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

                                   FORM 10-QSB

(Mark One)

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

         For the quarterly period ended December 31, 1999

                                       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)

                                  (515) 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
<PAGE>

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

                  Common Stock                                863,962
               ------------------                      ---------------------
                     Class                             Shares Outstanding
                                                       as of February 11, 2000

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

<PAGE>
             HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

                                      INDEX


Part I.  Financial Information                                              Page
                                                                            ----

          Item 1.  Financial Statements (Unaudited)

          Consolidated  Balance  Sheets at  December  3l, 1999 and June 30,
          1999.                                                               1

          Consolidated  Statements of Operations for the three months and
          six months ended December 31, 1999 and 1998                         2

          Consolidated  Statements  of  Comprehensive  Income for the three
          months and six months ended December 31, 1999 and 1998.             3

          Consolidated  Statements of Cash Flows for the six months ended
          December 31, 1999 and 1998.                                         4

          Notes to Consolidated Financial Statements                          5

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



Part II.  Other Information                                                  13

          Signatures                                                         14

          Index of Exhibits                                                  15

          Financial Data Schedule                                            16
<PAGE>
                                   PART I

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                              HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                                            Consolidated Balance Sheets

                                                              December 31,        June 30,
Assets                                                           1999               1999
------                                                        ------------     ------------
                                                              (Unaudited)
<S>                                                          <C>               <C>
Cash and cash equivalents ..............................     $  3,886,785      $  7,917,020
Securities available-for-sale ..........................       16,276,496        17,096,985
Loans receivable, net ..................................       58,110,864        56,066,399
Real estate ............................................          269,097           270,779
Stock in Federal Home Loan Bank, at cost ...............        1,202,500         1,202,500
Office property and equipment, net .....................        1,038,156         1,089,053
Accrued interest receivable ............................          518,258           522,121
Deferred tax asset .....................................          240,829           254,000
Income tax receivable ..................................          379,843           522,699
Prepaid expenses and other assets ......................          115,568            81,646
                                                             ------------      ------------

     Total assets ......................................     $ 82,038,396      $ 85,023,202
                                                             ------------      ============

Liabilities and Stockholders' Equity
Deposits ...............................................     $ 60,906,393      $ 59,576,232
Advances from Federal Home Loan Bank ...................       12,560,854        16,606,176
Advance payments by borrowers for taxes and insurance ..          196,981           399,830
Accrued income taxes: ..................................           67,060             - - -
Accrued expenses and other liabilities .................          172,166           380,617
                                                             ------------      ------------

     Total liabilities .................................       73,903,454        76,962,855
                                                             ------------      ------------

Stockholders' equity
Preferred stock, $.01 par value, authorized 250,000
     shares, none issued ...............................             --                --
Common stock, $.01 par value, 1,500,000 shares
     authorized, issued and outstanding 1,046,198 shares           10,462            10,462
Additional paid-in capital .............................        5,012,161         4,996,761
Retained earnings, substantially restricted ............        4,879,972         4,804,455
Treasury stock, at cost ................................       (1,293,635)       (1,229,571)
Unearned employee stock ownership plan shares ..........          (36,070)          (65,503)
Unrealized losses on securities available for sale .....         (437,948)         (456,257)
                                                             ------------      ------------

     Total stockholders' equity ........................        8,134,942         8,060,347
                                                             ------------      ------------

Total liabilities and stockholders' equity .............     $ 82,038,396      $ 85,023,202
                                                             ============      ============
</TABLE>

See Notes to Consolidated Financial Statements

                                    -1-

<PAGE>
<TABLE>
<CAPTION>
                                HORIZON FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
                                         Consolidated Statements of Operations

