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, 2000
                               -------------------------------------------------

                                       or

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

For the transition period from                        to
                               ----------------------    -----------------------

Commission File Number:                      0-24036
                        --------------------------------------------------------

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter  period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days. [X] YES [_] NO

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

    Common Stock                                          751,462
  ------------------                         -------------------------------
       Class                                       Shares Outstanding
                                                 as of December 31, 2000

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


<PAGE>


             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>
<S>                                                                                      <C>
Part I.  Financial Information                                                           Page
                                                                                         ----

          Item 1.  Financial Statements (Unaudited)

          Consolidated Balance Sheets at December 3l, 2000 and June 30, 2000.              1

          Consolidated Statements of Operations for the three months and                   2
          six months ended December 31, 2000 and 1999

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

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

          Notes to Consolidated Financial Statements                                       5

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


Part II.  Other Information                                                               13

          Signatures                                                                      14

          Index of Exhibits                                                               15

          Financial Data Schedule                                                         16
</TABLE>


<PAGE>

                                     PART I

ITEM 1.  FINANCIAL STATEMENTS
         --------------------

             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                    December 31,          June 30,
Assets                                                                 2000                 2000
------                                                             --------------      --------------
                                                                    (Unaudited)
<S>                                                                <C>                 <C>
Cash and cash equivalents                                          $    2,636,428      $   1,981,511
Securities available-for-sale                                          14,675,565         15,670,119
Loans receivable, net                                                  65,666,086         62,417,395
Real estate                                                               246,339            248,951
Stock in Federal Home Loan Bank, at cost                                  702,500            702,500
Office property and equipment, net                                      1,297,090          1,049,821
Accrued interest receivable                                               620,966            602,765
Deferred tax asset                                                        215,900            380,300
Prepaid expenses and other assets                                          60,629            130,718
                                                                   --------------      -------------

     Total assets                                                  $   86,121,503      $  83,184,080
                                                                   ==============      =============

Liabilities and Stockholders' Equity
------------------------------------
Deposits                                                           $   67,994,399      $  64,761,224
Advances from Federal Home Loan Bank                                    9,703,976          9,014,199
Advance payments by borrowers for taxes and insurance                     171,098            410,555
Accrued income taxes                                                      118,863            201,950
Accrued expenses and other liabilities                                    230,358            530,145
                                                                   --------------      -------------

     Total liabilities                                                 78,218,694         74,918,073
                                                                   --------------      -------------

Stockholders' equity
--------------------
Preferred stock, $.01 par value, authorized 250,000
     shares, none issued                                                     ---                 ---
Common stock, $.01 par value, 1,500,000 shares
     authorized, issued and outstanding 1,046,198 shares                   10,462             10,462
Additional paid-in capital                                              5,022,511          5,020,361
Retained earnings, substantially restricted                             5,270,286          5,135,636
Treasury stock, at cost, 294,736 shares                                (2,129,894)        (1,314,197)
Unearned employee stock ownership plan shares                                 ---             (5,593)
Unrealized losses on securities available for sale                       (270,556)          (580,662)
                                                                   --------------      -------------

     Total stockholders' equity                                         7,902,809          8,266,007
                                                                   --------------      -------------

Total liabilities and stockholders' equity                         $   86,121,503      $  83,184,080
                                                                   ==============      =============
</TABLE>

See Notes to Consolidated Financial Statements

                                       -1-

<PAGE>

             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                                                        Three Months                       Six months
                                                                      Ended December 31,                Ended December 31,
                                                                    2000             1999            2000              1999
                                                                    ----             ----            ----              ----
                                                                         (Unaudited)                       (Unaudited)
Interest income:
<S>                                                             <C>              <C>              <C>              <C>
Interest on loans                                               $ 1,357,669      $ 1,184,531      $ 2,714,832      $ 2,364,511
Interest on securities available for sale                           231,876          262,828          489,015          534,893
Other investment income                                              18,487           80,234           36,360          176,840
                                                                -----------      -----------      -----------      -----------
Total interest income                                             1,608,032        1,527,593        3,240,207        3,076,244
                                                                -----------      -----------      -----------      -----------

Interest expense:
Interest on deposits                                                851,972          660,225        1,658,988        1,307,320
Interest on advances and other borrowing                            145,474          196,871          285,054          411,894
                                                                -----------      -----------      -----------      -----------

