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

                                   FORM 10-QSB

(Mark One)

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

                 For the quarterly period ended March 31, 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                                            42-1419757
--------------------------------------------------------------------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)





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


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

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


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

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

           Common Stock                                     751,462
        ------------------                           ---------------------
               Class                                  Shares Outstanding
                                                      as of May 03, 2002

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


              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY

                                      INDEX


Part I. Financial Information                                               Page

         Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheets at March 31, 2002 and June 30, 2001      1

         Consolidated Statements of Operations for the three months and       2
         nine months ended March 31, 2002 and 2001

         Consolidated Statements of Comprehensive Income for the three months 3
         and nine months ended March 31, 2002 and 2001

         Consolidated Statements of Cash Flows for the nine months ended      4
         March 31, 2002 and 2001

         Notes to Consolidated Financial Statements                           5

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


Part II. Other Information                                                    13

         Signatures                                                           14

         Index of Exhibits                                                    15


<PAGE>

                                                      PART I

ITEM 1.  FINANCIAL STATEMENTS


              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                              March 31,         June 30,
                                                                 2002              2001
                                                            ------------      ------------
                                                             (Unaudited)
Assets
------
<S>                                                         <C>               <C>
Cash and cash equivalents                                   $  9,315,942      $  5,591,526
Securities available-for-sale                                 11,009,294        15,525,117
Loans receivable, net                                         65,427,263        65,445,714
Real estate                                                      367,541           280,458
Stock in Federal Home Loan Bank, at cost                         509,200           480,100
Office property and equipment, net                             1,307,366         1,253,741
Accrued interest receivable                                      602,173           682,183
Deferred tax asset                                               120,000            85,550
Prepaid expenses and other assets                                 59,433            71,499
                                                            ------------      ------------

     Total assets                                           $ 88,718,212      $ 89,415,888
                                                            ------------      ------------

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

Deposits                                                    $ 72,833,620      $ 69,871,926
Advances from Federal Home Loan Bank                           5,575,418         9,592,627
Advance payments by borrowers for taxes and insurance            261,018           393,550
Accrued income taxes                                             342,539           191,603
Accrued expenses and other liabilities                           549,052           919,996
                                                            ------------      ------------

     Total liabilities                                        79,561,647        80,969,702
                                                            ------------      ------------

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                                     5,022,511         5,022,511
Retained earnings, substantially restricted                    6,334,199         5,565,793
Treasury stock, at cost, 294,736 shares                       (2,129,894)       (2,129,894)
Accumulated other comprehensive loss                             (80,713)          (22,686)
                                                            ------------      ------------

     Total stockholders' equity                                9,156,565         8,446,186
                                                            ------------      ------------

Total liabilities and stockholders' equity                  $ 88,718,212      $ 89,415,888
                                                            ============      ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       -1-

<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                            Three Months                   Nine months
                                                           Ended March 31,                Ended March 31,
                                                        2002            2001           2002             2001
                                                        ----            ----           ----             ----
                                                            (Unaudited)                      (Unaudited)
<S>                                                 <C>             <C>             <C>             <C>
Interest income:
Interest and fees on loans                          $ 1,330,258     $ 1,379,132     $ 4,050,907     $ 4,090,964
Interest on securities available-for-sale               161,927         239,359         550,296         728,374
Other interest income                                    20,623          44,746          85,508          81,106
                                                    -----------     -----------     -----------     -----------

Total interest income                                 1,512,808       1,660,237       4,686,711       4,900,444
                                                    -----------     -----------     -----------     -----------

Interest expense:
Interest on deposits                                    509,678         866,662       1,881,842       2,525,650
Interest on FHLB advances                                72,975         130,697         296,475         415,751
                                                    -----------     -----------     -----------     -----------

Total interest expense                                  582,653         997,359       2,178,317       2,941,401
                                                    -----------     -----------     -----------     -----------

Net interest income                                     930,155         662,878       2,508,394       1,959,043

Provision for losses on loans                           127,500          52,000         214,000         217,247
                                                    -----------     -----------     -----------     -----------

