UNITED STATES 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 EXCHANGE ACT OF 1934

               For the quarterly period ended March 31, 1998

                                       OR

[   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
               OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  ___________________ to ________________________

                         Commission file number 0-27388 

 
                              HFNC FINANCIAL CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

  
          North Carolina                                     56-1937349
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation            (I.R.S. Employer
or organization)                                         Identification No.)

            139 South Tryon Street, Charlotte, North Carolina 28202
--------------------------------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                  (704) 373-0400
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

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  report[s]),  and (2) has been  subject  to such  filing
requirements for the past 90 days.

                                Yes  [ X ]   No   [   ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

 
$0.01 Par Value Common Stock                                17,192,500 shares
----------------------------                                -----------------
    Class of Stock                                    Outstanding at May 6, 1998
<PAGE>
                              HFNC FINANCIAL CORP.

                                TABLE OF CONTENTS


Part I.       Financial Information                                        

Item 1.       Financial Statements:

              Consolidated Condensed Balance Sheets,
              March 31, 1998 and June 30, 1997                             

              Consolidated Condensed Statements of Income,
              Three and Nine Months Ended
              March 31, 1998 and 1997                                      

              Consolidated Condensed Statements of Changes in
              Shareholders' Equity, Nine Months Ended
              March 31, 1998 and 1997                                      

              Consolidated Condensed Statements of Cash Flows
              Nine Months Ended March 31, 1998 and 1997                    

              Notes to Consolidated Condensed Financial Statements         

Item 2.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations    

Item 3.       Quantitative and Qualitative Disclosures about Market Risk 


Part II.      Other Information

Item 1.       Legal Proceedings                                            
Item 2.       Changes in Securities and Use of Proceeds                    
Item 3.       Defaults Upon Senior Securities                              
Item 4.       Submission of Matters to a Vote of Security Holders          
Item 5.       Other Information                                            
Item 6.       Exhibits and Reports on Form 8-K                             


Signatures    
<PAGE>
Item 1.
<TABLE>
<CAPTION>
                                              HFNC FINANCIAL CORP.

                                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                                   (Unaudited)


                                                                                             As of
                                                                               --------------------------------
                                                                                  March 31,          June 30,
 ASSETS                                                                            1998                1997
                                                                               -------------      -------------
<S>                                                                            <C>                <C>
CASH AND CASH EQUIVALENTS:
  Cash ...................................................................     $   7,550,233      $   9,934,359
  Federal funds sold .....................................................        12,168,000         21,436,000
                                                                               -------------      -------------
        Total ............................................................        19,718,233         31,370,359
                                                                               -------------      -------------

SECURITIES - Available for sale, at fair value (amortized cost: 
$129,288,280 and $169,285,103, at March 31 and June 30, respectively) ....       132,253,852        175,710,104

LOANS RECEIVABLE, NET ....................................................       790,254,193        658,323,320

REAL ESTATE, NET .........................................................         2,573,609            867,876

OFFICE PROPERTIES AND EQUIPMENT, NET .....................................         9,989,286         10,099,107

STOCK OF FEDERAL HOME LOAN BANK OF ATLANTA - At cost .....................        13,650,000          6,450,000

DEFERRED INCOME TAX ASSET, NET ...........................................         4,722,024          3,390,125

OTHER ASSETS .............................................................         6,392,766          6,709,218
                                                                               -------------      -------------

TOTAL ....................................................................     $ 979,553,963      $ 892,920,109
                                                                               =============      =============


LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS .................................................................     $ 432,053,516      $ 443,839,542

OTHER BORROWED FUNDS .....................................................       368,800,000        277,000,000

OTHER LIABILITIES ........................................................         9,780,651         11,020,650
                                                                               -------------      -------------
      Total liabilities ..................................................       810,634,167        731,860,192
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                              HFNC FINANCIAL CORP.

                                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                                   (Unaudited)
                                                   (continued)


                                                                                             As of
                                                                               --------------------------------
                                                                                  March 31,          June 30,
                                                                                   1998                1997
                                                                               -------------      -------------

<S>                                                                            <C>                <C>
SHAREHOLDERS' EQUITY:
  Common stock, par value $0.01 per share:  25,000,000 shares
   authorized; 17,192,500 shares issued and outstanding ..................           171,925            171,925
  Additional paid-in capital .............................................        89,971,485         89,967,883
  ESOP loan and unvested restricted stock ................................       (19,741,959)       (23,137,490)
  Retained income ........................................................        96,694,518         90,106,224
  Unrealized gain on securities available for sale (net of deferred taxes:
    $1,141,745 and $2,473,626 at March 31 and June 30, respectively) .....         1,823,827          3,951,375
                                                                               -------------      -------------
        Total shareholders' equity .......................................       168,919,796        161,059,917
                                                                               -------------      -------------

TOTAL ....................................................................     $ 979,553,963      $ 892,920,109
                                                                               =============      =============
</TABLE>
 See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                               HFNC FINANCIAL CORP.

