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, 2003

                                       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)

Check whether the issuer (1) 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                            771,471
                   Class                        Shares Outstanding
                                              as of February 06, 2004

Transitional Small Business Disclosure Format (check one):

Yes____:  No |X|

<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY

                                      INDEX

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

          Consolidated Balance Sheets at December 3l, 2003 and June 30, 2003       2

          Consolidated Statements of Operations for the three months and           3
          six months ended December 31, 2003 and 2002

          Consolidated Statements of Comprehensive Income for the three months     4
          and six months ended December 31, 2003 and 2002

          Consolidated Statements of Cash Flows for the six months ended           5
          December 31, 2003 and 2002

          Notes to Consolidated Financial Statements                               6

          Item 2. Management's Discussion and Analysis                             8

          Item 3. Controls and Procedures                                         16

Part II.  Other Information                                                       17

          Signatures                                                              18

          Index of Exhibits                                                       19
</TABLE>

<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                 December 31,         June 30,
Assets                                                               2003               2003
                                                                 ------------       ------------
                                                                  (Unaudited)
<S>                                                              <C>                <C>
Cash and cash equivalents                                        $  3,993,470       $  5,303,912
Securities available-for-sale                                      15,402,363         17,176,190
Loans receivable, net                                              69,808,966         65,006,810
Real estate                                                           390,676            638,658
Stock in Federal Home Loan Bank, at cost                              376,400            509,200
Office property and equipment, net                                  2,323,665          1,971,871
Accrued interest receivable                                           556,805            567,301
Deferred income tax asset                                             144,125             60,000
Accrued income tax receivable                                              --             42,282
Prepaid expenses and other assets                                      99,557             46,109
                                                                 ------------       ------------

     Total assets                                                $ 93,096,027       $ 91,322,333
                                                                 ============       ============

Liabilities and Stockholders' Equity

Deposits                                                         $ 76,671,184       $ 74,422,752
Advances from Federal Home Loan Bank                                4,907,500          5,545,115
Advance payments by borrowers for taxes and insurance                 133,036            347,265
Accrued income taxes payable                                           72,522                 --
Accrued expenses and other liabilities                                291,582            563,151
                                                                 ------------       ------------

     Total liabilities                                             82,075,824         80,878,283
                                                                 ------------       ------------

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 issued                                          10,462             10,462
Additional paid-in capital                                          5,025,598          5,025,598
Retained earnings, substantially restricted                         8,075,296          7,498,305
Treasury stock, at cost, (274,627 and 297,267 shares
      at December 31, 2003 and June 30, 2003, respectively)        (2,097,798)        (2,237,884)
Accumulated other comprehensive income-net
      unrealized gain on securities available-for-sale                  6,645            147,569
                                                                 ------------       ------------

     Total stockholders' equity                                    11,020,203         10,444,050
                                                                 ------------       ------------

Total liabilities and stockholders' equity                       $ 93,096,027       $ 91,322,333
                                                                 ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -2-
<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                 Three Months Ended                  Six Months Ended
                                                                    December 31,                        December 31,
                                                               2003             2002              2003             2002
                                                               ----             ----              ----             ----
                                                                    (Unaudited)                         (Unaudited)
<S>                                                     <C>              <C>               <C>              <C>
Interest income:
Loans                                                   $ 1,262,862      $ 1,293,927       $ 2,527,641      $ 2,619,033
Investment securities available-for-sale                    163,764          149,050           315,310          284,116
Other interest income                                         6,868           21,594            12,988           44,483
                                                        -----------      -----------       -----------      -----------

Total interest income                                     1,433,494        1,464,571         2,855,939        2,947,632
                                                        -----------      -----------       -----------      -----------

Interest expense:
Deposits                                                    331,835          458,527           680,773          937,306
Advances from Federal Home Loan Bank                         68,737           73,034           142,983          144,178
                                                        -----------      -----------       -----------      -----------

Total interest expense                                      400,572          531,561           823,756        1,081,484
                                                        -----------      -----------       -----------      -----------

