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 March 31, 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)

                                  (515) 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
<PAGE>
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

               Common Stock                                863,962
               ------------                         ---------------------
                  Class                               Shares Outstanding
                                                      as of May 9, 2000

Transitional Small Business Disclosure Format (check one):
Yes  [   ]:  No  [  X ]
<PAGE>
             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

                                      INDEX


Part I. Financial Information                                               Page
                                                                            ----

         Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheets at March 31, 2000 and June 30, 1999.      1

         Consolidated Statements of Operations for the three months and        2
         nine months ended March 31, 2000 and 1999

         Consolidated Statements of Comprehensive Income for the three months  3
         and nine months ended March 31, 2000 and 1999.

         Consolidated Statements of Cash Flows for the nine months ended       4
         March 31, 2000 and 1999.

         Notes to Consolidated Financial Statements                            5

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


Part II. Other Information                                                    13

         Signatures                                                           14

         Index of Exhibits                                                    15

         Financial Data Schedule                                              16



<PAGE>
                                     PART I

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                  HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                                Consolidated Balance Sheets

                                                                March 31,        June 30,
Assets                                                           2000              1999
------                                                       ------------      ------------
                                                               (Unaudited)
<S>                                                          <C>               <C>
Cash and cash equivalents ..............................     $  3,368,456      $  7,917,020
Securities available-for-sale ..........................       15,954,338        17,096,985
Loans receivable, net ..................................       59,995,185        56,066,399
Real estate ............................................          257,306           270,779
Stock in Federal Home Loan Bank, at cost ...............          702,500         1,202,500
Office property and equipment, net .....................        1,041,723         1,089,053
Accrued interest receivable ............................          534,818           522,121
Deferred tax asset .....................................          247,399           254,000
Income tax receivable ..................................            - - -           522,699
Prepaid expenses and other assets ......................          118,723            81,646
                                                             ------------      ------------

     Total assets ......................................     $ 82,220,448      $ 85,023,202
                                                             ------------      ============

Liabilities and Stockholders' Equity
Deposits ...............................................     $ 61,730,401      $ 59,576,232
Advances from Federal Home Loan Bank ...................       11,537,695        16,606,176
Advance payments by borrowers for taxes and insurance ..          300,439           399,830
Accrued income taxes ...................................          116,950             - - -
Accrued expenses and other liabilities .................          376,468           380,617
                                                             ------------      ------------

     Total liabilities .................................       74,061,953        76,962,855
                                                             ------------      ------------

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 .............................        5,016,961         4,996,761
Retained earnings, substantially restricted ............        5,009,833         4,804,455
Treasury stock, at cost ................................       (1,307,635)       (1,229,571)
Unearned employee stock ownership plan shares ..........          (20,571)          (65,503)
Unrealized losses on securities available for sale .....         (550,555)         (456,257)
                                                             ------------      ------------

     Total stockholders' equity ........................        8,158,495         8,060,347
                                                             ------------      ------------

Total liabilities and stockholders' equity .............     $ 82,220,448      $ 85,023,202
                                                             ============      ============
</TABLE>

See Notes to Consolidated Financial Statements

                                       -1-
<PAGE>
<TABLE>
<CAPTION>
                               HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                                        Consolidated Statements of Operations

                                                                Three Months                      Nine months
                                                               Ended March 31,                  Ended March 31,
                                                            2000           1999             2000             1999
                                                        -----------     -----------     -----------      -----------
                                                                 (Unaudited)                      (Unaudited)
<S>                                                     <C>             <C>             <C>              <C>
Interest income:
Interest on loans .................................     $ 1,214,893     $ 1,119,010     $ 3,579,404      $ 3,457,169
Interest on securities available for sale .........         271,522         315,754         806,415        1,068,102
Other investment income ...........................          48,153          47,855         224,993          166,964
                                                        -----------     -----------     -----------      -----------
Total interest income .............................       1,534,568       1,482,619       4,610,812        4,692,235
                                                        -----------     -----------     -----------      -----------

Interest expense:
Interest on deposits ..............................         686,224         626,453       1,993,544        1,987,454
Interest on advances and other borrowing ..........         165,697         255,312         577,591          774,694
                                                        -----------     -----------     -----------      -----------

Total interest expense ............................         851,921         881,765       2,571,135        2,762,148
                                                        -----------     -----------     -----------      -----------

Net interest income ...............................         682,647         600,854       2,039,677        1,930,087