                                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME

                                                   (Unaudited)



                                                     Three Months Ended                 Nine Months Ended
                                                           March 31,                         March 31,
                                                   
                                                    1998              1997             1998              1997
                                               ------------      ------------     ------------      ------------
<S>                                            <C>               <C>              <C>               <C> 
INTEREST INCOME:
  Interest on loans ......................     $ 15,554,946      $ 12,605,762     $ 43,965,366      $ 35,835,117
  Interest on securities .................        2,606,528         4,010,549        8,177,630        12,966,122
                                               ------------      ------------     ------------      ------------
        Total ............................       18,161,474        16,616,311       52,142,996        48,801,239
                                               ------------      ------------     ------------      ------------

INTEREST EXPENSE:
  Interest on deposits ...................        5,590,335         5,801,495       17,427,204        17,682,886
  Interest on other borrowed funds .......        4,748,825         2,906,014       12,587,958         7,243,373
                                               ------------      ------------     ------------      ------------
        Total ............................       10,339,160         8,707,509       30,015,162        24,926,259
                                               ------------      ------------     ------------      ------------

NET INTEREST INCOME ......................        7,822,314         7,908,802       22,127,834        23,874,980

PROVISION FOR LOAN LOSSES (RECOVERY
  OF ALLOWANCE) ..........................          (47,768)          239,283          (45,707)          200,149
                                               ------------      ------------     ------------      ------------

NET INTEREST INCOME AFTER PROVISION FOR
  LOAN LOSSES (RECOVERY OF ALLOWANCE) ....        7,870,082         7,669,519       22,173,541        23,674,831
                                               ------------      ------------     ------------      ------------

OTHER OPERATING INCOME:
  Service charges and fees ...............          195,496           170,613          509,111           558,808
  Gain on sale of securities .............          907,808            19,379        5,741,123            19,379
  Other income ...........................           67,134           123,564          224,398           367,408
                                               ------------      ------------     ------------      ------------
        Total ............................        1,170,438           313,556        6,474,632           945,595
                                               ------------      ------------     ------------      ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                               HFNC FINANCIAL CORP.

                                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME

                                                   (Unaudited)
                                                   (continued)



                                                     Three Months Ended                 Nine Months Ended
                                                           March 31,                         March 31,
                                                   
                                                    1998              1997             1998              1997
                                               ------------      ------------     ------------      ------------
<S>                                            <C>               <C>              <C>               <C> 
OTHER OPERATING EXPENSES:
  Personnel expenses .....................        2,427,662         3,302,129        7,630,470         7,756,832
  Federal deposit insurance premiums .....           69,974            70,930          211,100           593,317
  Special SAIF recapitalization assessment             --                --               --           3,077,275
  Occupancy ..............................          446,799           434,425        1,371,192         1,244,569
  Net cost of real estate operations .....            6,315            20,266          125,238           101,192
  Advertising ............................          181,517           253,433          640,362           626,414
  Data processing ........................          125,378           119,962          347,461           315,016
  Other expenses .........................          594,248           742,356        1,854,965         2,238,283
                                               ------------      ------------     ------------      ------------
        Total ............................        3,851,893         4,943,501       12,180,788        15,952,898
                                               ------------      ------------     ------------      ------------

INCOME BEFORE INCOME TAXES ...............        5,188,627         3,039,574       16,467,385         8,667,528

PROVISION FOR INCOME TAXES ...............        2,029,791         1,170,236        6,442,041         3,336,998
                                               ------------      ------------     ------------      ------------

NET INCOME ...............................     $  3,158,836      $  1,869,338     $ 10,025,344      $  5,330,530
                                               ============      ============     ============      ============

Earnings per share .......................     $       0.20      $       0.12     $       0.64      $       0.33
Earnings per share assuming dilution .....     $       0.20      $       0.11     $       0.61      $       0.33

Dividends per share ......................     $       0.08      $       5.07     $       0.22      $       5.19

</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                                        HFNC FINANCIAL CORP.
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                          FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
                                                             (Unaudited)
                                                                                
                                                                                       ESOP and      Net Unrealized        
                                                                                       Unvested      Gain (Loss) on               
                                                                                      Restricted       Securities                 
                                   Common          Additional         Retained           Stock        Available for               
                                    Stock       Paid-In Capital        Income                             Sale (1)       Total 
                               -------------     -------------     -------------   -------------     -------------    -------------
<S>                            <C>               <C>               <C>             <C>               <C>              <C>
BALANCE,
  JUNE 30, 1996 ...........    $     171,925     $ 168,390,571     $  86,896,095   $  (8,700,000)    $    (254,135)   $ 246,504,456

Net income.................             --                --           5,330,530            --                --          5,330,530
                                      
Shares released from ESOP
and restricted stock trusts             --             303,575              --         2,866,603              --          3,170,178

Shares purchased for ESOP        
and restricted stock trusts             --                --                --       (15,949,032)             --        (15,949,032)

Dividends paid.............             --         (75,997,906)       (5,954,990)           --                --        (81,952,896)
                                      
Change in net unrealized
loss on securities 
available for sale.........             --                --                --              --           1,632,565        1,632,565
                               -------------     -------------     -------------   -------------     -------------    -------------
BALANCE,
  MARCH 31, 1997 ..........    $     171,925     $  92,696,240     $  86,271,635   $ (21,782,429)    $   1,378,430    $ 158,735,801
                               =============     =============     =============   =============     =============    =============
BALANCE,
  JUNE 30, 1997 ...........    $     171,925     $  89,967,883     $  90,106,224   $ (23,137,490)    $   3,951,375    $ 161,059,917

Net income.................             --                --          10,025,344            --                --         10,025,344
                               
Shares released from ESOP
and restricted stock trusts             --               3,602              --         3,395,531              --          3,399,133

Dividends paid.............             --                --          (3,437,050)           --                --         (3,437,050)
                                       
Change in net unrealized
gain on securities 
available for sale.........             --                --                --              --          (2,127,548)      (2,127,548)
                               -------------     -------------     -------------   -------------     -------------    -------------
BALANCE,
  MARCH 31, 1998 ..........    $     171,925     $  89,971,485     $  96,694,518   $ (19,741,959)    $   1,823,827    $ 168,919,796
                               =============     =============     =============   =============     =============    =============
</TABLE>
 (1) Net of deferred income taxes.

