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 December 31, 2001

                                       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                                        42-1419757
--------------------------------------------------------------------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                             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

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

         Common Stock                                          751,462
      ------------------                         -------------------------------
            Class                                       Shares Outstanding
                                                      as of February 4, 2002

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



<PAGE>



              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY

                                      INDEX


Part I. Financial Information                                               Page
                                                                            ----

         Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheets at December 3l, 2001 and June 30, 2001    1

         Consolidated Statements of Operations for the three months and        2
         six months ended December 31, 2001 and 2000

         Consolidated Statements of Comprehensive Income for the three months  3
         and six months ended December 31, 2001 and 2000

         Consolidated Statements of Cash Flows for the six months ended        4
         December 31, 2001 and 2000

         Notes to Consolidated Financial Statements                            5

         Item 2.  Management's Discussion and Analysis                         7


Part II. Other Information                                                    13

         Signatures                                                           14

         Index of Exhibits                                                    15





<PAGE>



                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

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

                                                          December 31,         June 30,
                                                              2001               2001
                                                          ------------       ------------
                                                           (Unaudited)
<S>                                                        <C>                 <C>
Assets
------
Cash and cash equivalents                                  $  8,751,287       $  5,591,526
Securities available-for-sale                                12,090,925         15,525,117
Loans receivable, net                                        66,431,727         65,445,714
Real estate                                                     280,458            280,458
Stock in Federal Home Loan Bank, at cost                        480,100            480,100
Office property and equipment, net                            1,307,266          1,253,741
Accrued interest receivable                                     622,558            682,183
Deferred tax asset                                              103,299             85,550
Prepaid expenses and other assets                                66,085             71,499
                                                           ------------       ------------

     Total assets                                          $ 90,133,705       $ 89,415,888
                                                           ------------       ============

Liabilities and Stockholders' Equity
------------------------------------
Deposits                                                   $ 73,823,446       $ 69,871,926
Advances from Federal Home Loan Bank                          6,581,233          9,592,627
Advance payments by borrowers for taxes and insurance           150,215            393,550
Accrued income taxes                                            245,989            191,603
Accrued expenses and other liabilities                          443,701            919,996
                                                           ------------       ------------

     Total liabilities                                       81,244,584         80,969,702
                                                           ------------       ------------

Stockholders' equity
--------------------
Preferred stock, $.01 par value, authorized 250,000
     shares, none issued                                            ---                ---
Common stock, $.01 par value, 1,500,000 shares
     authorized, 1,046,198 issued                                10,462             10,462
Additional paid-in capital                                    5,022,511          5,022,511
Retained earnings, substantially restricted                   6,038,524          5,565,793
Treasury stock, at cost, 294,736 shares                      (2,129,894)        (2,129,894)
Accumulated other comprehensive loss                            (52,482)           (22,686)
                                                           ------------       ------------

     Total stockholders' equity                               8,889,121          8,446,186
                                                           ------------       ------------

Total liabilities and stockholders' equity                 $ 90,133,705       $ 89,415,888
                                                           ============       ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       -1-

<PAGE>


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


                                                   Three Months Ended                 Six Months Ended
                                                       December 31,                      December 31,
                                                   2001             2000            2001              2000
                                               -----------      -----------      -----------      -----------
                                                       (Unaudited)                       (Unaudited)
<S>                                            <C>              <C>              <C>              <C>
Interest income:
Interest and fees on loans                     $ 1,356,282      $ 1,357,669      $ 2,720,649      $ 2,714,832
Interest on securities available-for-sale          182,702          231,876          388,369          489,015
Other interest income                               27,421           18,487           64,885           36,360
                                               -----------      -----------      -----------      -----------

Total interest income                            1,566,405        1,608,032        3,173,903        3,240,207
                                               -----------      -----------      -----------      -----------

Interest expense:
Interest on deposits                               609,771          851,972        1,372,164        1,658,988
Interest on FHLB advances                          103,385          145,474          223,500          285,054
                                               -----------      -----------      -----------      -----------

Total interest expense                             713,156          997,446        1,595,664        1,944,042
                                               -----------      -----------      -----------      -----------

