SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549


                                 FORM 10-Q

                                (Mark One)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and 
      Exchange Act of 1934

               For the quarterly period ended June 30, 1998

                                    OR

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities and 
      Exchange Act of 1934

     For the transition period from ______________ to _______________

                      Commission file number 0-27062

                          Horizon Financial Corp.
          (Exact name of registrant as specified in its charter)


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


                                91-1695422
                     (IRS Employer Identification No.)


                           1500 Cornwall Avenue
                          Bellingham, Washington
                 (Address of principal executive offices)


                                   98225
                                (Zip Code)


Registrant's telephone number including area code:           (360) 733-3050


     Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  


                            YES   X   NO      

As of August 13, 1998, 7,497,775 common shares, $1.00 par value, were
outstanding.


<PAGE>
                          HORIZON FINANCIAL CORP.






INDEX                                                                   PAGE    

PART 1            FINANCIAL INFORMATION

Item 1            Financial Statements

                  Consolidated Statements of Financial Condition          1

                  Consolidated Statements of Operations                   2  

                  Consolidated Statements of Stockholders' Equity         3

                  Consolidated Statements of Cash Flow                    4-5

                  Notes to Consolidated Financial Statements              6

Item 2            Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                   7-11





PART II           OTHER INFORMATION

Item 1            Legal Proceedings                                       12

Item 2            Changes in Securities                                   12

Item 3            Defaults Upon Senior Securities                         12

Item 4            Submission of Matters to a Vote of Security Holders     12

Item 5            Other Information                                       12

Item 6            Exhibits and Reports on Form 8-K                        12

SIGNATURES                                                                



<PAGE>
                         HORIZON FINANCIAL CORP.
              Consolidated Statements of Financial Condition


                                                  June 30,      March 31,
                                                     1998          1998
                                                 (unaudited)            
ASSETS:

         Cash and Due from Banks               $  6,560,667   $  6,878,615
         Interest-Bearing Deposits                2,686,516      9,980,349
         Investment Securities - Available 
           for Sale                              29,833,305     33,813,752
         Investment Securities-Held to Maturity     989,777      1,985,941
         Mortgage-Backed Securities - Available
           for Sale                              44,072,534     33,352,267
         Mortgage-Backed Securities - Held to
           Maturity                              14,382,005     15,488,523
         Loans Receivable                       442,050,968    433,697,267
         Accrued Interest and Dividends
           Receivable                             3,466,942      3,678,614
         Property and Equipment, Net              6,637,128      6,046,468
         Other Assets                             2,383,585      2,224,500
           Total Assets                        $553,063,427   $547,146,296

LIABILITIES:

         Deposits                              $451,573,186   $450,125,058
         Borrowings                               4,940,000            -0-
         Accounts Payable and Other     
           Liabilities                            5,322,393      7,925,825
         Advances by Borrowers for Taxes 
           and Insurance                            465,050        920,995
         Deferred Compensation                    1,271,274      1,275,000
         Net Deferred Income Tax Liabilities      2,883,506      2,879,728
         Federal income Tax Payable               1,225,984        124,893
           Total Liabilities                    467,681,393    463,251,499

STOCKHOLDERS' EQUITY:

    Serial Preferred Stock, $1.00 Par Value,
          10,000,000 Shares Authorized;
          None Issued or Outstanding
    Common Stock, $1.00 Par Value,
      30,000,000 Shares Authorized;
      7,737,041 and 7,726,762 Issued
      and Outstanding                             7,737,041      7,726,762
    Paid-in Capital                              53,971,680     53,821,396
    Retained Earnings                            23,828,935     22,509,593
    Accumulated Other Comprehensive Income        3,143,009      3,135,677
    Debt Related to ESOP                           (400,000)      (400,000)
    Treasury Stock-249,090 and 249,090 Held      (2,898,631)    (2,898,631)
 Total Stockholders' Equity                      85,382,034     83,894,797

       Total Liabilities and Stockholders'             
             Equity                            $553,063,427   $547,146,296


                    (See Notes to Financial Statements)
<PAGE>
                          HORIZON FINANCIAL CORP.
               CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


