SECURITIES AND EXCHANGE COMMISSION

                                Washington, D.C.

                                    FORM 10-K

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

                  For the fiscal year ended: September 30, 2000

[   ]      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 officer)             (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 [   ]

Indicate by check made 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 of this
Form 10-K [ X ].

The aggregate market value of the 1,813,714  shares of the  Registrant's  Common
Stock held by non-affiliates  (2,285,051 shares  outstanding less 471,337 shares
held by  affiliates),  based upon the  closing  price of $14.375  for the Common
Stock on  December  8,  2000,  as  reported  by the  Nasdaq  Stock  Market,  was
approximately  $26.1  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 8, 2000: 2,285,051

                       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, 2000 are  incorporated by reference into Part II, Items
           5-9 and Part IV, Item 14 of this Form 10-K.

(2)        Portions  of the  definitive  Proxy  Statement  for the  2001  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  Harlyesvlle  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.

                                        2


<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  four
full-service  offices  located in Montgomery  County,  Pennsylvania.  The Bank's
primary market area includes  Montgomery  County and, to a lesser extent,  Bucks
County.  As of  September  30,  2000,  the Company  had $488.6  million of total
assets,  $309.8 million of deposits and $31.4 million of  stockholders'  equity.
The  Company's  stockholders'  equity  constituted  6.43% of total  assets as of
September 30, 2000.

           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  construction  loans
primarily on residential properties.  In recent years, the Bank has engaged to a
significant  extent in the origination of a variety of consumer loans.  The Bank
also serves its customers through  participation in the MAC System(R),  a shared
automated teller machine ("ATM") network located  throughout  Pennsylvania and a
large portion of the east coast.

           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 (215)
256-8828.

                                        3


<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,  2000,  first  mortgage  loans on
residential  properties,  including  loans  on  single-family  and  multi-family
residential  properties and construction  loans on such properties,  amounted to
$213.0  million  or  54.0%  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).  The Company's portfolio of first mortgage loans on residential
properties  had  remained  relatively  stable as a percent of the total loan and
mortgage-backed  securities portfolio in recent years until fiscal 1998 when the
balance of mortgage-backed  securities  increased by $60.2 million and comprised
24.0% of the  portfolio at September  30, 1998 compared to 8.2% of the portfolio
at September 30, 1997. At September 30, 2000, mortgage-backed securities totaled
$123.7 million and comprised 31.3% of the portfolio.

           As of September 30, 2000,  loans  secured by  commercial  real estate
comprised  $807,000  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 $55.3 million or 14.0% of the total loan and mortgage-backed
securities portfolio as of September 30, 2000.

           As of September 30, 2000, the Company had $123.7  million,  or 31.3%,
of the total loan and mortgage-backed  securities  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.

                                        4


<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,
                                                     -------------------------------------------------------------------------------
                                                              2000                         1999                        1998
                                                     ---------------------         --------------------        --------------------

                                                       Amount     Percent            Amount     Percent         Amount      Percent
                                                     ---------   ---------         ---------   ---------       ---------   ---------
                                                                                   (Dollars in Thousands)
<S>                                                   <C>           <C>            <C>         <C>              <C>          <C>
Real estate loans:
  Residential:
           Single-family                              $205,560      52.1%          $193,067    50.4%            $191,567     55.9%
           Multi-family                                  1,016       0.3              1,056     0.3                  873      0.3
           Construction                                  6,580       1.7              3,885     1.0                6,785      2.0
  Lot Loans                                              1,351       0.3              1,004     0.3                1,307      0.4
  Mortgage-backed securities                           123,744      31.3            124,694    32.4               82,488     24.0
  Commercial                                               807       0.2                767     0.2                  579      0.2
                                                     ---------     -----          ---------   -----            ---------    -----
           Total real estate loans and
              mortgage-backed securities               339,058      86.0%           324,473    84.6%             283,599     82.8%
                                                     ---------     -----            -------    ----              -------     ----

Consumer Loans:
  Education loans                                        1,414       0.4%             1,348     0.4%                 958      0.3%
  Installment equity loans                              44,727      11.3             49,240    12.8               49,827     14.5
  Line of credit loans                                   7,889       2.0              7,176     1.9                7,006      2.0
  Savings account loans                                    619       0.2                535     0.1                  514      0.2
  Automobile and other loans                               641       0.2                661     0.2                  669      0.2
                                                    ----------    ------            -------   -----            ---------     ----
           Total consumer loans                         55,290      14.0%            58,960    15.4%              58,974     17.2%
           Total loans receivable and
              mortgage-backed securities               394,348     100.0%           383,433   100.0%             342,573    100.0%
                                                      --------    ------            -------   -----              -------    -----