Net interest income after provision for
  losses on loans                                       802,655         610,878       2,294,394       1,741,796
                                                    -----------     -----------     -----------     -----------

Non-interest income:
Fees, commissions and service charges                   166,700         145,784         509,974         432,166
Gain (loss) on sale of securities                       128,092          15,505         196,057         (12,701)
                                                    -----------     -----------     -----------     -----------

Total non-interest income                               294,792         161,289         706,031         419,465
                                                    -----------     -----------     -----------     -----------

Non-interest expense:
Compensation, payroll taxes and
  employee benefits                                     324,057         280,031         930,301         853,978
Advertising                                              22,500          19,489          53,799          54,739
Office property and equipment                            76,893          77,099         206,460         235,874
Federal deposit insurance premiums                        3,210           8,370          20,533          24,419
Data processing services                                 49,099          48,015         139,610         134,765
Other real estate                                        31,592          13,442          39,032          16,761
Other                                                    84,704          83,713         293,336         296,552
                                                    -----------     -----------     -----------     -----------

Total non-interest expense                              592,055         530,159       1,683,071       1,617,088
                                                    -----------     -----------     -----------     -----------

Earnings before taxes on income                         505,392         242,008       1,317,354         544,173

Taxes on income                                         175,900          82,200         447,500         177,900
                                                    -----------     -----------     -----------     -----------

Net earnings                                        $   329,492     $   159,808     $   869,854     $   366,273
                                                    ===========     ===========     ===========     ===========

     Earnings per common share-
       Basic                                        $      0.44     $      0.21     $      1.16     $      0.46
       Diluted                                      $      0.43     $      0.21     $      1.14     $      0.45
</TABLE>


See Notes to Consolidated Financial Statements.

                                       -2-
<PAGE>


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

                                                            Three Months Ended             Nine Months Ended
                                                                 March 31,                     March 31,
                                                            2002           2001           2002           2001
                                                            ----           ----           ----           ----
                                                                (Unaudited)                    (Unaudited)
<S>                                                       <C>            <C>            <C>            <C>
Net income                                                $ 329,492      $ 159,808      $ 869,854      $ 366,273

Other Comprehensive Income:
   Unrealized gains on securities available for sale:
      Unrealized holding gains arising
         during the period, net of tax                       52,083        221,993         64,901        514,413
   Reclassification adjustment for net (gains) losses
         included in net income, net of tax                 (80,314)        (9,722)      (122,928)         7,964
                                                          ---------      ---------      ---------      ---------
Other comprehensive income (loss), net of tax               (28,231)       212,271        (58,027)       522,377
                                                          ---------      ---------      ---------      ---------

Comprehensive income                                      $ 301,261      $ 372,079      $ 811,827      $ 888,650
                                                          ---------      ---------      ---------      ---------
</TABLE>



See Notes to Consolidated Financial Statements.

                                       -3-
<PAGE>

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

                                                                               Nine months ended
                                                                                    March 31,
                                                                              2002             2001
                                                                              ----             ----
                                                                                   (Unaudited)
<S>                                                                      <C>              <C>
Cash flows from operating activities:
Net earnings                                                             $   869,854      $   366,273
Adjustments to reconcile net earnings to net cash provided
by operating activities:
   Depreciation                                                               79,841           87,986
   Amortization of fees, premiums and accretion of discounts, net             52,534            5,120
   Provision for losses on loans                                             214,000          217,247
   Loans originated for sale                                              (8,317,765)      (2,461,950)
   Proceeds on sales of loans                                              8,370,702        2,284,261
   (Gain) loss on sale of securities                                        (196,057)          12,701
   Reinvested dividends                                                      (12,995)              --
   Gain on sale of fixed assets                                                 (535)              --
   Decrease in accrued interest receivable                                    80,010            7,121
   Increase (decrease) in accrued income taxes                               150,936          (60,965)
   Amortization of stock compensation plans                                       --            5,593
   Other, net                                                               (337,740)         128,944
                                                                         -----------      -----------

Net cash provided by operating activities                                    952,785          592,331
                                                                         -----------      -----------

