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 December 31, 1997

                                       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 February 6, 1998

<PAGE>

                              HFNC FINANCIAL CORP.

                                TABLE OF CONTENTS


Part I.       Financial Information                                        

Item 1.       Financial Statements:

              Consolidated Condensed Balance Sheets,
              December 31, 1997 and June 30, 1997                          

              Consolidated Condensed Statements of Income,
              Three and Six Months Ended
              December 31, 1997 and 1996                                   

              Consolidated Condensed Statements of Changes in
              Shareholders' Equity, Six Months Ended
              December 31, 1997 and 1996                                   

              Consolidated Condensed Statements of Cash Flows
              Six Months Ended December 31, 1997 and 1996                  

              Notes to Consolidated Condensed Financial Statements         

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


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>
<TABLE>
<CAPTION>
                                   HFNC FINANCIAL CORP.
                           CONSOLIDATED CONDENSED BALANCE SHEETS

                                        (Unaudited)

                                                                        As of
                                                         --------------------------------
                                                          December 31,         June 30,
 ASSETS                                                        1997               1997
                                                         -------------      -------------
<S>                                                      <C>                <C>    
CASH AND CASH EQUIVALENTS:
  Cash .............................................     $   9,483,019      $   9,934,359
  Federal funds sold ...............................         8,195,000         21,436,000
                                                         -------------      -------------
        Total ......................................        17,678,019         31,370,359
                                                         -------------      -------------

SECURITIES - Available for sale, at fair value
  (amortized cost:  $124,223,072 and $169,285,103,
  at December 31 and June 30, respectively) ........       128,034,360        175,710,104

LOANS RECEIVABLE, NET ..............................       730,428,763        658,323,320

REAL ESTATE, NET ...................................         2,588,751            867,876

OFFICE PROPERTIES AND EQUIPMENT, NET ...............        10,108,392         10,099,107

STOCK OF FEDERAL HOME LOAN BANK OF ATLANTA - At cost        10,500,000          6,450,000

DEFERRED INCOME TAX ASSET, NET .....................         4,396,405          3,390,125

OTHER ASSETS .......................................         7,051,246          6,709,218
                                                         -------------      -------------

TOTAL ..............................................     $ 910,785,936      $ 892,920,109
                                                         =============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS ...........................................     $ 437,907,791      $ 443,839,542

OTHER BORROWED FUNDS ...............................       296,800,000        277,000,000

OTHER LIABILITIES ..................................         9,972,866         11,020,650
                                                         -------------      -------------
      Total liabilities ............................       744,680,657        731,860,192
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   HFNC FINANCIAL CORP.
                           CONSOLIDATED CONDENSED BALANCE SHEETS

                                        (Unaudited)
                                        (continued)

                                                                        As of
                                                         --------------------------------
                                                          December 31,         June 30,
                                                             1997                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 .......................        90,025,758         89,967,883
  ESOP loan and unvested restricted stock ..........       (21,233,632)       (23,137,490)
  Retained income ..................................        94,797,286         90,106,224
  Unrealized gain on securities available for sale
    (net of deferred taxes: $1,467,346 and
    $2,473,626 at December 31 and June 30,
    respectively) ..................................         2,343,942          3,951,375
                                                         -------------      -------------
        Total shareholders' equity .................       166,105,279        161,059,917
                                                         -------------      -------------

TOTAL ..............................................     $ 910,785,936      $ 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                   Six Months Ended
                                                      December 31,                         December 31,
                                               -----------------------------      ----------------------------
                                                    1997             1996              1997             1996
                                               ------------     ------------      ------------     ----------- 
<S>                                            <C>              <C>               <C>              <C>
INTEREST INCOME:
  Interest on loans ......................     $ 14,532,538     $ 12,035,400      $ 28,410,420     $ 23,229,355
  Interest on securities .................        2,537,040        4,508,216         5,571,102        8,955,573
                                               ------------     ------------      ------------     ------------
        Total ............................       17,069,578       16,543,616        33,981,522       32,184,928
                                               ------------     ------------      ------------     ------------

