outstanding         Life (Years)       Exercisable
              --------        -----------         ------------       -----------

             $12.00              4,750                4                 4,750
              13.00              7,500                5                17,500
              14.40              5,000                6                   - -
              15.29             23,550                6                11,780
              27.00             23,750                9                   - -


                                      21

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 14 - STOCK TRANSACTIONS

In June  2000,  the Board of  Directors  effected  a  5-for-1  stock  split.  In
addition,  stockholders  approved an increase in the number of authorized common
shares from 1,000,000 to 25,000,000.

Per share  information  for the current and prior  periods has been  adjusted to
reflect the effect of the stock split.


NOTE 15 - REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the Companys  financial  statements.  Under capital  adequacy
guidelines on the regulatory  framework for prompt corrective  action,  the Bank
must  meet  specific  capital  adequacy  guidelines  that  involve  quantitative
measures of the Banks assets, liabilities and certain off-balance-sheet items as
calculated   under   regulatory   accounting   practices.   The  Banks   capital
classification is also subject to qualitative  judgments by the regulators about
components, risk weightings and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the  regulations)  to
total  average  assets  (as  defined),  and  minimum  ratios of Tier 1 and total
capital (as defined) to risk-weighted assets (as defined).

As of December 31, 2000, the most recent  notification  from the Banks regulator
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt corrective  action. To be categorized as well capitalized,  the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set  forth in the  table.  There  are no  conditions  or  events  since  that
notification that management believes have changed the institutions category.

The Company and the Banks actual  capital  amounts and ratios are also presented
in the table.  Management believes,  as of December 31, 2000, the Bank meets all
capital requirements to which they are subject.

<TABLE>
                                                                         To be  Well Capitalized
                                                                         Under Prompt
                                                  Capital Adequacy       Corrective Action
                                 Actual           Purposes               Provisions
                                 Amount   Ratio   Amount      Ratio      Amount          Ratio
                                 ------   -----   ------      -----      ----------      -----
December 31, 2000
   Tier 1 capital
    (to average assets):
<S>                             <C>       <C>     <C>          <C>         <C>            <C>
     Consolidated               $22,934   9.19%   $  9,986     4.00%       N/A            N/A
     Bank                        22,895   9.17       9,986     4.00        $12,482        5.00%
   Tier 1 capital
    (to risk-weighted assets):
     Consolidated                22,934  12.05       7,613     4.00        N/A            N/A
     Bank                        22,895  12.35       7,413     4.00         11,120        6.00
   Total capital
    (to risk-weighted assets):
     Consolidated                24,960  13.11      15,226     8.00        N/A            N/A
     Bank                        24,921  13.45      14,827     8.00         18,533       10.00
</TABLE>

(continued)
                                      22

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 15 - REGULATORY MATTERS (CONCLUDED)
<TABLE>
                                                                         To be  Well Capitalized
                                                                         Under Prompt
                                                  Capital Adequacy       Corrective Action
                                 Actual           Purposes               Provisions
                                 Amount   Ratio   Amount      Ratio      Amount          Ratio
                                 ------   -----   ------      -----      ----------      -----
December 31, 1999
   Tier 1 capital
   (to average assets):
<S>                             <C>       <C>     <C>          <C>
     Consolidated               $22,390   9.28%   $  9,646     4.00%       N/A            N/A
     Bank                        22,304   9.25       9,644     4.00        $12,055        5.00%
   Tier 1 capital
   (to risk-weighted assets):
     Consolidated                22,390  12.93       6,929     4.00        N/A            N/A
     Bank                        22,304  12.88       6,929     4.00        10,393         6.00
   Total capital
   (to risk-weighted assets):
     Consolidated                24,320  14.04      13,857     8.00        N/A            N/A
     Bank                        24,234  13.99      13,857     8.00        17,322       10.00
</TABLE>

Restrictions on Retained Earnings

The Bank is  restricted  from paying  dividends to the Company in an amount that
would violate the most restrictive  capital requirement shown above. At December
31, 2000, there were no regulatory  dividend  restrictions on the Banks retained
earnings.


NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of the Companys  financial  instruments at December 31
are as follows:
<TABLE>
                                          2000                        1999
                                          -----------------           -----------------
                                          Carrying     Fair           Carrying     Fair
                                          Amount       Value          Amount       Value

Financial Assets
   Cash and due from banks,
     interest-bearing deposits with
<S>                                       <C>         <C>            <C>         <C>
     banks, and federal funds sold        $  9,669    $ 9,669        $  14,824   $ 14,824
   Securities available for sale            57,258     57,258           65,625     65,625
   Securities held to maturity               1,376      1,376            1,615      1,615
   Loans receivable                        175,142    175,375          150,734    149,368

Financial Liabilities
   Deposits                               $213,511   $213,682        $ 206,139   $206,156
   Short-term borrowings                    11,358     11,358            9,675      9,675
</TABLE>
                                      23