Cash flows from investing activities:
   Securities available-for-sale:
      Purchases                                                           (5,540,850)      (1,601,405)
      Proceeds from sale                                                   7,105,035        2,537,922
      Proceeds from maturity and principal collected                       3,015,679          828,958
   Loans to customers, net                                                  (476,707)      (3,001,396)
   Proceeds from sale of Federal Home Loan Bank stock                             --          222,400
   Purchase of Federal Home Loan Bank stock                                  (29,100)              --
   Proceeds from sale of real estate                                         120,000               --
   Purchase of office property and equipment, net                           (132,931)        (312,771)
                                                                         -----------      -----------

Net cash provided by (used in) investing activities                        4,061,126       (1,326,292)
                                                                         -----------      -----------

Cash flows from financing activities:
   Increase in deposits                                                    2,961,694        6,342,821
   Decrease in advance payments by borrowers for taxes and insurance        (132,532)        (128,796)
   Proceeds from advances from Federal Home Loan Bank                             --        3,500,000
   Principal payments on advances from Federal Home Loan Bank             (4,017,209)      (2,915,991)
   Treasury stock acquired                                                        --         (815,697)
   Payment of dividends                                                     (101,448)        (105,630)
                                                                         -----------      -----------

Net cash (used in) provided by financing activities                       (1,289,495)       5,876,707
                                                                         -----------      -----------

Net increase in cash and cash equivalents                                  3,724,416        5,142,746

Cash and cash equivalents at beginning of period                           5,591,526        1,981,511
                                                                         -----------      -----------
Cash and cash equivalents at end of period                               $ 9,315,942      $ 7,124,257
                                                                         ===========      ===========

Supplemental disclosures of cash flow information:
   Cash paid during the period for:
      Interest                                                           $ 2,597,422      $ 2,926,342
      Taxes                                                              $   296,564      $   238,867
   Noncash investing and financing activities:
      Transfer from loans to other real estate                           $   228,221      $        --
                                                                         ===========      ===========
</TABLE>


See Notes to Consolidated Financial Statements.

                                       -4-
<PAGE>

                     HORIZON FINANCIAL SERVICES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

The consolidated  financial statements for the three and nine months ended March
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 March 31, 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 generally  accepted  accounting  principles  that might
otherwise be necessary in the  circumstances  and should be read in  conjunction
with the  consolidated  financial  statements and notes therein  included in the
annual report of Horizon Financial Services  Corporation for the year ended June
30,  2001.   The  results  of  the  periods   presented   are  not   necessarily
representative of the results of operations and cash flows which may be expected
for the entire year.


2.  PRINCIPLES OF CONSOLIDATION

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


                                       -5-
<PAGE>

3.  EARNINGS PER SHARE

The following provides a reconciliation of the amounts used in the determination
of basic and  diluted  earnings  per share for the three and nine month  periods
ended March 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                               Three Months Ended           Nine Months Ended
                                                                     March 31,                  March 31,
                                                                2002          2001          2002          2001
                                                                ----          ----          ----          ----
<S>                                                          <C>           <C>           <C>           <C>
Net Earnings                                                 $ 329,492     $ 159,808     $ 869,854     $ 366,273
                                                             =========     =========     =========     =========


Basic earnings per share:
      Weighted average common shares outstanding               751,462       751,462       751,462       803,483

      Less unearned employee stock ownership plan shares            --            --            --          (315)
                                                             ---------     ---------     ---------     ---------
Weighted average number of common shares outstanding           751,462       751,462       751,462       803,168

Earnings per common share - basic                            $    0.44     $    0.21     $    1.16     $    0.46
                                                             =========     =========     =========     =========

Diluted earnings per share:
      Weighted average shares outstanding                      751,462       751,462       751,462       803,483

      Less unearned employee stock ownership plan shares            --            --            --          (315)

      Assumed incremental option shares
         using the treasury stock method                        14,853         4,002        12,294         6,262
                                                             ---------     ---------     ---------     ---------

Common and common equivalent shares outstanding                766,315       755,464       763,756       809,430
                                                             =========     =========     =========     =========

Earnings per common share - diluted                          $    0.43     $    0.21     $    1.14     $    0.45
                                                             =========     =========     =========     =========
</TABLE>

                                       -6-

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          -------------------------------------------------
          CONDITION AND RESULTS OF OPERATIONS
          -----------------------------------

GENERAL
-------

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

The 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 losses on loans,  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.