INTEREST EXPENSE:
  Interest on deposits ...................        5,870,971        5,934,201        11,836,869       11,881,391
  Interest on other borrowed funds .......        3,918,959        2,554,703         7,839,133        4,337,359
                                               ------------     ------------      ------------     ------------
        Total ............................        9,789,930        8,488,904        19,676,002       16,218,750
                                               ------------     ------------      ------------     ------------

NET INTEREST INCOME ......................        7,279,648        8,054,712        14,305,520       15,966,178

PROVISION FOR LOAN LOSSES (RECOVERY
  OF ALLOWANCE) ..........................           65,031         (413,531)            2,061          (39,134)
                                               ------------     ------------      ------------     ------------

NET INTEREST INCOME AFTER PROVISION FOR
  LOAN LOSSES (RECOVERY OF ALLOWANCE) ....        7,214,617        8,468,243        14,303,459       16,005,312
                                               ------------     ------------      ------------     ------------

OTHER OPERATING INCOME:
  Service charges and fees ...............          107,840          192,152           313,615          388,195
  Gain on sale of securities .............        1,492,160             --           4,833,315             --
  Other income ...........................           89,563          128,282           157,264          243,844
                                               ------------     ------------      ------------     ------------
        Total ............................        1,689,563          320,434         5,304,194          632,039
                                               ------------     ------------      ------------     ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   HFNC FINANCIAL CORP.

                        CONSOLIDATED CONDENSED STATEMENTS OF INCOME

                                        (Unaudited)
                                        (continued)

                                                   Three Months Ended                   Six Months Ended
                                                      December 31,                         December 31,
                                               -----------------------------      ----------------------------
                                                    1997             1996              1997             1996
                                               ------------     ------------      ------------     ----------- 
<S>                                            <C>              <C>               <C>              <C>
OTHER OPERATING EXPENSES:
  Personnel expenses .....................        2,523,044        2,853,893         5,202,808        4,454,703
  Federal deposit insurance premiums .....           70,525          256,903           141,126          522,387
  Special SAIF recapitalization assessment             --               --                --          3,077,275
  Occupancy ..............................          464,310          399,579           924,393          810,144
  Net cost of real estate operations .....          125,666          (92,277)          118,923           80,926
  Advertising ............................          272,123          190,696           458,845          372,981
  Data processing ........................          113,909           99,225           222,083          195,054
  Other expenses .........................          748,130          715,627         1,260,717        1,495,927
                                               ------------     ------------      ------------     ------------
        Total ............................        4,317,707        4,423,646         8,328,895       11,009,397
                                               ------------     ------------      ------------     ------------

INCOME BEFORE INCOME TAXES ...............        4,586,473        4,365,031        11,278,758        5,627,954

PROVISION FOR INCOME TAXES ...............        1,794,228        1,680,537         4,412,250        2,166,762
                                               ------------     ------------      ------------     ------------

NET INCOME ...............................     $  2,792,245     $  2,684,494      $  6,866,508     $  3,461,192
                                               ============     ============      ============     ============

Earnings per share .......................     $       0.18     $       0.16      $       0.44     $       0.21
Earnings per share assuming dilution .....     $       0.17     $       0.16      $       0.42     $       0.21

Dividends per share ......................     $       0.07     $       0.07      $       0.14     $       0.12

</TABLE>
 See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>

                                                       HFNC FINANCIAL CORP.

                                    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                       FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996

                                                           (Unaudited)
                                                                                                    Net Unrealized
                                                                                       ESOP and     Gain (Loss) on
                                                                                       Unvested         Securities
                                   Common       Additional         Retained          Restricted       Available for
                                    Stock     Paid-in-Capital       Income             Stock             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 .................           --               --          3,461,192              --                --           3,461,192

Shares released from ESOP ..           --            220,815             --             300,000              --             520,815

Dividends paid .............           --               --         (1,955,100)             --                --          (1,955,100)

Change in net unrealized
loss on securities available
for sale ...................           --               --          2,849,125         2,849,125
                              -------------    -------------    -------------     -------------     -------------     -------------

BALANCE,
  DECEMBER 31, 1996 ........  $     171,925    $ 168,611,386    $  88,402,187     $  (8,400,000)    $   2,594,990     $ 251,380,488
                              =============    =============    =============     =============     =============     =============

BALANCE,
  JUNE 30, 1997 ............  $     171,925    $  89,967,883    $  90,106,224     $ (23,137,490)    $   3,951,375     $ 161,059,917

