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

                                   FORM 10-QSB

(Mark One)

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

For the quarterly period ended                  September 30, 2002
                              --------------------------------------------------
                                       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

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

                   Common Stock                             753,182
                   ------------                       ----------------------
                      Class                             Shares Outstanding
                                                      as of October 31, 2002

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

<PAGE>


              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY

                                      INDEX
<TABLE>
<CAPTION>


<S>                                                                              <C>
Part I.  Financial Information                                                   Page
                                                                                 ----
         Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheets at September 30, 2002 and June 30, 2002       1

         Consolidated Statements of Operations for the three months ended          2
         September 30, 2002 and 2001

         Consolidated Statements of Comprehensive Income for the three months      3
         ended September 30, 2002 and 2001

         Consolidated Statements of Cash Flows for the three months ended          4
         September 30, 2002 and 2001

         Notes to Consolidated Financial Statements                                5

         Item 2.  Management's Discussion and Analysis                             7

         Item 3.  Controls and Procedures                                         14



Part II. Other Information                                                        15

          Signatures                                                              16

          Certifications                                                          17

          Index of Exhibits                                                       20
</TABLE>


                                       -1-
<PAGE>

                                                      PART I

ITEM 1. FINANCIAL STATEMENTS
        --------------------
<TABLE>
<CAPTION>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                           Consolidated Balance Sheets

                                                                  September 30,        June 30,
Assets                                                                2002               2002
------                                                                ----               ----
                                                                   (Unaudited)

<S>                                                               <C>                <C>
Cash and cash equivalents                                         $  7,952,018       $  8,124,566
Securities available-for-sale                                       13,130,554         12,086,313
Loans receivable, net                                               65,918,033         65,098,795
Real estate                                                            210,787            417,137
Stock in Federal Home Loan Bank, at cost                               509,200            509,200
Office property and equipment, net                                   1,374,913          1,351,486
Accrued interest receivable                                            570,874            587,134
Deferred tax asset                                                     198,350            211,800
Prepaid expenses and other assets                                       54,478             51,576
                                                                  ------------       ------------
     Total assets                                                 $ 89,919,207       $ 88,438,007
                                                                  ============       ============

Liabilities and Stockholders' Equity
------------------------------------

Deposits                                                          $ 73,637,166       $ 71,953,695
Advances from Federal Home Loan Bank                                 5,563,546          5,571,497
Advance payments by borrowers for taxes and insurance                    8,818            373,147
Accrued income taxes                                                   296,688            490,522
Accrued expenses and other liabilities                                 750,833            645,694
                                                                  ------------       ------------
     Total liabilities                                              80,257,051         79,034,555
                                                                  ------------       ------------

Stockholders' equity
--------------------
Preferred stock, $.01 par value, authorized 250,000
     shares, none issued                                                    --                 --
Common stock, $.01 par value, authorized 1,500,000
     shares, 1,046,198 shares issued                                    10,462             10,462
Additional paid-in capital                                           5,025,598          5,025,598
Retained earnings, substantially restricted                          6,676,965          6,515,330
Treasury stock, at cost, 293,016 shares                             (2,119,466)        (2,119,466)
Accumulated other comprehensive income (loss)- net
     unrealized gain (loss) on securities available-for-sale            68,597            (28,472)
                                                                  ------------       ------------
     Total stockholders' equity                                      9,662,156          9,403,452
                                                                  ------------       ------------
Total liabilities and stockholders' equity                        $ 89,919,207       $ 88,438,007
                                                                  ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                       -2-

<PAGE>

<TABLE>
<CAPTION>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                      Consolidated Statements of Operations