 See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                     HFNC FINANCIAL CORP.

                       CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                         (Unaudited)

                                                                    Nine Months Ended
                                                                       March 31,
                                                            --------------------------------
                                                                 1998               1997
                                                            -------------      -------------
<S>                                                         <C>                <C>
OPERATING ACTIVITIES:
Net income ............................................     $  10,025,344      $   5,330,530
Adjustments to reconcile net income to net cash
    provided by operating activities:
  Depreciation ........................................           492,217            373,830
  Net amortization of premiums on investment securities           124,308            338,277
  Amortization of net deferred loan fees ..............        (1,526,695)        (1,310,887)
  Provision for loan loss (recovery of allowance) .....           (45,707)           200,149
  Provision for losses on real estate .................             4,381             92,379
  Amortization of unearned stock compensation .........         3,399,133          3,170,178
  Gain on sales of:
    Real estate .......................................           (39,331)           (90,437)
    Investments .......................................        (5,741,123)           (19,379)
  Decrease (increase) in other assets .................           316,452           (189,214)
  (Decrease) increase in other liabilities ............        (1,239,997)         2,520,729
                                                            -------------      -------------
    Net cash provided by operating activities .........         5,768,982         10,416,155
                                                            -------------      -------------

INVESTING ACTIVITIES:
  Proceeds from maturities of investment securities ...        34,966,184          5,000,000
  Proceeds from sales of securities available for sale         55,979,989         67,279,569
  Purchases of securities available for sale ..........       (52,062,538)        (6,950,000)
  Purchases of Federal Home Loan Bank stock ...........        (7,200,000)          (312,300)
  Principal repayment on mortgage-backed securities ...         6,729,985          9,405,098
  Proceeds from sales of real estate ..................         1,406,872          2,214,110
  Net loan originations ...............................      (133,436,127)      (112,564,945)
  Purchases of office properties and equipment ........          (382,397)        (4,588,133)
                                                            -------------      -------------
    Net cash used in investing activities .............       (93,998,032)       (40,516,601)
                                                            -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                     HFNC FINANCIAL CORP.

                       CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                         (Unaudited)
                                         (continued)

                                                                    Nine Months Ended
                                                                       March 31,
                                                            --------------------------------
                                                                 1998               1997
                                                            -------------      -------------
<S>                                                         <C>                <C>
FINANCING ACTIVITIES:
  Decrease in deposits ................................       (11,786,026)          (713,128)
  Proceeds from other borrowed funds ..................       153,000,000        140,000,000
  Repayments of other borrowed funds ..................       (61,200,000)              --
  Purchases of restricted stock for benefit plan ......              --          (15,949,032)
  Dividends paid ......................................        (3,437,050)       (81,952,896)
                                                            -------------      -------------
    Net cash provided by financing activities .........        76,576,924         41,384,944
                                                            -------------      -------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ......       (11,652,126)        11,284,498

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......        31,370,359          9,605,598
                                                            -------------      -------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ............     $  19,718,233      $  20,890,096
                                                            =============      =============

SUPPLEMENTAL DISCLOSURES:
  Cash paid during the period for:
     Interest .........................................     $  30,265,045      $  25,226,620
     Income taxes .....................................         6,402,190          2,781,284
  Loans foreclosed ....................................         3,077,656            936,473
  Change in unrealized (loss) gain on investment
    securities available for sale, net of taxes .......        (2,127,548)         1,632,565
</TABLE>

 See notes to consolidated condensed financial statements.
<PAGE>
                              HFNC FINANCIAL CORP.

              Notes to Consolidated Condensed Financial Statements


1.   BASIS OF PRESENTATION
HFNC Financial Corp. (the "Company") was  incorporated  under North Carolina law
in August 1995 by Home Federal Savings and Loan Association (the  "Association")
in connection with the conversion of the Association from a federally  chartered
mutual savings and loan  association to a federally  chartered stock savings and
loan association, the issuance of the Association's stock to the Company and the
offer and sale of the Company's common stock by the Company (the  "Conversion").
The  Conversion,  completed on December  28, 1995,  resulted in the issuance and
sale of 17,192,500 shares of $0.01 par value common stock. The gross proceeds of
the Conversion totaled  $171,925,000,  of which $171,925 was allocated to common
stock and  $168,266,013  (net of conversion  costs of $3,487,062) is included in
additional  paid-in  capital.  Approximately  50% of the net  proceeds  from the
Conversion  were used to acquire  100% of the common  stock of the  Association.
Substantially  all of the  remaining  net  proceeds  from  the  Conversion  were
retained by HFNC Investment Corp., a wholly owned subsidiary of the Company.

The accompanying consolidated condensed financial statements of the Company have
been prepared in accordance with instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting   principles  for  complete  financial   statements.   However,  such
information  reflects all  adjustments  (consisting  solely of normal  recurring
adjustments)  which are,  in the  opinion of  management,  necessary  for a fair
statement of results for the interim periods.