Total interest expense                                              997,446          857,096        1,944,042        1,719,214
                                                                -----------      -----------      -----------      -----------

Net interest income                                                 610,586          670,497        1,296,165        1,357,030

Provision for losses on loans                                       141,247           24,000          165,247           48,000
                                                                -----------      -----------      -----------      -----------

Net interest income after provision for
  losses on loans                                                   469,339          646,497        1,130,918        1,309,030
                                                                -----------      -----------      -----------      -----------
Non-interest income:
Fees, commissions and service charges                               132,602          112,696          286,382          231,320
Gain (loss) on securities available for sale, net                     8,144            8,205          (28,206)        (225,101)
                                                                -----------      -----------      -----------      -----------

Total non-interest income                                           140,746          120,901          258,176            6,219
                                                                -----------      -----------      -----------      -----------

Non-interest expense:
Compensation, payroll taxes and
  employee benefits                                                 275,379          287,593          573,947          577,241
Advertising                                                          20,849           27,426           35,250           55,204
Office property and equipment                                        73,990           78,352          158,775          157,758
Federal insurance premiums                                            8,156           13,508           16,049           26,137
Data processing services                                             44,035           41,818           86,750           80,694
Other real estate expense, net                                          873            2,166            3,319            4,725
Other                                                               136,330          104,934          212,839          192,644
                                                                -----------      -----------      -----------      -----------

Total non-interest expense                                          559,612          555,797        1,086,929        1,094,403
                                                                -----------      -----------      -----------      -----------

Earnings before taxes on income                                      50,473          211,601          302,165          220,846

Taxes on income                                                       8,200           64,200           95,700           67,700
                                                                -----------      -----------      -----------      -----------

Net earnings                                                    $    42,273      $   147,401      $   206,465      $   153,146
                                                                ===========      ===========      ===========      ===========


     Earnings per common share
       Basic                                                          $0.05            $0.17            $0.25            $0.18
       Diluted                                                        $0.05            $0.17            $0.25            $0.17
</TABLE>

See Notes to Consolidated Financial Statements

                                       -2-

<PAGE>

             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
                                                                       Three Months Ended             Six Months Ended
                                                                          December 31,                  December 31,
                                                                     2000             1999          2000            1999
                                                                     ----             ----          ----            ----
                                                                           (Unaudited)                    (Unaudited)
<S>                                                               <C>             <C>            <C>            <C>
Net income                                                        $    42,273     $   147,401    $   206,465    $  153,146

Other Comprehensive Income:
   Unrealized gains (losses) on securities available for sale:
      Unrealized holding gains (losses) arising
         during the period, net of tax                                157,985         (67,192)       275,921      (183,835)
   Less: reclassification adjustment for net (gains) losses
         included in net income, net of tax                             1,159           8,025         34,185       202,144
                                                                  -----------     -----------    -----------    ----------

Other comprehensive income (loss), net of tax                         159,144         (59,167)       310,106        18,309
                                                                  -----------     -----------    -----------    ----------


Comprehensive income                                              $   201,417     $    88,234    $   516,571    $  171,455
                                                                  -----------     -----------    -----------    ----------
</TABLE>


See Notes to Consolidated Financial Statements

                                       -3-

<PAGE>

             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                      Six months ended
                                                                                         December 31,
                                                                                    2000              1999
                                                                                    ----              ----
                                                                                         (Unaudited)
Cash flows from operating activities:
<S>                                                                          <C>                 <C>
Net earnings                                                                 $      206,465      $     153,146
Adjustments to reconcile net earnings to net cash provided
by operating activities:
   Depreciation                                                                      58,671             61,842
   Amortization of fees, premiums and accretion of discounts, net                   (70,679)           (35,603)
   Provision for losses on loans                                                    165,247             48,000
   Loans originated for sale                                                     (1,220,650)        (1,647,520)
   Proceeds on sales of loans                                                       711,425          2,439,613
   Loss on sale of securities                                                        28,206            225,101
   (Increase) decrease in accrued interest receivable                               (18,201)             3,863
   (Decrease) increase in accrued taxes payable and deferred taxes                  (83,087)           209,916
   Amortization of stock compensation plans                                           5,593             29,433
   Other, net                                                                      (224,976)          (225,291)
                                                                             ---------------     --------------

Net cash (used in) provided by operating activities                                (441,986)         1,262,500
                                                                             ---------------     --------------

