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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|X|   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934

                  For the fiscal year ended: September 30, 2005

or

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

              For the transition period from _________ to _________

                         Commission File Number: 0-29709

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

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

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

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

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

                     Common Stock, $.01 par value per share
                     --------------------------------------
                                (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 mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

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

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

The aggregate market value of the 3,331,854  shares of the  Registrant's  Common
Stock held by non-affiliates  (3,880,336 shares  outstanding less 548,482 shares
held by affiliates), based upon the closing price of $18.75 for the Common Stock
on March 31, 2005,  as reported by the Nasdaq Stock  Market,  was  approximately
$62.5  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 21, 2005: 3,906,539

                       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, 2005 are  incorporated  by reference  into Part II, Items 5-8 and Part
      IV, Item 15 of this Form 10-K.

(2)   Portions of the definitive  Proxy Statement for the 2006 Annual Meeting of
      Stockholders  are  incorporated by reference into Part III, Items 10-14 of
      this Form 10-K.

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<PAGE>

                   HARLEYSVILLE SAVINGS FINANICAL CORPORATION
                         2005 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
<S>                                                                                      <C>
                                     PART I

Item 1.   Business....................................................................    2
Item 2.   Properties..................................................................   29
Item 3.   Legal Proceedings...........................................................   29
Item 4.   Submission of Matters to a Vote of Security Holders.........................   29

                                     PART II

Item 5.   Market for the Registrant's Common Equity, Related Stockholder Matters
          and Issuer Purchases of Equity Securities...................................   30
Item 6.   Selected Financial Data.....................................................   30
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.......................................................   30
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk..................   30
Item 8.   Financial Statements and Supplementary Data.................................   31
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure........................................................   31
Item 9A.  Controls and Procedures.....................................................   31
Item 9B.  Other Information...........................................................   31

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant..........................   31
Item 11.  Executive Compensation......................................................   32
Item 12.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters.............................................   32
Item 13.  Certain Relationships and Related Transactions..............................   32
Item 14.  Principal Accounting Fees and Services......................................   32

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules.....................................   32

SIGNATURES
</TABLE>


                                        i
<PAGE>

                           Forward-Looking Statements

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

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

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


                                       1
<PAGE>

                                     PART I

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

General

      Harleysville Savings Financial  Corporation is a Pennsylvania  corporation
headquartered in Harleysville, Pennsylvania. The Company became the bank holding
company for  Harleysville  Savings Bank in connection  with the holding  company
reorganization  of the Bank in February 2000 (the  "Reorganization").  In August
1987, the Bank's predecessor, Harleysville Savings Association, converted to the
stock  form  of  organization.   The  Bank,  whose  predecessor  was  originally
incorporated in 1915, converted from a Pennsylvania chartered, permanent reserve
fund savings association to a Pennsylvania  chartered stock savings bank in June
1991.  The Bank operates from five  full-service  offices  located in Montgomery
County, Pennsylvania. The Bank's primary market area includes Montgomery County,
which has the third largest  population and the second highest per capita income
in the Commonwealth of Pennsylvania,  and, to a lesser extent,  Bucks County. As
of September 30, 2005,  the Company had $767.0  million of total assets,  $419.0
million of deposits and $47.6  million of  stockholders'  equity.  The Company's
stockholders' equity constituted 6.20% of total assets as of September 30, 2005.

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

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

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


                                       2
<PAGE>

Lending Activities

      Loan Portfolio Composition.  The Company's loan portfolio is predominantly
comprised  of loans  secured by first  mortgages  on  single-family  residential
properties.  As of  September  30, 2005,  first  mortgage  loans on  residential
properties,  including  loans  on  single-family  and  multi-family  residential
properties and construction loans on such properties, amounted to $277.8 million
or 43.5% of the Company's total loan and mortgage-backed  securities  portfolio.
Loans on the Company's  residential  properties are primarily  long-term and are
conventional (i.e., not insured or guaranteed by a federal agency). At September
30, 2005,  mortgage-backed securities totaled $265.0 million and comprised 41.5%
of the portfolio.

      As of  September  30,  2005,  loans  secured  by  commercial  real  estate
comprised $2.0 million or 0.3% 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 $93.0 million or 14.6% of the total loan and mortgage-backed
securities portfolio as of September 30, 2005.