Less:
  Loans in process                                      (3,845)                      (2,533)                      (4,443)
  Deferred Loan Fees                                    (1,946)                      (1,905)                      (1,873)
  Allowance for Loan Losses                             (2,038)                      (2,040)                      (2,040)
                                                         -----                       ------                    ----------
           Total loans receivable and
              mortgage-backed securities, net
                                                      $386,519                     $376,955                     $334,217
                                                       =======                      =======                      =======
</TABLE>

                                        5


<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, 2000 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,                                2003-           2006-        2011-        2016 and
                                   2000          2001          2002          2005            2010         2015        Thereafter
                             --------------   ----------    ----------   ------------    ----------   ------------   --------------
                                                                        (In Thousands)
<S>                             <C>            <C>          <C>           <C>             <C>           <C>             <C>
Real estate loans:
 Residential
  Single-family                 $205,560       $  3,949      $  4,100     $ 13,949       $ 31,471       $ 37,180       $114,911
  Multi-family                     1,016             15            16           55            125            179           6,26
  Construction                     6,580             99           106          355            809          1,158          4,053
Lot Loans                          1,351             73            80          273            612            313             --
Mortgage-backed securities       123,744          1,856         2,104        6,929         15,592         21,903         75,360
Commercial                           807             29            31          111            256            380             --
Consumer and other loans          55,290          6,801         7,298       25,309         12,440          3,442             --
                                --------       --------      --------     --------       --------       --------       --------
           Total(1)             $394,348       $ 12,822      $ 13,735     $ 46,981       $ 61,305       $ 64,555       $194,950
                                ========       ========      ========     ========       ========       ========       ========
</TABLE>

(1)  With  respect to the $381.5  million  of loans  with  principal  maturities
     contractually due after September 30, 2001, $268.2 million have fixed rates
     of  interest  and $113.5  million  have  adjustable  or  floating  rates of
     interest.

                                        6


<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, however, 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.  Over the past  several  years,  the Company has sold a
portion  of the  fixed-rate  residential,  conforming  loans  it  originated  in
connection  with  its  "gap"  management  policy.  Generally,   adjustable  rate
mortgages, non-conforming and jumbo mortgages, commercial real estate loans, and
consumer loans and lines of credit are originated for its portfolio.

           During the years ended September 30, 1998, 1999 and 2000, the Company
did not sell any residential loans or mortgage-backed securities.

           The Company's total loan  originations  increased by $21.6 million or
40.6% in fiscal  1998,  decreased  by $12.2  million or 16.3% in fiscal 1999 and
decreased by $2.6 million or 4.1% in fiscal 2000.  Of the $31.1  million,  $21.3
million and $29.7 million of single-family loans originated in fiscal 1998, 1999
and 2000, $13.6 million, $7.4 million and $3.6 million, respectively, were loans
originated  to  refinance  property,  $17.5  million,  $13.5  million  and $26.1
million,  respectively,  were loans to acquire residential property. During this
period, the Company's  originations of consumer loans amounted to $35.2 million,
$31.3  million  and  $21.0  million  or 47.0% , 50.0%  and  35.0% of total  loan
originations during fiscal 1998, 1999 and 2000, respectively. Management intends
to

                                        7


<PAGE>



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,
                                                          2000              1999                     1998
                                                   ----------------------------------------------------------
                                                                       (In Thousands)
<S>                                                     <C>                 <C>                     <C>
Real estate loan originations:
   Residential:
     Single-family                                      $29,712             $21,337                 $31,120
     Multi-family                                            --                  --                      --
     Construction                                         8,602               9,580                   8,126
    Lot loans                                               752                 380                     402
                                                       --------           ---------                --------
         Total real estate loan originations             39,066              31,297                  39,648
Consumer loan originations(1)                            21,025              31,349                  35,179
                                                         ------              ------                  ------
         Total loan originations                         60,091              62,646                  74,827
Purchases of mortgage-backed securities                  13,038              68,220                  67,963
                                                         ------              ------                  ------
         Total loan originations, and purchases          73,129             130,866                 142,790

Principal loan and mortgage-backed securities
  repayments                                             58,845              87,126                  66,714
Sales of loans and mortgage-backed securities             3,369              2,880                   5,697
                                                        -------            --------                  ------
         Total principal repayments and sales            62,214              90,006                  72,411
                                                         ------              ------                  ------
           Net increase in loans                        $10,915             $40,860                 $70,379
                                                         ======              ======                  ======
</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 in accordance  with the Company's  written  underwriting
policies as adopted by the Company's Board of Directors.  The Company's Board of
Directors have granted loan approval authority to several officers and employees
of the Company,  provided the loan meets the  guidelines  set out in its written
loan underwriting  policies.  Individual approval authority of $500,000 has been
granted to the Company's  President and Chief Lending  Officer,  $250,000 to the
Assistant Vice President/Loan  origination  Manager,  and $50,000 to a delegated
underwriter  who is an employee of the Company.  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.

