<PAGE>
                   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, 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 May 9, 1997

                                       1

<PAGE>

                                HFNC FINANCIAL CORP.
                                           
                                 TABLE OF CONTENTS
                                           

Part I.  Financial Information                                  Page

Item 1.  Financial Statements:

         Unaudited Consolidated Condensed Balance Sheets,
         March 31, 1997 and June 30, 1996                          3

         Unaudited Consolidated Condensed Statements of Income,
         Three Month and Nine Month Periods
         Ended March 31, 1997 and 1996                             4

         Unaudited Consolidated Condensed Statements of Cash
         Flows Nine Month Periods Ended March 31, 1997 and 1996    5

         Notes to Unaudited Consolidated Condensed Financial     6-8
         Statements
Item 2.  Management's Discussion and Analysis of Financial 
         Condition and Results of Operations                    9-13


Part II. Other Information

Item 1.  Legal Proceedings                                        14
Item 2.  Changes in Securities                                    14
Item 3.  Defaults Upon Senior Securities                          14
Item 4.  Submission of Matters to a Vote of Security Holders      14
Item 5.  Other Information                                        14
Item 6.  Exhibits and Reports on Form 8-K                         14


Signatures
                                       2


<PAGE>
                              HFNC FINANCIAL CORP.
 
                UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                                 AS OF
                                                                                        ------------------------
                                                                                         MARCH 31,    JUNE 30,
                                                                                           1997         1996
                                                                                        -----------  -----------
<S>                                                                                     <C>          <C>
ASSETS
CASH AND CASH EQUIVALENTS:
  Cash................................................................................  $13,701,096  $ 6,769,598
  Federal funds sold..................................................................    7,189,000    2,836,000
                                                                                        -----------  -----------
    Total.............................................................................   20,890,096    9,605,598
                                                                                        -----------  -----------
SECURITIES AVAILABLE FOR SALE:
  At fair value (amortized cost: March 31, 1997--$173,849,798; June 30,
    1996--$248,922,746)...............................................................  176,091,146  248,445,333
LOANS RECEIVABLE, NET.................................................................  617,870,023  505,130,813
REAL ESTATE...........................................................................    1,259,436    2,539,014
OFFICE PROPERTIES AND EQUIPMENT, NET..................................................   10,060,406    5,846,103
STOCK OF FEDERAL HOME LOAN BANK OF ATLANTA - At cost..................................    5,374,400    5,062,100
DEFERRED INCOME TAX ASSET.............................................................    5,582,736    5,805,502
OTHER ASSETS..........................................................................    5,788,770    6,443,605
                                                                                        -----------  -----------
TOTAL.................................................................................  $842,917,013 $788,878,068
                                                                                        -----------  -----------
                                                                                        -----------  -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS..............................................................................  $447,857,788 $448,570,916
OTHER BORROWED FUNDS..................................................................  225,000,000   85,000,000
OTHER LIABILITIES.....................................................................   11,323,424    8,802,696
                                                                                        -----------  -----------
    TOTAL LIABILITIES.................................................................  684,181,212  542,373,612
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..........................................................   92,696,240  168,390,571
  ESOP loan and unvested restricted stock.............................................  (21,782,429)  (8,700,000)
  Retained income.....................................................................   86,271,635   86,896,095
  Unrealized gain (loss) on securities available for sale (net of deferred taxes:
    March 31, 1997-- $862,918; June 30, 1996--$223,278)...............................    1,378,430     (254,135)
                                                                                        -----------  -----------
    Total shareholders' equity........................................................  158,735,801  246,504,456
                                                                                        -----------  -----------
TOTAL.................................................................................  $842,917,013 $788,878,068
                                                                                        -----------  -----------
                                                                                        -----------  -----------
</TABLE>
 
      See Notes to Unaudited Consolidated Condensed Financial Statements.
 
                                       3
<PAGE>
                              HFNC FINANCIAL CORP.
 
             UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED      NINE MONTHS ENDED
                                                                      MARCH 31,               MARCH 31,
                                                                ----------------------  ----------------------
                                                                   1997        1996        1997        1996
                                                                ----------  ----------  ----------  ----------

<S>                                                             <C>         <C>         <C>         <C>
INTEREST INCOME:
  Interest on loans...........................................  $12,605,762 $9,992,366  $35,835,117 $29,445,142
  Interest on securities......................................   4,010,549   3,783,635  12,966,122   8,024,647
                                                                ----------  ----------  ----------  ----------
    Total.....................................................  16,616,311  13,776,001  48,801,239  37,469,789
                                                                ----------  ----------  ----------  ----------
INTEREST EXPENSE:
  Interest on deposits........................................   5,801,495   6,430,038  17,682,886  21,083,849
  Interest on other borrowed funds............................   2,906,014      --       7,243,373      61,474
                                                                ----------  ----------  ----------  ----------
    Total.....................................................   8,707,509   6,430,038  24,926,259  21,145,323
                                                                ----------  ----------  ----------  ----------
NET INTEREST INCOME...........................................   7,908,802   7,345,963  23,874,980  16,324,466
PROVISION FOR LOAN LOSSES.....................................     239,283     250,447     200,149     269,636
                                                                ----------  ----------  ----------  ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...........   7,669,519   7,095,516  23,674,831  16,054,830
                                                                ----------  ----------  ----------  ----------
OTHER OPERATING INCOME: 

  Service charges and fees....................................     170,613     191,581     558,808     637,722
  Gain on sale of office properties and equipment.............      --          --          --         657,616
  Gain on sale of securities..................................      19,379      --          19,379      --
  Other income................................................     123,564     118,862     367,408     322,720
                                                                ----------  ----------  ----------  ----------
    Total.....................................................     313,556     310,443     945,595   1,618,058
                                                                ----------  ----------  ----------  ----------
OTHER OPERATING EXPENSES:
  Personnel expenses..........................................   3,302,129   1,631,222   7,756,832   4,610,355
  Federal deposit insurance premiums..........................      70,930     293,668     593,317     844,595
  Special SAIF recapitalization assessment....................      --          --       3,077,275      --
  Occupancy...................................................     434,425     441,941   1,244,569   1,544,400
  Net cost of real estate operations..........................      20,266     (69,878)    101,192     219,575
  Advertising.................................................     253,433     192,197     626,414     554,060
  Data processing.............................................     119,962     118,794     315,016     279,502
  Other expenses..............................................     742,356     446,771   2,238,283   1,288,485
                                                                ----------  ----------  ----------  ----------
    Total.....................................................   4,943,501   3,054,715  15,952,898   9,340,972
                                                                ----------  ----------  ----------  ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE
  IN ACCOUNTING PRINCIPLE.....................................   3,039,574   4,351,244   8,667,528   8,331,916
PROVISION FOR INCOME TAXES....................................   1,170,236   1,772,803   3,336,998   3,201,378
                                                                ----------  ----------  ----------  ----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE...................................................   1,869,338   2,578,441   5,330,530   5,130,538
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR POSTRETIREMENT
  BENEFITS (net of income tax benefit of $650,000)............      --          --          --       1,050,000
                                                                ----------  ----------  ----------  ----------
NET INCOME....................................................   1,869,338   2,578,441   5,330,530   4,080,538
Retained income, beginning balance............................  88,402,187  80,824,090  86,896,095  79,321,993
Less: Dividends declared......................................  (3,999,890)     --      (5,954,990)     --
                                                                ----------  ----------  ----------  ----------
Retained income, ending balance...............................  $86,271,635 $83,402,531 $86,271,635 $83,402,531
                                                                ----------  ----------  ----------  ----------
Earnings per share............................................  $     0.12  $     0.16  $     0.33         n/a
Dividends per share...........................................  $     5.07  $   --      $     5.19         n/a
</TABLE>
 
      See Notes to Unaudited Consolidated Condensed Financial Statements.
 
                                       4
<PAGE>
                              HFNC FINANCIAL CORP.
 
           UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED
                                                                                                MARCH 31,
                                                                                         ------------------------
                                                                                            1997         1996
                                                                                         -----------  -----------

<S>                                                                                      <C>          <C>
OPERATING ACTIVITIES:
Net income.............................................................................  $ 5,330,530  $ 4,080,538
Adjustments to reconcile net income to net cash provided by operating activities:
  Cumulative effect of a change in accounting principle................................      --         1,050,000
  Depreciation & amortization..........................................................      373,830      376,875
  Net amortization (accretion) of premiums and discounts on investment securities......      338,277      (13,356)
  Amortization of net deferred loan fees...............................................    1,310,887    1,320,703
  Provision for loan loss..............................................................      200,149      213,996
  Provision for losses on real estate..................................................       92,379       32,255
  Amortization of unearned stock compenstation, at fair value..........................    3,170,178      200,442
  (Gain) loss on sales of:
    Fixed assets.......................................................................      --          (657,616)
    Real estate owned..................................................................      (90,437)     108,909
    Investments........................................................................      (19,379)     (15,157)
  (Increase) decrease in other assets..................................................     (189,214)     415,654
  Increase (decrease) in other liabilities.............................................    2,520,729     (930,882)
                                                                                         -----------  -----------
      Net cash provided by operating activities........................................   13,037,929    6,182,361
                                                                                         -----------  -----------
INVESTING ACTIVITIES:
  Proceeds from maturities of securities...............................................    5,000,000   38,325,060
  Proceeds from sales of securities available for sale.................................   67,279,569    7,015,482
  Purchases of securities held to maturity.............................................      --        (3,788,480)
  Purchases of securities available for sale...........................................   (6,950,000) (154,845,424)
  Purchases of Federal Home Loan Bank stock............................................     (312,300)     --
  Principal repayment on mortgage-backed securities....................................    9,405,098      553,794
  Proceeds from sales of real estate...................................................    2,214,110    2,355,816
  Net loan originations................................................................  (115,186,719) (29,750,668)
  Proceeds from disposals of office properties and equipment...........................      --         1,497,096
  Purchases of office properties & equipment...........................................   (4,588,133)     (50,901)
                                                                                         -----------  -----------
      Net cash used in investing activities............................................  (43,138,375) (138,688,225)
                                                                                         -----------  -----------
FINANCING ACTIVITIES:
  Decrease in deposits.................................................................     (713,128) (27,710,838)
  Proceeds from other borrowed funds...................................................  140,000,000      --
  Repayments of other borrowed funds...................................................      --       (10,000,000)
  Purchases of restricted stock for benefit plan.......................................  (15,949,032)     --
  Net proceeds from the sale of stock..................................................      --       159,437,938
  Dividends paid.......................................................................  (81,952,896)     --
                                                                                         -----------  -----------
      Net cash provided by financing activities........................................   41,384,944  121,727,100
                                                                                         -----------  -----------
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS.........................................   11,284,498  (10,778,764)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD.........................................    9,605,598   15,122,724
                                                                                         -----------  -----------
CASH & CASH EQUIVALENTS AT END OF PERIOD...............................................  $20,890,096  $ 4,343,960
                                                                                         -----------  -----------
SUPPLEMENTAL DISCLOSURES:
  Cash paid during the period for:
    Interest...........................................................................  $ 7,543,735  $20,041,439
    Income taxes.......................................................................    2,781,284    1,417,000
  Loans foreclosed.....................................................................      936,473    1,634,479
  Unrealized gain on investment securities available for sale, net of taxes............    1,632,565    1,169,316
  Transfers from securitites held for investment to securities available for sale, at
    fair value.........................................................................      --       108,537,197
</TABLE>
 
      See Notes to Unaudited Consolidated Condensed Financial Statements.
 
                                       5

<PAGE>
                              HFNC FINANCIAL CORP.
                                           
          Notes to Unaudited 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 month periods ended March 
31, 1997 are not necessarily indicative of the results to be expected for the 
year ending June 30, 1997.  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, 1996, contained in the 
Company's 1996 annual report.