                                                                Three Months                       Six months
                                                              Ended December 31,               Ended December 31,
                                                            1999            1998             1999             1998
                                                        -----------     -----------      -----------      -----------
                                                                 (Unaudited)                    (Unaudited)
<S>                                                     <C>             <C>              <C>              <C>
Interest income:
Interest on loans .................................     $ 1,184,531     $ 1,147,157      $ 2,364,511      $ 2,338,159
Interest on securities available for sale .........         262,828         370,677          534,893          752,348
Other investment income ...........................          80,234          40,620          176,840          119,109
                                                        -----------     -----------      -----------      -----------
Total interest income .............................       1,527,593       1,558,454        3,076,244        3,209,616
                                                        -----------     -----------      -----------      -----------

Interest expense:
Interest on deposits ..............................         660,225         670,148        1,307,320        1,361,001
Interest on advances and other borrowing ..........         196,871         249,498          411,894          519,382
                                                        -----------     -----------      -----------      -----------

Total interest expense ............................         857,096         919,646        1,719,214        1,880,383
                                                        -----------     -----------      -----------      -----------

Net interest income ...............................         670,497         638,808        1,357,030        1,329,233

Provision for losses on loans .....................          24,000          24,000           48,000           48,000
                                                        -----------     -----------      -----------      -----------

Net interest income after provision for
Losses on loans ...................................         646,497         614,808        1,309,030        1,281,233
                                                        -----------     -----------      -----------      -----------

Non-interest income:
Fees, commissions and service charges .............         112,696         123,096          231,320          242,885
Profit (loss) on securities available for sale, net           8,205        (296,474)        (225,101)      (1,604,124)
Other .............................................           - - -             209            - - -            8,573
                                                        -----------     -----------      -----------      -----------

Total non-interest income (loss) ..................         120,901        (173,169)           6,219       (1,352,666)
                                                        -----------     -----------      -----------      -----------

Non-interest expense:
Compensation, payroll taxes and
  employee benefits ...............................         287,593         310,529          577,241          615,390
Advertising .......................................          27,426          11,370           55,204           25,953
Office property and equipment .....................          78,352          70,209          157,758          146,434
Federal insurance premiums ........................          13,508           8,849           26,137           17,948
Data processing services ..........................          41,818          43,294           80,694           72,276
Other real estate expense, net ....................           2,166           1,607            4,725            1,070
Other .............................................         104,934          77,181          192,644          145,457
                                                        -----------     -----------      -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                     <C>             <C>              <C>              <C>
Total non-interest expense ........................         555,797         523,039        1,094,403        1,024,528
                                                        -----------     -----------      -----------      -----------

Earnings (loss) before taxes on income ............         211,601         (81,400)         220,846       (1,095,961)

Taxes on income (benefit) .........................          64,200         (30,925)          67,700         (404,000)
                                                        -----------     -----------      -----------      -----------

Net earnings (loss) ...............................     $   147,401     $   (50,475)     $   153,146      $  (691,961)
                                                        ===========     ===========      ===========      ===========

     Earnings (loss) per common share
       Basic ......................................     $      0.17     ($     0.06)     $      0.18      ($     0.81)
       Diluted ....................................     $      0.17     ($     0.06)     $      0.17      ($     0.81)
</TABLE>

See Notes to Consolidated Financial Statements


                                    -2-

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


                                                                       Three Months Ended              Six Months Ended
                                                                          December 31,                   December 31,
                                                                        1999          1998             1999          1998
                                                                        ----          ----             ----          ----
                                                                           (Unaudited)                    (Unaudited)
<S>                                                                <C>              <C>              <C>              <C>
Net income (loss) ............................................     $   147,401      ($   50,475)     $   153,146      ($  691,961)

Other Comprehensive Income:
   Unrealized gains (losses) on securities available for sale:
      Unrealized holding gains (losses) arising
         during the period, net of tax .......................         (67,192)      (1,330,440)        (183,835)      (1,295,224)
   Less: reclassification adjustment for net (gains) losses
         included in net income, net of tax ..................           8,025          172,504          202,144          804,271
                                                                   -----------      -----------      -----------      -----------

Other comprehensive income, net of tax .......................         (59,167)      (1,157,936)          18,309         (490,953)
                                                                   -----------      -----------      -----------      -----------