                                                      3 Months Ended 
                                                          June 30    
                                                    1998          1997

INTEREST INCOME:
         Interest on Loans                      $ 9,191,085    $ 8,412,847
         Interest and Dividends on Investment
           and Mortgage-Backed Securities         1,418,037      1,529,766
              Total Interest Income              10,609,122      9,942,613

INTEREST EXPENSE:
         Interest on Deposits                     5,702,980      5,387,132
         Interest on Borrowings                      51,305            -0-
              Total Interest Expense              5,754,285      5,387,132
              Net Interest Income                 4,854,837      4,555,481

         Provision for Loan Losses                  320,000         30,000
              Net Interest Income After          
              Provision for Loan Losses           4,534,837      4,525,481

NON-INTEREST INCOME:
         Service Fees                               409,033        293,313
         Net Gain(Loss) on Sale of Loans           (114,712)       (85,250)
         Net Gain(Loss) on Sale of Investments      301,836         23,925
         Other                                       66,765         50,014
              Total Non-Interest Income             662,922        282,002

NON-INTEREST EXPENSE:
         Compensation and Employee Benefits         973,734        995,028
         Building Occupancy                         298,898        290,534
         FDIC Insurance                              13,735         13,436
         Data Processing                            124,259        105,493
         Advertising                                101,031         78,110
         Other Expenses                             441,935        312,575
              Total Non-Interest Expense          1,953,592      1,795,176

    Income Before Provision for
         Income Taxes                             3,244,167      3,012,307
         Provision for Income Taxes               1,101,091      1,021,259
         Net Income                               2,143,076      1,991,048

EARNINGS PER SHARE:
    Basic earnings per share                          $ .29          $ .27
    Diluted earnings per share                        $ .28          $ .27



                    (See Notes to Financial Statements)
<PAGE>



<TABLE>

                                      HORIZON FINANCIAL CORP.
                     Consolidated Statements of Changes in Stockholder's Equity
                               3 Months Ended June 30, 1998 and 1997
                                            (unaudited)





                                                                         Net Unrealized
                             Common Stock      Additional                Gains(Losses)   Debt
                        Number                 Paid-In      Retained         on          Related   Treasury
                        of Shares  at Par      Capital      Earnings     Securities      to ESOP   Stock           Total   

<S>                     <C>        <C>         <C>          <C>          <C>             <C>       <C>             <C>
Balance at 3/31/97      6,650,340  $6,650,340  $40,063,678  $ 34,518,794  $  624,833     $(450,000)    $(2,898,631) $78,509,014

Cash div on common stk
at $.10 per share                                               (741,712)                                              (741,712)

Stock opts exercised       11,484      11,484       42,252                                                               53,736

DRIP                        6,111       6,111       86,317                                                               92,428

Net change in other
comprehensive income                                                       1,015,305                                  1,015,305

15% stock dividend        997,952     997,952   13,035,748   (14,033,700)                                                   -0-

Cash paid for
fractional shares                                                 (8,934)                                                (8,934)

Net income                                                     1,991,048                                              1,991,048

Balance at 6/30/97      7,665,887  $7,665,887  $53,227,995  $ 21,725,496  $1,640,138     $(450,000)    $(2,898,631) $80,910,885

Balance at 3/31/98      7,726,762  $7,726,762  $53,821,396  $ 22,509,593  $3,135,677     $(400,000)    $(2,898,631) $83,894,797

Cash div on common
stock at $.11 per sh.                                           (823,734)                                              (823,734)

Stock opts. exercised       2,923       2,923       25,696                                                               28,619

DRIP                        7,356       7,356      124,588                                                              131,944

Net change in other
comprehensive income                                                           7,332                                      7,332

Net income                                                     2,143,076                                              2,143,076

Balance at 6/30/98      7,737,041  $7,737,041  $53,971,680  $ 23,828,935  $3,143,009     $(400,000)    $(2,898,631) $85,382,034