Earnings Per Share -- Because the Company completed its conversion to stock 
ownership on December 28, 1995, earnings per share for periods prior to that 
time are not considered meaningful for presentation in the consolidated 
condensed financial statements.  Earnings per share for periods since the 
Conversion has been computed by dividing net income by the weighted average 
number of shares of common stock and common stock equivalents outstanding 
during the period.  The weighted average shares outstanding for the three 
month periods ended March 31, 1997 and 1996 and the nine month period ended 
March 31, 1997 were 15,785,575, 16,300,000, and 16,199,519, respectively. 
Options granted during the quarter ended March 31, 1997 under the Company's 
stock option plan represented additional potentially dilutive securities.  
The potential dilution, however, was less than the amount requiring income 
statement presentation under Accounting Principles

                                       6

<PAGE>

Board Opinion No. 15.  Full dilution would have included 16,123,311 weighted 
average shares outstanding.  In accordance with generally accepted accounting 
principles, employee stock ownership plan and recognition and retention plan 
shares are only considered outstanding for earnings per share calculations 
when they are committed to be released.

2.  STOCK COMPENSATION PLANS

On December 30, 1996, the Company's shareholders adopted the Company's Stock 
Option Plan and Recognition and Retention Plan and Trust.  Grants under both 
plans are administered by the Board of Directors.  The Stock Option Plan 
provides that a total of 1,719,250 options to purchase the Company's common 
stock may be granted to directors, officers, and key personnel with a vesting 
period of three years and an option price equal to the market price on the 
date of grant.  On December 30, 1996, 1,203,471 options were granted to 
members of the Board of Directors and executive management.  Subsequently, on 
February 18, 1997, an additional 345,000 options were granted to other 
employees of the Company.  The remainder of the options available under the 
plan may be awarded in the future at the discretion of the Board of 
Directors.  The cost of options is recognized using the intrinsic value 
method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to 
Employees", as allowed under Statement of Financial Accounting Standards 
(SFAS) No. 123, "Accounting for Stock-Based Compensation".  The Recognition 
and Retention Plan provides that a total of 687,700 shares may be acquired 
for subsequent grant to directors, officers, and key personnel.  On December 
30, 1996, 61,953 shares of stock were granted to the Association's three 
executive officers, with an additional 61,955 shares granted to members of 
the Association's Board of Directors and various employees during the quarter 
ended March 31, 1997.  These shares vested immediately upon grant. On March 
19, 1997, 495,632 shares were allocated to members of the Board of Directors, 
management, and other employees.  The shares granted on March 19, 1997 vest 
25% per year over the next four years. The remaining shares allowable under 
the plan may be awarded at the discretion of the Board of Directors. 
Compensation expense is recognized over the vesting period at the fair value 
of shares granted on the date of the grant.  

3.  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

                                       7

<PAGE>

Association.  The Recommended Order is now before the United States
District Court for the Western District of North Carolina and the parties are
awaiting the Federal District Court's decision on whether to enter an Order
Granting Summary Judgment in accordance with the Recommended Order by the United
States Bankruptcy Judge.

In February, 1997 two companies affiliated with those referred to in the 
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 and is presently pending in 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 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.  The Association has agreed to indemnify both of its officers 
with respect to costs, expense and liability which might arise in connection 
with both of these cases.

The Association and its officers 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 to 
give an opinion as to the likely outcome of the litigation or estimate the 
amount or range of potential loss, if any.  

                                       8
                                            
<PAGE>

Item 2.