                                        8


<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,
2000,  the  largest  aggregate  amount  of loans  outstanding  to any  borrower,
including related entities,  was $1.5 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 conforming to
the secondary market underwriting standards.  Refinancings are limited to 80% or
less.  Loans  over  $227,150  and other  non-conforming  loans,  secured  by 1-4
residential,  owner- occupied dwellings, are limited to 90% of the lesser of the
purchase price or appraised value. The purchase of non-owner occupied,  1-4 unit
dwellings may be financed to 80% of the lower of the appraisal or sale price;  a
refinance is limited to 70% of the appraised value.

           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 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 are required to 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 FHLMC
guidelines,  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 $500,000,  are held
for 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, 2000, $212.0 million or 53.8%
and  $1.0  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, 2000,
approximately  $225.4 million or 66.5% 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,  $113.5  million or 33.5% of the
total  mortgage  loan  portfolio  consisted of  adjustable-rate  single-  family
residential mortgage loans and mortgage-backed securities. Most of the Company's
residential mortgage loans include "due on sale" clauses.

           During the year ended  September  30,  2000,  the Company  originated
$18.2 million of ARM mortgages.  ARMs represented  22.7%, 20.8% and 55.9% of the
Company's total mortgage loan

                                        9


<PAGE>


portfolio  originations  in fiscal 1998,  1999 and 2000,  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. Initial rates are generally fully indexed to the
one or three year treasury yield.

           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  residences as well as
to selected local builders for  construction of single-family  dwellings.  As of
September 30, 2000,  $6.6 million or 1.7% 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.  Permanent  loans made in  conjunction
with  residential  construction  have maximum terms of 30.5 years. At the end of
the initial six month term of such a loan the Company  requires  the borrower to
begin to make principal  repayments on the loan. 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 Copmpany will charge on the permanent loan
on the completed project.  Advances are made on a percentage of completion basis
with the Company's receipt of a satisfactory inspection report of the project.

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

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

                                       10


<PAGE>


           Consumer and Other Loans.  The Company actively  originates  consumer
loans to provide a wider range of  financial  services to its  customers  and to
improve  the  interest  rate   sensitivity  of  its   interest-earning   assets.
Originations of consumer loans as a percent of total loan originations  amounted
to 47.0%, 50.0% and 35.0% during fiscal 1998, 1999 and 2000,  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,  student  loans
guaranteed by the  Pennsylvania  Higher  Education  Assistance  Agency,  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
$52.6 million or 13.3% of the loan and mortgage-backed  securities  portfolio at
September  30, 2000.  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  fifteen  years.  This  amount  may be  raised  to 100%  when
considering  other  factors,   such  as  excellent  credit  history  and  income
stability.  At September  30, 2000,  the Company had  outstanding  approximately
2,600 home equity loans of which  approximately  2,100 were  installment  equity
loans and 500 were line of credit  loans.  As of such date,  the  Company had an
outstanding  balance on line of credit loans of  approximately  $7.9 million and
there was approximately $11.3 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  generally  accepted  accounting  principles  ("GAAP") 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 interest method.  The Company generated  $403,000,  $321,000 and $139,000 in
deferred loan fees in fiscal 1998, 1999 and 2000, respectively.

                                       11


<PAGE>


           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, 2000,  the Company was servicing  $6.6 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 .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.

           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"  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  therefrom is charged to the allowance
for loan losses. Interest accrual, if any, ceases on the date of acquisition and
all costs  incurred  in  maintaining  the  property  from that date  forward are
expended. Costs incurred for the improvement or development of such property are
capitalized.  The Company is permitted under  Department  regulations to finance
sales of real estate  owned by "loans to  facilitate,"  which may  involve  more
favorable  interest  rates and terms than  generally  would be granted under the
Company's  underwriting  guidelines.  The Company had no loans outstanding which
would have been recorded as loans accounted for on a non-accrual basis as of the
end of the period.

