UNITED STATES
                        SECURITY AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

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

         For the quarterly period ended September 30, 2000

                                       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: 0-24036

                     Horizon Financial Services Corporation
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                    Delaware
--------------------------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

                                   42-1419757
--------------------------------------------------------------------------------
                      (I.R.S. Employer Identification No.)

 301 First Avenue East, Oskaloosa, Iowa                                  52577
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                  (641) 673-8328
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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 shorter  period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. [X] YES [ ] NO

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

               Common Stock                                843,762
               ------------                         ---------------------
                  Class                               Shares Outstanding
                                                      as of November 14, 2000

Transitional Small Business Disclosure Format (check one):
Yes  [   ]:  No  [  X ]
<PAGE>



             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

Part I.  Financial Information                                                       Page
                                                                                     ----

          Item 1.  Financial Statements (Unaudited)

<S>       <C>                                                                          <C>
          Consolidated Balance Sheets at September 30, 2000 and June 30, 2000.          1

          Consolidated Statements of Operations for the three months ended              2
          September 30, 2000 and 1999.

          Consolidated Statements of Comprehensive Income for the three months          3
          ended September 30, 2000 and 1999.

          Consolidated Statements of Cash Flows for the three months ended              4
          September 30, 2000 and 1999.

          Notes to Consolidated Financial Statements                                    5

          Item 2.  Management's Discussion and Analysis of Financial Condition and      7
                     Results of Operations


Part II.  Other Information                                                            12

          Signatures                                                                   13

          Index of Exhibits                                                            14

          Financial Data Schedule                                                      15
</TABLE>



<PAGE>



                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>


                                                                     September 30,           June 30,
Assets                                                                  2000                   2000
------                                                           ----------------        --------------
                                                                                (Unaudited)
<S>                                                                 <C>                  <C>
Cash and cash equivalents                                            $  2,585,308         $  1,981,511
Securities available-for-sale                                          15,638,937           15,670,119
Loans receivable, net                                                  65,375,550           62,417,395
Real estate                                                               247,720              248,951
Stock in Federal Home Loan Bank, at cost                                  702,500              702,500
Office property and equipment, net                                      1,307,460            1,049,821
Accrued interest receivable                                               693,936              602,765
Deferred tax asset                                                        290,700              380,300
Prepaid expenses and other assets                                          80,277              130,718
                                                                     -------------        -------------

     Total assets                                                    $ 86,922,388         $ 83,184,080
                                                                     =============        =============

Liabilities and Stockholders' Equity
------------------------------------
Deposits                                                             $ 67,380,791         $ 64,761,224
Advances from Federal Home Loan Bank                                    9,990,360            9,014,199
Advance payments by borrowers for taxes and insurance                      45,447              410,555
Accrued income taxes                                                      247,450              201,950
Accrued expenses and other liabilities                                    843,674              530,145
                                                                     -------------        -------------

     Total liabilities                                                 78,507,722           74,918,073
                                                                     -------------        -------------

Stockholders' equity
--------------------
Preferred stock, $.01 par value, authorized 250,000
     shares, none issued                                                      ---                  ---
Common stock, $.01 par value, 1,500,000 shares
     authorized, issued and outstanding 1,046,198 shares                   10,462               10,462
Additional paid-in capital                                              5,022,511            5,020,361
Retained earnings, substantially restricted                             5,261,829            5,135,636
Treasury stock, at cost (200,936 and 183,236 shares at
     September and June 2000, respectively)                            (1,450,436)          (1,314,197)
Unearned employee stock ownership plan shares                               - - -               (5,593)
Accumulated other comprehensive income (loss) - net
      loss unrealized on securities available for sale                   (429,700)            (580,662)
                                                                     -------------        -------------

     Total stockholders' equity                                         8,414,666            8,266,007
                                                                     -------------        -------------