Net interest income                                853,249          610,586        1,578,239        1,296,165

Provision for losses on loans                       57,500          141,247           86,500          165,247
                                               -----------      -----------      -----------      -----------

Net interest income after provision for
  losses on loans                                  795,749          469,339        1,491,739        1,130,918
                                               -----------      -----------      -----------      -----------

Non-interest income:
Fees, commissions and service charges              169,413          132,602          343,274          286,382
Gain (loss) on sale of securities, net              38,331            8,144           67,965          (28,206)
                                               -----------      -----------      -----------      -----------

Total non-interest income                          207,744          140,746          411,239          258,176
                                               -----------      -----------      -----------      -----------

Non-interest expense:
Compensation, payroll taxes and
  employee benefits                                309,999          275,379          606,244          573,947
Advertising                                         16,576           20,849           31,299           35,250
Office property and equipment                       64,150           73,990          129,567          158,775
Federal deposit insurance premiums                   8,590            8,156           17,323           16,049
Data processing services                            46,319           44,035           90,511           86,750
Other real estate                                      359              873            7,440            3,319
Other                                              106,568          136,330          208,632          212,839
                                               -----------      -----------      -----------      -----------

Total non-interest expense                         552,561          559,612        1,091,016        1,086,929
                                               -----------      -----------      -----------      -----------

Earnings before taxes on income                    450,932           50,473          811,962          302,165

Taxes on income                                    152,400            8,200          271,600           95,700
                                               -----------      -----------      -----------      -----------

Net earnings                                   $   298,532      $    42,273      $   540,362      $   206,465
                                               ===========      ===========      ===========      ===========

     Earnings per common share -
       Basic                                   $      0.40      $      0.05      $      0.72      $      0.25
       Diluted                                 $      0.39      $      0.05      $      0.71      $      0.25
</TABLE>


See Notes to Consolidated Financial Statements.

                                       -2-

<PAGE>

<TABLE>
<CAPTION>

                                       HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                                          Consolidated Statements of Comprehensive Income


                                                                       Three Months Ended              Six Months Ended
                                                                          December 31,                   December 31,
                                                                      2001            2000            2001           2000
                                                                      ----            ----            ----           ----
                                                                           (Unaudited)                    (Unaudited)

<S>                                                                <C>            <C>             <C>             <C>
Net income                                                          $ 298,532       $  42,273       $ 540,362       $ 206,465

Other Comprehensive Income:
   Unrealized gains (losses) on securities available for sale:
      Unrealized holding gains (losses) arising
         during the period, net of tax                                (45,806)        164,250          12,818         292,421
   Reclassification adjustment for net (gains) losses
         included in net income, net of tax                           (24,034)         (5,106)        (42,614)         17,685
                                                                    ---------       ---------       ---------       ---------

Other comprehensive income (loss), net of tax                         (69,840)        159,144         (29,796)        310,106
                                                                    ---------       ---------       ---------       ---------


Comprehensive income                                                $ 228,692       $ 201,417       $ 510,566       $ 516,571
                                                                    =========       =========       =========       =========
</TABLE>



See Notes to Consolidated Financial Statements.

                                       -3-

<PAGE>

<TABLE>
<CAPTION>
                                       HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                                               Consolidated Statements of Cash Flows

                                                                                          Six Months Ended
                                                                                             December 31,
                                                                                        2001              2000
                                                                                       ------            ------
                                                                                                       (Unaudited)
<S>                                                                                     <C>                <C>
Cash flows from operating activities:
Net earnings                                                                        $   540,362       $   206,465
Adjustments to reconcile net earnings to net cash provided
by operating activities:
   Depreciation                                                                          47,951            58,671
   Amortization of fees, premiums and accretion of discounts, net                        34,853           (70,679)
   Provision for losses on loans                                                         86,500           165,247
   Loans originated for sale                                                         (6,998,315)       (1,220,650)
   Proceeds on sales of loans                                                         6,586,415           711,425
   (Gain) loss on sale of securities                                                    (67,965)           28,206
   Reinvested dividends                                                                  (2,489)              ---
   Gain on sale of fixed assets                                                            (535)              ---
   Decrease (increase) in accrued interest receivable                                    59,625           (18,201)
   Increase (decrease) in accrued income taxes                                           54,386           (83,087)
   Amortization of stock compensation plans                                                 ---             5,593
   Other, net                                                                          (474,414)         (224,976)
                                                                                    -----------       -----------