Cash flows from investing activities:

   Principal collected on securities available for sale                             617,479            685,277
   Proceeds from sale of securities available for sale                            1,126,840          4,040,868
   Purchase of securities available for sale                                       (232,786)        (4,063,674)
   Loans to customers, net                                                       (2,904,713)        (2,884,558)
   Purchase of office property and equipment, net                                  (305,900)           (10,945)
                                                                             ---------------     --------------

Net cash used in investing activities                                            (1,699,080)        (2,233,032)
                                                                             ---------------     --------------

Cash flows from financing activities:

   Increase in customer deposit accounts, net                                     3,233,175          1,330,161
   Decrease in advance payments by borrowers for taxes and insurance               (239,457)          (202,849)
   Proceeds from advances from FHLB                                               1,500,000            - - -
   Principal payments on advances from FHLB                                        (810,223)        (4,045,322)
   Treasury stock acquired                                                         (815,697)           (64,064)
   Payment of cash dividends                                                        (71,815)           (77,629)
                                                                             ---------------     --------------

Net cash provided by (used in) financing activities                               2,795,983         (3,059,703)
                                                                             ---------------     --------------

Net increase (decrease) in cash and cash equivalents                                654,917         (4,030,235)
Cash and cash equivalents at beginning of period                                  1,981,511          7,917,020
                                                                             ---------------     --------------
Cash and cash equivalents at end of period                                   $    2,636,428      $   3,886,785
                                                                             ===============     ==============

Supplemental disclosures of cash flow information:

   Cash paid for interest                                                    $    2,254,230      $   1,933,245
   Cash paid for taxes                                                       $      129,967      $       2,985
                                                                             ===============     ==============
</TABLE>


See Notes to Consolidated Financial Statements

                                       -4-

<PAGE>

                     HORIZON FINANCIAL SERVICES CORPORATION

                   Notes to Consolidated Financial Statements

1.  BASIS OF PRESENTATION

The  consolidated  financial  statements  for the  three  and six  months  ended
December  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 December  31, 2000 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,  2000.  The  results  of the  periods  presented  are not
necessarily representative of the results of operations and cash flows which may
be expected for the entire year.

2.  ORGANIZATION

The Company was organized as a Delaware  corporation at the direction of Horizon
Federal  Savings  Bank (the  "Bank") for the purpose of becoming a savings  bank
holding company, as part of the conversion from a mutual to a stock institution.
The  conversion  was  completed  on June  28,  1994  with  the  sale of  506,017
(pre-split) 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 six month  periods
ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                  3 Months    3 Months      6 Months      6 Months
                                                                   Ended       Ended         Ended         Ended
                                                                  12/31/00    12/31/99      12/31/00      12/31/99
                                                                 ----------  ----------    ----------    ----------
<S>                                                              <C>         <C>           <C>           <C>
Net Earnings                                                     $  42,273   $ 147,401     $ 206,465     $ 153,146
                                                                 ==========  ==========    ==========    ==========

Basic earnings per share:
      Weighted average common shares outstanding                   806,875     872,203       829,493       873,633

      Less unearned employee stock ownership plan shares                 0      (8,784)         (472)      (10,127)
                                                                 ----------  ----------    ----------    ----------

Weighted average number of common shares outstanding               806,875     863,419       829,021       863,506
                                                                 ==========  ==========    ==========    ==========

Earnings per common share - basic                                $    0.05   $    0.17     $    0.25     $    0.18
                                                                 ==========  ==========    ==========    ==========


Diluted earnings per share:
      Weighted average shares outstanding                          806,875     872,203       829,493       873,633

      Less unearned employee stock ownership plan shares                 0      (8,784)         (472)      (10,127)
      Assumed incremental option shares
         using the treasury stock method                             5,213      10,276         7,392        12,096
                                                                 ----------  ----------    ----------    ----------

Common and common equivalent shares outstanding                    812,088     873,695       836,413       875,602
                                                                 ==========  ==========    ==========    ==========


Earnings per common share - diluted                              $    0.05   $    0.17     $    0.25     $    0.17
                                                                 ==========  ==========    ==========    ==========
</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  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 declining  slightly as home
sales are still  fairly  active but below last year's  level.  As a result of an
over-supply of grain,  farm prices for grain and livestock,  which are currently
depressed, may continue to remain depressed and drop further affecting the local
economy.  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.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