      As of September 30, 2005, the Company had $265.0 million, or 41.5%, of the
total portfolio  invested in Federal Home Loan Mortgage  Corporation  ("FHLMC"),
Government National Mortgage  Association  ("GNMA") or Federal National Mortgage
Association  ("FNMA") backed securities.  FHLMC securities are guaranteed by the
FHLMC, GNMA securities by the Federal Housing Administration and FNMA securities
by the FNMA, which are an instrumentality of the United States government,  and,
pursuant to federal  regulations,  are deemed to be part of the  Company's  loan
portfolio.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                             As of September 30,
                                     --------------------------------------------------------------------
                                             2005                    2004                    2003
                                     --------------------    --------------------    --------------------
                                      Amount     Percent      Amount     Percent      Amount     Percent
                                     --------   ---------    --------   ---------    --------   ---------
                                                            (Dollars in Thousands)
<S>                                  <C>          <C>        <C>          <C>        <C>          <C>
Real estate loans:
  Residential:
    Single-family                    $267,246      41.8%     $255,023      41.7%     $234,748      43.6%
    Multi-family                        2,893       0.5           914       0.2         1,515       0.3
    Construction                        7,640       1.2         7,971       1.3        10,028       1.9
  Lot loans                               801       0.1           576       0.1           923       0.2
  Mortgage-backed securities          265,009      41.5       265,087      43.2       230,247      42.6
  Commercial                            2,002       0.3         2,141       0.4         1,015       0.2
                                     --------     -----      --------     -----      --------     -----
    Total real estate loans and
       mortgage-backed securities     545,591      85.4%      531,712      86.9%      478,476      88.8%
                                     --------     -----      --------     -----      --------     -----

Consumer loans:
  Education loans                          --        --            --        --             1        --
  Installment equity loans             59,724       9.4%       46,257       7.6%       29,726       5.5%
  Line of credit loans                 31,580       5.0        32,329       5.3        29,420       5.5
  Savings account loans                   921       0.1           811       0.1           733       0.1
  Automobile and other loans              772       0.1           732       0.1           578       0.1
                                     --------     -----      --------     -----      --------     -----
    Total consumer loans               92,997      14.6%       80,129      13.1%       60,458      11.2%
    Total loans receivable and
       mortgage-backed securities     638,588     100.0%      611,841     100.0%      538,934     100.0%
                                     --------     -----      --------     -----      --------     -----

Less:
  Loans in process                     (4,934)                 (5,238)                 (7,829)
  Deferred loan fees                     (671)                   (955)                 (1,520)
  Allowance for loan losses            (1,968)                 (1,977)                 (1,991)
                                     --------                --------                --------
   Total loans receivable and
     mortgage-backed securities,
     net                             $631,015                $603,671                $527,594
                                     ========                ========                ========

<CAPTION>
                                                      As of September 30,
                                         --------------------------------------------
                                                 2002                    2001
                                         --------------------    --------------------
                                          Amount     Percent      Amount     Percent
                                         --------   ---------    --------   ---------
                                                    (Dollars in Thousands)
<S>                                      <C>          <C>        <C>          <C>
Real estate loans:
  Residential:
    Single-family                        $233,057      46.7%     $224,100      48.2%
    Multi-family                            1,056       0.2           972       0.3
    Construction                            8,607       1.7        14,649       3.1
  Lot loans                                 1,247       0.2         1,514       0.3
  Mortgage-backed securities              193,330      38.8       167,727      36.0
  Commercial                                  496       0.1           786       0.2
                                         --------     -----      --------     -----
    Total real estate loans and
       mortgage-backed securities         437,793      87.7%      409,748      88.1%
                                         --------     -----      --------     -----

Consumer loans:
  Education loans                             334       0.1%        1,041       0.3%
  Installment equity loans                 41,451       8.3        43,401       9.3
  Line of credit loans                     18,530       3.7         9,807       2.1
  Savings account loans                       479       0.1           617       0.1
  Automobile and other loans                  726       0.1           629       0.1
                                         --------     -----      --------     -----
    Total consumer loans                   61,520      12.3%       55,495      11.9%
    Total loans receivable and
       mortgage-backed securities         499,313     100.0%      465,243     100.0%
                                         --------     -----      --------     -----

Less:
  Loans in process                         (6,503)                 (9,919)
  Deferred loan fees                       (2,091)                 (2,052)
  Allowance for loan losses                (2,035)                 (2,036)
                                         --------                --------
   Total loans receivable and
     mortgage-backed securities,
     net                                 $488,684                $451,236
                                         ========                ========
</TABLE>

