================================================================================

                                  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, 2003

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                         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                       (I.R.S. Employer
    of 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

                          Common Stock, $.01 par value
                                 Title of Class

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 |_|

<PAGE>

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. |X|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X|

The aggregate market value of the 1,817,903 shares of the Registrant's Common
Stock held by non-affiliates (2,316,490 shares outstanding less 498,587 shares
held by affiliates), based upon the closing price of $25.53 for the Common Stock
on March 31, 2003, as reported by the Nasdaq Stock Market, was approximately
$46.4 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 5, 2003: 2,316,490

                       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:

(1)   Portions of the Annual Report to Stockholders for the year ended September
      30, 2003 are incorporated by reference into Part II, Items 5-8 and Part
      IV, Item 15 of this Form 10-K.

(2)   Portions of the definitive Proxy Statement for the 2004 Annual Meeting of
      Stockholders are incorporated by reference into Part III, Items 10-13 of
      this Form 10-K.

<PAGE>

                           Forward-Looking Statements

      In the normal course of business, the Company, in an effort to help keep
its stockholders and the public informed about the Company's operations, may
from time to time issue or make certain statements, either in writing or orally,
that are or contain forward-looking statements, as that term is defined in the
federal securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits from potential acquisitions,
projections involving anticipated revenues, earnings, profitability or other
aspects of operating results or other future developments in the affairs of the
Company or the industry in which it conducts business. These forward-looking
statements, which are based on various assumptions (some of which are beyond the
Company's control), may be identified by reference to a future period or periods
or by the use of forward-looking terminology such as "anticipate," "believe,"
"commitment," "consider," "continue," "could," "encourage," "estimate,"
"expect," "intend," "in the event of," "may," "plan," "present," "propose,"
"prospect," "update," "whether," "will," "would," future or conditional verb
tenses, similar terms, variations on such terms or negatives of such terms.
Although the Company believes that the anticipated results or other expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that those results or expectations will be
attained. Actual results could differ materially from those indicated in such
statements due to risks, uncertainties and changes with respect to a variety of
factors, including, but not limited to, the following: competitive pressure
among depository and other financial institutions may increase significantly;
changes in the interest rate environment may reduce interest margins and net
interest income, as well as adversely affect loan originations and sales
activities and the value of certain assets, such as investment securities;
general economic or business conditions, either nationally or in regions in
which the Company does business, may be less favorable than expected, resulting
in, among other things, a deterioration in credit quality or a reduced demand
for credit; legislation or changes in regulatory requirements, including without
limitation, capital requirements, or accounting standards may adversely affect
the Company and the business in which it is engaged; adverse changes may occur
in the securities markets; competitors of the company may have greater financial
resources and develop products and technology that enable those competitors to
compete more successfully than the company; and the growth and profitability of
the Company's noninterest income may be less than expected.

      The Company undertakes no obligation to update forward-looking statements
to reflect events or circumstances occurring after the date of this report on
Form 10-K.

      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.


                                       1
<PAGE>

                                     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 five 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, 2003, the Company had $653,288 million of total assets,
$380,687 million of deposits and $40,816 million of stockholders' equity. The
Company's stockholders' equity constituted 6.25% of total assets as of September
30, 2003.

      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 Savings Association Insurance Fund ("SAIF") 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.


                                       2
<PAGE>

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, 2003, first mortgage loans on residential
properties, including loans on single-family and multi-family residential
properties and construction loans on such properties, amounted to $246.3 million
or 45.7% of the Company's total loan and 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, 2003, mortgage-backed securities totaled $230.2 million and comprised 42.6%
of the portfolio.

      As of September 30, 2003, loans secured by commercial real estate
comprised $1.0 million or 0.2% 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 $60.5 million or 11.2% of the total loan and mortgage-backed
securities portfolio as of September 30, 2003.

      As of September 30, 2003, the Company had $230.2 million, or 42.6%, 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.