Net cash (used in) provided by operating activities                                    (133,626)         (441,986)
                                                                                    -----------       -----------

Cash flows from investing activities: Securities available for sale:
     Purchases                                                                       (4,646,205)         (232,786)
     Proceeds from sale                                                               6,162,260         1,126,840
     Proceeds from maturity and principal collected                                   1,906,193           617,479
   Loans to customers, net                                                             (732,080)       (2,904,713)
   Proceeds from sale of real estate                                                     75,000               ---
   Purchase of office property and equipment, net                                      (100,941)         (305,900)
                                                                                    -----------       -----------

Net cash provided by (used in) investing activities                                   2,664,227        (1,699,080)
                                                                                    -----------       -----------

Cash flows from financing activities:
   Increase in deposits                                                               3,951,520         3,233,175
   Decrease in advance payments by borrowers for taxes and insurance                   (243,335)         (239,457)
   Proceeds from advances from Federal Home Loan Bank                                       ---         1,500,000
   Principal payments on advances from Federal Home Loan Bank                        (3,011,394)         (810,223)
   Treasury stock acquired                                                                  ---          (815,697)
   Payment of dividends                                                                 (67,631)          (71,815)
                                                                                    -----------       -----------

Net cash provided by financing activities                                               629,160         2,795,983
                                                                                    -----------       -----------

Net increase in cash and cash equivalents                                             3,159,761           654,917

Cash and cash equivalents at beginning of period                                      5,591,526         1,981,511
                                                                                    -----------       -----------
Cash and cash equivalents at end of period                                          $ 8,751,287       $ 2,636,428
                                                                                    ===========       ===========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
     Interest                                                                       $ 2,086,483       $ 2,254,230
     Taxes                                                                              217,214           129,967
   Noncash investing and financing activities:
     Transfers from loans to other real estate                                      $    71,467       $       ---
                                                                                    ===========       ===========
</TABLE>


   See Notes to Consolidated Financial Statements.

                                       -4-

<PAGE>



              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                   Notes to Consolidated Financial Statements

1.  BASIS OF PRESENTATION

The consolidated financial statements for the three and six months ended
December 31, 2001 are 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 December 31, 2001 and its results of operations and 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, 2001. 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.  PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Horizon Federal Savings Bank (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>



3.  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 and six month periods
ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>

                                                                 Three Months Ended           Six Months Ended
                                                                    December 31,                 December 31,
                                                                 2001          2000           2001          2000
                                                                 ----          ----           ----          ----
<S>                                                          <C>            <C>            <C>            <C>
Net Earnings                                                 $ 298,532      $  42,273      $ 540,362      $ 206,465
                                                             =========      =========      =========      =========


Basic earnings per share:
     Weighted average common shares outstanding                751,462        806,875        751,462        829,493

     Less unearned employee stock ownership plan shares            ---            ---            ---           (472)
                                                             ---------      ---------      ---------      ---------

Weighted average number of common shares outstanding           751,462        806,875        751,462        829,021
                                                             =========      =========      =========      =========

Earnings per common share - basic                            $    0.40      $    0.05      $    0.72      $    0.25
                                                             =========      =========      =========      =========

Diluted earnings per share:
     Weighted average common shares outstanding                751,462        806,875        751,462        829,493

     Less unearned employee stock ownership plan shares            ---            ---            ---           (472)

     Assumed incremental option shares
        using the treasury stock method                         10,349          5,213         11,015          7,392
                                                             ---------      ---------      ---------      ---------

Common and common equivalent shares outstanding                761,811        812,088        762,477        836,413
                                                             =========      =========      =========      =========

Earnings per common share - diluted                          $    0.39      $    0.05      $    0.71      $    0.25
                                                             =========      =========      =========      =========
</TABLE>



                                       -6-

<PAGE>



ITEM 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS


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 probable 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, but showing some
effects of the current recession. Currently, farm prices for both grain and
livestock are volatile and declining somewhat. We are currently experiencing
factory layoffs and some decline in retail business. In the event current
economic and market conditions persist or worsen, loan demand and existing loans
may be affected, 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

                                       -7-

<PAGE>



Litigation Reform Act of 1995.

