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, 2004

                                       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

Indicate 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 May 11, 2004

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


<PAGE>



              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY

                                      INDEX

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

            Consolidated Balance Sheets at March 31, 2004 and June 30, 2003               1

            Consolidated Statements of Operations for the three months and                2
            nine months ended March 31, 2004 and 2003

            Consolidated Statements of Comprehensive Income for the three months          3
            and nine months ended March 31, 2004 and 2003

            Consolidated Statements of Cash Flows for the nine months ended               4
            March 31, 2004 and 2003

            Notes to Consolidated Financial Statements                                    5

            Item 2.  Management's Discussion and Analysis                                 7

            Item 3.  Controls and Procedures                                             15

Part II. Other Information                                                               16

            Signatures                                                                   18

            Certifications                                                               19

            Index of Exhibits                                                            22
</TABLE>


                                      -1-
<PAGE>

                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                               March 31,          June 30,
Assets                                                           2004               2003
                                                             ------------      ------------
<S>                                                          <C>               <C>
                                                              (Unaudited)
Cash and cash equivalents                                    $  4,200,967      $  5,303,912
Securities available-for-sale                                  13,947,289        17,176,190
Loans receivable, net                                          73,667,138        65,006,810
Real estate                                                       391,454           638,658
Stock in Federal Home Loan Bank, at cost                          417,300           509,200
Office property and equipment, net                              2,781,071         1,971,871
Accrued interest receivable                                       645,513           567,301
Deferred income tax asset                                         138,025            60,000
Income tax receivable                                              17,252            42,282
Prepaid expenses and other assets                                  84,710            46,109
                                                             ------------      ------------

      Total assets                                           $ 96,290,719      $ 91,322,333
                                                             ============      ============

Liabilities and Stockholders' Equity

Deposits                                                     $ 77,473,614      $ 74,422,752
Advances from Federal Home Loan Bank                            6,907,500         5,545,115
Advance payments by borrowers for taxes and insurance             235,961           347,265
Accrued expenses and other liabilities                            416,263           563,151
                                                             ------------      ------------

      Total liabilities                                        85,033,338        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                     8,303,170         7,498,305
Treasury stock, at cost, (274,727 and 297,267shares
      at March 31, 2004 and June 30, 2003, respectively)       (2,099,098)       (2,237,884)
Accumulated other comprehensive income-net
      unrealized gain on securities available-for-sale             17,249           147,569
                                                             ------------      ------------

      Total stockholders' equity                               11,257,381        10,444,050
                                                             ------------      ------------

Total liabilities and stockholders' equity                   $ 96,290,719      $ 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                  Nine months
                                                            Ended March 31,              Ended March 31,
                                                          2004          2003           2004            2003
                                                      ----------     ----------     ----------     -----------
                                                             (Unaudited)                   (Unaudited)
<S>                                                   <C>            <C>            <C>            <C>
Interest income:
Loans                                                 $1,272,605     $1,254,335     $3,800,246     $ 3,873,368
Investment securities available-for-sale                 161,277        159,294        476,587         443,410
Other interest income                                      4,165         14,094         17,153          58,577
                                                      ----------     ----------     ----------     -----------

Total interest income                                  1,438,047      1,427,723      4,293,986       4,375,355
                                                      ----------     ----------     ----------     -----------

Interest expense:
Deposits                                                 326,446        409,897      1,007,219       1,347,203
Advances from Federal Home Loan Bank                      72,149         71,363        215,132         215,541
                                                      ----------     ----------     ----------     -----------

Total interest expense                                   398,595        481,260      1,222,351       1,562,744
                                                      ----------     ----------     ----------     -----------

Net interest income                                    1,039,452        946,463      3,071,635       2,812,611

Provision for losses on loans                             90,000         37,500        210,000         175,800
                                                      ----------     ----------     ----------     -----------

Net interest income after provision for
  losses on loans                                        949,452        908,963      2,861,635       2,636,811
                                                      ----------     ----------     ----------     -----------

Non-interest income:
Fees, commissions and service charges                    147,554        170,320        511,013         481,128
Gain on sale of securities, net                           43,758         14,597        188,704          27,218
Gain on sale of mortgage loans                             9,361         26,370         46,873          63,531
Impairment loss on equity securities                          --             --             --        (161,662)
Other                                                         --             50             --          19,022
                                                      ----------     ----------     ----------     -----------