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 17 - EARNINGS PER SHARE DISCLOSURES

Following is information regarding the calculation of basic and diluted earnings
per share for the years indicated.
<TABLE>
                                           Net Income     Shares            Per Share
                                           (Numerator)    (Denominator)     Amount
                                           ----------     ------------      ---------
Year Ended December 31, 2000
   Basic earnings per share:
<S>                                           <C>           <C>                <C>
     Net income                               $3,303        2,492,326          $1.33
   Effect of dilutive securities:
     Options                                     - -           23,507           (.01)
   Diluted earnings per share:
     Net income                               $3,303        2,515,833          $1.32

Year Ended December 31, 1999
   Basic earnings per share:
     Net income                               $3,922        2,447,729          $1.60
   Effect of dilutive securities:
     Options                                     - -           23,783           (.01)
   Diluted earnings per share:
     Net income                               $3,922        2,471,512          $1.59

Year Ended December 31, 1998
   Basic earnings per share:
     Net income                               $3,994        2,437,914          $1.64
   Effect of dilutive securities:
     Options                                     - -           38,978           (.03)
   Diluted earnings per share:
     Net income                               $3,994        2,476,892          $1.61
</TABLE>

The number of shares  shown for options is the number of  incrementional  shares
that would  result  from the  exercise  of options  and use of the  proceeds  to
repurchase shares at the average market price during the year.


                                      24

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999


NOTE 18 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

Condensed Balance Sheets - December 31

                                                           2000         1999
                                                          ------       ------
Assets
   Cash                                                  $    66      $  1,751
   Investment in the Bank                                 22,703        21,352
   Due from the Bank                                       3,200         1,406
   Federal income tax receivable                             - -            34

   Total assets                                          $25,969      $ 24,543


Liabilities and Shareholders Equity
   Dividends payable                                     $ 3,204      $  3,105
   Federal income tax payable                                 22           - -
   Shareholders equity                                    22,743        21,438

   Total liabilities and shareholders equity             $25,969       $24,543


Condensed Statements of Income - Years Ended December 31

                                                2000         1999        1998
                                               ------       ------      ------
Dividend income from the Bank                  $3,275       $3,010      $2,450

Expenses                                         (151)        (377)        (81)

Equity in undistributed income of subsidiary      179        1,289       1,625

   Net income                                  $3,303       $3,922      $3,994

(continued)

                                      25

<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Pacific Financial Corporation and Subsidiary
December 31, 2000 and 1999

NOTE 18 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONCLUDED)

Condensed Statements of Cash Flows - Years Ended December 31
<TABLE>
                                                    2000          1999       1998
                                                   ------        ------     ------
Operating Activities
<S>                                                <C>           <C>        <C>
   Net income                                      $3,303        $3,922     $3,994
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Equity in undistributed income of subsidiary  (179)       (1,289)    (1,625)
       Other - net                                     57            20        (62)
                                                    -----         -----      -----
   Net cash provided by operating activities        3,181         2,653      2,307

Investing Activities
   Investment in subsidiary                           - -           - -        (90)
   Increase in due from the Bank                   (1,794)          - -        - -
                                                    -----         -----      -----
   Net cash used in investing activities           (1,794)          - -        (90)

Financing Activities
   Net proceeds from exercise of
   stock options and bonuses                           33           480         99
   Dividends paid                                  (3,105)       (2,379)    (2,118)
   Repurchase of common stock                         - -           (24)       - -
   Net cash used in financing activities           (3,072)       (1,923)    (2,019)
                                                    -----         -----      -----
   Net increase (decrease) in cash                 (1,685)          730        198

Cash
   Beginning of year                                1,751         1,021        823
                                                    -----         -----      -----
   End of year                                  $      66        $1,751     $1,021
</TABLE>

                                      26

<PAGE>

Consolidated Average Balances and Net Interest Income
------------------------------------------------------------------------------
(Dollars in Thousands)

Pacific Financial Corporation
Years Ended December 31, 2000, 1999 and 1998
<TABLE>
                               2000                               1999                                1998
                             -------------------------------    -------------------------------     --------------------------------
                                        Interest                           Interest                            Interest
                               Average  Income     Average      Average    Income     Average       Average    Income       Average
                               Balance  (Expense)  Rate         Balance    (Expense)  Rate          Balance    (Expense)    Rate

Assets
   Earning assets:
<S>                            <C>      <C>          <C>        <C>          <C>        <C>
     Loans                     $165,834  $16,500*     9.95%      $147,689   $14,129*   9.57%        $145,493    $14,427*      9.92%
     Investment securities:
       Taxable                   49,307    2,812      5.70         51,439     2,987    5.81           31,587      1,925       6.09
       Tax-exempt                13,187    1,344*    10.19         14,333     1,114*   7.77           14,994      1,172*      7.82
                               --------  -------     -----       --------   -------    ----          -------
   Total investment securities   62,494    4,156      6.65         65,772     4,101    6.24           46,581      3,097       6.65
     Federal funds sold and
       deposits in banks          2,258      148      6.55         10,476       570    5.44           14,760        877       5.94
                               --------  -------     -----       --------   -------    ----          -------      ------      -----
   Total earning assets/
       interest income          230,586   20,804      9.02%       223,937    18,800    8.40%         206,834     18,401       8.90%