Comprehensive income .........................................     $    88,234      ($1,208,411)     $   171,455      ($1,182,914)
                                                                   -----------      -----------      -----------      -----------


</TABLE>

                                       -3-

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


                                                                                Six months ended
                                                                                  December 31,
                                                                             1999               1998
                                                                         -----------         --------             ------
                                                                                  (Unaudited)
<S>                                                                      <C>                 <C>
Cash flows from operating activities:
Net earnings (loss) ................................................     $   153,146         (691,961)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
   Depreciation ....................................................          61,842           57,580
   Amortization of fees, premiums and accretion of discounts, net ..         (35,603)           5,027
   Provision for losses on loans ...................................          48,000           48,000
   Loans originated for sale .......................................      (1,647,520)      (4,408,390)
   Proceeds on sales of loans ......................................       2,439,613        4,048,140
   Loss on sale of securities ......................................         225,101        1,604,124
   Gain on sale of fixed assets ....................................           - - -           (8,364)
   Decrease in accrued interest receivable .........................           3,863           59,561
   Increase (decrease) in accrued taxes payable and deferred taxes .         209,916         (556,723)
   Amortization of stock compensation plans ........................          29,433           44,118
   Other, net ......................................................        (225,291)        (497,689)
                                                                         -----------      -----------

Net cash provided by (used in) operating activities ................       1,262,500         (296,577)
                                                                         -----------      -----------
Cash flows from investing activities:
   Principal collected on securities available for sale ............         685,277        2,266,435
   Proceeds from sale of securities available for sale .............       4,040,868          751,162
   Purchase of securities available for sale .......................      (4,063,674)      (2,963,863)
   Purchase of investment real estate ..............................           - - -         (100,000)
   Loans to customers, net .........................................      (2,884,558)       1,078,810
   Proceeds from sale of fixed asset ...............................           - - -            9,844
   Purchase of office property and equipment, net ..................         (10,945)         (93,012)
                                                                         -----------      -----------

Net cash (used in) provided by investing activities ................      (2,233,032)         949,376
                                                                         -----------      -----------
Cash flows from financing activities:
   Increase (decrease) in customer deposit accounts, net ...........       1,330,161       (1,630,992)
   Decrease in advance payments by borrowers for taxes and insurance        (202,849)        (203,075)
   Proceeds from advances from FHLB ................................           - - -        5,450,000
   Principal payments on advances from FHLB ........................      (4,045,322)      (6,037,970)
   Net proceeds from options exercised .............................           - - -              659
   Treasury stock acquired .........................................         (64,064)           - - -
   Payment of dividends ............................................         (77,629)         (77,091)
                                                                         -----------      -----------

Net cash used in financing activities ..............................      (3,059,703)      (2,498,469)
                                                                         -----------      -----------

Net decrease in cash and cash equivalents ..........................      (4,030,235)      (1,845,670)
Cash and cash equivalents at beginning of year .....................       7,917,020        6,366,619
                                                                         -----------      -----------
Cash and cash equivalents at end of year ...........................     $ 3,886,785        4,520,949
                                                                         ===========      ===========
</TABLE>
<TABLE>
<CAPTION>
<S>                                                                      <C>                <C>
Supplemental disclosures of cash flow information:
   Cash paid for interest ..........................................     $ 1,933,245        2,192,632
   Cash paid for taxes .............................................           2,985          369,685
                                                                         ===========      ===========

To mark assets available for sale to fair value:
   Change in fair value ............................................     $   (31,480)     $   782,967
   Less deferred taxes .............................................          13,171         (292,014)
                                                                         -----------      -----------
   Change in valuation allowance ...................................     $    18,309      $  (490,953)
                                                                         ===========      ===========
</TABLE>

                                       -4-

<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     HORIZON FINANCIAL SERVICES CORPORATION


1.  BASIS OF PRESENTATION

The  consolidated  financial  statements  for the  three  and six  months  ended
December  31,  1999 are  unaudited.  In the  opinion  of  management  of Horizon
Financial Services Corporation (the "Registrant" or "Company"),  these financial
statements  reflect  all  adjustments,   consisting  only  of  normal  occurring
accruals, necessary to present fairly the consolidated financial position of the
Company at December 31, 1999 and its results of  operations  and  statements  of
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,  1999.  The  results of the
periods  presented  are  not  necessarily   representative  of  the  results  of
operations and cash flows which may be expected for the entire year.