Total non-interest income                                200,673        211,337        746,590         429,237
                                                      ----------     ----------     ----------     -----------

Non-interest expense:
Compensation, payroll taxes and employee benefits        395,991        367,367      1,177,591       1,024,489
Advertising                                               36,112         28,741        102,331          63,824
Office property and equipment                            127,071        106,749        373,160         281,897
Federal deposit insurance premiums                         2,861          3,083          8,725           9,276
Data processing services                                  55,047         58,547        157,172         164,334
Other real estate                                         19,825         20,581         69,526          30,163
Other                                                    115,034         73,653        300,476         248,350
                                                      ----------     ----------     ----------     -----------

Total non-interest expense                               751,941        658,721      2,188,981       1,822,333
                                                      ----------     ----------     ----------     -----------

Earnings before taxes                                    398,184        461,579      1,419,244       1,243,715

Taxes                                                    125,950        159,700        471,150         419,100
                                                      ----------     ----------     ----------     -----------

Net earnings                                          $  272,234     $  301,879     $  948,094     $   824,615
                                                      ==========     ==========     ==========     ===========

     Earnings per common share-
       Basic                                          $     0.35     $     0.40     $     1.24     $      1.09
       Diluted                                        $     0.35     $     0.39     $     1.23     $      1.07
</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             Nine Months Ended
                                                                            March 31,                    March 31,
                                                                       2004           2003           2004          2003
                                                                    ---------      ---------      ---------      --------
                                                                           (Unaudited)                  (Unaudited)
<S>                                                                 <C>            <C>            <C>            <C>
Net income                                                          $ 272,234      $ 301,879      $ 948,094      $824,615

Other Comprehensive Income:
    Unrealized gains (losses) on securities available for sale:
       Unrealized holding gains (losses) arising
          during the period, net of tax                                38,040        (20,707)       (12,003)       38,791
    Reclassification adjustment for net (gains) losses
          included in net income, net of tax                          (27,436)        (9,152)      (118,317)       84,296
                                                                    ---------      ---------      ---------      --------

Other comprehensive income (loss) , net of tax                         10,604        (29,859)      (130,320)      123,087
                                                                    ---------      ---------      ---------      --------


Comprehensive income                                                $ 282,838      $ 272,020      $ 817,774      $947,702
                                                                    ---------      ---------      ---------      --------
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -4-
<PAGE>

              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARY
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                              March 31,
                                                                                       2004               2003
                                                                                   ------------      -----------
                                                                                            (Unaudited)
<S>                                                                                <C>               <C>
Cash flows from operating activities:
Net earnings                                                                       $    948,094      $   824,615
Adjustments to reconcile net earnings to net cash provided
by operating activities:
   Depreciation                                                                         153,287          110,971
   Amortization of fees, premiums and accretion of discounts, net                       103,999           60,259
   Provision for losses on loans                                                        210,000          175,800
   Loans originated for sale                                                         (9,607,765)      (8,807,136)
   Proceeds on sales of loans                                                        10,015,590        8,175,554
   Gain on sale of securities                                                          (188,704)         (27,218)
   Impairment losses on securities                                                           --          161,662
   Reinvested dividends                                                                 (62,166)          (8,198)
   Gain on sale of mortgage loans                                                       (46,873)         (63,531)
   Gain on sale of property and equipment                                                  (300)            (120)
   Increase in accrued interest receivable                                              (78,212)         (13,693)
   Increase (decrease) in accrued income taxes                                           25,030         (533,457)
   Other, net                                                                          (170,637)         (82,610)
                                                                                   ------------      -----------

Net cash provided by (used in) operating activities                                   1,301,343          (27,102)
                                                                                   ------------      -----------

Cash flows from investing activities:
   Securities available-for-sale:
      Purchases                                                                      (4,712,630)      (7,693,903)
      Proceeds from sale                                                              4,089,567        1,561,875
      Proceeds from maturity and principal collected                                  3,790,490        3,843,986
   Investment in real estate                                                             (5,884)              --
   Loans to customers, net                                                           (9,294,953)        (425,005)
   Redemption of Federal Home Loan Bank stock                                            91,900               --
   Proceeds from sale of real estate                                                    301,909          190,386
   Purchase of office property and equipment                                           (962,187)        (313,470)
                                                                                   ------------      -----------