                                       3
<PAGE>

      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,
                                            ---------------------------------------------------------------------
                                                   2003                     2002                      2001
                                            -------------------      -------------------      -------------------
                                            Amount      Percent      Amount      Percent      Amount      Percent
                                            ------      -------      ------      -------      ------      -------
                                                                  (Dollars in Thousands)
<S>                                        <C>           <C>        <C>           <C>        <C>           <C>
Real estate loans:
  Residential:
     Single-family                         $234,748       43.6%     $233,057       46.7%     $230,805       48.9%
     Multi-family                             1,515        0.3         1,056        0.2           972        0.2
     Construction                            10,028        1.9         8,607        1.7        14,649        3.1
  Lot loans                                     923        0.2         1,247        0.2         1,514        0.3
  Mortgage-backed securities                230,247       42.6       193,330       38.8       167,727       35.5
  Commercial                                  1,015        0.2           496        0.1           786        0.2
                                            -------      -----       -------      -----       -------      -----
     Total real estate loans and
       mortgage-backed securities           478,476       88.8%      437,793       87.7%      416,453       88.2%
                                            -------      -----       -------      -----       -------      -----
Consumer loans:
  Education loans                                 1        0.0%          334        0.1%        1,041        0.2%
  Installment equity loans                   29,726        5.5        41,451        8.3        43,401        9.3
  Line of credit loans                       29,420        5.5        18,530        3.7         9,807        2.1
  Savings account loans                         733        0.1           479        0.1           617        0.1
  Automobile and other loans                    578        0.1           726        0.1           629        0.1
                                            -------      -----       -------      -----       -------      -----
     Total consumer loans                    60,458       11.2%       61,520       12.3%       55,495       11.8%
     Total loans receivable and
       mortgage-backed securities           538,934      100.0%      499,313      100.0%      471,948      100.0%
                                            -------      -----       -------      -----       -------      -----

Less:
  Loans in process                           (7,829)                  (6,503)                  (9,919)
  Deferred loan fees                         (1,520)                  (2,091)                  (2,052)
  Allowance for loan losses                  (1,991)                  (2,035)                  (2,036)
                                           --------                 --------                 --------
     Total loans receivable and
       mortgage-backed securities, net     $527,594                 $488,684                 $457,941
                                           ========                 ========                 ========
</TABLE>


                                       4
<PAGE>

      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, 2003 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.

<TABLE>
<CAPTION>
                                                                Principal Repayments Contractually
                                                                Due in Years(s) Ended September 30,
                               Principal        -------------------------------------------------------------------------
                              Balance at
                             September 30,                                  2006 -       2008 -       2014 -    2019 and
                                  2003            2004         2005         2007         2013         2018     Thereafter
                             -------------      --------     --------     --------     --------     --------   ----------
                                                                       (In Thousands)
<S>                             <C>             <C>          <C>          <C>          <C>          <C>          <C>
Real estate loans:
  Residential
  Single-family                 $234,748        $  3,521     $  3,756     $ 12,676     $ 28,874     $ 41,316     $144,605
  Multi-family                     1,515              23           24           82          186          267          933
  Construction                    10,028             150          160          542        1,233        1,765        6,178
Lot loans                            923              50           54          186          418          215           --
Mortgage-backed
  securities                     230,247           3,454        3,914       12,894       29,011       40,754      140,220
Commercial                         1,015              37           40          139          322          477           --
Consumer and other loans          60,458           7,436        7,980       27,675       13,603        3,764           --
                                --------        --------     --------     --------     --------     --------     --------

      Total(1)                  $538,934        $ 14,671     $ 15,928     $ 54,198     $ 73,647     $ 88,558     $291,936
                                ========        ========     ========     ========     ========     ========     ========
</TABLE>

----------

(1)   With respect to the $524.3 million of loans with principal maturities
      contractually due after September 30, 2004, $375.5 million have fixed
      rates of interest and $148.8 million have adjustable or floating rates of
      interest.


                                       5
<PAGE>

      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 payments and
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 or
loan participations.

      During the year ended September 30, 2003, the Company sold $13.0 million
of mortgage-backed securities for a gain of $159,000. During the year ended
September 30, 2002, the Company did not sell any mortgage-backed securities. The
Company sold $7.3 million of mortgage-backed securities during the year ended
September 30, 2001 for a gain of $151,663. The Company sold $1.4 million, $2.5
million and $3.3 million of loans during fiscal 2003, 2002 and 2001, resulting
in a gain of $15,581, $31,132 and $39,647, respectively.

      The Company's total loan originations increased by $42.1 million or 34.9%
in fiscal 2003 and increased by $12.5 million or 11.6% in fiscal 2002. Of the
$169.8 million and $86.0 million of single-family loans originated in fiscal
2003 and 2002, $67.8 million and $23.1 million, respectively, were loans
originated to refinance property, $102.0 million and $62.9 million,
respectively, were loans to acquire residential property. During this period,
the Company's originations of consumer loans amounted to $46.3 million and $53.4
million or 28.6% and 41.5% of total loan originations during fiscal 2003 and
2002,