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

                                           
Financial Condition

The Company's assets amounted to $842.9 million at March 31, 1997, compared 
to $788.9 million at June 30, 1996, an increase of $54.0 million or 6.9%.  
This increase in total assets was due to leveraging of the Company's capital 
through growth in loans receivable of $112.7 million, to $617.9 million at 
March 31, 1997.  This growth was offset somewhat by the payment of a special 
distribution of $78.9 million, or $5.00 per share, to shareholders on March 
18, 1997, that was partially funded by the sale of securities, which declined 
$72.4 million to $176.1 million at March 31, 1997 from $248.4 million at June 
30, 1996.  Total liabilities increased $141.8 million due to a $140.0 million 
increase in other borrowed funds to $225.0 million at March 31, 1997 from 
$85.0 million at June 30, 1996.  These funds were used to fund the loan 
portfolio growth and a portion of the cost of the special distribution.  
Shareholders' equity declined $87.8 million to $158.7 million due to the 
payment of $82.0 million in dividends during the nine months ended March 31, 
1997 (including the $78.9 million special distribution referred to above) and 
to the cost of unvested restricted stock in the Recognition and Retention 
Plan amounting to approximately $15.9 million (including reinvestment of 
dividends), offset somewhat by the release of $3.2 million in ESOP and 
restricted stock shares, an increase in unrealized gain on securities 
available for sale of $1.6 million, and earnings during the period of $5.3 
million.
 

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

General:  Net income for the three months ended March 31, 1997 amounted to 
$1.9 million, a decrease of $709,000 from the three months ended March 31, 
1996, due primarily to an increase in other operating expenses of $1.9 
million, which was partially offset by an increase in net interest income of 
$563,000 and a decrease in the provision for income taxes of $603,000.  

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 increased 
$563,000 or 7.7% to $7.9 million for the three months ended March 31, 1997, 
compared to $7.3 million for the three months ended March 31, 1996.   This 
increase reflects a slight increase in the Company's interest rate spread to 
2.33% at March 31, 1997 from 2.32% in the prior year quarter, largely offset 
by a decrease in the ratio of interest-earning assets to interest-bearing 
liabilities to 1.34 from 1.51 in the prior year resulting from the leveraging 
of the Company's balance sheet during the year and the special distribution 
paid during the current quarter.  This ratio is expected to decline further, 
as the effect of the special

                                       9

<PAGE>



distribution was minimized by its payment in the last two weeks of the 
current quarter.  The net interest margin declined to 3.69% in the current 
quarter from 4.20% in the prior year quarter, also due to the special 
distribution.

Interest Income:  Interest income increased $2.8 million or 20.6% from the 
prior year quarter due to an increase in interest on loans of $2.6 million 
and an increase in interest on securities of $227,000.  The increase in loan 
interest resulted from loan growth during the year, with the average balance 
outstanding during the 1997 quarter increasing to $605.1 million from $453.1 
million in the prior year quarter, an increase of $152.0 million or 33.5%.  
The average yield on loans decreased somewhat, to 8.33% from 8.82%, due to 
new mortgage loan products during the past year 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 increase in interest on securities primarily 
resulted from improvement in the yield on the securities portfolio, to 6.36% 
from 5.90%, due to investment of a larger proportion of the current quarter's 
portfolio into longer term mortgage backed securities relative to the prior 
year quarter when shorter term securities made up a larger portion of the 
portfolio.  Interest income on securities will be reduced in future quarters 
due to lower principal balances following the sale of securities in the March 
1997 quarter.  These securities were sold to fund the special distribution as 
discussed under "Financial Condition" above.

Interest Expense:  Total interest expense for the quarter ended March 31, 
1997 increased $2.3 million or 35.4% over the quarter ended March 31, 1996.  
Interest on deposits during the current quarter decreased $629,000 from the 
quarter ended March 31, 1996 due to a decrease in the average balance 
outstanding from $463.6 million during the quarter ended March 31, 1996 to 
$440.2 million during the current year quarter.  A portion of the prior year 
deposits consisted of high rate certificates issued during a period of very 
competitive rates in the spring of 1995.  These certificates have now matured 
and have either been renewed at lower rates or have not been renewed.  As a 
result of the effort to reprice these maturing deposits to market, the 
average rate paid for the Association's deposit portfolio has declined from 
5.55% at March 31, 1996 to 5.27% for the current quarter.  Interest on other 
borrowed funds increased from none in the 1996 quarter to $2.9 million in the 
current quarter, resulting from the use of borrowed funds to support the 
Company's loan growth during the past year and partially fund the special 
distribution.  The average balance of such borrowings during the 1997 quarter 
amounted to $201.7 million, compared to none during the 1996 quarter.

