UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
_____________________

FORM 8-K
CURRENT REPORT
Pursuant to
SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

_______________________

Date of Report (Date of earliest event reported):  November 2, 2010

PACIFIC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

1101 S. Boone St.
Aberdeen, Washington 98520-5244
(360) 533-8870
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01.  Regulation FD Disclosure

Pacific Financial Corporation ("Pacific") is furnishing information in accordance with Regulation FD regarding its financial results for the nine months ended September 30, 2010.  This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933, except as may be expressly set forth by specific reference in any such filing.

Pacific's net income for the three and nine months ended September 30, 2010, was $479,000 and $1,616,000, respectively, compared to a net loss of $2,238,000 and $5,954,000 for the three and nine month periods ended September 30, 2009.  The improvement was primarily related to an increase in net interest income and a decrease in provision for credit losses.  Net interest margin increased to 3.95% for the nine months ended September 30, 2010, compared to 3.60% for the same period of the prior year.  Provision for credit losses for the three and nine months was $850,000 and $2,850,000, down from $3,170,000 and $8,544,000 in the same periods a year ago.  The decrease in provision for credit losses is due to an improvement in asset quality as evidenced by a decrease in non-performing loans to $6,590,000 at September 30, 2010, compared to $16,815,000 at September 30, 2009.  Non-performing assets totaled $16,279,000, or 2.57% of total assets, at September 30, 2010, compared to $27,008,000, or 3.96% of total assets, at September 30, 2009.

Net interest income for the nine months ended September 30, 2010, was $17,125,000, an increase of $967,000 over the same period of the prior year.  Net interest income in the current quarter was $5,743,000, as compared to $5,540,000 in the prior period.  The increases are primarily the result of lower rates paid on deposits, including, in particular, certificates of deposit.  Additionally, as non-performing loans have declined the reversal of interest income on non-accrual loans has also declined.

Non-interest income decreased $316,000 to $6,201,000 for the nine months ended September 30, 2010, compared to the same period of the prior year, reflecting a reduction in income from loan sales due to a decrease in the volume of loans sold in the secondary market.  The volume in 2009 was in excess of historical norms due to exceptionally low mortgage rates and government incentive programs.  Non-interest income increased $27,000 for the three months ended September 30, 2010, compared to the same period of the prior year.  The increase for the current three month period is due to increases in services charges on deposits and other operating income, which is made up primarily of interchange revenue earned on debit cards.  Non-interest expense decreased $738,000 and $2,901,000 to $ 6,331,000 and $18,920,000 for the three and nine months ended September 30, 2010, respectively.  The decreases are primarily related to decreases in salary and employee benefits costs, FDIC assessments and other real estate owned (“OREO”) write-downs.  OREO write-downs for the nine months ended September 30, 2010 totaled $564,000 compared to $2,539,000 in the same period of the prior year.

Total assets decreased 5.1% to $634.3 million at September 30, 2010, compared to $668.6 million at December 31, 2009.  The decrease is mostly attributable to run off in certificates of deposits which were funded from interest bearing deposits and fed funds sold.  Total loans, including loans held for sale, were $486.9 million at September 30, 2010, down from $494.6 million at year-end 2009.  The decrease in loans is due to continued reduction in construction and development loans of $12.2 million, and the sale of government guaranteed loans.  During the second quarter of 2010, the Company sold approximately $5 million in government guaranteed loans for a gain on sale of $210,000.  The ratio of the allowance for credit losses to total loans outstanding was 2.36%, 2.24% and 2.34%, at September 30, 2010, December 31, 2009 and September 30, 2009, respectively. 

Tier 1 leverage and total risk based capital ratios at September 30, 2010 for the Company’s subsidiary, Bank of the Pacific, were 9.88% and 14.30%, respectively, compared to 9.03% and 13.07% at December 31, 2009, respectively. 

Pacific's unaudited consolidated balance sheets at September 30, 2010 and December 31, 2009, unaudited consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009, and selected performance ratios for the nine months ended September 30, 2010 and 2009, follow.

PACIFIC FINANCIAL CORPORATION
Selected Performance Ratios

(1)     Net interest income divided by average earnings assets.

(2)     Non interest expense divided by the sum of net interest income and non interest income.

(3)     Total shareholders’ equity less intangibles divided by shares outstanding.

(4)     Excludes loans held for sale.

(5)     Includes loans held for sale.

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.