UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934
                 For the fiscal year ended: September 30, 2007
                                       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: 0-29709

                   HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

               Pennsylvania                              23-3028464
-------------------------------------------   ----------------------------------
      (State or Other Jurisdiction of                 (I.R.S. Employer
      Incorporation or Organization)               Identification Number)

271 Main Street, Harleysville, Pennsylvania                19438
-------------------------------------------   ----------------------------------
 (Address of Principal Executive Offices)                (Zip Code)

Registrant's telephone number, including area code:  (215) 256-8828

Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange
            Title  of each  class                     on which registered
-------------------------------------------   ----------------------------------
   Common Stock, $.01 par value per share        The Nasdaq Stock Market, LLC

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
                                                               YES [_]    NO [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act.
                                                               YES [_]    NO [X]

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 and (2) has been subject to such filing requirements for
the past 90 days.                                              YES [X]    NO [_]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer [_]   Accelerated filer [_]    Non-accelerated filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act).                                        YES [_]    NO [X]

The aggregate market value of the 3,569,682  shares of the  Registrant's  Common
Stock held by non-affiliates  (3,869,816 shares  outstanding less 300,134 shares
held by affiliates), based upon the closing price of $16.75 for the Common Stock
on March 31, 2007,  as reported by the Nasdaq Stock  Market,  was  approximately
$59.8  million.  Shares of  Common  Stock  held by each  executive  officer  and
director and by each person who owns 5% or more of the outstanding  Common Stock
have  been  excluded  since  such  persons  may  be  deemed   affiliates.   This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

Number of shares of Common Stock outstanding as of December 12, 2007: 3,727,477

                       DOCUMENTS INCORPORATED BY REFERENCE

Set forth below are the documents  incorporated by reference and the part of the
Form 10-K into which the document is incorporated:

Portions  of the  definitive  Proxy  Statement  for the 2008  Annual  Meeting of
Stockholders  are  incorporated  by reference into Part III, Items 10-14 of this
Form 10-K.

================================================================================
<PAGE>

                   HARLEYSVILLE SAVINGS FINANICAL CORPORATION
                         2007 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                     PART I
Item  1.  Business.........................................................   1

Item 1A.  Risk Factors.....................................................  23

Item 1B.  Unresolved Staff Comments........................................  25

Item  2.  Properties.......................................................  25

Item  3.  Legal Proceedings................................................  26

Item  4.  Submission of Matters to a Vote of Security Holders..............  26

                                     PART II

Item  5.  Market for the Registrant's Common Equity, Related Stockholder
             Matters and Issuer Purchases of Equity Securities.............  26

Item  6.  Selected Financial Data..........................................  28

Item  7.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations.........................................  29

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.......  37

Item 8.   Financial Statements and Supplementary Data......................  40

Item 9.   Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure..........................................  69

Item 9A.  Controls and Procedures..........................................  69

Item 9B.  Other Information................................................  69

                                    PART III

Item 10.  Directors, Executive Officers and Corporate Governance...........  70

Item 11.  Executive Compensation...........................................  70

Item 12.  Security Ownership of Certain Beneficial Owners and Management
             and  Related Stockholder Matters..............................  70

Item 13.  Certain Relationships and Related Transactions, and Director
             Independence..................................................  71

Item 14.  Principal Accounting Fees and Services...........................  71

                                     PART IV

Item 15.  Exhibits and Financial Statement Schedules.......................  71

SIGNATURES.................................................................  73

                                       i
<PAGE>

                           Forward-Looking Statements

         This  Annual  Report  on Form 10-K  contains  certain  forward  looking
statements  (as  defined  in  the  Securities  Exchange  Act  of  1934  and  the
regulations hereunder).  Forward looking statements are not historical facts but
instead  represent only the beliefs,  expectations  or opinions of  Harleysville
Savings Financial  Corporation and its management  regarding future events, many
of which, by their nature, are inherently uncertain.  Forward looking statements
may  be  identified  by  the  use  of  such  words  as:   "believe",   "expect",
"anticipate",  "intend",  "plan",  "estimate",  or words of similar meaning,  or
future or conditional terms such as "will", "would",  "should",  "could", "may",
"likely", "probably", or "possibly." Forward looking statements include, but are
not  limited  to,  financial  projections  and  estimates  and their  underlying
assumptions;  statements  regarding  plans,  objectives  and  expectations  with
respect to future operations,  products and services;  and statements  regarding
future performance.  Such statements are subject to certain risks, uncertainties
and assumption,  many of which are difficult to predict and generally are beyond
the control of Harleysville  Savings  Financial  Corporation and its management,
that could cause actual results to differ materially from those expressed in, or
implied or projected by,  forward  looking  statements.  The following  factors,
among  others,  could  cause  actual  results  to  differ  materially  from  the
anticipated  results or other  expectations  expressed  in the  forward  looking
statements:  (1)  economic  and  competitive  conditions  which could affect the
volume of loan  originations,  deposit  flows and real  estate  values;  (2) the
levels of  non-interest  income and expense and the amount of loan  losses;  (3)
competitive pressure among depository institutions increasing significantly; (4)
changes in the interest rate environment  causing reduced interest margins;  (5)
general  economic  conditions,  either  nationally  or in the  markets  in which
Harleysville Savings Financial  Corporation is or will be doing business,  being
less favorable than expected;(6) political and social unrest,  including acts of
war or  terrorism;  or (7)  legislation  or changes in  regulatory  requirements
adversely  affecting  the  business  in  which  Harleysville  Savings  Financial
Corporation  will  be  engaged.   Harleysville  Savings  Financial   Corporation
undertakes no obligation to update these forward  looking  statements to reflect
events or circumstances  that occur after the date on which such statements were
made.

         As used in this  report,  unless the context  otherwise  requires,  the
terms "we,"  "us," or the  "Company"  refer to  Harleysville  Savings  Financial
Corporation,  a  Pennsylvania  corporation,  and the term the  "Bank"  refers to
Harleysville  Savings  Bank, a  Pennsylvania  chartered  savings bank and wholly
owned  subsidiary  of the  Company.  In addition,  unless the context  otherwise
requires,  references to the operations of the Company include the operations of
the Bank.

                                     PART I

Item 1.  Business.
------------------

General

         Harleysville   Savings   Financial   Corporation   is  a   Pennsylvania
corporation headquartered in Harleysville,  Pennsylvania. The Company became the
bank  holding  company for  Harleysville  Savings  Bank in  connection  with the
holding   company   reorganization   of  the   Bank  in   February   2000   (the
"Reorganization").  In August 1987, the Bank's predecessor, Harleysville Savings
Association,  converted  to the stock  form of  organization.  The  Bank,  whose
predecessor was originally  incorporated in 1915,  converted from a Pennsylvania
chartered,   permanent  reserve  fund  savings  association  to  a  Pennsylvania
chartered  stock  savings  bank  in  June  1991.  The  Bank  operates  from  six
full-service  offices  located in Montgomery  County,  Pennsylvania.  The Bank's
primary  market area  includes  Montgomery  County,  which has the third largest
population  and the second  highest  per capita  income in the  Commonwealth  of
Pennsylvania,  and, to a lesser extent,  Bucks County. As of September 30, 2007,
the Company had $773.5  million of total assets,  $424.0

                                       1
<PAGE>

million of deposits and $47.0  million of  stockholders'  equity.  The Company's
stockholders' equity constituted 6.08% of total assets as of September 30, 2007.

         The Bank's primary  business  consists of attracting  deposits from the
general public through a variety of deposit programs and investing such deposits
principally in first  mortgage  loans secured by  residential  properties in the
Bank's  primary  market  area.  The Bank also  originates  a variety of consumer
loans,  predominately  home  equity  loans and lines of credit  also  secured by
residential  properties in the Bank's primary  lending area. The Bank serves its
customers through its full-service  branch network as well as through remote ATM
locations, the internet and telephone banking.

         Deposits  with the Bank are insured to the maximum  extent  provided by
law through the  Deposit  Insurance  Fund  administered  by the Federal  Deposit
Insurance  Corporation  ("FDIC").   The  Bank  is  subject  to  examination  and
comprehensive  regulation by the FDIC and the Pennsylvania Department of Banking
("Department").  It is also a member of the Federal Home Loan Bank of Pittsburgh
("FHLB  of  Pittsburgh"  or  "FHLB"),  which  is one of  the 12  regional  banks
comprising the Federal Home Loan Bank System ("FHLB  System").  The Bank is also
subject to regulations  of the Board of Governors of the Federal  Reserve System
("Federal Reserve Board") governing  reserves required to be maintained  against
deposits and certain other matters.

         The  Company's  principal  executive  offices  are  located at 271 Main
Street,  Harleysville,  Pennsylvania  19438  and its  telephone  number is (800)
243-8700.

Competition

         The Company faces significant  competition in attracting deposits.  Its
most direct competition for deposits has historically come from commercial banks
and other  savings  institutions  located in its market area.  The Company faces
additional  significant  competition  for investors'  funds from other financial
intermediaries.  The  Company  competes  for  deposits  principally  by offering
depositors a variety of deposit programs, convenient branch locations, hours and
other  services.  The Company does not rely upon any individual  group or entity
for a material portion of its deposits.

         The Company's  competition for real estate loans comes principally from
mortgage banking  companies,  other savings  institutions,  commercial banks and
credit unions.  The Bank competes for loan  originations  primarily  through the
interest rates and loan fees it charges,  the efficiency and quality of services
it provides borrowers,  referrals from real estate brokers and builders, and the
variety of its products.  Factors which affect  competition  include the general
and local economic  conditions,  current  interest rate levels and volatility in
the mortgage markets.

         The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA")  eliminated many of the  distinctions  between  commercial  banks and
savings institutions and holding companies and allowed bank holding companies to
acquire savings  institutions.  FIRREA has generally  resulted in an increase in
the  competition  encountered  by savings  institutions  and has  resulted  in a
decrease in both the number of savings  institutions  and the aggregate  size of
the savings industry.

Lending Activities

         Loan   Portfolio   Composition.   The  Company's   loan   portfolio  is
predominantly  comprised of loans  secured by first  mortgages on  single-family
residential  properties.  As of September  30,  2007,  first  mortgage  loans on
residential  properties,  including  loans  on  single-family  and  multi-family
residential  properties and construction  loans on such properties,  amounted to
$311.0  million  or  50.3%  of the  Company's  total  loan  and

                                       2
<PAGE>

mortgage-backed   securities  portfolio.  Loans  on  the  Company's  residential
properties are primarily  long-term and are  conventional  (i.e., not insured or
guaranteed  by  a  federal  agency).  At  September  30,  2007,  mortgage-backed
securities totaled $193.7 million and comprised 31.3% of the portfolio.

         As of  September  30, 2007,  loans  secured by  commercial  real estate
comprised $15.3 million or 2.5% of the total loan and mortgage-backed securities
portfolio.  Consumer loans, including installment home equity loans, home equity
lines of credit,  automobile  loans,  loans on savings  accounts  and  education
loans,  constituted $97.5 million or 15.1% of the total loan and mortgage-backed
securities portfolio as of September 30, 2007.

         As of September 30, 2007, the Company had $193.7 million,  or 31.3%, of
the  total  portfolio  invested  in  Federal  Home  Loan  Mortgage   Corporation
("FHLMC"), Government National Mortgage Association ("GNMA") or Federal National
Mortgage Association ("FNMA") backed securities. FHLMC securities are guaranteed
by the FHLMC,  GNMA  securities by the Federal Housing  Administration  and FNMA
securities  by the  FNMA,  which are an  instrumentality  of the  United  States
government,  and, pursuant to federal regulations,  are deemed to be part of the
Company's loan portfolio.

         The following  table sets forth  information  concerning  the Company's
loan  and  mortgage-backed  securities  portfolio  by type of loan at the  dates
indicated.

<TABLE>
<CAPTION>
                                                                     As of September 30,
                              -------------------------------------------------------------------------------------------------
                                     2007                2006                2005                2004                2003
                              ------------------  -----------------   -----------------   -----------------   -----------------
                               Amount    Percent   Amount   Percent    Amount   Percent    Amount   Percent    Amount   Percent
                              --------   -------  --------  -------   --------  -------   --------  -------   --------  -------
                                                                    (Dollars in Thousands)
<S>                              <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>     <C>         <C>
  Residential:
    Single-family             $302,271     49.6%  $283,595     45.4%  $268,546     41.8%  $256,523     41.7%  $235,248     43.6%
    Multi-family                 2,589      0.4      2,933      0.5      2,893      0.5        914      0.2      1,515      0.3
    Construction                 6,093      1.0      6,987      1.1      7,640      1.2      7,971      1.3     10,028      1.9
  Lot loans                        483      0.1        626      0.1        801      0.1        576      0.1        923      0.2
  Mortgage-backed securities   193,660     31.3    220,314     35.9    265,009     41.5    265,087     43.2    230,247     42.6
  Commercial                    15,314      2.5        920      1.0        702      0.3        641      0.4        515      0.2
                              --------   ------   --------   ------   --------   ------   --------   ------   --------   ------
    Total real estate loans
       and mortgage-backed
       securities              520,410     84.9%   515,375     84.0%   545,591     85.4%   531,712     86.9%   478,476     88.8%
                              --------   ------   --------   ------   --------   ------   --------   ------   --------   ------

Consumer loans:
  Education loans                   --       --         --       --         --       --         --       --          1       --
  Installment equity loans      74,218     11.4%    70,515     11.5%    59,724      9.4%    46,257      7.6%    29,726      5.5%
  Line of credit loans          21,385      3.6     25,500      4.3     31,580      5.0     32,329      5.3     29,420      5.5
  Savings account loans            977      0.2      1,003      0.2        921      0.1        811      0.1        733      0.1
  Automobile and other loans       903      0.1        812      0.1        772      0.1        732      0.1        578      0.1
                              --------   ------   --------   ------   --------   ------   --------   ------   --------   ------
    Total consumer loans        97,483     15.1%    97,830     16.0%    92,997     14.6%    80,129     13.1%    60,458     11.2%
                              --------   ------   --------   ------   --------   ------   --------   ------   --------   ------
    Total loans receivable
       and mortgage-backed
       securities              617,893    100.0%   613,205    100.0%   638,588    100.0%   611,841    100.0%   538,934    100.0%
                              --------   ------   --------   ------   --------   ------   --------   ------   --------   ------

Less:
  Loans in process              (2,795)             (4,941)             (4,934)             (5,238)             (7,829)
  Deferred loan fees              (453)               (544)               (671)               (955)             (1,520)
  Allowance for loan losses     (1,932)             (1,956)             (1,968)             (1,977)             (1,991)
                              --------            --------            --------            --------            --------
   Total loans receivable
     and mortgage-backed
     securities, net          $612,713            $605,764            $631,015            $603,671            $527,594
                              ========            ========            ========            ========            ========
</TABLE>

         Contractual  Maturities.  The  following  table  sets  forth  scheduled
contractual  maturities of the loan and mortgage-backed  securities portfolio of
the Company as of September 30, 2007 by categories of loans and securities.  The
principal  balance  of the  loan is set  forth  in the  period  in  which  it is
scheduled to mature. This table does not reflect loans in process or unamortized
premiums, discounts and fees.

                                       3
<PAGE>
<TABLE>
<CAPTION>

                                            Principal Repayments Contractually Due in Year(s) Ended September 30,
                        Principal Balance ---------------------------------------------------------------------------
                         at September 30,                              2010-        2013-        2017-      2022-and
                               2007          2008         2009         2012         2016         2021      Thereafter
                            ----------    ----------   ----------   ----------   ----------   ----------   ----------
                                                                  (In Thousands)
<S>                            <C>             <C>          <C>         <C>          <C>          <C>         <C>
Real estate loans:
  Residential
  Single-family             $  302,271    $    4,594   $    4,900   $   16,539   $   37,671   $   53,904   $  188,663
  Multi-family                   2,589            39           41          140          318          456        1,595
  Construction                   6,093            91           97          329          749        1,072        3,753
Lot loans                          483            26           28           98          219          112           --
Mortgage-backed Securities     193,660         2,905        3,292       10,845       24,401       34,278      117,939
Commercial                      15,314           551          597        2,098        4,855        7,213           --
Consumer and other loans        97,483        11,498       12,340       42,792       21,034        5,819           --
                            ----------    ----------   ----------   ----------   ----------   ----------   ----------
         Total(1)           $  617,893    $   19,705   $   21,297   $   72,840   $   89,247   $  102,854   $  311,950
                            ==========    ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

-------------

(1)      With respect to the $598.2 million of loans with  principal  maturities
         contractually  due after September 30, 2008,  $584.2 million have fixed
         rates of interest and $14.0 million have  adjustable or floating  rates
         of interest.

         Contractual  principal  maturities of loans do not necessarily  reflect
the actual term of the Company's  loan  portfolio.  The average life of mortgage
loans is  substantially  less  than  their  contractual  terms  because  of loan
prepayments  and because of enforcement of due-on-sale  clauses,  which give the
Company  the right to declare a loan  immediately  due and payable in the event,
among other things,  that the borrower  sells the real  property  subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to
increase when current mortgage loan rates substantially exceed rates on existing
mortgage loans and,  conversely,  decrease when rates on existing mortgage loans
substantially exceed current mortgage loan rates.

         Interest rates charged by the Company on loans are affected principally
by the  demand  for such loans and the  supply of funds  available  for  lending
purposes.  These factors are, in turn, affected by general economic  conditions,
monetary  policies  of the federal  government,  including  the Federal  Reserve
Board,  legislative tax policies and government  budgetary matters. The interest
rates charged by the Company are competitive with those of other local financial
institutions.

         Origination,  Purchase  and Sale of Loans.  Although  the  Company  has
general  authority to originate,  purchase and sell loans secured by real estate
located  throughout  the United  States,  the Company's  lending  activities are
focused  in  its  assessment  area  of  Montgomery   County,   Pennsylvania  and
surrounding suburban counties.

         The Company accepts loan applications  through its branch network,  and
also accepts mortgage applications from mortgage brokers who are approved by the
Board of Directors to do business with the Company.  The Company  generally does
not engage in the  purchase of whole  loans.  The Company did engage in the sale
and the  acquisition of  participations  of Commercial  Loans on a limited basis
during fiscal year 2007.

         The Company sold $921,000 of loans during  fiscal 2005,  resulting in a
gain of  approximately  $17,000.  During the years ended  September 30, 2007 and
2006, the Company did not sell any loans.

         The  Company's  total loan  originations  increased by $14.6 million or
13.6% in fiscal 2007 and  decreased by $6.1  million or 5.4% in fiscal 2006.  Of
the $121.9 million and $107.3  million of total loans  originated in fiscal 2007
and 2006, respectively,  $5.7 million and $7.4 million, respectively, were loans
originated to fund multi-family and construction  properties,  $58.6 million and
$54.2 million, respectively,  were loans to acquire residential property. During
this period,  the Company's  originations  of consumer  loans  amounted to $57.7
million and $45.7 million or 47.3% and 42.6% of total loan  originations  during
fiscal 2007

                                       4
<PAGE>

and 2006, respectively.  Management intends to continue to emphasize origination
of consumer loans which may have  adjustable  rates,  and generally have shorter
terms than residential real estate loans.

         The  following  table  shows total  loans  originated,  sold and repaid
during the periods indicated.

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                           ----------------------------------
                                                             2007        2006         2005
                                                           ---------   ---------    ---------
                                                                    (In Thousands)
<S>                                                            <C>         <C>          <C>
Real estate loan originations:
   Residential:
     Single-family                                         $  58,562   $  54,249    $  60,608
     Multi-family                                                 --         493        1,300
     Construction                                              5,719       6,886        7,433
    Lot loans                                                     --          --           --
                                                           ---------   ---------    ---------
         Total real estate loan originations                  64,281      61,628       69,341
Consumer loan originations(1)                                 57,654      45,688       44,057
                                                           ---------   ---------    ---------
         Total loan originations                             121,935     107,316      113,398
Purchases of mortgage-backed securities                       20,939       2,001       62,027
                                                           ---------   ---------    ---------
         Total loan originations, and purchases              142,874     109,317      175,425

Principal loan and mortgage-backed securities repayments     138,186     134,700      147,757
Sales of loans and mortgage-backed securities                     --          --          921
                                                           ---------   ---------    ---------
         Total principal repayments and sales                138,186     134,700      148,678
                                                           ---------   ---------    ---------
           Net (decrease) increase in loans                $   4,688   $ (25,383)   $  26,747
                                                           =========   =========    =========
</TABLE>

-------------

(1)      Includes  installment  home equity loans,  home equity lines of credit,
         vehicle  loans,  secured  and  unsecured  personal  loans  and lines of
         credit.

         Loan  Underwriting  Policies.  Each loan  application  received  by the
Company is underwritten to the standards of the Company's  written  underwriting
policies as adopted by the Company's Board of Directors.  The Company's Board of
Directors has granted loan approval  authority to several officers and employees
of the  Company,  provided  that the loan  meets the  guidelines  set out in its
written  underwriting  policies.  Individual  approval authority of $500,000 has
been granted to the Company's  Chief  Executive  Officer,  the  Company's  Chief
Financial  Officer,  and the Company's  Chief Lending  Officer.  Joint  approval
authority of $1.0 million has been granted to a  combination  of at least two of
the above named  individuals.  Individual lending authority of $250,000 has been
granted to the Bank's Assistant Vice President/Loan  Administration Manager, the
Assistant  Vice  President/Loan  Customer  Service  Manager  and to  the  Bank's
Consumer Loan and  Residential  Mortgage  Underwriter,  employed by the Company.
Additional  consumer  loan  lending  authority  of $50,000  has been  granted to
several  delegated  underwriters,  employed  by  the  Bank.  Loans  with  policy
exceptions require approval by the next highest approval  authority.  Loans over
$1.0  million  must be approved by the  Company's  Senior Loan  Committee or the
Board of Directors.

         In the  exercise of any loan  approval  authority,  the officers of the
Company will take into account the risk  associated with the extension of credit
to a single  borrower,  borrowing  entity,  or  affiliation.  The Company has an
aggregate loans to one borrower limit of 15% of the Company's unimpaired capital
and unimpaired surplus in accordance with federal regulations.  At September 30,
2007,  the  largest  aggregate  amount  of loans  outstanding  to any  borrower,
including related entities,  was $2 million,  which did not exceed the Company's
loan to one borrower limitation.

         Single Family Residential Real Estate Lending. The Company is permitted
to lend up to 100% of the appraised value of the real property  securing a loan.
The Company will generally  lend up to 95% of the lesser of the appraised  value
or the sale price for the purchase of  single-family,  owner-occupied  dwellings

                                       5
<PAGE>

which conform to the secondary market underwriting  standards.  Refinancings are
limited to 90% or less.  Loans over  $417,000  and other  non-conforming  loans,
secured by 1-4 residential,  owner-occupied dwellings, are limited to 90% of the
lesser of the  purchase  price or  appraised  value.  The  purchase of non-owner
occupied,  1-4  unit  dwellings  may be  financed  to 80%  of the  lower  of the
appraisal or sale price; a refinance is limited to 70% of the appraised value if
the  borrower's  FICO  score is less than 720 and the  transaction's  purpose is
cash-out.

         All  appraisals   and  other  property   valuations  are  performed  by
independent fee appraisers  approved by the Company's Senior Loan Committee.  On
all amortizing real estate loans, the Company requires borrowers to obtain title
insurance,  insuring  the Company has a valid first lien on the  mortgaged  real
estate.  Borrowers must also obtain and maintain a hazard insurance policy prior
to  closing  and,  when  the real  estate  is  located  in a flood  hazard  area
designated by the Federal Emergency  Management Agency, a flood insurance policy
is required. Generally, borrowers advance funds on a monthly basis together with
payment of principal and interest into a mortgage  escrow account from which the
Company  makes  disbursements  for items such as real estate taxes and insurance
premiums when appropriate as they fall due.

         The Company  presently  originates  fixed-rate  loans on  single-family
residential  properties  pursuant  to  underwriting  standards  consistent  with
secondary market guidelines, and which may or may not be sold into the secondary
mortgage market as conditions warrant.  Adjustable rate mortgages  ("ARMs"),  as
well as non-conforming and jumbo fixed-rate loans in amounts up to $1.0 million,
are  held  in the  portfolio.  It is the  Company's  policy  to  originate  both
fixed-rate  loans and ARMs for terms up to 30 years.  As of September  30, 2007,
$308.4 million or 49.9% and $2.6 million or 0.4% of the Company's total loan and
mortgage-backed  securities  portfolio  consisted  of  single-family  (including
construction  loans) and multi-family  residential  loans,  respectively.  As of
September 30, 2007, approximately $471.4 million or 90.6% of the Company's total
mortgage loans and mortgage-backed securities portfolio consisted of fixed-rate,
single-family residential mortgage loans. As of such date, $49.0 million or 9.4%
of the total mortgage loan portfolio consisted of adjustable-rate  single-family
residential mortgage loans and mortgage-backed securities. Most of the Company's
residential mortgage loans include "due on sale" clauses.

         During  the  years  ended  September  30,  2007 and 2006,  the  Company
originated  $4.6 million and $9.1 million of ARM mortgages,  respectively.  ARMs
represented  8.6% and  20.0% of the  Company's  total  mortgage  loan  portfolio
originations in fiscal 2007 and 2006, respectively. The ARM mortgages offered by
the Company are originated with initial  adjustment  periods varying from one to
10 years,  and provide for initial rates of interest below the rates which would
prevail were the index used for repricing applied initially. The Company expects
to emphasize the origination of ARMs as market  conditions  permit,  in order to
reduce the impact of rising  interest  rates in the market  place.  Such  loans,
however, may not adjust as rapidly as changes in the Company's cost of funds.

         Multi-family Residential Real Estate Lending. Harleysville Savings Bank
originates mortgage loans secured by multifamily dwelling unit. At September 30,
2007,  $2.6 million,  or 0.4% of our total loan and  mortgage-backed  securities
portfolio consisted of loans secured by multifamily residential real estate. The
majority  of our  multifamily  residential  real  estate  loans are  secured  by
apartment  buildings located in the Bank's local market area. The interest rates
for our multifamily  residential  real estate loans generally adjust at five- to
ten-year intervals, with the rate to be negotiated at the end of such term or to
automatically  convert to a floating interest rate. These loans generally have a
five-year  term with an  amortization  period of no more than twenty  years.  At
September  30, 2007,  the largest  such loan had a balance of $537,000.  At that
date, we had no multifamily  residential  real estate loans that were delinquent
in excess of 30 days.

                                       6
<PAGE>

         Construction  Loans. The Company offers fixed-rate and  adjustable-rate
construction loans on residential properties. Residential construction loans are
originated for individuals  who are building their primary  residence as well as
to selected local builders for  construction of single-family  dwellings.  As of
September 30, 2007,  $6.1 million or 1.0% of the total loan and  mortgage-backed
securities portfolio consisted of construction loans.

         Construction  loans to homeowners  are usually made in connection  with
the permanent  financing on the property.  The permanent  loans have  amortizing
terms up to 30 years, following the initial construction phase during which time
the borrower pays interest on the funds advanced.  These loans are  reclassified
as  permanent  mortgage  loans  when  the  residences  securing  the  loans  are
completed. The Company will make construction/permanent loans up to a maximum of
90% of the fair  market  value of the  completed  project.  The rate on the loan
during construction is the same rate as the Company will charge on the permanent
loan on the completed  project.  Advances are made on a percentage of completion
basis with the  Company's  receipt of a  satisfactory  inspection  report of the
project.

         Historically,   the  Company  has  been  active  in  on-your-lot   home
construction lending and intends to continue to emphasize such lending. Although
construction  lending is generally considered to involve a higher degree of risk
of loss than long-term financing on improved,  occupied real estate, the Company
historically has not experienced any significant problems.

         The Company also offers mortgage loans on undeveloped  single lots held
for residential  construction.  These loans are generally  fixed-rate loans with
terms not exceeding 15 years;  they are not a significant  part of the Company's
lending activities.

         Commercial  Real Estate  Loans.  Harleysville  Savings Bank  originates
mortgage loans for the  acquisition  and  refinancing of commercial  real estate
properties.  At September 30, 2007,  $15.3 million,  or 2.5% of the Bank's total
loan and  mortgage-backed  securities  portfolio  consisted of loans  secured by
commercial real estate properties,  owner occupied  commercial real estate loans
and  non-owner  occupied  commercial  real  estate  loans.  The  majority of our
commercial  real  estate  loans are secured by office  buildings,  manufacturing
facilities,  distribution/warehouse  facilities,  and retail centers,  which are
generally  located  in our  local  market  area.  The  interest  rates  for  our
commercial  real estate loans generally  adjust at one- to five-year  intervals,
and  are  typically  renegotiated  at the end of such  period  or  automatically
converted to a floating interest rate. The loans generally have a five-year term
with an  amortization  period of no greater than twenty five years. At September
30, 2007,  the largest such loan had a balance of $1.8 million.  At that date we
had no commercial real estate loans that were delinquent in excess of 30 days.