                                       -7-

<PAGE>

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

o    the  strength of the United  States  economy in general and the strength of
     the  local  economies  in which  the  Company  and the Bank  conduct  their
     operations;

o    the effects of, and changes in,  trade,  monetary  and fiscal  policies and
     laws,  including  interest  rate  policies  of the Federal  Reserve  Board,
     inflation, interest rate, market and monetary fluctuations;

o    the timely  development  of and  acceptance of new products and services of
     the Bank and the perceived  overall value of these products and services by
     users, including the features, pricing and quality compared to competitors'
     products and services;

o    the willingness of users to substitute  competitors'  products and services
     for the Bank's products and services;

o    the success of the Bank in gaining regulatory  approval of its products and
     services, when required;

o    the  impact  of  changes  in  financial   services'  laws  and  regulations
     (including laws concerning  taxes,  banking,  securities and insurance);

o    technological changes;

o    acquisitions;

o    changes in consumer spending and saving habits;

o    and the success of the Company and the Bank at managing the risks  involved
     in the foregoing.

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

FINANCIAL CONDITION

The Company's total assets at December 31, 2000 of $86.1 million  increased $2.9
million,  or  3.53%,  from  $83.2  million  at June  30,  2000.  Cash  and  cash
equivalents  increased  $655,000,  or 33.06%,  due to an  increase  in  customer
deposit accounts, and loans receivable,  net increased $3.2 million.  Additional
growth in total assets is  attributable  to the increase in office  property and
equipment of $247,000  due to an extensive  remodeling  of our  Knoxville,  Iowa
branch office.  Partially  offsetting this increase was a decrease in securities
available-for-sale  of $994,500.  This was a result of principal payments on the
securities and the sale of a mortgage-backed  security that had a net book value
at date of disposal of $757,000.

Total liabilities increased $3.3 million, or 4.41%, to $78.2 million at December
31, 2000 from $74.9 million at June 30, 2000, primarily due to deposit growth of
$3.2 million or 5.00%,  to $68.0  million at December 31, 2000 from 64.8 million
at June 30,  2000.  An increase in advances  from the Federal  Home Loan Bank of
$690,000,  or 7.65%,  from $9.0  million  at June 30,  2000 to $9.7  million  at
December 31, 2000 additionally contributed to the increase in total liabilities.
Total  stockholders'  equity decreased  $363,000,  from $8.3 million at June 30,
2000 to $7.9 million at December 31, 2000, primarily

                                       -8-

<PAGE>

due to substantial  treasury stock purchases  totaling 93,800 shares. The impact
on  stockholders'  equity from these  repurchases was offset in part by earnings
and a reduction in  unrealized  losses on securities  available-for-sale.  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,  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 six month  periods  ended  December  31, 2000 and
December 31, 1999.

GENERAL

Net earnings for the three months ended December 31, 2000 decreased  $105,000 to
$42,000 from  $147,000 for the three month period ended  December 31, 1999.  The
decrease  in  net  earnings  for  the  quarter  was  primarily  attributable  to
additional  allocations  to  provision  for loss of  $117,000  in  response to a
commercial loan that was written off in its entirety,  and to a lesser extent to
a decrease of $50,000 in net  interest  income.  Although  the six month  period
ended  December  31, 2000 was also  impacted  by the  additional  allocation  to
provision for loss, net earnings increased $53,000 to $206,500 from $153,000 for
the  comparable  period in 1999.  The  increase  for the six month  period ended
December  31,  2000  compared  to the same period  ended  December  31, 1999 was
generally due to increases in income from fees,  commissions and service charges
collected on loan originations and deposit transaction  accounts,  and a decline
in losses on sales of securities,  offset in part by the  additional  provisions
and the decline in net interest income.