                                (See Notes to Financial Statements)
</TABLE>
<PAGE>

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS



                                                           3 Months Ended
                                                               June 30,   

                                                         1998           1997

Cash Flows from Operating Activities:
         Net Income                               $ 2,143,076    $ 1,991,048
         Adjustments to Reconcile Net Income
           to Net Cash Provided by Operating
           Activities:
             Depreciation                             121,520        111,600
             Amortization and Deferrals, Net            9,381        (39,582)
             Provision for Loan Losses                320,000         30,000
           Changes in Assets and Liabilities:                                
            Interest & Dividends Receivable           211,672        118,029
             Interest Payable                          20,362        (45,926)
            Federal Income Taxes (Rec)/Payable      1,101,091        724,067
             Other Assets                            (159,085)       (98,985)
             Other Liabilities                     (3,083,465)    (3,942,336)

           Net Cash Flows from Operating Activities   684,552       (854,793)

Cash Flows From Investing Activities:
    Change in Interest-Bearing Deposits, Net      $ 7,293,833   $    998,237
    Purchases of Investment Securities - AFS               -0-    (1,246,719)
    Proceeds from Sales and Maturities of 
        Investment Securities - AFS                 3,813,249      2,971,648
    Purchases of Investment Securities - HTM               -0-            -0-
    Proceeds from Sales and Maturities of
            Investment Securities - HTM               996,164         (4,429)
    Purchases of Mtge Backed Sec - AFS                     -0-            -0-
    Purchases of Mtge Backed Sec - HTM                     -0-            -0-
    Proceeds from Mat of Mtge Backed Sec - AFS      7,415,266        534,325
    Proceeds from Mat of Mtge Backed Sec - HTM      1,106,518        725,933
    Proceeds from borrowings                       10,005,000            -0-
    Payments on borrowings                         (5,065,000)           -0-
    Proceeds from Sale of Loans                    11,316,432      9,304,402
    Principal Payments on Loans                    30,462,266     18,081,333
    Originations and Purchases of Loans           (68,419,005)   (33,232,705)
    Purchases of Bank Premises and
             Equipment                               (712,180)       (61,106)

               Net Cash Flows From Investing
                 Activities                       $(1,787,457)   $(1,929,081)




                  (See Notes to Financial Statements)
<PAGE>

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS






                                                           3 Months Ended
                                                               June 30,   

                                                         1998           1997

Cash Flows From Financing Activities:                   
  Change in Checking and                       
    Savings Accounts, Net                             400,234     (2,154,046)
  Proceeds From Issuance of Time Deposits          34,063,887     44,476,284
  Payments for Maturing Time Deposits             (33,015,993)   (38,662,903)
  Common Stock Issued, Net                            160,563        137,229
  Cash Dividends Paid                                (823,734)      (741,712)
          Net Cash Flows from Financing
                 Activities                           784,957      3,054,852


Net Change in Cash and Cash Equivalents              (317,948)       270,978

Cash and Cash Equivalents,
  Beginning of Year                                 6,878,615      4,416,862

Cash and Cash Equivalents,
  End of Year                                      $6,650,667     $4,687,840



SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION 

Cash Paid During the Period for:

         Interest Expense                          $5,687,980     $5,433,058

         Income Taxes                              $      -0-     $      -0-

<PAGE>


                      HORIZON FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 THREE MONTHS ENDED JUNE 30, 1998
                           (unaudited)


NOTE A - Basis of Presentation

The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles for interim financial
information and with the instructions to the Form 10-Q and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements.  The results
of operations for the periods ended June 30, 1998 and 1997 are not
necessarily indicative of the operating results for the full year.  The 
March 31, 1998, consolidated statement of financial condition presented with
the interim financial statements was audited and received an unqualified 
opinion.  For further information, refer to the consolidated financial 
statements and footnotes thereto included in the Bank's annual report for 
the year ended March 31, 1998.