         Harleysville   Savings  Bank  generally  requires   appraisals  of  the
properties securing commercial real estate loans. Appraisals are performed by an
independent appraiser designated by Harleysville Savings Bank and all appraisals
are reviewed by management.  Harleysville Savings Bank considers the quality and
location of the real estate,  the credit of the  borrower,  the cash flow of the
project and the quality of management involved with the property.

         Loan-to-value  ratios on our commercial real estate loans are generally
limited to 80% of the appraised  value of the secured  property.  As part of the
criteria for  underwriting  commercial real estate loans, we generally  impose a
debt service coverage ratio (the ratio of net operating income before payment of
debt service compared to debt service) of not less than 1.2-to-1. It is also our
general  practice  to obtain  personal  guarantees  from the  principals  of our
corporate borrowers on commercial real estate loans.

                                       7
<PAGE>

         Loans secured by commercial real estate  typically have higher balances
and are more difficult to evaluate and monitor and, therefore, involve a greater
degree of credit risk than other types of loans. If the estimate of value proves
to be  inaccurate,  the property  may not provide us with full  repayment in the
event of default  and  foreclosure.  Because  payments  on these loans are often
dependent  on the  successful  development,  operation,  and  management  of the
properties,  repayment of these loans may be affected by adverse  conditions  in
the real  estate  market or the  economy.  Harleysville  Savings  Bank  seeks to
minimize  these risks by limiting the maximum  loan-to-value  ratio and strictly
scrutinizing  the  financial  condition  of the  borrower,  the  quality  of the
collateral  and the management of the property  securing the loan.  Harleysville
Savings Bank also generally  obtains loan  guarantees from  financially  capable
parties based on a review of personal financial statements.

         Commercial   lending  generally   involves  greater  credit  risk  than
residential  mortgage or consumer lending, and involves risks that are different
from those associated with commercial real estate lending.  Although  commercial
loans  may  be  collateralized  by  equipment  or  other  business  assets,  the
liquidation  of collateral  in the event of a borrower  default may represent an
insufficient  source of repayment  because  equipment and other business  assets
may,  among  other  things,  be  obsolete or of limited  use.  Accordingly,  the
repayment of a commercial  loan depends  primarily on the  creditworthiness  and
projected cash flow of the borrower (and any guarantors),  while  liquidation of
collateral is considered a secondary source of repayment.

         Consumer  and Other Loans.  The Company  actively  originates  consumer
loans to provide a wider range of  financial  services to its  customers  and to
improve  the  interest  rate   sensitivity  of  its   interest-earning   assets.
Originations of consumer loans as a percent of total loan originations  amounted
to 47.3% and 42.6% during fiscal 2007 and 2006,  respectively.  The shorter-term
and normally  higher interest rates on such loans help the Company to maintain a
profitable  spread  between  its average  loan yield and its cost of funds.  The
Company's  consumer loan  department  offers a variety of loans,  including home
equity installment loans and lines of credit,  vehicle loans, personal loans and
lines of credit.  Loans secured by deposit accounts at the Company are also made
to depositors in an amount up to 90% of their account  balances with terms of up
to 15 years.

         Home equity loans and lines of credit  continue to be a popular product
and  represented  $95.6  million  or  15.6%  of  the  loan  and  mortgage-backed
securities  portfolio at September  30,  2007.  After taking into account  first
mortgage   balances,   the  Company  will  lend  up  to  80%  of  the  value  of
owner-occupied  property on fixed rate terms up to 15 years.  This amount may be
raised to 100% when considering other factors,  such as excellent credit history
and income  stability.  At September 30, 2007, the Company had outstanding 3,109
home equity  loans of which 1,922 were  installment  equity loans and 1,187 were
line of credit loans. As of such date, the Company had an outstanding balance on
line of credit loans of approximately  $21.4 million and there was approximately
$41.1 million of unused credit available on such loans.

         Consumer  loans  generally  involve  more risk of  collectibility  than
mortgage loans because of the type and nature of the collateral  and, in certain
cases,  the absence of  collateral.  As continued  payments are dependent on the
borrower's continuing financial stability,  these loans may be more likely to be
adversely  affected  by job loss,  divorce,  personal  bankruptcy  or by adverse
economic conditions.

         Loan Fee and Servicing  Income.  The Company receives fees both for the
origination  of loans and for  making  commitments  to  originate  and  purchase
residential and commercial  mortgage loans. The Company also receives  servicing
fees with respect to  residential  mortgage  loans it has sold. It also receives
loan fees related to existing  loans,  including  late charges,  and credit life
insurance commissions.  Loan origination and commitment fees and discounts are a
volatile  source  of  income,  varying  with the  volume  and type of loans  and
commitments made and purchased and with competitive and economic conditions.

                                       8
<PAGE>

         Loans  fees  generated  on   origination  of  loans  under   accounting
principles  generally  accepted in the United  States of America are deferred to
the extent that they exceed the costs of originating  such loans.  Deferred loan
fees and  discounts on mortgage  loans  purchased  are  amortized to income as a
yield  adjustment  over the  estimated  remaining  terms of such loans using the
interest method.  The Company recorded  servicing income of $8,000,  $52,000 and
$138,000 in deferred loan fees in fiscal 2007, 2006 and 2005, respectively.

         In its real estate  lending,  the Company  charges  loan fees which are
calculated  as a  percentage  of the  amount  borrowed.  The  fees  received  in
connection with the origination of residential  real estate loans and commercial
real  estate  loans  generally  do not exceed 3% of the  principal  amount.  All
origination fees in excess of loan origination  costs are deferred and amortized
into income over the estimated life of the related loans.

         As of September  30, 2007,  the Company was  servicing  $3.6 million of
loans for  others,  which  related to loans sold by the Company to the FHLMC and
Federal  Home  Loan Bank of  Pittsburgh  in the  amounts  of  $120,000  and $3.5
million,  respectively.  The Company  receives a servicing  fee of 0.25% on such
loans.

         Non-performing  Loans and Real Estate Owned.  When a borrower  fails to
make a required  loan  payment,  the  Company  attempts  to cure the  default by
contacting  the borrower;  generally,  after a payment is more than 15 days past
due, at which time a late charge is  assessed.  Defaults  are cured  promptly in
most cases.  If the  delinquency  on a mortgage  loan exceeds 60 days and is not
cured  through the  Company's  normal  collection  procedures,  or an acceptable
arrangement  is not worked out with the  borrower,  the Company  will  institute
measures to remedy the default. This may include commencing a foreclosure action
or, in special  circumstances,  accepting  from the borrower a voluntary deed of
the secured  property in lieu of foreclosure  with respect to mortgage loans and
equity  loans,  or  title  and  possession  of  collateral  in the case of other
consumer  loans.  Substantial  delays may occur in  instituting  and  completing
residential  foreclosure  proceedings  due to the extensive  procedures and time
periods required to be complied with under Pennsylvania law.

         All  interest  accrued  but not  collected  for loans  that are  placed
nonaccrual or charged off is reversed against  interest income.  The interest on
these loans is accounted for on the cash-basis or  cost-recovery  method,  until
qualifying for return to accrual.  Loans are returned to accrual status when all
the principal and interest  amounts  contractually  due are brought  current and
future payments are reasonably assured.  Interest income is recognized using the
interest  method when the collection is reasonably  assured.  The Company had no
loans  outstanding  which were recorded as loans  accounted for on a non-accrual
basis as of the end of fiscal 2007 and 2006.

         If foreclosure is effected, the property is sold at a public auction in
which the Company may participate as a bidder.  If the Company is the successful
bidder, the acquired real estate property is then included in the Company's real
estate owned ("REO") account until it is sold. When property is acquired,  it is
recorded at the market value at the date of  acquisition  less estimated cost to
sell and any  write-down  resulting is charged to the allowance for loan losses.
Interest  accrual,  if any,  ceases  on the date of  acquisition  and all  costs
incurred in maintaining the property from that date forward are expended.  Costs
incurred for the  improvement or  development of such property are  capitalized.
The Company is permitted under  Department  regulations to finance sales of real
estate owned by "loans to facilitate," which may involve more favorable interest
rates and terms than generally would be granted under the Company's underwriting
guidelines. The Company had no REO at the end of fiscal 2007 and 2006.

                                       9
<PAGE>

         The following table sets forth information regarding non-accrual loans,
loans which are 90 days or more  delinquent but on which the Company is accruing
interest,  troubled debt restructuring,  and other real estate owned held by the
Company at the dates  indicated.  The Company  continues  to accrue  interest on
loans which are 90 days or more  overdue  where  management  believes  that such
interest is collectible.

                                                      As of September 30,
                                                   ------------------------
                                                    2007     2006     2005
                                                   ------   ------   ------
                                                    (Dollars in Thousands)
Residential real estate loans:
  Non-accrual loans                                $   --   $   --   $   --
  Accruing loans 90 days overdue                       28       18      260
  Troubled debt restructurings                         --       --       --
                                                   ------   ------   ------
         Total                                         28       18      260
                                                   ------   ------   ------
Consumer loans:
  Non-accrual loans                                    --       --       --
  Accruing loans 90 days overdue                       --       --       --
  Troubled debt restructurings                         --       --       --
                                                   ------   ------   ------
         Total                                         --       --       --
                                                   ------   ------   ------

Total non-performing loans:
  Non-accrual loans                                    --       --       --
  Accruing loans 90 days overdue                       28       18      260
  Troubled debt restructurings                         --       --       --
                                                   ------   ------   ------
         Total                                     $   28   $   18   $  260
                                                   ======   ======   ======

Total non-performing loans to total loans              --       --      .07%
Total real estate owned, net of related reserves       --       --       --
Total non-performing loans and other real             n/m*     n/m*     .03%
  estate owned to total assets

* Not material

         Management  establishes reserves for losses on delinquent loans when it
determines that losses are probable.  The Company did not record a provision for
general loan losses in fiscal 2007, 2006 or 2005 due to the overall  performance
of the loan portfolio and management's assessment of the overall adequacy of the
allowance for loan losses.  Although  management  believes that it uses the best
information available to make determinations with respect to loan loss reserves,
future  adjustments to reserves may be necessary if economic  conditions  differ
substantially from the assumptions used in making the initial determinations.

         Residential  mortgage lending generally entails a lower risk of default
than other types of lending.  Consumer  loans and  commercial  real estate loans
generally involve more risk of collectibility  because of the type and nature of
the  collateral  and, in certain  cases,  the absence of  collateral.  It is the
Company's  policy to  establish  specific  reserves  for  losses  on  delinquent
consumer loans and commercial loans when it determines that losses are probable.
In addition,  consumer loans are charged against  reserves if they are more than
120 days  delinquent  unless a  satisfactory  repayment  schedule  is  arranged.
Although  management has currently  established no specific reserves for losses,
no assurance can be given as to whether future  provisions may be required.  The
establishment of any such reserves could affect net income.

                                       10
<PAGE>

         The following table summarizes  activity in the Company's allowance for
loan losses during the periods indicated.

<TABLE>
<CAPTION>

                                                                     Year Ended September 30,
                                            ---------------------------------------------------------------------------
                                               2007            2006            2005            2004            2003
                                            -----------     -----------     -----------     -----------     -----------
<S>                                         <C>             <C>             <C>             <C>             <C>
Allowances at beginning of year             $ 1,955,805     $ 1,967,607     $ 1,976,849     $ 1,990,672     $ 2,034,832
 Provision for loan losses charged to
  operating expenses                                 --              --              --              --              --
Recoveries                                       12,824           8,524          83,707           1,571              --
Loans charged off                               (36,084)        (20,326)        (92,949)        (15,394)        (44,160)
                                            -----------     -----------     -----------     -----------     -----------
Allowances at end of year                   $ 1,932,545     $ 1,955,805     $ 1,967,607     $ 1,976,849     $ 1,990,672
                                            ===========     ===========     ===========     ===========     ===========

Ratio of net charge-offs to average loans
  outstanding                                        --              --              --              --              --
Ratio of allowances to period-end loans             .46%            .50%            .54%            .58%            .66%
</TABLE>

Investment Activities

         The Company is required to maintain  certain  liquidity ratios and does
so by  investing  in  securities  that  qualify  as  liquid  assets  under  FDIC
regulations.  Such securities include  obligations issued or fully guaranteed by
the United States government,  certain federal agency obligations,  certain time
deposits and certificates of deposit as well as other specified investments. See
"Regulation - Federal Home Loan Bank System."

         The Company's  investment portfolio consists primarily of United States
Treasury  securities and obligations of United States government  agencies.  The
other investments include  interest-bearing  deposits in other banks, tax-exempt
obligations, money market mutual funds, and stock of the FHLB of Pittsburgh. The
Company has primarily  invested in  instruments  that reprice within five years;
the amount of such investments as of September 30, 2007 was $48.6 million.

         The following  table sets forth the Company's  investment  portfolio at
carrying value as of the dates indicated.

                                          2007         2006         2005
                                       ----------   ----------   ----------
    Interest-bearing deposits at
       other depository institutions   $    6,670   $    8,453   $    6,742
    Tax-exempt obligations                 25,538       24,596       24,799
    Money market mutual funds                 576        7,110        1,976
    Equities                                1,334          997          859
    U.S. Government and agency
       obligations held to maturity        83,155       86,503       62,566
    FHLB of Pittsburgh stock               14,140       15,499       16,036
                                       ----------   ----------   ----------
             Total                     $  131,413   $  143,158   $  112,978
                                       ==========   ==========   ==========

         The Company's  investment strategy is set and reviewed  periodically by
the entire Board of Directors.

Sources of Funds

         General. Deposits are the primary source of the Company's funds for use
in lending and for other general business purposes. In addition to deposits, the
Company  obtains  funds from loan  payments and  prepayments,  FHLB advances and
other borrowings, and, to a lesser extent, sales of loans. Loan repayments are a
relatively  stable  source of funds,  while  deposit  inflows and  outflows  are
significantly   influenced  by  general  market   interest  rates  and  economic
conditions.

                                       11
<PAGE>

         Deposits.  The Company has a number of different  programs  designed to
attract  both  short-term  and  long-term  deposits  from the general  public by
providing an assortment of accounts and rates consistent with FDIC  regulations.
These  programs  include  passbook  and club savings  accounts,  NOW and regular
checking  accounts,   money  market  deposit  accounts,   retirement   accounts,
certificates  of  deposit  ranging  in terms from 90 days to 60 months and jumbo
certificates of deposit in  denominations of $98,000 or more. The interest rates
on the Company's  various  accounts are  determined  weekly by the Interest Rate
Risk  Management  Officer  based  on  reports  prepared  by  members  of  senior
management.  The Company attempts to control the flow of deposits by pricing its
accounts to remain  competitive with other financial  institutions in its market
area.

         The  Company's  deposits  are  obtained  primarily  from  residents  of
Montgomery and Bucks Counties;  the Company does not utilize brokered  deposits.
The principal  methods used by the Company to attract deposit  accounts  include
local advertising, offering a wide variety of services and accounts, competitive
interest rates and convenient office locations.  The Company also is a member of
the "STAR" ATM network.

         The  following  table  shows the  distribution  of, and  certain  other
information  relating  to,  the  Company's  deposits  by  type  as of the  dates
indicated.

<TABLE>
<CAPTION>
                                                               As of September 30,
                                  -----------------------------------------------------------------------------
                                            2007                      2006                       2005
                                  -----------------------    -----------------------    -----------------------
                                               Percent of                 Percent of                 Percent of
                                    Amount      Deposits       Amount      Deposits       Amount      Deposits
                                  ----------   ----------    ----------   ----------    ----------   ----------
                                                              (Dollars in Thousands)
<S>                                     <C>          <C>         <C>            <C>         <C>            <C>
Passbook and club accounts        $    2,864          0.7%   $    3,325          0.8%   $    3,807          0.9%
NOW accounts                          13,711          3.2        15,720          3.7        18,283          4.4
Checking accounts                     37,491          8.8        30,749          7.2        18,721          4.5
Money market demand accounts          50,966         12.0        58,174         13.6        75,874         18.1
Certificates of deposit:
         6 month                       2,697          0.6         5,019          1.2         8,126          1.9
         9 month                      55,684         13.1        25,508          5.9        10,630          2.5
         12 month                      6,269          1.5        22,747          5.3        10,110          2.4
         15 month                     10,989          2.6        45,565         10.6        17,063          4.1
         17 month                     56,257         13.3         1,215          0.3         1,485          0.3
         18 month                      4,336          1.0         6,443          1.5        11,125          2.7
         20 month                        971          0.2         7,810          1.8         9,685          2.3
         24 month                      2,574          0.6         4,796          1.1         7,740          1.8
         27 month                        728          0.2         4,112          1.0         4,966          1.2
         36 month                      5,099          1.2        24,892          5.8        29,302          7.0
         48 month                     60,381         14.2        71,565         16.7        82,402         19.7
         60 month                     15,464          3.6        32,321          7.5        38,431          9.2
         Other                        42,094          9.9        13,104          3.1        16,924          4.0
Retirement accounts:
  Money market deposit accounts          860          0.2           815          0.2           707          0.2
  Certificates of deposit             54,600         12.9        55,374         12.9        53,599         12.8
                                  ----------   ----------    ----------   ----------    ----------   ----------
     Total deposits               $  424,035        100.0%   $  429,254        100.0%   $  418,980        100.0%
                                  ==========   ==========    ==========   ==========    ==========   ==========
</TABLE>

         The large  variety  of deposit  accounts  offered  by the  Company  has
increased  the  Company's  ability to retain  deposits  and has allowed it to be
competitive  in obtaining  new funds,  although the threat of  disintermediation
(the  flow of funds  away  from  savings  institutions  into  direct  investment
vehicles such as government and corporate  securities and non-deposit  products)
still  exists.  The new types of accounts;  however,  have been more costly than
traditional  accounts during periods of high interest  rates.  In addition,  the
Company has become more  vulnerable to short-term  fluctuations in deposit flows
as  customers  have  become more  rate-conscious  and willing to move funds into
higher  yielding  accounts.  The  ability of the

                                       12
<PAGE>

Company to attract  and retain  deposits  and the  Company's  cost of funds have
been,  and  will  continue  to  be,  significantly   affected  by  money  market
conditions.

         The  following  table  presents  certain  information   concerning  the
Company's deposit accounts as of September 30, 2007 and the scheduled  quarterly
maturities of its certificates of deposit.

<TABLE>
<CAPTION>
                                                                             Weighted
                                                          Percentage of      Average
                                               Amount     Total Deposits   Nominal Rate
                                            ------------  --------------   ------------
                                                      (Dollars in Thousands)
<S>                                               <C>               <C>            <C>
Passbook and club accounts                  $      2,864            0.7%           0.98%
NOW accounts                                      13,711            3.2            0.25
Checking accounts                                 37,491            8.8            1.66
Money market deposits accounts(1)                 51,826           12.2            1.80
                                            ------------   ------------    ------------
         Total                              $    105,892           25.0%           1.53%
                                            ============   ============    ============

Certificate accounts maturing by quarter:
     December 31, 2007                      $     49,623           11.7%           4.59%

     March 31, 2008                               52,847           12.5            4.42
     June 30, 2008                                71,371           16.8            4.65
     September 30, 2008                           51,867           12.2            4.46
     December 31, 2008                            47,684           11.2            4.53

     March 31, 2009                               21,940            5.2            4.50
     June 30, 2009                                 5,960            1.4            3.98
     September 30, 2009                            2,328            0.5            3.84
     December 31, 2009                             1,929            0.5            3.89

     March 31, 2010                                2,965            0.7            3.96
     June 30, 2010                                   772            0.2            3.99
     September 30, 2010                            1,363            0.3            4.20

Thereafter                                         7,494            1.8            4.26
                                            ------------   ------------    ------------
Total certificate accounts(1)                    318,143           75.0            4.50
                                            ------------   ------------    ------------
         Total deposits                     $    424,035          100.0%           3.76%
                                            ============   ============    ============
</TABLE>

------------------
(1)      Includes retirement accounts.

         Management of the Company expects,  based on historical  experience and
its pricing policies,  to retain a significant  portion of the $225.7 million of
certificates  of deposit which mature during the 12 months ending  September 30,
2008.

         The  following  table sets forth the net  deposit  flows of the Company
during the periods indicated.

<TABLE>
<CAPTION>
                                                      Year Ended September 30,
                                               --------------------------------------
                                                  2007          2006          2005
                                               ----------    ----------    ----------
                                                          (In Thousands)
<S>                                                <C>           <C>            <C>
Increase (decrease) before interest credited   $  (19,514)   $     (978)   $    5,112
Interest credited                                  14,295        11,252         8,637
                                               ----------    ----------    ----------
     Net deposit (decrease) increase           $   (5,219)   $   10,274    $   13,749
                                               ==========    ==========    ==========
</TABLE>

         The following  table presents by various  interest rate  categories the
amounts of  certificate  accounts as of the dates  indicated  and the amounts of
certificate  accounts as of September  30, 2007 which mature  during the periods
indicated.

                                       13
<PAGE>
<TABLE>
<CAPTION>

                                                           Amounts at September 30, 2007 Maturing
                                        As of      ---------------------------------------------------------
                                    September 30,    One Year
                                        2007          or Less      Two Years     Three Years     Thereafter
                                    ------------   ------------   ------------   ------------   ------------
                                                                 (In Thousands)
<S>                                     <C>            <C>             <C>             <C>            <C>
Certificate accounts:
  0.01% to 2.00%                    $        205   $         85   $        120   $         --   $         --
  2.01% to 4.00%                          68,140         44,025         19,688          4,231            196
  4.01% to 6.00%                         249,798        181,599         58,104          2,798          7,297
                                    ------------   ------------   ------------   ------------   ------------
    Total certificate accounts(1)   $    318,143   $    225,709   $     77,912   $      7,029   $      7,493
                                    ============   ============   ============   ============   ============
</TABLE>
--------------------
(1)      Includes retirement accounts.

         The following table sets forth the maturity of certificate  deposits of
$100,000 or more as of September 30, 2007.

                                             Amount
                                         (In Thousands)
                         1 to 3 months    $      9,175
                         4 to 6 months           9,621
                         7 to 12 months         19,626
                         Thereafter             15,204
                                          ------------
                              Total       $     53,626
                                          ============

         Borrowings.  The Bank obtains advances from the FHLB of Pittsburgh upon
the security of its capital stock in the FHLB of Pittsburgh and a portion of its
first  mortgages.  See  "Regulation - Regulation of the Bank - Federal Home Loan
Bank  System." At September 30, 2007,  the Bank had advances with  maturities of
one year or less  totaling  $69.2  million at an interest rate of 5.07% and FHLB
advances with  maturities of 13 months to 10 years  totaling  $189.4  million at
interest-rates  ranging from 2.92% to 5.60%.  Such advances are made pursuant to
several  different credit programs,  each of which has its own interest rate and
range of maturities.  In addition, there are three long-term advances from other
financial  institutions  that are  secured  by  investment  and  mortgage-backed
securities totaling $40.0 million at interest-rates ranging from 4.5% to 4.97%.

         Depending  on the  program,  limitations  on the amount of advances are
based on  either  a fixed  percentage  of  assets  or the  FHLB of  Pittsburgh's
assessment of the Bank's creditworthiness. FHLB advances are generally available
to meet  seasonal  and  other  withdrawals  of  deposit  accounts,  to  purchase
mortgage-backed securities, investment securities and to expand lending.

         The  following  table  sets forth  certain  information  regarding  the
borrowings of the Company as of the dates indicated.

<TABLE>
<CAPTION>
                                                             September 30,
                       -----------------------------------------------------------------------------------------
                                  2007                           2006                          2005
                       ---------------------------    ---------------------------    ---------------------------
                                        Weighted                      Weighted                       Weighted
                                         Average                       Average                        Average
                          Balance         Rate          Balance          Rate          Balance          Rate
                       ------------   ------------    ------------   ------------    ------------   ------------
                                                          (Dollars in Thousands)
<S>                    <C>                    <C>     <C>                    <C>     <C>                    <C>
Advances               $    298,609           4.65%   $    294,611           4.67%   $    297,268           4.38%
</TABLE>

                                       14
<PAGE>

         The  following  table sets forth  certain  information  concerning  the
short-term borrowings of the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                           Year Ended September 30,
                                                      --------------------------------
                                                        2007        2006        2005
                                                      --------    --------    --------
                                                           (Dollars in Thousands)
<S>                                                       <C>         <C>         <C>
Advances:
   Average balance outstanding                        $ 48,172    $ 29,278    $ 29,355
   Maximum amount outstanding at any
      month-end during the period                       67,400      59,400      36,100
   Weighted average interest rate during the period       5.36%       4.89%       2.98%
</TABLE>

Employees

         The Company had 69 full-time employees and 48 part-time employees as of
September  30,  2007.  None of these  employees is  represented  by a collective
bargaining  agent,  and the Company  believes that it enjoys good relations with
its personnel.

Regulation

         The  references  to laws and  regulations  which are  applicable to the
Company and the Bank set forth below and  elsewhere  herein are brief  summaries
thereof which do not purport to be complete and are qualified in their  entirety
by reference to such laws and regulations.

Regulation of the Company

         General.  The Company is a registered bank holding company  pursuant to
the Bank Holding Company Act ("BHCA") and, as such, is subject to regulation and
supervision  by the Federal  Reserve  Board and the  Department.  The Company is
required to file annually a report of its  operations  with, and will be subject
to examination by, the Federal Reserve Board and the Department.

         BHCA  Activities  and  Other  Limitations.  The BHCA  prohibits  a bank
holding company from acquiring  direct or indirect  ownership or control of more
than 5% of the  voting  shares of any bank,  or  increasing  such  ownership  or
control of any bank,  without prior approval of the Federal  Reserve Board.  The
BHCA also  generally  prohibits a bank holding  company from  acquiring any bank
located outside of the state in which the existing bank subsidiaries of the bank
holding company are located unless  specifically  authorized by applicable state
law. No approval under the BHCA is required; however, for a bank holding company
already  lawfully  owning or  controlling  50% of the voting shares of a bank to
acquire additional shares of such bank.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the  ownership of shares by a bank holding  company in any company,  the
activities of which the Federal  Reserve  Board has  determined to be so closely
related  to  banking  or to  managing  or  controlling  banks  as to be a proper
incident thereto.  In making such  determinations,  the Federal Reserve Board is
required  to  weigh  the  expected  benefit  to  the  public,  such  as  greater
convenience,  increased competition or gains in efficiency, against the possible
adverse effects,  such as undue concentration of resources,  decreased or unfair
competition,  conflicts of interest or unsound banking  practices.  The 1999 Act
permits a bank holding  company to elect to be  considered  a financial  holding
company ("FHC").  A bank holding company that

                                       15
<PAGE>

makes an FHC election is permitted to engage in activities that are financial in
nature or incidental to such  financial  activities.  The 1999 Act lists certain
activities  that are  considered  financial  in nature and  permits  the Federal
Reserve  Board  to  expand  that  list to  include  other  activities  that  are
complementary  to  the  activities  on the  preapproved  list.  The  preapproved
activities include (1) securities  underwriting,  dealing and market making; (2)
insurance  underwriting;   (3)  merchant  banking;  and  (4)  insurance  company
portfolio investments. The Company has not made the FHC election.

         The Federal  Reserve  Board has by regulation  determined  that certain
activities are closely related to banking within the meaning of the BHCA.  These
activities  include operating a mortgage company,  finance company,  credit card
company,  factoring company,  trust company or savings  association;  performing
certain data  processing  operations;  providing  limited  securities  brokerage
services;  acting as an investment or financial advisor;  acting as an insurance
agent for certain types of credit-related  insurance;  leasing personal property
on a full-payout,  non-operating  basis;  providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal  Reserve Board also has  determined  that certain other  activities,
including real estate  brokerage and  syndication,  land  development,  property
management   and   underwriting   of  life   insurance  not  related  to  credit
transactions,  are not closely related to banking and a proper incident thereto.
However,  under the 1999 Act certain of these  activities are  permissible for a
bank holding company that becomes an FHC.

         Limitations  on  Transactions  with  Affiliates.  Transactions  between
savings  banks and any  affiliate  are  governed by Sections  23A and 23B of the
Federal  Reserve  Act. An  affiliate  of a savings bank is any company or entity
which  controls,  is controlled  by or is under common  control with the savings
bank. In a holding company context, the parent holding company of a savings bank
(such as the  Company) and any  companies  which are  controlled  by such parent
holding company are affiliates of the savings bank.  Generally,  Section 23A (i)
limits the extent to which the savings  bank or its  subsidiaries  may engage in
"covered  transactions" with any one affiliate to an amount equal to 10% of such
bank's  capital  stock and surplus,  and contain an aggregate  limit on all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus.  Section 23B applies to "covered  transactions"  as well as certain
other transactions and requires that all transactions be on terms  substantially
the same, or at least favorable,  to the bank or subsidiary as those provided to
a non-affiliate. The term "covered transaction" includes the making of loans to,
purchase of assets from,  issuance of a guarantee  to an  affiliate  and similar
transactions.  Section 23B transactions  also apply to the provision of services
and the sale of assets by a savings bank to an affiliate.