INTEREST INCOME

Interest income increased $80,000 to $1,608,000 for the three month period ended
December  31, 2000  compared to  $1,528,000  for the three  month  period  ended
December  31, 1999 and  $164,000 to  $3,240,000  for the six month  period ended
December 31, 2000 compared to $3,076,000 for the period ended December 31, 1999.
The  increase  was due to an  increase  in  interest  on loans of  $173,000  and
$350,000, respectively, for the three month and six month periods ended December
31, 2000, as the result of average loans receivable  growth of $7.8 million,  or
13.81%, to $64.6 million at December 31, 2000 from $56.7 million at December 31,
1999.  The average yield on loans  receivable  was  equivalent  for both periods
being  compared.  Partially  offsetting  the  increase in interest on loans were
decreases in interest on assets  available-for-sale  and other  interest-earning
assets.  These decreases were attributable to a decrease in average  outstanding
balances of these assets and a reduction in yield on other earning  assets.  The
average  outstanding  balance for the six month period on securities  available-
for-sale  decreased  $1.3  million,  from $16.6  million at December 31, 1999 to
$15.3 million at December 31, 2000 and $794,000 for the  comparable  three month
period, from $15.9 million to $15.1 million. Although the difference in yield on
average assets available-for-sale for the three month period was immaterial, the
yield for the six month period decreased 47 basis points, from 6.63% for the six
month  period  ended  December  31, 1999 to 6.16% for the six month period ended
December 31, 2000.  The average  outstanding  balance of other  interest-earning
assets  decreased $4.5 million for the  corresponding  six month period and $3.9
million for the three  month  period.  A direct  result of this  decrease  was a
reduction in yield for the periods being compared of 3.11%,  from 4.56% to 1.45%
for the six month

                                       -9-

<PAGE>

period, and  2.96%, from 4.36% to 1.40% for the three month period.

INTEREST EXPENSE

Interest  expense  increased  $140,000 to $997,000  from  $857,000 for the three
month period and $225,000 to $1,944,000 from $1,719,000 for the six month period
ended December 31, 2000 as compared to the same periods in 1999. The increase in
interest  expense  was  primarily  due to the  average  outstanding  balance  of
deposits  increasing  $6.7 million  from $59.6  million for the six months ended
December 31, 1999 to $66.3  million for the six months  ended  December 31, 2000
and a $7.4 million increase from $59.8 million to $67.2 for the comparable three
month period.  Contributing  to the increase in interest  expense was a weighted
average rate on deposits  increase of 62 basis points to 5.01% for the six month
period ended December 31, 2000 as compared to 4.39% for the same period in 1999.
The weighted  average  rate on deposits  for the three month  period  comparison
increased 65 basis  points from 4.42% for the three month period ended  December
31, 1999 to 5.07% for the comparable  period ended December 31, 2000. The impact
of the  increase in  interest  on  deposits  was offset in part by a decrease in
interest on advance  and other  borrowings  for the three and six month  periods
ended December 31, 2000 as compared to the same periods ended December 31, 1999.
Interest on advances and other  borrowings  decreased  $52,000 to $145,000  from
$197,000 for the three month period and $127,000 to $285,000  from  $412,000 for
the six month period. This decrease is primarily attributable to reduced average
borrowings of $5.8 million,  from $15.6 million for the sixth month period ended
December 31, 1999 to $9.8  million for the same period ended 2000.  The decrease
for the  comparable  three month period was $5.0 million from $14.8  million for
the period  ended  December 31, 1999 to $9.8 million for same period ended 2000.
There was a slight  increase in weighted  average  rate of  borrowings  for both
periods being compared ended December 31, 2000.

NET INTEREST INCOME

Net  interest  income was $611,000 and $1.3 million for the three months and six
months  ended  December 31,  2000,  respectively,  compared to $670,000 and $1.3
million for the comparable  periods in 1999.  The Company's net interest  margin
decreased 28 basis  points to 2.78% for the six month period ended  December 31,
2000 as compared to 3.06% 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  $165,000  for the six  month  period  ended
December  31,  2000 as  compared  to $48,000  for the same  period  ended  1999.
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  $1,526,000 or 1.77% of total  assets,  compared to
$1,155,000  or 1.39% of total  assets as of June 30,  2000.  As of December  31,
2000,  the Company's  allowance  for losses on loans was $364,000,  representing
23.9% of non-performing assets and .55% 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

                                      -10-

<PAGE>

regulators may require  additional  reserves as a result of their examination of
the Company.  The  calculation  of the adequacy of the  allowance  for losses on
loans is not based solely 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  increased  to $141,000  and  $258,000 for the three and six
months ended  December 31, 2000,  respectively,  compared to $121,000 and $6,000
for the same periods ended  December 31, 1999.  The increase for the three month
period ended December 31, 2000 was primarily  attributable to a $20,000 increase
in fees,  commissions,  and service  charges  collected as a result of increased
number of fee-based  accounts and enhanced fee collection  efforts.  For the six
month  period the  increase  was  attributable  to a $55,000  increase  in fees,
commissions, and service charges collected and the substantial reduction in loss
on   assets   available-for-sale.   There   was  a   $28,000   loss  on   assets
available-for-sale  for the six months ended  December 31, 2000 as compared to a
$225,000 loss for the six months ended December 31, 1999.