2.  ORGANIZATION

The Company was organized as a Delaware  corporation at the direction of Horizon
Federal  Savings  Bank (the  "Bank") for the purpose of becoming a savings  bank
holding company, as part of the conversion from a mutual to a stock institution.
The conversion was completed on June 28, 1994 with the sale of 506,017 shares of
the Company's common stock at a price of $10 per share.

3.  PRINCIPLES OF CONSOLIDATION

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


                                       -5-

<PAGE>
4.  EARNINGS PER SHARE

The following provides a reconciliation of the amounts used in the determination
of basic and  diluted  earnings  per  share for the three and six month  periods
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                                            3 Months     3 Months      6 Months     6 Months
                                                              Ended       Ended         Ended         Ended
                                                             12/31/99    12/31/98      12/31/99     12/31/98
                                                             --------    --------      --------     --------
<S>                                                          <C>            <C>            <C>            <C>
Net Earnings ...........................................     $ 147,401      ($ 50,475)     $ 153,146      ($691,961)
                                                             =========      =========      =========      =========


Basic earnings per share:
      Weighted average shares outstanding ..............       872,203        880,045        873,633        879,994

      Less unearned employee stock ownership plan shares        (8,784)       (20,266)       (10,127)       (21,803)
                                                             ---------      ---------      ---------      ---------

Weighted average number of common shares outstanding ...       863,419        859,779        863,506        858,191
                                                             =========      =========      =========      =========

Earnings (loss) per common share - basic ...............     $    0.17      ($   0.06)     $    0.18      ($   0.81)
                                                             =========      =========      =========      =========

Diluted earnings per share:
      Weighted average shares outstanding ..............       872,203        880,045        873,633        879,994

      Less unearned employee stock ownership plan shares        (8,784)       (20,266)       (10,127)       (21,803)

      Assumed incremental option shares
         using the treasury stock method ...............        10,276          - - -         12,096          - - -
                                                                            ---------      ---------      ---------

Common and common equivalent shares outstanding ........       873,695        859,779        875,602        858,191
                                                             =========      =========      =========      =========

Earnings (loss) per common share - diluted .............     $    0.17      ($   0.06)     $    0.17      ($   0.81)
                                                             =========      =========      =========      =========

</TABLE>
                                       -6-

<PAGE>
ITEM 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS

GENERAL

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

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

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

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

Some local  economic  conditions  in the Bank's market have  weakened.  The farm
economy had been strong but has now softened.  As a result of an  over-supply of
grain, farm prices for grain and livestock,  which are currently depressed,  may
continue  to  remain  depressed.  In  the  event  current  economic  and  market
conditions persist or worsen, loan demand and existing loans may be affected. No
assurances  can be given that the Bank will be able to maintain or increase  the
balance or quality  of its loan  portfolio,  which  could  adversely  affect the
financial condition and results of operations of the Company and the Bank.
<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.

                                       -7-

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

o         the strength of the United States  economy in general and the strength
          of the local economies in which the Company and the Bank conduct their
          operations;
o         the effects of, and changes in,  trade,  monetary and fiscal  policies
          and laws,  including  interest  rate  policies of the Federal  Reserve
          Board, inflation, interest rate, market and monetary fluctuations;
o         the timely  development of and acceptance of new products and services
          of the Bank and the  perceived  overall  value of these  products  and
          services  by  users,  including  the  features,  pricing  and  quality
          compared to competitors' products and services;
o         the  willingness  of users to  substitute  competitors'  products  and
          services for the Bank's products and services;
o         the success of the Bank in gaining regulatory approval of its products
          and services, when required;
o         the impact of  changes in  financial  services'  laws and  regulations
          (including laws concerning taxes, banking, securities and insurance);
o         technological changes;
o         acquisitions;
o         changes in consumer spending and saving habits;
o         and the  success of the  Company  and the Bank at  managing  the risks
          involved in the foregoing.