      Contractual   Maturities.   The  following   table  sets  forth  scheduled
contractual  maturities of the loan and mortgage-backed  securities portfolio of
the Company as of September 30, 2005 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 Year(s) Ended September 30,
                             Principal Balance   ---------------------------------------------------------------------
                              at September 30,                             2008-       2011-       2015-     2020 and
                                   2005            2006        2007        2010        2014        2019     Thereafter
                             -----------------   --------    --------    --------    --------    --------   ----------
                                                                      (In Thousands)
<S>                                  <C>         <C>         <C>         <C>         <C>         <C>         <C>
Real estate loans:
  Residential
  Single-family                      $267,246    $  4,009    $  4,276    $ 14,431    $ 32,871    $ 47,035    $164,624
  Multi-family                          2,893          44          46         156         356         509       1,782
  Construction                          7,640         115         122         413         940       1,344       4,706
Lot loans                                 801          44          47         162         363         186          --
Mortgage-backed Securities            265,009       3,975       4,505      14,841      33,391      46,907     161,390
Commercial                              2,002          72          78         274         635         943          --
Consumer and other loans               92,997      11,439      12,276      42,569      20,924       5,789          --
                                     --------    --------    --------    --------    --------    --------    --------
         Total(1)                    $638,588    $ 19,698    $ 21,350    $ 72,846    $ 89,480    $102,713    $332,502
                                     ========    ========    ========    ========    ========    ========    ========
</TABLE>

----------
(1)   With  respect to the $618.9  million  of loans with  principal  maturities
      contractually  due after  September  30, 2005,  $576.5  million have fixed
      rates of interest and $42.4 million have  adjustable or floating  rates of
      interest.


                                       4
<PAGE>

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

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

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

      The Company accepts loan applications through its branch network, and also
accepts  mortgage  applications  from  mortgage  brokers who are approved by the
Board of Directors to do business with the Company.  The Company  generally does
not engage in the purchase of whole loans or loan participations.

      During the years ended  September  30, 2005 and 2004,  the Company did not
sell any mortgage-backed  securities.  During the year ended September 30, 2003,
the Company sold $13.0  million in  mortgage-backed  securities,  resulting in a
gain of $159,000.  The Company sold $921,000,  $2.6 million, and $1.4 million of
loans during fiscal 2005,  2004 and 2003,  resulting in a gain of  approximately
$17,000, $61,000 and $16,000, respectively.

      The Company's total loan originations  decreased by $24.2 million or 17.6%
in fiscal 2005 and  decreased by $24.9  million or 15.3% in fiscal 2004.  Of the
$113.4 million and $137.6 million of  single-family  loans  originated in fiscal
2005 and 2004, respectively,  $8.7 million and $9.8 million, respectively,  were
loans originated to fund multi-family and construction properties, $60.6 million
and $67.3 million,  respectively,  were loans to acquire  residential  property.
During this period,  the Company's  originations  of consumer  loans amounted to
$44.1  million and $58.6  million or 38.9% and 42.6% of total loan  originations
during  fiscal 2005 and 2004,  respectively.  Management  intends to continue to
emphasize  origination of consumer loans which may have  adjustable  rates,  and
generally have shorter terms than residential real estate loans.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                            --------------------------------
                                                              2005        2004        2003
                                                            --------    --------    --------
                                                                     (In Thousands)
<S>                                                         <C>         <C>         <C>
Real estate loan originations:
   Residential:
    Single-family                                           $ 60,608    $ 69,124    $102,712
    Multi-family                                               1,300         300       1,380
    Construction                                               7,433       9,526      12,007
   Lot loans                                                      --          --         109
                                                            --------    --------    --------
       Total real estate loan originations                    69,341      78,950     116,208
Consumer loan originations(1)                                 44,057      58,655      46,288
                                                            --------    --------    --------
       Total loan originations                               113,398     137,605     162,496
Purchases of mortgage-backed securities                       62,027     121,201     277,885
                                                            --------    --------    --------
       Total loan originations, and purchases                175,425     258,806     440,381

Principal loan and mortgage-backed securities repayments     147,757     183,321     386,359
Sales of loans and mortgage-backed securities                    921       2,578      14,401
                                                            --------    --------    --------
       Total principal repayments and sales                  148,678     185,899     400,760
                                                            --------    --------    --------
         Net increase in loans                              $ 26,747    $ 72,907    $ 39,621
                                                            ========    ========    ========
</TABLE>

----------
(1)   Includes  installment  home equity  loans,  home  equity  lines of credit,
      vehicle loans, Pennsylvania Higher Education Assistance loans, secured and
      unsecured personal loans and lines of credit.

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

      In the  exercise  of any loan  approval  authority,  the  officers  of the
Company will take into account the risk  associated with the extension of credit
to a single  borrower,  borrowing  entity,  or  affiliation.  The Company has an
aggregate loans to one borrower limit of 15% of the Company's unimpaired capital
and unimpaired surplus in accordance with federal regulations.  At September 30,
2005,  the  largest  aggregate  amount  of loans  outstanding  to any  borrower,
including related entities, was $1.9 million, which did not exceed the Company's
loan to one borrower limitation.