Provision for losses on loans .....................          24,000          24,000          72,000           72,000
                                                        -----------     -----------     -----------      -----------
Net interest income after provision for
losses on loans ...................................         658,647         576,854       1,967,677        1,858,087
                                                        -----------     -----------     -----------      -----------
Non-interest income:
Fees, commissions and service charges .............         119,215         131,210         350,535          374,095
Profit (loss) on securities available for sale, net           - - -           6,831        (225,101)      (1,597,293)
Other .............................................             250           - - -             250            8,573
                                                        -----------     -----------     -----------      -----------

Total non-interest income (loss) ..................         119,465         138,041         125,684       (1,214,625)
                                                        -----------     -----------     -----------      -----------

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                     <C>             <C>             <C>              <C>
Non-interest expense:
Compensation, payroll taxes and
  employee benefits ...............................         289,706         308,923         866,947          924,313
Advertising .......................................          23,287          20,151          78,491           46,104
Office property and equipment .....................          73,168          91,963         230,926          238,397
Federal insurance premiums ........................           7,561          13,114          33,698           31,062
Data processing services ..........................          44,390          40,227         125,084          112,503
Other real estate expense, net ....................           8,593           4,935          13,318            6,005
Other .............................................          75,885          56,796         268,529          202,253
                                                        -----------     -----------     -----------      -----------

Total non-interest expense ........................         522,590         536,109       1,616,993        1,560,637
                                                        -----------     -----------     -----------      -----------

Earnings (loss) before taxes on income ............         255,522         178,786         476,368         (917,175)

Taxes on income (benefit) .........................          87,300          62,342         155,000         (341,658)
                                                        -----------     -----------     -----------      -----------

Net earnings (loss) ...............................     $   168,222     $   116,444     $   321,368      $  (575,517)
                                                        ===========     ===========     ===========      ===========
     Earnings (loss) per common share
       Basic ......................................     $      0.20     $      0.14     $      0.37      ($     0.67)
       Diluted ....................................     $      0.19     $      0.13     $      0.37      ($     0.67)
</TABLE>
See Notes to Consolidated Financial Statements


                                       -2-

<PAGE>
<TABLE>
<CAPTION>
                                  HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                                      Consolidated Statements of Comprehensive Income

                                                                     Three Months Ended              Nine Months Ended
                                                                          March 31,                      March 31,
                                                                     2000           1999           2000            1999
                                                                   ---------      ---------      ---------      ---------
                                                                           (Unaudited)                  (Unaudited)
<S>                                                                <C>            <C>            <C>            <C>
Net income (loss) ............................................     $ 168,222      $ 116,444      $ 321,368      ($575,517)

Other Comprehensive Income:
   Unrealized gains (losses) on securities available for sale:
      Unrealized holding gains (losses) arising
         during the period, net of tax .......................      (112,607)       318,576       (296,442)      (976,648)
   Less: reclassification adjustment for net (gains) losses
         included in net income, net of tax ..................         - - -        (23,324)       202,144        780,947
                                                                   ---------      ---------      ---------      ---------

Other comprehensive income, net of tax .......................      (112,607)       295,252        (94,298)      (195,701)
                                                                   ---------      ---------      ---------      ---------


Comprehensive income .........................................     $  55,615      $ 411,696      $ 227,070      ($771,218)
                                                                   ---------      ---------      ---------      ---------

</TABLE>


                                       -3-

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

                                                                                Nine months ended
                                                                                    March 31,
                                                                             2000             1999
                                                                         -----------      -----------
                                                                                   (Unaudited)
<S>                                                                      <C>                 <C>
Cash flows from operating activities:
Net earnings (loss) ................................................     $   321,368         (575,517)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
   Depreciation ....................................................          92,761           93,288
   Amortization of fees, premiums and accretion of discounts, net ..         (37,719)        (207,155)
   Provision for losses on loans ...................................          72,000           72,000
   Loans originated for sale .......................................      (2,384,620)      (7,376,223)
   Proceeds on sales of loans ......................................       3,193,213        7,641,255
   Loss on sale of securities ......................................         225,101        1,587,646
   Gain on sale of fixed assets ....................................           - - -           (8,364)
   (Increase) decrease in accrued interest receivable ..............         (12,697)          78,677
   Increase (decrease) in accrued taxes payable and deferred taxes .         699,979         (571,481)
   Amortization of stock compensation plans ........................          44,932           59,631
   Other, net ......................................................          (7,553)        (400,903)
                                                                         -----------      -----------