                                       6
<PAGE>

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,
                                                              ------------------------------------
                                                                2003          2002          2001
                                                              --------      --------      --------
                                                                       (In Thousands)
<S>                                                           <C>           <C>           <C>
Real estate loan originations:
   Residential:
     Single-family                                            $102,712      $ 62,939      $ 55,075
     Multi-family                                                1,380           266            --
     Construction                                               12,007        11,224        20,909
   Lot loans                                                       109           815           693
                                                              --------      --------      --------
       Total real estate loan originations                     116,208        75,244        76,677
Consumer loan originations(1)                                   46,288        45,255        31,308
                                                              --------      --------      --------
       Total loan originations                                 162,496       120,499       107,985
Purchases of mortgage-backed securities                        277,885        87,280        80,176
                                                              --------      --------      --------
       Total loan originations, and purchases                  440,381       207,779       188,161

Principal loan and mortgage-backed securities repayments       386,359       170,574       106,529
Sales of loans and mortgage-backed securities                   14,401         9,840        10,600
                                                              --------      --------      --------
       Total principal repayments and sales                    400,760       180,414       117,129
                                                              --------      --------      --------
         Net increase in loans                                $ 39,621      $ 27,365      $ 71,032
                                                              ========      ========      ========
</TABLE>

----------
(1)   Includes installment home equity loans, home equity lines of credit,
      vehicle loans, Pennsylvania Higher Education Assistance 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 President, 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. All approved loans are ratified by the Board
of Directors at the next succeeding board meeting. Any loan which does not meet
the guidelines set forth in the lending policies must be approved by the
Company's Board of Directors.


                                       7
<PAGE>

      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,
2003, the largest aggregate amount of loans outstanding to any borrower,
including related entities, was $2.1 million, which did not exceed the Company's
loan to one borrower limitation.

      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 which conform to the
secondary market underwriting standards. Refinancings are limited to 90% or
less. Loans over $300,700 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 75% of the appraised value.

      All appraisals and other property valuations are performed by independent
fee appraisers approved by the Company's Board of Directors. On all real estate
loans, other than certain "streamlined refinances," 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, 2003,
$247.7 million or 45.8% and $1.5 million or 0.3% 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, 2003, approximately $434.5 million or 90.3% 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, $44.0 million or 9.1%
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.


                                       8
<PAGE>

      During the year ended September 30, 2003, the Company originated $1.2
million of ARM mortgages. ARMs represented 1.1% and 2.2% of the Company's total
mortgage loan portfolio originations in fiscal 2003 and 2002, 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.

      The Company also originates, to a lesser extent, loans secured by
multi-family rental units or properties with some commercial usage. The primary
method used by the Company to evaluate a multi-family residential or commercial
mortgage loan is based on both the fair market value of the property and an
income approach pursuant to which the Company determines if the income from the
project will be sufficient to support the related debt and other associated
costs. The Company also considers a review of the costs to develop the project
and the overall financial strength of the borrower. Multi-family residential
loans are made on an adjustable rate basis for a maximum term of 25 years or a
fixed rate of 15 years or less.

      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, 2003, $10.0 million or 1.9% 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.


                                       9
<PAGE>

      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.

      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 28.6% and
41.5% during fiscal 2003 and 2002, 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 continue to be a popular product and represented $59.1
million or 10.9% of the loan and mortgage-backed securities portfolio at
September 30, 2003. 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, 2003, the Company had outstanding 2,495 home equity loans of which
1,192 were installment equity loans and 1,303 were line of credit loans. As of
such date, the Company had an outstanding balance on line of credit loans of
approximately $29.4 million and there was approximately $33.0 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 premiums. 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.

      Loans fees generated on origination of real estate mortgage 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 over the estimated remaining terms of such loans using various methods
which approximate the


                                       10
<PAGE>

interest method. The Company generated $1.6 million, $635,000 and $268,000 in
deferred loan fees in fiscal 2003, 2002 and 2001, 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, 2003, the Company was servicing $2.6 million of loans
for others, substantially all of which related to loans sold by the Company to
the FHLMC. 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 the period.

      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 lower of carrying or market value at the date of
acquisition and any write-down resulting is reclassed 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


                                       11
<PAGE>

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 the period.

      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.

