SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549


                                 FORM 10-Q

                                (Mark One)

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

               For the quarterly period ended September 30, 1997

                                    OR

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

     For the transition period from ______________ to _______________

                      Commission file number 0-27062

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


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


                                91-1695422
                     (IRS Employer Identification No.)


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


                                   98225
                                (Zip Code)


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


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


                            YES   X   NO      

As of November 5, 1997, 7,439,699 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                   2-3

                  Consolidated Statements of Stockholders' Equity         4

                  Consolidated Statements of Cash Flow                    5-6

                  Notes to Consolidated Financial Statements              7

Item 2            Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                   8-11





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


                                                  Sept. 30,      March 31,
                                                     1997          1997     
                                                 (unaudited)            
ASSETS:

         Cash and Due from Banks               $  5,373,293   $  4,416,862
         Interest-Bearing Deposits               13,144,043     10,398,316
         Investment Securities - Available 
           for Sale                              38,737,666     26,238,895
         Investment Securities-Held to Maturity   6,492,088      8,381,775
         Mortgage-Backed Securities - Available
           for Sale                              21,502,932     35,229,087
         Mortgage-Backed Securities - Held to
           Maturity                              17,727,346     19,690,598
         Loans Receivable                       416,177,549    399,078,123
         Accrued Interest and Dividends
           Receivable                             3,779,824      3,545,380
         Income Tax Receivable                          -0-        297,192 
         Property and Equipment, Net              6,060,564      6,130,683
         Other Assets                             2,032,663      1,934,428
           Total Assets                        $531,027,968   $515,341,339

LIABILITIES:

         Deposits                              $437,965,580   $424,811,286
         Accounts Payable and Other     
           Liabilities                            5,581,921      8,935,825
         Advances by Borrowers for Taxes 
           and Insurance                            865,020        898,950
         Deferred Compensation                    1,282,500      1,290,000
         Net Deferred Income Tax Liabilities      1,789,681        896,264
         Federal income Tax Payable                 499,332            -0-
           Total Liabilities                    447,984,034    436,832,325

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;
      7,682,791 and 6,650,340 Issued
      and Outstanding                             7,682,791      6,650,340
    Paid-in Capital                              53,394,799     40,063,678
    Retained Earnings                            22,955,860     34,518,794
    Net Unrealized Gain/(Loss) on Investments
      Available for Sale                          2,359,115        624,833
    Debt Related to ESOP                           (450,000)      (450,000)
    Treasury Stock-249,090 and 216,600 Held      (2,898,631)    (2,898,631)
 Total Stockholders' Equity                      83,043,934     78,509,014

       Total Liabilities and Stockholders'             
             Equity                            $531,027,968   $515,341,339


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


                                                      3 Months Ended 
                                                          Sept. 30
                                                    1997          1996   

INTEREST INCOME:
         Interest on Loans                     $  8,547,080   $  8,409,434
         Interest and Dividends on Investment
           and Mortgage-Backed Securities         1,548,108      1,187,238
              Total Interest Income              10,095,188      9,596,672

INTEREST EXPENSE:
         Interest on Deposits                     5,598,327      5,193,467
           Net Interest Income                    4,496,861      4,403,205

         Provision for Loan Losses                  150,000         50,000
              Net Interest Income After          
                Provision for Loan Losses         4,346,861      4,353,205

NON-INTEREST INCOME:
         Service Fees                               281,726        231,379
         Net Gain(Loss) on Sale of Investments
           and Trading Securities                   366,486        301,619
         Other                                       73,599         66,040
              Total Non-Interest Income             721,811        599,038

NON-INTEREST EXPENSE:
         Compensation and Employee Benefits       1,018,457      1,282,849
         Building Occupancy                         270,016        283,703
         FDIC Insurance                              13,482            500
         Data Processing                            112,327        100,499
         Advertising                                129,809         68,054
         Other Expenses                             428,673        416,661
              Total Non-Interest Expense          1,972,764      2,152,266

    Income Before Provision for
       Income Taxes                               3,095,908      2,799,977
         Provision for Income Taxes               1,047,837        947,978
         Net Income                               2,048,071      1,851,999

         Earnings Per Share                            $.28           $.25*


         * Restated for 15% stock dividend declared April 22, 1997.