Net cash provided by operating activities ..........................       2,206,765          392,854
                                                                         -----------      -----------
Cash flows from investing activities:
   Principal collected on securities available for sale ............         890,742        4,072,087
   Proceeds from sale of securities available for sale .............       4,040,867        3,301,821
   Purchase of securities available for sale .......................      (4,124,371)      (6,021,639)
   Purchase of investment real estate ..............................           - - -         (100,000)
   Loans to customers, net .........................................      (4,809,379)       1,054,790
   Proceeds from sale of Federal Home Loan Bank stock ..............         500,000            - - -
   Proceeds from sale of fixed asset ...............................           - - -            9,844
   Purchase of office property and equipment, net ..................         (45,431)         (80,653)
                                                                         -----------      -----------

Net cash (used in) provided by investing activities ................      (3,547,572)       2,236,250
                                                                         -----------      -----------
Cash flows from financing activities:
   Increase (decrease) in customer deposit accounts, net ...........       2,154,169       (3,211,390)
   Decrease in advance payments by borrowers for taxes and insurance         (99,391)        (112,979)
   Proceeds from advances from FHLB ................................           - - -        6,650,000
   Principal payments on advances from FHLB ........................      (5,068,481)      (6,059,825)
   Net proceeds from options exercised .............................           - - -              659
   Treasury stock acquired .........................................         (78,064)           - - -
   Payment of dividends ............................................        (115,990)        (115,636)
                                                                         -----------      -----------

Net cash used in financing activities ..............................      (3,207,757)      (2,849,171)
                                                                         -----------      -----------

Net decrease in cash and cash equivalents ..........................      (4,548,564)        (220,067)
Cash and cash equivalents at beginning of year .....................       7,917,020        6,366,619
                                                                         -----------      -----------
Cash and cash equivalents at end of year ...........................     $ 3,368,456        6,146,552
                                                                         ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                      <C>                 <C>
Supplemental disclosures of cash flow information:
   Cash paid for interest ..........................................     $ 2,615,893        2,909,324
   Cash paid for taxes .............................................          70,885          369,685
                                                                         ===========      ===========


To mark assets available for sale to fair value:
   Change in fair value ............................................     $   148,027      $   312,139
   Less deferred taxes .............................................         (53,729)        (116,438)
                                                                         -----------      -----------
   Change in valuation allowance ...................................     $   (94,298)     $  (195,701)
                                                                         ===========      ===========
</TABLE>

                                       -4-

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     HORIZON FINANCIAL SERVICES CORPORATION


1.  BASIS OF PRESENTATION

The consolidated  financial statements for the three and nine months ended March
31,  2000 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 March
31,  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,  1999.  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 following provides a reconciliation of the amounts used in the determination
of basic and  diluted  earnings  per share for the three and nine month  periods
ended March 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                             3 Months        3 Months       9 Months        9 Months
                                                               Ended           Ended          Ended           Ended
                                                             3/31/00         3/31/99        3/31/00         3/31/99
                                                             ---------      ---------      ---------      ---------
<S>                                                          <C>            <C>            <C>            <C>
Net Earnings ...........................................     $ 168,222      $ 116,444      $ 321,368      ($575,517)
                                                             =========      =========      =========      =========


Basic earnings per share:
      Weighted average shares outstanding ..............       864,379        880,062        870,548        880,016

      Less unearned employee stock ownership plan shares        (6,215)       (17,240)        (8,823)       (20,282)
                                                             ---------      ---------      ---------      ---------

Weighted average number of common shares outstanding ...       858,164        862,822        861,725        859,734
                                                             =========      =========      =========      =========

Earnings (loss) per common share - basic ...............     $    0.20      $    0.14      $    0.37      ($   0.67)
                                                             =========      =========      =========      =========

Diluted earnings per share:
      Weighted average shares outstanding ..............       864,379        880,062        870,548        880,016

      Less unearned employee stock ownership plan shares        (6,215)       (17,240)        (8,823)       (20,282)

      Assumed incremental option shares
         using the treasury stock method ...............         7,861         21,746         10,684          - - -
                                                             ---------      ---------      ---------      ---------

Common and common equivalent shares outstanding ........       866,025        884,568        872,409        859,734
                                                             =========      =========      =========      =========

Earnings (loss) per common share - diluted .............     $    0.19      $    0.13      $    0.37      ($   0.67)
                                                             =========      =========      =========      =========

</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.

