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, 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 August 5, 1997, 7,416,797 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                   7-9 





PART II           OTHER INFORMATION

Item 1            Legal Proceedings                                       10

Item 2            Changes in Securities                                   10

Item 3            Defaults Upon Senior Securities                         10

Item 4            Submission of Matters to a Vote of Security Holders     10

Item 5            Other Information                                       10

Item 6            Exhibits and Reports on Form 8-K                        10

SIGNATURES                                                                



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


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

         Cash and Due from Banks               $  4,687,840   $  4,416,862 
         Interest-Bearing Deposits                9,400,079     10,398,316 
         Investment Securities - Available 
           for Sale                              25,201,728     26,238,895 
         Investment Securities-Held to Maturity   8,386,204      8,381,775 
         Mortgage-Backed Securities - Available
           for Sale                              35,545,341     35,229,087 
         Mortgage-Backed Securities - Held to
           Maturity                              18,964,665     19,690,598 
         Loans Receivable                       404,934,675    399,078,123 
         Accrued Interest and Dividends
           Receivable                             3,427,351      3,545,380 
         Income Tax Receivable                          -0-        297,192 
         Property and Equipment, Net              6,080,189      6,130,683 
         Other Assets                             2,033,313      1,934,428 
           Total Assets                        $518,661,385   $515,341,339 

LIABILITIES:

         Deposits                              $428,470,621   $424,811,286 
         Accounts Payable and Other     
           Liabilities                            5,395,836      8,935,825 
         Advances by Borrowers for Taxes 
           and Insurance                            454,427        898,950 
         Deferred Compensation                    1,286,250      1,290,000 
         Net Deferred Income Tax Liabilities      1,419,299        896,264 
         Federal income Tax Payable                 724,067            -0- 
           Total Liabilities                    437,750,500    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;
      7,665,887 and 6,650,340 Issued
      and Outstanding                             7,665,887      6,650,340 
    Paid-in Capital                              53,227,995     40,063,678 
    Retained Earnings                            21,725,496     34,518,794 
    Net Unrealized Gain/(Loss) on Investments
      Available for Sale                          1,640,138        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                      80,910,885     78,509,014 

       Total Liabilities and Stockholders'             
             Equity                            $518,661,385   $515,341,339 


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


                                                      3 Months Ended 
                                                          June 30    
                                                    1997          1996   

INTEREST INCOME:
         Interest on Loans                       $8,412,847    $ 8,328,247 
         Interest and Dividends on Investment
           and Mortgage-Backed Securities         1,529,766      1,181,292 
              Total Interest Income               9,942,613      9,509,539 

INTEREST EXPENSE:
         Interest on Deposits                     5,387,132      5,125,258 
           Net Interest Income                    4,555,481      4,384,281 

         Provision for Loan Losses                   30,000         60,000 
              Net Interest Income After          
                Provision for Loan Losses         4,525,481      4,324,281 

NON-INTEREST INCOME:
         Service Fees                               293,313        260,978 
         Net Gain(Loss) on Sale of Investments
           and Trading Securities                   (61,325)           -0- 
         Other                                       50,014         49,452 
              Total Non-Interest Income             282,002        310,430 

NON-INTEREST EXPENSE:
         Compensation and Employee Benefits         995,028        964,052 
         Building Occupancy                         290,534        274,940 
         FDIC Insurance                              13,436            500 
         Data Processing                            105,493         99,547    
         Advertising                                 78,110        111,783 
         Other Expenses                             312,575        339,524 
              Total Non-Interest Expense          1,795,176      1,790,346 

    Income Before Provision for
       Income Taxes                               3,012,307      2,844,365 
         Provision for Income Taxes               1,021,259        962,206 
         Net Income                               1,991,048      1,882,159 

         Earnings Per Share                            $.27           $.25*


         * 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
                               3 Months Ended June 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 $.10 per share                                              (659,527)                                              (659,527)

Stock opts exercised        9,312       9,312       62,846                                                              72,158