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.

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

                                       -7-

<PAGE>

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.  The Company does not
undertake  and  expressly  disclaims  any  intent or  obligation,  to update any
forward-looking statements,  whether written or oral, that may be made from time
to time by or on behalf of the Company or the Bank.


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

The  Company's  total  assets  at  March  31,  2002 of $88.7  million  decreased
$698,000, or .78% from $89.4 million at June 30, 2001. Cash and cash equivalents
increased  $3.7  million,  from $5.6 million at June 30, 2001 to $9.3 million at
March 31,  2002.  The  increase  in cash was the  result of  deposit  growth and
reduced reinvestment activity of funds received from maturing available-for-sale
securities  and principal  payments on  securities  as the Company  continues to
search for  desirable  investments.  Offsetting  the  increase  in cash and cash
equivalents was a decrease in securities  available-for-sale  of $4.5 from $15.5
million at June 30, 2001 to $11.0 million at March 31, 2002.  Loans  receivable,
net decreased slightly, $18,500, as loan origination volume for the bank remains
steady but sales of first  mortgage loan  originations  to the secondary  market
continue to increase.

Total liabilities decreased $1.4 million, or 1.7%, to $79.6 million at March 31,
2002 from $81.0 million at June 30, 2001,  the result of decreased  Federal Home
Loan Bank  ("FHLB")  advances,  offset in part by increases  in  deposits.  FHLB
advances  decreased  to $5.6 million at March 31, 2002 from $9.6 million at June
30, 2001 and deposits  increased  to $72.8  million at March 31, 2002 from $69.9
million at June 30, 2001. Total stockholders'  equity increased  $710,000,  from
$8.45 million at June 30, 2001 to $9.16 million at March 31, 2002, the result of
an increase of  $768,000 in retained  earnings  offset in part by an increase in
unrealized  losses on securities  available-for-sale  of $58,000.  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 its  non-interest
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

                                       -8-
<PAGE>

accounts  which  help to  offset  the costs  associated  with  establishing  and
maintaining these accounts,  and to a lesser extent,  gains or losses on sale of
securities.

Comparison  of three month and nine month periods ended March 31, 2002 and March
31, 2001

GENERAL
-------

Net earnings for the three month period ended March 31, 2002 increased $169,700,
or 106%,  to $329,000  from  $160,000 for the three month period ended March 31,
2001. The increase in net earnings for the quarter was primarily attributable to
increases  in both net  interest  income,  both before and after  provision  for
losses on loans, and  non-interest  income as interest paid on deposits and FHLB
advances  substantially  declined  while income from fees,  service  charges and
commissions  increased as did gains on sale of securities.  These increases were
offset in part by increased  taxes  attributable  to higher  income  during this
three month period and to increased  provisions  for losses on loans.  Provision
for losses on loans  increased  for the quarter from $52,000 for the three month
period  ended March 31, 2001 to $127,500 for the  comparable  period ended March
31, 2002 in response to some weakness in the current local economy. For the nine
months ended March 31, 2002,  net earnings  increased  137.5% , or $504,000 , to
$870,000 from $366,000 for the comparable  period ended 2001.  Increases for the
nine month period were also  generally  attributable  to increased  net interest
income,  both before and after  provisions for losses on loans,  and to a lesser
extent,  non-interest income for the current fiscal year as compared to the same
period in fiscal 2001.  Earnings per share increased by twenty-three and twenty-
two cents on a basic and fully diluted  basis,  respectively,  during this three
month  period  compared  to the same  period  in 2001,  and  earnings  per share
increased  seventy  and  sixty-nine  cents on a basic and fully  diluted  basis,
respectively,  for the nine month period compared to the equivalent period ended
March 31, 2001.  Both  earnings per share  increases  were due to increased  net
earnings for the periods as there was no stock  repurchase  activity  during the
periods.