         In addition,  Sections 22(h) and (g) of the Federal  Reserve Act places
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10%  stockholder  of a savings  bank,  and certain  affiliated
interests of either,  may not exceed,  together with all other outstanding loans
to such  person  and  affiliated  interests,  the  savings  bank's  loans to one
borrower  limit  (generally  equal to 15% of the bank's  unimpaired  capital and
surplus).  Section  22(h)  also  requires  that  loans to  directors,  executive
officers and principal  stockholders be made on terms  substantially the same as
offered in comparable  transactions  to other  persons and also  requires  prior
board  approval  for  certain  loans.  In  addition,  the  aggregate  amount  of
extensions of credit by a savings bank to all insiders  cannot exceed the bank's
unimpaired  capital and surplus.  Furthermore,  Section 22(g) places  additional
restrictions on loans to executive officers.

         Capital  Requirements.  The Federal  Reserve Board has adopted  capital
adequacy  guidelines  pursuant to which it assesses  the  adequacy of capital in
examining and supervising a bank holding  company and in analyzing  applications
to it under the BHCA.  The Federal  Reserve  Board capital  adequacy  guidelines
generally  require bank holding  companies to maintain total capital equal to 8%
of total risk-adjusted  assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount  consisting  of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of

                                       16
<PAGE>

the sum of common stockholders' equity and perpetual preferred stock (subject in
the case of the  latter to  limitations  on the kind and  amount of such  stocks
which may be  included as Tier I  capital),  less  goodwill  and,  with  certain
exceptions,  intangibles.  Tier II capital generally  consists of hybrid capital
instruments;  perpetual  preferred stock which is not eligible to be included as
Tier I capital;  term subordinated debt and  intermediate-term  preferred stock;
and,  subject to  limitations,  general  allowances for loan losses.  Assets are
adjusted  under the  risk-based  guidelines to take into account  different risk
characteristics,  with the  categories  ranging from 0% (requiring no additional
capital)  for  assets  such as cash to 100% for the  bulk of  assets  which  are
typically held by a bank holding company, including multi-family residential and
commercial  real estate loans,  commercial  business  loans and consumer  loans.
Single-family  residential  first mortgage loans which are not past-due (90 days
or more) or  non-performing  and which have been made in accordance with prudent
underwriting  standards are assigned a 50% level in the risk-weighing system, as
are certain  privately-issued  mortgage-backed  securities representing indirect
ownership of such loans.  Off-balance sheet items also are adjusted to take into
account certain risk characteristics.

         In addition to the risk-based capital requirements, the Federal Reserve
Board  requires bank holding  companies to maintain a minimum  leverage  capital
ratio of Tier I capital to total  assets of 3.0%.  Total assets for this purpose
does not include goodwill and any other  intangible  assets and investments that
the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage  capital ratio
requirement is the minimum for the top-rated bank holding  companies without any
supervisory,  financial or operational weaknesses or deficiencies or those which
are not  experiencing or  anticipating  significant  growth.  Other bank holding
companies  will be  expected to maintain  Tier I leverage  capital  ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.

         Financial  Support of Affiliated  Institutions.  Under Federal  Reserve
Board policy,  the Company is expected to act as a source of financial  strength
to the Bank and to commit resources to support the Bank in circumstances when it
might not do so absent  such  policy.  The  Congress  attempted  to clarify  the
application of this "source-of-strength"  doctrine by an amendment to Section 18
of  the  Federal  Deposit  Insurance  Act  ("FDIA")  that  was  included  in the
Gramm-Leach-Bliley  Act of 1999. The amendment describes the circumstances under
which a Federal  banking  agency would be protected from a claim by an affiliate
or a controlling  shareholder of an insured depository  institution  seeking the
return of assets of such an  affiliate  or  controlling  shareholder.  Under the
amended provision,  a claim would not be permitted if (1) the insured depository
institution  was under a written  Federal  directive to raise  capital,  (2) the
institution  was  undercapitalized,  and (3) the subject  Federal banking agency
followed the procedures set forth in Section 5(g) of the BHCA.

         Sarbanes-Oxley Act of 2002. On July 30, 2002,  President George W. Bush
signed into law the  Sarbanes-Oxley  Act of 2002, which generally  establishes a
comprehensive  framework to modernize and reform the oversight of public company
auditing,  improve the quality and transparency of financial  reporting by those
companies and strengthen the independence of auditors.  Among other things,  the
new legislation (i) created a public company accounting oversight board which is
empowered to set  auditing,  quality  control and ethics  standards,  to inspect
registered  public  accounting  firms,  to  conduct  investigations  and to take
disciplinary  actions,  subject to SEC oversight and review;  (ii)  strengthened
auditor independence from corporate management by, among other things,  limiting
the scope of consulting  services  that auditors can offer their public  company
audit clients;  (iii) heightened the  responsibility of public company directors
and senior  managers for the quality of the financial  reporting and  disclosure
made by their companies; (iv) adopted a number of provisions to deter wrongdoing
by  corporate  management;  (v)  imposed  a number of new  corporate  disclosure
requirements;  (vi) adopted  provisions which generally seek to limit and expose
to public view possible conflicts of interest affecting securities analysts; and
(vii)  imposed a range of new criminal  penalties  for fraud and other  wrongful
acts,  as well as extended the period during which certain types of lawsuits can
be brought against a company or its insiders.

                                       17
<PAGE>

Regulation of the Bank

         General. The Bank is subject to extensive regulation and examination by
the Department and by the FDIC, which insures its deposits to the maximum extent
permitted  by law.  The  federal  and  state  laws  and  regulations  which  are
applicable to banks regulate,  among other things,  the scope of their business,
their  investments,   their  reserves  against  deposits,   the  timing  of  the
availability  of deposited funds and the nature and amount of and collateral for
certain loans. There are periodic examinations by the Department and the FDIC to
test the Bank's compliance with various regulatory requirements. This regulation
and supervision  establishes a comprehensive framework of activities in which an
institution  can engage and is  intended  primarily  for the  protection  of the
insurance  fund  and  depositors.   The  regulatory  structure  also  gives  the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement  activities and examination  policies,  including  policies with
respect to the  classification  of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the Department, the FDIC or the Congress could have a material adverse impact on
the Bank and their operations.

         Pennsylvania  Savings Bank Law. The Pennsylvania  Banking Code of 1965,
as amended (the  "Banking  Code")  contains  detailed  provisions  governing the
organization,  location of offices,  rights and  responsibilities  of directors,
officers,  employees  and  members,  as well as  corporate  powers,  savings and
investment operations and other aspects of the Bank and its affairs. The Banking
Code delegates extensive  rulemaking power and administrative  discretion to the
Department so that the  supervision  and regulation of  state-chartered  savings
banks may be flexible and readily  responsive to changes in economic  conditions
and in savings and lending practices.

         One of the  purposes of the Banking  Code is to provide  savings  banks
with the opportunity to be competitive  with each other and with other financial
institutions existing under other Pennsylvania laws and other state, federal and
foreign laws. A  Pennsylvania  savings bank may locate or change the location of
its  principal   place  of  business  and   establish  an  office   anywhere  in
Pennsylvania, with the prior approval of the Department.

         The Department generally examines each savings bank not less frequently
than once every two years.  Although the Department may accept the  examinations
and  reports of the FDIC in lieu of the  Department's  examination,  the present
practice  is  for  the  Department  to  conduct  individual  examinations.   The
Department  may order any savings bank to  discontinue  any  violation of law or
unsafe or  unsound  business  practice  and may  direct  any  trustee,  officer,
attorney or employee of a savings  bank  engaged in an  objectionable  activity,
after the Department has ordered the activity to be terminated, to show cause at
a hearing before the Department why such person should not be removed.

         Interstate  Acquisitions.  The  Interstate  Banking Act allows  federal
regulators  to  approve  mergers  between  adequately   capitalized  banks  from
different  states  regardless of whether the transaction is prohibited under any
state law,  unless one of the banks'  home  states has  enacted a law  expressly
prohibiting  out-of-state mergers before June 1997. This act also allows a state
to permit  out-of-state  banks to  establish  and operate  new  branches in this
state. The Commonwealth of Pennsylvania has "opted in" to this interstate merger
provision.  Therefore,  the prior requirement that interstate acquisitions would
only be permitted when another state had  "reciprocal"  legislation that allowed
acquisitions by  Pennsylvania-based  bank holding companies has been eliminated.
The new  Pennsylvania  legislation,  however,  retained the requirement  that an
acquisition   of   a   Pennsylvania   institution   by  a   Pennsylvania   or  a
non-Pennsylvania-based   holding   company  must  be  approved  by  the  Banking
Department.

         FDIC  Insurance  Premiums.  The deposits of the Bank are insured by the
Deposit  Insurance Fund,  which is administered by the FDIC.  Under current FDIC
regulations,  insured  institutions  are assigned to one

                                       18
<PAGE>

of three capital groups which are based solely on the level of an  institution's
capital.  Deposit  Insurance Fund assessment rates are then tied to the level of
an institution's  supervisory concern based on risk classifications derived from
the capital  groups.  Rates  during the last six months of 2007 ranged from zero
for well capitalized, healthy institutions, such as the Bank, to 27 basis points
for undercapitalized institutions with substantial supervisory concerns.

         In addition,  all  institutions  with deposits  insured by the FDIC are
required to pay  assessments  to fund  interest  payments on bonds issued by the
Financing Corporation,  a mixed-ownership  government corporation established to
recapitalize a predecessor to the Deposit  Insurance  Fund. The assessment  rate
for the third  quarter of 2007 was .00285% of insured  deposits  and is adjusted
quarterly. These assessments will continue until the Financing Corporation bonds
mature in 2019.

         Under the FDIA,  insurance  of deposits may be  terminated  by the FDIC
upon a finding  that the  institution  has  engaged or is engaging in unsafe and
unsound practices,  is in an unsafe or unsound condition to continue  operations
or has violated any applicable law, regulation, rule, order or condition imposed
by the FDIC or written  agreement  entered into with the FDIC. The management of
the Bank does not know of any practice,  condition or violation  that might lead
to  termination  of  deposit  insurance.  At  September  30,  2007,  the  Bank's
regulatory capital exceeded all of its capital requirements.

         Deposit Insurance Reform. On February 8, 2006, President George W. Bush
signed into law legislation  that merged the Bank Insurance Fund and the Savings
Association  Insurance Fund to form the Deposit  Insurance Fund,  eliminated any
disparities  in bank and thrift  risk-based  premium  assessments,  reduced  the
administrative  burden of  maintaining  and  operating  two  separate  funds and
established  certain new insurance  coverage limits and a mechanism for possible
periodic  increases.  The legislation  also gave the Federal  Deposit  Insurance
Corporation  greater  discretion to identify the relative risks all institutions
present to the Deposit Insurance Fund and set risk-based premiums.

         Major provisions in the legislation include:

         o        merging  the  Savings  Association  Insurance  Fund  and  Bank
                  Insurance Fund, which became effective March 31, 2006;

         o        maintaining  basic  deposit and  municipal  account  insurance
                  coverage at $100,000 but providing  for a new basic  insurance
                  coverage  for  retirement  accounts  of  $250,000.   Insurance
                  coverage for basic deposit and  retirement  accounts  could be
                  increased for inflation every five years in $10,000 increments
                  beginning in 2011;

         o        providing the Federal Deposit  Insurance  Corporation with the
                  ability to set the designated  reserve ratio within a range of
                  between 1.15% and 1.50%,  rather than maintaining 1.25% at all
                  times regardless of prevailing economic conditions;

         o        providing  a  one-time  assessment  credit of $4.7  billion to
                  banks and savings  associations  in  existence on December 31,
                  1996, which may be used to offset future premiums with certain
                  limitations; and

         o        requiring  the payment of dividends of 100% of the amount that
                  the  insurance  fund  exceeds  1.5% of the  estimated  insured
                  deposits  and  the  payment  of  50% of the  amount  that  the
                  insurance fund exceeds 1.35% of the estimated insured deposits
                  (when  the  reserve  is  greater  than  1.35% but no more than
                  1.5%).

         Capital Requirements.  The FDIC has promulgated regulations and adopted
a statement of policy  regarding the capital adequacy of  state-chartered  banks
which, like the Bank, are not members of the Federal Reserve System.  The FDIC's
capital regulations establish a minimum 3.0% Tier I leverage capital requirement

                                       19
<PAGE>

for the most highly-rated state-chartered,  non-member banks, with an additional
cushion  of at least 100 to 200  basis  points  for all  other  state-chartered,
non-member  banks,  which  effectively will increase the minimum Tier I leverage
ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation,
highest-rated  banks are those that the FDIC determines are not  anticipating or
experiencing  significant  growth and have well diversified  risk,  including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general,  which are considered a strong  banking  organization,
rated  composite  1 under the  Uniform  Financial  Institutions  Rating  System.
Leverage or core  capital is defined as the sum of common  stockholders'  equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
related surplus, and minority interests in consolidated subsidiaries,  minus all
intangible  assets  other than  certain  qualifying  supervisory  goodwill,  and
certain   purchased   mortgage   servicing   rights  and  purchased  credit  and
relationships.

         The FDIC also  requires  that savings  banks meet a risk-based  capital
standard.  The  risk-based  capital  standard  for savings  banks  requires  the
maintenance   of  total   capital  which  is  defined  as  Tier  I  capital  and
supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the
amount of  risk-weighted  assets,  all assets,  plus  certain off balance  sheet
assets,  are multiplied by a risk-weight  of 0% to 100%,  based on the risks the
FDIC believes are inherent in the type of asset or item.

         The  components  of Tier I capital are  equivalent  to those  discussed
above under the 3% leverage standard.  The components of supplementary  (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan losses.  Allowance  for loan losses  includable in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of capital  counted  toward  supplementary  capital  cannot
exceed 100% of core  capital.  At September  30, 2007,  the Bank met each of its
capital requirements.

         A bank which has less than the  minimum  leverage  capital  requirement
shall,  within  60 days of the date as of which it  fails to  comply  with  such
requirement,  submit to its FDIC  regional  director  for review and  approval a
reasonable  plan describing the means and timing by which the bank shall achieve
its minimum leverage capital  requirement.  A bank which fails to file such plan
with the FDIC is deemed to be  operating  in an unsafe and unsound  manner,  and
could  subject the bank to a  cease-and-desist  order from the FDIC.  The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total  assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound  condition  pursuant to Section  8(a) of the FDIA and is
subject  to  potential  termination  of  deposit  insurance.  However,  such  an
institution will not be subject to an enforcement  proceeding  thereunder solely
on account of its  capital  ratios if it has entered  into and is in  compliance
with a written  agreement with the FDIC to increase its Tier I leverage  capital
ratio to such level as the FDIC deems  appropriate and to take such other action
as may be  necessary  for the  institution  to be  operated  in a safe and sound
manner. The FDIC capital  regulation also provides,  among other things, for the
issuance by the FDIC or its designee(s) of a capital directive, which is a final
order  issued to a bank that fails to  maintain  minimum  capital to restore its
capital to the minimum  leverage  capital  requirement  within a specified  time
period.   Such   directive  is  enforceable  in  the  same  manner  as  a  final
cease-and-desist order.

         The  Bank  is  also  subject  to  more  stringent   Department  capital
guidelines.  Although not adopted in regulation  form, the  Department  utilizes
capital standards  requiring a minimum of 6% leverage capital and 10% risk-based
capital. The components of leverage and risk-based capital are substantially the
same as those defined by the FDIC.

                                       20
<PAGE>

         Loans-to-One  Borrower  Limitation.  Under  federal  regulations,  with
certain limited exceptions,  a Pennsylvania chartered savings bank may lend to a
single or related group of borrowers on an "unsecured"  basis an amount equal to
15% of its  unimpaired  capital and surplus.  An additional  amount may be lent,
equal to 10% of  unimpaired  capital  and  surplus,  if such loan is  secured by
readily-marketable  collateral,  which is defined to include certain  securities
and bullion, but generally does not include real estate.

         Activities and Investments of Insured State-Chartered Banks. Section 24
of the FDIA, as amended by the Federal Deposit Insurance Corporation Improvement
Act  of  1991,  generally  limits  the  activities  and  equity  investments  of
FDIC-insured,  state-chartered  banks to those that are permissible for national
banks. Under regulations dealing with equity investments,  an insured state bank
generally may not directly or indirectly acquire or retain any equity investment
of a type,  or in an amount,  that is not  permissible  for a national  bank. An
insured state bank is not prohibited from, among other things,  (i) acquiring or
retaining  a majority  interest in a  subsidiary,  (ii)  investing  as a limited
partner  in a  partnership  the sole  purpose  of which is  direct  or  indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing  project,  provided that such limited  partnership  investments  may not
exceed 2% of the bank's total  assets,  (iii)  acquiring up to 10% of the voting
stock of a company that solely provides or reinsures  directors',  trustees' and
officers'  liability insurance coverage or bankers' blanket bond group insurance
coverage for insured  depository  institutions,  and (iv) acquiring or retaining
the voting shares of a depository institution if certain requirements are met.

         The FDIC has adopted final regulations pertaining to the other activity
restrictions  imposed  upon  insured  savings  banks and their  subsidiaries  by
Section 24.  Pursuant to such  regulations,  insured  savings banks  engaging in
impermissible  activities  may seek  approval  from the  FDIC to  continue  such
activities.  Savings  banks not engaging in such  activities  but that desire to
engage in otherwise  impermissible  activities  may apply for approval  from the
FDIC  to do so;  however,  if  such  bank  fails  to meet  the  minimum  capital
requirements or the activities  present a significant risk to the FDIC insurance
funds,  such  application  will  not be  approved  by the  FDIC.  The  FDIC  has
authorized the bank's  subsidiary  HARL, LLC, to invest up to 15% of its capital
in the equity  securities of bank holding  companies,  banks or thrifts.  $1.334
million  was  invested  by HARL,  LLC as of  September  30,  2007 in such equity
securities.

         Regulatory   Enforcement   Authority.   FIRREA   included   substantial
enhancement to the enforcement  powers available to federal banking  regulators.
This enforcement  authority includes,  among other things, the ability to assess
civil  money  penalties,  to issue  cease-and-desist  or  removal  orders and to
initiate    injunctive    actions    against    banking     organizations    and
institution-affiliated  parties,  as  defined.  In  general,  these  enforcement
actions may be initiated for  violations of laws and  regulations  and unsafe or
unsound  practices.  Other  actions  or  inactions  may  provide  the  basis for
enforcement  action,   including  misleading  or  untimely  reports  filed  with
regulatory authorities. FIRREA significantly increased the amount of and grounds
for civil money  penalties  and requires,  except under  certain  circumstances,
public disclosure of final enforcement actions by the federal banking agencies.

Federal and State Taxation

         General.  The Bank is subject to federal  income  taxation  in the same
general  manner  as  other   corporations   with  some   exceptions,   including
particularly the reserve for bad debts discussed below. The following discussion
of federal  taxation is intended  only to summarize  certain  pertinent  federal
income  tax  matters  and is not a  comprehensive  description  of the tax rules
applicable to the Bank.

         Method  of  Accounting.  For  federal  income  tax  purposes,  the Bank
currently  reports its income and expenses on the accrual  method of  accounting
and uses a tax year  ending  September  30 for  filing  its  federal  income tax
returns.

                                       21
<PAGE>

         Bad Debt Reserves. The Company computes its reserve for bad debts under
the specific  charge-off  method.  The bad debt deduction  allowable  under this
method is  available  to large  banks with  assets  greater  than $500  million.
Generally,  this method  allows the Company to deduct an annual  addition to the
reserve  for bad  debts  equal  to its net  charge-offs.  Retained  earnings  at
September 30, 2007 and 2006 includes approximately $1.3 million representing bad
debt deductions for which no deferred income taxes have been provided.

         Distributions.  If  the  Bank  distributes  cash  or  property  to  its
stockholders,  and the  distribution  is treated  as being from its  accumulated
pre-1988 tax bad debt  reserves,  the  distribution  will cause the Bank to have
additional taxable income. A distribution to stockholders is deemed to have been
made from  accumulated  bad debt  reserves to the extent  that (a) the  reserves
exceed the amount that would have been  accumulated  on the basis of actual loss
experience,  and  (b)  the  distribution  is a  "non-dividend  distribution."  A
distribution  in respect of stock is a non-dividend  distribution  to the extent
that, for federal income tax purposes,  (i) it is in redemption of shares,  (ii)
it is pursuant to a liquidation  of the  institution,  or (iii) in the case of a
current  distribution,  together  with all other such  distributions  during the
taxable year, it exceeds the Bank's current and post-1951  accumulated  earnings
and profits.  The amount of additional  taxable income created by a non-dividend
distribution  is an amount that when  reduced by the tax  attributable  to it is
equal to the amount of the distribution.

         Minimum Tax. The Code imposes an  alternative  minimum tax at a rate of
20%  on  a  base  of  regular   taxable  income  plus  certain  tax  preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax is
payable to the extent such AMTI is in excess of an  exemption  amount.  The Code
provides that an item of tax  preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount  allowable under the experience  method.  The other items of tax
preference  that constitute AMTI include (a) tax exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain  qualified  bonds and (b) for taxable years beginning after 1989, 75% of
the excess (if any) of (i)  adjusted  current  earnings  as defined in the Code,
over (ii)  AMTI  (determined  without  regard  to this  preference  and prior to
reduction by net operating losses). Net operating losses can offset no more than
90% of AMTI. Certain payments of alternative  minimum tax may be used as credits
against regular tax liabilities in future years.

         Net Operating Loss Carryovers.  A financial  institution may carry back
net  operating  losses to the  preceding  three taxable years and forward to the
succeeding 15 taxable years.  Effective for net operating  losses arising in tax
years  beginning  after October 1, 1997,  the  carryback  period is reduced from
three years to two years and the  carryforward  period is extended from 15 years
to 20  years.  At  September  30,  2007,  the  Bank  had no net  operating  loss
carryforwards for federal income tax purposes.

         Corporate      Dividends-Received      Deduction.     The     corporate
dividends-received  deduction  is 80% in the  case of  dividends  received  from
corporations  with which a corporate  recipient does not file a consolidated tax
return,  and corporations  which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends  received or accrued on
their behalf.  However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.

         Other  Matters.  The Company's  federal  income tax returns for its tax
years 1993 and beyond are open under the statute of limitations  and are subject
to review by the Internal Revenue Service ("IRS").

         Pennsylvania   Taxation.   The  Bank  is   subject  to  tax  under  the
Pennsylvania Mutual Thrift Institutions Tax Act, which imposes a tax at the rate
of 11.5% on the Bank's net earnings,  determined in accordance  with  accounting
principles  generally accepted in the United States of America,  as shown on its
books. For fiscal years beginning in 1983, and thereafter,  net operating losses
may be carried  forward and

                                       22
<PAGE>

allowed as a deduction  for three  succeeding  years.  This Act exempts the Bank
from all other corporate  taxes imposed by Pennsylvania  for state tax purposes,
and from all local taxes imposed by political subdivisions thereof, except taxes
on real estate and real estate transfers.

Subsidiary

         The Bank is the only direct wholly owned subsidiary of the Company. The
Bank formed HSB, Inc., a Delaware  company,  as a wholly owned subsidiary of the
Bank during  fiscal  1997.  HSB,  Inc.  was formed in order to  accommodate  the
transfer  of  certain  assets  that are  legal  investments  for the Bank and to
provide for a greater  degree of protection to claims of creditors.  The laws of
the State of Delaware and the court system create a more  favorable  environment
for the proposed business affairs of the subsidiary. HSB, Inc. currently manages
the investment  securities for the Bank, which as of September 30, 2007 amounted
to approximately $152.7 million. The Bank formed two limited liability companies
in 2002,  Freedom  Financial  Solutions  LLC  ("FFS")  and  HARL,  LLC.  FFS was
established to engage in the sale of insurance  products  through a third party.
HARL, LLC was established for the purpose of investing in FDIC insured financial
institutions/holding company equity securities.

Item 1A. Risk Factors.
----------------------

         In  analyzing  whether  to make or to  continue  an  investment  in our
securities,  investors should consider,  among other factors, the following risk
factors.

Our results of operations are significantly dependent on economic conditions and
related uncertainties.

         Commercial  banking is affected,  directly and indirectly,  by domestic
and international economic and political conditions and by governmental monetary
and fiscal  policies.  Conditions  such as inflation,  recession,  unemployment,
volatile  interest  rates,  real  estate  values,  government  monetary  policy,
international  conflicts, the actions of terrorists and other factors beyond our
control  may  adversely  affect our results of  operations.  Changes in interest
rates, in particular,  could adversely affect our net interest income and have a
number  of  other  adverse  effects  on  our  operations,  as  discussed  in the
immediately  succeeding  risk factor.  Adverse  economic  conditions  also could
result in an  increase in loan  delinquencies,  foreclosures  and  nonperforming
assets and a decrease  in the value of the  property or other  collateral  which
secures  our  loans,  all  of  which  could  adversely  affect  our  results  of
operations.  We are particularly sensitive to changes in economic conditions and
related  uncertainties in Eastern  Pennsylvania  because we derive substantially
all of our loans,  deposits and other business from this area.  Accordingly,  we
remain subject to the risks  associated  with prolonged  declines in national or
local economies.

Changes  in  interest  rates  could  have  a  material  adverse  effect  on  our
operations.

         The operations of financial  institutions such as ours are dependent to
a large  extent on net  interest  income,  which is the  difference  between the
interest income earned on  interest-earning  assets such as loans and investment
securities and the interest expense paid on interest-bearing liabilities such as
deposits  and  borrowings.  Changes in the general  level of interest  rates can
affect our net interest income by affecting the difference  between the weighted
average  yield earned on our  interest-earning  assets and the weighted  average
rate paid on our interest-bearing  liabilities, or interest rate spread, and the
average life of our interest-earning  assets and  interest-bearing  liabilities.
Changes in interest  rates also can affect our ability to originate  loans;  the
value of our  interest-earning  assets and our ability to realize gains from the
sale of such assets;  our ability to obtain and retain  deposits in  competition
with other available  investment  alternatives;  the ability of our borrowers to
repay adjustable or variable rate loans.  Interest rates are highly sensitive to
many  factors,   including   governmental   monetary   policies,   domestic  and
international  economic and political  conditions  and

                                       23
<PAGE>

other  factors  beyond  our  control.  Although  we believe  that the  estimated
maturities  of our  interest-earning  assets  currently  are  well  balanced  in
relation to the estimated maturities of our interest-bearing  liabilities (which
involves  various  estimates as to how changes in the general  level of interest
rates will impact these assets and liabilities),  there can be no assurance that
our profitability  would not be adversely  affected during any period of changes
in interest rates.

There are increased  risks involved with  multi-family  residential,  commercial
real estate, commercial business and consumer lending activities.

         Our lending activities  include loans secured by existing  multi-family
residential  and  commercial  real  estate.  In  addition,  from time to time we
originate loans for the construction of multi-family residential real estate and
land acquisition and development  loans.  Multi-family  residential,  commercial
real estate and construction lending generally is considered to involve a higher
degree of risk  than  single-family  residential  lending  due to a  variety  of
factors,  including generally larger loan balances, the dependency on successful
completion  or  operation  of the project for  repayment,  the  difficulties  in
estimating  construction  costs and loan terms which  often do not require  full
amortization  of the loan  over its term  and,  instead,  provide  for a balloon
payment at stated  maturity.  Our lending  activities  also  include  commercial
business  loans and leases to small to medium  businesses,  which  generally are
secured by various  equipment,  machinery and other corporate assets, and a wide
variety of consumer loans,  including home improvement loans, home equity loans,
education  loans  and  loans  secured  by  automobiles,   boats,  mobile  homes,
recreational vehicles and other personal property.  Although commercial business
loans and leases and consumer  loans  generally  have  shorter  terms and higher
interests  rates than  mortgage  loans,  they  generally  involve more risk than
mortgage loans because of the nature of, or in certain cases the absence of, the
collateral which secures such loans.

We are subject to extensive regulation which could adversely affect our business
and operations.

         We and our  subsidiaries  are  subject to  extensive  federal and state
governmental  supervision and regulation,  which are intended  primarily for the
protection of depositors.  In addition,  we and our  subsidiaries are subject to
changes  in  federal  and  state  laws,  as  well  as  changes  in  regulations,
governmental  policies  and  accounting  principles.  The  effects  of any  such
potential  changes cannot be predicted but could  adversely  affect the business
and operations of us and our subsidiaries in the future.