Net income .................           --               --          6,866,508              --                --           6,866,508

Shares released from
ESOP and restricted
stock trusts ...............         57,875             --          1,903,858              --           1,961,733

Dividends paid .............           --               --         (2,175,446)             --                --          (2,175,446)

Change in net unrealized
gain on securities available
for sale ...................           --               --         (1,607,433)       (1,607,433)
                              -------------    -------------    -------------     -------------     -------------     -------------

BALANCE,
  DECEMBER 31, 1997 ........  $     171,925    $  90,025,758    $  94,797,286     $ (21,233,632)    $   2,343,942     $ 166,105,279
                              =============    =============    =============     =============     =============     =============
</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)

                                                                           Six Months Ended
                                                                              December 31,
                                                                  --------------------------------
                                                                        1997               1996
                                                                  -------------      -------------
<S>                                                               <C>                <C>
OPERATING ACTIVITIES:
Net income ..................................................     $   6,866,508      $   3,461,192
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation ..............................................           325,653            221,086
  Net amortization of premiums on investment securities .....            72,798            275,409
  Amortization of net deferred loan fees ....................          (949,096)          (881,398)
  Provision for loan loss (recovery of allowance) ...........             2,061            (39,134)
  Provision for losses on real estate (recovery of allowance)              (822)            71,379
  Amortization of unearned stock compensation ...............         1,961,733            520,815
  Gain on sales of:
    Real estate .............................................           (70,473)           (72,784)
    Investments .............................................        (4,833,315)              --
  Increase in other assets ..................................          (342,028)        (2,233,525)
  (Decrease) increase in other liabilities ..................        (1,047,787)           475,507
                                                                  -------------      -------------
    Net cash provided by operating activities ...............         1,985,232          1,798,547
                                                                  -------------      -------------

INVESTING ACTIVITIES:
  Proceeds from maturities of investment securities .........        15,966,184          5,000,000
  Proceeds from sales of securities available for sale ......        55,051,558               --
  Purchases of securities available for sale ................       (24,979,375)        (4,950,000)
  Purchases of Federal Home Loan Bank stock .................        (4,050,000)              --
  Principal repayment on mortgage-backed securities .........         3,784,182          6,388,400
  Proceeds from sales of real estate ........................           673,043          1,934,545
  Net loan originations .....................................       (73,481,029)       (88,070,217)
  Purchases of office properties and equipment ..............          (334,938)        (3,574,046)
                                                                  -------------      -------------
    Net cash used in investing activities ...................       (27,370,375)       (83,271,318)
                                                                  -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        HFNC FINANCIAL CORP.

                          CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                            (Unaudited)
                                            (continued)

                                                                           Six Months Ended
                                                                              December 31,
                                                                  --------------------------------
                                                                        1997               1996
                                                                  -------------      -------------
<S>                                                               <C>                <C>
FINANCING ACTIVITIES:
  Decrease in deposits ......................................        (5,931,751)        (4,617,104)
  Proceeds from other borrowed funds ........................        81,000,000        112,000,000
  Repayments of other borrowed funds ........................       (61,200,000)              --
  Dividends paid ............................................        (2,175,446)        (1,955,100)
                                                                  -------------      -------------
    Net cash provided by financing activities ...............        11,692,803        105,427,796
                                                                  -------------      -------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............       (13,692,340)        23,955,025

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................     $  17,678,019      $  33,560,623
                                                                  =============      =============

SUPPLEMENTAL DISCLOSURES:
  Cash paid during the period for:
     Interest ...............................................     $  20,197,002      $  16,781,911
     Income taxes ...........................................         3,573,000          2,069,501
  Loans foreclosed ..........................................         2,322,621            247,793
  Change in unrealized (loss) gain on investment
    securities available for sale, net of taxes .............        (1,607,433)         2,849,125
</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 six months ended  December 31, 1997
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
15,627,260  and  15,614,280,  respectively,  for the three and six months  ended
December 31, 1997, and 16,345,000 and  16,337,500,  respectively,  for the three
and six months ended  December 31, 1996.  Stock options and unvested  restricted
stock granted during the fiscal year ended June 30, 1997 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 113,107 and 589,496 shares, respectively,  for the
quarter ended  December 31, 1997 and 161,608 and 589,496  shares,  respectively,
for the six months ended December 31, 1997.  The total  weighted  average shares
outstanding  utilized in computing  earnings per share assuming dilution for the
three and six months ended  December 31, 1997  therefore  amounted to 16,329,863
and 16,365,384 shares,  respectively.  No potentially  dilutive  securities were
outstanding  for a significant  period during the six months ended  December 31,
1996.
<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.  The case is currently in
the discovery  phase,  after which the Association  intends to file a motion for
summary judgment for dismissal of the counterclaim.