Total liabilities and stockholders' equity                           $ 86,922,388         $ 83,184,080
                                                                     =============        =============
</TABLE>


See Notes to Consolidated Financial Statements

                                       -1-

<PAGE>



             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                                          Three Months
                                                                       Ended September 30
                                                                   2000                 1999
                                                                   ----                 ----
                                                                           (Unaudited)
<S>                                                            <C>                 <C>
Interest income:
  Loans                                                        $ 1,357,163         $ 1,179,980
  Investment securities available-for-sale                         257,139             272,065
  Other investment income                                           17,873              96,606
                                                               -----------         -----------

Total interest income                                            1,632,175           1,548,651
                                                               -----------         -----------

Interest expense:
  Deposits                                                         807,016             647,095
  Advance from Federal Home Loan Bank                              139,580             215,023
                                                               -----------         -----------

Total interest expense                                             946,596             862,118
                                                               -----------         -----------

Net interest income                                                685,579             686,533

Provision for losses on loans                                       24,000              24,000
                                                               -----------         -----------

Net interest income after provision for losses on loans            661,579             662,533
                                                               -----------         -----------

Noninterest income:
  Fees, commissions and service charges                            153,780             118,624
  Loss on sale of securities, net                                  (36,350)           (233,306)
  Other                                                              - - -               - - -
                                                               -----------         -----------

Total noninterest income                                           117,430            (114,682)
                                                               -----------         -----------

Noninterest expense:
  Compensation, payroll taxes and employee benefits                298,568             289,648
  Advertising                                                       14,401              27,778
  Office property and equipment                                     84,785              79,406
  Federal insurance premiums and special assessments                 7,893              12,629
  Data processing services                                          42,715              38,876
  Other real estate expense, net                                     2,446               2,559
  Other                                                             76,509              87,710
                                                               -----------         -----------

Total noninterest expense                                          527,317             538,606
                                                               -----------         -----------

Earnings before taxes on income                                    251,692               9,245

Taxes on income                                                     87,500               3,500
                                                               -----------         -----------

Net earnings                                                   $   164,192         $     5,745
                                                               ===========         ===========

  Earnings per common share -
     Basic                                                           $0.19               $0.01
     Diluted                                                         $0.19               $0.01
</TABLE>


See Notes to Consolidated Financial Statements


                                       -2-

<PAGE>



             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
                                                                               Three Months
                                                                             Ended September 30
                                                                           2000              1999
                                                                           ----              ----
                                                                                (Unaudited)
<S>                                                                      <C>              <C>
Net income                                                               $ 164,192        $   5,745

Other Comprehensive Income:
      Unrealized gains (losses) on securities available for sale:
          Unrealized holding gains (losses) arising
            during the period, net of tax                                  117,936         (116,643)
      Less: reclassification adjustment for net losses
            included in net income, net of tax                              33,026          194,119
                                                                         ---------        ---------

Other comprehensive income, net of tax                                     150,962           77,476
                                                                         ---------        ---------


Comprehensive income                                                     $ 315,154        $  83,221
                                                                         ---------        ---------
</TABLE>


See Notes to Consolidated Financial Statements

                                       -3-

<PAGE>



             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                             Three months ended
                                                                                September 30,
                                                                           2000                1999
                                                                         -------              -------
                                                                                  (Unaudited)
<S>                                                                     <C>                 <C>
Cash flows from operating activities:
Net earnings                                                            $   164,192         $     5,745
Adjustments to reconcile net earnings to net cash provided
by operating activities:
  Depreciation                                                               29,317              30,923
  Amortization of fees, premiums and accretion of discounts, net                  7             (35,003)
  Provision for losses on loans                                              24,000              24,000
  Loans originated for sale                                                (618,425)           (735,220)
  Proceeds on sales of loans                                                481,253             723,520
  Loss on sale of securities                                                 36,350             233,306
  Increase in accrued income taxes payable                                   45,500               - - -
  (Increase) decrease in accrued interest receivable                        (91,171)              9,788
  Amortization of stock compensation plans                                    5,593              14,898
  Other, net                                                                367,351              56,561
                                                                        -----------         -----------