We face strong competition which may adversely affect our profitability.

         We are subject to vigorous  competition in all aspects and areas of our
business from banks and other financial institutions, including savings and loan
associations,   savings  banks,  finance  companies,  credit  unions  and  other
providers of financial  services,  such as money market mutual funds,  brokerage
firms, consumer finance companies and insurance companies.  We also compete with
non-financial  institutions,  including  retail stores that  maintain  their own
credit  programs  and  governmental  agencies  that make  available  low cost or
guaranteed  loans to certain  borrowers.  Certain of our  competitors are larger
financial  institutions with substantially  greater  resources,  lending limits,
larger  branch  systems  and a  wider  array  of  commercial  banking  services.
Competition from both bank and non-bank organizations will continue.

Our  ability  to  successfully  compete  may be reduced if we are unable to make
technological advances.

         The banking  industry is experiencing  rapid changes in technology.  In
addition to improving customer services,  effective use of technology  increases
efficiency and enables financial  institutions to reduce costs. As a result, our
future  success  will depend in part on our  ability to address  our  customers'
needs  by  using  technology.  We  cannot  assure  you  that  we will be able to
effectively develop new technology-driven

                                       24
<PAGE>

products  and  services or be  successful  in  marketing  these  products to our
customers.  Many of our competitors  have far greater  resources than we have to
invest in technology.

We and our banking  subsidiary  are  subject to capital  and other  requirements
which restrict our ability to pay dividends.

         Our ability to pay  dividends  to our  shareholders  depends to a large
extent upon the dividends we receive from Harleysville  Savings Bank.  Dividends
paid by the Bank are subject to restrictions under Pennsylvania and federal laws
and regulations.  In addition,  Harleysville  Savings Bank must maintain certain
capital  levels,  which may restrict the ability of the Bank to pay dividends to
us and our ability to pay dividends to our shareholders.

Holders  of our  common  stock  have no  preemptive  rights  and are  subject to
potential dilution.

         Our articles of  incorporation  do not provide any  shareholder  with a
preemptive  right to subscribe  for  additional  shares of common stock upon any
increase  thereof.  Thus,  upon the issuance of any additional  shares of common
stock or other voting  securities of the Company or securities  convertible into
common stock or other voting securities,  shareholders may be unable to maintain
their pro rata voting or ownership interest in us.

Item 1B. Unresolved Staff Comments.
-----------------------------------

         Not applicable.

Item 2.  Properties.
--------------------

         As of September 30, 2007,  the Company  conducted its business from its
main office in  Harleysville,  Pennsylvania  and five other full service  branch
offices.  The  Company  is also  part of the STAR  ATM  System,  which  provides
customers with access to their deposits at locations worldwide.

<TABLE>
<CAPTION>
                                                                                Net Book Value of
                                                                  Lease      Property and Leasehold
                                                  Owned or      Expiration       Improvements at
    County                 Address                 Leased          Date         September 30, 2007     Deposits
  ------------     --------------------------     --------    ---------------   ------------------     --------
                                                                                          (In Thousands)
<S>                 <C>                              <C>           <C>                 <C>            <C>
  Montgomery       1889 Ridge Park
                   Royersford, Pennsylvania        Owned            --              $   3,210          $  7,251
  Montgomery       271 Main Street
                   Harleysville, Pennsylvania      Owned            --                  1,038           148,111
  Montgomery       640 East Main Street
                   Lansdale, Pennsylvania          Leased       May 2043(1)               880            42,595
  Montgomery       1550 Hatfield Valley Road
                   Hatfield, Pennsylvania          Leased     January 2064(1)             815            82,081
  Montgomery       2301 West Main Street
                   Norristown, Pennsylvania        Owned            --                    528            91,763
  Montgomery       3090 Main Street
                   Sumneytown, Pennsylvania        Owned            --                    299            52,234
                                                                                     --------          --------
                    Total                                                            $  6,770          $424,035
                                                                                     ========          ========
</TABLE>
---------------
(1)      The land at this office is leased; however, the Bank owns the building.

                                       25
<PAGE>

Item 3.  Legal Proceedings.
---------------------------

         The Company is not involved in any legal proceedings except nonmaterial
litigation incidental to the ordinary course of business.

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

         Not Applicable.
                                     PART II

Item 5.  Market for the Registrant's Common Equity,  Related Stockholder Matters
--------------------------------------------------------------------------------
         and Issuer Purchases of Equity Securities.
         ------------------------------------------

         (a) The  information  for all equity based and individual  compensation
arrangements is incorporated by reference from Part III, Item 12 hereof.

         Performance  Graph. The following graph compares the yearly  cumulative
total return on the Company's common stock over the past five years with (i) the
yearly cumulative total return on the stocks included in the Nasdaq Stock Market
Index and (ii) the yearly  cumulative total return on the stocks included in the
Nasdaq Banks Index (all banks listed on the Nasdaq Stock Market). The cumulative
returns are computed  assuming the  reinvestment  of dividends at the  frequency
with  which   dividends   were  paid   during  the   applicable   years.

                                    [GRAPH]

<TABLE>
<CAPTION>
                           2002       2003       2004       2005       2006       2007
                         --------   --------   --------   --------   --------   --------
<S>                        <C>        <C>        <C>        <C>        <C>        <C>
Harleysville Savings     $ 100.00   $ 186.41   $ 205.22   $ 209.97   $ 213.83   $ 189.00

Nasdaq Market Index        100.00     176.31     187.30     213.78     225.45     266.83

Nasdaq Banks Index         100.00     326.79     381.40     398.54     435.60     409.65

Book Value Per Share        10.05      10.81      11.56      12.20      12.59      12.65

Market Value Per Share      12.07      15.83      17.25      17.15      16.90      13.71
</TABLE>

                                       26
<PAGE>

         Harleysville Savings Financial  Corporation's Common Stock is listed on
the Nasdaq Global Market under the symbol "HARL". The Common Stock was issued at
an adjusted price of $1.45 per share in connection with the Company's conversion
from mutual to stock form and the Common Stock  commenced  trading on the NASDAQ
Stock  Market on  September  3, 1987.  Prices  shown  below  reflect  the prices
reported by the NASDAQ  systems.  The closing  price on  September  28, 2007 was
$13.71 per share.  There were 3,717,519  shares  outstanding as of September 30,
2007, held by  approximately  1,000  stockholders  of record,  not including the
number of persons or entities  whose  stock is held in nominee or "street"  name
through various brokerage firms and banks.

                                                                 Cash Dividends
For The Quarter Ended        High          Low         Close        Declared
---------------------     ----------    ---------    ----------    ----------
December 31, 2005         $    18.44    $   17.01    $    17.98    $     0.16
March 31, 2006                 18.00        17.20         17.45          0.16
June 30, 2006                  17.95        17.08         17.22          0.16
September 30, 2006             17.35        14.81         16.90          0.16

December 31, 2006              19.93        15.60         18.48          0.17
March 31, 2007                 19.25        16.02         16.75          0.17
June 30, 2007                  17.59        16.00         16.20          0.17
September 30, 2007             16.72        13.30         13.71          0.17


         (b) Not applicable.

         (c)  The  following  table  sets  forth  information  with  respect  to
purchases  made by or on behalf of the Company of shares of Common  Stock of the
Company during the fourth quarter of fiscal 2007.

<TABLE>
<CAPTION>
                                                                   Total Number of
                                                                 Shares Purchased as       Maximum Number of
                              Total Number         Average         Part of Publicly     Shares that May Yet Be
                               of Shares         Price Paid       Announced Plans or   Purchased Under the Plans
     Period                    Purchased          per Share            Programs             or Programs(1)
-----------------------       ------------       ------------        ------------            ------------
<S>                          <C>                  <C>               <C>                      <C>
July 1-31, 2007 .......             32,500              16.10              32,500                 177,351
August 1-31, 2007 .....            111,000              15.65             111,000                  66,351
September 1-30, 2007 ..                 --                 --                  --                  66,351
                              ------------       ------------        ------------
     Total ............            143,500       $      15.75             143,500                  66,351
                              ============                           ============
</TABLE>

------------
(1)      On June 18, 2003, the Company announced its program to repurchase up to
         5.0% of the  outstanding  shares of  Common  Stock of the  Company,  or
         191,667 shares. The program was completed on July 26, 2007.

(2)      On June  20,  2007,  the  Company  announced  its  current  program  to
         repurchase up to 5.0% of the outstanding  shares of Common Stock of the
         Company, or 196,000 shares. The program commenced immediately following
         the  completion  of the  2003  program.  The  program  does not have an
         expiration date and all shares are purchased in the open market.

                                       27
<PAGE>

Item 6.  Selected Financial Data.
---------------------------------
<TABLE>
<CAPTION>
Selected Balance Sheet Data:
(Dollars in thousands except per share data)                                          As of September 30,
                                                                2007           2006          2005            2004           2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>            <C>            <C>
Total Assets                                                $    773,544   $    775,638   $    766,990   $    718,232   $    653,288
Mortgage-backed securities held to maturity                      192,843        219,494        263,964        261,292        223,592
Mortgage-backed securities available-for-sale                        818            820          1,045          3,795          6,656
Consumer loans receivable - net                                  403,739        384,530        366,007        338,584        297,346
Commercial loans                                                  15,314            920
Investment securities held to maturity                           108,693        111,099         87,364         68,162         83,327
Investment securities available-for-sale                           1,910          8,108          2,835          7,715          4,923
Other investments (1)                                             22,457         25,549         23,971         19,903         18,618
Deposits                                                         424,035        429,254        418,980        405,231        380,687
FHLB advances and other borrowings                               298,609        294,611        297,268        265,953        228,817
Total stockholders' equity                                        47,041         48,471         47,576         44,313         40,816
Book value per share (3)                                           12.65          12.59          12.20          11.56          10.81
<CAPTION>

Selected Operations Data:                                                          Year Ended September 30,
                                                               2007           2006          2005             2004           2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>             <C>            <C>
Interest income                                            $     40,289   $     39,091   $     35,902    $     32,636   $     33,123
Interest expense                                                 28,806         26,366         22,747          20,391         21,673
                                                           ------------   ------------   ------------    ------------   ------------

Net interest income                                              11,483         12,725         13,155          12,245         11,450
Provision for loan losses                                            --             --            (40)             --             --
                                                           ------------   ------------   ------------    ------------   ------------
Net interest income after provision
    for loan losses                                              11,483         12,725         13,195          12,245         11,450

Gain on sales of loans and securities                               160             27            115             326            247
Other income                                                      1,730          1,273          1,351           1,282          1,270
Other expense                                                     9,216          8,568          7,965           7,399          6,897
                                                           ------------   ------------   ------------    ------------   ------------

Income before taxes                                               4,157          5,457          6,696           6,454          6,070
Income tax expense                                                  911          1,255          1,693           1,604          1,476
                                                           ------------   ------------   ------------    ------------   ------------

Net income                                                 $      3,246   $      4,202   $      5,003    $      4,850   $      4,594
                                                           ============   ============   ============    ============   ============

Earnings per share - basic (3)                             $       0.85   $       1.09   $       1.29    $       1.28   $       1.21
Earnings per share - diluted (3)                                   0.83           1.08           1.27            1.25           1.19
Dividends per share (3)                                            0.68           0.64           0.58            0.48           0.40
<CAPTION>

Selected Other Data:
                                                                                     Year Ended September 30,
                                                               2007            2006            2005            2004            2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>             <C>             <C>
Return on average assets (2)                                   0.42%           0.55%           0.67%           0.70%           0.72%
Return on average equity (2)                                   6.71%           8.76%          10.91%          11.44%          11.68%
Dividend payout ratio                                         80.02%          58.72%          44.96%          37.56%          32.67%
Average equity to average assets (2)                           6.13%           6.21%           6.19%           6.12%           6.14%
Interest rate spread (2)                                       1.32%           1.51%           1.65%           1.64%           1.64%
Net yield on interest-earning assets (2)                       1.57%           1.71%           1.82%           1.80%           1.84%
Ratio of non-performing assets to
    total assets at end of period                              0.00%           0.00%           0.03%           0.04%           0.04%
Ratio of interest-earning assets to
    interest-bearing liabilities at end of period             104.7%          105.6%          105.4%          105.6%          105.6%
Full service banking offices at
    end of period                                               6               6               5               5               5
</TABLE>

(1)      Includes  interest-bearing  deposits at other depository institutions &
         stock of the Federal Home Loan Bank of Pittsburgh.
(2)      All ratios are based on average  monthly  balances during the indicated
         periods.
(3)      The  number  of  shares  and per  share  information  for  all  periods
         presented  has been  restated to reflect the five for three stock split
         as of February 24, 2005.

                                       28
<PAGE>


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

         The  following  discussion is intended to assist in  understanding  our
financial  condition,  and the results of operations  for  Harleysville  Savings
Financial  Corporation,  and its subsidiary  Harleysville  Savings Bank, for the
fiscal years ended  September 30, 2007,  2006 and 2005. The  information in this
section should be read in conjunction  with the Company's  financial  statements
and the accompanying notes included elsewhere herein.

Critical Accounting Policies and Judgments

         The Company's  consolidated  financial statements are prepared based on
the application of certain  accounting  policies,  the most significant of which
are described in Note 2, Summary of Significant Accounting Policies.  Certain of
these policies require numerous estimates and strategic or economic  assumptions
that may prove inaccurate or subject to variations and may significantly  affect
the  Company's  reported  results and  financial  position  for the period or in
future periods. Changes in underlying factors,  assumptions, or estimates in any
of these areas could have a material  impact on the Company's  future  financial
condition and results of operations.

         Analysis  and  Determination  of the  Allowance  for Loan  Losses - The
allowance for loan losses is a valuation  allowance for probable losses inherent
in the loan portfolio.  The Company  evaluates the need to establish  allowances
against  losses on loans on a monthly  basis.  When  additional  allowances  are
necessary, a provision for loan losses is charged to earnings.

         Our methodology for assessing the  appropriateness of the allowance for
loan losses consists of three key elements:  (1) specific allowances for certain
impaired or  collateral-dependent  loans; (2) a general  valuation  allowance on
certain identified  problem loans; and (3) a general valuation  allowance on the
remainder  of the loan  portfolio.  Although  we  determine  the  amount of each
element of the  allowance  separately,  the entire  allowance for loan losses is
available for the entire portfolio.

         Specific     Allowance     Required    for    Certain    Impaired    or
Collateral-Dependent Loans: We establish an allowance for certain impaired loans
for the  amounts  by which the  discounted  cash flows (or  collateral  value or
observable  market price) are lower than the carrying  value of the loan.  Under
current  accounting  guidelines,  a loan is defined as impaired  when,  based on
current information and events, it is probable that a creditor will be unable to
collect all amounts due under the contractual terms of the loan agreement.

         General Valuation  Allowance on Certain  Identified  Problem Loans - We
also  establish a general  allowance  for  classified  loans that do not have an
individual  allowance.  We  segregate  these loans by loan  category  and assign
allowance  percentages to each category based on inherent losses associated with
each type of lending  and  consideration  that these  loans,  in the  aggregate,
represent an  above-average  credit risk and that more of these loans will prove
to be uncollectible compared to loans in the general portfolio.

         General Valuation Allowance on the Remainder of the Loan Portfolio - We
establish  another  general  allowance  for  loans  that are not  classified  to
recognize the inherent  losses  associated with lending  activities,  but which,
unlike specific allowances, has not been allocated to particular problem assets.
This general valuation  allowance is determined by segregating the loans by loan
category  and  assigning  allowance  percentages  based on our  historical  loss
experience, delinquency trends and management's evaluation of the collectibility
of the loan portfolio.  The allowance is adjusted for significant  factors that,
in management's  judgment,  affect the collectibility of the portfolio as of the
evaluation  date.  These  significant  factors  may  include  changes in lending
policies  and  procedures,  changes in existing  general  economic  and business
conditions   affecting  our  primary  lending  areas,   credit  quality  trends,
collateral  value,  loan  volumes  and  concentrations,  seasoning  of the  loan
portfolio, loss experience in particular segments of the portfolio,

                                       29
<PAGE>

duration of the current business cycle, and bank regulatory examination results.
The applied loss factors are  reevaluated  monthly to ensure their  relevance in
the current economic environment.

Overview

         Harleysville Savings Financial Corporation,  a bank holding company, of
which Harleysville Savings Bank (the "Bank"), is a wholly owned subsidiary,  was
formed in February 2000. For purposes of this discussion, the Company, including
its wholly owned subsidiary, will be referred to as the "Company." The Company's
earnings  are  primarily  dependent  upon  its net  interest  income,  which  is
determined  by (i) the  difference  between  yields  earned on  interest-earning
assets and rates paid on interest-bearing  liabilities  ("interest rate spread")
and (ii) the relative amounts of  interest-earning  assets and  interest-bearing
liabilities  outstanding.  The  Company's  interest  rate  spread is affected by
regulatory,  economic,  and competitive  factors that influence  interest rates,
loan demand and deposit flows. The Company,  like other thrift institutions,  is
vulnerable to an increase in interest rates to the extent that  interest-bearing
liabilities  mature or reprice  more rapidly than  interest-earning  assets.  To
reduce the effect of adverse  changes in interest rates on its  operations,  the
Company has adopted certain asset and liability management strategies, described
below. The Company's  earnings are also affected by, among other factors,  other
non-interest income, other expenses, and income taxes.

         The Company's  total assets at September  30, 2007,  amounted to $773.5
million,  compared to $775.6  million as of September 30, 2006.  The decrease in
assets  was  due  to  a  decrease  in  mortgage  backed  securities,  investment
securities  available  for sale,  investment  securities  held to  maturity  and
Federal Home Loan Bank stock of $26.7  million,  $6.2 million,  $2.4 million and
$1.4 million, respectively.  These decreases were offset by an increase in loans
receivable of $33.6 million. Total liabilities at September 30, 2007 were $726.5
million  compared to $727.2  million at  September  30,  2006.  The  decrease in
liabilities  was due to a decrease in short term borrowing and deposits of $26.7
million  and $5.2  million,  respectively.  These  decreases  were  offset by an
increase in long-term debt of $30.7 million.  Stockholders' equity totaled $47.0
million as of September  30, 2007,  compared to $48.5  million at September  30,
2006.

         During fiscal 2007, net interest income after provision for loan losses
decreased $1.2 million or 9.8% from the prior fiscal year. This decrease was the
result of a 2.4%  decrease in the  average  interest-earning  assets,  which was
offset  by a  1.6%  decrease  in  average  interest-bearing  liabilities,  and a
decrease  in the  interest  rate  spread  from 1.51% in fiscal  2006 to 1.39% in
fiscal 2007. Earnings for fiscal 2007 were $3.2 million compared to $4.2 million
and $5.0 million for the years ended September 30, 2006 and 2005,  respectively.
The  Company's  return on average  assets (net income  divided by average  total
assets) was 0.42% during  fiscal 2007  compared to 0.55% and 0.67% during fiscal
2006 and 2005,  respectively.  Return on average  equity (net income  divided by
average  equity) was 6.71% during  fiscal 2007  compared to 8.76% during  fiscal
2006 and 10.91% during fiscal 2005. This decline in return on average assets and
return on average equity during the three-year period was a direct result of the
continued compression of long and short term interest rates.

Results of Operations

         The following table sets forth as of the periods indicated, information
regarding: (i) the total dollar amounts of interest income from interest-earning
assets  and the  resulting  average  yields;  (ii) the  total  dollar  amount of
interest  expense on  interest-bearing  liabilities  and the  resulting  average
costs;   (iii)  net  interest  income;   (iv)  interest  rate  spread;  (v)  net
interest-earning  assets; (vi) the net yield earned on interest-earning  assets;
and (vii) the ratio of total  interest-earning  assets to total interest-bearing
liabilities. Average balances are calculated on a monthly basis.

                                       30
<PAGE>
<TABLE>
<CAPTION>

                                 As of                                For The Year Ended September 30,
                                Sept 30,  -----------------------------------------------------------------------------------------
                                 2007                 2007                           2006                           2005
                                -------   ----------------------------   ----------------------------   ---------------------------
                                          Average              Yield/    Average              Yield/    Average             Yield/
                                 Rate     Balance   Interest    Rate     Balance   Interest    Rate     Balance   Interest   Rate
                                -------   --------  --------  --------   --------  --------  --------   --------  --------  -------
<S>                                <C>     <C>         <C>        <C>     <C>         <C>        <C>     <C>         <C>       <C>
Interest-earning assets:
  Mortgage loans (2) (3)           5.94%  $294,013  $ 17,270      5.87%  $277,359  $ 16,101      5.81%  $263,400  $ 15,331     5.82%
  Mortgage-backed securities       4.72%   204,546     9,339      4.57%   241,751    10,801      4.47%   271,554    11,666     4.30%
  Consumer and other loans (3)     6.33%   105,320     6,709      6.37%    94,987     5,675      5.97%    86,257     4,614     5.35%
  Investments                      5.32%   122,748     6,971      5.68%   130,425     6,514      4.99%   100,915     4,291     4.25%
                                -------   --------  --------  --------   --------  --------  --------   --------  --------  -------
Total interest-earning
    assets                         5.56%   726,627    40,289      5.54%   744,522    39,091      5.25%   722,126    35,902     4.97%
                                -------   --------  --------  --------   --------  --------  --------   --------  --------  -------

Interest-bearing liabilities:
  Deposits                         3.87%   418,268    15,472      3.70%   418,506    13,165      3.15%   401,920    10,337     2.57%
  Borrowings                       4.65%   275,429    13,334      4.84%   286,500    13,201      4.61%   283,522    12,410     4.38%
                                -------   --------  --------  --------   --------  --------  --------   --------  --------  -------

Total interest-bearing
    liabilities                    4.19%   693,697    28,806      4.15%   705,006    26,366      3.74%   685,442    22,747     3.32%
                                -------   --------  --------  --------   --------  --------  --------   --------  --------  -------

Net interest income/interest
    rate spread                    1.37%            $ 11,483      1.39%            $ 12,725      1.51%            $ 13,155     1.65%
                               ========             ========  ========             ========  ========             ========  =======

Net interest-earning assets/
   net yield on interest-
   earning assets (1)                     $ 32,930                1.58%  $ 39,516                1.71%  $ 36,684               1.82%
                                          ========            ========   ========            ========   ========            =======

Ratio of interest-earning
   assets to interest-
  bearing liabilities                                            104.7%                         105.6%                        105.4%
                                                              ========                       ========                       =======
</TABLE>

---------------------
(1) Net interest income divided by average interest-earning assets.
(2) Loan fee income is immaterial to this analysis.
(3) There were no non-accruing loans at September 30, 2007, 2006 and 2005.

                                       31
<PAGE>

         The following table shows,  for the periods  indicated,  the changes in
interest income and interest expense  attributable to changes in volume (changes
in volume  multiplied  by prior year rate) and changes in rate  (changes in rate
multiplied  by  prior  year  volume).  Changes  in  rate/volume  (determined  by
multiplying  the change in rate by the change in volume) have been  allocated to
the change in rate or the change in volume based upon the respective percentages
of their combined totals.

<TABLE>
<CAPTION>
                                             Fiscal 2007 Compared                      Fiscal 2006 Compared
                                                to Fiscal 2006                            to Fiscal 2005
                                              Increase (Decrease)                      Increase (Decrease)
                                    --------------------------------------    --------------------------------------
                                      Volume         Rate         Total         Volume         Rate         Total
                                    ----------    ----------    ----------    ----------    ----------    ----------
<S>                                     <C>              <C>        <C>           <C>              <C>          <C>
Interest income on
  interest-earning assets:
     Mortgage loans (1)             $      976    $      193    $    1,169    $      810    $      (40)   $      770
     Mortgage-backed securities         (1,694)          232        (1,462)       (1,317)          453          (864)
     Consumer and other loans (1)          643           390         1,034           492           568         1,060

     Investments                          (398)          856           457         1,392           831         2,223
                                    ----------    ----------    ----------    ----------    ----------    ----------

        Total                             (473)        1,671         1,198         1,377         1,812         3,189
                                    ----------    ----------    ----------    ----------    ----------    ----------

Interest expense on
  interest-bearing liabilities:
     Deposits                               (7)        2,314         2,307           441         2,387         2,828

     Borrowings                           (521)          654           133           131           660           791
                                    ----------    ----------    ----------    ----------    ----------    ----------

        Total                             (528)        2,968         2,440           572         3,047         3,619
                                    ----------    ----------    ----------    ----------    ----------    ----------

Net change in net interest income   $       55    $   (1,297)   $   (1,242)   $      805    $   (1,235)   $     (430)
                                    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

(1) There were no non-accruing loans at September 30, 2007 and 2006.


                                       32
<PAGE>

Net Interest Income

         Net interest income after  provision for loan losses  decreased by $1.2
million or 9.76% in fiscal  2007,  and  decreased by $471,000 or 3.57% in fiscal
2006 over the respective prior periods.  The decrease in the net interest income
after  provision  for loan losses for this two year period was due to a decrease
in the interest rate spread between interest bearing assets and interest earning
liabilities.  The driving factors will be discussed below in Interest Income and
Interest Expense.

Interest Income

         Interest  income on mortgage loans  increased by $1.2 or 7.3% in fiscal
2007 and increased by $761,000 or 5.0% in fiscal 2006 from the respective  prior
years. During fiscal 2007, the average balance of mortgage loans increased $16.7
million or 6.0% and the yield increased by 6 basis points. The combined increase
in yield on mortgage loans and the higher loan volume  increased  income for the
period.  During fiscal 2006,  the average  balance of mortgage  loans  increased
$14.0 million or 5.3% and the yield decreased by 1 basis point.  The increase in
volume during 2006 had a greater impact on interest  income than the decrease in
yield.  The  majority  of loans  originated  during  both  years were fixed rate
mortgages. The decrease in interest income on mortgage-backed  securities during
fiscal  2007  reflected  a decrease  of $37.2  million  or 15.4% in the  average
balance.  There was,  however,  an increase in yield  earned by 10 basis  points
during  fiscal  2007.  During  fiscal 2006,  the decrease in interest  income on
mortgage-backed securities reflected a decrease of $29.8 million or 11.0% in the
average  balance.  There was,  however,  an increase in yield earned by 17 basis
points during fiscal 2006. In 2007, the increase in interest  income on consumer
and other loans  reflected an increase of $10.3  million or 10.9% in the average
balance.  This increase is primarily  due to growth in  commercial  mortgages of
$14.4 million and increase in the average yield to 6.37%.  In 2006, the increase
in interest  income on consumer  and other  loans  reflected  an increase in the
average  balance due to growth in home equity  loans of $10.8  million or 18.1%,
and an increase in the yield to 5.97%.

         Interest and dividends on investments  increased by $457,000 or 7.0% in
fiscal 2007 over the  respective  prior year.  During fiscal 2007,  the increase
resulted  from a 69 basis  point  increase  in yield,  even  though the  average
balance of  investments  decreased  $7.7  million or 5.9%.  The  decrease in the
average  balance in 2007 reflects  funds that were  redeployed  from normal cash
flows to pay down borrowings. Interest and dividends on investments increased by
$2.2 million or 51.8% in fiscal 2006 over the  respective  prior  years.  During
fiscal  2006,  the increase  resulted  from the average  balance of  investments
increasing  $29.5 million or 29.2% and a 74 basis point  increase in yield.  The
increase in the average balance in 2006 reflects funds that were redeployed from
normal cash flows.

                                       33
<PAGE>

Interest Expense

         Interest expense on deposits  increased $2.3 million or 17.5% in fiscal
2007 and  increased  by $2.8  million or 27.4% in fiscal 2006 as compared to the
respective  prior  years.  In fiscal  2007,  the  average  balance  of  deposits
decreased  $238,000 or 0.1% with a 55 basis point  increase in the average  rate
paid. The decrease in the average balance reflects  additional  competition in a
challenging  rate  environment.  In fiscal 2006, the average balance of deposits
increased  $16.6  million or 4.1% with a 58 basis point  increase in the average
rate  paid.  The  average  rate  paid on  deposits  was 3.7% for the year  ended
September 30, 2007,  compared to 3.2% for the year ended  September 30, 2006 and
2.6% for 2005. The average rate paid on deposits,  is a direct reflection of the
rising interest rate environment.

         Interest expense on borrowings  increased by $133,000 or 1.0% in fiscal
2007 and  increased  by  $791,000  or 6.4% in  fiscal  2006 as  compared  to the
respective prior years.  Even though there was a decrease in the average balance
of borrowings of $11.1 million or 3.9%, the increase in the average rate paid of
23 basis points increased the interest expense in 2007. The increase in interest
expense  during fiscal 2006 was the result of a $3.0 million or 1.1% increase in
the average  balance of  borrowings  and an  increase of 23 basis  points in the
average rate paid.  Borrowings  were primarily  obtained  during fiscal 2006 and
2005 to fund the purchase of mortgage-backed securities and long-term fixed-rate
mortgages.  Long-term  FHLB  advances  were used to match the expected  maturity
terms of these mortgage products.