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  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 which 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 which might arise in connection with this matter.

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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Financial Condition

The Company's  assets amounted to $910.8 million at December 31, 1997,  compared
to $892.9  million at June 30, 1997, an increase of $17.9 million or 2.0%.  This
increase in total assets was due to growth in loans receivable of $72.1 million,
to $730.4  million at December 31, 1997  compared to $658.3  million at June 30,
1997.  This asset growth was  partially  offset by a decrease in  securities  of
$47.7  million to $128.0 at  December  31,  1997 and a decrease in cash and cash
equivalents  of $13.7  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
$5.5 million of the securities sold were equity securities which had appreciated
significantly in value and were sold at a $5.3 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 to real estate owned. Total liabilities  increased $12.8 million from the
June 30, 1997 level due primarily to a $19.8 million  increase in other borrowed
funds during the six month period ended December 31, 1997. These funds, combined
with funds  derived  from the sale of  securities  during the period,  were used
primarily  to fund loan  originations.  Deposits  amounted to $437.9  million at
December 31,  1997, a decline of $5.9 million from June 30, 1997.  Shareholders'
equity increased $5.0 million due primarily to net income of $6.9 million and to
the release of shares from the ESOP and  restricted  stock  trusts  amounting to
$1.9 million,  partially  offset by a decrease in unrealized gains on securities
available for sale of $1.6 million and dividends paid of $2.2 million.

Results of Operations for the Three Months Ended December 31, 1997 and 1996

General:  Net income for the three  months ended  December 31, 1997  amounted to
$2.8 million,  an increase of $108,000 from the comparable quarter of 1996. This
increase  was  primarily  due to an increase in other  operating  income of $1.4
million  and a decrease in other  operating  expenses  of  $106,000,  which were
largely  offset by a decrease in net  interest  income of  $775,000,  a $479,000
increase in the loan loss provision from a net recovery of $414,000 in the prior
year quarter to a $65,000 net provision in the 1997 quarter,  and to an increase
in the provision for income taxes of $114,000.

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  $775,000 or 9.6% to
$7.3  million for the three months  ended  December  31, 1997,  compared to $8.1
million for the three months ended December 31, 1996. This decrease is primarily
the  result  of  a  reduction  in  the  ratio  of  interest-earning   assets  to
interest-bearing  liabilities to 1.21 during the quarter ended December 31, 1997
from 1.38 during the quarter ended December 31, 1996. This ratio declined due to
the liquidation of a 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
<PAGE>
somewhat offset, however, by an increase in the interest rate spread to 2.43% in
the quarter  ended  December  31,  1997,  from 2.29% in the prior year  quarter,
resulting  from  the  balance  sheet   restructuring   discussed  at  "Financial
Condition"  above.  The net  interest  margin  declined  to 3.42% in the current
quarter  from  3.80% in the prior year  quarter,  also due to the  reduction  in
interest-earning assets following the special distribution.

Interest Income:  Interest income increased $526,000 or 3.2% over the prior year
quarter due to an  increase in interest on loans of $2.5  million and a decrease
in  interest on  securities  of $2.0  million.  The  increase  in loan  interest
resulted  from loan growth  during 1997,  with the average  balance  outstanding
during the 1997 quarter  increasing to $705.4 million from $570.8 million in the
prior year quarter, an increase of $134.6 million or 23.6%. The average yield on
loans decreased somewhat,  to 8.24% from 8.43%, due to an increasing  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 recent loan growth and the yields are expected to rise  somewhat when the
initial terms expire. The decrease in interest on securities  primarily resulted
from a $131.1  million or 47.3% decline in the average  balance of securities to
$146.1  million for the quarter ended  December 31, 1997 from $277.1  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 quarters ended September
30, 1997 and December 31, 1997 discussed at "Financial  Condition"  above.  This
sale of securities  did,  however,  improve the Company's yield on securities to
6.95% in the current quarter, compared to 6.51% in the prior year quarter.