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

FINANCIAL CONDITION

The Company's total assets at December 31, 1999 of $82.0 million  decreased $3.0
million,  or  3.51%,  from  $85.0  million  at June  30,  1999.  Cash  and  cash
equivalents  decreased  $4.0  million , or  50.90%,  due to  repayments  made on
Federal  Home  Loan  Bank  advances.  Securities  available  for sale  decreased
$820,000  primarily as a result of principal  payments  and  prepayments  on the
securities.  Partially  offsetting  this  decrease  was  an  increase  in  loans
receivable, net of $2.0 million.
<PAGE>
Total liabilities decreased $3.1 million, or 3.97%, to $73.9 million at December
31, 1999 from $77.0 million at June 30, 1999,  primarily as a result of advances
from the Federal Home Loan Bank decreasing $4.0 million,  or 24.36%,  from $16.6
million  at June 30,  1999 to $12.6  million  at  December  31,  1999.  Deposits
increased  $1.3  million,  or 2.23% to $60.9  million at December  31, 1999 from
$59.6 million at June 30, 1999. There were no other  significant  changes in the
components of the Company's balance sheet.

                                       -8-

<PAGE>
RESULTS OF OPERATIONS

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

Comparison  of three month and six month  periods  ended  December  31, 1999 and
December 31, 1998.

GENERAL

Net earnings for the three months ended December 31, 1999 increased  $198,000 to
$147,000 from  ($51,000) for the three month period ended December 31, 1998. For
the six months  ended  December 31, 1999,  net  earnings  increased  $845,000 to
$153,000 from ($692,000) for the comparable period in 1998. The increase for the
three and six month periods ended December 31, 1999 compared to the same periods
ended December 31, 1998 was primarily  attributable to a significant decrease in
losses on sales of securities.

INTEREST INCOME

Interest income decreased $31,000 to $1,527,000 for the three month period ended
December  31, 1999  compared to  $1,558,000  for the three  month  period  ended
December  31, 1998 and  $133,000 to  $3,076,000  for the six month  period ended
December  31, 1999  compared  to  $3,209,000  for the  comparable  period  ended
December  31,  1998.  The  decrease  was due to a decrease in average  interest-
earning assets,  consisting primarily of mortgage loans and securities available
for sale, of  approximately  $2.8 million and $3.6 million for the three and six
months ended December 31, 1999,  respectively,  over the  comparable  periods in
1998 and a decrease in the weighted  average  yield on average  interest-earning
assets to 7.80% for the six months  ended  December  31, 1999 from 7.86% for the
same period in 1998. The decrease in average  interest  earning assets is due to
managements  decision,  at the  current  time,  not to invest in  lower-yielding
mortgage-backed securities with leveraged FHLB advances.

INTEREST EXPENSE

Interest expense decreased $63,000 to $857,000 from $920,000 for the three month
period and decreased  $161,000 to $1,719,000  from  $1,880,000 for the six month
period  ended  December  31, 1999 as compared to the same  periods in 1998.  The
decrease in interest  expense was primarily due to the weighted average yield on
interest-bearing  liabilities decreasing by 28 basis points to 4.57% at December
31,  1999 as  compared  to  4.85%  for the same  period  in  1998.  The  average
outstanding  balance  of average  interest-bearing  liabilities  decreased  $2.5
million from $77.7 million at December 31, 1998 to $75.2 million at December 31,
1999.

NET INTEREST INCOME

Net  interest  income was $670,000 and $1.3 million for the three months and six
months  ended  December 31,  1999,  respectively,  compared to $639,000 and $1.3
million for the comparable  periods in 1998.  The Company's net interest  margin
increased 22 basis  points to 3.23% for the six month period ended  December 31,
1999 as compared to 3.01% for the same period in 1998.