The results of operations for the three and nine months ended March 31, 1998 are
not  necessarily  indicative  of the results to be expected  for the year ending
June 30, 1998. The consolidated financial statements and notes thereto should be
read in conjunction with the audited financial  statements and notes thereto for
the year ended June 30, 1997, contained in the Company's 1997 annual report.

Earnings  Per Share -- Earnings  per share has been  computed  by  dividing  net
income by the  weighted  average  number of shares of common  stock  outstanding
during the period. In accordance with generally accepted accounting  principles,
employee stock  ownership plan and restricted  stock shares are only  considered
outstanding for the basic earnings per share  calculations  when they are vested
or committed  to be  released.  The weighted  average  shares  outstanding  were
15,718,872  and  15,660,061,  respectively,  for the three and nine months ended
March 31, 1998, and 15,785,575 and 16,199,519,  respectively,  for the three and
nine months ended March 31, 1997.

Stock options and unvested restricted stock represented  additional  potentially
dilutive  securities  and are given  effect in the  computation  of earnings per
share assuming  dilution.  Potential  dilution from these options and restricted
shares  amounted to 14,611 and  459,781  shares,  respectively,  for the quarter
ended March 31, 1998 and 135,394 and 557,067 shares, respectively,  for the nine
months  ended  March  31,  1998.  Potential  dilution  from  these  options  and
restricted shares amounted to 121,269 and 563,792 shares, respectively,  for the
quarter ended March 31, 1997,  while no  potentially  dilutive  securities  were
outstanding for a significant period prior to the March 1997 quarter.  The total
weighted  average shares  outstanding  utilized in computing  earnings per share
assuming  dilution for the three and nine months ended March 31, 1998  therefore
amounted  to  16,193,264  and  16,352,522  shares,   respectively.   The  shares
outstanding assuming dilution for the three and nine months ended March 31, 1997
amounted to 16,470,636 and 16,370,784 shares, respectively.
<PAGE>
2.   LITIGATION
In June 1995, a lawsuit was initiated  against the  Association  by a borrower's
affiliated  companies  in which  the  plaintiffs  alleged  that the  Association
wrongfully  set-off certain funds in an account being held and maintained by the
Association.  In  addition,  the  plaintiffs  alleged  that as a  result  of the
wrongful set-off, the Association wrongfully dishonored a check in the amount of
$270,000.  Plaintiffs  further  alleged  that  the  actions  on  behalf  of  the
Association constituted unfair and deceptive trade practices,  thereby entitling
plaintiffs to recover treble damages and attorney fees. The  Association  denied
any wrongdoing and filed a motion for summary  judgment.  Upon  consideration of
the motion,  the United States  Bankruptcy  Judge  entered a  Recommended  Order
Granting  Summary  Judgment,  recommending  the dismissal of all claims asserted
against the  Association.  On October 11, 1997, the United States District Court
for the Western  District of North Carolina  entered an Order  Granting  Summary
Judgment  in  accordance  with  the  Recommended  Order  by  the  United  States
Bankruptcy  Judge. The borrower has appealed the Order Granting Summary Judgment
in favor of the Association.

In December  1996,  the  Association  filed a suit  against the borrower and his
company and against the  borrower's  wife,  daughter and a company  owned by his
wife and daughter, alleging transfers of assets to the wife, daughter, and their
company in fraud of creditors,  and asking that the fraudulent  transfers be set
aside.  The  objective of the lawsuit is to recover  assets which may be used to
satisfy a portion of the judgments obtained in favor of the Association in prior
litigation.  The borrower's  wife filed a counterclaim  against the  Association
alleging that she borrowed $750,000 from another financial institution,  secured
by a deed of trust on her principal  residence,  the proceeds of which were paid
to the  Association  for  application  on a debt  owed  by one of her  husband's
corporations,  claiming  that  officers  of the  Association  promised to resume
making loans to her husband's  corporations after the payment.  Home Federal and
its officers  vigorously deny all of her  allegations.  On February 18, 1998 the
Association  filed a  Motion  for  Summary  Judgment  seeking  dismissal  of the
counterclaim.  Oral  argument  on the Motion was heard on April 28, 1998 and the
Association is currently awaiting a ruling on the Motion.

In February 1997, two companies  affiliated  with those referred to in the first
paragraph above filed an additional action against two executive officers of the
Association and against an officer of another financial institution.  The action
was removed from the state court to the United States  Bankruptcy  Court for the
Western  District of North  Carolina.  At the same time,  the  borrower,  who is
affiliated  with all of these  companies,  also filed an action in the  Superior
Court for Mecklenburg County,  North Carolina against the two executive officers
of the Association and against an officer of another financial institution.  The
Complaints in both actions assert virtually  identical claims. The plaintiffs in
both lawsuits allege that the officers of both financial institutions engaged in
a conspiracy  to  wrongfully  declare  loans to be in default so as to eliminate
those   companies   as   borrowers  of  the   Association.   Plaintiffs   allege
misrepresentation,  breach of fiduciary duty,  constructive fraud,  interference
with  business  expectancy,  wrongful  bank  account  set-off,  and  unfair  and
deceptive acts and practices.  Plaintiffs  claim actual damages,  treble damages
and punitive damages together with interest, attorneys' fees and other costs. On
January 29, 1998, the Superior  Court of  Mecklenburg  County granted the Motion
for Summary  Judgment  filed by the officers of the  Association  dismissing the
lawsuit  against  them.  The borrower has  appealed the Order  granting  summary
judgment in favor of the  Association's  officers.  The litigation in the United
States Bankruptcy Court referenced above remains pending. The Association agreed
to indemnify both of its officers with respect to certain costs,  expenses,  and
liability that might arise in connection with both of these cases.
<PAGE>
In July 1997, the above borrower and  affiliated  companies  filed an additional
action in the United  States  District  Court for the Western  District of North
Carolina against HFNC Financial Corp., the Association,  and the other financial
institution referred to in the paragraph above, alleging that previous judgments
in favor of Home Federal and the other financial  institution  obtained in prior
litigation were obtained by the  perpetration of fraud on the Bankruptcy  Court,
US District  Court,  and the 4th Circuit Court of Appeals.  The  plaintiffs  are
seeking to have the judgments set aside on that basis.  Home Federal has filed a
motion to dismiss  this  lawsuit  and is  awaiting  ruling on that  motion.  The
Association vehemently denies that any fraud was perpetrated upon the courts and
intends to vigorously contest this matter.