                    (See Notes to Financial Statements)
<PAGE>

                          HORIZON FINANCIAL CORP.
               CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


                                                      6 Months Ended
                                                          Sept. 30
                                                    1997          1996   

INTEREST INCOME:
         Interest on Loans                     $ 16,959,927   $ 16,737,681
         Interest and Dividends on Investment
           and Mortgage-Backed Securities         3,077,874      2,368,530
              Total Interest Income              20,037,801     19,106,211

INTEREST EXPENSE:
         Interest on Deposits                    10,985,459     10,318,725
           Net Interest Income                    9,052,342      8,787,486

         Provision for Loan Losses                  180,000        110,000
              Net Interest Income After          
                Provision for Loan Losses         8,872,342      8,677,486

NON-INTEREST INCOME:
         Service Fees                               575,039        492,357
         Net Gain(Loss) on Sale of Investments
           and Trading Securities                   305,161        301,619
         Other                                      123,613        115,492
              Total Non-Interest Income           1,003,813        909,468

NON-INTEREST EXPENSE:
         Compensation and Employee Benefits       2,013,485      2,246,901
         Building Occupancy                         560,550        558,643
         FDIC Insurance                              26,918          1,000
         Data Processing                            217,820        200,046
         Advertising                                207,919        179,837
         Other Expenses                             741,248        756,185
              Total Non-Interest Expense          3,767,940      3,942,612

    Income Before Provision for
       Income Taxes                               6,108,215      5,644,342
         Provision for Income Taxes               2,069,096      1,910,184
         Net Income                               4,039,119      3,734,158

         Earnings Per Share                            $.54           $.49*


         * Restated for 15% stock dividend declared April 22, 1997.



                    (See Notes to Financial Statements)
<PAGE>



<TABLE>

                                      HORIZON FINANCIAL CORP.
                     Consolidated Statements of Changes in Stockholder's Equity
                               6 Months Ended September 30, 1997 and 1996
                                            (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 3/31/96      6,579,954  $6,579,954  $39,415,875  $31,548,712  $1,602,673            -0-             -0- $79,147,214

Cash div on common stk
at $.20 per share                                            (1,308,929)                                            (1,308,929)

Stock opts exercised       13,198      13,198       81,108                                                              94,306

DRIP                       10,915      10,915      131,066                                                             141,981

Net change in unrealized
gain/loss - AFS                                                             (94,885)                                   (94,885)

ESOP loan                                                                                (500,000)                    (500,000)

Treasury stock                                                                                         (1,472,394)  (1,472,394)

Net income                                                    3,734,158                                              3,734,158

Balance at 9/30/96      6,604,067   6,604,067  $39,628,049  $33,973,941  $1,507,788     $(500,000)     (1,472,394)  79,741,451

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
stock at $.21 per sh.                                        (1,559,419)                                            (1,559,419)

Stock opts. exercised      21,748      21,748      113,607                                                             135,355

DRIP                       12,751      12,751      181,766                                                             194,517

Net change in unrealized
gain/loss - AFS                                                           1,734,282                                  1,734,282

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                                                    4,039,119                                              4,039,119

Balance at 9/30/97      7,682,791   7,682,791  $53,394,799  $22,955,860  $2,359,115     $(450,000)    $(2,898,631) $83,043,934





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

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS



                                                           6 Months Ended
                                                              Sept. 30,

                                                         1997           1996

Cash Flows from Operating Activities:
    Net Income                                 $    4,039,119   $  3,734,158
    Adjustments to Reconcile Net Income
      Provided by Operating Activities
        Depreciation                                  223,269        222,537
        Amortization and Deferrals, Net               (18,435)        90,357
        Provision for Loan Losses                     180,000        110,000
    Changes in Assets and Liabilities:
        Interest & Dividends Receivable              (234,444)       (21,678)
        Interest Payable                              (77,559)        (7,813)
        Federal Income Taxes Payable                  796,524        235,184
        Other Assets                                  (98,235)       (62,035)
        Other Liabilities                          (3,317,775)     1,531,356