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; and
o        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 December 31, 2001 of $90.1 million increased
$718,000, or .80%, from $89.4 million at June 30, 2001. Cash and cash
equivalents increased $3.16 million, or 56.5%, from $5.6 million at June 30,
2001 to $8.75 million at December 31, 2001. Offsetting this increase was a
decrease in securities available-for-sale of $3.4 million from $15.5 million at
June 30, 2001 to $12.1 million at December 31, 2001. Loans receivable, net
increased $986,000 from $65.4 million at June 30, 2001 to $66.4 million at
December 31, 2001.

Total liabilities increased $275,000, or .34%, to $81.2 million at December 31,
2001 from $80.9 million at June 30, 2001. Deposits continued to increase from
$69.9 million at June 30, 2001 to $73.8 million at December 31, 2001. Total
deposits increase fiscal year-to-date is $3.95 million, or 5.66%. A decrease in
advances from the Federal Home Loan Bank of $3.0 million, or 31.4%, from $9.6
million at June 30, 2001 to $6.6 million at December 31, 2001 partially offset
the increase in deposits. Total stockholders' equity increased $443,000, from
$8.45 million at June 30, 2001 to $8.89 million at December 31, 2001,

                                      -8-

<PAGE>



the result of an increase of $473,000 in retained earnings offset by a slight
increase in unrealized losses on securities available-for-sale of $30,000. There
were no other significant changes in the components of the Company's balance
sheet.


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 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. 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, and to a lesser extent, gains or
losses on sale of securities.


Comparison of three month and six month periods ended December 31, 2001 and
December 31, 2000.


GENERAL

Net earnings for the three months ended December 31, 2001 increased $256,200, or
605%, to $298,500 from $42,300 for the three month period ended December 31,
2000. The increase in net earnings for the quarter was primarily attributable to
increases in both net interest income, both before and after provisions for
losses on loans, and to a lesser extent, non-interest income as interest on
deposits and FHLB advances declined while income from fees, service charges and
commissions increased as did gains on sale of securities. Provisions for losses
on loans decreased for the quarter from $141,000 for the three month period
ended December 31, 2001 to $57,500 for the comparable period ended December 31,
2001 contributing to increased net income for the period. All of these increases
were offset in part due to increased taxes attributable to higher income during
this three month period. The six month period ended December 31, 2001
additionally presented an increase over the comparable period ended December 31,
2000. Net earnings for the six month period ended December 31, 2001 were up
162%, or $334,000 to $540,400 for the period ended December 31, 2001 compared to
$206,500 for the six month period ended December 31, 2000. Increases for the six
month period were also generally attributable to increased net interest income,
both before and after provisions for losses on loans, and, to a lesser extent,
non-interest income for the current fiscal year as compared to the same period
in fiscal 2000.


INTEREST INCOME

Interest income decreased $41,600 to $1,566,000 for the three month period ended
December 31, 2001 compared to $1,608,000 for the three month period ended
December 31, 2000 and $66,300 to $3,174,000 for the six month period ended
December 31, 2001 compared to $3,240,000 for the period ended December 31, 2000.
The decreases for both periods were primarily due to decreased interest on
securities available-for-sale as both balances and interest rates earned on
securities have declined. For the three month period ended December 31, 2001
interest on securities available-for-sale decreased $49,000 from $231,900 for
the period ended December 31, 2000 to $182,700 for the same period ended
December 31, 2001. For the six month period results were similar as interest on
securities decreased $100,600 to $388,400 for the period ended December 31, 2001
from $489,000 for the six month period ended December 31, 2000. Both periods
experienced increases in other interest income as the Bank earned greater
interest on larger cash and cash equivalent balances. For the three month period
other