Net cash used in investing activities                                                (6,701,788)      (2,836,131)
                                                                                   ------------      -----------

Cash flows from financing activities:
   Increase in deposits                                                               3,050,862        4,665,526
   Decrease in advance payments by borrowers for taxes and insurance                   (111,304)        (122,110)
   Proceeds from advances from Federal Home Loan Bank                                 2,707,500               --
   Principal payments on advances from Federal Home Loan Bank                        (1,345,115)         (20,154)
   Treasury stock acquired                                                               (2,600)         (24,628)
   Net proceeds from options exercised                                                  125,069            9,459
   Payment of dividends                                                                (126,912)        (112,959)
                                                                                   ------------      -----------

Net cash provided by financing activities                                             4,297,500        4,395,134
                                                                                   ------------      -----------

Net (decrease) increase in cash and cash equivalents                                 (1,102,945)       1,531,901

Cash and cash equivalents at beginning of period                                      5,303,912        8,124,566
                                                                                   ------------      -----------
Cash and cash equivalents at end of period                                         $  4,200,967      $ 9,656,467
                                                                                   ============      ===========

Supplemental disclosures of cash flow information:
   Cash paid during the period for:
      Interest                                                                     $  1,370,463      $ 1,700,225
      Taxes                                                                        $    446,051      $   949,028
   Noncash investing and financing activities:
      Transfer from loans to other real estate                                     $     63,673      $   115,125
                                                                                   ============      ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      -5-
<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, 2004 and March 31, 2003 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, 2004 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 nine month periods
ended March 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                           Three Months Ended       Nine Months Ended
                                                               March 31,                March 31,
                                                           2004         2003         2004         2003
                                                         --------     --------     --------     --------
<S>                                                      <C>          <C>          <C>          <C>
Net Earnings                                             $272,234     $301,879     $948,094     $824,615
                                                         ========     ========     ========     ========

Basic earnings per share:

Weighted average number of common shares outstanding      771,486      754,000      764,552      753,505
                                                         --------     --------     --------     --------

Earnings per common share - basic                        $   0.35     $   0.40     $   1.24     $   1.09
                                                         ========     ========     ========     ========

Diluted earnings per share:

      Weighted average shares outstanding                 771,486      754,000      764,552      753,505

      Assumed incremental option shares
         using the treasury stock method                    6,111       19,978        6,855       18,461
                                                         --------     --------     --------     --------

Common and common equivalent shares outstanding           777,597      773,978      771,407      771,966
                                                         ========     ========     ========     ========

Earnings per common share - diluted                      $   0.35     $   0.39     $   1.23     $   1.07
                                                         ========     ========     ========     ========
</TABLE>

4.  POSTRETIREMENT BENEFIT PLAN

On September 1, 2003 the Company froze its defined benefit pension plan and is
in the process of terminating the plan. The standard termination will commence
on June 30, 2004. The pension plan liability recorded by the Company at March
31, 2004 is $127,000. Estimated plan liabilities supplied in the sensitivity
analysis provided to the plan by Principal Financial Group supports the
determination that the plan assets and Company's current pension plan accrued
liability will cover the estimated termination funding of the plan. However,
actual distributions from the termination of the plan could take up to 18 months
to complete and the final cost to terminate the plan will be unknown until
distribution occurs. Depending upon interest rates at the time of distribution,
the plan liability could be more or less than the expected amount. The value of
assets can change dramatically with market conditions. The Company will continue
to monitor the estimated plan termination liability, but at this time does not
expect that additional accruals will be necessary.

On April 1, 2004 the Company initiated a 401k plan upon the determination that a
401k plan would be more beneficial for the Company's employees and would allow
the Company to better predict and control expenses associated with the Company's
retirement plan benefit.


                                      -7-
<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 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 all of the various types of loans
the Company offers 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
slowly improving. Currently, farm prices for grain are above average, so many
farmers are seeing an increase in income. Livestock farmers are not having a
year that compares to grain farmers, but the outlook is better. Both of our
Mahaska and Marion County markets are experiencing weakness in some lines of
retail business, but improvement in others. 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 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.