In August 1997, the borrower  filed another  lawsuit action in the United States
District Court for the Western District of North Carolina against  attorneys for
the Association,  attorneys for the other financial institution,  and two United
States  Bankruptcy Judges in which the borrower alleges that the defendants have
conspired against him and his corporations by allowing the Association to obtain
judgments  against him and his various  corporations.  All defendants have filed
motions to dismiss this lawsuit. On December 4, 1997, this lawsuit was dismissed
as to all  defendants.  The borrower has  appealed.  The  Association  agreed to
indemnify  the  attorneys  for the  Association  with respect to certain  costs,
expenses, and liabilities that might arise in connection with this matter.

On April 13, 1998 the  borrower,  individually,  filed a voluntary  petition for
Chapter 11 bankruptcy protection.

The Association,  its officers and its attorneys  continue to deny any liability
in the  above-described  cases and  continue to  vigorously  defend  against the
claims. However, based on the advice of legal counsel, the Association is unable
at the present time to give an opinion as to the likely  outcome of the lawsuits
or estimate the amount or range of potential loss, if any.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition

The Company's  assets amounted to $979.6 million at March 31, 1998,  compared to
$892.9  million at June 30,  1997,  an increase of $86.6  million or 9.7%.  This
increase  in total  assets  was due to  growth  in loans  receivable  of  $131.9
million,  to $790.3 million at March 31, 1998 compared to $658.3 million at June
30, 1997. This asset growth was partially  offset by a decrease in securities of
$43.5  million  to  $132.3  at March 31,  1998 and a  decrease  in cash and cash
equivalents  of $11.7  million.  The  securities  sold were  yielding  less than
current market rates and were sold to reinvest the proceeds into higher yielding
assets,  primarily loans,  and to partially repay borrowed funds.  Approximately
$6.4 million of the securities sold were equity  securities that had appreciated
significantly in value and were sold at a $6.2 million gain. An additional $49.6
million were  investment  securities  which were also yielding less than current
market  rates and were sold at a $476,000  loss.  In  addition  to the growth in
loans receivable,  net real estate increased $1.7 million over the June 30, 1997
amount due to the  foreclosure  of real estate  loans and the  transfer of these
assets at net realizable value to real estate owned. Total liabilities increased
$78.8  million  from the June 30, 1997 level due  primarily  to a $91.8  million
increase in other  borrowed  funds  during the nine month period ended March 31,
1998.  These funds,  combined  with funds  derived  from the sale of  securities
during the period,  were  principally used to fund loan  originations.  Deposits
amounted to $432.1  million at March 31, 1998,  a decline of $11.8  million from
June 30, 1997.  Shareholders' equity increased $7.9 million due to net income of
$10.0  million and to the release of shares from the ESOP and  restricted  stock
trusts  amounting to $3.4 million,  partially offset by a decrease in unrealized
gains  on  securities  available  for  sale  (net of tax)  of $2.1  million  and
dividends paid of $3.4 million.


Results of Operations for the Three Months Ended March 31, 1998 and 1997

General:  Net income for the three months ended March 31, 1998  amounted to $3.2
million,  an increase of $1.3 million from the comparable  quarter of 1997. This
increase was  primarily  due to a $287,000  decrease in the loan loss  provision
(from a net  provision  of $239,000  in the prior year  quarter to a $48,000 net
recovery  in the 1998  quarter),  an  increase  in  other  operating  income  of
$857,000, and a decrease in other operating expenses of $1.1 million, which were
partially offset by a decrease in net interest income of $86,000 and an increase
in the provision for income taxes of $860,000.

Net Interest Income: Net interest income is determined by the Company's interest
rate  spread   (i.e.,   the   difference   between  the  yields  earned  on  its
interest-earning assets and the rates paid on its interest-bearing  liabilities)
and  the  relative  amounts  of  interest-earning  assets  and  interest-bearing
liabilities. The Company's net interest income decreased $86,000 or 1.1% to $7.8
million for the three months ended March 31, 1998,  compared to $7.9 million for
the three months ended March 31, 1997.  This decrease is primarily the result of
a  reduction  in  the  ratio  of  interest-earning  assets  to  interest-bearing
liabilities to 1.19 during the quarter ended March 31, 1998 from 1.34 during the
quarter ended March 31, 1997.  This ratio  declined due to the  liquidation of a
<PAGE>
significant portion of the securities portfolio to fund the $5 per share special
distribution  paid to  shareholders  in March 1997,  coupled with the  Company's
additional  borrowings  to fund loan growth.  This effect was  somewhat  offset,
however,  by an  increase  in the  interest  rate spread to 2.55% in the quarter
ended March 31, 1998,  from 2.33% in the prior year quarter,  resulting from the
balance sheet  restructuring  discussed at "Financial  Condition" above. The net
interest margin declined to 3.43% in the current quarter from 3.69% in the prior
year quarter, also due to the reduction in the ratio of interest-earning  assets
to interest-bearing liabilities following the special distribution.