                                       12


<PAGE>


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


<TABLE>
<CAPTION>

                                                                     As of September 30,
                                                        -------------------------------------------
                                                           2000           1999              1998
                                                        ----------     ----------         ---------
                                                                  (Dollars in Thousands)
<S>                                                        <C>             <C>             <C>
Residential real estate loans:
  Non-accrual loans                                        $--             $--             $--
  Accruing loans 90 days overdue                           184             299             156
  Troubled debt restructurings                              --              --              --
                                                          ----            ----            ----
           Total                                           184             299             156
                                                          ----            ----            ----
Consumer loans:
  Non-accrual loans                                         --              --              --
  Accruing loans 90 days overdue                            --              --              12
  Troubled debt restructurings                              --              --              --
                                                          ----            ----            ----
           Total                                            --              --              12
                                                          ----            ----            ----

Total non-performing loans:
  Non-accrual loans                                                         --              --
  Accruing loans 90 days overdue                           184             299             168
  Troubled debt restructurings                              --              --              --
                                                          ----            ----            ----
           Total                                          $184            $299            $168
                                                          ====            ====            ====
Total non-performing loans to total loans                  .07%            .12%            .07%

Total real estate owned, net of related reserves            --              --              --
Total non-performing loans and other real
  estate owned to total assets                             .04%            .07%            .04%
</TABLE>


                                       13


<PAGE>


           Management  establishes  reserves  for  losses on slow  loans when it
determines  that  losses  are  anticipated  to be  incurred  on  the  underlying
properties. The Company's provision for general loan losses of $119,817, $16,579
and $0, respectively, in fiscal 1998, 1999 and 2000 were based on the amount and
types  of  loans  originated  by it  and  its  historical  experience.  Although
management  believes  that  it  uses  the  best  information  available  to make
determinations  with  respect  to loan  loss  reserves,  future  adjustments  to
reserves may be necessary if economic  conditions differ  substantially from the
assumptions used in making the initial determinations.

           Residential  mortgage  lending  generally  entails  a  lower  risk of
default than other types of lending.  Consumer loans and commercial  real estate
loans  generally  involve  more risk of  collectibility  because of the type and
nature of the collateral and, in certain cases, the absence of collateral. It is
the Company's policy to establish  specific reserves for losses on slow consumer
loans and  commercial  loans when it  determines  that losses are expected to be
incurred on the property  securing the loans.  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,
                                           -----------------------------------------
                                             2000            1999            1998
                                           ---------      ----------     -----------
<S>                                        <C>            <C>             <C>
Allowances at beginning of year            $2,040,000     $2,040,000      $1,925,000
 Provision for loan losses charged to
  operating expenses                               --         16,579         119,817
Amounts charged off, net                       (1,869)       (16,579)         (4,817)
                                           ----------    -----------   -------------
Allowances at end of year                  $2,038,131     $2,040,000     $ 2,040,000
                                            =========      =========      ==========
Ratio of net charge-offs to average
 loans outstanding                                 --             --              --
Ratio of allowances to period-end loans           .77%           .81%            .93%

</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."

                                       14


<PAGE>


           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, 2000 was $28.0 million.

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

<TABLE>
<CAPTION>
                                               As of September 30,
                                    -----------------------------------------
                                      2000           1999             1998
                                    --------        -------         --------
                                                (In Thousands)
<S>                                  <C>             <C>             <C>
Interest-bearing deposits at
 other depository institutions       $2,856          $2,681          $17,742
Tax exempt obligations               15,381           8,121            8,121
ARM mutual funds                      3,310           3,202            1,586
U.S. Government Securities
 available-for-sale                      --              --               --

U.S. Government and agency
 obligations held to maturity        55,900          52,892           42,501

FHLB of Pittsburgh stock              7,365           6,473            4,998
                                    -------         -------          -------
           Total                    $84,812         $73,369          $74,948
                                     ======          ======           ======
</TABLE>


           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

                                       15

<PAGE>

deposit ranging in
terms  from  90  days  to  60  months  and  jumbo  certificates  of  deposit  in
denominations  of $98,000 or more. The interest  rates on the Company's  various
accounts are  determined  weekly by the Interest  Rate Risk  Management  Officer
based on reports prepared by members of senior management.  The Company attempts
to control the flow of deposits  by pricing its  accounts to remain  competitive
with other financial institutions in its market area.