                                       6
<PAGE>

      Real Estate  Lending.  The Company is  permitted to lend up to 100% of the
appraised value of the real property securing a loan. The Company will generally
lend up to 95% of the  lesser of the  appraised  value or the sale price for the
purchase  of  single-family,  owner-occupied  dwellings  which  conform  to  the
secondary  market  underwriting  standards.  Refinancings  are limited to 90% or
less.  Loans  over  $359,650  and other  non-conforming  loans,  secured  by 1-4
residential,  owner-occupied  dwellings, are limited to 90% of the lesser of the
purchase price or appraised value. The purchase of non-owner occupied,  1-4 unit
dwellings may be financed to 80% of the lower of the appraisal or sale price;  a
refinance is limited to 70% of the appraised  value if the borrower's FICO score
is less than 720 and the transaction's purpose is cash-out.

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

      The  Company  presently  originates   fixed-rate  loans  on  single-family
residential  properties  pursuant  to  underwriting  standards  consistent  with
secondary market guidelines, and which may or may not be sold into the secondary
mortgage market as conditions warrant.  Adjustable rate mortgages  ("ARMs"),  as
well as non-conforming and jumbo fixed-rate loans in amounts up to $1.0 million,
are  held  in the  portfolio.  It is the  Company's  policy  to  originate  both
fixed-rate  loans and ARMs for terms up to 30 years.  As of September  30, 2005,
$277.8 million or 43.5% and $2.9 million or 0.5% 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, 2005, approximately $503.7 million or 94.0% 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, $31.9 million or 6.0%
of the total mortgage loan portfolio consisted of adjustable-rate  single-family
residential mortgage loans and mortgage-backed securities. Most of the Company's
residential mortgage loans include "due on sale" clauses.

      During the years ended September 30, 2005 and 2004, the Company originated
$5.9 million and $5.5 million of ARM mortgages,  respectively.  ARMs represented
9.7% and 8.0% of the Company's  total  mortgage loan portfolio  originations  in
fiscal 2005 and 2004, 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


                                       7
<PAGE>

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

      Construction  Loans.  The Company offers  fixed-rate  and  adjustable-rate
construction loans on residential properties. Residential construction loans are
originated for individuals  who are building their primary  residence as well as
to selected local builders for  construction of single-family  dwellings.  As of
September 30, 2005,  $7.6 million or 1.2% of the total loan and  mortgage-backed
securities portfolio consisted of construction loans.

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

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

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

      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 38.9% and
42.6% during fiscal 2005 and 2004,  respectively.  The shorter-term and normally
higher  interest  rates on such loans help the Company to maintain a  profitable
spread  between  its  average  loan yield and its cost of funds.  The  Company's
consumer  loan  department  offers a variety  of loans,  including  home  equity
installment loans and lines of credit,  vehicle loans,  personal loans and lines
of credit.  Loans  secured by deposit  accounts  at the Company are also made to
depositors in an amount up to 90% of their account  balances with terms of up to
15 years.

      Home equity loans continue to be a popular product and  represented  $91.3
million  or  14.4%  of the  loan and  mortgage-backed  securities  portfolio  at
September  30, 2005.  After taking into account  first  mortgage  balances,  the
Company will lend up to 80% of the value of owner-occupied


                                       8
<PAGE>

property  on fixed rate terms up to 15 years.  This amount may be raised to 100%
when  considering  other  factors,  such as excellent  credit history and income
stability.  At September 30, 2005, the Company had outstanding 2,898 home equity
loans of which 1,505 were installment equity loans and 1,393 were line of credit
loans. As of such date, the Company had an outstanding balance on line of credit
loans of approximately  $31.6 million and there was approximately  $39.9 million
of unused credit available on such loans.

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

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

      Loans fees generated on  origination  of real estate  mortgage loans under
accounting  principles  generally  accepted in the United  States of America are
deferred  to the extent that they  exceed the costs of  originating  such loans.
Deferred  loan fees and discounts on mortgage  loans  purchased are amortized to
income as a yield  adjustment  over the estimated  remaining terms of such loans
using the interest method.  The Company  recorded  servicing income of $138,000,
$459,000 and $1.9 million in deferred  loan fees in fiscal 2005,  2004 and 2003,
respectively.

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

      As of September 30, 2005,  the Company was servicing $4.7 million of loans
for others,  which related to loans sold by the Company to the FHLMC and Federal
Home Loan Bank of  Pittsburgh  in the  amounts  of  $600,000  and $4.1  million,
respectively. The Company receives a servicing fee of 0.25% on such loans.

      Non-performing  Loans and Real Estate Owned. When a borrower fails to make
a required loan payment,  the Company attempts to cure the default by contacting
the borrower; generally, after a payment is more than 15 days past due, at which
time a late charge is assessed.  Defaults are cured  promptly in most cases.  If
the  delinquency on a mortgage loan exceeds 60 days and is not cured through the
Company's  normal  collection  procedures,  or an acceptable  arrangement is not
worked out with the borrower,  the Company will institute measures to remedy the
default. This may include


                                       9
<PAGE>

commencing a foreclosure action or, in special circumstances, accepting from the
borrower a voluntary deed of the secured  property in lieu of  foreclosure  with
respect  to  mortgage  loans  and  equity  loans,  or title  and  possession  of
collateral in the case of other consumer loans.  Substantial delays may occur in
instituting  and  completing  residential  foreclosure  proceedings  due  to the
extensive  procedures  and time  periods  required  to be  complied  with  under
Pennsylvania law.