                                                                    Three Months Ended
                                                                        September 30,
                                                                  2002              2001
                                                                  ----              ----
Interest income:                                                       (Unaudited)
  <S>                                                        <C>               <C>
  Interest and fees on loans                                 $ 1,325,106       $ 1,364,367
  Interest on securities available-for-sale                      127,700           205,667
  Other interest income                                           30,255            37,464
                                                             -----------       -----------
Total interest income                                          1,483,061         1,607,498
                                                             -----------       -----------
Interest expense:
  Interest on deposits                                           478,779           762,393
  Interest on FHLB advances                                       71,144           120,115
                                                             -----------       -----------
Total interest expense                                           549,923           882,508
                                                             -----------       -----------
Net interest income                                              933,138           724,990

Provision for losses on loans                                     80,800            29,000
                                                             -----------       -----------
Net interest income after provision for losses on loans          852,338           695,990
                                                             -----------       -----------
Non-interest income:
  Fees, commissions and service charges                          173,897           173,861
  Gain on sale of securities, net                                 14,984            29,634
  Impairment loss on equity securities                          (161,662)            - - -
                                                             -----------       -----------
Total non-interest income                                         27,219           203,495
                                                             -----------       -----------
Non-interest expense:
  Compensation, payroll taxes and employee benefits              334,100           296,245
  Advertising                                                     15,560            14,723
  Office property and equipment                                   82,622            65,417
  Federal deposit insurance premiums                               3,126             8,733
  Data processing services                                        55,493            44,192
  Other real estate                                               12,423             7,081
  Other                                                           83,940           102,064
                                                             -----------       -----------
Total non-interest expense                                       587,264           538,455
                                                             -----------       -----------
Earnings before taxes on income                                  292,293           361,030

Taxes on income                                                   93,000           119,200
                                                             -----------       -----------
Net earnings                                                 $   199,293       $   241,830
                                                             ===========       ===========

     Basic and diluted earnings per common share             $      0.26       $      0.32
                                                             ===========       ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       -3-
<PAGE>

<TABLE>
<CAPTION>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                 Consolidated Statements of Comprehensive Income

                                                                        Three Months Ended
                                                                            September 30,
                                                                         2002            2001
                                                                         ----            ----
                                                                             (Unaudited)
<S>                                                                    <C>            <C>
Net income                                                             $ 199,293      $ 241,830

Other Comprehensive Income:
      Unrealized gains (losses) on securities available-for-sale:
          Unrealized holding gains arising
            during the period, net of tax                                  5,102         58,625
      Reclassification adjustment for net losses (gains)
            included in net income, net of tax                            91,967        (18,581)
                                                                       ---------      ---------
Other comprehensive income, net of tax                                    97,069         40,444
                                                                       ---------      ---------

Comprehensive income                                                   $ 296,362      $ 281,874
                                                                       =========      =========

</TABLE>

See Notes to Consolidated Financial Statements.

                                       -4-


<PAGE>


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

                                                                            Three months ended
                                                                              September 30,
                                                                          2002              2001
                                                                          ----              ----
Cash flows from operating activities:                                         (Unaudited)
<S>                                                                   <C>               <C>
Net earnings                                                          $   199,293       $   241,830
Adjustments to reconcile net earnings to net cash provided
by operating activities:
  Depreciation                                                             27,844            23,526
  Amortization of fees, premiums and accretion of discounts, net           17,582            14,225
  Provision for losses on loans                                            80,800            29,000
  Loans originated for sale                                            (2,515,280)       (3,088,962)
  Proceeds on sales of loans                                            1,981,980         2,956,321
  Gain on sale of securities                                              (14,984)          (29,634)
  Impairment loss on securities                                           161,662             - - -
  Reinvested dividends                                                      - - -              (935)
  (Decrease) increase in accrued interest receivable                       16,260           (63,896)
  Decrease (increase) in accrued income taxes                            (238,134)           59,391
  Other, net                                                              129,064          (102,801)
                                                                      -----------       -----------
Net cash (used in) provided by operating activities                      (153,913)           38,065
                                                                      -----------       -----------
Cash flows from investing activities:
  Securities available-for-sale:
     Purchases                                                         (2,697,946)       (3,987,867)
     Proceeds from sale                                                   701,071         3,737,523
     Proceeds from maturity and principal collected                       932,331           894,406
  Loans to customers, net                                                (366,738)         (508,737)
  Proceeds from sale of real estate                                       190,386             - - -
  Purchase of office property and equipment, net                          (51,271)          (29,946)
                                                                      -----------       -----------
Net cash (used in) provided by investing activities                    (1,292,167)          105,379
                                                                      -----------       -----------
Cash flows from financing activities:
  Increase in deposits                                                  1,683,471           501,670
  Principal payments on advances from Federal Home Loan Bank               (7,951)       (1,005,658)
  Decrease advance payments by borrowers for taxes and insurance         (364,329)         (378,179)
  Payment of dividends                                                    (37,659)          (33,815)
                                                                      -----------       -----------
Net cash provided by (used in) financing activities                     1,273,532          (915,982)
                                                                      -----------       -----------
Net decrease in cash and cash equivalents                                (172,548)         (772,538)

