Welcome to the CEO's monthly economic newsletter. The newsletter provides a basic narrative overview of recently published economic indicators for your reading pleasure. You should not rely on this information when making investment decisions, but rather seek professional advice from qualified investment brokers.

It's been an interesting 30 days. By that I am referring to the changing views of what needed to happen relative to overnight interest rates, aka Fed Funds. As we all know by now, the Federal Open Market Committee (FOMC) held interest rates at present levels, while one month ago it seemed almost certain they would begin to push rates higher. The biggest influence in their decision was the decline in crude oil prices. We've seen oil prices decline by nearly $30 per barrel. In addition, home prices have continued to decline. As a result, inflationary pressures are beginning to show signs of subsiding.

The job market is continuing to come under pressure as well. The unemployment rate elevated from 5.5% to 5.7% last month. This was fueled by ongoing negative Non-farm Payroll numbers, coupled with a four-week Jobless Claims report coming in at nearly 400,000 weekly filers. 400,000 in weekly jobless claims are akin to the Mendoza line (200 batting average) in baseball...i.e. very bad.

Fourth quarter 2007 Gross Domestic Product (GDP) was revised once again and this time it went negative. If the same comes to pass for the first quarter of this year, we will have a certifiable recession on our hands. On the brighter side, preliminary second quarter numbers for GDP were not bad at 1.9%, helped by the tax stimulus package. Retail sales were up both in May and June, further demonstrating the favorable results of the tax refunds going to work.

The industrial manufacturing sector held its own in July, coming in at 50 for the Institute for Supply Management's manufacturing index. This represents the second consecutive month it has been at, or above, the all-important "50" number. In addition, Durable Goods increased by +.8% and Factory Capacity showed better utilization as well.

The housing sectors had some good news to report also. Both Existing and New Home Sales were about equal to the prior month, which sure beats the negative trend line leading up to last month. In addition, Building Permits and Housing Starts were up close to 100,000 annualized units each. This will help absorb some of the excess lot inventories that several builders have been sitting on.

With the presidential election just around the corner, it is unlikely we will see any major rate moves by the FOMC. Historically they have steered away from political influence and I suspect it will not be any different this time. The recent Producer and Consumer Price Indexes have remained reasonably close to Fed target ranges, albeit at the high end, giving added support for staying pat until after the election. Most believe rates will begin to move up soon after the election, however.

Dennis A. Long
Chief Executive Officer

Quotes are available on the OTC:BB under the symbol PFLC. To view those quotes,CLICK HERE, and enter the symbol PFLC.

Stock purchases should be made through a broker. Transactions including sales, transfers, gifting, death of registered owner, lost 1099's, and lost certificates should be completed directly through our transfer agent, Mellon Investor Services, LLC. You may contact Mellon Investor Services online at www.melloninvestor.com or call toll free at 1-877-870-2422.

To view your account online, check account balances, enroll in Pacific's dividend reinvestment or change your dividend reinvestment, submit address changes, access information and forms CLICK HERE.

Annual Reports are available Free of charge through the Public Register's Annual Report Service.
Order Annual Report.

Last Annual Dividend: $.75 per share paid January 9, 2008.

Pacific Financial Corporation Dividend Reinvestment Plan:
Pacific Financial Corporation offers the Dividend Reinvestment Plan for investors wishing to reinvest all or a portion of their cash dividends in additional shares of Pacific Financial Corporation Common Stock without payment of trading or brokerage fees, service charges or other fees. This plan is available to present shareholders of record Pacific Financial Corporation Common Stock. The hypertext link to information about the Pacific Financial Corporation Dividend Reinvestment Plan is maintained and administered by Mellon Investor Services. By clicking the link below, the viewer understands this communication does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there by any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful. Please use your browser's back button when in the Mellon Investor Services website to return to Pacific Financial Corporation's Investor Relations Section or bookmark this page now for easy reference. Continue to the Pacific Financial Corporation Dividend Reinvestment and Stock Purchase Plan.

The Bank reports comprehensive information regarding share prices each year to the Securities and Exchange Commission (SEC). This information is publicly available from the SEC or from The Bank upon request.

Our directors and officers file reports with the SEC regarding their holdings and transactions in Pacific Financial Corporation common stock under Section 16 of the Securities Exchange Act of 1934. CLICK HERE for a list of Section 16 filings on the SEC's EDGAR (Electronic Data Gathering , Analysis and Retrieval) site relating to our stock. You can view the actual filings by clicking on the entries in the list. CLICK HERE for a listing of all of our SEC Filings.

To view the Executive Officer Code of Ethics, CLICK HERE

To view a copy of our Governance and Nominating Committee Charter CLICK HERE

To view a copy of the Audit Committee Charter CLICK HERE

To View a copy of the Compensation and Management Development Committee Charter CLICK HERE