Provision for Loan Losses:  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, 1997, the Association recorded a net provision of $239,000

                                       10

<PAGE>

compared to a net provision during the prior year quarter of $250,000. At 
March 31, 1997, the allowance for loan losses amounted to $7.9 million, which 
was 111.3% of nonperforming loans and 1.3% of total loans.

Other Operating Expenses:  Other operating expenses increased $1.9 million, 
to $4.9 million compared to $3.1 million in the prior year quarter.  The 
primary components of this increase were an increase in personnel expenses of 
$1.7 million and an increase in miscellaneous other expenses of $296,000.  
These increases were partially offset by a reduction in federal deposit 
insurance premiums of $223,000.  The increase in personnel expenses 
principally consisted of the $1.1 million fair market value of 61,955 vested 
shares of stock granted during the quarter to the Association's Board of 
Directors and various employees and members of management pursuant to the 
Recognition and Retention Plan and Trust adopted by the shareholders on 
December 30, 1996.  These shares represent one-fifth of the shares granted to 
these individuals to date under the plan. The remaining four-fifths of the 
shares will vest over the next four years, with the related expense to be 
accrued during the vesting period.  In accordance with this vesting schedule, 
the quarter ended March 31, 1997 also included $470,000 in accrued costs for 
the shares that will vest during fiscal 1998.  As a result, the costs 
associated with the recognition and retention plan should be reduced 
significantly in future periods.  Federal deposit insurance premiums declined 
$223,000 from the prior quarter due to the reduction in rate from $.23 per 
$100 in deposits to $.065 per $100.  This reduction in premium was the result 
of the one time Savings Association Insurance Fund (SAIF) assessment charged 
during the quarter ended September 30, 1996 to recapitalize the insurance 
fund and reduce the premium levels of savings associations to a level more 
comparable to those of commercial banks.  Miscellaneous other expenses 
increased $296,000 over the 1996 quarter primarily due to $172,000 in 
increased legal and professional fees associated with the ongoing lawsuit by 
a former borrower and for determination of the nature, tax treatment, and 
other implications of the special distribution paid in March 1997.

Results of Operations for the Nine Months Ended March 31, 1997 and 1996

General:  Net income for the nine months ended March 31, 1997 amounted to 
$5.3 million, an increase of $1.2 million from the nine month period ended 
March 31, 1996, primarily due to an increase in net interest income of $7.6 
million.  This was offset somewhat by a reduction in the gain on sale of 
office properties and equipment of $658,000, the SAIF assessment of $3.1 
million, (discussed in the following paragraph), and an increase in other 
operating expenses (excluding the SAIF assessment) of $3.5 million.   
Further, the prior year period included a one time after-tax cost of $1.1 
million resulting from the implementation of a new accounting pronouncement 
related to postretirement benefits.

The nine month period ended March 31, 1997 was impacted by a $3.1 million one
time special assessment by the Federal Deposit Insurance Corporation (FDIC) to
recapitalize the SAIF.  This assessment recapitalized the SAIF insurance fund
and allowed insurance

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<PAGE>

premiums for savings and loan associations to be reduced to a level more 
comparable to those of commercial banks.  The reduced premiums took effect in 
January of 1997 and will benefit the Company's net income in future periods.  
This is expected to reduce the Association's pre-tax annual deposit insurance 
premiums by approximately $800,000 (based on current deposit levels).

Net Interest Income:  The Company's net interest income for the nine months 
ended March 31, 1997 increased $7.6 million, or 46.3%, over the comparable 
period in the prior year.  This was due to a moderate increase in the 
interest rate spread from 2.28% in the prior year to 2.35% in the nine month 
period ended March 31, 1997 in combination with the current year's asset 
growth, which increased the net interest margin to 3.83% in the current nine 
month period from 3.42% in the prior year period.