                                      -8-
<PAGE>

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

The Company, and its subsidiaries may from time to time make written or oral
"forward-looking statements", including statements contained in the Company's
filings with the Securities and Exchange Commission (including this Quarterly
Report on Form 10-QSB and the exhibits hereto and thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company and the Bank pursuant to the "safe harbor" provisions of
the Private Securities 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 March 31, 2004 of $96.3 million increased $5.0
million, or 5.4%, from $91.3 million at June 30, 2003. This increase is
primarily attributable to increased loans receivable, net, of $8.7 million, or
13.3%, from $65.0 million at June 30, 2003 to $73.7 million at March 31, 2004
and an increase of $809,000 in office property and equipment as the Bank
continues construction of the new bank office in Pleasant Hill, Iowa which is
expected to open in the first half of calendar 2004. Offsetting these increases
was a cash and cash equivalents decrease of $1.1 million, from $5.3 million at
June 30, 2003 to $4.2 million at March 31, 2004. The decrease in cash was
largely the result of increased loan originations. Securities available-for-sale
decreased $3.2 million, or 18.8%, from $17.2 million at June 30, 2003 to $13.9
million at March 31, 2004. Funds received from sales of and principal payment on
securities available-for-sale were also used to fund loan originations.


                                      -9-
<PAGE>

Total liabilities increased $4.2 million, or 5.1%, to $85.0 million at March 31,
2004 from $80.9 million at June 30, 2003, primarily the result of increased
deposits. Deposits continue to increase to $77.5 million at March 31, 2004 from
$74.4 million at June 30, 2003, a $3.1 million increase, or 4.1 percent.
Advances from Federal Home Loan Bank increased $1.3 million. Total stockholders'
equity increased $813,000, or 7.8%, to $11.3 million at March 31, 2004 from
$10.4 million at June 30, 2003, the result of an increase of $805,000 in
retained earnings and a decrease of $139,000 in treasury stock. Unrealized gain
on securities available-for-sale decreased $130,000 since June 30, 2003. For
fiscal year to date the Company has paid $127,000 in cash dividends on a
weighted average balance of 764,552 outstanding shares. Additionally, fiscal
year to date 22,740 options have been exercised at an average exercise price of
$5.50. 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 expenses, as
well as property and equipment expense.

Comparison of three month and nine month periods ended March 31, 2004 and March
31, 2003

GENERAL

Net earnings for the three month period ended March 31, 2004 decreased by
$30,000, to $272,000, or $.35 per share, fully diluted, from $302,000, or $.39
per share, fully diluted for the three month period ended March 31, 2003. The
decrease in net earnings for the quarter was attributable to several factors.
Net interest income increased $93,000, or 9.8%, over the same period ended 2003
primarily due to decreased interest expense as the reduction in interest rates
paid on deposits continued. Total interest income also increased as average rate
on loans decreased, but overall loan portfolio growth dominated. Non-interest
expense increased primarily the result of increased compensation expense, office
property and equipment costs, advertising, and other non-interest expense which
is largely comprised of increases in employee education costs, technology
consulting fees, and Federal Reserve charges. Non-interest income decreased
$11,000, or 5.1%, for the three-month period 2004 primarily the result of
reduced commissions on investment sales in the Bank's subsidiary, Horizon
Investment Services, Inc, and reduced gain on sale of mortgage loans as activity
in the Bank's secondary market program decreased substantially during the
quarter. Provisions for losses on loans increased $52,500, or 140.0%, for the
three-month period ended March 31, 2004 due to increased write-downs taken
during the period compared to the same three month period ended 2003.

For the nine months ended March 31, 2004, net earnings increased $123,500 to
$948,100, or $1.23 per share, fully diluted, from $824,600, or $1.07 per share,
fully diluted, for the comparable period ended 2003. As with the three month
periods being compared, increases for the nine month period were generally
attributable to decreased interest expense. Non-interest income increased
largely due to the absence of an impairment adjustment in the 2004 period as
compared to the period ended 2003 and an increased in gain on sale of
securities. Offsetting the increases in income were non-interest expense
increases of 20.1% for the nine month period ended March 31, 2004 as compared to
the nine month period ended 2003 primarily due to increases in compensation
costs, office property and equipment expenses, and other non-interest expense.