Net interest income                                       1,032,922          933,010         2,032,183        1,866,148

Provision for losses on loans                                60,000           57,500           120,000          138,300
                                                        -----------      -----------       -----------      -----------

Net interest income after provision for
  losses on loans                                           972,922          875,510         1,912,183        1,727,848
                                                        -----------      -----------       -----------      -----------

Non-interest income:
Fees, commissions and service charges                       184,713          149,547           363,458          310,808
Gain (loss) on sale of securities, net                       44,045           (2,363)          144,946           12,621
Gain on sale of mortgage loans                                8,484           24,525            37,512           37,161
Impairment loss on equity securities                             --               --                --         (161,662)
Other                                                            --           18,972                --           18,972
                                                        -----------      -----------       -----------      -----------

Total non-interest income                                   237,243          190,681           545,917          217,900
                                                        -----------      -----------       -----------      -----------

Non-interest expense:
Compensation, payroll taxes and employee benefits           389,823          323,022           781,600          657,122
Advertising                                                  30,776           19,523            66,219           35,083
Office property and equipment                               123,324           92,526           246,089          175,148
Federal insurance premiums and special assessments            2,815            3,067             5,864            6,193
Data processing services                                     52,225           50,294           102,125          105,787
Other real estate                                            25,238           (2,841)           49,701            9,582
Other                                                       109,359           90,757           185,442          174,697
                                                        -----------      -----------       -----------      -----------

Total non-interest expense                                  733,559          576,648         1,437,039        1,163,612
                                                        -----------      -----------       -----------      -----------

Earnings before taxes                                       476,605          489,843         1,021,060          782,136

Taxes                                                       156,750          166,400           345,200          259,400
                                                        -----------      -----------       -----------      -----------

Net earnings                                            $   319,855      $   323,443       $   675,860      $   522,736
                                                        ===========      ===========       ===========      ===========

     Earnings per common share -
       Basic                                            $      0.42      $      0.43       $      0.89      $      0.69
       Diluted                                          $      0.41      $      0.42       $      0.88      $      0.68
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -3-
<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                 Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
                                                                         Three Months Ended               Six Months Ended
                                                                             December 31,                    December 31,
                                                                         2003            2002           2003            2002
                                                                         ----            ----           ----            ----
                                                                             (Unaudited)                     (Unaudited)
<S>                                                                 <C>             <C>            <C>             <C>
Net income                                                          $ 319,855       $ 323,443      $ 675,860       $ 522.736

Other Comprehensive Income:
   Unrealized gains (losses) on securities available-for-sale:
      Unrealized holding gains (losses) arising
         during the period, net of tax                                 24,130          54,395        (50,043)         59,497
   Reclassification adjustment for net (gains) losses
         included in net income, net of tax                           (27,616)          1,482        (90,881)         93,449
                                                                    ---------       ---------      ---------       ---------

Other comprehensive (loss) income, net of tax                          (3,486)         55,877       (140,924)        152,946
                                                                    ---------       ---------      ---------       ---------

Comprehensive income                                                $ 316,369       $ 379,320      $ 534,936       $ 675,682
                                                                    =========       =========      =========       =========

See Notes to Consolidated Financial Statements.
</TABLE>


                                      -4-
<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                         December 31,
                                                                                  2003               2002
                                                                                  ----               ----
                                                                                         (Unaudited)
<S>                                                                       <C>                <C>
Cash flows from operating activities:
Net earnings                                                              $    675,860       $    522,736
Adjustments to reconcile net earnings to net cash provided
by operating activities:
   Depreciation                                                                100,267             71,524
   Amortization of fees, premiums and accretion of discounts, net               79,326             39,786
   Provision for losses on loans                                               120,000            138,300
   Loans originated for sale                                                (7,976,540)        (5,644,011)
   Proceeds on sales of loans                                                8,288,658          5,121,497
   Gain on sale of mortgage loans                                              (37,512)           (37,161)
   Gain on sale of securities                                                 (144,946)           (12,621)
   Impairment loss on securities                                                    --            161,662
   Reinvested dividends                                                        (40,261)                --
   (Loss) gain on sale of fixed assets                                             (55)                35
   Decrease in accrued interest receivable                                      10,496             19,162
   Increase (decrease) in accrued taxes receivable/payable                     114,804           (405,237)
   Other, net                                                                 (315,271)          (236,074)
                                                                          ------------       ------------