Interest  Income:  Interest income increased $1.5 million or 9.3% over the prior
year  quarter due to an  increase  in  interest  on loans of $2.9  million and a
decrease  in  interest  on  securities  of $1.4  million.  The  increase in loan
interest  resulted  from loan growth during the year,  with the average  balance
outstanding  during the 1998  quarter  amounting to $763.2  million  compared to
$605.1  million in the prior year  quarter,  an  increase  of $158.1  million or
26.1%. The average yield on loans decreased  somewhat,  to 8.15% from 8.33%, due
to  general  declines  in  market  rates  and  to a  larger  proportion  of  the
Association's  loan  portfolio  consisting of loan products that have a moderate
rate  discount  during the first three to five years.  At the end of the initial
period,  the loans convert to a fixed rate or one year  adjustable  rate loan at
the full market rate. These  competitive loan products were  instrumental in the
loan growth  during the past year and the yields are  expected to rise  somewhat
when the initial terms expire. The decrease in interest on securities  primarily
resulted  from a $102.7  million  or 40.7%  decline  in the  average  balance of
securities  to $149.4  million for the quarter  ended March 31, 1998 from $252.1
million  in the  prior  year  quarter.  This  decrease  was  due to the  sale of
securities to fund the special $5  distribution  paid to  shareholders  in March
1997 and to the  additional  sale of lower yielding  securities  during the nine
months ended March 31, 1998 discussed at "Financial  Condition" above. This sale
of securities did,  however,  improve the Company's yield on securities to 6.98%
in the current quarter, compared to 6.36% in the prior year quarter.

Interest  Expense:  Total interest  expense for the quarter ended March 31, 1998
increased  $1.6  million,  or 18.7%,  over the  quarter  ended  March 31,  1997.
Interest on other borrowed funds  increased $1.8 million to $4.7 million for the
quarter ended March 31, 1998 from $2.9 million in the prior year  quarter.  This
increase  was due to an  increase in the  average  balance of borrowed  funds to
$331.5  million in the current  quarter  from  $201.7  million in the prior year
quarter,  resulting from the use of borrowed funds to support the Company's loan
growth during the past year.  This increase in the average balance was partially
offset by a decrease in the average rate paid on these  borrowings to 5.73% from
5.76%.  Interest on deposits  during the current  quarter was down $211,000,  or
3.6%, from the prior year quarter, with the average balance and the average rate
paid declining 1.8% and 1.9%, respectively, from the prior year levels.
<PAGE>
Provision for Loan Losses (Recovery of Allowance):  The Company's  allowance for
loan losses is  maintained  at a level which is deemed to be  appropriate  based
upon an  assessment  of prior  loss  experience,  the volume and type of lending
presently being conducted by the Company,  industry  standards,  past due loans,
general  economic  conditions in the Company's market area, and to other factors
related to the  collectibility  of the loan portfolio.  During the quarter ended
March 31, 1998, the Association recorded a $48,000 net recovery of its allowance
for loan losses  compared to a net  provision  for losses  during the prior year
quarter of $239,000.  The recovery of allowance  during the current  quarter was
due to a  significant  reduction  in problem  loans  during the current  quarter
compared to the prior year. Nonperforming loans have declined to $4.6 million at
March  31,  1998,  compared  to $7.1  million  at March 31,  1997.  Management's
assessment  indicates that the severity and loss potential among these loans has
declined as well. Consequently, the specific reserves for identified loan losses
have  declined from $1.6 million at March 31, 1997 to $63,000 at March 31, 1998.
On the other hand,  general reserves for unspecified  potential loan losses have
increased from $6.3 million to $7.0 million during the same period. At March 31,
1998, the total  allowance for loan losses  amounted to 153.2% of  nonperforming
loans and 0.89% of total loans.

Other Operating  Income:  Other operating  income  increased  $857,000,  to $1.2
million compared to $314,000 in the prior year quarter, due to a current quarter
$908,000  gain on the sale of  securities.  This sale is discussed in "Financial
Condition" above.

Other  Operating  Expenses:  Total  other  operating  expenses  amounted to $3.9
million,  a decline of $1.1 million from the prior year,  as personnel  expenses
declined $874,000 from the prior year quarter,  and miscellaneous other expenses
declined $148,000 from the 1997 quarter. The current year reduction in personnel
expenses resulted from a nonrecurring  level of prior year costs associated with
the  Company's  Management  Recognition  and Retention  Plan (MRRP)  approved by
shareholders in December 1996. The March 1997 quarter  included the $1.1 million
fair  market  value of shares of stock  granted  pursuant to the plan during the
quarter to the  Association's  Board of  Directors  and  certain  employees  and
members of management. These shares represented a portion of the total shares to
be granted  under the MRRP,  with this portion  vesting  immediately  and future
grants to vest over the next four years.  Beginning  in the March 1997  quarter,
each  quarter  has  included  accrued  costs  for  shares  that will vest in the
subsequent  year.  Consequently,  the quarter ended March 31, 1997 included five
quarters of cost under this plan,  while the current year quarter  includes only
the cost  associated  with one  quarter.  The  decrease in  miscellaneous  other
operating  expenses was primarily due to a $95,000  decline in legal expenses in
the current  quarter as compared to the prior year  quarter.  The level of legal
costs in the 1997  quarter  was  atypical  and was largely  associated  with the
determination of the nature, tax treatment,  and other implications of the $5.00
per share special distribution paid in March 1997, as well as ongoing litigation
involving a former borrower.