Net cash provided by operating activities                                   443,967             328,518
                                                                        -----------         -----------

Cash flows from investing activities:
  Principal collected on securities available for sale                      219,404             425,656
  Proceeds from sale of securities available for sale                       224,313           3,920,325
  Purchase of securities available for sale                                (208,330)         (1,341,349)
  Loans to customers, net                                                (2,844,983)           (733,783)
  Purchase of office property and equipment, net                           (286,956)               (711)
                                                                        -----------         -----------

Net cash (used in) provided by investing activities                      (2,896,552)          2,270,138
                                                                        -----------         -----------

Cash flows from financing activities:
  Increase (decrease) in deposits, net                                    2,619,567            (719,374)
  Decrease advance payments by borrowers for taxes and insurance           (365,108)           (319,816)
  Proceeds from advances from FHLB                                        1,000,000               - - -
  Principal payments on advances from FHLB                                  (23,839)            (22,497)
  Payment of dividends                                                      (37,999)            (38,860)
  Treasury stock acquired                                                  (136,239)              - - -
                                                                        -----------         -----------

Net cash provided by (used in) financing activities                       3,056,382          (1,100,547)
                                                                        -----------         -----------

Net increase in cash and cash equivalents                                   603,797           1,498,109
Cash and cash equivalents at beginning of period                          1,981,511           7,917,020
                                                                        -----------         -----------
Cash and cash equivalents at end of period                              $ 2,585,308         $ 9,415,129
                                                                        ===========         ===========

Supplemental disclosures of cash flow information:
  Cash paid for interest                                                $   801,820         $   770,305
  Cash paid for taxes                                                        42,000               - - -
                                                                        ===========         ===========
</TABLE>


See Notes to Consolidated Financial Statements

                                       -4-

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     HORIZON FINANCIAL SERVICES CORPORATION


1.  BASIS OF PRESENTATION

The consolidated  financial  statements for the three months ended September 30,
2000  unaudited.  In the opinion of  management  of Horizon  Financial  Services
Corporation (the "Registrant" or "Company"),  these financial statements reflect
all  adjustments,  consisting only of normal  occurring  accruals,  necessary to
present fairly the consolidated  financial  position of the Company at September
30,  2000 and its results of  operations  and  statements  of cash flows for the
periods  presented.  These consolidated  financial  statements do not purport to
contain all the necessary  disclosures required by generally accepted accounting
principles that might otherwise be necessary in the  circumstances and should be
read in conjunction with the consolidated financial statements and notes therein
included in the annual report of Horizon Financial Services  Corporation for the
year  ended  June  30,  2000.  The  results  of the  periods  presented  are not
necessarily representative of the results of operations and cash flows which may
be expected for the entire year.

2.  ORGANIZATION

The Company was organized as a Delaware  corporation at the direction of Horizon
Federal  Savings  Bank (the  "Bank") for the purpose of becoming a savings  bank
holding company, as part of the conversion from a mutual to a stock institution.
The conversion was completed on June 28, 1994 with the sale of 506,017 shares of
the Company's common stock at a price of $10 per share.

3.  PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiary,  the Bank and the Bank's wholly owned  subsidiary,
Horizon  Investment  Services,  Inc. The principal  business activity of Horizon
Investment  Services,  Inc. is to sell credit life insurance to customers of the
Bank. All material intercompany accounts and transactions have been eliminated.