      All  interest  accrued  but  not  collected  for  loans  that  are  placed
nonaccrual or charged off is reversed against  interest income.  The interest on
these loans is accounted for on the cash-basis or  cost-recovery  method,  until
qualifying for return to accrual.  Loans are returned to accrual status when all
the principal and interest  amounts  contractually  due are brought  current and
future payments are reasonably assured.  Interest income is recognized using the
interest  method when the collection is reasonably  assured.  The Company had no
loans  outstanding  which were recorded as loans  accounted for on a non-accrual
basis as of the end of fiscal 2005 and 2004.

      If  foreclosure  is effected,  the property is sold at a public auction in
which the Company may participate as a bidder.  If the Company is the successful
bidder, the acquired real estate property is then included in the Company's real
estate owned ("REO") account until it is sold. When property is acquired,  it is
recorded at the lower of cost or market  value at the date of  acquisition  less
estimated cost to sell and any write-down  resulting is charged to the allowance
for loan losses. Interest accrual, if any, ceases on the date of acquisition and
all costs  incurred  in  maintaining  the  property  from that date  forward are
expended. Costs incurred for the improvement or development of such property are
capitalized.  The Company is permitted under  Department  regulations to finance
sales of real estate  owned by "loans to  facilitate,"  which may  involve  more
favorable  interest  rates and terms than  generally  would be granted under the
Company's underwriting  guidelines.  The Company had no REO at the end of fiscal
2005 and 2004.


                                       10
<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.

<TABLE>
<CAPTION>
                                                           As of September 30,
                                                    --------------------------------
                                                      2005        2004        2003
                                                    --------    --------    --------
                                                         (Dollars in Thousands)
<S>                                                   <C>         <C>         <C>
Residential real estate loans:
  Non-accrual loans                                     --          --          --
  Accruing loans 90 days overdue                      $260        $291        $273
  Troubled debt restructurings                          --          --          --
                                                      ----        ----        ----
         Total                                         260         291         273
                                                      ----        ----        ----
Consumer loans:
  Non-accrual loans                                     --          --          --
  Accruing loans 90 days overdue                        --          --          --
  Troubled debt restructurings                          --          --          --
                                                      ----        ----        ----
         Total                                          --          --          --
                                                      ----        ----        ----

Total non-performing loans:
  Non-accrual loans                                     --          --          --
  Accruing loans 90 days overdue                       260         291         273
  Troubled debt restructurings                          --          --          --
                                                      ----        ----        ----
         Total                                        $260        $291        $273
                                                      ====        ====        ====

Total non-performing loans to total loans              .07%        .09%        .09%
Total real estate owned, net of related reserves        --          --          --
Total non-performing loans and other real
  estate owned to total assets                         .03%        .04%        .04%
</TABLE>

      Management  establishes  reserves for losses on  delinquent  loans when it
determines that losses are probable.  The Company did not record a provision for
general loan losses in fiscal 2005, 2004 or 2003 due to the overall  performance
of the loan portfolio and management's assessment of the overall adequacy of the
allowance for loan losses.  Although  management  believes that it uses the best
information available to make determinations with respect to loan loss reserves,
future  adjustments to reserves may be necessary if economic  conditions  differ
substantially from the assumptions used in making the initial determinations.

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


                                       11
<PAGE>

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

<TABLE>
<CAPTION>
                                                                    Year Ended September 30,
                                             ----------------------------------------------------------------------
                                                2005           2004           2003           2002           2001
                                             ----------     ----------     ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>            <C>
Allowances at beginning of year              $1,976,849     $1,990,672     $2,034,832     $2,036,188     $2,038,131
 Provision for loan losses charged to
  operating expenses                                 --             --             --             --             --
Recoveries                                       83,707          1,571             --          5,113             --
Loans charged off                               (92,949)       (15,394)       (44,160)        (6,469)        (1,943)
                                             ----------     ----------     ----------     ----------     ----------
Allowances at end of year                    $1,967,607     $1,976,849     $1,990,672     $2,034,832     $2,036,188
                                             ==========     ==========     ==========     ==========     ==========

Ratio of net charge-offs to average loans
  outstanding                                        --             --             --             --             --
Ratio of allowances to period-end loans             .54%           .58%           .66%           .68%           .69%
</TABLE>

Investment Activities

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

      The Company's  investment  portfolio  consists  primarily of United States
Treasury  securities and obligations of United States government  agencies.  The
other investments include  interest-bearing  deposits in other banks, tax-exempt
obligations, money market mutual funds, and stock of the FHLB of Pittsburgh. The
Company has primarily  invested in  instruments  that reprice within five years;
the amount of such investments as of September 30, 2005 was $55.3 million.