Provision for Loan Losses

         Management  establishes reserves for losses on loans when it determines
that losses are  probable.  The  adequacy of loan loss  reserves is based upon a
regular monthly review of loan delinquencies and "classified assets", as well as
local  and  national   economic  trends.   Although   management  has  currently
established  no specific  reserves for losses,  no assurance  can be given as to
whether future provision may be required.  The allowance for loan losses totaled
$1.9 million and $2.0 million at September 30, 2007 and 2006 or 0.5% and 0.5% of
total loans at September 30, 2007 and 2006,  respectively.  Due to the Company's
loan portfolio status and its analysis of quantitative and qualitative  factors,
no provision was made in 2007, 2006 and 2005.

Other Income

         The Company's total other operating income increased to $1.9 million in
fiscal  2007 and  decreased  to $1.3  million  in fiscal  2006  compared  to the
respective  prior year  periods.  The  increase  from 2006 to 2007 is  primarily
attributed to a gain on the sale of investments and mortgage  backed  securities
available  for sale of  $160,000 in fiscal 2007 as compared to a gain of $27,000
in fiscal 2006. The decrease from 2005 to 2006 is primarily attributed to a gain
on the sale of an  investment  available  for sale of $27,000 in fiscal  2006 as
compared to a gain of $100,000 in fiscal 2005.

         Customer  service  fees were  $564,000,  $369,000 and $414,000 in 2007,
2006 and 2005, respectively.  The increases were due to more NFS fees during the
periods.

         Bank Owned Life Insurance  ("BOLI")  income was $475,000,  $436,000 and
$451,000 in 2007, 2006 and 2005, respectively.

         Other income, which consists primarily of loan servicing fees, the sale
of  non-deposit  products and  insurance  commissions,  increased by $223,000 or
47.5% during  fiscal year 2007.  During fiscal 2006,  other income  decreased by
$18,000 or 3.6%. The fees,  which comprise other income,  are set by the Company
at a level,  which is  intended  to cover  the  cost of  providing  the  related
services and expenses to customers and employees.  Components of other income in
2007 increased relatively consistent with the results of 2006 considering we had
a full year of activity in commercial  lending and business  deposit accounts in
2007

                                       34
<PAGE>

compared  to 2006.  Based on the current  services  offered by the  Company,  we
anticipate other income to grow consistently in fiscal year 2008.

Other Expenses

         Salaries and employee benefits  increased by $365,000 or 7.9% in fiscal
2007 and by $471,000  or 11.4% in fiscal  2006 as  compared to prior  respective
fiscal years.  The increased  expenses of salaries and employee  benefits during
the periods are  attributable to the increased  staffing needs due to additional
branch,  normal growth,  normal salary increases and increased  employee benefit
expenses.  The Company  anticipates  normal  increase in salaries  and  employee
benefits in fiscal year 2008 due to  additional  staffing  needs,  normal salary
increases and stock option expense.

         Occupancy  and  equipment  expense  increased  by  $154,000 or 15.9% in
fiscal 2007 and  increased  by $31,000 or 3.3% in fiscal 2006 as compared to the
prior  respective  fiscal years.  Data processing  costs decreased by $11,000 in
fiscal 2007 and  increased by $27,000 in fiscal 2006.  The increase in occupancy
and equipment in 2007 and 2006 were  attributable  to the normal activity of the
Company and a full year operation of a new branch in 2007.

         The Company  anticipates  normal  increase in occupancy  and  equipment
expenses due to normal growth,  normal technology needs and inflationary effects
in fiscal year 2008.

         Other  expenses,  which  consist  primarily  of  advertising  expenses,
directors' fees, ATM network fees,  professional  fees,  checking account costs,
stockholders  expense, and insurance premiums,  increased by $142,000 or 6.0% in
fiscal  2007 and  increased  by  $78,000  or 3.4% in fiscal  2006 over the prior
respective   fiscal  years.  The  increases  in  other  expenses  are  primarily
attributable to a full year of commercial lending and business deposits in 2007.

Income Taxes

         The Company  recorded  income tax provisions of $911,000,  $1.3 million
and $1.7 million for fiscal years 2007, 2006 and 2005, respectively. The primary
reason for the decrease in the income tax  provision in fiscal 2007 and 2006 was
a decrease in pretax income. See Note 11 of the "Notes to Financial  Statements"
which provides an analysis of the provision for income taxes.

Commitments and Off-Balance Sheet Arrangements

         We are a party to financial  instruments with off-balance sheet risk in
the normal  course of business  to meet the  financing  needs of our  customers.
These financial  instruments include commitments to extend credit and the unused
portions of lines of credit.  These  instruments  involve,  to varying  degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the consolidated statements of financial condition. Commitments to extend credit
and lines of credit are not  recorded as an asset or  liability  by us until the
instrument is exercised.  At September 30, 2007 and 2006, we had no  commitments
to originate loans for sale.

         Commitments  to extend  credit are  agreements to lend to a customer as
long  as  there  is no  violation  of any  condition  established  in  the  loan
agreement.   Commitments   generally  have  fixed   expiration  dates  or  other
termination  clauses  and  may  require  payment  of a fee.  Since  many  of the
commitments  are  expected  to  expire  without  being  drawn  upon,  the  total
commitment amounts do not necessarily  represent future cash  requirements.  The
Company evaluates each customer's  creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension
of credit,  is based on  management's  credit  evaluation of the  customer.  The
amount  and  type  of  collateral  required  varies,  but may  include  accounts
receivable,  inventory,  equipment, real estate and income-producing  commercial
properties.  At September 30, 2007 and 2006,  commitments to originate loans and
commitments  under unused  lines of

                                       35
<PAGE>

credit,  including  undisbursed  portions of construction loans in process,  for
which the Company is obligated amounted to approximately $63.4 million and $53.4
million, respectively.

         Letters of credit are  conditional  commitments  issued by the  Company
guaranteeing  payments of drafts in  accordance  with the terms of the letter of
credit agreements. Commercial letters of credit are used primarily to facilitate
trade or commerce  and are also issued to support  public and private  borrowing
arrangements,  bond  financings  and similar  transactions.  Standby  letters of
credit  are  conditional  commitments  issued by the  Company to  guarantee  the
performance  of a customer  to a third  party.  Collateral  may be  required  to
support   letters  of  credit  based  upon   management's   evaluation   of  the
creditworthiness  of each customer.  The credit risk involved in issuing letters
of  credit  is  substantially  the  same  as that  involved  in  extending  loan
facilities  to  customers.  Most letters of credit  expire  within one year.  At
September  30, 2007 and  September  30, 2006,  the Company had letters of credit
outstanding of approximately $292,000 and $228,000,  respectively,  of which all
are  standby   letters  of  credit.   At  September  30,  2007  and  2006,   the
uncollateralized  portion of the  letters of credit  extended by the Company was
approximately  $26,000 and $0,  respectively,  of which  $26,000 was for standby
letters of credit in current year.

         The Company is also subject to various  pending  claims and  contingent
liabilities arising in the normal course of business, which are not reflected in
the unaudited consolidated  financial statements.  Management considers that the
aggregate liability, if any, resulting from such matters will not be material.

         We  anticipate  that we will  continue  to have  sufficient  funds  and
alternative funding sources to meet our current commitments.

         The following tables summarize our outstanding commitments to originate
loans and to advance  additional  amounts  pursuant  to  outstanding  Letters of
credit, lines of credit and under our construction loans at September 30, 2007.

                                                              Total Amounts
                                                         Committed in thousands
                                                         ----------------------

Letters of credit                                                $   292
Commitments to originate loans                                    17,361
Unused portion of home equity lines of credit                     41,055
Unused portion of commercial lines of credit                       2,077
Undisbursed portion of construction loans in process               2,873
                                                                 -------
    Total commitments                                            $63,658
                                                                 -------

Contractual Obligations

         The Company's  contractual  cash obligations at September 30, 2007 were
as follows:

<TABLE>
<CAPTION>
                                          Less Than       1 to 3         3 to 5         After 5
                              Total         1 Year         Years          Years          Years
--------------------------------------------------------------------------------------------------
<S>                       <C>            <C>            <C>            <C>            <C>
Lease agreements          $    531,185   $     98,407   $    211,310   $    221,468   $         --
Borrowings                 298,608,627     69,227,457     37,452,369     81,928,801    110,000,000
Certificates of deposit    318,142,918    225,708,981     84,941,067      7,492,870             --
                          ------------   ------------   ------------   ------------   ------------
                          $617,282,730   $295,034,845   $122,604,746   $ 89,643,139   $110,000,000
                          ============   ============   ============   ============   ============
</TABLE>

                                       36
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
--------------------------------------------------------------------

Asset and Liability Management

         The  Company  has   instituted   programs   designed  to  decrease  the
sensitivity of its earnings to material and prolonged  increases or decreases in
interest  rates.  The  principal  determinant  of the exposure of the  Company's
earnings to interest rate risk is the timing difference between the repricing or
maturity of the Company's  interest-earning assets and the repricing or maturity
of its  interest-bearing  liabilities.  If the  maturities  of such  assets  and
liabilities  were  perfectly  matched,  and if the  interest  rates borne by its
assets and liabilities were equally flexible and moved concurrently,  neither of
which is the case,  the  impact on net  interest  income of rapid  increases  or
decreases  in  interest  rates  would be  minimized.  The  Company's  asset  and
liability  management policies seek to increase the interest rate sensitivity by
shortening  the  repricing   intervals  and  the  maturities  of  the  Company's
interest-earning  assets.  Although  management of the Company believes that the
steps taken have reduced the Company's  overall  vulnerability  to increases and
decreases in interest  rates,  the Company  remains  vulnerable  to material and
prolonged  increases and decreases in interest rates during periods in which its
interest rate sensitive  liabilities  exceed its interest rate sensitive  assets
and interest rate sensitive  assets exceed interest rate sensitive  liabilities,
respectively.

         The authority and responsibility for interest rate management is vested
in the Company's Board of Directors.  The Chief Financial Officer implements the
Board of Directors'  policies  during the day-to-day  operations of the Company.
Each month,  the Chief Financial  Officer presents the Board of Directors with a
report,  which  outlines the  Company's  asset and liability  "gap"  position in
various  time  periods.  The "gap" is the  difference  between  interest-earning
assets and  interest-bearing  liabilities  which  mature or reprice over a given
time period.  The Chief  Financial  Officer also meets weekly with the Company's
other senior officers to review and establish  policies and strategies  designed
to regulate the Company's  flow of funds and  coordinate  the sources,  uses and
pricing of such  funds.  The first  priority  in  structuring  and  pricing  the
Company's  assets and  liabilities  is to maintain an  acceptable  interest rate
spread while reducing the effects of changes in interest  rates and  maintaining
the quality of the Company's assets.

         The following table  summarizes the amount of  interest-earning  assets
and interest-bearing liabilities outstanding as of September 30, 2007, which are
expected to mature,  prepay or reprice in each of the future time periods shown.
Except as stated below, the amounts of assets or liabilities  shown which mature
or reprice  during a particular  period were  determined in accordance  with the
contractual terms of the asset or liability. Adjustable and floating-rate assets
are included in the period in which  interest rates are next scheduled to adjust
rather  than in the  period  in which  they are due,  and  fixed-rate  loans and
mortgage-backed  securities  are  included  in the  periods  in  which  they are
anticipated  to be  repaid.  However,  many of our assets can prepay at any time
without  a  penalty  unlike  many of our  liabilities  that  have a  contractual
maturity.

         The passbook accounts,  negotiable order of withdrawal ("NOW") accounts
and a portion of the money market deposit accounts,  are included in the "Over 5
Years"  categories  based on  management's  beliefs  that  these  funds are core
deposits having significantly longer effective maturities based on the Company's
retention of such deposits in changing interest rate environments.

         Generally,  during a period of rising  interest  rates,  a positive gap
would  result in an increase in net  interest  income while a negative gap would
adversely  affect net interest  income.  Conversely,  during a period of falling
interest rates, a positive gap would result in a decrease in net interest income
while a negative gap would positively affect net interest income.  However,  the
above table does not  necessarily  indicate the impact of general  interest rate
movements on the Company's net interest  income because the repricing of certain
categories  of  assets  and  liabilities  is  discretionary  and is  subject  to
competitive  and other  pressures.  As a result,  certain assets and liabilities
indicated as repricing  within a stated  period may in fact reprice at different
rate levels in a different period.

                                       37
<PAGE>
<TABLE>
<CAPTION>

                                                    1 Year         1 to 3           3 to 5           Over 5
                                                   or less          Years            Years            Years           Total
                                                 ------------    ------------     ------------     ------------    ------------
<S>                                                    <C>             <C>              <C>              <C>            <C>
Interest-earning assets:

  Mortgage loans                                 $     57,084    $     51,463     $     40,643     $    156,151    $    305,341

  Commercial Mortgage loans                             6,594           1,655              706            6,359          15,314

  Mortgage-backed securities                           65,716          65,251           31,974           30,719         193,660

  Consumer and other loans                             44,693          27,332           12,984           18,569         103,578

  Investment securities and other investments          62,693          17,756           38,729           26,289         145,467
                                                 ------------    ------------     ------------     ------------    ------------

Total interest-earning assets                         236,780         163,457          125,036          238,087         763,360
                                                 ------------    ------------     ------------     ------------    ------------

Interest-bearing liabilities:
   Passbook and Club accounts                              --              --               --            2,864           2,864
   NOW accounts                                            --              --               --           39,460          39,460
   Consumer Money Market Deposit accounts              17,540              --               --           28,136          45,676
   Business Money Market Deposit accounts               4,613              --               --            1,538           6,151
   Certificate accounts                               225,873          84,776            7,494               --         318,143
   Borrowed money                                      78,319          34,927           75,363          110,000         298,609
                                                 ------------    ------------     ------------     ------------    ------------

Total interest-bearing liabilities                    326,345         119,703           82,857          181,998         710,903
                                                 ------------    ------------     ------------     ------------    ------------

Repricing GAP during the period                  $    (89,565)   $     43,754     $     42,179     $     56,089    $     52,457
                                                 ============    ============     ============     ============    ============

Cumulative GAP                                   $    (89,565)   $    (45,811)    $     (3,632)    $     52,457
                                                 ============    ============     ============     ============

Ratio of GAP during the period to total assets        -11.58%           5.66%            5.45%            7.25%
                                                 ============    ============     ============     ============

Ratio of cumulative GAP to total assets               -11.58%          -5.92%           -0.47%            6.78%
                                                 ============    ============     ============     ============
</TABLE>

Liquidity and Capital Resources

         The Company's  assets  decreased to $773.5  million as of September 30,
2007,  from  $775.6  million as of  September  30,  2006.  Stockholders'  equity
decreased to $47.0  million as of September  30, 2007,  from $48.5 million as of
September 30, 2006. As of September 30, 2007,  stockholders'  equity amounted to
6.1% of the Bank's total assets under accounting  principles  generally accepted
in the United States of America ("GAAP"). For a financial institution, liquidity
is a  measure  of the  ability  to fund  customers'  needs  for  loans,  deposit
withdrawals  and  repayment  of  borrowings.   Harleysville   Savings  regularly
evaluates economic  conditions in order to maintain a strong liquidity position.
One of the most  significant  factors  considered by management  when evaluating
liquidity  requirements  is the stability of the Company's core deposit base. In
addition to cash,  the Company  maintains a portfolio  of cash flows  generating
investments  to meet its  liquidity  requirements.  The Company also relies upon
cash flow from operations and other financing  activities,  generally short-term
and long-term debt. Liquidity is also provided by investing activities including
the  repayment  and maturity of loans and  investment  securities as well as the
management of asset sales when considered necessary. The Company also has access
to and  sufficient  assets to secure  lines of credit  and other  borrowings  in
amounts adequate to fund any unexpected cash requirements.

         As of  September  30,  2007,  the  Company  had a  remaining  borrowing
capacity with the Federal Home Loan Bank of Pittsburgh of  approximately  $266.9
million.  To the extent that the Company  cannot meet its  liquidity  needs with
normal cash flows and deposit  growth,  the Company  will be able to utilize the
available  borrowing  capacity  provided  by  the  Federal  Home  Loan  Bank  of
Pittsburgh to fund asset growth and loan commitments.  At September 30, 2007 the
Company had  exposures  to limited  recourse  arrangements  with  respect to the
Company's  sale of whole loans.  At  September  30, 2007,  the  exposure,  which
represents a

                                       38
<PAGE>

portion of credit risk associated with the sold interests,  amounted to $73,000.
The  exposure  is for  the  life  of  the  related  loans  and  payable,  on our
proportional share, as losses are incurred.

Impact of Inflation and Changing Prices

         The consolidated financial statements and related data presented herein
have been prepared in  accordance  with GAAP which  require the  measurement  of
financial position and operating results in terms of historical dollars, without
considering  changes in the relative  purchasing power of money over time due to
inflation.

         Unlike  most  industrial  companies,  virtually  all of the  assets and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than the effects of general levels of inflation.  Interest rates do
not  necessarily  move in the same  direction  or in the same  magnitude  as the
prices of goods and services, since prices are affected by inflation to a larger
extent than interest rates.


                                       39
<PAGE>

Item 8.  Financial Statements and Supplementary Data.
-----------------------------------------------------

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Harleysville Savings Financial Corporation
Harleysville, Pennsylvania

         We have audited the  accompanying  consolidated  statement of financial
condition of Harleysville  Savings  Financial  Corporation and subsidiary  ("the
Company") as of September 30, 2007, and the related  consolidated  statements of
income,  comprehensive income,  stockholders' equity and cash flows for the year
then ended.  These consolidated  financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
consolidated  financial  statements based on our audit. The financial statements
for the years ended  September 30, 2006 and 2005 were audited by other  auditors
whose report,  dated December 8, 2006, expressed an unqualified opinion on those
statements.

         We conducted our audit in  accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial  statements,  assessing the accounting principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

         In our opinion, the 2007 consolidated  financial statements referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Harleysville  Savings  Financial  Corporation and subsidiary as of September 30,
2007, and the results of their operations and their cash flows for the year then
ended in conformity with accounting  principles generally accepted in the United
States of America.



                                                    /s/ Beard Miller Company LLP

Beard Miller Company LLP
Allentown, Pennsylvania
December 7, 2007

                                       40
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and  Stockholders
Harleysville Savings Financial Corporation and Subsidiary
Harleysville, Pennsylvania:

         We have audited the  accompanying  consolidated  statement of financial
condition of  Harleysville  Savings  Financial  Corporation  and Subsidiary (the
"Company") as of September 30, 2006, and the related consolidated  statements of
income,  comprehensive income,  stockholders' equity, and cash flows for each of
the two years in the period ended September 30, 2006. These financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audits included consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial  statements,  assessing the accounting principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

         In our opinion, such consolidated  financial statements present fairly,
in all  material  respects,  the  financial  position  of  Harleysville  Savings
Financial  Corporation  and Subsidiary as of September 30, 2006, and the results
of their operations and their cash flows for each of the two years in the period
ended  September 30, 2006, in conformity with  accounting  principles  generally
accepted in the United States of America.

         As discussed in Note 2 to the  consolidated  financial  statements,  on
October 1, 2005 the Company  adopted  the fair value  method of  accounting  for
stock based compensation.


                                                      /s/ Deloitte & Touche, LLP
Philadelphia, Pennsylvania
December 8, 2006

                                       41
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Financial Condition
                                                                                     September 30,
                                                                                2007             2006
---------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>
Assets
Cash and amounts due from depository institutions                          $   1,647,273    $   1,596,695
Interest bearing deposits                                                      6,669,666        8,453,455
                                                                           -------------    -------------

     Total cash and cash equivalents                                           8,316,939       10,050,150

Investment securities held to maturity
     (fair value - 2007, $109,306,000;  2006, $111,248,000)                  108,693,247      111,098,682
Investment securities available-for-sale at fair value                         1,909,949        8,107,759
Mortgage-backed securities held to maturity
     (fair value - 2007, $188,612,000; 2006, $213,913,000)                   192,842,505      219,493,818
Mortgage-backed securities available-for-sale at fair value                      817,524          820,255
Loans receivable (net of allowance for loan losses -
     2007, $1,933,000; 2006, $1,956,000)                                     419,052,750      385,450,375
Accrued interest receivable                                                    4,046,947        3,969,610
Federal Home Loan Bank stock - at cost                                        14,140,100       15,498,600
Office properties and equipment, net                                           9,916,548        8,013,969
Prepaid expenses and other assets                                             13,807,507       13,134,625
                                                                           -------------    -------------

TOTAL ASSETS                                                               $ 773,544,016    $ 775,637,843
                                                                           =============    =============


Liabilities and Stockholders' Equity
Liabilities:
     Deposits                                                              $ 424,035,072    $ 429,254,047
     Short-term borrowings                                                    31,500,000       58,200,000
     Long-term debt                                                          267,108,628      236,411,162
     Accrued interest payable                                                  1,556,225        1,406,161
     Advances from borrowers for taxes and insurance                           1,247,399        1,184,089
     Accounts payable and accrued expenses                                     1,055,789          711,014
                                                                           -------------    -------------

     Total liabilities                                                       726,503,113      727,166,473
                                                                           -------------    -------------

Commitments and contingencies (Note 16 & 17)

Stockholders' Equity:
     Preferred Stock: $.01 par value;
       12,500,000 shares authorized; none issued                                      --               --
     Common stock: $.01 par value; 25,000,000
       shares authorized; issued 3,921,177 shares                                 39,212           39,212
     Additional Paid-in capital                                                8,043,698        7,992,014
     Treasury stock, at cost (2007, 203,658 shares; 2006, 71,441 shares)      (3,316,127)      (1,262,412)
     Retained earnings - partially restricted                                 42,363,307       41,714,616
     Accumulated other comprehensive loss                                        (89,187)         (12,060)
                                                                           -------------    -------------

     Total stockholders' equity                                               47,040,903       48,471,370
                                                                           -------------    -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 773,544,016    $ 775,637,843
                                                                           =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       42
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Income
                                                                         Year Ended September 30,

                                                                     2007          2006           2005
----------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>            <C>
Interest Income:
Interest and fees on mortgage loans                             $ 17,269,866   $ 16,092,641   $ 15,331,323
Interest on mortgage-backed securities                             9,338,744     10,801,029     11,665,529
Interest on consumer and other loans                               6,708,965      5,683,386      4,614,316
Interest on taxable investments                                    5,411,431      5,066,939      2,886,342
Interest on tax-exempt investments                                 1,497,002      1,408,484      1,377,968
Dividends on investment securities                                    62,689         38,085         26,962
                                                                ------------   ------------   ------------

Total interest and dividend income                                40,288,697     39,090,564     35,902,440
                                                                ------------   ------------   ------------

Interest Expense:
Interest on deposits                                              15,471,662     13,164,538     10,336,704
Interest on borrowings                                            13,333,917     13,201,226     12,410,032
                                                                ------------   ------------   ------------

Total interest expense                                            28,805,579     26,365,764     22,746,736
                                                                ------------   ------------   ------------

Net Interest Income                                               11,483,118     12,724,800     13,155,704
Provision (Credit) for Loan Losses                                        --             --        (40,407)
                                                                ------------   ------------   ------------

Net Interest Income, after Provision (Credit) for Loan Losses     11,483,118     12,724,800     13,196,111
                                                                ------------   ------------   ------------

Other Income:
Customer service fees                                                563,671        368,559        413,777
Gain on sales of loans                                                    --             --         16,672
Realized gains on investments and
   mortgage-backed securities                                        159,888         26,920         97,905
Income on bank-owned life insurance                                  475,000        436,000        450,500
Other income                                                         691,405        468,905        486,527
                                                                ------------   ------------   ------------

Total other income                                                 1,889,964      1,300,384      1,465,381
                                                                ------------   ------------   ------------

Other Expenses:
Salaries and employee benefits                                     4,981,910      4,617,167      4,146,584
Occupancy and equipment                                            1,121,902        967,990        937,228
Deposit insurance premiums                                            51,908         54,656         57,263
Data processing                                                      578,934        589,558        562,932
Other                                                              2,481,485      2,339,098      2,261,238
                                                                ------------   ------------   ------------

Total other expenses                                               9,216,139      8,568,469      7,965,245
                                                                ------------   ------------   ------------

Income before Income Taxes                                         4,156,943      5,456,715      6,696,247

Provision for income taxes                                           911,000      1,255,177      1,692,527
                                                                ------------   ------------   ------------

Net Income                                                      $  3,245,943   $  4,201,538   $  5,003,720
                                                                ============   ============   ============

Earnings Per Share:
   Basic                                                        $       0.85   $       1.09   $       1.29
                                                                ============   ============   ============
   Diluted                                                      $       0.83   $       1.08   $       1.27
                                                                ============   ============   ============

Weighted Average Shares Outstanding:
   Basic                                                           3,834,518      3,872,655      3,871,255
                                                                ============   ============   ============
   Diluted                                                         3,896,317      3,903,291      3,940,701
                                                                ============   ============   ============
</TABLE>

See notes to consolidated financial statements.

                                       43
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Comprehensive Income
                                                                                          Year Ended September 30,
                                                                                  2007              2006              2005
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>               <C>

Net Income                                                                    $ 3,245,943       $ 4,201,538       $ 5,003,720

Other Comprehensive (Loss) Income

Unrealized loss on securities net of tax (benefit) or
expense  -- 2007, $(39,733); 2006, $(1,744); 2005, $(25,930)                      (77,127)(1)        (2,847)(1)       (42,337)(1)
                                                                              -----------       -----------       -----------

Total Comprehensive Income                                                    $ 3,168,816       $ 4,198,691       $ 4,961,383
                                                                              ===========       ===========       ===========



(1)  Disclosure of reclassification amount, net of tax for the years ended:      2007              2006              2005
                                                                              -----------       -----------       -----------
     Net unrealized gain (loss) arising during the year                       $   (77,127)      $    14,920       $    22,280
     Less: Reclassification adjustment for net gains included in net income
     Net of tax expense -- 2007,$0; 2006,$9,153; 2005,$33,288                          --            17,767            64,617
                                                                              -----------       -----------       -----------

     Net unrealized loss on securities                                        $   (77,127)      $    (2,847)      $   (42,337)
                                                                              ===========       ===========       ===========
</TABLE>


See notes to consolidated financial statements.

                                       44
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Stockholders' Equity

                                                                                 Retained    Accumulated
                                               Common              Additional    Earnings-      Other                      Total
                                                Stock     Common     Paid-in     Partially  Comprehensive  Treasury    Stockholders'
                                                Shares     Stock     Capital     Restricted  Income (Loss)   Stock        Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>       <C>           <C>          <C>         <C>           <C>
Balance at September 30, 2004                 2,316,500  $ 23,165  $ 7,426,853   $37,244,200  $  33,124   $  (414,430)  $44,312,912

Net Income                                                                         5,003,720                              5,003,720
Issuance of Common Stock                         15,876       436      459,995                                              460,431
Stock split                                   1,571,760    15,440      (15,440)
Dividends - $.58  per share                                                       (2,252,336)                            (2,252,336)
Treasury stock purchased (17,000 shares)                                                                     (328,280)     (328,280)
Treasury stock delivered under
   employee stock plans (21,162 shares)                               (272,586)                               578,247       305,661
Treasury stock delivered under
   Dividend Reinvestment Plan (4,366 shares)                            11,689                                104,356       116,045
Change in unrealized holding gain
  on available-for-sale securities, net
  of tax                                                                                        (42,337)                    (42,337)
                                              ---------  --------  -----------   -----------  ---------   -----------   -----------

Balance at September 30, 2005                 3,904,136    39,041    7,610,511    39,995,584     (9,213)      (60,107)   47,575,816

Net Income                                                                         4,201,538                              4,201,538
Issuance of Common Stock                         17,041       171      300,428                                              300,599
Dividends - $.64  per share                                                       (2,482,506)                            (2,482,506)
Option Compensation                                                    109,025                                              109,025
Treasury stock purchased (95,880 shares)                                                                   (1,681,657)   (1,681,657)
Treasury stock delivered under
   employee stock plans (11,121 shares)                                (26,694)                               191,332       164,638
Treasury stock delivered under
   Dividend Reinvestment Plan (16,572 shares)                           (1,256)                               288,020       286,764
Change in unrealized holding loss
  on available-for-sale securities, net
  of tax                                                                                         (2,847)                     (2,847)
                                              ---------  --------  -----------   -----------  ---------   -----------   -----------

Balance at September 30, 2006                 3,921,177  $ 39,212  $ 7,992,014   $41,714,616  $ (12,060)  $(1,262,412)  $48,471,370

Net Income                                                                         3,245,943                              3,245,943
Dividends - $.68  per share                                                       (2,597,252)                            (2,597,252)
Option Compensation                                                     96,650                                               96,650
Treasury stock purchased (169,496 shares)                                                                  (2,693,853)   (2,693,853)
Treasury stock delivered under
   employee stock plans (3,751 shares)                                 (16,001)                                65,180        49,179
Treasury stock delivered under
   Dividend Reinvestment Plan (33,528 shares)                          (28,965)                               574,958       545,993
Change in unrealized holding loss
  on available-for-sale securities, net
  of tax                                                                                        (77,127)                    (77,127)
                                              ---------  --------  -----------   -----------  ---------   -----------   -----------

Balance at September 30, 2007                 3,921,177  $ 39,212  $ 8,043,698   $42,363,307  $ (89,187)  $(3,316,127)  $47,040,903
                                              =========  ========  ===========   ===========  =========   ===========   ===========
</TABLE>

See notes to consolidated financial statements.