Cash and cash equivalents at beginning of period                        8,124,566         5,591,526
                                                                      -----------       -----------
Cash and cash equivalents at end of period                            $ 7,952,018       $ 4,818,988
                                                                      ===========       ===========

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
     Interest                                                         $   402,631       $   933,381
     Taxes                                                                331,134            59,809
  Noncash investing and financing activities:
     Transfers from loans to other real estate                              - - -            71,467
                                                                      ===========       ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       -5-

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     HORIZON FINANCIAL SERVICES CORPORATION


1.  BASIS OF PRESENTATION

The consolidated  financial  statements for the three months ended September 30,
2002 and 2001 are unaudited.  In the opinion of management of Horizon  Financial
Services Corporation (the "Registrant" or "Company"), these financial statements
reflect all adjustments, consisting only of normal occurring accruals, necessary
to  present  fairly  the  consolidated  financial  position  of the  Company  at
September 30, 2002 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 accounting  principles generally accepted
in the  United  States of America  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,  2002.  The  results of the
periods  presented  are  not  necessarily   representative  of  the  results  of
operations and cash flows which may be expected for the entire year.


2.  PRINCIPLES OF CONSOLIDATION

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


                                       -6-

<PAGE>

3.  EARNINGS PER SHARE

The following provides a reconciliation of the amounts used in the determination
of basic and  diluted  earnings  per share for the  three  month  periods  ended
September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                     September 30,
                                                                  2002           2001
                                                                  ----           ----
                                                                      (Unaudited)

<S>                                                            <C>            <C>
Net earnings                                                   $ 199,293      $ 241,830
                                                               =========      =========

Basic earnings per share:

Weighted average number of common shares outstanding             753,182        751,462
                                                               ---------      ---------
Earnings per common share - basic                             $     0.26     $     0.32
                                                               =========      =========

Diluted earnings per share:
       Weighted average common shares outstanding                753,182        751,462

       Assumed incremental option shares
          using the treasury stock method                         17,935         11,681
                                                               ---------      ---------
Common and common equivalent shares outstanding                  771,117        763,143
                                                               =========      =========
Earnings per common share - diluted                           $     0.26     $     0.32
                                                               =========      =========
</TABLE>

                                       -7-


<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
        ------------------------------------

GENERAL
-------

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

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

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

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

Local economic  conditions in the Bank's market are declining.  Currently,  farm
prices for both  livestock and grain are better than at this time last year, but
are declining somewhat.  We are currently  experiencing factory layoffs and some
decline in retail business.  In the event current economic and market conditions
persist or worsen,  loan demand and existing loans may be affected,  which could
adversely  affect the  financial  condition  and  results of  operations  of the
Company and the Bank.


DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
-----------------------------------------------

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

                                       -8-

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

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


FINANCIAL CONDITION
-------------------

The Company's total assets  increased $1.5 million,  or 1.7%, from $88.4 million
at June 30,  2002 to  September  30,  2002 of $89.9  million.  This  increase is
attributable to a securities  available-for-sale  increase of $1.04 million,  or
8.6%,  from $12.1  million at June 30, 2002 to $13.1  million at  September  30,
2002, and an increase in loans receivable,  net of $819,000,  from $65.1 million
at June 30, 2002 to $65.9 million at September  30, 2002.  The increase in total
assets was offset in part by a $206,000  decrease  in real estate and a $172,500
decrease  in cash and cash  equivalents  from $8.12  million at June 30, 2002 to
$7.95 million at September 30, 2002.

Total liabilities increased $1.3 million, or 1.5%, to $80.3 million at September
30, 2002 from $79.0  million at June 30,  2002.  Deposits  continued to increase
this quarter from $72.0  million at June 30, 2002 to $73.6  million at September
30, 2002, a $1.7 million increase, or 2.3%. Offsetting this increase in part was
a $364,000 decrease in advance payments by borrowers for taxes and insurance and
a  $194,000  decrease  in  accrued  income  taxes.  Total  stockholders'  equity
increased  2.8%,  or  $258,700,  the result of  increased  retained  earnings of
$161,600 and  increased  other  comprehensive  income of $97,000.  There were no
other significant changes in the components of the Company's balance sheet.

                                       -9-


<PAGE>


RESULTS OF OPERATIONS
---------------------

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

Comparison  of three month  periods  ended  September 30, 2002 and September 30,
2001


GENERAL
-------

Net  earnings  decreased  $42,500 to $199,300  for the three month  period ended
September 30, 2002 from $241,800 for the three month period ended  September 30,
2001.  The 17.6%  decrease  in net  earnings  for the three month  period  ended
September 30, 2002 over the comparable period in 2001 was primarily attributable
to the recognition of a $161,660 write down of an equity security resulting from
a decline in fair value that was judged to be other than temporary,  accompanied
by an increase of $49,000, or 9.1% for total non-interest  expense. Net interest
income  increased,  both  before and after  provisions  for losses on loans,  as
interest paid on deposits and FHLB of Des Moines ("FHLB") advances substantially
declined,  offset in part by decreased interest income.  Basic and fully-diluted
earnings per common share decreased  18.75% from $.32 for the three month period
ended  September 30, 2001 to $.26 for the same period ended  September 30, 2002.
This  decrease is due to decreased  net earnings and the  Company's  increase in
common stock outstanding over the prior comparable period.


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

Interest  income  decreased  $124,400 to  $1,483,000  for the three month period
ended September 30, 2002 compared to $1,607,500 for the three month period ended
September  30, 2001.  The decrease was  primarily the result of a 52 basis point
decrease in the weighted  average  yield on average  interest-earning  assets to
6.93% for the three month period ended  September  30, 2002 as compared to 7.45%
for the same period in 2001. Average net loans receivable  increased slightly by
$68,500,  but the weighted  average yield on loans  decreased 25 basis points to
8.07% from  8.32%  resulting  in an overall  decrease  in  interest  on loans of
$39,300.  Interest  on  securities  available-for-sale  had a greater  impact on
interest income as average balance and weighted average yield decreased. Average
balance for securities  available-for-sale  decreased $2.5 million for the three
month period ended  September  30, 2002 to $12.3  million from $14.9 million for
the same  period in 2001.  Weighted  average  yield for the  September  30, 2002
period decreased 139 basis points to 4.14% from 5.53% for the comparable  period
in 2001 as a result of sale and purchase  activities  in the  available-for-sale
portfolio  and  reduced  rates on  investments  due to  market  conditions.  The
decrease in interest on securities available-for-sale for the three month period
ended  September  30, 2002  compared to the same period in 2001 was $78,000,  or
37.9%.