<TABLE>
<CAPTION>
                                                                          As of September 30,
                                                                 ------------------------------------

                                                                 2003            2002            2001
                                                                 ----            ----            ----
                                                                       (Dollars in Thousands)
<S>                                                              <C>             <C>             <C>
Residential real estate loans:
  Non-accrual loans                                              $ --            $ --            $ --
  Accruing loans 90 days overdue                                  273             167             298
  Troubled debt restructurings                                     --              --              --
                                                                 ----            ----            ----
           Total                                                  273             167             298
                                                                 ----            ----            ----
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                                  273             167             298
  Troubled debt restructurings                                     --              --              --
                                                                 ----            ----            ----
           Total                                                 $273            $167            $298
                                                                 ====            ====            ====

Total non-performing loans to total loans                         .09%            .05%            .09%
Total other real estate owned, net of related reserves             --              --              --
Total non-performing loans and other real
 estate owned to total assets                                     .04%            .03%            .05%
</TABLE>

      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 2003 or 2002 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


                                       12
<PAGE>

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 specific reserves may be required.
The establishment of any such reserves could affect net income.

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

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                           -------------------------------------------------

                                                               2003               2002               2001
                                                           -----------        -----------        -----------
<S>                                                        <C>                <C>                <C>
Allowances at beginning of year                            $ 2,034,832        $ 2,036,188        $ 2,038,131
 Provision for loan losses charged to
  operating expenses                                                --                 --                 --
Recoveries                                                          --              5,113                856
Loans charged off                                              (44,160)            (6,469)            (2,799)
                                                           -----------        -----------        -----------
Allowances at end of year                                  $ 1,990,672        $ 2,034,832        $ 2,036,188
                                                           ===========        ===========        ===========

Ratio of net charge-offs to average loans outstanding               --                 --                 --
Ratio of allowances to period-end loans                            .66%               .68%               .69%
</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, ARM 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, 2003 was $263.1 million.


                                       13
<PAGE>

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

                                                     As of September 30,
                                            ------------------------------------

                                              2003          2002           2001
                                            --------      --------      --------
                                                       (In Thousands)
      Interest-bearing deposits at
         other depository institutions      $  4,836      $ 34,872      $  7,588
      Tax-exempt obligations                  25,290        24,881        23,771
      ARM mutual funds                         3,812        12,000         3,294
      Equities                                 1,061            --            --
      U.S. Government and agency
         obligations held to maturity         58,036        30,784        38,431
      FHLB of Pittsburgh stock                13,782        10,497         8,950
                                            --------      --------      --------
                 Total                      $106,817      $113,034      $ 82,034
                                            ========      ========      ========

      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.

      Deposits. Due to changes in regulatory and economic conditions in recent
years, the Company has increasingly emphasized deregulated fixed-rate
certificate accounts and other authorized types of 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


                                       14
<PAGE>

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,
                              -------------------------------------------------------------------------

                                      2003                     2002                       2001
                              ---------------------     --------------------      ---------------------

                                           Percent                   Percent                   Percent
                                             of                        of                         of
                               Amount      Deposits      Amount     Deposits       Amount      Deposits
                              --------     --------     --------    --------      --------     --------
                                                       (Dollars in Thousands)
<S>                           <C>           <C>         <C>           <C>         <C>           <C>
Passbook and club
  accounts                    $  4,027        1.1%      $  3,327        0.9%      $  2,535        0.7%
NOW accounts                    17,340        4.6         14,052        3.4         12,280        3.5
Checking accounts               10,047        2.6          8,572        2.7          6,859        2.0
Money market demand
  accounts                      95,729       25.1         82,562       22.2         67,383       19.2
Certificates of deposit:
      6 month                   10,649        2.8         16,497        4.4         25,148        7.2
      9 month                    3,431        0.9          5,240        1.4          5,949        1.7
      12 month                  18,798        4.9         20,640        5.6         28,170        8.0
      15 month                   6,774        1.8          8,343        2.2         10,710        3.1
      17 month                   3,573        0.9          5,384        1.5          9,490        2.7
      18 month                  26,565        7.0         39,080       10.5         62,754       17.9
      24 month                  17,041        4.5         32,345        8.7         35,826       10.2
      27 month                  23,359        6.1         19,133        5.1          5,171        1.5
      36 month                  23,655        6.2         22,290        6.0         18,308        5.2
      48 month                  25,020        6.6         11,701        3.2             --         --
      60 month                  39,495       10.4         34,257        9.2         18,607        5.3
      Other                      8,988        2.4          5,268        1.4          3,712        1.1

Retirement accounts:
 Money market deposit
   accounts                      1,242        0.3            902        0.2            559        0.2
 Certificates of deposit        44,954       11.8         42,354       11.4         36,686       10.5
                              --------      -----       --------      -----       --------      -----
Total deposits                $380,687      100.0%      $371,947      100.0%      $350,147      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,


                                       15
<PAGE>

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 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, 2003 and the scheduled quarterly maturities
of its certificates of deposit.