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

                                                       As of September 30,
                                                --------------------------------
                                                  2005        2004        2003
                                                --------    --------    --------
                                                         (In Thousands)
    Interest-bearing deposits at
       other depository institutions            $  6,742    $  3,040    $  4,836
    Tax-exempt obligations                        24,799      24,966      25,290
    Money market mutual funds                      1,976       6,685       3,812
    Equities                                         859       1,029       1,061

    U.S. Government and agency
       obligations held to maturity               62,566      43,196      58,036
    FHLB of Pittsburgh stock                      16,036      15,184      13,782
                                                --------    --------    --------
             Total                              $112,978    $ 94,100    $106,817
                                                ========    ========    ========


                                       12
<PAGE>

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

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


                                       13
<PAGE>

      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,
                             ---------------------------------------------------------------------
                                      2005                    2004                    2003
                             ---------------------   ---------------------   ---------------------
                                        Percent of              Percent of              Percent of
                              Amount     Deposits     Amount     Deposits     Amount     Deposits
                             --------   ----------   --------   ----------   --------   ----------
                                                    (Dollars in Thousands)
<S>                          <C>          <C>        <C>          <C>        <C>          <C>
Passbook and club
  accounts                   $  3,807       0.9%     $  4,047       1.0%     $  4,027       1.1%
NOW accounts                   18,283       4.4        19,839       4.9        17,340       4.6
Checking accounts              18,721       4.5        11,767       2.9        10,047       2.6
Money market demand
  accounts                     75,874      18.1        99,225      24.5        95,729      25.1
Certificates of deposit:
         6 month                8,126       1.9         8,650       2.1        10,649       2.8
         9 month               10,630       2.5         3,031       0.8         3,431       0.9
         12 month              10,110       2.4        16,471       4.1        18,798       4.9
         15 month              17,063       4.1         4,554       1.1         6,774       1.8
         17 month               1,485       0.3         2,474       0.6         3,573       0.9
         18 month              11,125       2.7        18,967       4.7        26,565       7.0
         20 month               9,685       2.3            --        --            --        --
         24 month               7,740       1.8        12,297       3.0        17,041       4.5
         27 month               4,966       1.2        12,326       3.0        23,359       6.1
         36 month              29,302       7.0        35,024       8.7        23,655       6.2
         48 month              82,402      19.7        60,392      14.9        25,020       6.6
         60 month              38,431       9.2        38,901       9.6        39,495      10.4
         Other                 16,924       4.0         7,057       1.7         8,988       2.4

Retirement accounts:
 Money market deposit
     accounts                     707       0.2         1,224       0.3         1,242       0.3
 Certificates of deposit       53,599      12.8        48,985      12.1        44,954      11.8
                             --------     -----      --------     -----      --------     -----
     Total deposits          $418,980     100.0%     $405,231     100.0%     $380,687     100.0%
                             ========     =====      ========     =====      ========     =====
</TABLE>

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


                                       14
<PAGE>

      The following table presents certain information  concerning the Company's
deposit accounts as of September 30, 2005 and the scheduled quarterly maturities
of its certificates of deposit.

<TABLE>
<CAPTION>
                                                                               Weighted
                                                            Percentage of      Average
                                                 Amount     Total Deposits   Nominal Rate
                                                --------    --------------   ------------
                                                        (Dollars in Thousands)
<S>                                             <C>              <C>             <C>
Passbook and club accounts                      $  3,807           0.9%          0.67%
NOW accounts                                      18,283           4.3           0.15
Checking accounts                                 18,721           4.5           0.22
Money market deposits accounts(1)                 76,581          18.3           1.03
                                                --------         -----          -----
         Total                                  $117,392          28.0%          0.75%
                                                ========         =====          =====

Certificate accounts maturing by quarter:
     December 31, 2005                          $ 23,217           5.5%          2.15%

     March 31, 2006                               30,494           7.3           1.92
     June 30, 2006                                19,371           4.6           2.07
     September 30, 2006                           28,370           6.8           2.17
     December 31, 2006                            49,102          11.7           3.15

     March 31, 2007                               25,847           6.2           3.09
     June 30, 2007                                15,713           3.7           3.85
     September 30, 2007                           15,598           3.7           4.04
     December 31, 2007                             5,010           1.2           3.20

     March 31, 2008                               14,056           3.4           3.40
     June 30, 2008                                13,673           3.3           4.07
     September 30, 2008                           28,114           6.7           4.35

Thereafter                                        33,023           7.9           3.71
                                                --------         -----          -----
Total certificate accounts(1)                    301,588          72.0           3.09
                                                --------         -----          -----
         Total deposits                         $418,980         100.0%          2.44%
                                                ========         =====          =====
</TABLE>

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

      Management of the Company expects,  based on historical experience and its
pricing  policies,  to retain a  significant  portion of the  $101.5  million of
certificates  of deposit which mature during the 12 months ending  September 30,
2006.