Results of Operations for the Nine Months Ended March 31, 1998 and 1998

General:  Net income for the nine months ended March 31, 1998  amounted to $10.0
million,  an increase of $4.7 million from the comparable  quarter of 1997. This
was primarily due to an increase in other operating income of $5.5 million and a
decline in other  operating  expenses  of $3.8  million.  These  increases  were
partially  offset by a $1.7 million  reduction in net interest income and a $3.1
million  increase in the provision for income taxes.  Net Interest  Income:  The
<PAGE>
Company's net interest income for the nine months ended March 31, 1998 decreased
$1.7 million,  or 7.3%, from the comparable prior year period.  This decline was
due to a reduction in the ratio of  interest-earning  assets to interest-bearing
liabilities from 1.37 during the nine months ended March 31, 1997 to 1.20 during
the nine months ended March 31, 1998,  resulting  primarily from the liquidation
of securities to fund the $5 per share special distribution paid to shareholders
in March 1997 and from the Company's additional  borrowings to fund loan growth.
The sale of securities  during the current period had a less significant  effect
than the  sale of  securities  to fund  the  special  distribution  because  the
proceeds were  reinvested in mortgage loans or used to partially  repay borrowed
funds. The effect of this decline in earning assets was moderated to some extent
by an increase  in the  interest  rate  spread from 2.35%  during the prior year
period to 2.44% in the nine month period ended March 31, 1998. These two factors
combined to produce a 3.37% net  interest  margin  during the nine months  ended
March 31, 1998, compared to 3.83% during the prior year period.

Interest  Income:  Interest  income for the nine  months  ended  March 31,  1998
increased $3.3 million or 6.8% over the prior year period, to $52.1 million from
$48.8 million. This increase was due to the growth in the loan portfolio,  to an
average  balance  during the nine months ended March 31, 1998 of $713.3  million
from an average  balance of $567.0  million  during the prior year period.  This
more than  compensated  for a decline in the average yield of the loan portfolio
from 8.43% to 8.22%.  Income  from  securities  decreased  $4.8  million  due to
decreases in the average  balance to $161.4  million from $264.6  million in the
prior year  period.  The decline in the average  balance from the prior year was
offset  to some  extent  by an  increase  in the  average  yield to 6.75% in the
current period from 6.53% in the prior year.

Interest Expense:  Interest on deposits was relatively  unchanged from the prior
year,  as average  balances  and yields on  customer  deposits  were  relatively
constant  for the nine month  period  ended March 31, 1998  compared to the same
period in the prior  year.  Interest  on other  borrowed  funds  increased  $5.3
million over the period  ended March 31, 1997 due to  additional  borrowings  to
support loan growth. The average balance of other borrowed funds increased 73.6%
to $289.6  million  during the nine months ended March 31, 1998  compared to the
same  period  in the  prior  year.  The  average  cost of these  borrowings  was
consistent  at 5.80%  during the current  period  compared to 5.79% in the prior
year period.

Other Operating  Income:  Other operating  income  increased $5.5 million due to
$5.7  million in gains on the sale of  securities  during the nine months  ended
March 31, 1998, with a minimal level of such sales during the prior year period.
These sales were discussed at "Financial Condition" above.

Other Operating  Expenses:  Other  operating  expenses for the nine months ended
March 31, 1998  declined  $3.8  million from the  comparable  prior year period,
resulting primarily from the $3.1 million one-time Savings Association Insurance
Fund (SAIF)  assessment  paid in the prior year period,  the resultant  $382,000
current  period  reduction  in the cost of  deposit  insurance  premiums,  and a
$383,000 reduction in miscellaneous  other operating  expenses.  The Association
was required to pay a $3.1 million special one-time assessment in September 1996
to  recapitalize  the SAIF.  This payment  reduced the future  periodic  cost of
federal  deposit  insurance  premiums,  resulting in a reduction in current year
premium  costs as  compared  to the prior year.  Miscellaneous  other  operating
<PAGE>
expenses  declined from the prior year levels  principally  due to reduced legal
costs  in  connection  with  the  Association's  litigation  involving  a former
borrower who is in bankruptcy  (see Note 2 of "Notes to  Consolidated  Condensed
Financial  Statements")  and to  nonrecurring  legal  costs  in the  prior  year
associated  with the  determination  of the  nature,  tax  treatment,  and other
implications of the $5.00 per share special distribution paid in March 1997.