                                      -9-

<PAGE>



interest income increased $8,900, or 48.3%, and for the six month period other
interest income increased $28,500, or 78.4%. The average outstanding balance of
other interest-earning assets increased $5.3 million for the corresponding three
month period and $4.9 million for the six month period. Average yield on other
interest-earning assets for the three month period decreased 10 basis points
from 1.40% for the period ended December 31, 2000 to 1.30% for the three month
period ended December 31, 2001. Average yield on other interest-earning assets
for the six month period increased 28 basis points, from 1.45% for the six month
period ended December 31, 2000 to 1.73% for the period ended December 31, 2001.
Interest on loans for both periods being compared had little change. The three
month period ended December 31, 2001 had a slight decrease of $1,400 as compared
to the same period in 2000 and the six month period had a slight increase of
$5,800 over the comparable period in 2000. The average yield on loans receivable
decreased for both the three month and six month periods ended December 31,
2001. Average yield on loans for the three month period decreased 12 basis
points from 8.31% for the period ended December 31, 2000 to 8.19% for the three
month period ended December 31, 2001. Average yield on loans for the six month
period decreased 16 basis points from 8.41% for the period ended December 31,
2000 to 8.25% for the six month period ended December 31, 2001. Average net
loans receivable for the three and six month periods ended December 31, 2001
were $66.2 million and $65.9 million, respectively. Average net loans receivable
for the three and six month periods ended December 31, 2000 were $65.4 million
and $64.6 million, respectively.


INTEREST EXPENSE

Interest expense decreased $284,000 to $713,000 from $997,000 for the three
month period and $348,000 to $1,596,000 from $1,944,000 for the six month period
ended December 31, 2001 as compared to the same periods in 2000. The decrease in
interest expense was ultimately due to the weighted average rate on deposits
decrease of 173 basis points from 5.07% for the three month period ended
December 31, 2000 to 3.34% for the comparable period ended December 31, 2001.
Weighted average rate on deposits for the six month period comparison decreased
120 basis points to 3.81% for the six month period ended December 31, 2001 as
compared to 5.01% for the same period in 2000. Average outstanding balance of
deposits increased $5.8 million from $67.2 million for the three month period
ended December 31, 2000 to $73.0 million for the three month period ended
December 31, 2001, and increased $5.8 million from $66.3 million to $72.1
million for the comparable six month period. Contributing to the decrease in
interest expense was a decrease in interest on FHLB advances for the three and
six month periods ended December 31, 2001 as compared to the same periods ended
December 31, 2000. Interest on advances and other borrowings decreased $42,000
to $103,000 from $145,000 for the three month period and $61,500 to $223,500
from $285,000 for the six month period. This decrease is attributable to reduced
average borrowings of $2.26 million, from $9.84 million for the three month
period ended December 31, 2000, at a weighted average rate of 5.91%, to $7.58
million for the same period ended 2001, at a weighted average rate of 5.45%. The
decrease in average borrowings for the comparable six month period was $1.6
million from $9.8 million, with a weighted average rate of 5.83%, for the period
ended December 31, 2000 to $8.2 million, with a weighted average rate of 5.48%,
for same period ended 2001.


NET INTEREST INCOME

Net interest income was $853,000 and $1.58 million for the three month and six
month periods ended December 31, 2001, respectively, compared to $610,600 and
$1.3 million for the comparable periods in 2000. The Company's net interest
margin increased 97 basis points to 3.92% for the three month period ended
December 31, 2001 as compared to 2.95% for the same period ended December 31,
2000 and increased 47 basis points to 3.63% for the six month period ended
December 31, 2001 as compared to 3.16% for the six month period ended December
31, 2000.

                                      -10-

<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's
provision for losses on loans was $86,500 for the six month period ended
December 31, 2001 as compared to $165,200 for the same period ended 2000.
Additional provisions were applied in the 2000 period in response to the
write-off of a commercial loan with a balance of $161,000. As of December 31,
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 $1,746,000 or 1.94% of total assets, compared to
$1,443,000 or 1.61% of total assets as of June 30, 2001. As of December 31,
2001, the Company's allowance for losses on loans was $399,000, representing
22.8% of non-performing assets and .60% of net loans receivable, compared to
allowance for losses on loans at June 30, 2001 of $369,000, representing 25.6%
of non- performing assets and .56% 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 toward reserve levels,
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.