                                       -5-

<PAGE>


4.  EARNINGS PER SHARE

The Company has adopted  Statement  of  Financial  Accounting  Standard  No. 128
"Earnings Per Share".  The following  provides a  reconciliation  of the amounts
used in the  determination of basic and diluted earnings per share for the three
month periods ended September 30, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                      Three Months Ended
                                                                         September 30
                                                                    2000              1999
                                                                    ----              ----
<S>                                                              <C>               <C>
Net earnings                                                     $ 164,192         $   5,745
                                                                 =========         =========


Basic earnings per share:
       Weighted average shares outstanding                         852,111           875,062

       Less unearned employee stock ownership plan shares             (945)          (11,470)
                                                                 ---------         ---------

Weighted average number of common shares outstanding               851,166           863,592
                                                                 =========         =========

Earnings per common share - basic                                $    0.19         $    0.01
                                                                 =========         =========

Diluted earnings per share:
       Weighted average shares outstanding                         852,111           875,062

       Less unearned employee stock ownership plan shares             (945)          (11,470)

       Assumed incremental option shares
          using the treasury stock method                            9,571            13,916
                                                                 ---------         ---------

Common and common equivalent shares outstanding                    860,737           877,508
                                                                 =========         =========

Earnings per common share - diluted                              $    0.19         $    0.01
                                                                 =========         =========
</TABLE>


                                       -6-

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

GENERAL

Horizon Financial Services Corporation ("the Company") is a savings bank holding
company,  the primary  asset of which is Horizon  Federal  Savings  Bank,  ("the
Bank").  The Company was  incorporated  in March 1994 and sold 506,017 shares of
common  stock on June 28, 1994 for the purpose of  acquiring  all of the capital
stock of the Bank in connection with the Bank's  conversion from mutual to stock
form of ownership (the "Conversion").

The principal  business of the Company  (through its operating  subsidiary,  the
Bank), has historically consisted of attracting deposits from the general public
and  making  loans  secured  by  residential  and,  to a  lesser  extent,  other
properties.  The Company's results of operations are primarily  dependent on the
difference  or spread  ("interest  rate  spread")  between the average  yield on
loans,  mortgage-backed  and related  securities and investments and the average
rate paid on deposits and other  borrowings  as well as the relative  amounts of
such assets and liabilities. The interest rate spread is affected by regulatory,
economic and competitive  factors that influence interest rates, loan demand and
deposit  flows.  The Company,  like other  non-diversified  savings  institution
holding  companies,  is subject  to  interest  rate risk to the degree  that its
interest-earning  assets mature or reprice at different times, or on a different
basis, than its interest-bearing liabilities.

The Company's  results of  operations  are also affected by, among other things,
fee  income  received,  loss or profit on  securities  available  for sale,  the
establishment  of  provisions  for  possible  loan losses,  income  derived from
subsidiary  activities,  the level of operating  expenses and income taxes.  The
Company's operating expenses  principally  consist of employee  compensation and
benefits,   occupancy  expenses,   federal  deposit  insurance  premiums,   data
processing expenses and other general and administrative expenses.

The  Company  is  significantly   affected  by  prevailing  economic  conditions
including  federal  monetary  and fiscal  policies  and  federal  regulation  of
financial  institutions.  Deposit balances are influenced by a number of factors
including interest rates paid on competing personal investments and the level of
personal  income and  savings  within the  institution's  market  area.  Lending
activities are influenced by the demand for housing as well as competition  from
other lending institutions.  The primary sources of funds for lending activities
include deposits, loan payments, borrowings and funds provided from operations.

Local  economic  conditions in the Bank's  market are stable.  As a result of an
over-supply of grain, farm prices for grain, which are currently depressed,  may
continue to remain depressed and drop further. In the event current economic and
market  conditions  persist or worsen,  loan  demand and  existing  loans may be
affected.  No assurances  can be given that the Bank will be able to maintain or
increase  its  loan  portfolio,  which  could  adversely  affect  the  financial
condition and results of operations of the Company and the Bank.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

The  Company,  and its  subsidiaries  may from time to time make written or oral
"forward-looking  statements",  including  statements contained in the Company's
filings with the Securities and Exchange  Commission  (including  this Quarterly
Report on Form 10-QSB and the exhibits  hereto and  thereto),  in its reports to
stockholders and in other communications by the Company,  which are made in good
faith by the Company and the Bank  pursuant to the "safe  harbor"  provisions of
the Private Securities Litigation Reform Act of 1995.