                                      -10-
<PAGE>

INTEREST INCOME

Interest income increased $10,000 to $1.44 million for the three month period
ended March 31, 2004 compared to $1.43 million for the three month period ended
March 31, 2003. The increase for the three month period was primarily the result
of an increase in average interest-earning assets of $2.5 million. Weighted
average yield on average interest-earning assets decreased by 13 basis points to
6.30% for the three month period ended March 31, 2004 from 6.43% for the same
period in 2003. Average net loans receivable increased $5.9 million, but the
weighted average yield on loans decreased 51 basis points to 7.08% for the three
month period ended March 31, 2004 from 7.59% for the same period ended 2003,
resulting in an overall increase in interest and fees on loans of $18,000, or
1.5%. Interest on securities available-for-sale slightly impacted interest
income with a $2,000 increase for the three month period as the average balance
for securities available-for-sale increased by $848,000 for the period ended
March 31, 2004 over the same period in 2003, but the weighted average yield
decreased 20 basis points for the March 2004 period to 4.34% from 4.54% for the
three month period ended March 31, 2003. For the three month period other
interest income decreased $10,000, or 70.5%. The average outstanding balance of
other interest-earning assets decreased $4.0 million, or 49.5%, and the average
yield on other interest-earning assets for the three month period decreased 24
basis points to .24% for the period ended March 31, 2004 from .51% for the three
month period ended March 31, 2003.

For the nine month period interest income decreased $81,400, to $4.3 million for
the nine month period ended March 31, 2004 compared to $4.4 million for the
period ended March 31, 2003. Interest and fees on loans decreased $73,000 to
$3.8 million for the period ended March 31, 2004 from $3.9 million for the nine
month period ended March 31, 2003 as average loans for the period increased $3.1
million, but weighted average yield on loans receivable decreased 49 basis
points to 7.34% for the period ended 2004 compared to 7.83% for the nine month
period ended March 31, 2003. Other interest income also decreased for the nine
month periods being compared. Other interest income decreased $41,000, or 70.7%,
to $17,000 for the nine month period ended March 31, 2004 compared to $58,000
for the period ended 2003. Average balances of other interest-earning assets
decreased $3.2 million for the 2004 period compared to the same period in 2003
and weighted average yield on other interest-earning assets for the nine month
period decreased 52 basis points to .27% for the nine month period ended March
31, 2004 from .79% for the period ended March 31, 2003, the result of sharp
decreases in interest rates paid by FHLB on the Bank's demand and daily time
accounts and stringent liquidity management leading to decreased balances in
these lower interest earning accounts. Interest on securities available-for-sale
increased for the nine month period ended March 31, 2004 compared to 2003 by
$33,000 to $476,000 from $443,000 for the period ended 2003, a 7.5% increase.
Average balance for securities available-for-sale for the nine month period
ended 2004 compared to 2003 increased $2.3 million, but weighted average yield
on securities available-for-sale for the nine month period decreased 39 basis
points to 4.12% for the period ended March 31, 2004 from 4.51% for the nine
month period ended March 31, 2003.

INTEREST EXPENSE

Interest expense decreased $83,000 to $399,000 from $481,000 for the three month
period and $340,000 to $1.2 million from $1.6 million for the nine month period
ended March 31, 2004 as compared to the same periods in 2003. The decrease in
interest expense was predominantly due to the weighted average rate on deposits
decrease of 48 basis points from 2.17% for the three month period ended March
31, 2003 to 1.69% for the comparable period ended March 31, 2004. Weighted
average rate on deposits decreased 65 basis points to 1.77% for the nine month
period ended March 31, 2004 as compared to 2.42% for the same period in 2003.
Average outstanding balance of deposits increased $1.7 million from $75.7
million for the three month period ended March 31, 2003 to $77.4 million for the
three month period ended March 31, 2004 and increased $1.7 million from $74.4
million to $76.1 million for the comparable nine month period. Interest on
advances increased slightly for the comparable three month periods, but
decreased slightly for the nine month periods being compared. Average advances
increased $853,000 from $5.55 million for the three month period ended March 31,
2003, at a weighted average rate of 5.14%, to $6.41 million for the same period
ended 2004, at a weighted average rate of 4.5%. The increase in average advances
for the comparable nine month period was $508,000 from $5.56 million, with a
weighted average rate of 5.17%, for the period ended March 31, 2003 to $6.07
million, with a weighted average rate of 4.73%, for same period ended 2004.