Interest Expense: Total interest expense for the quarter ended December 31, 1997
increased  $1.3 million,  or 15.3%,  over the quarter  ended  December 31, 1996.
Interest on deposits during the current quarter was virtually unchanged from the
prior year  quarter,  with both the average  balance  and the average  rate paid
approximating prior year levels. Interest on other borrowed funds increased $1.4
million to $3.9  million  for the  quarter  ended  December  31,  1997 from $2.6
million in the prior year  quarter.  This increase was due to an increase in the
average  balance of borrowed funds to $264.2 million in the current quarter from
$176.7  million in the prior year  quarter,  resulting  from the use of borrowed
funds to support the Company's loan growth during the past year and to partially
fund the special  distribution.  In  addition,  the  average  rate paid on these
borrowings increased slightly to 5.93% from 5.78%.

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
December 31, 1997, the  Association  recorded a net provision for loan losses of
$65,000 compared to a net recovery of allowance during the prior year quarter of
$414,000.  The  recovery  of  allowance  during  the 1996  quarter  was due to a
recovery of  $450,000  on a  commercial  loan that had been fully  reserved.  At
December 31, 1997, the allowance for loan losses amounted to $7.3 million, which
was 157.8% of nonperforming loans and .98% of total loans.
<PAGE>
Other Operating Income:  Other operating income increased $1.4 million,  to $1.7
million compared to $320,000 in the prior year quarter, due to a current quarter
gain on the sale of securities  amounting to $1.5 million.  This sale, discussed
in "Financial  Condition"  above, and was made due to the disparity  between the
yield on the these  securities and the yields  available on loans receivable and
the costs of borrowed funds.

Other  Operating  Expenses:  Total  other  operating  expenses  amounted to $4.3
million, substantially unchanged from the prior year quarter. Among fluctuations
in individual  expense  categories,  federal deposit insurance premiums declined
considerably  due to payment of the SAIF  assessment in late 1996. This one-time
assessment  reduced  the  future  periodic  cost of  federal  deposit  insurance
premiums  beginning in January 1997,  resulting in a cost of $71,000  during the
current quarter,  compared to $257,000 in the 1996 quarter. The net cost of real
estate  operations  increased to $126,000  during the quarter ended December 31,
1997,  compared  to a net  profit  of  $92,000  during  the 1996  quarter.  This
increased  cost was due in large part to the payment of $116,000 in  accumulated
property  taxes on properties  formerly owned by a major borrower in bankruptcy.
The  borrower  had not been  paying the taxes,  but payment  was  required  upon
foreclosure by the Association in the current quarter.

Results of Operations for the Six Months Ended December 31, 1997 and 1996

General:  Net income for the six months ended December 31, 1997 amounted to $6.9
million,  an increase of $3.4 million from the  comparable  quarter of 1996. The
increase  was  primarily  due to an increase in other  operating  income of $4.7
million  and a  decline  in other  operating  expenses  of $2.7  million.  These
increases  were  partially  offset by a $1.7  million  reduction in net interest
income and a $2.2 million increase in the provision for income taxes.

Net Interest Income:  The Company's net interest income for the six months ended
December 31, 1997 decreased $1.7 million,  or 10.4%,  over the comparable period
in 1996.  This decline was due to a reduction  in the ratio of interest  earning
assets to interest  bearing  liabilities  from 1.39 during the six months  ended
December  31,  1996 to 1.21  during  the six months  ended  December  31,  1997,
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
1997 period had a less significant effect,  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 a moderate increase in
the interest rate spread from 2.35% during the prior year period to 2.39% in the
six month period ended December 31, 1997.  These two factors combined to produce
a 3.34% net  interest  margin  during the six months  ended  December  31, 1997,
compared to 3.90% during the prior year period.