                                       -7-

<PAGE>


These  forward-looking   statements  include  statements  with  respect  to  the
Company's  and the  Bank's  beliefs,  plans,  objectives,  goals,  expectations,
anticipations,  estimates and intentions,  that are subject to significant risks
and  uncertainties,  and are subject to change based on various factors (some of
which are  beyond  the  Company's  and the  Bank's  control).  The words  "may",
"could",  "should",  "would",  "believe",  "anticipate",  "estimate",  "expect",
"intend",   "plan"  and   similar   expressions   are   intended   to   identify
forward-looking statements. The following factors, among others, could cause the
Company's and the Bank's  financial  performance to differ  materially  from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements:

o        the strength of the United  States  economy in general and the strength
         of the local  economies in which the Company and the Bank conduct their
         operations;
o        the effects of, and changes in, trade, monetary and fiscal policies and
         laws,  including  interest rate policies of the Federal  Reserve Board,
         inflation, interest rate, market and monetary fluctuations;
o        the timely  development  of and acceptance of new products and services
         of the Bank and the  perceived  overall  value  of these  products  and
         services by users, including the features, pricing and quality compared
         to competitors' products and services;
o        the  willingness  of  users to  substitute  competitors'  products  and
         services for the Bank's products and services;
o        the success of the Bank in gaining regulatory  approval of its products
         and services, when required;
o        the impact of  changes  in  financial  services'  laws and  regulations
         (including laws concerning taxes, banking, securities and insurance);
o        technological changes;
o        acquisitions;
o        changes in consumer spending and saving habits;
o        and the  success  of the  Company  and the Bank at  managing  the risks
         involved in the foregoing.

The foregoing list of important factors is not exclusive.  Additional discussion
of factors  affecting  the  Company's  business is  contained  in the  Company's
periodic filings with the Securities and Exchange  Commission.  The Company does
not undertake and expressly  disclaims any intent or  obligation,  to update any
forward-looking statements,  whether written or oral, that may be made from time
to time by or on behalf of the Company or the Bank.


FINANCIAL CONDITION

The Company's total assets at September 30, 2000 of $86.9 million increased $3.7
million,  or 4.49%,  from $83.2  million at June 30,  2000.  This  increase  was
attributed to the loans receivable increase of $2.9 million, or a 4.74% increase
over  June  30,  2000  and a cash and cash  equivalents  increase  of  $604,000.
Additional  growth  in total  assets is  attributed  to the  increase  in office
property and equipment of $258,000.  The Company  completed an extensive remodel
of its Knoxville,  Iowa branch office this quarter.  The expansion will generate
better office efficiency and provide additional customer parking.

Total  liabilities  increased  $3.6  million,  or  4.79%,  to $78.5  million  at
September  30, 2000 from $74.9  million at June 30, 2000.  This is a result of a
$2.6 million increase in deposits,  and a $976,000 increase in advances from the
Federal Home Loan Bank which was used to fund the Bank's  increased  loan demand
and maintain required liquidity.  There were no other significant changes in the
components of the Company's balance sheet.

                                       -8-

<PAGE>

RESULTS OF OPERATIONS

The  Company's  results of operations  depend  primarily on the level of its net
interest  income  and  non-  interest  income  and the  level  of its  operating
expenses. Net interest income depends upon the volume of interest-earning assets
and  interest-bearing  liabilities  and  interest  rates  earned or paid on such
assets or liabilities,  respectively. The Company's non-interest income consists
primarily of fees charged on transaction accounts which help to offset the costs
associated with establishing and maintaining these accounts.