Other  interest  income  decreased  $7,200 to $30,300 for the three month period
ended  September  30, 2002  compared to $37,500 for the three month period ended
September 30, 2001. The average  outstanding  balance of other interest  earning
assets  increased  $1.8 million for the three month period ended  September  30,
2002 as compared to the  identical  period in 2001.  The  substantial  growth in
average  other  interest  earning  assets is  primarily  the result of increased
investment  in  short-term  liquid  assets  acquired  with funds  received  from
continued  deposit growth as the Company searches for desirable  investments The
weighted  average yield on other  interest  earning  assets  decreased 107 basis
points from 2.52% to 1.45% for the three month period ended  September  30, 2002
as compared to the same period in 2001.

                                      -10-


<PAGE>


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

Interest expense decreased  $332,600,  or 37.7%, to $549,900 for the three month
period ended  September 30, 2002 compared to $882,500 for the three month period
ended  September  30,  2001.  Weighted  average   interest-bearing   liabilities
decreased  $1.3 million for the three month period ended  September  30, 2002 as
compared to the same period in 2001, but a reduced  weighted average rate of 163
basis  points,  or 36.7% for the 2002  period as  compared to the same period in
2001 had a greater impact on overall interest  expense for the period.  Interest
on deposits  decreased  $283,600 for the three month period ended  September 30,
2002 to $478,800  from  $762,400 for the same period ended  September  30, 2001.
Weighted  average  rate  paid on  deposits  for the  three  month  period  ended
September 30, 2002 was 2.63% compared to 4.31% for the same period ended 2001.

Interest on FHLB advances and other  borrowings  decreased  $49,000,  to $71,000
from $120,000 for three month period ended September 30, 2002 as compared to the
identical period in 2001. Average borrowings  decreased $3.27 million, or 37.0%,
for the three  month  period  ended  September  30, 2002 as compared to the same
period in 2001 and the  weighted  average rate paid on  borrowings  decreased 33
basis points to 5.11% for the three months ended  September 30, 2002 compared to
5.44% for the period ended September 30, 2001.


NET INTEREST INCOME
-------------------

Net interest income increased  $208,000 from $725,000 for the three month period
ended  September 30, 2001 to $933,000 for the three month period ended September
30, 2002.  The  Company's  annualized  net  interest  margin for the three month
period ended  September 30, 2002 was 4.36% compared to 3.36% for the same period
ended  September 30, 2001. The ratio of the Company's  average  interest-earning
assets to average  interest-bearing  liabilities  increased  to 109.44%  for the
three month  period  ended  September  30, 2002 from 108.50% for the three month
period  ended   September   30,  2001.   The   interest   rate  spread   between
interest-earning  assets and  interest-bearing  liabilities  for the three month
period ended  September  30, 2002 was 4.12% and the interest rate spread for the
comparable period ended September 30, 2001 was 3.02%.


PROVISION FOR LOSSES ON LOANS
-----------------------------

The provision for losses on loans is a result of management's  periodic analysis
of the  adequacy of the  Company's  allowance  for losses on loans.  The Company
recorded a provision  for losses on loans of $80,800 for the three month  period
ended  September  30, 2002  compared to $29,000 for the three month period ended
September 30, 2001.  The Company  continues to increase its allowance for losses
on loans to a greater  percentage  of its overall  loans  receivable  due to its
assessment   of  local  and  national   economic   conditions.   The   Company's
non-performing assets may consist of nonaccrual loans, accruing loans 90 days or
more  delinquent,  real estate owned and repossessed  consumer  property.  As of
September 30, 2002,  non-performing  assets totaled $1,943,000 or 2.16% of total
assets,  compared to $2,128,000 or 2.41% of total assets as of June 30, 2002. As
of September 30, 2002, the Company's allowance for losses on loans was $601,000,
representing 30.9% of non-performing assets and .91% of net loans receivable.