Interest  Income:  Interest  income for the six months  ended  December 31, 1997
increased $1.8 million or 5.6% over the prior year period, to $34.0 million from
$32.2 million. This increase was due to the growth in the loan portfolio,  to an
average balance during the 1997 period of $688.9 million from an average balance
of $548.3  million  during the 1996  period.  This more than  compensated  for a
decline in the average yield of the loan portfolio  from 8.47% to 8.25%.  Income
from  securities  decreased $3.4 million due to decreases in the average balance
to $167.4 million from $270.7  million in the prior year period.  Average yields
during the six month periods were relatively unchanged.
<PAGE>
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 six month period ended  December 31, 1997  compared to the same
period in 1996. Interest on other borrowed funds increased $3.5 million over the
1996 period due to the additional borrowings during 1997 to support loan growth.
The average  balance of other borrowed funds  increased  79.8% to $269.1 million
during the six  months  ended  December  31,  1997.  The  average  cost of these
borrowings was  consistent at 5.83% during the current period  compared to 5.80%
in the prior year period.

Other Operating  Income:  Other operating  income  increased $4.7 million due to
$4.8 million in gains on the sale of  securities  during the 1997,  with no such
sales  during the same period in 1996.  This sale was  discussed  at  "Financial
Condition" above.

Other  Operating  Expenses:  Other  operating  expenses for the six months ended
December 31, 1997  declined  $2.7 million  from the  comparable  period in 1996,
resulting primarily from the $3.1 million one-time SAIF assessment paid in 1996,
the resultant $381,000 current period reduction in the cost of deposit insurance
premiums,  and a $235,000 reduction of miscellaneous  other operating  expenses,
partly  offset by a $748,000  increase in personnel  expenses.  The prior year's
SAIF assessment and resulting current year decline in deposit insurance premiums
were discussed in "Results of Operations for the Three Months Ended December 31,
1997  and 1996 --  Other  Operating  Expenses".  Miscellaneous  other  operating
expenses  declined  from the prior year  levels 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."  nears its  resolution.  The  increase in  personnel  expenses  was
largely due to increases in costs  associated  with the Company's  stock benefit
plans,  primarily the Employee  Stock  Ownership  Plan. The $5 per share special
distribution  in March 1997 received by shares owned by the ESOP was used by the
Plan to purchase additional shares,  which are being released over the remaining
term of the ESOP loan. The market value of these additional shares is charged to
personnel expense each quarter as they are committed to be released,  as are the
value of the shares originally owned by the Plan.

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.
<PAGE>
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 16.2%,  16.2%
and 30.6%, respectively, at December 31, 1997.

Year 2000 Issue

The Company has completed its assessment of the Company's  vulnerability to Year
2000 problems 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 by 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  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.  Progress is underway to address these issues, with
an  estimated  cost of $150,000 to  $230,000;  the actual  amount will depend on
choices  to be made by  management  in the  coming  months.  This  amount  could
increase  materially if problems are noted in the testing  process that have not
yet been  identified.  The  majority of these costs are  expected to be incurred
during  calendar  year  1998;  all such  costs  will be  charged  to  expense as
incurred.
<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

              On  October  24,  1997,  the  Company  held an annual  meeting  of
              shareholders  to elect seven  directors for a one year term and to
              ratify the  appointment  by the Board of  Directors  of Deloitte &
              Touche LLP as the Company's  independent auditors for fiscal 1998.
              The results of the voting are set forth below.

              Proposal One  (Election of Directors):

                    Name                             FOR              WITHHELD
                    ----                             ---              --------

              H. Joe King, Jr.                    13,147,145           137,232
              J. Harold Barnes, Jr.               13,149,145           135,232
              Ray W. Bradley, Jr.                 13,119,322           165,055
              Joe M. Logan                        13,120,422           163,955
              John M. McCaskill                   13,142,322           142,055
              Lewis H. Parham, Jr.                13,146,095           138,282
              Willie E. Royal                     13,122,622           161,755

              Proposal Two (Ratification of Auditors):

                              FOR            AGAINST             ABSTAIN
                              ---            -------             -------

                           13,120,694         46,895             116,788


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.


February 6, 1997                    By:   \s\ H. Joe King, Jr.
                                          --------------------
                                          H. Joe King, Jr.
                                          President and Chief Executive Officer


February 6, 1997                    By:   \s\ A. Burton Mackey, Jr.
                                          -------------------------
                                          A. Burton Mackey, Jr.
                                          Vice President and Treasurer