Comparison  of three month  periods  ended  September 30, 2000 and September 30,
1999.

GENERAL

Net  earnings  increased  $158,000 to $164,000  for the three month period ended
September  30, 2000 from $6,000 for the three month period ended  September  30,
1999. This increase was primarily  attributable to a decrease in losses on sales
of securities  from $233,000 for the three month period ended September 30, 1999
to $36,000 for the three month period ended September 30, 2000.

INTEREST INCOME

Interest income increased $83,000 to $1,632,000 for the three month period ended
September  30, 2000  compared to  $1,549,000  for the three month  period  ended
September 30, 1999.  The increase was the result of a 24 basis point increase in
the weighted average yield on average  interest-earning  assets to 7.98% for the
three month  period ended  September  30, 2000 as compared to 7.74% for the same
period  in  1999  and  an  increase  in  the  average  outstanding  balances  of
interest-earning  assets from $80.0  million for the three  month  period  ended
September  30, 1999 to $81.8  million for the same period  ended  September  30,
2000.

INTEREST EXPENSE

Interest expense  increased $85,000 to $946,000 for the three month period ended
September  30,  2000  compared  to $862,000  for the three  month  period  ended
September  30, 1999.  The increase in interest  expense was primarily due to the
weighted average yield on  interest-bearing  liabilities  increasing by 47 basis
points to 5.02% for the three month period ended  September 30, 2000 as compared
to 4.55% for the same period in 1999. The average outstanding balance of average
interest-bearing liabilities decreased $467,000 from $75.8 million for the three
month period ended September 30, 1999 to $75.4 million for the same period ended
September 30, 2000.

NET INTEREST INCOME

Net interest  income  decreased  $1,000 from $687,000 for the three month period
ended  September 30, 1999 to $686,000 for the three month period ended September
30, 2000. The Company's net interest  margin  decreased 24 basis points to 2.96%
for the three month period ended September 30, 2000 as compared to 3.20% for the
same period in 1999. The ratio of the Company's average  interest-earning assets
to average  interest-bearing  liabilities  increased  3.03% from 105.47% for the
three  month  period  ended  September  30,  1999 to 108.50% for the three month
period ended September 30, 2000.

                                       -9-

<PAGE>


PROVISION FOR LOSSES ON LOANS

The provision for losses on loans is a result of management's  periodic analysis
of the  adequacy of the  Company's  allowance  for losses on loans.  The Company
recorded a provision  for losses on loans of $24,000 for the three month periods
ended  September  30, 2000 and 1999.  As of September  30, 2000,  the  Company's
non-performing assets, consisting of nonaccrual loans, accruing loans 90 days or
more delinquent,  real estate owned and repossessed  consumer property,  totaled
$1,164,000  or 1.34% of total  assets,  compared to $1,155,000 or 1.39% of total
assets as of June 30, 2000.  As of September 30, 2000,  the Company's  allowance
for losses on loans was $390,000,  representing  33.5% of non-performing  assets
and .60% of net loans receivable.


The Company continues to monitor and adjust its allowance for losses on loans as
management's analysis of its loan portfolio and economic conditions dictate. The
Company believes it has taken an appropriate  approach to maintain the allowance
for loan losses at a level  consistent  with the Company's loss  experiences and
considering,  among  other  factors,  the  composition  of  the  Company's  loan
portfolio,  the level of the Company's classified and non-performing  assets and
their estimated value. Future additions to the Company's allowance for losses on
loans and any change in the related  ratio of the  allowance for losses on loans
to non-performing  loans are dependent upon the economy,  changes in real estate
values  and  interest  rates.  In  addition,   federal  regulators  may  require
additional  reserves  as a  result  of their  examination  of the  Company.  The
allowance for losses on loans reflects what the Company currently believes is an
adequate  level of  reserves,  although  there can be no  assurance  that future
losses will not exceed the estimated amounts, thereby adversely affecting future
results of operations.