           The  Company's  deposits are  obtained  primarily  from  residents of
Montgomery and Bucks Counties;  the Company does not utilize brokered  deposits.
The principal  methods used by the Company to attract deposit  accounts  include
local advertising, offering a wide variety of services and accounts, competitive
interest rates and convenient office locations.  The Company also is a member of
the "MAC" 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,
                                  --------------------------------------------------------------------------------------
                                           2000                          1999                             1998
                                  ------------------------     -------------------------       -------------------------
                                                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                        $   2,396        0.8%        $   2,707          0.9%         $   3,256        1.1%
NOW accounts                         10,749        3.5            11,812          3.9              9,862        3.4
Checking accounts                     5,781        1.9             5,372          1.8              5,128        1.8
Money market demand
  accounts                           49,420       16.0            54,055         17.8             34,872       12.0
 Certificates of deposit:

           6 month                    8,520        2.7             7,159          2.4              4,449        1.5
           9 month                    4,246        1.4             8,762          2.9             11,603        4.0
           12 month                  32,121       10.4            16,867          5.6             19,615        6.8
           15 month                   4,660        1.5             7,047          2.3              9,231        3.2
           17 month                  40,896       13.2            14,946          4.9
           18 month                  51,037       16.5            52,442          17.2            53,337       18.4
           24 month                  28,820        9.3            47,099          15.5            62,879       21.7
           27 month                   5,045        1.6             2,970          1.0
           36 month                  16,519        5.3            24,511          8.1             25,332        8.7
           60 month                  12,928        4.2            13,195          4.3             15,357        5.3
           Other                      2,638        0.9             3,052          1.0              3,162        1.1

Retirement accounts:

 Money market deposit
  accounts                              509        0.2               435           0.1               489        0.2
 Certificates of deposit             33,551       10.8            31,229          10.3            31,255       10.8
                                   --------     ------          --------        ------          --------     ------
Total deposits                     $309,836      100.0%         $303,660         100.0%         $289,827      100.0%
                                    =======      =====           =======         =====           =======      =====

</TABLE>

                                       16
<PAGE>



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



                                       17


<PAGE>


           The following  table  presents  certain  information  concerning  the
Company's deposit accounts as of September 30, 2000 and the scheduled  quarterly
maturities of its certificates of deposit.

<TABLE>
<CAPTION>


                                                                 Percentage of     Weighted
                                                                    Total           Average
                                                Amount             Deposits       Nominal Rate
                                              -----------       --------------   -------------
                                                            (Dollars in Thousands)
<S>                                            <C>                    <C>               <C>
Passbook and club accounts                     $  2,396               0.8%              3.78%
NOW accounts                                     10,749               3.5               1.25
Checking accounts                                 5,781               1.9               0.04
Money market deposits accounts(1)                49,929              16.1               2.54
                                                 ------              ----               ----
           Total                                $68,855              22.3%              2.17%
                                                 ------              ----               ----

Certificate accounts maturing by quarter:

  December 31, 2000                              54,868              17.7%              5.16%
  March 31, 2001                                 55,457              17.9               5.78
  June 30, 2001                                  35,185              11.4               5.94
  September 30, 2001                             19,444               6.3               6.07
  December 31, 2001                              20,298               6.6               6.16
  March 31, 2002                                 21,036               6.8               6.24
  June 30, 2002                                   9,345               3.0               6.26
  September 30, 2002                              5,703               1.8               6.12
  December 31, 2002                               3,257               1.1               5.99
  March 31, 2003                                  3,462               1.1               5.90
  June 30, 2003                                   3,107               1.0               5.91
  September 30, 2003                              3,940               1.3               5.39
Total certificate accounts(1)                   240,982              77.7               5.77
                                                -------             -----             ------
           Total deposits                      $309,837             100.0%              4.97%
                                                =======             =====             ======
</TABLE>


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

(1)  Includes retirement accounts.


                                       18


<PAGE>



           Management of the Company expects, based on historical experience and
its pricing policies,  to retain a significant  portion of the $164.7 million of
certificates  of deposit which mature  during the 12 months ended  September 30,
2001.

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


                                                   Year Ended September 30,
                                             ----------------------------------
                                                 2000         1999       1998
                                             ----------     --------   --------
                                                        (In Thousands)
(Decrease)/Increase before interest credited  $ (6,391)    $  1,747    $  4,046
Interest credited                               12,567       12,086      12,008
                                                ------       ------      ------
Net deposit increase                          $  6,176      $13,833     $16,054
                                               =======       ======      ======


           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, 2000 which mature  during the periods
indicated.