                                       45
<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows

                                                                                 Year Ended September 30,
                                                                          2007             2006             2005
---------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>              <C>
Operating Activities:
Net Income                                                            $   3,245,943    $   4,201,538    $   5,003,720
Adjustments to reconcile net income to net cash provided by
    operating activities:

    Depreciation                                                            510,980          466,020          436,400
    Deferred income taxes                                                    55,777           10,963           67,768
    Realized gain on sales of loans                                              --               --          (16,672)
    Net realized gain on investment and mortgage-backed securities         (159,888)         (18,585)         (97,905)
    Realized loss on disposal of fixed assets                                    --            3,124           49,233
    Origination of loans held for sale                                           --               --         (908,522)
    Proceeds from the sale of loans held for sale                                --               --          921,129
    Amortization of deferred loan fees                                      (19,235)         (52,287)        (138,102)
    Net amortization of premiums and discounts                              205,960          309,052          675,869
    Purchase of bank owned life insurance                                        --               --       (2,500,000)
    Increase in cash surrender value                                       (475,000)        (436,000)        (450,500)
   Compensation charge on stock options                                      96,650          109,025
Changes in assets and liabilities which provided (used) cash:
     Increase in accounts payable and accrued expenses                      344,775           38,890          121,260
     (Increase) decrease in prepaid expenses and other assets              (227,435)        (145,283)         368,196
     Increase in accrued interest receivable                                (77,337)        (537,556)        (363,016)
     Increase  in accrued interest payable                                  150,064           47,208          232,840
                                                                      -------------    -------------    -------------

Net cash provided by operating activities                                 3,651,254        3,996,109        3,401,698
                                                                      -------------    -------------    -------------


Investing Activities:
Purchase of mortgage-backed securities held to maturity                 (20,939,437)      (2,011,250)     (62,026,532)
Purchase of investment securities held to maturity                      (19,917,941)     (28,748,285)     (35,852,191)
Purchase of investment securities available-for-sale                       (466,003)      (5,578,924)        (770,525)
Proceeds from (purchase) of FHLB stock                                    1,358,500          537,300         (851,800)
Proceeds from the sale of investment securities available-for-sale               --          327,357        5,650,121
Proceeds from maturities of investment securities                        28,987,189        4,595,380       16,239,738
Principal collected on long-term loans & mortgage-backed securities     135,795,508      134,713,613      147,947,065
Long-term loans originated or acquired                                 (121,934,589)    (107,316,274)    (113,398,481)
Purchases of premises and equipment                                      (2,413,560)      (2,653,419)        (566,351)
                                                                      -------------    -------------    -------------

Net cash provided by (used in) investing activities                         469,667       (6,134,502)     (43,628,956)
                                                                      -------------    -------------    -------------


Financing Activities:
Net (decrease) increase in demand deposits, NOW accounts
    and savings accounts                                                 (2,923,840)      (8,608,274)     (18,710,587)
Net (decrease) increase in certificates of deposit                       (2,295,135)      18,882,665       32,459,603
Cash dividends                                                           (2,597,252)      (2,482,506)      (2,252,336)
Net increase (decrease) in short-term borrowings                        (26,700,000)      37,200,000        1,900,000
Proceeds from long-term debt                                             63,000,000       10,000,000       69,899,000
Repayment of long-term debt                                             (32,302,534)     (49,857,326)     (40,483,505)
Purchase of treasury stock                                               (2,693,853)      (1,681,657)        (328,280)
Treasury stock delivered under Dividend Reinvestment and
    employee stock plans                                                    595,172          451,402          421,706
Net proceeds from issuance of stock                                              --          300,599          460,431
Net increase in advances from borrowers for taxes and insurance              63,310           48,660           77,422
                                                                      -------------    -------------    -------------

Net cash (used in) provided by financing activities                      (5,854,132)       4,253,563       43,443,454
                                                                      -------------    -------------    -------------

(DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS                        (1,733,211)       2,115,170        3,216,196

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                           10,050,150        7,934,980        4,718,784
                                                                      -------------    -------------    -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                              $   8,316,939    $  10,050,150    $   7,934,980
                                                                      =============    =============    =============


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
      Interest (credited and paid)                                    $  28,655,515    $  26,318,556    $  22,513,896
      Income Tax                                                            665,290        1,378,000        1,528,000

</TABLE>

See notes to consolidated financial statements.

                                       46
<PAGE>

Notes to Consolidated Financial Statements

1. Nature of Operations and Organizational Structure

On February 25, 2000,  Harleysville  Savings  Bank (the  "Bank")  completed  its
Agreement and Plan of  Reorganization  ("Agreement")  pursuant to which the Bank
was  reorganized  into a holding  company form of  ownership.  The Agreement was
subject to  approval by the  Pennsylvania  Department  of Banking,  the Board of
Governors of the Federal Reserve System and approved by the  stockholders of the
Bank.   Harleysville   Savings   Financial   Corporation   (the  "Company")  was
incorporated  under the laws of the Commonwealth of Pennsylvania.  It was formed
for the purpose of becoming  the bank  holding  company of the Bank  through the
issuance and exchange of its stock  pursuant to the Agreement and the concurrent
acquisition  of 100% of the common  stock of the Bank.  In  connection  with the
Reorganization,  each share of the Bank's common stock,  ("Bank Common  Stock"),
was converted  into one share of the Company's  common stock,  ("Company  Common
Stock").  The  result  of the  Reorganization  of the Bank was that the  Company
became the owner of all of the outstanding  shares of Bank Common Stock and each
stockholder  of the Bank  became  the owner of one share of the  Company  Common
Stock for each share of bank Common Stock held by him or her  immediately  prior
thereto.

The Company is a bank holding  company that is regulated by the Federal  Reserve
Bank of Philadelphia.  The Bank is a wholly owned subsidiary and is regulated by
the FDIC and the Pennsylvania  Department of Banking. The Bank is principally in
the business of  attracting  deposits  through its branch  offices and investing
those deposits, together with funds from borrowings and operations, primarily in
single family residential and consumer loans. The Bank's customers are primarily
in southeastern Pennsylvania.

2. Summary of Significant Accounting Policies

Principles of Consolidation - The accompanying consolidated financial statements
include the  accounts of the  Company,  the Bank,  and the Bank's  wholly  owned
subsidiary,  HSB  Inc a  Delaware  subsidiary  which  was  formed  in  order  to
accommodate the transfer of certain assets, Freedom Financial Solutions LLC that
allows the Company to offer non deposit  products and HARL,  LLC that allows the
Bank to invest in equity investments.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates in Preparation of the Consolidated  Financial  Statements - The
preparation of consolidated  financial  statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the  consolidated  financial  statements and the reported amounts of
income and expenses during the reporting  period.  The most significant of these
estimates and assumptions in the Company's  consolidated financial statements is
the allowance for loan losses. Actual results could differ from those estimates.

Significant  Group  Concentrations  of  Credit  Risk  - Most  of  the  Company's
activities  are  with  customers  located  within  the  southeastern  region  of
Pennsylvania.  Notes 3, 4, 5 and 6 discuss types of securities  that the Company
invests in. Note 7 discusses  the types of lending that the Company  engages in.
The Company does not have any significant  concentrations to any one industry or
customer.

Cash and Cash Equivalents - For purposes of the consolidated  statements of cash
flows, cash and cash equivalents include cash and balances due from banks.

Interest-Bearing  Deposits  in Banks -  Interest-bearing  deposits  in banks are
carried at cost.

Investments and Mortgage-Backed Securities - The Company classifies and accounts
for debt and equity securities as follows:

                                       47
<PAGE>

Held to Maturity - Debt  securities  that management has the positive intent and
ability  to hold until  maturity  are  classified  as held to  maturity  and are
carried at their remaining unpaid principal balance, net of unamortized premiums
or unaccreted discounts. Premiums are amortized and discounts are accreted using
the  interest  method  over  the  estimated  remaining  term  of the  underlying
security.

Available for Sale - Debt and equity securities that will be held for indefinite
periods of time, including securities that may be sold in response to changes in
market  interest or  prepayment  rates,  needs for  liquidity and changes in the
availability  of and the yield of  alternative  investments  are  classified  as
available  for sale.  These  assets  are  carried at fair  value.  Fair value is
determined using published quotes as of the close of business.  Unrealized gains
and losses are  excluded  from  earnings  and are  reported  net of tax in other
comprehensive  income.  Realized  gains  and  losses  on the sale of  investment
securities  are  recorded  as of the trade date,  reported  in the  consolidated
statement  of income and  determined  using the  amortized  cost of the specific
security sold.

For all  securities  that are in an  unrealized  loss  position  for an extended
period of time and for all securities  whose fair value is  significantly  below
amortized  cost,  the Company  performs an  evaluation  of the  specific  events
attributable  to the market decline of the security.  The Company  considers the
length of time and extent to which the security's fair value has been below cost
as well as the general  market  conditions,  industry  characteristics,  and the
fundamental  operating  results of the  issuer to  determine  if the  decline is
other-than-temporary.  The Company also  considers as part of the evaluation its
intent and ability to hold the security  until its fair value has recovered to a
level at least equal to the amortized cost.  When the Company  determines that a
security's  unrealized  loss  is   other-than-temporary,   a  realized  loss  is
recognized  in the  period in which the  decline  in value is  determined  to be
other-than-temporary. The write-downs are measured based on public market prices
of the  security  at the time the  Company  determines  the decline in value was
other-than-temporary.

Loans - The Company grants commercial, mortgage and consumer loans to customers.
A substantial  portion of the loan  portfolio is  represented  by mortgage loans
throughout  southeastern  Pennsylvania.  The ability of the Company's debtors to
honor their  contracts  is dependent  upon the real estate and general  economic
conditions in this area.

Loans that  management  has the intent and  ability to hold for the  foreseeable
future or until  maturity or pay-off are  reported at their  outstanding  unpaid
principal balances adjusted for charge-offs,  the allowance for loan losses, and
any deferred fees or costs on originated  loans.  Interest  income is accrued on
the unpaid principal balance.

Interest  Income on Loans -  Interest  on loans is  recognized  as  income  when
earned.  The accrual of interest on mortgage loans is  discontinued  at the time
the loan is 90 days delinquent  unless the credit is well-secured and in process
of collection. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.

All interest  accrued but not  collected for loans that are placed on nonaccrual
or charged off is reversed against interest income.  The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual.  Loans are returned to accrual  status when all the principal
and interest amounts  contractually  due are brought current and future payments
are reasonably assured.

Deferred Loan Fees - Loan  origination  fees, net of certain direct  origination
costs, are deferred and the balance is amortized to income as an adjustment over
the life of the loan using the interest method.

Allowance  for Loan Losses - The  allowance  for loan losses is  established  as
losses are  estimated  to have  occurred  through a  provision  for loan  losses
charged to  earnings.  Loan  losses  are  charged  against  the  allowance  when
management  believes  the  uncollectibility  of a  loan  balance  is  confirmed.
Subsequent recoveries,  if any, are credited to the allowance.  An allowance for
loan  losses is  maintained  at a level that

                                       48
<PAGE>

management  considers  adequate to provide for losses based upon  evaluation  of
known and  inherent  risks in the loan  portfolio.  The loan loss  reserves  are
established as an allowance for estimated losses based on the probable losses of
the  loan  portfolio.   In  assessing  risk,   management  considers  historical
experience, volume and composition of lending conducted by the Company, industry
standards,  status of nonperforming  loans,  general economic conditions as they
relate  to  the  Company's  market  area,  and  other  factors  related  to  the
collectibility of the Company's loan portfolio.

The  allowance  for  loan  losses  consists  of  three  elements:  (1)  specific
allowances  for  impaired  loans;  (2) a  general  valuation  allowance  on  all
classified loans which are not impaired;  and (3) a general valuation  allowance
on the remainder of the loan  portfolio.  This is consistent with the regulatory
method of  classifying  reserves.  Although  the  amount of each  element of the
allowance is  determined  separately,  the entire  allowance  for loan losses is
available  for  the  entire  portfolio.  An  allowance  for  impaired  loans  is
established  in the amounts by which the  discounted  cash flows (or  collateral
value or observable market price) are lower than the carrying value of the loan.
A general  allowance is established for classified  loans that are not impaired.
These loans are  segregated  by loan  category,  and allowance  percentages  are
assigned to each category based on inherent losses  associated with each type of
lending and  consideration  that these  loans,  in the  aggregate,  represent an
above-average  credit  risk  and  that  more of  these  loans  will  prove to be
uncollectible compared to loans in the general portfolio.

The  general  allowance  for loans that are not  classified  is  established  to
recognize the inherent  losses  associated with lending  activities,  but which,
unlike specific allowances, has not been allocated to particular problem assets.
This general  valuation  allowance is determined by  segregating  non-classified
loans by loan category and assigning allowance percentages to each category. The
allowance percentages have been derived using percentages commonly applied under
the regulatory  framework for the Company and similarly sized institutions.  The
percentages are adjusted for significant factors that, in management's judgment,
could affect the  collectibility  of the  portfolio as of the  evaluation  date.
These   significant   factors  may  include  changes  in  lending  policies  and
procedures,  changes  in  existing  general  economic  and  business  conditions
affecting our primary lending areas,  credit quality trends,  collateral  value,
loan  volumes  and  concentrations,   seasoning  of  the  loan  portfolio,  loss
experience  in  particular  segments of the  portfolio,  duration of the current
business  cycle,  and bank  regulatory  examination  results.  The applied  loss
factors  are  reevaluated  monthly  to ensure  their  relevance  in the  current
economic environment.

A loan is considered  impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement.  Factors  considered by management in determining  impairment include
payment status,  collateral  value, and the probability of collecting  scheduled
principal and interest  payments when due. Loans that  experience  insignificant
payment delays and payment shortfalls  generally are not classified as impaired.
Management  determines the significance of payment delays and payment shortfalls
on a case-by-case  basis,  taking into  consideration  all of the  circumstances
surrounding  the loan and the borrower,  including the length of the delay,  the
reasons for the delay,  the borrower's  prior payment record,  and the amount of
the  shortfall in relation to the  principal  and interest  owed.  Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the  present  value of  expected  future  cash  flows  discounted  at the  loans
effective  interest rate, the loan's  obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Large groups of smaller balances homogenous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify individual
consumer and residential loans for impairment disclosures, unless such loans are
the subject of a restructuring agreement.

                                       49
<PAGE>

Foreclosed  Real  Estate - Real  estate  acquired  through,  or in lieu of, loan
foreclosures  are  carried  at the  fair  value  of the  property,  based  on an
appraisal less cost to sell.  Costs relating to the  development and improvement
of the property are capitalized,  and those relating to holding the property are
charged to expense.

Office Properties and Equipment - Land is carried at cost. Office properties and
equipment are recorded at cost, less accumulated  depreciation.  Depreciation is
computed using the  straight-line  method over the expected  useful lives of the
assets that range from four to fifty years. The costs of maintenance and repairs
are expensed as they are incurred, and renewals and betterments are capitalized.

FHLB Stock - The Company reports its investment in Federal Home Loan Bank (FHLB)
stock at cost in the consolidated statements of financial condition. Federal law
requires  a  member  of the  FHLB to hold  stock  according  to a  predetermined
formula.

Cash Surrender  Value Of Bank Owned Life Insurance  (BOLI) - The Bank funded the
purchase of  insurance  policies on the lives of officers  and  employees of the
Bank. The Company has  recognized  any increase in cash surrender  value of life
insurance,  net of insurance costs, in the consolidated  statements of income as
income on BOLI. The cash surrender  value of the insurance  policies is recorded
as an  asset  in  other  assets  in the  consolidated  statements  of  financial
condition.

Income Taxes - Deferred income taxes are recognized for the tax  consequences of
"temporary  differences" by applying  enacted  statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and  liabilities.  The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.

Transfers and Servicing of Financial Assets and  Extinguishments  of Liabilities
-The  Company  accounts for  transfers  and  servicing  of  financial  assets in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of  Liabilities"  (a  replacement  of FASB  Statement No. 125).  This  Statement
revises the standards for accounting for  securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS No. 125 provisions without reconsideration.

The Statement requires an entity to recognize the financial and servicing assets
it controls and the liabilities it has incurred,  derecognize  financial  assets
when  control  has  been   surrendered,   and   derecognize   liabilities   when
extinguished.  It requires that servicing assets and other retained interests in
the  transferred  assets be measured by allocating the previous  carrying amount
between the asset sold, if any, and retained  interest,  if any,  based on their
relative fair values at the date of transfer.  It also  provides  implementation
guidance for servicing of financial assets,  securitizations,  loan syndications
and participations and transfers of loan receivables with recourse.

Treasury Stock - The Company records treasury stock purchases at cost. Gains and
losses on subsequent  reissuance of shares are credited or charged to capital in
excess of par value using the average-cost method.

Accounting  for Stock  Options - The Company  currently has several stock option
plans in place for employees and directors of the Company. In December 2004, the
Financial  Accounting  Standards  Board ("FASB")  issued  Statement of Financial
Accounting  Standards ("SFAS") No. 123R (revised 2004),  "Share-Based  Payment",
which  revises SFAS No. 123,  "Accounting  for  Stock-Based  Compensation",  and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees".  This
Statement requires an entity to recognize the cost of employee services received
in exchange for an award of equity  investment based on grant-date fair value of
the award. That cost will be recognized over the period during which an employee
is required to provide  service in exchange for the award.  The Company  adopted
the modified  prospective method provisions of SFAS No. 123R.  Effective October
1, 2005, the Company was required to recognize

                                       50
<PAGE>

compensation  expense for the fair value of stock  options  that were granted or
vest after that date. Stock-based  compensation expense related to stock options
for the years  ended  September  30,  2007 and 2006 was  $96,650  and  $109,025,
respectively. The tax benefit recognized related to the compensation expense for
the years ended September 30, 2007 and 2006 was $4,541 and $3,406, respectively.

Prior to October 1, 2005,  the Company  accounted  for it's stock option  plans,
under  the  recognition  and  measurement   provision  of  APB  Opinion  No  25,
"Accounting for Stock Issued to Employees," and the related Interpretations,  as
permitted by FASB Statement No. 123, "Accounting for Stock-Based  Compensation".
No  stock-based  employee  compensation  cost was  recognized  in the  Company's
consolidated  statements  of income  through  September 30, 2005, as all options
granted  under the  Company's  plans had an  exercise  price equal to the market
value of the underlying common stock on the date of grant.

The following table  illustrates the effect on net income and earnings per share
if the Company had applied  the fair value  recognition  provisions  of SFAS No.
123, to stock-based employee compensation for the year ended September 30, 2005:

                                                         Year Ended
                                                     September 30, 2005
                                                     ------------------
Net income: as reported                                $   5,003,720

Add: Total stock-based employee compensation
   expense included in reported net income (net of tax)           --

Deduct: Stock-based employee compensation expense
   determined under the fair value based method for
   all awards, net of related tax effects                    (42,594)
                                                       -------------

Pro forma net income                                   $   4,961,126
                                                       =============
   Earnings per share:
     Basic-as reported                                 $        1.29
     Basic-pro forma                                   $        1.28
     Diluted-as reported                               $        1.27
     Diluted-pro forma                                 $        1.26

The fair value of options  granted in the years ended  September 30, 2007,  2006
and 2005 were  estimated  at the date of grant using a Binomial  Option  Pricing
Model with the following weighted-average assumptions:

                                                   Year Ended September 30,
                                              2007          2006          2005
-------------------------------------------------------------------------------
Risk free interest rate of return             4.77%         4.36%            1%
Expected option life                     84 months     84 months     84 months
Expected volatility                             17%           17%           10%
Expected dividends                             3.9%          3.0%          3.0%

                                       51
<PAGE>

The expected volatility is based on historic volatility.  The risk-free interest
rates for  periods  within the  contractual  life of the awards are based on the
U.S.  Treasury yield curve in effect at the time of the grant. The expected life
is based on historical  exercise  experience.  The dividend yield  assumption is
based on the Company's history and expectation of dividend payouts.

Stock  Split - On  January  26,  2005,  the Board of  Directors  declared a cash
dividend  of $.25 ($.15 post  split) per share and a five for three  stock split
payable  on  February  23,  2005 to the  stockholders  of record at the close of
business on February 9, 2005. The number of shares and per share information has
been  restated  to  reflect  the five for  three  stock  split.  The  shares  of
Harleysville Savings Financial Corporation traded on February 24, 2005 on a post
split basis.


Earnings Per Share - Basic  earnings  per common share is computed  based on the
weighted  average number of shares  outstanding.  Diluted  earnings per share is
computed based on the weighted average number of shares  outstanding,  increased
by the number of common shares that are assumed to have been  purchased with the
proceeds  from the exercise of stock  options  (treasury  stock  method).  These
purchases  were  assumed to have been made at the  average  market  price of the
common stock. The weighted average shares outstanding used to calculate earnings
per share were as follows:

                                                    Year Ended September 30,
                                                  2007        2006        2005
--------------------------------------------------------------------------------
Weighted average shares outstanding - basic    3,834,518   3,872,655   3,871,255

Increase in shares due to dilutive options        61,799      30,636      69,446
                                               ---------   ---------   ---------
Weighted average shares outstanding - diluted  3,896,317   3,903,291   3,940,701
                                               =========   =========   =========

Other  Comprehensive   Income  -  The  Company  presents,   as  a  component  of
comprehensive  income,  amounts from  transactions  and other events,  which are
currently  excluded  from the  statement of income and are recorded  directly to
stockholders'  equity. The Company's other comprehensive  income consists of net
unrealized  holding  gains or losses on  securities  available-for-sale,  net of
income taxes.

Interest  Rate Risk - The  Company is engaged  principally  in  providing  first
mortgage loans to individuals and commercial enterprises. At September 30, 2007,
the Company's  assets that earned interest at fixed and variable  interest rates
were funded  primarily with long-term  liabilities that have interest rates that
are fixed.  The Company is  vulnerable  to a decrease  in interest  rates to the
extent  that  interest-earning  assets  mature  or  reprice  more  rapidly  than
interest-bearing  liabilities.  In the current  market,  the  Company  primarily
originates  long-term fixed rate loans secured by  single-

                                       52
<PAGE>

family  residences  and purchases  short-term  investments.  The source of these
funds has been long-term advances.

Recent  Accounting   Pronouncements  -  In  July  2006,  the  FASB  issued  FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
Interpretation  of SFAS  Statement  No.  109 ("FIN  48").  FIN 48  prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken in a tax return. The Company
must presume the tax position will be examined by the relevant tax authority and
determine  whether  it is more  likely  than not that the tax  position  will be
sustained  upon  examination,  including  resolution  of any related  appeals or
litigation  processes,  based on the  technical  merits of the  position.  A tax
position that meets the  more-likely-than-not  recognition threshold is measured
to determine the amount of benefit to recognize in the financial statements. FIN
48  also  provides  guidance  on  derecognition,  classification,  interest  and
penalties,  accounting in interim periods,  disclosure and transition. FIN 48 is
effective for fiscal years  begining  after  December 15, 2006.  The  cumulative
effect of applying the  provisions  of FIN 48  represents a change in accounting
principle  and shall be reported  as an  adjustment  to the  opening  balance of
retained earnings.  In May 2007, the FASB issued FASB Staff Position ("FSP") FIN
48-1  "Definition of Settlement in FASB  Interpretation  No. 48" (FSP FIN 48-1).
FSP FIN 48-1  provides  guidance on how to  determine  whether a tax position is
effectively settled for the purpose of recognizing  previously  unrecognized tax
benefits.  The Company is currently evaluating the impact of adopting FIN 48 and
FIN-48-1 on its Consolidated Financial Statements.

In  September  2006,  the FASB issued SFAS No.  157,  "Fair Value  Measurements"
("SFAS No. 157").  SFAS No. 157 defines fair value,  establishes a framework for
measuring fair value in generally accepted  accounting  principles,  and expands
disclosures  about  fair value  measurements.  The  changes to current  practice
resulting from the  application of SFAS No. 157 relate to the definition of fair
value, the methods used to measure fair value and the expanded disclosures about
fair value  measurements.  SFAS No. 157 is effective  for  financial  statements
issued for fiscal years beginning after November 15, 2007.  Earlier  application
is encouraged,  provided that the reporting  entity has not yet issued financial
statements for that fiscal year,  including financial  statements for an interim
period within that fiscal year. The provisions of SFAS No. 157 should be applied
prospectively  as of the  beginning  of the fiscal year in which it is initially
applied,  except for certain financial  instruments which require  retrospective
application  as of the  beginning of the fiscal year of initial  application  (a
limited form of retrospective application). The transition adjustment,  measured
as the  difference  between  the  carrying  amounts and the fair values of those
financial  instruments at the date SFAS No. 157 is initially applied,  should be
recognized as a cumulative-effect  adjustment to the opening balance of retained
earnings.  The Company is currently  evaluating  the impact of adopting SFAS No.
157 on its Consolidated Financial Statements and whether to adopt its provisions
prior to the required effective date.

In September 2006, the Securities and Exchange Commission ("SEC") released Staff
Accounting  Bulletin  ("SAB") No. 108. This release  expresses the staff's views
regarding  the process of  quantifying  financial  statement  misstatements  and
addresses diversity in practice in quantifying financial statement misstatements
and the potential under current practice for the build up of improper amounts on
the balance  sheet.  SAB No. 108 is effective  for annual  financial  statements
covering the first fiscal year ending after  November 15, 2006.  The Company has
reviewed the SAB in connection with our  consolidated  financial  statements for
the current and prior periods, and has determined that its adoption did not have
an impact on any of these financial statements.

In September  2006,  the  Emerging  Issues Task Force (EITF) of FASB issued EITF
Issue No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance  Arrangements"  (EITF 06-04).
EITF 06-4 requires the recognition of a liability related to the  postretirement
benefits covered by an endorsement split-dollar life insurance arrangement.  The
consensus  highlights  that the employer  (who is also the  policyholder)  has a
liability  for the benefit it is  providing  to its

                                       53
<PAGE>

employee.  As such,  if the  policyholder  has agreed to maintain the  insurance
policy in force for the employee's  benefit during his or her  retirement,  then
the liability  recognized  during the employee's active service period should be
based on the future  cost of  insurance  to be  incurred  during the  employee's
retirement.  Alternatively,  if the  policyholder  has  agreed  to  provide  the
employee with a death  benefit,  then the liability for the future death benefit
should be  recognized  by following  the guidance in SFAS No. 106 or  Accounting
Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity
can choose to apply the guidance using either of the following approaches: (a) a
change in accounting principle through retrospective  application to all periods
presented or (b) a change in accounting  principle  through a  cumulative-effect
adjustment  to the balance in retained  earnings at the beginning of the year of
adoption.  The disclosures are required in fiscal years beginning after December
15, 2007, with early adoption  permitted.  The Company is continuing to evaluate
the impact of this statement on its consolidated financial statements.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets  and  Financial  Liabilities-Including  an  amendment  of FASB
Statement  No.  115." SFAS No. 159 permits  entities  to choose to measure  many
financial  instruments and certain other items at fair value.  Unrealized  gains
and losses on items for which the fair value  option  has been  elected  will be
recognized  in  earnings  at each  subsequent  reporting  date.  SFAS No. 159 is
effective for our Company  October 1, 2008. The Company is evaluating the impact
that the  adoption  of SFAS  No.  159 will  have on our  consolidated  financial
statements.

In March 2007,  the FASB ratified EITF Issue No. 06-11,  "Accounting  for Income
Tax Benefits of Dividends on  Share-Based  Payment  Awards." EITF 06-11 requires
companies  to  recognize  the income tax  benefit  realized  from  dividends  or
dividend equivalents that are charged to retained earnings and paid to employees
for  nonvested  equity-classified  employee  share-based  payment  awards  as an
increase to additional paid-in capital. EITF 06-11 is effective for fiscal years
beginning  after September 15, 2007. The Company does not expect EITF 06-11 will
have a material impact on its financial position,  results of operations or cash
flows.