The Company continues to monitor and adjust its allowance for losses on loans as
management's analysis of its loan portfolio and economic conditions dictate. The
Company believes it has taken an appropriate  approach to maintain the allowance
for loan losses at a level  consistent  with the Company's loss  experiences and
considering,  among  other  factors,  the  composition  of  the  Company's  loan
portfolio,  the level of the Company's classified and non-performing  assets and
their estimated value. Future additions to the Company's allowance for losses on
loans and any change in the related ratio of the

                                      -11-


<PAGE>


allowance for losses on loans to  non-performing  loans are  dependent  upon the
economy, changes in real estate values and interest rates. In addition,  federal
regulators may require  additional  reserves as a result of their examination of
the  Company.  The  allowance  for  losses on loans  reflects  what the  Company
currently  believes is an adequate  level of reserves,  although there can be no
assurance  that future  losses will not exceed the  estimated  amounts,  thereby
adversely affecting future results of operations.


NON-INTEREST INCOME
-------------------

Non-interest  income  decreased  $176,300 to $27,200 for the three  months ended
September 30, 2002 from  $203,500 for the same period ended  September 30, 2001.
The decrease was primarily  attributable to a $161,662  impairment write down in
the period ended September 30, 2002 of an equity security which had a fair value
loss that was deemed to be other  than  temporary.  Additionally,  for the three
month  period  ended  September  30, 2002 gain on sale of  securities  decreased
$14,600,  to $15,000 from $29,600 for the three month period ended September 30,
2001.  Fees,  service  charges and commissions for the three month periods ended
September 30, 2002 and 2001 were each $174,000.


NON-INTEREST EXPENSE
--------------------

Total non-interest  expense increased $48,800 from $538,500 for the three months
ended  September 30, 2001 to $587,300 for the three month period ended September
30, 2002. The increase was primarily  attributable  to a  compensation,  payroll
taxes and  employee  benefits  increase of $38,000,  for the three month  period
ended  September  30, 2002  compared to the same period in 2001 and increases in
office property and equipment and data processing  services for the 2002 period.
Other real estate  expense  increased  $5,000 for the three month  periods being
compared, the result of a net loss on sale of foreclosed real estate. Offsetting
these  increases  were  decreases  in  other  expenses  primarily  comprised  of
decreases in loan expense and auditing and accounting expense,  and decreases in
federal deposit insurance premiums of $5,600, or 64.2%.


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

The  Company had a $26,200  decrease  in taxes on  earnings  for the three month
period ended  September  30, 2002 as a result of  decreased  net  earnings.  The
effective tax rate for the three month period ended  September 30, 2002 is 31.8%
compared to 33.0% for the three month period ended September 30, 2001.


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 FHLB or utilize  other  borrowings of funds based on need,
comparative costs and availability at the time.

The Bank has historically maintained its liquidity ratio at, or above, the level
needed to meet its operational  needs.  The Bank's liquidity ratio was 12.72% on
September 30, 2002 and 12.16% on June 30, 2002.

At September  30, 2002,  the Company had advances of $5.56  million  outstanding
from the FHLB.  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


                                      -12-


<PAGE>

anticipates  that it will have  sufficient  funds available to meet current loan
commitments.  At September 30, 2002, the Company had outstanding  commitments to
extend  credit which  amounted to  $3,722,000  (including  $648,000 in available
revolving  commercial lines of credit).  At September 30, 2002,  certificates of
deposit  scheduled  to  mature  in one  year  or  less  totaled  $21.0  million.
Management believes, based on its experience to date, that a significant portion
of these funds will  remain  with the  Company.  Management  believes  that loan
repayments  and other  sources of funds will be adequate  to meet the  Company's
foreseeable liquidity needs.