NET INTEREST INCOME

Net interest income increased to $1.04 million and $3.07 million for the three
months and nine months ended March 31, 2004, respectively, compared to $946,000
and $2.81 million for the comparable periods ended 2003. The Company's net
interest margin increased 29 basis points for the three month period ended March
31, 2004 , from 4.26% to 4.55% as compared to the same period ended 2003 and 28
basis points from 4.29% to 4.57% for the nine month period ended March 31, 2004.
These increases are the result of decreased rates paid on deposits and FHLB
advances accompanied with the slower reduction in loan rates for the periods.
The Company does not expect the current increase in net interest margin to
continue as rates paid on deposits remain constant or increase in response to
local competition and recovery in the national economy and as our loan portfolio
continues to adjust to a lagging market loan rate index.

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 $210,000 for the nine month period ended March
31, 2004 as compared to $176,000 for the same period ended 2003. Additional
provisions were applied in the 2004 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 March 31, 2004, the Company's non-performing assets, consisting of
nonaccrual loans, $2,640,200, and real estate owned and repossessed consumer
property, $138,400 totaled $2,778,600 or 2.89% of total assets, compared to
$2,998,000, or 3.28% of total assets as of June 30, 2003. As of March 31, 2004,
the Company's allowance for losses on loans was $651,000, representing 23.4% of
non-performing assets and .88% of net loans receivable compared to a $555,600
allowance for losses on loans at June 30, 2003 representing 18.1% of
non-performing assets and .85% 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.


                                      -11-
<PAGE>

NON-INTEREST INCOME

Non-interest income was $201,000 and $747,000 for the three and nine month
periods ended March 31, 2004 compared to $211,000 and $429,000 for the three and
nine month periods ended March 31, 2003. The $11,000 decrease for the three
month period was primarily attributable to a $23,000, or 13.4%, decrease in
fees, commissions, and service charges. This $23,000 decrease was largely
comprised of decreased commissions earned on sales of investments in the Bank's
subsidiary of 36.0%, or $18,000 for the period. Also affecting the decrease in
non-interest income for the three month period 2004 was a $17,000, or 64.5%
decrease in gain on sale of loans as activity in the Bank's secondary market
program decreased substantially during this quarter. These decreases were offset
in part by increased gain on sale of securities, net of $29,000 during the three
month period.

For the nine month period the $317,000 increase in non-interest income was
largely attributable to the recorded $161,660 impairment loss on equity
securities in the December 31, 2002 quarter and a $161,500 increase in gain on
sale of securities, net for the nine month period ended 2004 compared to the
same period ended 2003. Fees, commissions, and service charges collected
increased by $30,000, or 6.2% for the nine month periods being compared
primarily attributable to increased service charge income on NOW accounts of
11.7%. Gain on sale of mortgage loans decreased $17,000, or 26.2%, and other
non-interest income decreased $19,000 for the nine month period.

NON-INTEREST EXPENSE

Total non-interest expense was $752,000 and $2.2 million for the three and nine
month periods ended March 31, 2004, respectively, compared to $659,000 and $1.8
million for the same periods in 2003. This is a $93,000 increase, or 14.2% for
the three month period ended March 31, 2004 as compared to the same period in
2003 and a $367,000 increase, or 20.1% for the comparable nine month periods.
Compensation and employee benefits expense, the largest component of
non-interest expense, increased $29,000 and $153,000 for the three and nine
month periods ended March 31, 2004 primarily due to increased benefit costs and
the addition of employees in preparation for opening the new bank office in
Pleasant Hill, Iowa. Office property and equipment also increased for both
periods being compared by $20,000 for the three month period ended March 31,
2004 and $91,000 for the nine month period, primarily the result of increased
depreciation and technology equipment maintenance costs. Advertising costs also
increased for both periods $7,000, or 25.6%, for the comparable three month
periods and $38,500, or 60.3%, for the nine month period as the Company began
promotion of the upcoming bank office in Pleasant Hill, Iowa. Other real estate
expense increased for the three and nine month periods being compared primarily
the result of loss on sale of real estate owned and repairs and maintenance
costs on foreclosed real estate properties. Other expense increased for both
periods being compared. The three month period ended March 31, 2004 increased
$41, 000, or 56.2% over the same period ended 2003 and the nine month period
ended 2004 increased $52,000, or 21.0%. The other expense increases were largely
comprised of increases in employee education costs, technology consulting fees,
and Federal Reserve charges.