<TABLE>
<CAPTION>
                                                                  Amounts at September 30, 2000 Maturing
                                                       ----------------------------------------------------------------
                                          As of
                                       September 30,    One Year or
                                           2000            Less            Two Years       Three Years      Thereafter
                                       ------------    ------------    --------------     -------------    ------------
                                                                        (In Thousands)
<S>                                     <C>              <C>               <C>             <C>                <C>
Certificate accounts:
  4.01% to 6.00%                        $ 145,523        $ 117,130         $ 14,953        $   7,818          $  5,622
  6.01% to 8.00%                           95,459           47,470           41,287            6,009               693
                                         --------         --------          -------          -------           -------
           Total certificate
           accounts(1)                  $ 240,982        $ 164,600         $ 56,240         $ 13,827           $ 6,315
                                         ========         ========          =======           ======            ======
</TABLE>


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

(1) Includes retirement accounts.


           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,  2000,  the Bank had FHLB  advances  with
maturities  of one year or less  totaling  $21.0  million at an interest rate of
6.71% and FHLB advances with maturities of 13 months to 10 years totaling $124.1
million at  interest-rates  ranging from 5.13% to 6.5%.  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

                                       19


<PAGE>



to  meet  seasonal  and  other  withdrawals  of  deposit  accounts  to  purchase
mortgage-backed 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,
                                           ----------------------------------------------------------------------------------
                                                    2000                           1999                        1998
                                           -----------------------      ------------------------     ------------------------
                                                         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             $145,134       6.10%          $125,180        5.76%       $99,953        5.86%

</TABLE>


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

                                                 Year Ended September 30,
                                         ---------------------------------------
                                            2000        1999            1998
                                          ---------   ---------      ---------
                                                   Dollars in Thousands)
Advances from FHLB of Pittsburgh:

   Average balance outstanding            $6,550      $6,575          $4,584
   Maximum amount outstanding at any
      month-end during the period         14,600      11,700           5,001

   Weighted average interest rate
     during the period                      6.34%       5.44%           5.99%



                                       20


<PAGE>


Competition

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

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

           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 47 full-time  employees and 35 part-time employees as
of September 30, 2000.  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.

                                       21


<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.  The Company is
also a financial holding company ("FHC") under the provisions of the 1999 Act.

           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. A bank holding
company  that  becomes  an FHC  under  the 1999 Act 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 Federal  Reserve Board has by regulation  determined that certain
activities are closely related to banking within the meaning of the BHCA.  These
activities  include operating a mortgage company,  finance company,  credit card
company,  factoring company,  trust company or savings  association;  performing
certain data  processing  operations;  providing  limited  securities  brokerage
services;  acting as an investment or financial advisor;  acting as an insurance
agent for certain types of credit-related  insurance;  leasing personal property
on a full-payout,  non-operating  basis;  providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal  Reserve Board also has  determined  that certain other  activities,
including real estate  brokerage and  syndication,  land  development,  property
management and underwriting of life

                                       22


<PAGE>



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 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.

                                       23


<PAGE>



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 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.

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

                                       24


<PAGE>



requirements.  This  regulation  and  supervision  establishes  a  comprehensive
framework  of  activities  in which an  institution  can engage and is  intended
primarily  for  the  protection  of  the  insurance  fund  and  depositors.  The
regulatory structure also gives the regulatory  authorities extensive discretion
in connection with their supervisory and enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such regulation,  whether by the Department,  the FDIC or the Congress
could have a material adverse impact on the Bank and their operations.

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

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

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

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

                                       25


<PAGE>



           FDIC Insurance Premiums.  The deposits of the Bank are insured by the
SAIF,  which is  administered  by the FDIC. The FDIC also  administers  the Bank
Insurance Fund ("BIF") which  generally  provides  insurance for commercial bank
deposits.  Each  of the  SAIF  and the BIF are  required  by law to  attain  and
maintain a reserve ratio of 1.25% of insured deposits.  As the result of the BIF
achieving a fully funded status,  the FDIC  promulgated a regulation in November
1995,  which reduced  deposit  premiums paid by BIF-insured  banks in the lowest
risk  category  from 27 basis  points to zero  (subject to an annual  minimum of
$2,000).

           Under the  Federal  Deposit  Insurance  Act  ("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, 2000, 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 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

                                       26


<PAGE>



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 and  lease  losses.  Allowance  for loan and lease
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, 2000,
the Bank met each of its capital requirements.

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

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

           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 FDICIA,  generally  limits the  activities and
equity investments of FDIC-insured,

                                       27


<PAGE>


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.

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

           The foregoing  references to laws and regulations are brief summaries
thereof  which do not purport to be complete  and which are  qualified  in their
entirety by reference to such laws and regulations.