                                       -9-
<PAGE>
PROVISION FOR LOSSES ON LOANS

The provision for losses on loans is a result of management's  periodic analysis
of the adequacy of the Company's  allowance  for losses on loans.  The Company's
provision  for  losses on loans was  $48,000  for the six  month  periods  ended
December  31,  1999  and  1998.   As  of  December  31,  1999,   the   Company's
non-performing assets, consisting of nonaccrual loans, accruing loans 90 days or
more delinquent,  real estate owned and repossessed  consumer property,  totaled
$774,000  or .94% of total  assets,  compared  to  $1,160,000  or 1.36% of total
assets as of June 30, 1999. As of December 31, 1999, the Company's allowance for
losses on loans was $381,000,  representing  49.2% of non-performing  assets and
 .66% of net loans receivable.

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

NONINTEREST INCOME

Noninterest income increased to $121,000 and $6,000 for the three and six months
ended December  31,1999,  respectively,  compared to ($173,000) and ($1,353,000)
for the same periods ended  December 31, 1998.  The increase for the three month
period ended December 31, 1999 was primarily  attributable to a $8,000 profit on
assets  available for sale  compared to a $296,000 loss on assets  available for
sale  at  December  31,  1998.  For  the  six  month  period  the  increase  was
attributable  to a $225,000  loss on assets  available  for sale at December 31,
1999 as compared to a $1.6 million loss on assets available for sale at December
31, 1998. The loss recognized on securities during the six month period ended in
1998  was  the  result  of  a  $1.5   million   write  down  on  interest   only
mortgage-backed  securities  resulting  from a decline  in fair  value  that was
judged  to be  other  than  temporary.  The  Company  completed  the sale of its
remaining high interest rate sensitive, interest only mortgage-backed securities
during the period ended September 30, 1999.

NONINTEREST EXPENSE

Total  noninterest  expense was  $556,000 and $1.1 million for the three and six
months  ended  December 31,  1999,  respectively,  compared to $523,000 and $1.0
million  for the same  periods in 1998,  reflecting  increases  of  $33,000  and
$70,000, respectively. Other expense increased $28,000 and $47,000 for the three
and six month periods  ended  December 31, 1999,  respectively,  compared to the
same  period  during  1998 due to  increased  postage,  legal  fees  and  office
supplies.  Advertising expense increased $16,000 and $29,000 and office property
and equipment  increased  $8,000 and $11,000 for the three and six month periods
ended December 31, 1999, respectively,  compared to the same period during 1998.
Compensation  and  employee   benefits   expenses,   the  largest  component  of
noninterest  expense,  decreased $23,000 and $38,000 for the three and six month
periods  ended  December  31,  1999,  respectively,  compared to the same period
during 1998.

                                      -10-
<PAGE>
TAXES ON INCOME

Income taxes increased  $95,000 and $472,000 for the three and six month periods
ended December 31, 1999, respectively, primarily as a result of the increases in
net earnings.

LIQUIDITY AND CAPITAL RESOURCES

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

The Office of Thrift  Supervision  (the "OTS") requires minimum levels of liquid
assets. OTS regulations  presently require the Bank to maintain an average daily
balance of liquid assets (United States  Treasury and federal agency  securities
and other investments having maturities of five years of less) equal to at least
4.0%  of the  sum of its  average  daily  balance  of net  withdrawable  deposit
accounts and borrowings  payable in one year or less. Such  requirements  may be
changed from time to time by the OTS to reflect  changing  economic  conditions.
Such  investments  are intended to provide a source of  relatively  liquid funds
upon which the Bank may rely,  if  necessary,  to fund deposit  withdrawals  and
other  short-term  funding  needs.  The Bank  has  historically  maintained  its
liquidity ratio in excess of that  requirement.  The Bank's  liquidity ratio was
8.86% on December 31, 1999 and 11.49% on June 30, 1999.