    Net Cash Flows from Operating Activities   $    1,492,464   $  5,832,066


Cash Flows From Investing Activities:
    Change in Interest-Bearing Deposits, Net   $   (2,745,727)  $  5,210,189
    Purchases of Investment Securities - AFS      (15,606,797)    (5,848,687)
    Proceeds from Sales and Maturities of 
      Investment Securities - AFS                   4,357,379      7,979,283
    Purchases of Investment Securities - HTM               -0-            -0- 
    Proceeds from Maturities of Investment 
      Securities - HTM                              1,889,687      2,560,789
    Purchases of Mtge Backed Securities - HTM              -0-            -0- 
    Purchases of Mtge Backed Securities - AFS      (5,942,010)    (5,020,436)
    Proceeds from Mat of Mtge Backed Sec - HTM      1,963,252      1,616,830
    Proceeds from Mat of Mtge Backed Sec - AFS     21,046,511         74,120
    Proceeds from Sale of Loans                    15,750,743      3,054,288
    Principal Payments on Loans                    35,704,479     34,070,745
    Originations and Purchases of Loans           (68,716,213)   (56,626,746)
    Purchases of Bank Premises and
      Equipment                                      (153,150)      (159,763)

    Net Cash Flows From Investing Activities:  $  (12,451,846)  $(13,089,388)




                  (See Notes to Financial Statements)
<PAGE>

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS






                                                           6 Months Ended
                                                              Sept. 30,

                                                         1997           1996

Cash Flows From Financing Activities:                   
  Change in Checking and                       
    Savings Accounts, Net                              51,482      7,691,120
  Proceeds From Issuance of Time Deposits          90,881,857     67,173,688
  Payments for Maturing Time Deposits             (77,779,045)   (65,796,234)
  Common Stock Issued, Net                            329,872        236,287
  Cash Dividends Paid                              (1,568,353)    (1,308,929)
  Treasury Stock Purchased                                 -0-    (1,472,394)
          Net Cash Flows from Financing
                 Activities                        11,915,813      6,523,538


Net Change in Cash and Cash Equivalents               956,431        733,784

Cash and Cash Equivalents,
  Beginning of Year                                 4,416,862      4,844,146 

Cash and Cash Equivalents,
  End of Year                                      $5,373,293     $4,110,362



SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION 

Cash Paid During the Period for:

         Interest Expense                         $11,063,018    $10,326,538

         Income Taxes                             $ 1,280,000    $ 1,675,000

<PAGE>


                      HORIZON FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1997
                           (unaudited)


NOTE A - Basis of Presentation

The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles for interim financial
information and with the instructions to the Form 10-Q and Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation are reflected in the interim financial statements.  The results
of operations for the periods ended September 30, 1997 and 1996 are not
necessarily indicative of the operating results for the full year.  The 
March 31, 1997, 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, 1997.

On October 13, 1995, Horizon Bank, a savings bank, ("Bank") reorganized into
the holding company form of ownership ("Reorganization"), resulting in 
the Registrant becoming the sole stockholder of the Bank.  Each outstanding 
share of common stock of the Bank and options to acquire shares of common 
stock of the Bank, became outstanding shares of common stock of the 
Registrant and options to acquire shares of common stock of the Registrant, 
respectively, as a result of the Reorganization.  The consolidated financial 
statements for the three months and six months ended September 30, 1997,
include the accounts of Horizon Financial Corp., the Bank and other sub-
sidiaries 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 September 30, 1997 and 1996 are
calculated on the basis of 7,424,120 and 7,541,620 weighted average shares
outstanding, respectively (restated to reflect a 15% stock dividend declared
April 22, 1997). 


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

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

The Bank was organized in 1922 as a Washington state-chartered mutual savings
and loan association and converted to a federal mutual savings and loan
association in 1934.  In 1979, the Bank converted to a Washington state-
chartered mutual savings bank, the deposits of which are insured by the
Federal Deposit Insurance Corporation ("FDIC").  On August 12, 1986, the Bank
then converted to a state-chartered stock savings bank.  The primary business
of the Bank is to acquire funds in the form of savings deposits and to use 
the funds to make loans secured by residential and commercial properties in 
the Bank's primary market area.  The Bank's operations are conducted through
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% of the Corporation's outstanding common stock over a
24-month period.  During the fiscal year ended March 31, 1997, the 
Corporation repurchased 216,600 shares (249,090 shares on a restated basis) 
of its common stock.  No shares were repurchased during the six months ended
September 30, 1997.

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 September 30, 1997, were
$531,027,968, an increase of 3.04% from the March 31, 1997, level of
$515,341,339.  This increase in assets was due primarily to the growth in
loans receivable, which increased 4.28% to $416,177,549 at September 30, 1997,
from $399,078,123 at March 31, 1997. 