Net cash provided by (used in) operating activities                            874,826           (260,402)
                                                                          ------------       ------------

Cash flows from investing activities:
   Securities available-for-sale:
     Purchases                                                              (4,077,543)        (4,064,406)
     Proceeds from sale                                                      2,700,681          1,054,223
     Proceeds from maturity and principal collected                          3,031,521          2,311,977
   Redeem Federal Home Loan Bank stock                                         132,800                 --
   Loans to customers, net                                                  (5,260,435)          (528,528)
   Proceeds from sale of real estate                                           301,909            190,386
   Purchase of office property and equipment                                  (452,006)          (207,376)
                                                                          ------------       ------------

Net cash used in investing activities                                       (3,623,073)        (1,243,724)
                                                                          ------------       ------------

Cash flows from financing activities:
   Increase in deposits                                                      2,248,432          3,749,577
   Decrease in advance payments by borrowers for taxes and insurance          (214,229)          (233,345)
   Principal payments on advances from Federal Home Loan Bank               (1,345,115)           (14,011)
   Proceeds from advances Federal Home Loan Bank                               707,500                 --
   Net proceeds from options exercised                                         125,069              9,459
   Treasury stock acquired                                                      (1,300)                --
   Payment of dividends                                                        (82,552)           (75,318)
                                                                          ------------       ------------

Net cash provided by financing activities                                    1,437,805          3,436,362
                                                                          ------------       ------------

Net (decrease) increase in cash and cash equivalents                        (1,310,442)         1,932,236

Cash and cash equivalents at beginning of period                             5,303,912          8,124,566
                                                                          ------------       ------------
Cash and cash equivalents at end of period                                $  3,993,470       $ 10,056,802
                                                                          ============       ============

Supplemental disclosures of cash flow information:
   Cash paid during the period for:
     Interest                                                             $  1,076,568       $  1,318,340
     Taxes                                                                     230,326            661,108
   Noncash investing and financing activities:
     Transfers from loans to other real estate                            $     63,673       $     96,256
                                                                          ============       ============
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -5-
<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                   Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION

The consolidated financial statements for the three and six months ended
December 31, 2003 and December 31, 2002 are unaudited. In the opinion of
management of Horizon Financial Services Corporation (the "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, 2003 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, 2003. 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 offer and sell to
the clients of the Bank investment products including insurance, mutual funds,
equities, and real estate investment trusts. 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 and six month periods
ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                             Three Months Ended           Six Months Ended
                                                                 December 31,               December 31,
                                                               2003           2002           2003           2002
<S>                                                       <C>            <C>            <C>            <C>
Net Earnings                                              $ 319,855      $ 323,443      $ 675,860      $ 522,736
                                                          =========      =========      =========      =========

Basic earnings per share:

Weighted average number of common shares outstanding        768,621        753,332        761,085        753,257
                                                          ---------      ---------      ---------      ---------

Earnings per common share - basic                         $    0.42      $    0.43      $    0.89      $    0.69
                                                          =========      =========      =========      =========

Diluted earnings per share:

Weighted average number of common shares outstanding        768,621        753,332        761,085        753,257

Assumed incremental option shares
     using the treasury stock method                          5,667         17,469          7,227         17,702
                                                          ---------      ---------      ---------      ---------

Common and common equivalent shares outstanding             774,288        770,801        768,312        770,959
                                                          =========      =========      =========      =========