Local  economic  conditions  in the Bank's market are not  improving.  Some area
employees are laying off employees and some are cutting  employees hours from 40
to 32 hours per week.  Currently,  farm prices for both grain and  livestock are
volatile and declining somewhat.  We are currently  experiencing decline in some
lines of 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.

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

Interest income  decreased  $147,000 to $1.51 million for the three month period
ended March 31, 2002  compared to $1.66 million for the three month period ended
March 31, 2001 and  $214,000 to $4.69  million for the nine month  period  ended
March 31, 2002  compared to $4.90  million for the period  ended March 31, 2001.
The  decreases  for both periods  were  primarily  due to decreased  interest on
securities  available-for-sale  as both  balances and  interest  rates earned on
securities  have  declined.  For the three  month  period  ended  March 31, 2002
interest on securities  available-for-sale  decreased  $77,400 from $239,400 for
the period  ended March 31, 2001 to $162,000 for the same period ended March 31,
2002. Average balance for securities for three month period ended March 31 ,2002
decreased  $3.1 million and the average yield on  securities  available-for-sale
decreased  93 basis points from 6.55% for the period ended 2001 to 5.62% for the
three month period ended 2002. For the nine month period results were similar as
interest on  securities  decreased  $178,000  from $728,000 for the period ended
March 31,  2001 to $550,000  for the nine month  period  ended  March 31,  2002.
Average yield on available-for-sale securities for the nine month period fell 92
basis  points  from 6.44% for the period  ended 2001 to 5.52% for the nine month
period ended March 31,2002 as average balance of  available-for-sale  securities
additionally  decreased $1.79 million for the nine month periods being compared.
Also  contributing to the decrease in interest income was a decrease in interest
and fees on loans.  Interest and fees on loans  decreased  $46,000 for the three
month  period  ended  March  31,  2002 as the  weighted  average  yield on loans
decreased  36 basis  points to 8.06% as  compared  to 8.40% for the three  month
period in 2001. The

                                       -9-
<PAGE>

average balance for loans receivable, net increased $470,000 for the three month
period ended March 31, 2002 compared to the same period ended 2001. For the nine
month period  ended March 31, 2002  weighted  average loan yield also  decreased
from 8.41% for the period ended 2001 to 8.20% for the current  quarter.  Average
balance for loans receivable, net increased $1,065,000 for the nine month period
ended 2002 as compared to the nine month  period  ended  March 31,  2001.  Other
interest  income  decreased  $24,000 for the three month  period ended March 31,
2002 as  compared to the same  period in 2001 the result of sharp  decreases  in
interest rates paid by FHLB on the Bank's demand and daily time accounts.

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

Interest  expense  decreased  $414,700 to $582,600  from  $997,300 for the three
month period and $763,000 to $2.18 million from $2.94 million for the nine month
period  ended  March 31,  2002 as  compared  to the same  periods  in 2001.  The
decrease in interest expense was  predominantly due to the weighted average rate
on deposits  decrease of 235 basis  points from 5.16% for the three month period
ended March 31, 2001 to 2.81% for the  comparable  period  ended March  31,2002.
Weighted  average rate on deposits  decreased  159 basis points to 3.48% for the
nine month  period ended March 31, 2002 as compared to 5.07% for the same period
in 2001.  Average  outstanding  balance of deposits  increased $5.4 million from
$67.1  million for the three month period ended March 31, 2001 to $72.5  million
for the three month period ended March 31, 2002 and increased  $5.6 million from
$66.5  million  to  $72.1  million  for  the   comparable   nine  month  period.
Contributing  to the decrease in interest  expense was a decrease in interest on
FHLB  advances  for the three and nine month  periods  ended  March 31,  2002 as
compared to the same  periods  ended March 31,  2001.  Interest on advances  and
other borrowings  decreased $57,700 to $73,000 from $130,700 for the three month
period and $119,300 to $296,500 from  $415,800 for the nine month  period.  This
decrease is attributable to reduced  average  borrowings of $3.82 million,  from
$9.65  million for the three month period  ended March 31,  2001,  at a weighted
average rate of 5.42%,  to $5.83  million for the same period  ended 2002,  at a
weighted  average  rate of 5.01%.  The  decrease in average  borrowings  for the
comparable  nine month  period was $2.35  million  from  $9.73  million,  with a
weighted  average  rate of 5.70%,  for the period  ended March 31, 2001 to $7.38
million, with a weighted average rate of 5.35%, for same period ended 2002.