                                      -12-
<PAGE>

TAXES ON INCOME

Income taxes decreased $33,800 for the three month period ended March 31, 2004
as compared to the same period ended March 31, 2003, but increased $52,000 for
the comparable nine month periods. The change in taxes on income for both
periods is primarily the result of change in earnings before taxes. The
effective tax rate for the three month period ended March 31, 2004 was 31.6% as
compared to 34.6% for the same period ended 2003. For the nine month period
ended March 31, 2004 the effective tax rate was 33.2% compared to 33.7% for the
same period ended 2003.

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 loan losses 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 loan loss
is established through a provision for loss 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 loss.

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


LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are deposits and principal and interest
payments collected on mortgage loans, investments and related securities. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by interest rates,
general economic conditions and competition. Additionally, the Company may
borrow funds from the FHLB or utilize other borrowings of funds based on need,
comparative costs and availability at the time.

The Bank has historically maintained its liquidity ratio at, or above, the level
needed to meet its operational needs. The Bank's liquidity ratio was 7.48% on
March 31, 2004 and 9.14% on June 30, 2003.

At March 31, 2004, the Company had advances of $6.9 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 March 31, 2004, the Company had outstanding
commitments to extend credit which totaled $7,815,300 (including $1,475,000 in
available revolving commercial lines of credit). At March 31, 2004, certificates
of deposit scheduled to mature in one year or less totaled $17.6 million.
Management believes, that loan repayments and other sources of funds will be
adequate to meet the Company's foreseeable liquidity needs.


                                      -13-
<PAGE>

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

At March 31, 2004, the Bank had tangible and core capital of $9.1 million, or
9.5% of adjusted total assets, which was approximately $7.6 million and $5.2
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, 2004, the Bank had
risk-based capital of $9.6 million (including $9.1 million in core capital), or
13.8% of risk-weighted assets of $69.6 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 April 2003, the FASB issued Statement of Financial Accounting Standards
(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 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 material impact on the Company's
financial condition or results of operations.

In December 2003, the FASB issued a revised 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 enterprise 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 to a public entity that is a small business issuer at various dates
in 2004 and 2005. The impact of adopting FIN 46 was not material to the
Company's financial condition or results of operations.


                                      -14-
<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.


                                      -15-
<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, Use of Proceeds and Issuer Purchases of Equity
        Securities

        (e) The following table provides information about purchases by the
        company during the quarter ended March 31, 2004 of equity securities
        that are registered by the company pursuant to Section 12 of the
        Exchange Act.

<TABLE>
<CAPTION>
                                        Issuer Purchases of Equity Securities
                                (a)                     (b)                          (c)                           (d)
                                                                                                             Maximum Number
                                                                                                            (or Approximate
                                                                                 Total Number of            Dollar Value) of
                               Total                  Average                  Shares Purchased as         Shares that May Yet
                              Number                   Price                    Part of Publicly           Be Purchased Under
                             of Shares               Paid Per                  Announced Plans or             the Plans or
     Period                  Purchased                 Share                        Programs                    Programs
     ------                  ---------               --------                  -------------------         -------------------
<C>                            <C>                    <C>                             <C>                         <C>
01/01/2004-                     100                   $13.00(1)                       - - -                       - - -
01/31/2004

02/01/2004-                    - - -                   - - -                          - - -                       - - -
02/29/2004

03/01/2004-                    - - -                   - - -                          - - -                       - - -
03/31/2004

      Total                     100                   $13.00                          - - -                       - - -
</TABLE>

(1)   Share purchase occurred pursuant to a private offer.

ITEM 3. Defaults Upon Senior Securities

        None

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

        None


                                      -16-
<PAGE>

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 March 31, 2004:

              On January 22, 2004, current report on Form 8-K was furnished to
              announce the Company's earnings for the three month and six month
              periods ended December 31, 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: May 13, 2004                      /s/ Robert W. DeCook
                                        ----------------------------------------
                                        Robert W. DeCook
                                        President and Chief Executive Officer


Date: May 13, 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 3 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-