Total liabilities increased 2.55% to $447,984,034 at September 30, 1997, from
$436,832,325 at March 31, 1997.  The increase in liabilities was due 
primarily to the growth in savings deposits, which increased 3.10% to
$437,965,580 from $424,811,286.

Total stockholders' equity increased 5.78% to $83,043,934 at September 30,
1997, from $78,509,014 at March 31, 1997.

<PAGE>

Liquidity and Capital Resources

The Bank maintains liquid assets in the form of cash and short-term
investments to provide a source to fund loans, savings withdrawals and other
short-term cash requirements.  At September 30, 1997, the Bank had liquid assets
(cash and marketable securities with maturities of one year or less) with a
book value of $21,221,698.

As of September 30, 1997, the total book value of investments and mortgage-
backed securities was $80,885,616 compared to a market value of $84,720,024,
resulting in an unrealized gain of $3,834,408.  On March 31, 1997, the book
value of investments and mortgage-backed securities was $88,593,639 compared
to a market value of $89,321,020, resulting in an unrealized gain of $727,381. 
The primary reasons for this difference at September 30, 1997, compared to
March 31, 1997, was the overall lower level of interest rates which increased
the valuation of the Bank's investment portfolio, along with increases in the
value of the Bank's common stock holdings.  

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.  The Bank had no borrowings against any kind 
of credit as of September 30, 1997.

Stockholders' equity to total assets was 15.64% as of September 30, 1997, well
in excess of the 5.0% minimum required by the FDIC in order to be considered
well capitalized.  


     
                       Comparative Results of Operations
                      For the Three and Six Months Ended
                          September 30, 1997 and 1996



Net Interest Income

Net interest income for the three months ended September 30, 1997, increased
2.13% to $4,496,861 from $4,403,205 in the same quarter of the previous year.
While interest on loans for the quarter ended September 30, 1997, increased
only 1.64% to $8,547,080 from $8,409,434, interest and dividends on investments
and mortgage-backed securities increased 30.40% to $1,548,108 from $1,187,238
for the comparable quarter a year ago.  This is primarily due to the fact 
that the Bank securitized approximately $25,000,000 in mortgages near the end
of fiscal 1997, which shifted these interest-earning assets from loans 
receivable into mortgage-backed securities.  

<PAGE>

Total interest income increased 5.19% to $10,095,188 from $9,596,672.  This
increase is primarily attributable to an overall increase in interest-earning
assets over the prior period.  Total interest paid on deposits increased 
7.80% to $5,598,327 from $5,193,467.  This increase in interest expense is due
to the overall deposit growth of the Bank, along with increased competition
facing the Bank in attracting deposits.

The weighted average yield on all earning assets for the quarter ended
September 30, 1997, decreased 3 basis points to 8.00% from 8.03% for the
quarter ended September 30, 1996.  The weighted average yield on loans
decreased 1 basis point to 8.32% from 8.33%, and the weighted average yield on
investments increased 19 basis points to 6.53% from 6.34%.  This increase in
the weighted average yield on investments can be attributed in large part to
the securitization of mortgages discussed above, which shifted long-term 
mortgages from loans receivable to investment securities on the Bank's 
balance sheet.  

The Bank's cost of funds for the quarter ended September 30, 1997, increased 9
basis points to 5.14% from 5.05% for the quarter ended September 30, 1996.
As a result, the Bank's interest rate spread decreased 12 basis points to 2.86%
from 2.98% for the comparable quarter one year ago.

Net interest income for the three months ended September 30, 1997, after
provision for loan losses, increased .15% to $4,346,861 from $4,353,205 for the
same period one year ago.  Provisions for loan losses increased to $150,000
from $50,000.  While the Bank had no loans listed as over 90 days
delinquent at September 30, 1997, management considers it prudent to continue
additions to the loan loss reserves to protect the Bank from future potential
loan losses.

Net interest income for the six-month period ended September 30, 1997,
increased 3.01% to $9,052,342 from $8,787,486 for the comparable period one
year ago.  Total interest income increased 4.88% to $20,037,801 from $19,106,211
due primarily to the increase in the Bank's earning assets.  Total interest
expense for the six-month period increased 6.46% to $10,985,459 from
$10,318,725.  As discussed above, this increase is due to the overall growth
of the Bank, along with increases in the Bank's cost of funds attributable to
the competition facing the Bank in attracting deposits.  Net interest income
after provisions for loan losses increased 2.25% to $8,872,342 from $8,677,486.