NON-INTEREST INCOME

Non-interest income increased to $208,000 and $411,000 for the three and six
month periods ended December 31, 2001, respectively, compared to $141,000 and
$258,000 for the periods ended December 31, 2000. The increase for the three
month period ended December 31, 2001 was attributable to a $37,000 increase in
fees, commissions, and service charges collected and a $30,000 increase in gain
on sale of securities, net. For the six month period the increase was
attributable to a $57,000 increase in fees, commissions, and service charges
collected and a $96,000 increase in gain on sale of securities, net.


NON-INTEREST EXPENSE

Total non-interest expense was $552,600 and $1.1 million for the three and six
month periods ended December 31, 2001, respectively, compared to $559,600 and
$1.1 million for the same periods in 2000. Compensation and employee benefits
expenses, the largest component of non-interest expense, increased $34,600 and
$32,300 for the three and six month periods ended December 31, 2001 as compared
to the same period ended December 31, 2000. Offsetting these increases were
decreases in advertising, office property and equipment and other operating
expense for both periods being compared.


TAXES ON INCOME

Income taxes increased $144,000 for the three month period ended December 31,
2001 as compared to the same period ended December 31, 2000, and $176,000 for
the comparable six month periods. The income tax increases for the periods are
the result of increased earnings before taxes on income. The effective tax rate
for the three month period ended December 31, 2001 was 33.8% compared to 16.2%

                                      -11-

<PAGE>



for the same period ended 2000. For the six month period ended December 31,
2001, the effective tax rate was 33.4% compared to 31.7% for the same period in
fiscal 2000.


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 Bank has historically maintained its liquidity ratio at, or above, the level
needed to meet its operational needs. The Bank's liquidity ratio was 12.80% on
December 31, 2001 and 10.35% on June 30, 2001.

At December 31, 2001, the Company had advances of $6.6 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. At December 31, 2001, the Company
had outstanding commitments to extend credit which amounted to $3,287,000
(including $998,000 in available revolving commercial lines of credit). At
December 31, 2001, certificates of deposit scheduled to mature in one year or
less totaled $24.5 million. 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 December 31, 2001, the Bank had tangible and core capital of $6.8 million, or
7.7% of adjusted total assets, which was approximately $5.4 million and $3.2
million above the minimum requirements of 1.5% and 4.0%, respectively, of the
adjusted total assets in effect on that date. At December 31, 2001, the Bank had
risk-based capital of $7.1 million (including $6.8 million in core capital), or
12.4% of risk- weighted assets of $57.3 million. This amount was $2.5 million
above the 8.0% requirement in effect on that date. The bank is considered to be
well-capitalized.


                                      -12-

<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

                    (a)  Annual meeting date:  October 25, 2001
                    (b)  Not required
                    (c)  The matters approved by stockholders at the Meeting and
                         number of votes cast for, against or withheld (as well
                         as the number of abstentions and broker non-votes, if
                         any) as to each matter are set forth below:

<TABLE>
<CAPTION>
                         Proposal                                       Number of Votes
                                                                 For                      Withheld
Election of the following directors for a three year term:

<S>                                                            <C>          <C>            <C>
               1) Dwight L. Groves                             680,651                      5,800
               2) Norman P. Zimmerman                          680,951                      5,500

                                                                 For        Against        Abstain
Ratification of the appointment of KPMG LLP
as the Company's auditors for the                              685,733        500            218
fiscal year ending June 30, 2002

</TABLE>

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 December 31, 2001:

                     On October 17, 2001, current report on Form 8-K was filed
                     to announce the Company's earnings for the quarter ended
                     September 30, 2001.


                                      -13-

<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: February 06, 2002             /s/ Robert W. DeCook
      -----------------            -------------------------------------
                                   Robert W. DeCook
                                   President and Chief Executive Officer




Date: February 06, 2002            /s/ Vicki Hladik
      -----------------            -------------------------------------
                                   Vicki Hladik
                                   Chief Financial Officer



                                      -14-

<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)




                                      -15-