On October 13, 1995, Horizon Bank, a savings bank, ("Bank") reorganized into
the holding company form of ownership ("Reorganization"), resulting in 
the Registrant becoming the sole stockholder of the Bank.  Each outstanding 
share of common stock of the Bank and options to acquire shares of common 
stock of the Bank, became outstanding shares of common stock of the 
Registrant and options to acquire shares of common stock of the Registrant, 
respectively, as a result of the Reorganization.  The consolidated financial 
statements for the three months ended June 30, 1998, include the accounts of
Horizon Financial Corp., the Bank and other subsidiaries of the Bank.  
Significant intercompany balances and transactions have been eliminated in 
consolidation. 

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


NOTE B - Net Income Per Share

Earnings per share for the three months ended June 30, 1998 and 1997 are
calculated on the basis of 7,484,156 and 7,407,760 weighted average shares
outstanding, respectively.  Diluted earnings per share for the three months
ended June 30, 1998 and 1997 are calculated on the basis of 7,525,985 and
7,503,211 weighted average shares outstanding, respectively.  Diluted EPS
amounts are computed by determining the number of additional shares that
are deemed outstanding due to the stock options under the treasury stock
method.

NOTE C - Reclassification

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

<PAGE>
                     HORIZON FINANCIAL CORP.

               MANAGEMENT'S DISCUSSION AND ANALYSIS



General

Horizon Financial Corp. was formed under Washington law on May 22, 1995,
and became the holding company for Horizon Bank, effective October 13, 1995.
The Corporation, as a bank holding company, has a number of additional options
and operating advantages over the Bank.  These include, but are not limited to:
expanded business diversification options; flexibility in acquisitions; and
the ability to repurchase its own stock without incurring the adverse tax
consequences of recapturing portions of the Bank's bad debt reserve. 

The Bank was organized in 1922 as a Washington state-chartered mutual savings
and loan association and converted to a federal mutual savings and loan
association in 1934.  In 1979, the Bank converted to a Washington state-
chartered mutual savings bank, the deposits of which are insured by the
Federal Deposit Insurance Corporation ("FDIC").  On August 12, 1986, the Bank
then converted to a state-chartered stock savings bank.  The primary business
of the Bank is to acquire funds in the form of savings deposits and to use 
the funds to make loans secured by residential and commercial properties in 
the Bank's primary market area.  The Bank's operations are conducted through
twelve full-service office facilities, located in Whatcom, Skagit and
Snohomish counties in northwest Washington.  

At its March 26, 1996, meeting, the Board of Directors authorized the
repurchase of up to 10% (approximately 655,000 shares) of the Corporation's
outstanding common stock over a 24-month period.  This authorization ended in
March of 1998.  At its March 19, 1998 meeting, the Board of
Directors authorized the repurchase of up to 10% (approximately 747,000 shares)
of the Corporation's outstanding common stock over the subsequent 24 month
period.  During the quarter ended June 30, 1998, the Corporation repurchased
no shares of its common stock.

On April 22, 1997, the Corporation declared a 15% stock dividend.  The
appropriate historical figures presented herein have been restated to reflect
this stock dividend.  


Financial Condition

Total consolidated assets for the Corporation as of June 30, 1998, were
$553,063,427, an increase of 1.08% from the March 31, 1998, level of
$547,146,296.  This increase in assets was due primarily to the growth in
loans receivable, which increased 1.93% to $442,050,968 at June 30, 1998,
from $433,697,267 at March 31, 1998.

Total liabilities increased .96% to $467,681,393 at June 30, 1998, from
$463,251,499 at March 31, 1998.  The increase in liabilities was due
primarily to the addition of $4,940,000 in borrowings to the balance sheet
in the form of repurchase agreements.  The Bank intends to utilize borrowed
funds as a strategy to supplement the liability side of the balance sheet as
the opportunity presents itself.

Total stockholders' equity increased 1.77% to $85,382,034 at June 30, 1998,
from $83,894,797 at March 31, 1998.


Liquidity and Capital Resources

The Bank maintains liquid assets in the form of cash and short-term
investments to provide a source to fund loans, savings withdrawals and other
short-term cash requirements.  At June 30, 1998, the Bank had liquid assets
(cash and marketable securities with maturities of one year or less) with a
book value of $19,448,342.