Liquidity and Capital Resources

The Company's liquidity,  represented by cash and cash equivalents, is a product
of its  operating,  investing and financial  activities.  The Company's  primary
sources  of  funds  are  deposits,  borrowings,  amortization,  prepayments  and
maturities  of  outstanding  loans,  sales of loans,  maturities  of  investment
securities and other short-term  investments and funds provided from operations.
While  scheduled  loan  amortization  and  maturing  investment  securities  and
short-term  investments  are relatively  predictable  sources of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic  conditions  and  competition.  The  Company  invests  excess  funds in
overnight deposits and other short-term interest-earning assets. The Company can
use cash generated  through the retail deposit market,  its traditional  funding
source,  to offset the cash  utilized in  investing  activities.  The  Company's
available for sale securities and short-term interest-earning assets can also be
used to provide liquidity for lending and other operational requirements.  As an
additional  source of funds,  the Company may borrow from the FHLB of Atlanta or
through securities sold under repurchase agreements.

The  Association  is required  by Office of Thrift  Supervision  regulations  to
maintain tangible capital equal to at least 1.5% of adjusted total assets,  core
capital equal to at least 3.0% of adjusted  total assets and total capital equal
to at least 8.0% of risk-weighted assets. The Association substantially exceeded
such  requirements with tangible,  core and total capital equal to 15.4%,  15.4%
and 29.4%, respectively, at March 31, 1998.


Year 2000 Issue

The Company  began  planning for the Year 2000 problem  during 1997 and formed a
project committee to develop the Company's plans for potential  problems in this
area. The Company has completed its assessment of the Company's vulnerability to
Year 2000  problems,  has  determined  its course of action with  respect to its
non-Year 2000 compliant systems, and has prepared initial estimates of the costs
of resolution.  The Company's most critical  computer  system is utilized by its
subsidiary,  Home Federal Savings and Loan Association,  for loan, deposit,  and
accounting  functions,  and is maintained by a third party service  bureau.  The
costs of compliance  will be borne by the vendor under the contract.  While this
system is presently  substantially  Year 2000 compliant,  Association  personnel
will participate in tests of the system during the latter part of 1998 to ensure
full  compliance.  Failure  to  prepare  this  system  for the Year  2000  would
materially affect the Association's  ability to operate and serve its customers.
The Company's  other  information  technology-controlled  systems have also been
identified and are in various states of readiness. Certain software and hardware
systems have been identified that will need to be replaced,  with implementation
of the new systems  completed by early 1999.  Such costs will be capitalized and
amortized  over the useful  lives of the assets,  while other  costs,  including
costs to modify  current  systems,  will be expensed as  incurred.  Management's
<PAGE>
current estimate of the cost of Year 2000 compliance is approximately  $700,000,
nearly all of which will be capitalized in accordance with accounting standards.
These  estimates were derived  utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these  estimates will be achieved at the cost disclosed or within the timeframes
currently  estimated.  Further,  in the course of its business  the  Association
regularly  exchanges  data  electronically  with other  financial  institutions,
customers,  and  regulatory  agencies.  There  can be no  guarantee  that  those
external  systems  will be  properly  converted,  or that a failure to  properly
convert  by these  other  entities  will not have a  detrimental  impact  on the
Company.

The  Company  is aware of the issues  associated  with the  programming  code in
existing  computer systems as the Year 2000  approaches.  The Year 2000 Issue is
the result of computer  programs being written using two digits rather than four
digits to define the applicable year. Computer programs that have time-sensitive
coding may  recognize  a date using "00" as the year 1900  rather  than the year
2000.  Systems that do not properly  recognize such  information  could generate
erroneous data or cause a system to fail.

The Bank has conducted a review of its computer  systems to identify the systems
that  could  be  affected  by  the  Year  2000  Issue  and  is   developing   an
implementation  plan to  resolve  the issue.  The  majority  of the Bank's  data
processing  is provided by a third party  service  bureau.  The servie bureau is
actively  involved in resolving  Year 2000 issues and has provided the Bank with
frequent  updates  regarding their progress.  The service bureau has advised the
Bank that it  expects  to have the  majority  of the Year 2000  issues  resolved
before  the end of 1998 to allow  the Bank to test  their  system  for Year 2000
compliance.  The Bank  presently  believes  that,  based on the  progress of the
Bank's  service  bureau,  the  Year  2000  problem  will  not  pose  significant
operational problems for the Bank's computer system.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

For a discussion of the Company's  asset and  liability  management  policies as
well as the  potential  impact of interest rate changes upon the market value of
the Company's  portfolio equity,  see  "Management's  Discussion and Analysis of
Financial  Condition  and Results of  Operations  on the  Company's  1997 Annual
Report to Stockholders. There has been no material change in the Company's asset
and  liability  position or the market value of the Company's  portfolio  equity
since June 30, 1997.
<PAGE>

                              HFNC FINANCIAL CORP.

                                     Part II

Item 1.       Legal Proceedings
              Other  than as  discussed  in Note 2 of the Notes to  Consolidated
              Condensed Financial Statements,  the Company is not engaged in any
              legal  proceedings at the present time other than those  generally
              associated with the normal course of business.


Item 2.       Changes in Securities and Use of Proceeds
              Not applicable.


Item 3.       Defaults Upon Senior Securities
              Not applicable.


Item 4.       Submission of Matters to a Vote of Security Holders
              Not applicable.


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.



                                                  HFNC FINANCIAL CORP.


Date: May 6, 1998                             By: \s\ H. Joe King, Jr.
                                                  --------------------
                                                  H. Joe King, Jr.
                                                  President and 
                                                  Chief Executive Officer


Date: May 6, 1998                             By:  \s\ A. Burton Mackey, Jr.
                                                   -------------------------
                                                   A. Burton Mackey, Jr.
                                                   Vice President and Treasurer