<TABLE>
<CAPTION>
                                                           Percentage of     Weighted Average
                                                Amount     Total Deposits      Nominal Rate
                                                ------     --------------    ----------------
                                                      (Dollars in Thousands)
<S>                                            <C>              <C>                <C>
Passbook and club accounts                     $  4,028           1.1%             0.66%
NOW accounts                                     17,340           4.6              0.15
Checking accounts                                10,047           2.6              0.18
Money market deposits accounts(1)                96,970          25.5              1.02
                                               --------         -----             -----
           Total                               $128,385          33.7%             0.82%
                                               --------         -----             -----
Certificate accounts maturing by quarter:
     December 31, 2003                         $ 38,645          10.2              2.45

     March 31, 2004                              34,470           9.1              2.67
     June 30, 2004                               23,263           6.1              2.71
     September 30, 2004                          26,203           6.9              3.24
     December 31, 2004                           18,718           4.9              3.00

     March 31, 2005                              13,062           3.4              2.72
     June 30, 2005                                6,188           1.6              3.57
     September 30, 2005                           5,617           1.5              3.12
     December 31, 2005                            4,142           1.1              4.74

     March 31, 2006                               3,082           0.8              4.51
     June 30, 2006                                5,921           1.6              4.36
     September 30, 2006                          16,986           4.5              4.26

Thereafter                                       56,005          14.7              3.98
                                               --------         -----             -----
Total certificate accounts(1)                   252,302          66.3              3.25
                                               --------         -----             -----
           Total deposits                      $380,687         100.0%             2.43%
                                               ========         =====             =====
</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 $122.6 million of
certificates of deposit which mature during the 12 months ended September 30,
2004.


                                       16
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Year Ended September 30,
                                                                     ----------------------------------

                                                                      2003           2002         2001
                                                                     -------       -------      -------
                                                                               (In Thousands)
<S>                                                                  <C>           <C>          <C>
(Decrease)/increase before interest credited                         $    (9)      $11,241      $26,472
Interest credited                                                      8,749        10,559       13,839
                                                                     -------       -------      -------
Net deposit increase                                                 $ 8,740       $21,800      $40,311
                                                                     =======       =======      =======
</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, 2003 which mature during the periods
indicated.

<TABLE>
<CAPTION>
                                                         Amounts at September 30, 2003 Maturing
                                                  -----------------------------------------------------
                                       As of
                                   September 30,  One Year or
                                        2003          Less       Two Years     Three Years   Thereafter
                                   -------------      ----       ---------     -----------   ----------
                                                               (In Thousands)
<S>                                   <C>           <C>           <C>           <C>           <C>
Certificate accounts:
  0.01% to 2.00%                      $ 60,468      $ 46,970      $ 13,254      $    244      $     --
  2.01% to 4.00%                       119,876        58,886        22,385         8,732        29,873
  4.01% to 6.00%                        65,974        14,089         7,187        18,574        26,124
  6.01% to 8.00%                         5,984         2,636           759         2,581             8
                                      --------      --------      --------      --------      --------
Total certificate accounts(1)         $252,302      $122,581      $ 43,585      $ 30,131      $ 56,005
                                      ========      ========      ========      ========      ========
</TABLE>

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

      The following table sets forth the maturity of certificate deposits in
excess of $100,000 as of September 30, 2003.

                           Amount
                       --------------
                       (In thousands)
1 to 3 months              $ 2,874
4 to 6 months                3,199
7 to 12 months               3,543
thereafter                  13,289
                           -------
Total                      $22,905
                           =======

      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, 2003, the Bank had FHLB advances

                                       17
<PAGE>

with maturities of one year or less totaling $23.9 million at an interest rate
of 2.79% and FHLB advances with maturities of 13 months to 10 years totaling
$204.9 million at interest-rates ranging from 1.95% to 7.23%. Such advances are
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. 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,
                                         ---------------------------------------------------------------------

                                                2003                      2002                    2001
                                         --------------------     --------------------     -------------------
                                                     Weighted                 Weighted                Weighted
                                                     Average                  Average                 Average
                                         Balance       Rate       Balance       Rate       Balance      Rate
                                         -------     --------     --------    --------     -------    --------
                                                                 (Dollars in Thousands)
<S>                                      <C>           <C>        <C>           <C>       <C>           <C>
Advances from FHLB of Pittsburgh         $228,817      4.76%      $207,502      5.37%     $171,309      5.74%
</TABLE>

      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,
                                                    -------------------------------------

                                                      2003           2002           2001
                                                    -------       ---------       -------
                                                             (Dollars in Thousands)
<S>                                                 <C>           <C>             <C>
      Advances from FHLB of Pittsburgh:
         Average balance outstanding                $ 4,496       $      --       $ 5,222

         Maximum amount outstanding at any
            month-end during the period              18,500           1,900        16,200

         Weighted average interest rate
            during the period                          1.20%           2.08%         6.31%
</TABLE>

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


                                       18
<PAGE>

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.