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

At September  30, 2002,  the Bank had tangible and core capital of $7.5 million,
or 8.5% of adjusted total assets,  which was approximately $6.2 million and $4.0
million above the minimum  requirements of 1.5% and 4.0%,  respectively,  of the
adjusted  total assets in effect on that date. At September  30, 2002,  the Bank
had risk-based capital of $8.1 million (including $7.5 million in core capital),
or 13.9% of risk- weighted assets of $58.1 million. This amount was $4.6 million
above the 8.0%  requirement in effect on that date. The Bank is considered to be
"well-capitalized" under Federal regulatory guidelines.


EFFECT OF NEW ACCOUNTING STANDARDS
----------------------------------

In July 2001, the Federal Accounting Standards Board (FASB) issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets.  Statement  No. 141 requires  that the purchase  method of accounting be
used for all business combinations  initiated after July 30, 2001 as well as all
purchase method business  combinations  completed after June 30, 2001. Statement
No. 141 also specifies criteria  intangible assets acquired in a purchase method
business  combination  must  meet  to be  recognized  and  reported  apart  from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted  for  separately.  Statement No. 142 will require that goodwill
and intangible assets with indefinite  useful lives no longer be amortized,  but
instead  tested  for  impairment  at  least  annually  in  accordance  with  the
provisions  of  Statement  No. 142.  Statement  No. 142 will also  require  that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 121,  Accounting  for  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of.

In June 2001,  the FASB  issued SFAS No. 143,  Accounting  for Asset  Retirement
Obligations.  SFAS No. 143  requires  the Company to record the fair value of an
asset  retirement  obligation  as a liability in the period in which it incurs a
legal obligation  associated with the retirement of tangible  long-lived  assets
that result from the acquisition, construction, development and/or normal use of
assets. The Company also records a corresponding asset which is depreciated over
the life of the asset.  The Company is required to adopt SFAS No. 143 for fiscal
years  beginning after June 15, 2002. The Company does not expect this statement
to have a material effect on its consolidated financial statements.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long- Lived  Assets.  SFAS No. 144  supersedes  SFAS No. 121 and the
accounting  and reporting  provision of APB Opinion No. 30 for the disposal of a
segment of a business. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and requires that long-lived
assets be reviewed for impairment  whenever  events or changes in  circumstances
indicate  that  the  carrying  amount  of  an  asset  may  not  be  recoverable.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be

                                      -13-

<PAGE>

generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying  amount of the asset exceeds the fair value of the asset.  SFAS No. 144
requires companies to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment,  or in a distribution to owners) or is classified as held for sale.
Assets to be disposed of are  reported  at the lower of the  carrying  amount or
fair value less costs to sell. The Company is required to adopt SFAS No. 144 for
fiscal years  beginning  after December 15, 2001. The adoption of this statement
will not have a material effect on the consolidated financial statements.

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement  No.  13,  and  Technical  Corrections  was issued  April  2002.  This
Statement  rescinds  FASB  Statement  No. 4,  Reporting  Gains and  Losses  from
Extinguishment  of Debt, and an amendment of that Statement,  FASB Statement No.
64,  Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements.  This
Statement also rescinds FASB Statement No. 44,  Accounting for Intangible Assets
of Motor Carriers.  This Statement amends FASB Statement No. 13,  Accounting for
Leases,  to  eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.   This  Statement   also  amends  other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe their applicability under changed conditions.

The provisions of this Statement  related to the rescission of Statement 4 shall
be applied in fiscal years  beginning  after May 15,  2002.  The  provisions  in
paragraph  8 and  9(c) of this  Statement  related  to  Statement  13  shall  be
effective for transactions occurring after May 15, 2002. All other provisions of
this Statement  shall be effective for financial  statements  issued on or after
May 15, 2002. The effects of implementation are not material.

SFAS No. 146 Accounting for Costs  Associated  with Exit or Disposal  Activities
was  issued  June  2002.  This  Statement  addresses  financial  accounting  and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force  (EITF) Issue No. 94-3,  Liability  Recognition  for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including Certain Costs Incurred in a Restructuring).