Earnings per common share - diluted                       $    0.41      $    0.42      $    0.88      $    0.68
                                                          =========      =========      =========      =========
</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 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 principal business of the Company (through its operating subsidiary, the
Bank), has historically consisted of attracting deposits from the general public
and making residential and commercial real estate loans, commercial business
loans and a variety of consumer loans. 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 gain on securities available for sale and mortgage
loans, 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 Mahaska and Marion County markets are
improving slightly. Currently, farm prices for grain are improving, so many
farmers are seeing an increase in income. However, livestock farmers are not
having a year that compares to grain farmers, somewhat due to declining
livestock prices last quarter partially in response to the mad cow disease
publicity. Both of our Mahaska and Marion County markets are experiencing a
decline in some lines of retail business. Economic conditions in Polk County are
better and offer the Bank a good opportunity to extend its service area through
the Bank's new loan production office in Pleasant Hill. In the event current
economic and market conditions persist or worsen in the Mahaska and Marion
County markets, loan demand and existing loans may be affected, which could
adversely affect the financial condition and the 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


                                      -8-
<PAGE>

(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.

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

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

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

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

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

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

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

o     technological changes;

o     acquisitions;

o     changes in consumer spending and saving habits; and

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

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

FINANCIAL CONDITION

The Company's total assets at December 31, 2003 of $93.1 million increased $1.8
million, or 1.9%, from $91.3 million at June 30, 2003. This increase is
primarily attributable to an increase in loans receivable, net, of $4.8 million,
or 7.4%, from $65.0 million at June 30, 2003 to $69.8 million at December 31,
2003 and an increase in office property and equipment of $352,000 as the Bank
began construction of the new bank office in Pleasant Hill, Iowa. Offsetting
these increases were a cash and cash equivalents decrease of $1.3 million, or
24.7%, from $5.3 million at June 30, 2003 to $4.0 million at December 31, 2003.
Accompanying this decrease was a decrease in securities available-for-sale of
$1.8 million , or 10.3% from $17.2 million at June 30, 2003 to $15.4 million at
December 31, 2003.

Total liabilities increased $1.2 million, or 1.5%, to $82.1 million at December
31, 2003 from $80.9 million at


                                      -9-
<PAGE>

June 30, 2003. Deposits continue to increase from $74.4 million at June 30, 2003
to $76.7 million at December 31, 2003, a 3.0% increase, or $2.25 million.
Partially offsetting the increase in deposits were decreases in advances from
Federal Home Loan Bank ("FHLB") of $638,000, accrued expenses and other
liabilities $272,000, and advance payments by borrowers for taxes and insurance
$214,000. Total stockholders' equity increased $576,000 from $10.4 million at
June 30, 2003 to $11.0 million at December 31, 2003, the result of an increase
of $577,000 in retained earnings and a decrease in Treasury stock of $140,000.
The Company disbursed 22,740 shares of Treasury stock as exercised employee
stock options. Accumulated other comprehensive income decreased $141,000. There
were no other significant changes in the components of the Company's balance
sheet.

RESULTS OF OPERATIONS

The Company's results of operations depend primarily on the level of its net
interest income and non-interest income and the level of operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and interest rates earned or paid on such assets or
liabilities. The Company's non-interest income consists primarily of fees
charged on transaction accounts which help to offset the costs associated with
establishing and maintaining these accounts, and to a lesser extent, gains or
losses on sale of securities. The principal components of the Company's non-
interest expense has historically been compensation and related expense, as well
as property and equipment expense.

Comparison of three month and six month periods ended December 31, 2003 and
December 31, 2002.

GENERAL

Net earnings for the three months ended December 31, 2003 decreased slightly by
$3,600 to $320,000 or $0.41 per share, fully diluted, from $323,400, or $.042
per share, fully diluted for the three month period ended December 31, 2002. The
decrease in net earnings for the quarter was primarily attributable to increased
total non-interest expense of $157,000. The increase in non-interest expense was
attributable primarily to increases in compensation and in office property and
equipment during the period. The increase in non-interest expense was partially
offset by an increase in non-interest income of $46,000 and an increase in net
interest income prior to provisions for losses on loans of $100,000, as interest
on deposits and FHLB advances declined offset in part by decreased interest
income. Taxes on income decreased for the three month period ended December 31,
2003 compared to the same period ended 2002.