Employees

      The Company had 54 full-time employees and 41 part-time employees as of
September 30, 2003. 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.

      On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "1999 Act") which repealed Depression-era laws that
generally separated the business of banking from other financial services
including the business of insurance and securities. From time to time other
bills may be introduced in the United States Congress which could result in
additional or in less regulation of the business of the Company and the Bank. It
cannot be predicted at this time whether any such legislation actually will be
adopted or how such adoption would affect the business of the Company or the
Bank.


                                       19
<PAGE>

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 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 financial holding company 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


                                       20
<PAGE>

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
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution'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 and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions. In
addition to the restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution.

      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 institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution'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 institution to all
insiders cannot exceed the institution'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


                                       21
<PAGE>

generally consists of 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, the President signed into
law the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board which will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, the bill


                                       22
<PAGE>

restricts provision of both auditing and consulting services by accounting
firms. To ensure auditor independence, any non-audit services being provided to
an audit client will require preapproval by the company's audit committee
members. In addition, the audit partners must be rotated. The bill requires
chief executive officers and chief financial officers, or their equivalent, to
certify to the accuracy of periodic reports filed with the SEC, subject to civil
and criminal penalties if they knowingly or willfully violate this certification
requirement. In addition, under the Act, counsel will be required to report
evidence of a material violation of the securities laws or a breach of fiduciary
duty by a company to its chief executive officer or its chief legal officer,
and, if such officer does not appropriately respond, to report such evidence to
the audit committee or other similar committee of the board of directors or the
board itself.

      Longer prison terms will also be applied to corporate executives who
violate federal securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended, and bonuses
issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives are
restricted. In addition, a provision directs that civil penalties levied by the
SEC as a result of any judicial or administrative action under the Act be
deposited to a fund for the benefit of harmed investors. The Federal Accounts
for Investor Restitution ("FAIR") provision also requires the SEC to develop
methods of improving collection rates. The legislation accelerates the time
frame for disclosures by public companies, as they must immediately disclose any
material changes in their financial condition or operations. Directors and
executive officers must also provide information for most changes in ownership
in a company's securities within two business days of the change.

      The Act also increases the oversight of, and codifies certain requirements
relating to audit committees of public companies and how they interact with the
company's "registered public accounting firm" ("RPAF"). Audit committee members
must be independent and are barred from accepting consulting, advisory or other
compensatory fees from the issuer. In addition, companies must disclose whether
at least one member of the committee is a "financial expert" (as such term will
be defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited
from performing statutorily mandated audit services for a company if such
company's chief executive officer, chief financial officer, comptroller, chief
accounting officer or any person serving in equivalent positions has been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. The Act also prohibits any
officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate
or mislead any independent public or certified accountant engaged in the audit
of the company's financial statements for the purpose of rendering the financial
statement's materially misleading. The Act also requires the SEC to prescribe
rules requiring inclusion of an internal control report and assessment by
management in the annual report to shareholders. The Act requires the RPAF that
issues the audit report to attest to and report on management's assessment of
the company's internal controls. In addition, the Act requires that each
financial report required to be prepared in accordance with (or reconciled to)
accounting principles generally accepted in the United


                                       23
<PAGE>

States of America and filed with the SEC reflect all material correcting
adjustments that are identified by a RPAF in accordance with accounting
principles generally accepted in the United States of America and the rules and
regulations of the SEC.

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


                                       24
<PAGE>

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 SAIF,
which is administered by the FDIC. Under current FDIC regulations, SAIF-insured
institutions are assigned to one of three capital groups which are based solely
on the level of an institution's capital. SAIF 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 2003 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 the predecessor to the SAIF. The assessment rate for the third
quarter of 2003 was 0.016% 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, 2003, the Bank's regulatory
capital exceeded all of its capital requirements.

      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
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


                                       25
<PAGE>

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, 2003, 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.


                                       26
<PAGE>

      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.

      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. $1.1
million was invested in HARL, LLC as of September 30, 2003.

      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


                                       27
<PAGE>

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.

      Allowance for Loan Losses. As of January 1, 1996, the Company changed its
method of computing reserves for bad debts to the experience method. The bad
debt deduction allowable under this method is available to small banks with
assets less than $500 million. Beginning October 1, 2000, the Company changed
its method of computing reserves for bad debts to 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 it
its net charge-offs.