On September  7, 2006,  the Task Force  reached a  conclusion  on EITF Issue No.
06-5,  "Accounting for Purchases of Life  Insurance-Determining  the Amount That
Could  Be  Realized  in  Accordance  with  FASB  Technical  Bulletin  No.  85-4,
Accounting for Purchases of Life  Insurance"  ("EITF  06-5").  The scope of EITF
06-5 consists of six separate  issues  relating to accounting for life insurance
policies purchased by entities protecting against the loss of "key persons". The
six issues are  clarifications  of previously  issued guidance on FASB Technical
Bulletin No.  85-4.  EITF 06-5 is effective  for fiscal  years  beginning  after
December 15, 2006.  The Company does not expect it to have a material  impact on
the Company's consolidated financial statements.

In March 2007,  the FASB  ratified  Emerging  Issues Task Force Issue No.  06-10
"Accounting for Collateral  Assignment  Split-Dollar Life Insurance  Agreements:
(EITF 06-10).  EITF 06-10 provides  guidance for determining a liability for the
postretirement  benefit obligation as well as recognition and measurement of the
associated  asset  on the  basis  of the  terms  of  the  collateral  assignment
agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007.  The  Company  is  currently  assessing  the  impact of EITF  06-10 on its
consolidated financial position and results of operations.

Reclassification - Certain items in the 2006 and 2005 financial  statements have
been  reclassified  to conform with the  presentation  in the 2007  consolidated
financial statements.

                                       54
<PAGE>

3. INVESTMENT SECURITIES HELD TO MATURITY

A  comparison  of  amortized  cost and  approximate  fair  value  of  investment
securities with gross unrealized gains and losses, by maturities, is as follows:

<TABLE>
<CAPTION>
                                                                September 30, 2007
                                                               Gross          Gross
                                             Amortized      Unrealized      Unrealized      Approximate
                                                Cost           Gains          Losses        Fair Value
-------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>            <C>            <C>
U.S. Government Agencies
      Due after 1 year through 5 years      $  5,000,000                   $    (26,880)   $  4,973,120
      Due after 5 years through 10 years      20,918,747   $     37,242        (114,168)     20,841,821
      Due after 10 years through 15 years     48,421,750         87,118        (341,677)     48,167,191
      Due after 15 years                       8,814,462         87,194         (49,905)      8,851,751
Tax Exempt Obligations
      Due after 10 years through 15 years     15,853,732        717,040              --      16,570,772
      Due after 15 years                       9,684,556        383,866        (167,588)      9,900,834
                                            ------------   ------------    ------------    ------------

Total Investment Securities                 $108,693,247   $  1,312,460    $   (700,218)   $109,305,489
                                            ============   ============    ============    ============
</TABLE>

A summary of investments  with  unrealized  losses,  aggregated by category,  at
September 30, 2007 is as follows:

<TABLE>
<CAPTION>
                             Less than 12 Months            12 Months or Longer                           Total
                                         Unrealized                      Unrealized       Total        Unrealized
                          Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                         ------------   ------------    ------------   ------------    ------------   ------------
<S>                      <C>            <C>             <C>            <C>             <C>            <C>
US Government agencies   $  4,446,141   $    (26,541)   $ 56,849,408   $   (506,089)   $ 61,295,549   $   (532,630)
Tax Exempt Obligations      2,848,983       (167,588)             --             --              --       (167,588)
                         ------------   ------------    ------------   ------------    ------------   ------------
Total                    $  7,295,124   $   (194,129)   $ 56,849,408   $   (506,089)   $ 61,295,549   $   (700,218)
                         ============   ============    ============   ============    ============   ============
</TABLE>

At September 30, 2007, investment securities in a gross unrealized loss position
for twelve months or longer consisted of 23 US Government  Agency securities and
state and municipal  securities that at such date had an aggregate  depreciation
of 0.9% from the Company's  amortized cost basis.  Management  believes that the
estimated fair value of the securities  disclosed  above is primarily  dependent
upon the movement in market interest rates.  Management  evaluated the length of
time and the  extent to which the  market  value  has been less than  cost;  the
financial  condition  and near  term  prospects  of the  issuer,  including  any
specific  events which may influence the  operations of the issuer.  The Company
has the  ability  and  intent to hold  these  securities  until the  anticipated
recovery  of fair value  occurs.  Management  does not  believe  any  individual
unrealized  loss as of September  30, 2007  represents  an  other-than-temporary
impairment.

<TABLE>
<CAPTION>
                                                                September 30, 2006
                                                              Gross            Gross
                                              Amortized     Unrealized      Unrealized      Approximate
                                                 Cost         Gains           Losses        Fair Value
-------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>             <C>             <C>
U.S. Government Agencies
      Due after 1 year through 5 years      $ 12,000,000                   $   (146,000)   $ 11,854,000
      Due after 5 years through 10 years      21,878,790   $     24,290        (386,080)     21,517,000
      Due after 10 years through 15 years     46,237,147         45,273        (769,420)     45,513,000
      Due after 15 years                       6,386,754                        (97,754)      6,289,000
Tax Exempt Obligations
      Due after 10 years through 15 years     17,981,750        997,250              --      18,979,000
      Due after 15 years                       6,614,241        481,759              --       7,096,000
                                            ------------   ------------    ------------    ------------

Total Investment Securities                 $111,098,682   $  1,548,572    $ (1,399,254)   $111,248,000
                                            ============   ============    ============    ============
</TABLE>

                                       55
<PAGE>

A summary of investments  with  unrealized  losses,  aggregated by category,  at
September 30, 2006 is as follows:

<TABLE>
<CAPTION>
                             Less than 12 Months            12 Months or Longer                          Total
                                         Unrealized                      Unrealized       Total        Unrealized
                          Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                         ------------   ------------    ------------   ------------    ------------   ------------
<S>                      <C>            <C>             <C>            <C>             <C>            <C>
US Government agencies   $ 26,578,627   $   (216,285)   $ 50,655,619   $ (1,182,969)   $ 77,234,246   $ (1,399,254)
                         ------------   ------------    ------------   ------------    ------------   ------------
Total                    $ 26,578,627   $   (216,285)   $ 50,655,619   $ (1,182,969)   $ 77,234,246   $ (1,399,254)
                         ============   ============    ============   ============    ============   ============
</TABLE>

4.  INVESTMENT SECURITIES AVAILABLE-FOR-SALE

A  comparison  of  amortized  cost and  approximate  fair  value  of  investment
securities with gross unrealized gains and losses, by maturities, is as follows:

                                              September 30, 2007
                                             Gross         Gross
                              Amortized    Unrealized   Unrealized
                                 Cost         Gain         Losses     Fair Value
--------------------------------------------------------------------------------

Equity Securities             $1,501,552   $    5,810   $ (173,280)   $1,334,082
Money Market Mutual Funds        575,867           --           --       575,867
                              ----------   ----------   ----------    ----------

Total Investment Securities   $2,077,419   $    5,810   $ (173,280)   $1,909,949
                              ==========   ==========   ==========    ==========

A summary of investments  with  unrealized  losses,  aggregated by category,  at
September 30, 2007 is as follows:
<TABLE>
<CAPTION>
                       Less than 12 Months            12 Months or Longer                           Total
                                   Unrealized                      Unrealized        Total       Unrealized
                    Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                    -----------   ------------    ------------   ------------    ------------   ------------
<S>                      <C>            <C>             <C>            <C>             <C>            <C>
Equity Securities   $    792,970   $    (89,038)   $    254,637   $    (84,242)   $  1,047,607   $   (173,280)
                    ------------   ------------    ------------   ------------    ------------   ------------
Total               $    792,970   $    (89,038)   $    254,637   $    (84,242)   $  1,047,607   $   (173,280)
                    ============   ============    ============   ============    ============   ============
</TABLE>

As of  September  30,2007  there  has been  one  investment  security  in a loss
position greater than twelve months. Management evaluated the length of time and
the extent to which the  market  value has been less than  cost;  the  financial
condition and near term prospects of the issuer,  including any specific  events
which may influence  the  operations of the issuer such as changes in technology
that may impair the earnings  potential of the investment or the  discontinuance
of a segment of the business that may effect the future earnings potential.  The
Company  has  the  ability  and  intent  to  hold  these  securities  until  the
anticipated  recovery  of fair value  occurs.  Management  does not  believe any
individual   unrealized   loss  as  of   September   30,  2007   represents   an
other-than-temporary impairment.

                                       56
<PAGE>
<TABLE>
<CAPTION>

                                                September 30, 2006
                                                Gross         Gross
                               Amortized      Unrealized    Unrealized
                                  Cost           Gain         Losses         Fair Value
----------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>             <C>
Equity Securities             $  1,050,664   $     13,802   $    (67,143)   $    997,323
Money Market Mutual Funds        7,110,436             --             --       7,110,436
                              ------------   ------------   ------------    ------------

Total Investment Securities   $  8,161,100   $     13,802   $    (67,143)   $  8,107,759
                              ============   ============   ============    ============
</TABLE>

A summary of investment  with  unrealized  losses,  aggregated  by category,  at
September 30,2006 is as follows:

<TABLE>
<CAPTION>
                       Less than 12 Months            12 Months or Longer                           Total
                                   Unrealized                      Unrealized        Total       Unrealized
                    Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                    -----------   ------------    ------------   ------------    ------------   ------------
<S>                      <C>            <C>             <C>            <C>             <C>            <C>
Equity Securities   $    582,873   $    (67,143)   $         --   $         --   $    582,873   $    (67,143)
                    ------------   ------------    ------------   ------------   ------------   ------------
Total               $    582,873   $    (67,143)   $         --   $         --   $    582,873   $    (67,143)
                    ============   ============    ============   ============   ============   ============
</TABLE>

There were no sales of  investment  securities  available  for sale for the year
ended  September  30,  2007.  Proceeds  from the sale of  investment  securities
available  for sale  during  the year ended  September  30,  2006 were  $327,000
resulting in a gross gain of $27,000 and an after tax gain of $18,000.  Proceeds
from the sale of investments  available for sale during the year ended September
30, 2005 were  $5,650,000  resulting in a gross gain of $98,000 and an after tax
gain of $65,000.

5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

A comparison of amortized  cost and  approximate  fair value of  mortgage-backed
securities with gross unrealized gains and losses, is as follows:

<TABLE>
<CAPTION>
                                                          September 30,2007
                                                         Gross         Gross
                                       Amortized      Unrealized     Unrealized     Approximate
                                          Cost           Gains         Losses        Fair Value
------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>             <C>
Collateralized mortgage obligations   $ 16,470,836   $     96,904   $   (298,787)   $ 16,268,953
FHLMC pass-through certificates         89,532,845        164,145     (2,198,243)   $ 87,498,747
FNMA pass-through certificates          86,586,624         11,268     (2,007,620)   $ 84,590,272
GNMA pass-through certificates             252,200          2,298             --    $    254,498
                                      ------------   ------------   ------------    ------------

Total Mortgage-Backed Securities      $192,842,505   $    274,615   $ (4,504,650)   $188,612,470
                                      ============   ============   ============    ============
</TABLE>

A summary of securities  with  unrealized  losses,  aggregated  by category,  at
September 30, 2007 is as follows:
<TABLE>
<CAPTION>
                                         Less than 12 Months            12 Months or Longer                           Total
                                                     Unrealized                      Unrealized        Total       Unrealized
                                      Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                                     ------------   ------------    ------------   ------------    ------------   ------------
<S>                                        <C>            <C>             <C>            <C>             <C>            <C>
Mortgage-backed securities held to
 maturity                            $ 11,829,093   $    (94,682)   $162,007,873   $ (4,409,968)   $173,836,966   $ (4,504,650)
                                     ------------   ------------    ------------   ------------    ------------   ------------
Total                                $ 11,829,093   $    (94,682)   $162,007,873   $ (4,409,968)   $173,836,966   $ (4,504,650)
                                     ============   ============    ============   ============    ============   ============
</TABLE>

At September 30, 2007,  mortgage-related  securities in a gross  unrealized loss
position for twelve  months or longer  consisted of 88  securities  that at such
date had an aggregate  depreciation  of 2.7% from the Company's  amortized  cost
basis.  Management  believes  that the  estimated  fair value of the  securities
disclosed  above is primarily  dependent  upon the  movement in market  interest
rates.  Management evaluated the length of time

                                       57
<PAGE>

and the extent to which the fair value has been less than  cost;  the  financial
condition and near term prospects of the issuer. The Company has the ability and
intent to hold these  securities  until the  anticipated  recovery of fair value
occurs.  Management  does  not  believe  any  individual  unrealized  loss as of
September 30, 2007 represents another-than-temporary impairment.

Proceeds  from the sales of  mortgage-backed  securities  during  the year ended
September 30, 2007 were $10,281,000 resulting in a gross gain of $160,000 and an
after tax gain of  $106,000.  The Company  sold  securities  held to maturity in
accordance  with  provisions of SFAS No. 115 allowing such securities to be sold
if principal reductions on such securities were at least 85%.

<TABLE>
<CAPTION>
                                                          September 30,2006
                                                        Gross          Gross
                                       Amortized      Unrealized     Unrealized      Approximate
                                          Cost          Gains          Losses        Fair Value
------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>             <C>
Collateralized mortgage obligations   $ 15,088,964   $     88,867   $   (319,831)   $ 14,858,000
FHLMC pass-through certificates         98,855,830         70,407     (2,793,237)     96,133,000
FNMA pass-through certificates         100,287,098         83,203     (2,825,301)     97,545,000
GNMA pass-through certificates           5,261,926        115,074             --       5,377,000
                                      ------------   ------------   ------------    ------------

Total Mortgage-Backed Securities      $219,493,818   $    357,551   $ (5,938,369)   $213,913,000
                                      ============   ============   ============    ============
</TABLE>

A summary of securities  with  unrealized  losses,  aggregated  by category,  at
September 30, 2006 is as follows:

<TABLE>
<CAPTION>
                                 Less than 12 Months            12 Months or Longer                           Total
                                             Unrealized                      Unrealized        Total       Unrealized
                              Fair Value       Losses        Fair Value        Losses       Fair Value       Losses
                             ------------   ------------    ------------   ------------    ------------   ------------
<S>                                <C>            <C>             <C>            <C>             <C>            <C>
Mortgage-backed securities
  held to maturity           $  6,898,645   $    (68,773)   $191,950,265   $ (5,869,596)   $198,848,910   $ (5,938,369)
                             ------------   ------------    ------------   ------------    ------------   ------------
Total                        $  6,898,645   $    (68,773)   $191,950,265   $ (5,869,596)   $198,848,910   $ (5,938,369)
                             ============   ============    ============   ============    ============   ============
</TABLE>

6. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE

A comparison of amortized  cost and  approximate  fair value of  mortgage-backed
securities with gross unrealized gains and losses, is as follows:

<TABLE>
<CAPTION>
                                                      September 30,2007
                                                     Gross          Gross
                                    Amortized      Unrealized    Unrealized
                                       Cost          Gains         Losses        Fair Value
--------------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>            <C>
FNMA pass-through certificates     $    785,187   $     32,337   $         --   $    817,524
                                   ------------   ------------   ------------   ------------

Total Mortgage-Backed Securities   $    785,187   $     32,337   $         --   $    817,524
                                   ============   ============   ============   ============
<CAPTION>
                                                       September 30,2006
                                                     Gross          Gross
                                    Amortized      Unrealized    Unrealized
                                       Cost          Gains         Losses        Fair Value
--------------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>            <C>
FNMA pass-through certificates     $    785,187   $     35,068   $         --   $    820,255
                                   ------------   ------------   ------------   ------------

Total Mortgage-Backed Securities   $    785,187   $     35,068   $         --   $    820,255
                                   ============   ============   ============   ============
</TABLE>

                                       58
<PAGE>

7. LOANS RECEIVABLE

Loans receivable consists of the following:

                                                   September 30,
                                               2007             2006
------------------------------------------------------------------------
Residential Mortgages                     $ 305,340,840    $ 287,155,808
Commercial Mortgages                         15,314,312          919,603
Construction                                  6,092,667        6,986,632
Savings Account                                 977,255        1,002,672
Home Equity                                  74,218,316       70,515,174
Home Equity Line of Credit                   21,385,435       25,499,895
Automobile and other                            903,921          811,963
                                          -------------    -------------

Total                                       424,232,746      392,891,747
Undisbursed portion of loans in process      (2,794,545)      (4,941,266)
Deferred loan fees                             (452,906)        (544,301)
Allowance for loan losses                    (1,932,545)      (1,955,805)
                                          -------------    -------------

Loans Receivable - net                    $ 419,052,750    $ 385,450,375
                                          =============    =============

The  Company  originates  both  adjustable  and fixed  interest  rate  loans and
purchases both adjustable and fixed interest rate mortgage-backed securities. At
September 30, 2007, the maturity of these loans and mortgage-backed  securities,
in thousands, is as follows (in thousands):

                   Fixed-Rate                    Adjustable-Rate
      Term to Maturity     Book Value  Term to Maturity     Book Value
-------------------------------------  --------------------------------
        1 year or less   $     25,728    1 year or less    $      8,451
             1-3 years         29,760      1-3 years              2,534
             3-5 years         20,650      3-5 years              3,494
            5-15 years        235,152
         over 15 years        292,124
                         ------------                      ------------
                         $    603,414                      $     14,479
                         ============                      ============

The  adjustable  rate loans have interest rate  adjustment  limitations  and are
generally  indexed to the 1-year U.S.  Treasury  Securities rate.  Future market
factors may affect the  correlation  of the interest  rate  adjustment  with the
rates the  Company  pays on the  short-term  deposits  that have been  primarily
utilized to fund these loans.

At  September  30, 2007 and 2006,  the Company  was  servicing  loans for others
amounting to  approximately  $3,642,000 and $3,928,000  respectively.  Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow accounts,  disbursing  payments to investors and foreclosure  processing.
Loan  servicing  income is  recognized  over the life of the loan. In connection
with the loans serviced for others,  the Company held borrowers' escrow balances
of  approximately  $18,300,  and  $21,000,  at  September  30,  2007  and  2006,
respectively.

Loans  to  officers  and  directors  at  September  30,  2007  and  2006,   were
approximately  $582,000  and  $648,000,   respectively.   Additional  loans  and
repayments  for the year ended  September  30, 2007,  were $74,000 and $140,000,
respectively.

                                       59
<PAGE>

The following schedule summarizes the changes in the allowance for loan losses:

                                      Year Ended September 30,
                                 2007            2006            2005
-------------------------------------------------------------------------
Balance, beginning of year   $  1,955,805    $  1,967,607    $  1,976,849
     Recoveries                    12,824           8,524          83,707
     Charged off                  (36,084)        (20,326)        (92,949)
                             ------------    ------------    ------------
Balance, end of year         $  1,932,545    $  1,955,805    $  1,967,607
                             ============    ============    ============

The activity in the  recoveries and charge off accounts was primarily the result
of  the  Company's  Bounce  protection  program.  This  program  extends  credit
automatically  to our  depositors.  If the account is not brought current by the
depositor  the loan is charged  off.  If the  customer  subsequently  brings the
account current, a recovery is recognized.

The  provision  for loan  losses  charged  to  expense  is based  upon past loss
experiences and an evaluation of potential losses in the current loan portfolio,
including  the  evaluation  of  impaired  loans  under  SFAS No.  114. A loan is
considered to be impaired when, based upon current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the  contractual  terms of the loan.  An  insignificant  delay or  insignificant
shortfall in amount of payments  does not  necessarily  result in the loan being
identified  as  impaired.  For  this  purpose,  delays  less  than 90  days  are
considered to be  insignificant.  As of September 30, 2007, 100% of the impaired
loan balance was measured for  impairment  based on the fair value of the loans'
collateral.  Impairment  losses are included in the  provision  for loan losses.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans
that  are  collectively  evaluated  for  impairment,   except  for  those  loans
restructured under a troubled debt restructuring.  Loans collectively  evaluated
for impairment  include  consumer loans and  residential  real estate loans.  At
September 30, 2007 and 2006, the Company's  impaired loans  consisted of smaller
balance  residential  mortgage  loans  collectively  evaluated  for  impairment.
Non-performing  loans (which  include loans in excess of 90 days  delinquent) at
September  30, 2007 and 2006,  amounted to  approximately  $28,000 and  $18,000,
respectively.  The non-performing  loans are still accruing interest.  The loans
were collectively evaluated for impairment.

8. OFFICE PROPERTIES AND EQUIPMENT

Office  properties  and equipment are  summarized  by major  classifications  as
follows:

                                            September 30,
                                        2007            2006
----------------------------------------------------------------
Land                                $  1,159,031    $  1,159,031
Buildings                              7,548,837       7,543,587
Branch office in construction          2,192,847              --
Furniture, fixtures and equipment      3,903,790       3,694,898
Automobiles                               24,896          24,896
                                    ------------    ------------

Total                                 14,829,401      12,422,412
Less accumulated depreciation         (4,912,853)     (4,408,443)
                                    ------------    ------------

Net                                 $  9,916,548    $  8,013,969
                                    ============    ============

Depreciation  expense for the years ended  September  30, 2007,  2006,  and 2005
amounted to approximately $511,000, $466,000, and $436,000, respectively.

                                       60
<PAGE>

9. DEPOSITS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                        September 30,
                                            2007                           2006
                                 ---------------------------    ---------------------------

                                                  Weighted                       Weighted
                                                  Interest                       Interest
                                    Amount          Rate           Amount          Rate
-------------------------------------------------------------------------------------------
<S>                              <C>                    <C>     <C>                    <C>
NOW accounts                     $ 13,710,669           0.25%   $ 15,719,531           0.25%
Non-interest Checking accounts     11,740,589           0.00%     10,338,951           0.00%
Interest Checking accounts         25,750,545           2.41%     20,410,198           2.46%
Money Market Deposit accounts      51,826,626           1.80%     58,989,416           1.58%
Passbook and Club accounts          2,863,725           0.98%      3,325,151           0.96%
Certificate accounts              318,142,918           4.50%    320,470,800           4.01%
                                 ------------   ------------    ------------   ------------

Total Deposits                   $424,035,072           3.76%   $429,254,047           3.34%
                                 ============   ============    ============   ============
</TABLE>

At  September  30,  2007,  the amounts of scheduled  maturities  of  certificate
accounts were as follows:

For the year ended September 30:        2008                    225,708,981
                                        2009                     77,911,934
                                        2010                      7,029,133
                                        2011                      4,543,301
                                        2012                      2,949,569
                                                               ------------
                                 Total                         $318,142,918
                                                               ============

The aggregate  amount of certificate  accounts in  denominations  of $100,000 or
more at September 30, 2007 and 2006 amounted to approximately  $53.6 million and
$47.6  million,  respectively.  Deposits in excess of $100,000 are not generally
federally insured.

Interest expense on savings deposits is composed of the following:

                                          Year Ended September 30,
                                     2007           2006           2005
---------------------------------------------------------------------------

NOW accounts and MMDA accounts   $  2,557,964   $  1,371,109   $  1,245,110
Passbook and Club accounts             31,414         27,867         26,325
Certificate accounts               12,882,284     11,765,562      9,065,269
                                 ------------   ------------   ------------

Total                            $ 15,471,662   $ 13,164,538   $ 10,336,704
                                 ============   ============   ============

                                       61
<PAGE>

10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

The Company has a line of credit with the Federal  Home Loan Bank of which $31.5
million and $58.2 million of the  available  $75.0 million was used at September
30, 2007 and 2006, respectively.  The average balance outstanding on the line of
credit for the years ended  September  30,  2007 and 2006 was $48.2  million and
$29.3 million, respectively. The maximum amount outstanding at any time for 2007
and 2006 was $67.4 million and $59.4 million, respectively. The weighted average
interest rate during 2007 and 2006 was 5.36% and and 4.89%.

Long-term debt consist of the following:

<TABLE>
<CAPTION>
                                                                   Weighted
                                               Amount             Average Rate
                                               ------             ------------
                                          2007       2006       2007        2006
                                        --------   --------   --------    --------
<S>                                     <C>        <C>            <C>         <C>
FHLB long-term debt:                              (dollars in thousands)
Fixed rate advances maturing:
                    2008                $ 37,727   $ 21,292       5.00%       3.79%
                    2009                  20,043     46,949       4.37%       4.79%
                    2010                  17,410     25,851       4.50%       4.07%
                    2011                  23,595      8,375       4.99%       3.96%
                    2012                  58,334     39,418       4.48%       5.38%
                    2013                   5,000     59,526       3.80%       4.47%
                    2014                   5,000      5,000       3.54%       3.80%
Maturing after 9/30/2014:                 60,000     30,000       4.42%       4.10%
                                        --------   --------   --------    --------

Total FHLB long-term debt               $227,109   $236,411       4.56%       4.16%

Other long-term debt:
Fixed rate advances maturing:
                    2013                $ 15,000   $     --       4.90%         --
                    2014                  15,000         --       4.50%         --
                                        --------   --------   --------

Total other long term debt fixed        $ 30,000   $     --       4.70%
Adjustable long-term debt maturing:
                    2017                $ 10,000   $     --       4.97%         --
                                        --------   --------   --------
Total other long term debt adjustable   $ 10,000   $     --       4.97%
                                        --------   --------   --------

Total other long term debt              $ 40,000   $     --       4.77%         --
                                        --------   --------   --------    --------

Total Long Term Debt                    $267,109   $236,411       4.59%       4.16%
                                        ========   ========   ========    ========
</TABLE>

Federal Home Loan Bank (FHLB) advances are  collateralized  by Federal Home Loan
Bank stock and  substantially  all first mortgage loans. In addition,  there are
three long-term  advances from other financial  institutions that are secured by
investment and mortgage-backed securities totaling $40 million.

11. INCOME TAXES

The Company  computes  its reserve for bad debts under the  specific  charge-off
method. The bad debt deduction allowable under this method is available to large
banks with assets greater than $500 million.

                                       62
<PAGE>

Generally,  this method  allows the Company to deduct an annual  addition to the
reserve  for bad  debts  equal  to its net  charge-offs.  Retained  earnings  at
September 30, 2007 and 2006 includes approximately  $1,325,000  representing bad
debt deductions for which no deferred income taxes have been provided.

The expense for income taxes differs from that computed at the statutory federal
corporate tax rate as follows:

<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                        2007                           2006                           2005
                              --------------------------     --------------------------     --------------------------
                                             Percentage                     Percentage                     Percentage
                                             of Pretax                      of Pretax                       of Pretax
                                 Amount        Income           Amount        Income          Amount         Income
----------------------------------------------------------------------------------------------------------------------
<S>                           <C>                   <C>      <C>                   <C>      <C>                   <C>
At statutory rate             $ 1,413,361           34.0%    $ 1,855,280           34.0%    $ 2,276,724           34.0%
Adjustments resulting from:
Tax-exempt income                (557,602)         (13.4)       (592,375)         (10.9)       (595,428)          (8.9)
State tax-net of federal
    tax benefit                        --             --              --             --          69,588            1.0
Other                              55,241            1.3          (7,728)          (0.1)        (58,357)          (0.8)
                              -----------    -----------     -----------    -----------     -----------    -----------
Expense per consolidated
   statements of income       $   911,000           21.9%    $ 1,255,177           23.0%    $ 1,692,527           25.3%
                              ===========    ===========     ===========    ===========     ===========    ===========
</TABLE>

Income tax expense is summarized as follows:

                                 Year Ended September 30,
                              2007         2006         2005
                           ------------------------------------
Current                    $  855,223   $1,244,214   $1,624,759
Deferred                       55,777       10,963       67,768
                           ----------   ----------   ----------
Total Income Tax Expense   $  911,000   $1,255,177   $1,692,527
                           ==========   ==========   ==========

Items that gave rise to significant portions of the deferred tax accounts are as
follows:

                                                  September 30,
                                               2007         2006
                                             ---------    ---------
Deferred Tax Assets:
  Deferred Loan Fees                         $  55,064    $  73,722
  Allowance for Loan Losses                    657,065      664,974
  Unrealized loss on investment securities      45,945        6,212
  Other                                         26,714       39,564
                                             ---------    ---------
    Sub-Total                                  784,788      784,472
                                             ---------    ---------
Deferred Tax Liabilities:
  Property                                    (450,282)    (433,922)
                                             ---------    ---------
    Sub-Total                                 (450,282)    (433,922)
                                             ---------    ---------
    Total                                    $ 334,506    $ 350,550
                                             =========    =========

Income taxes paid were approximately  $665,000,  $1,378,000,  and $1,528,000 for
the years ended September 30, 2007, 2006, and 2005, respectively.

12. REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital  requirements
administered  by the federal Banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines and the regulatory  framework for

                                       63
<PAGE>

prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's  assets,  liabilities  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts  and  classification  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.  Quantitative  measures  established  by regulation  to ensure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table below) of total Tier 1 capital (as defined in the regulations) to risk
weighted  assets (as defined),  and of Tier 1 capital (as defined) to assets (as
defined). Management believes, as of September 30, 2007, that the Bank meets all
capital adequacy requirements to which it is subject.

As of September 30, 2007, the most recent  notification from the Federal Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management  believes have changed the Bank's
category.

The Bank's actual capital amounts and ratios are also presented in the table.

<TABLE>
<CAPTION>
                                                                                             To Be Considered Well
                                                                                               Capitalized Under
                                                                           For Capital         Prompt Corrective
                                                        Actual          Adequacy Purposes      Action Provisions
                                                -------------------    --------------------   -------------------
                                                   Amount     Ratio       Amount      Ratio      Amount     Ratio
-----------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>       <C>           <C>      <C>           <C>
As of September 30, 2007
     Tier 1 Capital (to assets)                 $46,796,989    6.02%   $31,020,640    4.00%   $38,775,800    5.00%
     Tier 1 Capital (to risk weighted assets)    46,796,989   12.12%    15,442,800    4.00%    23,164,200    6.00%
     Total Capital (to risk weighted assets)     48,729,123   12.62%    30,885,600    8.00%    38,607,000   10.00%

As of September 30, 2006
     Tier 1 Capital (to assets)                 $48,182,567    6.24%   $30,868,800    4.00%   $38,586,000    5.00%
     Tier 1 Capital (to risk weighted assets)    48,182,567   13.02%    14,800,960    4.00%    22,201,440    6.00%
     Total Capital (to risk weighted assets)     50,138,888   13.55%    29,601,920    8.00%    37,002,400   10.00%
</TABLE>

The Company's  capital  ratios are not  significantly  different than the Bank's
disclosed above.

13. RETIREMENT SAVINGS PLANS

The Company has an employee stock ownership pension plan and a qualified 401 (k)
retirement  savings  plan  covering  all  full-time  employees  meeting  certain
eligibility requirements.  Contributions for both plans are at the discretion of
the Company's Board of Directors. Contributions expense related to the plans was
$277,946,  $254,989 and $260,528 for the years ended  September 30, 2007,  2006,
and 2005, respectively.

14. STOCK OPTIONS

In 1987,  the Company  established  a stock  compensation  program for executive
officers and other  selected  full-time  employees and directors of the Company.
The 1987 program  consists of four plans that are available for grant:  Plan I -
incentive stock options;  Plan II - compensatory stock options; Plan III - stock
appreciation rights; and Plan IV - performance share awards.

In January 1996, the stockholders approved the 1995 Stock Option Plan. This plan
consists  of  two  parts:  Plan  I -  incentive  stock  options  and  Plan  II -
compensatory stock options.

                                       64
<PAGE>

In January 2001, the stockholders approved the 2000 Stock Option Plan. This plan
consists  of  two  parts:  Plan  I -  incentive  stock  options  and  Plan  II -
compensatory stock options.

In January 2006, the stockholders approved the 2005 Stock Option Plan. This plan
consists  of  two  parts:  Plan  I -  incentive  stock  options  and  Plan  II -
compensatory  stock options.  There are 219,642  options  remaining for grant in
this plan.

A summary of transactions under this plan follows:

<TABLE>
<CAPTION>
                                                                   Year Ended September 30,
                                               2007                           2006                          2005
                                   ----------------------------   ----------------------------   ----------------------------
                                                     Weighted                      Weighted                       Weighted
                                                      Average                       Average                        Average
                                      Options          Price        Options          Price         Options          Price
-----------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>                 <C>        <C>                 <C>        <C>
Outstanding,  beginning of year         243,100    $      15.01        169,032    $      13.23        201,982    $      10.96
      Exercised                          (3,751)          10.10        (10,704)           8.93        (69,133)           9.16
      Canceled                           (8,750)          14.35         (2,078)          12.16         (2,917)          13.50
      Granted                            49,200           17.68         86,850           17.68         39,100           17.78
                                   ------------    ------------   ------------    ------------   ------------    ------------

      Outstanding, end of year          279,799    $      15.54        243,100    $      15.01        169,032    $      13.23
                                   ============    ============   ============    ============   ============    ============

Options exercisable, end of year        145,599    $      13.86        130,400    $      13.32         98,267    $      11.98
                                   ============    ============   ============    ============   ============    ============
</TABLE>

A summary of the exercise price range at September 30, 2007 is as follows:

                          Exercise        Weighted      Weighted Average
        Number of          Price      Average Remaining  Exercise Price
      Option Shares        Range       Contractual Life     per Share
      --------------   --------------  ----------------  --------------
              60,350    $8.10 - 12.80       2.89 years   $         9.77
             102,400   $13.13 - 17.50       7.21 years            16.42
             117,049   $17.68 - 18.00       8.43 years            17.81
      --------------   --------------   --------------   --------------
             279,799    $8.10 - 18.00       6.79 years   $        15.54
      ==============   ==============   ==============   ==============

For the years ended  September 30, 2007 and 2006, the aggregate  intrinsic value
of options  outstanding was $251,000 and $984,000,  respectively.  For the years
ended  September  30, 2007 and 2006,  the aggregate  intrinsic  value of options
exercisable was $242,000 and $425,000, respectively.

The aggregate  intrinsic  value of a stock option  represents  the total pre-tax
intrinsic  value (the amount by which the current market value of the underlying
stock exceeds the exercise price of the option) that would have been received by
the option holder had all option  holders  exercised  their options on September
30,  2007.  This  amount  changes  based on changes  in the market  value of the
Company's stock.

Stock Based Compensation  Expense. As stated in Note 1 - Significant  Accounting
Policies,  the Company  adopted the  provisions of SFAS 123R on October 1, 2005.
SFAS 123R requires that  stock-based  compensation to employees be recognized as
compensation  cost in the consolidated  statements of income based on their fair
values on the measurement  date,  which, for the Company,  is the date of grant.
Included in the results  for the years  ended  September  30, 2007 and 2006 were
compensation   costs   relating  to  the  adoption  of  Statement  No.  123R  of
approximately  $97,000, or $64,000 net of tax and $109,000,  or $72,000,  net of
tax, respectively. As of September 30, 2007, there was approximately $224,000 of
total  unrecognized  compensation cost related to non-vested stock options under
the plans.

The Company also has  established an Employee Stock Purchase Plan (the "Purchase
Plan") whereby employees may elect to make contributions to the Purchase Plan in
an aggregate  amount not less than 2% nor

                                       65
<PAGE>

more than 10% of such employee's total  compensation.  These contributions would
then be used to purchase  stock  during an  offering  period  determined  by the
Company's Salary and Benefits  Committee.  The purchase price of the stock would
be the lesser of 85% of the market price on the first day or the last day of the
offering  period.  During 2007, 2006 and 2005, 0, 0 and 3,729 shares were issued
to employees,  respectively.  At September 30, 2007 and 2006,  there were 31,081
shares available for future purchase. The Company suspended participation in the
Purchase Plan in March 2005 and the plan is not currently active.

15. COMMITMENTS

At September 30, 2007, the Company had approximately $8.9 million in outstanding
commitments  to originate  mortgage  loans,  of which $7.7 million were at fixed
rates ranging from 5.88% to 7.75% and adjustable rates of $1.2 million at 6.25%.
The  unfunded  line of credit  commitments  at  September  30,  2007 were  $41.0
million.  The Company had $1.3 million and $7.2 million of committed  commercial
and consumer loans, respectively at September 30, 2007. In addition, the Company
had  $2.1  million  of  unused  commercial  lines  of  credit.  The  amounts  of
undisbursed  portions  of loans in  process  at  September  30,  2007  were $2.9
million. The Company had a total of $292,000 in standby letters of credit. Also,
at  September  30,  2007 the  Company  had no  outstanding  futures  or  options
positions.

The  Company  leases  land  for  two  of  its  branch  offices.  Minimum  rental
commitments for the next five years at September 30, 2007, are summarized below:

                                 Fiscal         Rental
                                  Year          Amount
                                  ----         --------
                                  2008           98,407
                                  2009          104,332
                                  2010          106,978
                                  2011          108,300
                                  2012          113,168
                                               --------
                           Total               $531,185
                                               ========

16. LEGAL CONTINGENCIES

Various  legal  claims  also  arise  from time to time in the  normal  course of
business  which,  in the opinion of management,  will have no material effect on
the Company's consolidated financial statements.

17. CONVERSION TO A STOCK SAVINGS BANK

At the time of conversion,  in 1987, the Bank established a liquidation  account
in an  amount  equal  to the  Bank's  net  worth  as  reflected  in  the  latest
consolidated  statement  of  financial  condition  of the Bank  contained in the
offering  circular  utilized in the conversion.  The function of the liquidation
account is to establish a priority on  liquidation  and,  except with respect to
the payment of cash dividends on, or the re-purchase of, any of the common stock
by the Bank,  the  existence  of the  liquidation  account  will not  operate to
restrict the use or application of any of the net worth accounts of the Bank. In
the event of a complete  liquidation of the Bank (and only in such event),  each
eligible account holder will be entitled to receive a pro rata distribution from
the  liquidation  account,  based on such holder's  proportionate  amount of the
total current adjusted  balances from deposit accounts then held by all eligible
account holders, before any liquidation distribution may be made with respect to
stockholders.  The liquidation account was approximately $2,300,000 at September
30, 2007.  Furthermore,  the Company may not  repurchase any of its stock if the
effect  thereof  would cause the Company's net worth to be reduced below (i) the
amount  required  for the  liquidation  account or (ii) the  regulatory  capital
requirements.

18. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The  estimated  fair value  amounts have been  determined  by the Company  using
available market information and appropriate valuation  methodologies.  However,
considerable  judgment is  necessarily  required to interpret the market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not  necessarily  indicative  of the amounts the Company  could realize in a
current  market  exchange.  The

                                       66
<PAGE>

use of different market assumptions  and/or estimation  methodologies may have a
material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
                                                                                           September 30,
                                                                               2007                              2006
                                                                  -----------------------------------------------------------------
                                                                     Carrying      Estimated Fair      Carrying      Estimated Fair
                                                                      Amount           Value            Amount            Value
                                                                  --------------   --------------   --------------   --------------
<S>                                                                    <C>              <C>              <C>              <C>
Assets:
    Cash and cash equivalents                                     $    8,316,939   $    8,316,939   $   10,050,150   $   10,050,150
    Investment securities held to maturity                           108,693,247      109,305,489      111,098,682      111,247,877
    Investment securities available-for-sale at fair value             1,909,949        1,909,949        8,107,759        8,107,759
    Mortgage-backed securities held to maturity                      192,842,505      188,612,469      219,493,818      213,912,604
    Mortgage-backed securities available-for-sale at fair value          817,524          817,524          820,255          820,255
    Loans receivable - net                                           419,052,750      411,520,696      385,450,375      379,488,305
    Federal Home Loan Bank Stock                                      14,140,100       14,140,100       15,498,600       15,498,600
    Accrued interest receivable                                        4,046,947        4,046,947        3,969,610        3,969,610

Liabilities:
    Passbook, Club and NOW accounts                                   54,065,528       54,065,528       49,793,831       49,793,831
    Money Market Demand accounts                                      51,826,626       51,826,626       58,989,416       58,989,416
    Certificate accounts                                             318,142,918      315,847,783      320,470,800      316,274,938
    Borrowings                                                       298,608,628      300,032,013      294,611,162      293,194,247
    Accrued interest payable                                           1,556,225        1,556,225        1,406,161        1,406,161

Off balance sheet financial instruments                                       --               --               --               --

</TABLE>

The carrying amounts of cash and short-term instruments approximate fair values.
The carrying amounts of  interest-bearing  deposits  maturing within ninety days
approximate  their fair  values.  The fair value of  investment  securities  and
mortgage-backed  securities is based on quoted market prices, dealer quotes, and
prices obtained from independent pricing services.  For variable-rate loans that
reprice  frequently and with no significant  change in credit risk,  fair values
are based on carrying  values.  Fair values for certain  mortgage  loans  (e.g.,
one-to-four  family  residential)  and other  consumer loans are based on quoted
market  prices  of  similar  loans  sold  in  conjunction  with   securitization
transactions, adjusted for differences in loan characteristics.  Fair values for
non-performing  loans are  estimated  using  discounted  cash flow  analyses  or
underlying collateral values, where applicable.  Although Federal Home Loan Bank
Stock  (FHLB) is an equity  interest in FHLB,  it is carried at cost  because it
does not have a readily  determinable  fair value as its ownership is restricted
and it lacks a market.  The  estimated  fair  value  approximates  the  carrying
amount.  The fair  value of  accrued  interest  receivable  and  payable  is the
carrying amount.

The fair value of NOW and money  market  deposits  and  savings  accounts is the
amount  reported in the  consolidated  financial  statements.  The fair value of
savings  certificates and borrowings are based on a present value estimate using
rates currently  offered for  instruments of similar  remaining  maturity.  Fair
values for  off-balance  sheet lending  commitments  are based on fees currently
charged to enter similar agreements.

The fair value  estimates  presented  herein are based on pertinent  information
available to management as of September 30, 2007 and 2006.  Although  management
is not aware of any factors that would  significantly  affect the estimated fair
value amounts, such amounts have not been comprehensively  revalued for purposes
of these financial statements since that date and, therefore,  current estimates
of fair value may differ significantly from the amounts presented herein.

                                       67
<PAGE>

19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION

Condensed financial statements of Harleysville Savings Financial Corporation are
as follows:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                                 -------------
Condensed Statements of Financial Condition
                                                               2007           2006
                                                               ----           ----
<S>                                                          <C>            <C>
Assets
    Cash                                                   $    194,960   $    183,080
    Investment in subsidiary                                 47,311,645     48,662,388
                                                           ------------   ------------

Total Assets                                               $ 47,506,605   $ 48,845,468
                                                           ============   ============

Liabilities & Stockholders' Equity

    Other Liabilities                                      $    465,702   $    374,098
    Stockholders' equity                                     47,040,903     48,471,370
                                                           ------------   ------------

Total Liabilities & Stockholders' Equity                   $ 47,506,605   $ 48,845,468
                                                           ============   ============
<CAPTION>

Condensed Statements of Income
                                                                  For the Year Ended September 30,
Income:                                                        2007            2006             2005
                                                               ----            ----             ----
<S>                                                        <C>             <C>             <C>
Equity in income of subsidiary                             $  3,679,733    $  4,594,634    $  5,375,655
Other expense                                                   433,790         393,096         371,935
                                                           ------------    ------------    ------------

Net income                                                 $  3,245,943    $  4,201,538    $  5,003,720
                                                           ============    ============    ============

<CAPTION>

Condensed Statements of Cash Flows                               For the Year Ended September 30,
Income:                                                        2007            2006             2005
                                                               ----            ----             ----
<S>                                                        <C>             <C>             <C>
Net income                                                 $  3,245,943    $  4,201,538    $  5,003,720
Increase in other liabilities                                    91,604         326,922           3,408
Income of Harleysville Savings Bank                          (3,679,733)     (4,594,634)     (5,375,655)
                                                           ------------    ------------    ------------

Net cash used by operating activities                          (342,186)        (66,174)       (368,527)
                                                           ------------    ------------    ------------


Investing activities:
    Dividends received from subsidiary                        5,050,000       3,641,975       1,960,000
                                                           ------------    ------------    ------------

Net cash provided by investing activities                     5,050,000       3,641,975       1,960,000
                                                           ------------    ------------    ------------

Financing activities:
    Acquisition of treasury stock                            (2,693,853)     (1,681,657)       (328,280)
    Use of treasury stock                                       595,171         451,402         421,706
    Proceeds from issuance of common stock                           --         300,599         460,431
    Dividends paid                                           (2,597,252)     (2,482,506)     (2,252,336)
                                                           ------------    ------------    ------------

Net cash used in financing activities                        (4,695,934)     (3,412,162)     (1,698,479)
                                                           ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents             11,880         163,639        (107,006)

Cash and cash equivalents at the beginning of the period        183,080          19,441         126,447
                                                           ------------    ------------    ------------

Cash and cash equivalents at the end of  the period        $    194,960    $    183,080    $     19,441
                                                           ============    ============    ============
</TABLE>

                                       68
<PAGE>

20.  Quarterly Financial Data (Unaudited)

Unaudited  quarterly  financial data for the years ended  September 30, 2007 and
2006 is as follows: (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                       2007                                   2006
                                      -------------------------------------   -------------------------------------
                                        1st       2nd       3rd       4th       1st      2nd        3rd       4th
                                        QTR       QTR       QTR       QTR       QTR      QTR        QTR       QTR
                                      -------   -------   -------   -------   -------   -------   -------   -------
<S>                                     <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest Income                       $ 9,840   $ 9,899   $10,115   $10,442   $ 9,463   $ 9,635   $ 9,923   $10,062
Interest Expense                        7,015     6,957     7,249     7,572     6,422     6,371     6,621     6,953
                                      -------   -------   -------   -------   -------   -------   -------   -------
Net Interest Income                     2,825     2,942     2,866     2,870     3,041     3,264     3,302     3,109
Provision for loan losses                  --        --        --        --        --        --        --        --
                                      -------   -------   -------   -------   -------   -------   -------   -------
Net interest income after
      provision for loan losses         2,825     2,942     2,866     2,870     3,041     3,264     3,302     3,109
Non-interest income                       373       546       475       477       329       282       340       356
Non-interest expense                    2,260     2,315     2,316     2,326     1,973     2,031     2,156     2,407
                                      -------   -------   -------   -------   -------   -------   -------   -------
Income before income taxes                938     1,173     1,025     1,021     1,397     1,515     1,486     1,058
Income tax expense                        181       269       212       250       316       354       386       199
                                      -------   -------   -------   -------   -------   -------   -------   -------
Net income                            $   757   $   904   $   813   $   771   $ 1,081   $ 1,161   $ 1,100   $   859
                                      =======   =======   =======   =======   =======   =======   =======   =======


Per Common Share:

       Earnings per share - basic     $  0.20   $  0.23   $  0.21   $  0.21   $  0.28   $  0.30   $  0.29   $  0.22
       Earnings per share - diluted   $  0.19   $  0.23   $  0.21   $  0.21   $  0.27   $  0.29   $  0.28   $  0.22
</TABLE>

Earnings  per  share  is  computed  independently  for  each  period  presented.
Consequently, the sum of the quarters may not equal the total earnings per share
for the year.

Item 9.  Changes in and Disagreements With Accountants on Accounting and
------------------------------------------------------------------------
         Financial Disclosure.
         ---------------------

         Not Applicable.

Item 9A. Controls and Procedures.
---------------------------------

         Our management evaluated, with the participation of our Chief Executive
Officer  and  Chief  Financial  Officer,  the  effectiveness  of our  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange  Act of  1934)  as of  September  30,  2007.  Based on such
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that our  disclosure  controls and  procedures are designed to ensure
that  information  required to be disclosed by us in the reports that we file or
submit  under  the  Securities  Exchange  Act of  1934 is  recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

         No change in our internal control over financial  reporting (as defined
in Rules  13a-15(f) and 15(d)-15(f)  under the Securities  Exchange Act of 1934)
occurred  during the fourth  fiscal  quarter of fiscal 2007 that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

Item 9B. Other Information.
---------------------------

Not applicable.

                                       69
<PAGE>

                                    PART III

Item 10. Directors, Executive Officers and Corporate Governance.
----------------------------------------------------------------

         The  information  required herein is incorporated by reference from the
information  contained in the sections  captioned  "Information  with Respect to
Nominees for Director,  Directors  Whose Terms Continue and Executive  Officers"
and  "Beneficial  Ownership  of Common  Stock by Certain  Beneficial  Owners and
Management - Section 16(a)  Beneficial  Ownership  Reporting  Compliance" in the
Company's definitive Proxy Statement for the 2008 Annual Meeting of Stockholders
to be held in January 2008 (the "Proxy Statement").

         The Company  has  adopted a Code of Conduct and Ethics that  applies to
its principal  executive  officer and principal  financial  officer,  as well as
other  officers and employees of the Company and the Bank. A copy of the Code of
Ethics, was included as an exhibit to the Company's Form 10-K for the year ended
September 30, 2003 and filed with the  Securities and Exchange  Commission,  may
also be found on the Company's website at www.harleysvillesavingsbank.com.

Item 11. Executive Compensation.
--------------------------------

         The  information  required herein is incorporated by reference from the
information  contained in the sections captioned  "Management  Compensation" and
"Compensation  Committee  Report" and  "Compensation  Committee  Interlocks  and
Insider Participation" in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
         Related Stockholder Matters.
         ----------------------------

         The  information  required herein is incorporated by reference from the
information  contained in the section captioned  "Beneficial Ownership of Common
Stock by Certain Beneficial Owners and Management" in the Proxy Statement.

Equity Compensation Plan Information

         The  following  table sets  forth  certain  information  for all equity
compensation  plans  and  individual  compensation  arrangements  (whether  with
employees or  non-employees,  such as directors),  in effect as of September 30,
2007.

<TABLE>
<CAPTION>
                                 Number of Shares to be                           Number of Shares Remaining
                                issued upon the Exercise    Weighted-Average    Available for Future Issuance
                                of Outstanding Options,     Exercise Price of    (Excluding Shares Reflected
      Plan Category              Warrants and Rights(1)    Outstanding Options     in the First Column)(2)
-----------------------------    ----------------------    --------------------    -----------------------
<S>                                          <C>             <C>                              <C>
Equity compensation plans
   approved by security holders              279,799         $        15.54                   273,225

Equity compensation plans not
   approved by security holders                   --                     --                        --
                                      --------------         --------------            --------------
     Total                                   279,799         $        15.54                   273,225
                                      ==============         ==============            ==============
</TABLE>

-----------
(1)  Does not take into account  purchase  rights  accruing  under the Company's
     1995 Employee Stock Purchase Plan,  which was approved by stockholders  and
     provides for up to 87,281  shares to be issued.  Under the  Employee  Stock
     Purchase Plan,  each eligible  employee may purchase shares of common stock
     at semi-annual  intervals  each year at a purchase price  determined by the
     committee of the board of directors which administers the plan, which shall
     not be less than the lesser of (i) 85% of the fair market  value of a share
     of common  stock on the first  business day of the  applicable  semi-annual
     offering  period or (ii) 85% of the fair market  value of a share of common
     stock on the last business day of such offering period. In no event may the
     amount of common stock  purchased by a  participant  in the Employee  Stock
     Purchase Plan in a calendar year exceed $25,000, measured as of the time an
     option under the plan is granted.

(2)  Includes  shares  available for future  issuance  under the Employee  Stock
     Purchase  Plan.  As of September 30, 2007, an aggregate of 53,583 shares of
     common stock were available for issuance under this plan.

                                       70
<PAGE>

Item 13. Certain Relationships and Related Transactions and Directors
---------------------------------------------------------------------
         Independence.
         -------------

         The  information  required herein is incorporated by reference from the
information  contained  in the sections  captioned  "Management  Compensation  -
Related  Party  Transactions"  and  "Information  with  Respect to Nominees  for
Director, Continuing Directors and Executive Officers" in the Proxy Statement.

Item 14. Principal Accounting Fees and Services.
------------------------------------------------

         The  information  required herein is incorporated by reference from the
information  contained in the section captioned  "Relationship  with Independent
Registered Public Accounting Firm - Audit Fees" in the Proxy Statement.

                                     PART IV

Item 15. Exhibits and Financial Statement Schedules.
---------------------------------------------------

(a)      (1)    The following financial statements are incorporated by reference
                from Item 8 hereof:

         Consolidated Statements of Financial Condition as of September 30, 2007
         and 2006
         Consolidated  Statements  of Income for the Years Ended  September  30,
         2007, 2006 and 2005
         Consolidated  Statements  of  Stockholders'  Equity for the Years Ended
         September 30, 2007, 2006 and
         2005
         Consolidated  Statements  of  Comprehensive  Income for the Years Ended
         September 30, 2007, 2006 and 2005
         Consolidated Statements of Cash Flows for the Years Ended September 30,
         2007, 2006 and 2005 Notes to Consolidated Financial Statements

         (2)    All schedules are  omitted  because  they  are not  required  or
applicable,  or the required information is shown in the consolidated  financial
statements or the notes thereto.

         (3)    Exhibits

         The  following  exhibits  are  filed as part of this Form 10-K and this
list includes the Exhibit Index.

<TABLE>
<CAPTION>
 No.                                        Description                                       Location
----    ------------------------------------------------------------------------------    ---------------
<S>     <C>                                                                                      <C>
 3.1    Amended and Restated Articles of Incorporation                                           (1)
 3.2    Amended and Restated Bylaws                                                              (1)
 4.0    Common Stock Certificate                                                                 (2)
10.1    1995 Stock Option Plan*                                                                  (3)
10.2    2000 Stock Option Plan*                                                                  (4)
10.3    2005 Stock Option Plan*                                                                  (5)
10.4    Profit Sharing Incentive Plan*                                                           (3)
10.5    Amended and Restated Employment Agreement between the Company,
           the Bank and Ronald B. Geib*                                                          (6)
22.0    Subsidiaries of the Registrant - Reference is made to "Item 1. Business
          - Subsidiaries" of this Form 10-K for the required information                         --
23.1    Consent of Beard Miller Company LLP                                                Filed herewith
23.2    Consent of Deloitte & Touche LLP                                                   Filed herewith
31.1    Certification of Chief Executive Officer                                           Filed herewith
31.2    Certification of Chief Financial Officer                                           Filed herewith
32.0    Section 1350 Certification of the Chief Executive Officer and Chief Financial      Filed herewith
        Officer
99.0    Code of Conduct and Ethics                                                               (4)
</TABLE>

------------
                                                   (Footnotes on following page)

                                       71
<PAGE>

------------
*        Denotes management compensation plan or arrangement.
(1)      Incorporated  herein by reference to the  Company's  Current  Report on
         Form 8-K filed with the Securities and Exchange  Commission  ("SEC") on
         August 17, 2007.
(2)      Incorporated  by reference to the Company's  Current Report on Form 8-K
         filed with the SEC on February 25, 2000.
(3)      Incorporated herein by reference to the Company's Annual Report on Form
         10-K for the year  ended  September  30,  2003,  filed  with the SEC on
         December 23, 2003.
(4)      Incorporated by reference to the Company's  definitive  proxy statement
         dated  December  19,  2000  filed  with the SEC.
(5)      Incorporated by reference from the Company's definitive proxy statement
         for the 2005  Annual  Meeting  of  Stockholders  filed  with the SEC on
         December 16, 2005.
(6)      Incorporated  by reference to the Company's  Current Report on Form 8-K
         filed with the SEC on November 1, 2006.

(b)      Exhibits

         The exhibits listed under (a)(3) of this Item 15 are filed herewith.

(c)      Reference is made to (a)(2) of this Item 15.



                                       72
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                     HARLEYSVILLE SAVINGS
                                     FINANCIAL CORPORATION


December 21, 2007                    By:   /s/ Ronald B. Geib
                                           -------------------------------------
                                           Ronald B. Geib
                                           President and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
          Name                                   Title                          Date
-----------------------------      ----------------------------------    -------------------
<S>                                 <C>                                   <C>
/s/ Edward J. Molnar               Chairman of the Board                  December 21, 2007
-----------------------------
Edward J. Molnar


/s/ Ronald B. Geib                 President and Chief Executive          December 21, 2007
-----------------------------       Officer
Ronald B. Geib                     (principal executive officer)


/s/ Brendan J. McGill              Senior Vice President, Treasurer       December 21, 2007
-----------------------------       and Chief Financial Officer
Brendan J. McGill                  (principal financial and principal
                                    accounting officer)


/s/ Sanford L. Alderfer                                                   December 21, 2007
-----------------------------
Sanford L. Alderfer                Director


/s/ Mark R. Cummins                Director                               December 21, 2007
-----------------------------
Mark R. Cummins


/s/ David J. Friesen               Director                               December 21, 2007
-----------------------------
David J. Friesen


                                       73
<PAGE>

<CAPTION>
          Name                                   Title                          Date
-----------------------------      ----------------------------------    -------------------
<S>                                 <C>                                   <C>
/s/ Charlotte A. Hunsberger        Director                               December 21, 2007
-----------------------------
Charlotte A. Hunsberger


/s/ George W. Meschter             Director                               December 21, 2007
-----------------------------
George W. Meschter


/s/ James L. Rittenhouse           Director                               December 21, 2007
-----------------------------
James L. Rittenhouse


/s/ Philip A. Clemens              Director                               December 21, 2007
-----------------------------
Philip A. Clemens

</TABLE>

                                       74