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.

                                       28


<PAGE>


           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.

           Bad  Debt  Reserves.  Savings  institutions  such  as  the  Bank  are
permitted to  establish a reserve for bad debts and to make annual  additions to
the reserve.  As an institution with less than $500 million in assets,  the Bank
has elected to use the experience method for computing additions to its bad debt
reserve.

           Under the experience  method,  the deductible  annual addition to the
Bank's bad debt reserves is the amount  necessary to increase the balance of the
reserve at the close of the taxable  year to the greater of (a) the amount which
bears the same ratio to loans  outstanding  at the close of the taxable  year as
the total net bad debts sustained during the current and five preceding  taxable
years bear to the sum of the loans  outstanding  at the close of those six years
or (b) the lower of (i) the balance in the  reserve  account at the close of the
last taxable  year prior to the most recent  adoption of the  experience  method
(the "base year"),  except that for taxable years beginning after 1987, the base
year is the last taxable year  beginning  before 1988,  or (ii) if the amount of
loans  outstanding  at the close of the taxable  year is less than the amount of
loans outstanding at the close of the base year, the amount which bears the same
ratio to loans  outstanding  at the close of the taxable  year as the balance of
the  reserve  at the  close  of the  base  year  bears  to the  amount  of loans
outstanding at the close of the base year.

           Legislation  adopted in August 1996 (i) repealed the provision of the
Code which  authorized  the use of the  percentage  of taxable  income method by
qualifying savings institutions to determine deductions for bad debts, effective
for  taxable  years  beginning  after  1995,  and (ii)  requires  that a savings
institution  recapture for tax purposes (i.e.  take into income) over a six-year
period its applicable excess reserves,  which for a savings  institution such as
the Bank  which is a "small  bank," as  defined  in the Code,  generally  is the
excess  of the  balance  of its bad debt  reserves  as of the  close of its last
taxable year beginning  before January 1, 1996 over the balance of such reserves
as of the close of its last taxable year beginning before January 1, 1988, which
recapture  would be suspended  for any tax year that begins  after  December 31,
1995 and before January 1, 1998 (thus a maximum of two years) in which a savings
institution originates an amount of residential loans which is not less than the
average of the  principal  amount of such  loans  made by a savings  institution
during its six most recent taxable years  beginning  before January 1, 1996. The
Bank does not believe that these  provisions will have a material adverse effect
on the Bank's financial condition or operations.

           The above-referenced  legislation also repealed certain provisions of
the Code that only apply to thrift  institutions  to which  Section 593 applies:
(i) the denial of a portion of certain tax credits to a thrift institution; (ii)
the special rules with respect to the foreclosure of property  securing loans of
a thrift institution; (iii) the reduction in the dividends received deduction of
a thrift institution ; and (iv) the ability of a thrift institution to use a net
operating  loss to offset its income  from a residual  interest in a real estate
mortgage  investment  conduit.  It is not  anticipated  that the repeal of these
provisions will have a material adverse effect on the Bank's financial condition
or operations.

                                       29


<PAGE>



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

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

           Net Operating Loss Carryovers. A financial institution may carry back
net  operating  losses to the  preceding  three taxable years and forward to the
succeeding 15 taxable years.  Effective for net operating  losses arising in tax
years  beginning  after October 1, 1997,  the  carryback  period is reduced from
three years to two years and the  carryforward  period is extended from 15 years
to 20  years.  At  September  30,  2000,  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").

                                       30


<PAGE>



           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  generally
accepted  accounting  principles,  as  shown  on its  books.  For  fiscal  years
beginning in 1983, and thereafter,  NOLs 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, 2000 amounted
to approximately $91.0 million.

                                       31


<PAGE>



Item 2. Properties

           As of September 30, 2000, the Company conducted its business from its
main office in  Harleysville,  Pennsylvania  and three other full service branch
offices.  The  Company  is  also  part of the MAC  ATM  System,  which  provides
customers  with access to their deposits at locations  throughout  Pennsylvania,
Delaware, New York and New Jersey.