Net earnings for the six month period ended December 31, 2003 increased $153,000
to $676,000 or $0.88 per share, fully diluted, for the period ended December 31,
2003 compared to net earnings of $523,000 or $0.68 per share, fully diluted for
the six month period ended December 31, 2002. Increases for the six month period
were generally attributable to the recognition of the $162,000 impairment loss
on an equity security in the first quarter of fiscal 2003. Non-interest income
increased $328,000 reflecting the $162,000 impairment loss and $132,300 gain on
sale of securities for the six month period ended December 31, 2003 over the six
month period ended December 31, 2002. Net interest income, prior to provisions
for losses on loans, increased $166,000 to $2.0 million from $1.9 million for
the six months ended December 31, 2003 as compared to the six months ended
December 31, 2002 largely as a result of reduced interest paid on deposits of
$257,000. As with the results for the three month period, the decrease in
interest expense and the smaller decrease in interest income, were primarily
attributable to decreases in interest rates. Taxes on income increased $85,800,
or 33.1% for the six month period ended December 31, 2003 compared to the six
month period ended 2002.


                                      -10-
<PAGE>

INTEREST INCOME

Interest income decreased $31,000, or 2.1%, to $1.43 million for the three month
period ended December 31, 2003 compared to $1.46 million for the three month
period ended December 31, 2002 and $92,000, or 3.1%, to $2.86 million for the
six month period ended December 31, 2003 compared to $2.95 million for the
period ended December 31, 2002. The decrease for the three month period was
primarily the result of a 23 basis point decrease in the weighted average yield
on average interest-earning assets to 6.43% for the three month period ended
December 31, 2003 as compared to 6.66% for the same period in 2002. Average net
loans receivable increased $2.55 million, while the weighted average yield on
loans decreased 48 basis points to 7.36% for the three month period ended
December 31, 2003 from 7.84% for the same period ended 2002, resulting in an
overall decrease in interest and fees on loans of $31,000. For the three month
period other interest income decreased $14,700, or 68.2%. The average
outstanding balance of other interest-earning assets decreased substantially by
$3.92 million from $8.57 million to $4.65 million, and the average yield on
other interest-earning assets for the three month period decreased 50 basis
points to .33% for the period ended December 31, 2003 from .83% for the three
month period ended December 31, 2002. Offsetting these decreases was an increase
in interest on securities available-for-sale as average balance for the three
month period ended December 31, 2003 were $15.5 million compared to $12.9
million for the same period in 2002. Weighted average yield for the December 31,
2003 period decreased 40 basis points to 4.23% from 4.63% for the comparable
period in 2002 as a result of sale, purchase, and prepayment activity in the
available-for-sale portfolio and reduced rates on investments due to market
conditions. The increase in interest on securities available-for-sale for the
three month period ended December 31, 2003 compared to the same period in 2002
was $14,700, or 9.9%.

For the six month period results were similar with an overall decrease in
interest income of $91,700 to $2.86 million for the period ended December 31,
2003 compared to $2.95 million for the period ended 2002. Interest and fees on
loans decreased $91,400 to $2.5 million for the period ended December 31, 2003
from $2.6 million for the six month period ended December 31, 2002 as average
loans for the period increased $1.6 million and average yield on loans
receivable decreased 46 basis points to 7.49% for the period ended 2003 compared
to 7.95% for the six month period ended December 31, 2002. For the six month
period other interest income decreased $31,500, or 70.8%. Average yield on other
interest-earning assets for the six month period decreased 63 basis points to
..29% for the six month period ended December 31, 2003 from .92% for the period
ended December 31, 2002 and average balance of other interest-earning assets
decreased $3.08 million from $7.91 million to $4.83 million. Interest on
securities available-for-sale increased for the six month period ended December
31, 2003 as compared to 2002. Interest on securities available-for-sale
increased $31,000 to $315,000 for the six month period ended 2003 compared to
$284,000 for the period ended 2002, a 11.0% increase. Average yield on
securities available-for-sale for the six month period decreased 53 basis points
to 4.00% for the period ended December 31, 2002 from 4.53% for the six month
period ended December 31, 2002.