Interest Income:  Interest income for the nine months ended March 31, 1997 
increased $11.3 million or 30.2% over the prior year period, to $48.8 million 
from $37.5 million.  This was due to a $6.4 million increase in interest from 
loans resulting from growth in the loan portfolio, from an average balance 
during the prior year period of $445.8 million to an average balance of 
$567.0 million during the current period.  This more than compensated for a 
decline in the average yield of the loan portfolio from 8.81% to 8.43%.  
Interest from securities increased $4.9 million due to increases in both the 
average balance and the yield.  The increase in the average balance was 
primarily due to the utilization of the stock conversion proceeds, while the 
increase in the average yield was primarily due to investment in securities 
with longer maturities and commensurately greater yields.

Interest Expense:  Interest on deposits for the nine months ended March 31, 
1997 declined $3.4 million from the comparable prior year period due to both 
a reduction in the average balance outstanding during the period and a 
reduction in the average rate paid on those deposits.  The factors affecting 
such decreases were the same as for the three months ended March 31, 1997 and 
are discussed in detail under "Results of Operations for the Three Months 
Ended March 31, 1997 and 1996 -- Interest Expense".  Interest on other 
borrowed funds increased $7.2 million over the prior year period due to the 
borrowings during the nine months ended March 31, 1997 to support loan growth.

Other Operating Income:  Other operating income declined $672,000, primarily 
due to a $658,000 gain on the sale of office property during the prior year 
period that did not recur during the current nine month period.

Other Operating Expenses:  Other operating expenses for the nine months ended 
March 31, 1997 increased $6.6 million over the comparable prior year period, 
of which $3.1 million was attributable to the one-time SAIF assessment 
discussed above.  Of the remaining $3.5 million increase, personnel expenses 
and miscellaneous other expenses increased $3.1 million and $950,000, 
respectively, while federal deposit insurance premiums and occupancy costs 
declined $251,000 and $300,000, respectively. The increase in personnel 
expenses consisted primarily of the $2.2 million fair market value of 61,953 
vested shares of stock granted to the Association's three executive officers 
in

                                       12

<PAGE>

December 1996 and to 61,955 vested shares granted to the Association's Board 
of Directors and various employees and members of management during the 
quarter ended March 31, 1997 pursuant to the Recognition and Retention Plan 
and Trust adopted by the shareholders on December 30, 1996. An additional 
cost of $470,000 was accrued for shares awarded under the plan that will vest 
in the quarters ending in December 1997 and March 1998.  Miscellaneous other 
expenses increased primarily due to increased legal expenses and to various 
corporate expenses that did not exist prior to the organization of the 
holding company and conversion to stock ownership.  Deposit insurance 
premiums declined due to the reduction in rate following the recapitalization 
of the Savings Association Insurance Fund in September of 1996 as discussed 
above.  Occupancy costs decreased due to non-recurring expenses in 1995 
relating to exterior repairs to the Company's main office.

Change in Accounting Principle:  The Association adopted SFAS No. 106, 
"Employers' Accounting for Post-retirement Benefits Other Than Pensions" 
during the quarter ended September 30, 1995.   As a result, the Association 
recognized a $1.7 million accumulated post-retirement benefit obligation 
effective July 1, 1995.  On an after-tax basis, this charge amounted to 
approximately $1.1 million and is reported as a change in accounting 
principle for the nine months ended March 31, 1996. 

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 19.4%, 19.4% and 37.1%, respectively, at March 31, 1997. 

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<PAGE>

                                 HFNC FINANCIAL CORP.
                                           
                                       Part II
                                           
                                           
Item 1.  Legal Proceedings
         Other than as discussed in Note 3 of the Notes to
         Unaudited 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
         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.

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

                                    HFNC FINANCIAL CORP.


Date:  May 9, 1997                  By: /s/  H. Joe King, Jr.
                                        -------------------------------------
                                        H. Joe King, Jr.
                                        President and Chief Executive Officer


Date:  May 9, 1997                  By: /s/  A. Burton Mackey, Jr.
                                        -------------------------------------
                                        A. Burton Mackey, Jr.
                                        Vice President and Treasurer













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