Some local  economic  conditions  in the Bank's market have  weakened.  The farm
economy had been strong but has now softened.  As a result of an  over-supply of
grain, farm prices for grain and livestock,  which are currently depressed,  may
continue  to  remain  depressed.  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  the
balance or quality  of its loan  portfolio,  which  could  adversely  affect the
financial condition and results of operations of the Company and the Bank.
<PAGE>
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;
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 March 31, 2000 of $82.2 million  decreased  $2.8
million,  or  3.30%,  from  $85.0  million  at June  30,  1999.  Cash  and  cash
equivalents  decreased  $4.5  million , or  57.45%,  due to  repayments  made on
Federal Home Loan Bank  advances.  Securities  available for sale decreased $1.1
million  primarily as a result of  principal  payments  and  prepayments  on the
securities.  Income  tax  receivable  and  stock in the  Federal  Home Loan Bank
decreased  $523,000  and  $500,000,  respectively.   Partially  offsetting  this
decrease was an increase in loans receivable of $3.9 million.
<PAGE>
Total  liabilities  decreased $2.9 million,  or 3.77%, to $74.1 million at March
31, 2000 from $77.0 million at June 30, 1999,  primarily as a result of advances
from the Federal Home Loan Bank decreasing $5.1 million,  or 30.52%,  from $16.6
million at June 30, 1999 to $11.5 million at March 31, 2000.  Deposits increased
$2.1 million,  or 3.62% to $61.7 million at March 31, 2000 from $59.6 million at
June 30, 1999. 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 and nine month periods ended March 31, 2000 and March
31, 1999

GENERAL
-------

Net  earnings for the three  months  ended March 31, 2000  increased  $52,000 to
$168,000 from $116,000 for the three month period ended March 31, 1999.  For the
nine months ended March 31, 2000,  net earnings  increased  $897,000 to $321,000
from  ($576,000) for the  comparable  period in 1999. The increase for the three
month  period  ended March 31, 2000  compared to the same period ended March 31,
1999 was due  primarily to increased net interest  income.  The increase for the
nine month period  ended March 31, 2000  compared to the same period ended March
31, 1999 was primarily attributable to a significant decrease in losses on sales
of securities.

INTEREST INCOME
---------------

Interest income increased $52,000 to $1,535,000 for the three month period ended
March 31, 2000 compared to $1,483,000 for the three month period ended March 31,
1999 and decreased  $81,000 to $4,611,000  for the nine month period ended March
31, 2000 compared to $4,692,000 for the comparable  period ended March 31, 1999.
The  increase  for the three  month  period  ended  March 31, 2000 was due to an
increase in the weighted  average  yield on average  interest-earning  assets to
7.75% from 7.48% for the same period in 1999.  The  decrease  for the nine month
period was primarily due to a decrease in the weighted  average yield on average
interest-earning  assets to 7.66% for the nine months  ended March 31, 2000 from
7.75% for the same period in 1999. Also contributing,  to a lesser degree, was a
reduction in the average  interest-earning assets of approximately $460,000. The
decrease in average interest earning assets is due to managements  decision,  at
the current time,  not to invest in  lower-yielding  mortgage-backed  securities
with leveraged FHLB advances.

INTEREST EXPENSE
----------------

Interest expense decreased $30,000 to $852,000 from $882,000 for the three month
period and  $191,000 to  $2,571,000  from  $2,762,000  for the nine month period
ended March 31, 2000 as compared to the same  periods in 1999.  The  decrease in
interest  expense for the nine month period was primarily due to the decrease in
the average outstanding balance of interest-bearing  liabilities of $3.0 million
to $74.5  million at March 31,  2000 from $77.5  million  at March 31,  1999.  A
decrease in the weighted average interest rate paid on average  interest-bearing
liabilities  of 15 basis  points to 4.60% at March 31, 2000 as compared to 4.75%
for the same nine month period in 1999, also contributed to the interest expense
reduction.

                                       -9-
<PAGE>
NET INTEREST INCOME
-------------------

Net interest  income was $683,000 and $2.0 million for the three months and nine
months ended March 31, 2000, respectively, compared to $601,000 and $1.9 million
for the comparable  periods in 1999. The Company's net interest margin increased
6 basis  points to 3.06%  for the nine  month  period  ended  March 31,  2000 as
compared to 3.00% for the same period in 1999.