As of June 30, 1998, the total amortized cost of investments and
mortgage-backed securities was $84,515,487 compared to a market value of
$89,608,650 , resulting in an unrealized gain of $5,093,163.  On March 31,
1998, the amortized cost of investments and mortgage-backed securities was
$79,889,458 compared to a market value of $84,958,025, resulting in an
unrealized gain of $5,068,567.  

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

The Bank's liquidity fluctuates with the supply of funds, and management
believes that the current level of liquidity is adequate at this time.  If
additional liquidity is needed, the Bank's options include, but are not
necessarily limited to: (1) selling additional loans in the secondary market;
(2) reverse repurchase agreements; (3) accepting additional jumbo and/or
public funds deposits; or (4) accessing the discount window of the Federal
Reserve Bank of San Francisco.

Stockholders' equity to total assets was 15.44% as of June 30, 1998, well in
excess of the 5.0% minimum required by the FDIC in order to be considered 
well capitalized.  

<PAGE>

     
                Comparative Results of Operations
                    For the Three Months Ended
                      June 30, 1998 and 1997



Net Interest Income

Net interest income for the three months ended June 30, 1998, increased 6.57%
to $4,854,837 from $4,555,481 in the same time period of the previous year.
Interest on loans for the quarter ended June 30, 1998, increased 9.25% to
$9,191,085 from $8,412,847.  This increase was due to an active quarter for
loan originations and loan sales, which resulted in increased recognition of
loan fee income during the quarter.  Interest and dividends on investments and
and mortgage-backed securities decreased 7.30% to $1,418,037 from $1,529,766
for the comparable quarter a year ago.  This is primarily due to the lower
level of interest rates and the lack of significant growth in the Bank's
security portfolio between the two periods, as available funds were used
primarily to fund mortgages during the quarter, instead of purchasing
investments for the investment portfolio.

Total interest income increased 6.70% to $10,609,122 from $9,942,613.  This
increase is primarily attributable to an overall increase in interest earning
assets over the prior period.  Total interest paid on deposits increased 
5.86% to $5,702,980 from $5,387,132.  This increase in interest expense is due
to the overall deposit growth of the Bank, along with increasing competition
facing the Bank in attracting deposits.  Interest on borrowings increased to
$51,305 during the quarter, compared to -0- for the comparable period one year
ago.  During the quarter, the Bank borrowed funds in the wholesale markets
using repurchase agreements.  The Bank's management intends to futher utilize
wholesale funding in the future, as appropriate opportunities arise.

The weighted average yield on all earning assets for the quarter ended
June 30, 1998, increased 4 basis points to 8.06% from 8.02% for the quarter
ended June 30, 1997.  The weighted average yield on loans increased 2 basis
points to 8.38% from 8.36%, and the weighted average yield on investments
decreased 8 basis points to 6.47% from 6.55%.

The Bank's cost of funds for the quarter ended June 30, 1998, was unchanged
from the quarter ended June 30, 1997 at 5.09%.  Therefore, the Bank's interest
rate spread increased 4 basis points to 2.97% for the quarter ended June 30,
1998, compared to 2.93% for the prior period, due to the increase in the
interest earning asset yield.

Net interest income for the three months ended June 30, 1998, after provision
for loan losses, increased .21% to $4,534,837 from $4,525,481.  Provisions
for loan losses increased to $320,000 during the quarter ended June 30, 1998,
compared to $30,000 for the same period one year ago.  While the Bank had only
three loans totaling $117,347 over 90 days delinquent at June 30, 1998,
management considered it to be a prudent practice to make these additions to
its loan loss reserves.