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

Net interest income was $930,000 and $2.51 million for the three months and nine
months  ended March 31,  2002,  respectively,  compared  to  $663,000  and $1.96
million for the comparable periods ended 2001. The Company's net interest margin
increased  123 basis  points to 4.35% for the three month period ended March 31,
2002 as compared  to 3.12% for the same  period in 2001 and 73 basis  points for
the comparable nine month period,  from 3.14% to 3.87%.  The net interest margin
increased for both periods being compared, the result of decreased rates paid on
deposits and FHLB advances accompanied with a slower reduction in loan rates for
the Bank's loan  portfolio due to the lagging  market index used on the majority
of the Bank's  variable rate loans.  The Company does not expect the current net
interest  margin to continue  as rates paid on deposits  increase in response to
local competition and recovery in the national economy.

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

The provision for losses on loans is based on 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 $214,000 for the nine month period ended March
31,  2002 as compared to  $217,000  for the same period  ended 2001.  Additional
provisions  were applied in the 2002 period in response to some  weakness in the
local  economy  and in 2001 due to the  write-off  of a  commercial  loan with a
balance of $161,000. As of March 31, 2002, the Company's  non-performing assets,
consisting  of  nonaccrual  loans,   $1,748,000,   and  real  estate  owned  and
repossessed  consumer property,  $161,000,  totaled $1,909,000 or 2.15% of total
assets,  compared to $1,443,000 or 1.61% of total assets as of June 30, 2001. As
of March 31, 2002, the

                                      -10-
<PAGE>

Company's  allowance  for losses on loans was  $506,000,  representing  26.5% of
non-performing assets and .77% of net loans receivable.

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

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

Non-interest  income  increased  to $166,700 and $510,000 for the three and nine
months ended March 31, 2002, respectively, compared to $145,800 and $432,000 for
the same periods  ended March 31, 2001.  The increase for the three month period
ended  March  31,  2002  was  attributable  to a  $112,600  gain on the  sale of
available-for-sale  securities,  primarily gains on sale of equities sold by the
Company,  and to a lesser extent,  a $21,000  increase in fees,  commissions and
service  charges as a result of an increased  number of  fee-based  accounts and
enhanced fee collection efforts. For the nine month period ended March 31, 2002,
the  increase of  $286,600  was  primarily  attributable  to a $196,000  gain on
securities available-for-sale for the period ended March 31, 2002 as compared to
a $13,000 loss on securities  available-for-sale  for the period ended March 31,
2001. A $77,800 increase in fees, commissions,  and service charges for the nine
month  period  ended March 31, 2002  compared to the same period ended 2001 also
contributed to the increase in non-interest income.

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

Total non-interest  expense was $592,000 and $1.7 million for the three and nine
month periods ended March 31, 2002, respectively,  compared to $530,000 and $1.6
million  for the  same  periods  in 2001.  Compensation  and  employee  benefits
expenses,  the largest component of non-interest expense,  increased $44,000 and
$76,300 for the three and nine month periods ended March 31, 2002 as compared to
the same period ended March 31, 2001.  Other real estate  expense also increased
for both periods,  an increase of $18,000 for the three month period and $22,000
for the nine month period, the result of additional costs incurred in the repair
and  maintenance  of the  Bank's  REO  properties.  Partially  offsetting  these
increases  were decreases in office  property and equipment and federal  deposit
insurance premiums.