NONINTEREST EXPENSE

Total  noninterest  expense was  $560,000 and $1.1 million for the three and six
months  ended  December 31,  2000,  respectively,  compared to $556,000 and $1.1
million  for the same  periods in 1999.  Other  expense  increased  $31,000  and
$20,000  for  the  three  and  six  month  periods  ended   December  31,  2000,
respectively, compared to the same period during 1999 due to increased audit and
accounting  expense,  Now account expense,  and other operating and nonoperating
expenses. Advertising expense decreased $7,000 and $20,000 while data processing
costs  increased  $2,000 and $6,000  for the three and six month  periods  ended
December  31,  2000,  respectively,  compared  to the same period  during  1999.
Compensation  and  employee   benefits   expenses,   the  largest  component  of
noninterest  expense,  decreased  $12,000 and $3,000 for the three and six month
periods  ended  December 31, 1999 as compared to the same period ended  December
31, 1999.

TAXES ON INCOME

Income taxes  decreased  $56,000 for the three month  period ended  December 31,
2000 as compared to the same period ended  December 31, 1999,  however  taxes on
income  increased $28,000 for the comparable  six month  periods.  The six month
period tax  increase is  primarily a result of the  increase in net earnings for
that period. The effective tax rate for all periods is 37.3%

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

                                      -11-

<PAGE>

payable in one year or less. Such  requirements may be changed from time to time
by the  OTS to  reflect  changing  economic  conditions.  Such  investments  are
intended to provide a source of relatively  liquid funds upon which the Bank may
rely, if necessary,  to fund deposit  withdrawals and other  short-term  funding
needs.  The Bank has  historically  maintained its liquidity  ratio in excess of
that requirement.  The Bank's liquidity ratio was 5.30% on December 31, 2000 and
5.38% on June 30, 2000.

At December 31, 2000,  the Company had advances of $9.7 million from the FHLB of
Des Moines outstanding.  The Company uses its liquidity resources principally to
meet ongoing commitments,  to fund maturing  certificates of deposit and deposit
withdrawals,  and to meet operating  expenses.  The Company  anticipates that it
will have  sufficient  funds  available  to meet current  loan  commitments.  At
December 31, 2000,  the Company had  outstanding  commitments  to extend  credit
which  amounted to  $2,493,000  (including  $1.3 million in available  revolving
commercial  lines of credit).  At December  31,  2000,  certificates  of deposit
scheduled  to  mature  in one year or less  totaled  $25.4  million.  Management
believes,  based on its experience to date, that a significant  portion of these
funds will remain with the Company. Management believes that loan repayments and
other  sources  of funds  will be  adequate  to meet the  Company's  foreseeable
liquidity needs.

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

At December 31, 2000, the Bank had tangible and core capital of $5.9 million, or
7.0% of adjusted  total assets,  which was  approximately  $4.6 million and $2.5
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, 2000, the Bank had
risk-based capital of $6.2 million (including $5.9 million in core capital),  or
11.8% of risk- weighted  assets of $52.6  million.  This amount was $2.0 million
above the 8.0% requirement in effect on that date.

                                      -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 26, 2000
               (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:

          Proposal                                  Number of Votes
          --------                                  ---------------
                                                 For              Withheld
                                               -------            --------
Election of the following directors
 for a three year term:

      1) Thomas L. Gillespie                   625,621            146,552
      2) Norman P. Zimmerman                   626,121            146,052


Ratification of the appointment of  KPMG LLP     For      Against     Abstain
as the Company's auditors for the              -------    -------     -------
fiscal year ending June 30, 2001               725,461     None        46,712


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
                     December 31, 1999.

                                      -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 9, 2001             /s/ Robert W. DeCook
      ----------------             ---------------------------------------------
                                   Robert W. DeCook
                                   President and Chief Executive Officer

Date: February 9, 2001             /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)

    27         Financial Data Schedule (electronic filing only)


                                      -15-