      A thrift institution required to change its method of computing reserves
for bad debts to the experience method treats such change as a change in method
of accounting determined solely with respect to the "applicable excess reserves"
of the institutions. The amount of applicable excess reserves is taken into
account ratably over a six taxable-year period, beginning with the first taxable
year beginning after December 31, 1995. For financial reporting purposes, the
Company has not incurred any additional tax expense. Amounts that had been
previously deferred will be reversed for financial reporting purposes and will
be included in the income tax return of the Company, increasing income tax
payable. The change from the experience method to the specific charge-off method
in the current year will not result in a recapture of bad debt reserves for tax
purposes. Retained earnings at September 30, 2003 and 2002 included
approximately $1,325,000 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


                                       28
<PAGE>

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, 2003, 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


                                       29
<PAGE>

its books. For fiscal years beginning in 1983, and thereafter, net operating
losses may be carried forward and 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, 2003 amounted
to approximately $131.4 million. The Bank formed two limited liability companies
in 2002, Freedom Financial Solutions LLC ("FFS") and HARL LLC ("HARL"). FFS was
established to engage in the sale of insurance products through a third party.
HARL was established for the purpose of investing in FDIC insured financial
institutions/holding company equity securities.

Item 2. Properties.

      As of September 30, 2003, 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 Property and
                                                                                        Leasehold
                                                                  Lease              Improvements at
                                                Owned or        Expiration            September 30,
  County                    Address              Leased            Date                    2003              Deposits
----------         ---------------------------  --------        ----------           ---------------         --------
                                                                                             (In Thousands)
<S>                <C>                           <C>          <C>                        <C>                 <C>
Montgomery         271 Main Street
                   Harleysville, Pennsylvania    Owned              --                   $  1,191            $139,853

Montgomery         640 East Main Street
                   Lansdale, Pennsylvania        Leased         May 2043(1)                   984              24,178

Montgomery         1550 Hatfield Valley Road
                   Hatfield, Pennsylvania        Leased       January 2064(1)                 911              86,925

Montgomery         2301 West Main Street
                   Norristown, Pennsylvania      Owned              --                        616              84,525

Montgomery         3090 Main Street
                   Sumneytown, Pennsylvania      Owned              --                        372              45,206
                                                                                         --------            --------

                                                                   Total                 $  4,074            $380,687
                                                                                         ========            ========
</TABLE>

----------
(1)   The land at this office is leased; however, the Bank owns the building.


                                       30
<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 Company's Common Stock and Related Stockholder Matters.

      The information required herein is incorporated by reference from page 27
of the Company's 2003 Annual Report to Stockholders ("Annual Report") and from
Part III, Item 12 hereof.

Item 6. Selected Financial Data.

      The information required herein is incorporated by reference from page 1
of the Annual Report.

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

      The information required herein is incorporated by reference from pages 4
to 8 of the Annual Report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      The information required herein is incorporated by reference from pages 6
to 8 of the Annual Report.

Item 8. Financial Statements and Supplementary Data.

      The information required herein is incorporated by reference from pages 10
to 26 of the Annual Report.


                                       31
<PAGE>

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, 2003. 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 2003 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

                                    PART III

Item 10. Directors and Executive Officers of the Company.

      The information required by Items 401 and 405 of Regulation S-K with
respect to directors and executive officers of the Company is incorporated by
reference from the information contained in the section captioned "Information
with Respect to Nominees for Director, Directors Whose Terms Continue and
Executive Officers" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held January 28, 2004 (the "Proxy Statement"), a
copy of which will be filed with the Securities and Exchange Commission before
the meeting date.

      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, included as an exhibit to this Form 10-K and filed with the Securities
and Exchange Commission, may also be found on the Company's website at
www.harleysvillesavingsbank.com.


                                       32
<PAGE>

Item 11. Executive Compensation.

      The information required by Item 11 of Form 10-K is incorporated by
reference from the information contained in the section captioned "Management
Compensation" in the Proxy Statement.

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

      The information required by Item 403 of Regulation S-K 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.


                                       33
<PAGE>

      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, 2003.