INTEREST EXPENSE

Interest expense decreased $131,000 to $400,600 from $531,600, a 24.6% decrease,
for the three month period, and $257,700 to $823,800 from $1,081,500, a 23.8%
decrease, for the six month period ended December 31, 2003 as compared to the
same periods ended 2002. The decrease in interest expense was ultimately due to
the weighted average rate on deposits decrease of 70 basis points to 1.75% for
the three month period ended December 31, 2003 from 2.45% for the comparable
period ended December 31, 2002. Average outstanding balance of deposits
increased $1.1 million to $76.0 million for the three month period ended
December 31, 2003 from $74.9 million for the three month period ended December
31, 2002. Contributing to the decrease in interest expense was a decrease in
interest on FHLB advances for the three month period ended December 31, 2003 as
compared to the same period ended December 31, 2002. Interest


                                      -11-
<PAGE>

on advances decreased $4,300 to $68,700 from $73,000 for the three month period.
This decrease is attributable to a decreased weighted average rate of 4.86% for
the period ended 2003 compared to 5.25% for the period ended 2002. There was a
$100,000 increase in average balance of advances for the three month period
ended 2003 compared to the same period ended 2002.

The decrease in interest expense for the six month period ended December 31,
2003 was primarily the result of decreased interest on deposits. Interest on
deposits for the six month period ended December 31, 2003 decreased $257,000, or
27.4%, to $681,000 from $937,000 for the six month period ended December 31,
2002. The weighted average rate on deposits decreased 73 basis points to 1.81%
for the six month period ended December 31, 2003 as compared to 2.54% for the
same period ended 2002, while the average balance of deposits for the six month
periods being compared increased $1.5 million. There was a slight decrease in
interest on FHLB advances of $1,200 for the six month periods being compared.

NET INTEREST INCOME

Net interest income was $1.03 million and $2.03 million for the three month and
six month periods ended December 31, 2003, compared to $933,000 and $1.87
million for the comparable periods in 2002, increases of 10.7% and 8.9%,
respectively. The Company's net interest margin increased 39 basis points to
4.63% for the three month period ended December 31, 2003 as compared to 4.24%
for the same period ended December 31, 2002 and increased 29 basis points to
4.59% for the six month period ended December 31, 2003 as compared to 4.30% for
the six month period ended December 31, 2002.

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 $120,000 for the six month period ended
December 31, 2003 as compared to $138,300 for the same period ended 2002, a
$18,300 decrease, as the Company continues to adjust its allowance for losses on
loans in response to its assessment of local and national economic conditions
and their affect on the Company and its customers. As of December 31, 2003, the
Company's non-performing assets, consisting of nonaccrual loans, real estate
owned and repossessed consumer property, totaled $2,836,000 or 3.05% of total
assets, compared to $2,998,000 or 3.28% of total assets as of June 30, 2003. As
of December 31, 2003, the Company's allowance for losses on loans was $629,000,
representing 22.2% of non- performing assets and .90% of net loans receivable,
compared to allowance for losses on loans at June 30, 2003 of $556,000,
representing 18.5% of non-performing assets and .86% of net loans receivable.

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


                                      -12-
<PAGE>

NON-INTEREST INCOME

Non-interest income increased to $237,200 and $545,900 for the three and six
month periods ended December 31, 2003, respectively, compared to $190,700 and
$217,900 for the periods ended December 31, 2002. The increase for the three
month period ended December 31, 2003 was primarily attributable to a $46,400
increase in gain on sale of securities and a $35,000, or 23.5%, increase in
fees, commissions and service charges. Partially offsetting these increases were
decreased gain on sale of mortgage loans of $16,000 for the three month period
ended December 31, 2003 and decreased other non-interest income of $19,000.