At December 31, 1999, the Company had advances of $12.6 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.  The Company  anticipates that it
will have  sufficient  funds  available  to meet current  loan  commitments.  At
December 31, 1999,  the Company had  outstanding  commitments  to extend  credit
which  amounted  to  $2,788,000   (including  $961,000  in  available  revolving
commercial  lines of credit).  At December  31,  1999,  certificates  of deposit
scheduled  to  mature  in one year or less  totaled  $18.7  million.  Management
believes,  based on its experience to date, that a significant  portion of these
funds will remain with the Company. Management believes that loan repayments and
other  sources  of funds  will be  adequate  to meet the  Company's  foreseeable
liquidity needs.

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

At December 31, 1999, the Bank had tangible and core capital of $6.0 million, or
7.4% of adjusted  total assets,  which was  approximately  $4.8 million and $2.8
million above the minimum  requirements of 1.5% and 4.0%,  respectively,  of the
adjusted total assets in effect on that date. At December 31, 1999, the Bank had
risk-based capital of $6.3 million (including $6.0 million in core capital),  or
13.2% of risk- weighted  assets of $48.0  million.  This amount was $2.5 million
above the 8.0% requirement in effect on that date.


                                      -11-
<PAGE>
YEAR 2000

Management  and the Board of Directors  were  committed to achieving the goal of
Y2K  readiness.  The Bank incurred no problems when the staff tested all systems
on January 1, 2000 and has experienced no Y2K problems with our mission critical
systems or our  non-information  system providers.  The company will continue to
monitor Y2K continuity progress and will address any problems should they occur.
The Company has expended all costs  associated  with year 2000  required  system
changes as those costs are  incurred,  and such costs are being  funded  through
operating  cash  flows.  The  total   out-of-pocket   costs  associated  withY2K
compliance  is  estimated  to be $10,000.  As of December  31,  1999, a total of
$1,100  had  been  expended  on the Y2K  issue.  The  Company  does  not  expect
significant  increases in future data processing costs or other expenses related
to its Y2K compliance.

                                      -12-

<PAGE>
                                     PART II
                                OTHER INFORMATION

ITEM 1.        Legal Proceedings

               None

ITEM 2.        Changes in Securities

               None

ITEM 3.        Defaults Upon Senior Securities

               None

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

                    (a)  Annual meeting date:  October 28, 1999
                    (b)  Not required
                    (c)  The matters approved by stockholders at the Meeting and
                         number of votes cast for,  against or withheld (as well
                         as the number of abstentions and broker  non-votes,  if
                         any) as to each matter are set forth below:

                         Proposal                               Number of Votes
                         --------                               ---------------
                                                              For       Withheld
                                                              ---       --------

Election of the following director for a three year term:

               1) Robert W. DeCook                          650,751       97,400

                                                     For     Against    Abstain
                                                     ---     -------    -------
Ratification of the appointment of  KPMG Peat
Marwick LLP as the Company's auditors for the      661,651     None      86,500
fiscal year ending June 30, 2000


ITEM 5.        Other Information

               None

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

               (a)   Exhibits:
                     See Index to Exhibits

               (b)   Reports on Form 8-K:
                     No reports on Form 8-K were filed during the quarter  ended
                     December 31, 1999.

                                      -13-

<PAGE>

                                   SIGNATURES


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


                                 HORIZON FINANCIAL SERVICES CORPORATION
                                 Registrant


Date: February 15, 2000          /s/ Robert W. DeCook
                                 --------------------
                                 Robert W. DeCook
                                 President and Chief Executive Officer




Date: February 15, 2000          /s/ Sharon McCrea
      -----------------          ------------------
                                 Sharon McCrea
                                 Vice President and Chief Financial Officer



                                      -14-

<PAGE>
                                INDEX TO EXHIBITS

Exhibit
Number                                        Document

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

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

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

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

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

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

    27         Financial Data Schedule (electronic filing only)


                                      -15-