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

Income taxes  increased  $93,700 for the three month period ended March 31, 2002
as compared  to the same  period  ended March 31,  2001,  and  $269,600  for the
comparable nine month periods.  The income tax increases for the periods are the
result of increased  earnings before taxes on income. The effective tax rate for
the three month  period  ended March 31, 2002 was 34.8% as compared to 34.0% for
the same period  ended 2001.  For the nine month period ended March 31, 2002 the
effective tax rate was 34.0% compared to 32.7% for the same period ended 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

                                      -11-
<PAGE>

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 13.86% on
March 31, 2002 and 10.35% on June 30, 2001,  levels  considered by management to
be adequate for the Company's needs.

At March 31, 2002, the Company had advances of $5.6 million from the FHLB of Des
Moines outstanding. The Company uses its liquidity resources principally to meet
ongoing  commitments,  to fund  maturing  certificates  of deposit  and  deposit
withdrawals,  and to meet operating expenses. At March 31, 2002, the Company had
outstanding commitments to extend credit which amounted to $2,833,000 (including
$1.1 million in available  revolving  commercial lines of credit).  At March 31,
2002,  certificates  of deposit  scheduled to mature in one year or less totaled
$20.3 million.  Management  believes,  that loan repayments and other sources of
funds will be adequate to meet the Company's foreseeable liquidity needs.

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

At March 31, 2002,  the Bank had tangible and core capital of $7.0  million,  or
8.1% of adjusted  total assets,  which was  approximately  $5.7 million and $3.5
million above the minimum  requirements of 1.5% and 4.0%,  respectively,  of the
adjusted  total assets in effect on that date.  At March 31, 2002,  the Bank had
risk-based capital of $7.4 million (including $7.0 million in core capital),  or
13.3% of risk- weighted  assets of $55.7  million.  This amount was $3.0 million
above the 8.0%  requirement in effect on that date. The Bank is considered to be
well-capitalized.

                                      -12-

<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.   Legal Proceedings
          -----------------

          None

ITEM 2.   Changes in Securities
          ---------------------

          None

ITEM 3.   Defaults Upon Senior Securities
          -------------------------------

          None

ITEM 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

          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 March 31, 2002:

               On  January 23, 2002, current  report  on  Form 8-K was filed  to
               announce the Company's earnings for the three month and six month
               periods ended December 31, 2001.


                                      -13-

<PAGE>

                                   SIGNATURES


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


                                       HORIZON FINANCIAL SERVICES CORPORATION
                                       Registrant


Date: May 03, 2002                     /s/ Robert W. DeCook
                                       -------------------------------------
                                       Robert W. DeCook
                                       President and Chief Executive Officer




Date: May 03, 2002                     /s/ Vicki Hladik
                                       -------------------------------------
                                       Vicki Hladik
                                       Chief Financial Officer




                                      -14-
<PAGE>

                                   INDEX TO EXHIBITS

Exhibit
Number                                   Document
----------    ------------------------------------------------------------------

    3         The Articles of Incorporation and Bylaws,  filed on March 18, 1994
              as exhibits 3.1 and 3.2, respectively, to Registrants Registration
              Statement on Form S-1 (File No. 33-76674), are incorporated herein
              by reference.

    4         Registrant's  Specimen Stock Certificate,  filed on March 18, 1994
              as  Exhibit to  Registrant's  Registration  Statement  on Form S-1
              (File No. 33- 76674), is incorporated herein by reference.

    10.1      Employment  Agreements  between  the Bank and  Messrs.  DeCook and
              Gillespie,  filed as  Exhibits  10.1 and  10.2,  respectively,  to
              Registrant's  Report on Form 10-KSB for the fiscal year ended June
              30, 1994 (File No. 0-24036), are incorporated herein by reference.

    10.2      1994 Stock  Option and  Incentive  Plan,  filed as Exhibit 10.3 in
              Registrant's  Report on Form 10-KSB for the fiscal year ended June
              30, 1994 (File No. 0-24036), is incorporated herein by reference.

    10.3      Recognition  and  Retention   Plan,   filed  as  Exhibit  10.4  to
              Registrant's  Report on Form 10-KSB for the fiscal year ended June
              30, 1994 (File No. 0-24036), is incorporated herein by reference.

    11        Statement re  computation of earnings per share (See Footnote 4 of
              the  Registrant's  Notes  to  Consolidated   Financial  Statements
              contained herein)


                                      -15-





















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