NONINTEREST INCOME

Noninterest  income  increased  $232,000 to $117,000  for the three months ended
September 30, 2000 from (115,000) for the same period ended  September 30, 1999.
The increase was primarily  attributable  to a $233,000  loss  recognized on the
sale of  securities  for the three  month  period  ended  September  30, 1999 as
compared to a $36,000 loss  recognized  on the sale of  securities  for the same
period  ended  September  30,  2000.  Fees,  commissions,  and  service  charges
increased  $35,000 for the period  ending  September 30, 2000 as compared to the
same  period  ended  September  30,  1999 due to  increased  service  charges on
checking  accounts  and  commission  income  on sales of  alternative  financial
products  sold through the  wholly-owned  financial  services  subsidiary of the
Bank.


NONINTEREST EXPENSE

Total  noninterest  expense decreased $12,000 from $539,000 for the three months
ended  September 30, 1999 to $527,000 for the three month period ended September
30, 2000. The decrease was primarily  attributable  to a decrease of $14,0000 in
advertising  expense from $28,000 for the three month period ended September 30,
1999 to $14,000 for the same period ended  September  30, 2000 and a decrease of
$11,000 in other expense due to decreased legal fees.  Compensation and employee
benefits  expenses,  the largest  component of  noninterest  expense,  increased
$9,000 for the three  months  ended  September  30, 2000 as compared to the same
period in 1999.


                                      -10-

<PAGE>


TAXES ON INCOME

The Company had a $84,000 increase in taxes on income for the three month period
ended September 30, 2000 as a result of increased net earnings.


LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are deposits and principal and interest
payments collected on mortgage loans, investments and related securities.  While
scheduled loan repayments and maturing  investments are relatively  predictable,
deposit flows and early loan  prepayments are more influenced by interest rates,
general  economic  conditions  and  competition.  Additionally,  the Company may
borrow funds from the Federal  Home Loan Bank  ("FHLB") of Des Moines or utilize
other borrowings of funds based on need,  comparative  costs and availability at
the time.

The Office of Thrift  Supervision  (the "OTS") requires minimum levels of liquid
assets. OTS regulations  presently require the Bank to maintain an average daily
balance of liquid assets (United States  Treasury and federal agency  securities
and other investments having maturities of five years of less) equal to at least
4.0%  of the  sum of its  average  daily  balance  of net  withdrawable  deposit
accounts and borrowings  payable in one year or less. Such  requirements  may be
changed from time to time by the OTS to reflect  changing  economic  conditions.
Such  investments  are intended to provide a source of  relatively  liquid funds
upon which the Bank may rely,  if  necessary,  to fund deposit  withdrawals  and
other  short-term  funding  needs.  The Bank  has  historically  maintained  its
liquidity ratio in excess of that  requirement.  The Bank's  liquidity ratio was
5.00% on September 30, 2000 and 5.38% on June 30, 2000.

At September  30, 2000,  the Company had advances of $10.0 million from the FHLB
of Des Moines outstanding.  The Company uses its liquidity resources principally
to meet  ongoing  commitments,  to fund  maturing  certificates  of deposit  and
deposit  withdrawals,  and to meet operating  expenses.  The Company anticipates
that it will have sufficient  funds available to meet current loan  commitments.
At September 30, 2000, the Company had outstanding  commitments to extend credit
which  amounted  to  $2,769,000   (including  $904,000  in  available  revolving
commercial  lines of credit).  At September  30, 2000,  certificates  of deposit
scheduled  to  mature  in one year or less  totaled  $23.4  million.  Management
believes,  based on its experience to date, that a significant  portion of these
funds will remain with the Company. Management believes that loan repayments and
other  sources  of funds  will be  adequate  to meet the  Company's  foreseeable
liquidity needs.