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 $72,000 for the nine month periods ended March
31, 2000 and 1999. As of March 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 $1,007,000 or 1.23% of
total  assets,  compared to  $1,160,000  or 1.36% of total assets as of June 30,
1999.  As of March 31, 2000,  the  Company's  allowance  for losses on loans was
$373,000,  representing  37.0% of  non-performing  assets  and .62% 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.
Because the Company has  historically  experienced  low loan losses,  management
also considers the loss experience of similar  portfolios in comparable  lending
markets.  In addition,  federal regulators may require additional  reserves as a
result of their examination of the Company.  Accordingly, the calculation of the
adequacy of the allowance for losses on loans is not based directly on the level
of  non-performing  assets.  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 decreased to $119,000 and increased to $126,000 for the three
and nine months  ended March  31,2000,  respectively,  compared to $138,000  and
($1,215,000)  for the same periods  ended March 31,  1999.  The decrease for the
three month period ended March 31, 2000 was primarily  attributable to a $12,000
decrease in fees,  commissions  and service charges as a result of the reduction
in fees  collected on loans  originated  for sale in the secondary  market.  The
increase in  noninterest  income for the nine month  period ended March 31, 2000
was  attributable  to a $225,000 loss on assets  available for sale at March 31,
2000 as compared to a $1.6  million loss on assets  available  for sale at March
31, 1999. The loss  recognized on securities  during the nine month period ended
in  1999  was  the  result  of a  $1.5  million  write  down  on  interest  only
mortgage-backed  securities  resulting  from a decline  in fair  value  that was
judged  to be  other  than  temporary.  The  Company  completed  the sale of its
remaining high interest rate sensitive, interest only mortgage-backed securities
during the period ended September 30, 1999.

                                      -10-
<PAGE>
NONINTEREST EXPENSE
-------------------

Total  noninterest  expense was $522,000 and  $1,617,000  for the three and nine
months ended March 31, 2000,  respectively,  compared to $536,000 and $1,561,000
for the same  periods  in 1999,  reflecting  a  $14,000  decrease  and a $56,000
increase,  respectively.  Other  expense  increased  $19,000 and $66,000 for the
three and nine month periods ended March 31, 2000, respectively, compared to the
same period  during  1999.  The  increase  for the nine month  period was due to
increased audit and accounting expense,  legal fees and other operating expense.
Included in other operating  expense was a $4,500 sinking fund assessment to the
State of Iowa for losses incurred by an Iowa bank for public funds.  Advertising
expense increased $3,000 and $32,000 and office property and equipment decreased
$19,000 and $7,000 for the three and nine month  periods  ended March 31,  2000,
respectively, compared to the same period during 1999. Compensation and employee
benefits  expense,  the largest  component  of  noninterest  expense,  decreased
$19,000 and $57,000 for the three and nine month  periods  ended March 31, 2000,
respectively, compared to the same period during 1999.

TAXES ON INCOME
---------------

Income taxes increased $25,000 and $497,000 for the three and nine month periods
ended March 31, 2000,  respectively,  primarily as a result of the  increases in
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
7.01% on March 31, 2000 and 11.49% on June 30, 1999.

At March 31, 2000,  the Company had  advances of $11.5  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 from loan
repayments, loan sales, and from its ability to borrow additional funds from the

<PAGE>

FHLB of Des Moines.  At March 31, 2000, the Company had outstanding  commitments
to extend  credit  which  amounted  to  $4,118,000  (including  $1.2  million in
available revolving commercial lines of credit). At March 31, 2000, certificates
of  deposit  scheduled  to mature  in one year or less  totaled  $19.0  million.
Management believes, based on its experience to date, that a significant portion
of these funds will remain with the Company.


                                      -11-

<PAGE>
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 March 31, 2000,  the Bank had tangible and core capital of $6.1  million,  or
7.6% of adjusted  total assets,  which was  approximately  $4.9 million and $2.9
million above the minimum  requirements of 1.5% and 4.0%,  respectively,  of the
adjusted  total assets in effect on that date.  At March 31, 2000,  the Bank had
risk-based capital of $6.5 million (including $6.1 million in core capital),  or
13.2% of risk- weighted  assets of $49.1  million.  This amount was $2.6 million
above the 8.0% requirement in effect on that date.

YEAR 2000
---------

Management  and the Board of Directors  were  committed to achieving the goal of
Y2K  readiness.  The Bank incurred no problems when the staff tested all systems
on January 1, 2000 and has experienced no Y2K problems with our mission critical
systems or our non-information system providers.

                                      -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
               ---------------------------------------------------

               None

ITEM 5.        Other Information
               -----------------

               None

ITEM 6.        Exhibits and Reports on Form 8-K.
               ---------------------------------

               (a)   Exhibits:
                     See Index to Exhibits

               (b)   Reports on Form 8-K:
                     No reports on Form 8-K were filed during the quarter  ended
                     March 31, 2000.


                                      -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: May 9,2000                /s/ Robert W. DeCook
                                ----------------
                                Robert W. DeCook
                                President and Chief Executive Officer




Date: May 9, 2000               /s/ Sharon McCrea
                                ------------------
                                Sharon McCrea
                                Vice President and 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)

     27    Financial Data Schedule (electronic filing only)


                                      -15-