The provisions of this Statement are effective for exit and disposal  activities
that are initiated after December 31, 2002.

In  September  2002,  the FASB  issued  SFAS No.  147,  Acquisition  of  Certain
Financial  Institutions.  SFAS  No.  147  changed  the  special  accounting  for
unidentifiable  intangible  assets  recognized  under  SFAS No.  72.  Transition
provisions  for  previously  recognized  unidentifiable  intangible  assets were
effective on October 1, 2002. The effects of implementation had no impact on the
Company's consolidated financial statements.




                                      -14-


<PAGE>


ITEM 3. CONTROLS AND PROCEDURES
        -----------------------

With the  participation  and under the supervision of the Company's  management,
including the Company's Chief Executive Officer and Chief Financial Officer, and
within 90 days of the filing date of the quarterly  report,  the Company's Chief
Executive  Officer and Chief Financial  Officer have evaluated the effectiveness
of the design and operation of the Company's  disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15(d)- 14(c) and, based on their
evaluation,  have  concluded  that the  disclosure  controls and  procedures are
effective.  There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their  evaluation,  including any  corrective  action with regard to
significant deficiencies and material weaknesses.

                                      -15-


<PAGE>


                                     PART II
                                OTHER INFORMATION

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

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

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

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

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

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

               (b)   The following is a description of the Form 8-K filed during
                     the three months ended September 30, 2002:

                     On August 23, 2002, a current report on Form 8-K was filed
                     to announce the Company's earnings for the quarter and
                     fiscal year ended June 30, 2002.



                                      -16-

<PAGE>


                                   SIGNATURES


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


                                    HORIZON FINANCIAL SERVICES CORPORATION
                                    Registrant


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




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


                                      -17-


<PAGE>


                                  Certification
  (Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended)
I, Robert W. DeCook, certify that:

1. I have reviewed  this  quarterly  report on Form 10-QSB of Horizon  Financial
Services Corporation (the "registrant");

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated  in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: November 06, 2002
                                                 /s/ Robert W. DeCook
                                                 -------------------------------
                                                 Robert W. DeCook
                                                 Chief Executive Officer

                                      -18-

                                  Certification
  (Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended)

I, Vicki Hladik, certify that:

1. I have reviewed  this  quarterly  report on Form 10-QSB of Horizon  Financial
Services Corporation (the "registrant");

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated  in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 06, 2002
                                                  /s/ Vicki Hladik
                                                  ------------------------------
                                                  Vicki Hladik
                                                  Treasurer and Comptroller

                                      -19-

<PAGE>

                                  Certification
           (Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


I, Robert W. DeCook, certify that:

1.  This  quarterly  report  on  Form  10-QSB  of  Horizon  Financial   Services
Corporation  fully  complies  with  the  requirements  of  section  13(a) of the
Securities Exchange Act of 1934; and

2. The information  contained in this quarterly report fairly  presents,  in all
material respects,  the financial condition and results of operations of Horizon
Financial Services Corporation.

Date:  November 06, 2002



                                                  /s/ Robert W. DeCook
                                                  ------------------------------
                                                  Robert W. DeCook
                                                  Chief Executive Officer

I, Vicki Hladik, certify that:

1.  This  quarterly  report  on  Form  10-QSB  of  Horizon  Financial   Services
Corporation  fully  complies  with  the  requirements  of  section  13(a) of the
Securities Exchange Act of 1934; and

2. The information  contained in this quarterly report fairly  presents,  in all
material respects,  the financial condition and results of operations of Horizon
Financial Services Corporation.

Date:  November 06, 2002



                                                     /s/  Vicki Hladik
                                                     ---------------------------
                                                     Vicki Hladik
                                                     Treasurer and Comptroller




                                      -20-

<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 3 of
            the  Registrant's   Notes  to  Consolidated   Financial   Statements
            contained herein)







                                                          -21-