<TABLE>
<CAPTION>

                                                                                        Net Book
                                                                                       Value of
                                                                                      Property and
                                                                                       Leasehold
                                                   Owned            Lease             Improvements
                                                     or           Expiration          at September
 County                   Address                  Leased            Date               30, 2000           Deposits
------------     ---------------------------    ----------     ---------------   ---------------------  ---------------
                                                                                    (In Thousands)
<S>              <C>                                <C>             <C>                     <C>             <C>
Montgomery       271 Main Street
                 Harleysville, Pennsylvania         Owned             --                    $1,297          $132,880

Montgomery       Sumneytown Pike and
                 Perkiomenville Road
                 Sumneytown, Pennsylvania           Owned             --                        94            34,192


Montgomery       1550 Hatfield Valley Road
                 Hatfield, Pennsylvania            Leased          January                     996            72,443
                                                                   2064(1)

Montgomery       2301 West Main Street
                 Norristown, Pennsylvania           Owned             --                       580            70,321
                                                                                            ------           -------

                                                                    Total                   $2,967          $309,836
                                                                                             =====           =======
</TABLE>

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

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


                                       32


<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 Related Stockholder Matters.
-------------------------------------------------------------------------

           The  information  required  herein is  incorporated by reference from
page 28 of the Company's 2000 Annual Report to Stockholders ("Annual Report").

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 6 to 10 of the Annual Report.

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

           The  information  required  herein is  incorporated by reference from
pages 8 to 10 of the Annual Report.

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

           The  information  required  herein is  incorporated by reference from
pages 12 to 27 of the Annual Report.

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

           Not Applicable

                                       33


<PAGE>


PART III.

Item 10.  Directors and Principal Officers of the Company.
---------------------------------------------------------

           The  information  required  by Item 10 of Form 10-K with  respect  to
identification of directors and executive  officers 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 24, 2001 (the  "Proxy  Statement"),  a copy of
which will be filed  with the  Securities  and  Exchange  Commission  before the
meeting date.

Item 11.  Executive Compensation.

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

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

           The  information  required by Item 12 of Form 10-K is incorporated by
reference from the information  contained in the section  captioned  "Beneficial
Ownership  of Common Stock by  Beneficial  Owners and  Management"  in the Proxy
Statement.

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  "Indebtedness
of Management" in the Proxy Statement.

                                       34


<PAGE>


PART IV.

Item 14. 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, 2000
         and 1999

         Consolidated Statements of Income for the Years Ended September 30,
         2000, 1999 and 1998

         Consolidated Statements of Stockholders' Equity for the Years Ended
         September 30, 2000, 1999 and 1998

         Consolidated Statements of Cash Flows for the Years Ended September 30,
         2000, 1999, and  1998

         Notes to Consolidated Financial Statements

           (b)  Reports on Form 8-K

   No  reports  on Form 8-K were  filed  during  the last  quarter of the period
covered by this report.

                                       35


<PAGE>



         (c)  Exhibits

         (2) 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      Stock Compensation Program*                                          (2)
        10.2      1995 Employee Stock Purchase Plan*                                   (3)
        10.3      1995 Stock Option Plan*                                              (3)
        10.4      2000 Stock Option Plan*                                              (4)
        10.5      Profit Sharing Incentive Plan*                                       (5)
        10.6      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
</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  herein  by  reference  to  Harleysville   Savings  Bank's
         Registration Statement on Form 10 filed with the Federal Home Loan Bank
         Board, the predecessor to the Office of Thrift Supervision  ("OTS"), on
         July 1, 1987.

(3)      Incorporated  herein  by  reference  to  Harleysville   Savings  Bank's
         definitive  proxy  statement  dated  December  19,  1995 filed with the
         Federal Deposit Insurance Corporation.

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

(5)      Incorporated herein by reference to Harleysville  Savings Bank's Annual
         Report on Form 10-K for the fiscal year ended  September 30, 1989 filed
         with the OTS.

                                       36


<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 20, 2000                               By:/s/ Edward J. Molnar
                                                   ------------------------
                                                     Edward J. Molnar
                                                     President, 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 20, 2000
------------------------------------
Edward J. Molnar
President, Chief Executive
 Officer and Director

/s/ Brendan J. McGill                                 December 20, 2000
------------------------------------
Brendan J. McGill
Senior Vice President, Treasurer
 and Chief Financial Officer

/s/ Sandford A. Alderfer                              December 20, 2000
------------------------------------
Sanford A. Alderfer
Director

/s/ Paul W. Barndt                                    December 20, 2000
------------------------------------
Paul W. Barndt
Director

                                       37


<PAGE>





/s/ Philip A. Clemens                                 December 20, 2000
----------------------------------
Philip A. Clemens
Director

/s/ Mark R. Cummins                                   December 20, 2000
-------------------------------
Mark R. Cummins
Director

/s/ David J. Friesen                                  December 20, 2000
----------------------------------
David  J. Friesen
Director

/s/ George W. Meschter                                December 20, 2000
-------------------------------
George W. Meschter
Director

                                       38