DRIP                        5,620       5,620       65,326                                                              70,946

Net change in unrealized
gain/loss - AFS                                                             (51,666)                                   (51,666)

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

Net income                                                    1,882,159                                              1,882,159

Balance at 6/30/96      6,594,886   6,594,886  $39,544,047  $32,771,344  $1,551,007     $(500,000)     $       -0- $79,961,284

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 $.10 per sh.                                          (741,712)                                              (741,712)

Stock opts. exercised      11,484      11,484       86,317                                                              97,801 

DRIP                        6,111       6,111       42,252                                                              48,363

Net change in unrealized
gain/loss - AFS                                                           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





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

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS



                                                           3 Months Ended
                                                               June 30,   

                                                         1997           1996    

Cash Flows from Operating Activities:
         Net Income                               $ 1,991,048    $ 1,882,159 
         Adjustments to Reconcile Net Income
           to Net Cash Provided by Operating
           Activities:
             Depreciation                             111,600        111,718 
             Amortization and Deferrals, Net          (39,582)        71,569 
             Provision for Loan Losses                 30,000         60,000 
           Changes in Assets and Liabilities:                                
            Interest & Dividends Receivable           118,029         92,354 
             Interest Payable                         (45,926)          (498)
            Federal Income Taxes Payable              724,067        962,206 
             Other Assets                             (98,885)       (29,018)
             Other Liabilities                     (3,942,336)      (713,622)
            Income Tax Receivable                     297,192             -0- 

           Net Cash Flows from Operating Activities  (854,793)     2,436,868 

Cash Flows From Investing Activities:
    Change in Interest-Bearing Deposits, Net      $   998,237   $    (53,481)
    Purchases of Investment Securities - AFS       (1,246,719)      (609,699)
    Proceeds from Sales and Maturities of 
        Investment Securities - AFS                 2,971,648      4,524,293 
    Purchases of Investment Securities - HTM               -0-            -0- 
    Proceeds from Maturities of Investment 
            Securities - HTM                           (4,429)     1,410,106 
    Purchases of Mtge Backed Securities - HTM              -0-            -0- 
    Purchases of Mtge Backed Securities - AFS              -0-    (1,000,000)
    Proceeds from Mat of Mtge Backed Sec - HTM        725,933        890,010 
    Proceeds from Mat of Mtge Backed Sec - AFS        534,325         21,224 
    Proceeds from Sale of Loans                     9,304,402             -0- 
    Principal Payments on Loans                    18,081,333     18,002,936 
    Originations and Purchases of Loans           (33,232,705)   (29,364,267)
    Purchases of Bank Premises and
             Equipment                                (61,106)       (78,740)

               Net Cash Flows From Investing
                 Activities                       $(1,929,081)   $(6,257,618)




                  (See Notes to Financial Statements)
<PAGE>

                       HORIZON FINANCIAL CORP.

                 CONSOLIDATED STATEMENT OF CASH FLOWS






                                                           3 Months Ended
                                                               June 30,   

                                                         1997           1996 

Cash Flows From Financing Activities:                   
  Change in Checking and                       
    Savings Accounts, Net                          (2,154,046)     4,601,950 
  Proceeds From Issuance of Time Deposits          44,476,284     33,893,484 
  Payments for Maturing Time Deposits             (38,662,903)   (34,999,923)
  Common Stock Issued, Net                            137,229        143,104 
  Cash Dividends Paid                                (741,712)      (659,527)
          Net Cash Flows from Financing
                 Activities                         3,054,852      2,979,088 


Net Change in Cash and Cash Equivalents               270,978       (841,662) 

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

Cash and Cash Equivalents,
  End of Year                                      $4,687,840     $4,002,484 



SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION 

Cash Paid During the Period for:

         Interest Expense                         $ 5,433,058    $ 5,125,756 

         Income Taxes                             $        -0-   $        -0-   

<PAGE>


                      HORIZON FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 THREE MONTHS ENDED JUNE 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 June 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 ended June 30, 1997, 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, 1997 and 1996 are
calculated on the basis of 7,407,760 and 7,574,798 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 quarter ended 
June 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 June 30, 1997, were
$518,661,385, an increase of .64% 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 1.47% to $404,934,675 at June 30, 1997, 
from $399,078,123 at March 31, 1997. 