   Cash and due from banks        8,784                             8,599                              6,511     (3,207)      3.11%
   Premises and equipment (net)   3,728                             3,596                              3,786     (3,379)      5.48
   Other assets                   5,447                             5,303                              6,555     (6,586)      4.00
   Allowance for credit losses   (1,997)                           (1,922)                            (1,863)      (266)      5.90%
                                -------                           -------                            -------     ------       -----
   Total assets                $246,548                          $239,513                           $221,823                  4.05%

Liabilities and Shareholders Equity
   Interest bearing liabilities:
     Deposits:
       Savings and interest-bearing
         demand                $109,266   (4,483)     4.10%      $112,452    (3,435)   3.05%        $103,163
       Time                      68,516   (3,537)     5.16         65,524    (3,277)   5.00           61,657
                               --------   -------     -----       --------   -------   ----
   Total deposits               177,782   (8,020)     4.51        177,976    (6,712)   3.77          164,820
     Other borrowings             8,876     (577)     6.50          4,091      (212)   5.18            4,505
                               --------   -------     -----       --------   -------   ----
   Total interest-bearing
     liabilities/
     interest expense           186,658   (8,597)     4.61%       182,067    (6,924)   3.80%         169,325

   Demand deposits               34,343                            32,921                             28,707
   Other liabilities              3,457                             1,804                              2,287
   Shareholders equity           22,090                            22,721                             21,504
                                -------                           -------                           --------
   Total liabilities and
   shareholders equity         $246,548                          $239,513                           $221,823

   Net interest income          $12,207                           $11,876                                        11,549

Net Interest Income as a Percentage
  of Average Earning Assets
   Interest income                                    9.02%                            8.40%                                  8.90%
   Interest expense                                   3.73                             3.10                                   3.31
                                                      -----                            -----                                  -----
   Net interest income                                5.29%                            5.30%                                  5.59%

</TABLE>

*  Tax equivalent basis
                                      27
<PAGE>


SELECTED QUARTERLY FINANCIAL DATA

The following selected  consolidated  financial data of the Company is presented
for the quarters ended (dollars in thousands, except per share amounts):
<TABLE>
                               December 31,     September 30,   June 30,    March 31,
                                  2000             2000           2000        2000
                               -----------      ------------    -------     --------

<S>                               <C>             <C>           <C>         <C>
Interest income                   $5,191          $5,133        $5,099      $4,849
Interest expense                   2,362           2,224         2,096       1,915
                                   -----           -----         -----       -----
     Net interest income           2,829           2,909         3,003       2,934
Provision for loan losses            432              98            52          53
Noninterest income                   252             304           305         356
Noninterest expense                2,323           1,723         1,738       1,746
                                   -----           -----         -----       -----
     Income before income            326           1,392         1,518       1,491
taxes
Federal income taxes                  71             444           442         467
                                  ------           -----         -----       -----
     Net income                   $  255          $  948        $1,076      $1,024

Basic and diluted earnings
per share
     Basic                        $  .11          $  .38        $  .43      $  .41
     Diluted                         .10             .38           .43         .41


                               December 31,     September 30,   June 30,    March 31,
                                  1999             1999           1999        1999
                               -----------      ------------    -------     --------

Interest income                   $4,798          $4,606        $4,531      $4,419
Interest expense                   1,791           1,743         1,696       1,694
                                   -----           -----         -----       -----
     Net interest income           3,007           2,863         2,835       2,725
Provision for loan losses             45              15             0           0
Noninterest income                   307             307           314         327
Noninterest expense                2,044           1,678         1,601       1,688
                                   -----           -----         -----       -----
     Income before income          1,225           1,477         1,548       1,364
taxes
Federal income taxes                 327             488           463         414
                                   -----           -----         -----       -----
     Net income                   $  898          $  989        $1,085      $  950

Basic and diluted earnings
per share
     Basic                        $  .37          $  .40        $  .44      $  .39
     Diluted                         .37             .40           .44         .38
</TABLE>

                                       28
<PAGE>

SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  caused this Amendment No. 2 to its report on Form
10-K to be signed on its behalf by the  undersigned,  thereunto duly authorized,
on the 21st day of August, 2001.


                                        PACIFIC FINANCIAL CORPORATION
                                          (Registrant)

                                        /s/ John Van Dijk
                                        -----------------------------
                                        John Van Dijk, Treasurer
                                        (Chief Financial Officer)


                                       29