<TABLE>
<CAPTION>
                                   Number of Shares to be issued          Weighted-Average          Number of Shares Remaining
                                        upon the Exercise of             Exercise Price of                 Available for
                                        Outstanding Options,                 Outstanding        Future Issuance (Excluding Shares
         Plan Category                  Warrants and Rights                   Options             Reflected in the First Column)
------------------------------     -----------------------------         -----------------      ----------------------------------
<S>                                            <C>                             <C>                              <C>
Equity Compensation Plans
   Approved by Security
Holders                                        125,881                         $14.99                           75,325
Equity Compensation Plans Not
   Approved by Security
Holders                                             --                             --                               --
                                               -------                         ------                           ------
Total                                          125,881                         $14.99                           75,325
                                               =======                         ======                          =======
</TABLE>

Item 13. Certain Relationships and Related Transactions.

      The information required by Item 13 of Form 10-K is incorporated by
reference from the information contained in the section captioned "Management
Compensation - Indebtedness of Management" in the Proxy Statement.

Item 14. Principal Accounting Fees and Services.

      Not applicable.

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a) Contents

      1. The following financial statements are incorporated by reference from
Item 8 hereof (see Exhibit 13):

      Independent Auditors' Report

      Consolidated Statements of Financial Condition as of September 30, 2003
         and 2002

      Consolidated Statements of Income for the Years Ended September 30, 2003,
         2002 and 2001

      Consolidated Statements of Stockholders' Equity for the Years Ended
         September 30, 2003, 2002 and 2001

      Consolidated Statements of Cash Flows for the Years Ended
         September 30, 2003, 2002 and 2001

      Notes to Consolidated Financial Statements


                                       34
<PAGE>

      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.

      (b) Reports on Form 8-K

      The Company filed a Form 8-K on July 17, 2003 , furnishing a press release
announcing its results of operations for the quarter ended June 30, 2003, which
is required by Item 12 of Form 8-K, and was provided under Item 9 pursuant to
Commission Release 34-47583.

      (c) Exhibits

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

<TABLE>
<CAPTION>
   No.                                Exhibits                                                 Location
<S>         <C>                                                                             <C>
   3.1      Articles of Incorporation                                                             (1)
   3.2      Bylaws                                                                                (1)
     4      Common Stock Certificate                                                              (1)
  10.1      1995 Employee Stock Purchase Plan*                                              Filed herewith
  10.2      1995 Stock Option Plan*                                                         Filed herewith
  10.3      2000 Stock Option Plan*                                                               (2)
  10.4      Profit Sharing Incentive Plan*                                                  Filed herewith
  10.5      Employment Agreements with Edward J. Molnar, Ronald B.
              Geib, and Marian Bickerstaff*                                                       (2)
    13      Annual Report to Stockholders                                                   Filed herewith
    22      Subsidiaries of the Registrant - Reference is made to "Item 1. Business
              - Subsidiaries" of this Form 10-K for the required information                      --
    23      Consent of Deloitte & Touche                                                    Filed herewith
  31.1      Certification of Chief Executive Officer                                        Filed herewith
  31.2      Certification of Chief Financial Officer                                        Filed herewith
  32.1      Section 1350 Certification of the Chief Executive Officer                       Filed herewith
  32.2      Section 1350 Certification of the Chief Financial Officer                       Filed herewith
    99      Code of Conduct and Ethics                                                      Filed herewith
</TABLE>

----------
*     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 February
      25, 2000.

(2)   Incorporated by reference to the Company's definitive proxy statement
      dated December 19, 2000 filed with the SEC.


                                       35
<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 19, 2003                       By: /s/ Edward J. Molnar
                                            ------------------------------------
                                            Edward J. Molnar
                                            Chief Executive Officer and Director

      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.


/s/ Edward J. Molnar                                    December 19, 2003
-----------------------------------
Edward J. Molnar
Chief Executive Officer
and Director
(principal executive officer)


/s/ Brendan J. McGill                                   December 19, 2003
-----------------------------------
Brendan J. McGill
Senior Vice President, Treasurer
and Chief Financial Officer
(principal financial and principal
accounting officer)


/s/ Sanford L. Alderfer                                 December 19, 2003
-----------------------------------
Sanford L. Alderfer
Director


/s/ Paul W. Barndt                                      December 19, 2003
-----------------------------------
Paul W. Barndt
Director

<PAGE>


/s/ Philip A. Clemens                                   December 19, 2003
-----------------------------------
Philip A. Clemens
Director


/s/ Mark R. Cummins                                     December 19, 2003
-----------------------------------
Mark R. Cummins
Director


/s/ David J. Friesen                                    December 19, 2003
-----------------------------------
David  J. Friesen
Director


/s/ Ronald B. Geib                                      December 19, 2003
-----------------------------------
Ronald B. Geib
Director, President and
 Chief Operating Officer



/s/ George W. Meschter                                  December 19, 2003
-----------------------------------
George W. Meschter
Director