Total liabilities increased .21% to $437,750,500 at June 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 .86% to 
$428,470,621 from $424,811,286.

Total stockholders' equity increased 3.06% to $80,910,885 at June 30, 1997,
from $78,509,014 at March 31, 1997.  


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, 1997, the Bank had liquid assets
(cash and marketable securities with maturities of one year or less) with a
book value of $17,635,926. 

As of June 30, 1997, the total book value of investments and mortgage-backed
securities was $85,612,881 compared to a market value of $88,173,730 ,
resulting in an unrealized gain of $2,560,849.  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 June 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 June 30, 1997.   

Stockholders' equity to total assets was 15.60% as of June 30, 1997, 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, 1997 and 1996



Net Interest Income

Net interest income for the three months ended June 30, 1997, increased 3.90%
to $4,555,481 from $4,384,281 in the same time period of the previous year. 
While interest on loans for the quarter ended June 30, 1997, increased only
1.02% to $8,412,847 from $8,328,247, interest and dividends on investments 
and mortgage-backed securities increased 29.50% to $1,529,766 from $1,181,292 
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.  

Total interest income increased 4.55% to $9,942,613 from $9,509,539.  This
increase is primarily attributable to an overall increase in interest-earning
assets over the prior period.  Total interest paid on deposits increased 
5.11% to $5,387,132 from $5,125,258.  

The weighted average yield on all earning assets for the quarter ended
June 30, 1997, decreased 5 basis points, or .05% to 8.02% from 8.07% for the
quarter ended June 30, 1996.  The weighted average yield on loans decreased
6 basis points to 8.36% from 8.42%, and the weighted average yield on
investments increased 27 basis points to 6.55% from 6.28%.  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 June 30, 1997, decreased 2
basis points to 5.09% from 5.11% for the quarter ended June 30, 1996.  As a
result, the Bank's interest rate spread decreased 3 basis points to 2.93% 
from 2.96% from the comparable quarter one year ago. 

Net interest income for the three months ended June 30, 1997, after provision
for loan losses, increased 4.65% to $4,525,481 from $4,324,281.  Provision 
for loan losses decreased to $30,000 from $60,000 for the same period one 
year ago.  At June 30, 1997, the Bank had no loans listed as over 90 days
delinquent.  


Non Interest Income

Non interest income for the three months ended June 30, 1997, decreased 9.16%
to $282,002 from $310,430 for the same time period a year ago.  Service fee
income increased 12.39% to $293,313 from $260,978.  This increase is due in
large part to the receipt of a commercial loan assumption fee of 
approximately $20,000 during the quarter, along with increased service fee 
income on loans that have been sold or securitized in the secondary market.
The net gain/loss on the sale of investment securities showed a loss of 
$61,325 during the quarter, compared to no activity in the comparable period 
one year ago.  This loss was due primarily to the sale of mortgages during 
the period.  


Non Interest Expense

Non interest expenses for the three months ended June 30, 1997, increased 
 .27% to $1,795,176 from $1,790,346.  Compensation and employee benefits 
increased 3.21% to $995,028 from $964,052.  Building occupancy increased 
5.67% to $290,534 from $274,940.  The Bank's FDIC insurance expense for the 
quarter ended June 30, 1997, was $13,436, compared to the statutory minimum 
of $500 paid in the period one year ago.  Data processing increased 5.67% to 
$105,493 for the quarter ended June 30, 1997, from $99,547, due primarily to 
the overall growth of the Bank.  Advertising expenses decreased 30.12% to 
$78,110 for the quarter from $111,783.  Other non interest expenses decreased 
7.94% to $312,575 from $339,524. 

<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









<PAGE>














                            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, 1997        





<PAGE>