                                       15
<PAGE>

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

                                                    Year Ended September 30,
                                                -------------------------------
                                                  2005        2004        2003
                                                -------     -------     -------
                                                        (In Thousands)
Increase (decrease) before interest credited    $ 5,112     $ 1,770     $    (9)
Interest credited                                 8,637       7,474       8,749
                                                -------     -------     -------
     Net deposit increase                       $13,749     $24,544     $ 8,740
                                                =======     =======     =======

      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, 2005 which mature  during the periods
indicated.

<TABLE>
<CAPTION>
                                                            Amounts at September 30, 2005 Maturing
                                         As of       ---------------------------------------------------
                                     September 30,   One Year                     Three
                                         2005        or Less       Two Years      Years       Thereafter
                                       --------      --------      ---------     --------     ----------
                                                                 (In Thousands)
<S>                                    <C>           <C>           <C>           <C>           <C>
Certificate accounts:
  0.01% to 2.00%                       $ 19,143      $ 18,297      $    814      $     32      $     --
  2.01% to 4.00%                        219,463        61,549        66,504        58,600        32,810
  4.01% to 6.00%                         60,385        19,022        38,938         2,222           203
  6.01% to 8.00%                          2,597         2,584             4            --             9
                                       --------      --------      --------      --------      --------
    Total certificate accounts(1)      $301,588      $101,452      $106,260      $ 60,854      $ 33,022
                                       ========      ========      ========      ========      ========
</TABLE>

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

      The  following  table sets forth the maturity of  certificate  deposits in
excess of $100,000 as of September 30, 2005.

                                  Amount
                              --------------
                              (In Thousands)
    1 to 3 months                $ 2,237
    4 to 6 months                  4,907
    7 to 12 months                 6,306
    Thereafter                    26,257
                                 -------
         Total                   $39,707
                                 =======

      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, 2005, the Bank had FHLB advances with  maturities
of one year or less totaling $36.0 million at an interest rate of 3.73% and FHLB
advances with  maturities of 13 months to 10 years  totaling  $261.2  million at
interest-rates  ranging from 3.66% to 5.35%.  Such advances are made pursuant to
several  different credit programs,  each of which has its own interest rate and
range of maturities.


                                       16
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                  September 30,
                                     ------------------------------------------------------------------------
                                              2005                     2004                     2003
                                     ----------------------   ----------------------   ----------------------
                                                  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      $297,268      4.38%      $265,953      4.34%      $228,817      4.76%
</TABLE>

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

                                                     Year Ended September 30,
                                                --------------------------------
                                                  2005        2004        2003
                                                --------    --------    --------
                                                     (Dollars in Thousands)
      Advances from FHLB of Pittsburgh:
         Average balance outstanding            $29,355     $20,267     $ 4,496

         Maximum amount outstanding at any
           month-end during the period           36,100      25,600      18,500
         Weighted average interest rate
           during the period                       2.98%       1.38%       1.20%

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.


                                       17
<PAGE>

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

Employees

      The Company had 59 full-time  employees  and 39 part-time  employees as of
September  30,  2005.  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.

Regulation of the Company

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

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

      The BHCA also prohibits a bank holding company,  with certain  exceptions,
from  acquiring  more than 5% of the voting  shares of any company that is not a
bank and from engaging in any


                                       18
<PAGE>

business  other than banking or managing or controlling  banks.  Under the BHCA,
the Federal  Reserve Board is authorized to approve the ownership of shares by a
bank holding company in any company, the activities of which the Federal Reserve
Board has  determined  to be so closely  related to  banking or to  managing  or
controlling  banks  as  to  be  a  proper  incident  thereto.   In  making  such
determinations,  the Federal  Reserve  Board is  required to weigh the  expected
benefit to the public,  such as greater  convenience,  increased  competition or
gains  in  efficiency,  against  the  possible  adverse  effects,  such as undue
concentration  of  resources,  decreased  or unfair  competition,  conflicts  of
interest  or unsound  banking  practices.  The 1999 Act  permits a bank  holding
company to elect to be considered a financial  holding company  ("FHC").  A bank
holding  company that makes an FHC election is permitted to engage in activities
that are  financial in nature or incidental to such  financial  activities.  The
1999 Act lists certain  activities  that are considered  financial in nature and
permits  the  Federal  Reserve  Board  to  expand  that  list to  include  other
activities that are complementary to the activities on the preapproved list. The
preapproved activities include (1) securities  underwriting,  dealing and market
making;  (2) insurance  underwriting;  (3) merchant  banking;  and (4) insurance
company  portfolio  investments.  The Company has not made the financial holding
company election.