For the six month period the $328,000 increase was attributable to the recorded
$161,660 impairment loss on equity securities in the December 31, 2002 period
and a $132,300 increase in gain on sale of securities and a $52,600, or 16.9%,
increase in fees, commissions and service charges for the period ended 2003.
Other non-interest income also decreased $19,000 for the six month period ended
December 31, 2003.

NON-INTEREST EXPENSE

Total non-interest expense was $733,600 and $1.44 million for the three and six
month periods ended December 31, 2003, respectively, compared to $576,300 and
$1.16 million for the same periods in 2002. This is a $157,200 increase, or
27.3%, for the three month period ended December 31, 2003 as compared to the
same period ended 2002 and a $273,400 increase, or 23.5%, for the comparable six
month periods. Compensation and employee benefits expenses, the largest
component of non-interest expense, increased $66,800, or 20.7%, and $124,500, or
18.9%, for the three and six month periods, respectively, ended December 31,
2003 as compared to the same period ended December 31, 2002 primarily due to the
hiring of additional personnel and increased benefit costs. Office property and
equipment increased for both the three month and six month periods ended
December 31, 2003 compared to the same periods in 2002 by $30,800 and $70,900
primarily the result of increased depreciation and technology consulting on
equipment. Advertising costs also increased for both periods $11,000, or 57.6%,
for the comparable three month periods and $31,000, or 88.8%, for the six month
period as the Company began promotion of the upcoming bank office in Pleasant
Hill, IA which is expected to open late Spring 2004. Other real estate expense
increase for both the three and six month periods being compared primarily the
result of a loss on sale of real estate owned.

TAXES ON INCOME

Income taxes decreased $9,600 for the three month period ended December 31, 2003
as compared to the same period ended December 31, 2002, but increased $85,800
for the comparable six month periods. The income tax decrease for the three
month period is the result of decreased earnings before taxes on income, while
the increase for the six month period ended 2003 is the result of increased six
month earnings largely attributable to the impairment loss on equity securities
in the December 31, 2002 period. The effective tax rate for the three month
period ended December 31, 2003 was 32.9% compared to 34.0% for the same period
ended 2002. For the six month period ended December 31, 2003, the effective tax
rate was 33.8% compared to 33.2% for the same period in fiscal 2002.


                                      -13-
<PAGE>

COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is engaged in various issues
involving litigation. Management believes that none of this litigation is
material to the Company's results of operations.

CRITICAL ACCOUNTING POLICIES

The Company has identified one critical accounting policy and practice relative
to the financial conditions and results of operation. This accounting policy
relates to the allowance for losses on loans.

The allowance for losses on loans is based on management's opinion, and is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
loan portfolio, and management's estimate of probable credit losses. The
allowance for losses on loans is established through a provision for losses
based on management's evaluation of the risk inherent in the loan portfolio, the
composition of the portfolio, specific impaired loans, and current economic
conditions. Such evaluation, which includes a review of all loans on which full
collectibility may not be reasonably assured, considers among other matters, the
estimated net realizable value or the fair value of the underlying collateral,
economic conditions, historical loss experience, and other factors that warrant
recognition in providing for an adequate allowance for loan losses.

In the event that management's evaluation of the level of the allowance for
losses on loans is inadequate, the Company would need to increase its provision
for loan losses.

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 Company has historically maintained its liquidity ratio at, or above, the
level needed to meet its operational needs. The Bank's liquidity ratio was 6.61%
on December 31, 2003 and 9.14% on June 30, 2003.