Non Interest Income

Non interest income for the three months ended June 30, 1998, increased 135%
to $662,922 from $282,002 for the same time period a year ago.  Service fee
income increased 39.45% to $409,033 from $293,313.  This increase at June 30,
1998 was primarily due to increased appraisal and escrow fees recognized during
an active quarter for loan originations.  The net gain/loss on the sale of
loans showed a loss of $114,712 during the quarter, compared to a loss of
$85,250 in the comparable period one year ago.  These losses were due primarily
to the sale of approximately $11 million in long-term fixed rate mortgage loans
during the quarter.  When the Bank sells loans, the remaining outstanding fees
associated with these mortgages flow to the income statement as interest
income.  Therefore, even when the sale of loans generate an overall profit to
the Bank (including the recognition of the fee income), the non-interest
portion of the sale reflects a loss, due to the pricing of the loans at the
time of the sale.  The net gain/loss on sales of investment securities
increased significantly to $301,836 for the quarter ended June 30, 1998 from
$23,925 for the comparable period one year ago.  This increase was due primarily
to the sale of selected common stocks and mortgage-backed securities from the
Bank's investment portfolio during the quarter.  Other non-interest income for
the quarter increased 33.49% to $66,765 from $50,014.  This increase was
primarily due to an increase in Visa debit card fees received by the Bank.

Non Interest Expense

Non interest expense for the three months ended June 30, 1998, increased
8.82% to $1,953,592 from $1,795,176.  Compensation and employee benefits
decreased 2.14% during the period, to $973,734 from $995,028.  Building
occupancy for the quarter ended June 30, 1998 increased 2.88% to $298,898
from $290,534.  The Bank's FDIC insurance expense for the quarter ended
June 30, 1998, was little changed at $13,735, compared to $13,436 for the
same period one year ago.  Data processing expenses increased 17.79% to
$124,259 for the quarter ended June 30, 1998, from $105,493. This increase
is primarily due to recognition of expenses relating to the upgrading of most
of the Bank's personal computers, along with preparations to implement a wide
area network at the Bank.  Advertising expenses increased 29.34% to $101,031
for the quarter, from $78,110.  The Bank recently changed marketing/advertising
agencies and this increase in expenses is largely due to the development of
new advertising and marketing campaigns.  Other non interest expenses increased
41.39% to $441,935 from $312,575.  This increase was primarily due to an
addition to the Bank's contingency loss reserve during the quarter, along with
increases in items such as telephone and postage expenses, due to the overall
growth of the Bank and increased direct mail marketing activity.

Year 2000 Compliance

The Year 2000 computer problem involves the way in which a computer will
interpret the Year 2000 when expressed as "00".  Many computer systems, if
left unchanged, will interpret "00" as the year 1900, rather than as the Year
2000.  This problem could affect you in many ways.  We want you to understand
what Horizon Bank is doing to address this issue.

First, Horizon is working hard at testing its computers and software programs
for compliance with the Year 2000.  Second, we are working with our data
processor, Fiserv, as well as our other vendors, to make sure that all of their
computers and software programs have been tested for the Year 2000.  Lastly,
we are working with our banking regulators to complete the mandatory testing
of our systems well in advance of the change of the century.

In addition, over the next several months, the Bank is replacing or upgrading
most of its personal computers, which should assist in the Year 2000 compliance
efforts since computers with older BIOS chips are more likely to be
susceptible to Year 2000 issues than newer machines.  The Bank has decided,
however, that even the new personal computers being purchased will be tested
for Year 2000 compliance.

Given the amount of media attention that has been focused on the Year 2000
computer problem, we understand that this is an emotional and upsetting issue
for many people.  It is important, however, to realize that this is not the
first time Horizon has had to deal with the Year 2000 computer problem.
Horizon, and its data processor, first had to deal with the issue in 1970 when
the Bank was originating 30-year mortgages that would mature in the Year 2000
and beyond.  And again, in 1990, the Bank dealt with the issue when it offered
10-year certificates of deposit that would mature in the Year 2000.  In each
case, the issue was resolved successfully.

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

Forward Looking Statements

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



<PAGE>


PART II.  OTHER INFORMATION



Item 1.     Legal Proceedings

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

Item 2.     Changes in Securities

            None

Item 3.     Defaults Upon Senior Securities

            None

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

            None

Item 5.     Other Information

            None

Item 6.     Exhibits and Reports on Form 8-K

            None









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                            SIGNATURES


    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. 



                     HORIZON FINANCIAL CORP.



                             By:  /s/ V. Lawrence Evans                       
                                  V. Lawrence Evans
                                  President and Chief Executive Officer  


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



                             Dated:          August 13, 1998





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