Non Interest Income

Non interest income for the three months ended September 30, 1997, increased
20.50% to $721,811 from $599,038 for the same time period a year ago.  Service
fee income increased 21.76% to $281,726 from $231,379.  This is due in large
part to the increase in servicing fee income on loans which have been sold or
securitized in the secondary market, along with increases in fee income as a
result of a productive quarter in terms of loan volume.  The net gain/loss on
the sale of investment securities showed a gain of $366,486 during the quarter,
compared to $301,619 in the comparable period one year ago.  These gains were
due primarily to the sale of selected common stocks from the Bank's portfolio
during both of these periods.  In the quarter ended September 30, 1997, the
Bank also sold approximately $20,000,000 in mortgage-backed securities, which
accounted for approximately $103,000 of the gains generated during the quarter.
Other non interest income for the quarter increased 11.45% to $73,599 from
$66,040.

<PAGE>

Non interest income for the six months ended September 30, 1997, increased
10.37% to $1,003,813 from $909,468.  Service fee income increased 16.79% to
$575,039 from $492,357 due primarily to the increased service fee income from
loans and increased fee income related to loan productions, as discussed above.
The net gain on sales of investment securities increased 1.17% to $305,161 from
$301,619.  Other non interest income increased 7.03% to $123,613 from $115,492.


Non Interest Expense

Non interest expense for the three months ended September 30, 1997, decreased
8.34% to $1,972,764 from $2,152,266.  Compensation and employee benefits
decreased 20.61% to $1,018,457 from $1,282,849.  The primary reason for this
difference was the one-time recognition of $277,525 in expenses relating to the
Bank's deferred compensation program during the quarter ended September 30,
1996.  If this expense were excluded from last year's numbers, employee compen-
sation and benefits for the quarter ended September 30, 1997, would have shown
an increase of 1.31% over the same quarter one year ago.  Building occupancy
for the quarter ended September 30, 1997, decreased 4.82% to $270,016 from
$283,703.  This decline is due to a one-time expenses recognized in the
previous year of approximately $15,000 for an LID assessment at one of the
Bank's offices.  The Bank's FDIC insurance expense for the quarter ended
September 30, 1997, was $13,482, compared to the statutory minimum of $500
paid in the period one year ago.  Data processing increased 11.77% to $112,327
for the quarter ended September 30, 1997, from $100,499, due primarily to the
overall growth of the Bank.  Advertising expenses increased 90.74% to $129,809
for the quarter from $68,054.  The reasons for this increase include the
recognition of expenses relating to the purchase of a marketing customer
information system which will allow the Bank to better target its future ad-
vertising efforts, along with expenses related to the development of an inter-
net web site for the Bank.  Other non interest expenses increased 2.88% to
$428,673 from $416,661.

Non interest expense for the six months ended September 30, 1997, decreased
4.43% to $3,767,940 from $3,942,612.  Compensation and employee benefits
decreased 10.39% to $2,013,485 from $2,246,901, due primarily to the recogni-
tion of deferred compensation expenses in the previous year, as discussed
above.  Building occupancy expenses for the six months were little changed at
$560,550 from $558,643.  FDIC insurance expenses increased to $26,918, compared
to the statutory minimum of $1,000 paid in the six-month period one year ago.
Data processing expenses increased 8.88% to $217,820 from $200,046 due pri-
marily to the growth of the Bank.  Advertising expenses increased 15.62% for
the six-month period ended September 30, 1997, to $207,919 from $179,837 due
primarily to items expensed in the most recent quarter, as discussed above.
Other expenses decreased 1.98% to $741,248 from $756,185.


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PART II.  OTHER INFORMATION



Item 1.     Legal Proceedings

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

Item 2.     Changes in Securities

            None

Item 3.     Defaults Upon Senior Securities

            None

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

            None

Item 5.     Other Information

            None

Item 6.     Exhibits and Reports on Form 8-K

            None









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                                  SIGNATURES


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



                             HORIZON FINANCIAL CORP.



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


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



                             Dated:  November 13, 1997





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