At December 31, 2003, the Company had advances of $4.91 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. At December 31, 2003, the Company had
outstanding commitments to extend credit which amounted to $5.26 million
(including $1.28 million in available revolving commercial lines of credit). At
December 31, 2003, certificates of deposit scheduled to mature in one year or
less totaled $16.8 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 Company adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected


                                      -14-
<PAGE>

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, 2003, the Company had tangible and core capital of $8.8 million,
or 9.6% of adjusted total assets, which was approximately $7.4 million and $5.1
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, 2003, the Bank had
risk-based capital of $9.4 million (including $8.8 million in core capital), or
14.2% of risk- weighted assets of $66.0 million. This amount was $4.1 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 January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 addresses consolidation by business
enterprises of variable interest entities that have certain characteristics. It
requires a business enterprises that has a controlling interest in a variable
interest entity (as defined by FIN 46) to include the assets, liabilities, and
results of the activities of the variable interest entity in the consolidated
financial statements of the business enterprise. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
For variable interest acquired before February 1, 2003, it applies in the first
fiscal year or interim period beginning after June 15, 2003. During 2003, FASB
delayed the implementation date for those provisions until the fourth quarter of
2003. Accordingly, the Company adopted FIN 46 during the fourth quarter of 2003.
The impact of adopting FIN 46 was not material as the Company does not presently
have any variable interest entities.

In April 2003, the FASB issued SFAS No 149, Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends SFAS No. 133
for decisions made (1) as part of the Derivatives Implementation Group process
that effectively required amendments to SFAS No. 133, (2) in connection with
other FASB projects dealing with financial instruments, and (3) in connection
with implementation issues raised in relation to the application of the
definition of a derivative, in particular, the meaning of "an initial net
investment that is smaller than would be required for other types of contracts
that would be expected to have a similar response to changes in market factors,"
the meaning of "underlying," and the characteristics of a derivative that
contains financing components. SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The Company adopted SFAS No. 149 as indicated
above and such adoption did not have a material effect on its financial position
or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," ("SFAS No.150") which requires issuers of financial
instruments to classify as liabilities certain freestanding financial
instruments that embody obligations for the issuer. SFAS No.150 was effective
for all freestanding financial instruments entered into or modified after May
31, 2003 and was otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. On October 29, 2003, the FASB voted to
defer for an indefinite period the application of the guidance in SFAS No.150 to
non-controlling interests that are classified as equity in the financial
statements of a subsidiary but would be classified as a liability on the
parent's financial statements. The adoption of the sections of this Statement
that have not been deferred did not have a significant impact on the Company's
financial condition or results of operations. The section noted above that has
been deferred indefinitely is not expected to have a significant impact on the
Company's financial condition or results of operations.


                                      -15-
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.

Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act)) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.

Internal Control Over Financial Reporting

There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.


                                      -16-
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. Legal Proceedings

        None, other than debt collection in the ordinary course of business.

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 23, 2003

            (b)   Not required

            (c)   The matters approved by stockholders at the Meeting and number
                  of votes cast for, against or withheld (as well as the number
                  of abstentions and broker non-votes, if any) as to each matter
                  are set forth below:

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

             Thomas L. Gillespie                                           667,463                   16,500
             Norman P. Zimmerman                                           669,263                   14,700

<CAPTION>
                                                                              For        Against    Abstain
                                                                           -------       -------    -------
<S>                                                                        <C>              <C>       <C>
Ratification of the appointment of KPMG LLP
as the Company's auditors for the                                          682,913          50        1,000
fiscal year ending June 30, 2004
</TABLE>

ITEM 5. Other Information

        None

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

        (a)   Exhibits:

              See Index to Exhibits

        (b)   The following is a description of the Form 8-K furnished during
              the three months ended December 31, 2003:

              On November 3, 2003, current report on Form 8-K was furnished to
              announce the Company's earnings for the quarter ended September
              30, 2003.


                                      -17-
<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 09, 2004                    /s/ Robert W. DeCook
                                          --------------------------------------
                                          Robert W. DeCook
                                          President and Chief Executive Officer


Date: February 09, 2004                    /s/ Vicki Hladik
                                          --------------------------------------
                                          Vicki Hladik
                                          Chief Financial Officer


                                      -18-
<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)

   31.1           Certification pursuant to Rule 13a-14(a)

   31.2           Certification pursuant to Rule 13a-14(a)

   32             Certification pursuant to Rule 13a-14(b)


                                      -19-