Liquidity management is both a daily and long-term responsibility of management.
The Bank  adjusts  its  investments  in liquid  assets  based upon  management's
assessment  of (i) expected  loan demand,  (ii) expected  deposit  flows,  (iii)
yields available on interest-bearing  investments and (iv) the objectives of its
asset/liability  management  program.  Excess liquidity generally is invested in
interest-earning  overnight deposits and other short-term  government and agency
obligations.

At September  30, 2000,  the Bank had tangible and core capital of $6.2 million,
or 7.3% of adjusted total assets,  which was approximately $5.0 million and $2.8
million above the minimum  requirements of 1.5% and 4.0%,  respectively,  of the
adjusted  total assets in effect on that date. At September  30, 2000,  the Bank
had risk-based capital of $6.6 million (including $6.2 million in core capital),
or 12.5% of risk- weighted assets of $52.9 million. This amount was $2.4 million
above the 8.0% requirement in effect on that date.


                                      -11-

<PAGE>

                                     PART II
                                OTHER INFORMATION



ITEM 1.        Legal Proceedings
               -----------------
               None

ITEM 2.        Changes in Securities
               ---------------------
               None

ITEM 3.        Defaults Upon Senior Securities
               -------------------------------
               None

ITEM 4.        Submission of Matters to a Vote of Security Holders
               ---------------------------------------------------
               None

ITEM 5.        Other Information
               -----------------
               None

ITEM 6.        Exhibits and Reports on Form 8-K.
               ---------------------------------
               (a)   Exhibits:
                     See Index to Exhibits

               (b)   The following is a description of the Form 8-K filed during
                     the three months ended September 30, 2000:

                     On  September  6,  2000,  a current  report on Form 8-K was
                     filed to announce  the  Company's  earnings for the quarter
                     and fiscal year ended June 30, 2000.



                                      -12-

<PAGE>

                                   SIGNATURES


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


                                    HORIZON FINANCIAL SERVICES CORPORATION
                                    Registrant


Date: November 14,2000               /s/ Robert W. DeCook
      ------------------            ------------------------------------------
                                    Robert W. DeCook
                                    President and Chief Executive Officer




Date: November 14, 2000              /s/ Sharon McCrea
      --------------------          ------------------------------------------
                                    Sharon McCrea
                                    Vice President and Chief Financial Officer


                                      -13-

<PAGE>

                                INDEX TO EXHIBITS

Exhibit
                                Number Document
------    ----------------------------------------------------------------------

   3       The Articles of Incorporation and Bylaws,  filed on March 18, 1994 as
           exhibits  3.1 and  3.2,  respectively,  to  Registrants  Registration
           Statement on Form S-1 (File No. 33-76674), are incorporated herein by
           reference.

   4       Registrant's  Specimen Stock Certificate,  filed on March 18, 1994 as
           Exhibit to Registrant's  Registration Statement on Form S-1 (File No.
           33-76674), is incorporated herein by reference.

   10.1    Employment  Agreements  between  the  Bank  and  Messrs.  DeCook  and
           Gillespie,  filed  as  Exhibits  10.1  and  10.2,  respectively,   to
           Registrant's  Report on Form 10- KSB for the  fiscal  year ended June
           30, 1994 (File No. 0-24036), are incorporated herein by reference.

   10.2    1994  Stock  Option and  Incentive  Plan,  filed as  Exhibit  10.3 in
           Registrant's Report on Form 10-KSB for the fiscal year ended June 30,
           1994 (File No. 0-24036), is incorporated herein by reference.

   10.3    Recognition and Retention Plan, filed as Exhibit 10.4 to Registrant's
           Report on Form  10-KSB for the fiscal  year ended June 30, 1994 (File
           No. 0-24036), is incorporated herein by reference.

   11      Statement re computation of earnings per share (See Footnote 4 of the
           Registrant's  Notes to Consolidated  Financial  Statements  contained
           herein)

   27      Financial Data Schedule (electronic filing only)


                                      -14-