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

      Limitations on Transactions with Affiliates.  Transactions between savings
institutions  and any  affiliate  are  governed by  Sections  23A and 23B of the
Federal  Reserve Act. An affiliate  of a savings  institution  is any company or
entity which  controls,  is  controlled  by or is under common  control with the
savings institution. In a holding company context, the parent holding company of
a  savings  institution  (such  as the  Company)  and any  companies  which  are
controlled  by  such  parent  holding  company  are  affiliates  of the  savings
institution.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  institution or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  institution's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such  transactions be on terms  substantially the same, or
at least as favorable,  to the  institution or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase of assets,  issuance of a guarantee and other similar transactions.  In
addition  to the  restrictions  imposed  by  Sections  23A and 23B,  no  savings
institution may (i) loan or otherwise extend credit to an affiliate,  except for
any affiliate  which engages only in activities  which are  permissible for bank
holding companies, or (ii) purchase or invest


                                       19
<PAGE>

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.  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.


                                       20
<PAGE>

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

      Sarbanes-Oxley  Act of 2002. On July 30, 2002,  the President  signed into
law the Sarbanes-Oxley Act of 2002 implementing  legislative reforms intended to
address  corporate and accounting  fraud. In addition to the  establishment of a
new accounting oversight board which will enforce auditing,  quality control and
independence  standards  and will be  funded by fees  from all  publicly  traded
companies, the bill restricts provision of both auditing and consulting services
by accounting  firms.  To ensure auditor  independence,  any non-audit  services
being  provided to an audit client will  require  preapproval  by the  company's
audit committee members.  In addition,  the audit partners must be rotated.  The
bill requires chief executive  officers and chief financial  officers,  or their
equivalent,  to certify to the accuracy of periodic  reports filed with the SEC,
subject to civil and criminal  penalties if they knowingly or willfully  violate
this  certification  requirement.  In addition,  under the Act,  counsel will be
required to report evidence of a material  violation of the securities laws or a
breach of  fiduciary  duty by a company  to its chief  executive  officer or its
chief legal officer,  and, if such officer does not  appropriately  respond,  to
report such evidence to the audit  committee or other  similar  committee of the
board of directors or the board itself.

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

      The Act also increases the oversight of, and codifies certain requirements
relating to audit  committees of public companies and how they interact with the
company's  "registered  public accounting firm." Audit committee members must be
independent and are barred from accepting


                                       21
<PAGE>

consulting,  advisory or other  compensatory  fees from the issuer. In addition,
companies  must  disclose  whether  at least one  member of the  committee  is a
"financial  expert"  (as such term will be defined  by the SEC) and if not,  why
not.  Under the Act, a registered  public  accounting  firm is  prohibited  from
performing  statutorily  mandated audit services for a company if such company's
chief executive officer, chief financial officer, comptroller,  chief accounting
officer or any person serving in equivalent  positions has been employed by such
firm and  participated  in the audit of such company during the one-year  period
preceding  the audit  initiation  date.  The Act also  prohibits  any officer or
director of a company or any other  person  acting  under their  direction  from
taking any action to fraudulently influence,  coerce,  manipulate or mislead any
independent public or certified accountant engaged in the audit of the company's
financial  statements  for the purpose of rendering  the  financial  statement's
materially  misleading.  The  Act  also  requires  the  SEC to  prescribe  rules
requiring  inclusion of an internal  control report and assessment by management
in the annual report to  shareholders.  This will be required for the Company in
fiscal 2007. The Act requires the registered  public accounting firm that issues
the  audit  report to attest to and  report on  management's  assessment  of the
company's internal controls.  In addition,  the Act requires that each financial
report  required to be prepared in accordance with (or reconciled to) accounting
principles generally accepted in the United States of America and filed with the
SEC  reflect  all  material  correcting  adjustments  that are  identified  by a
registered  public  accounting  firm in accordance  with  accounting  principles
generally accepted in the United States of America and the rules and regulations
of the SEC.

Regulation of the Bank

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

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


                                       22
<PAGE>

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

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

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

      FDIC Insurance Premiums. The deposits of the Bank are insured by the SAIF,
which is administered by the FDIC. Under current FDIC regulations,  SAIF-insured
institutions  are assigned to one of three capital groups which are based solely
on the level of an institution's capital. SAIF assessment rates are then tied to
the level of an institution's  supervisory concern based on risk classifications
derived from the capital groups. Rates during the last six months of 2005 ranged
from zero for well capitalized,  healthy  institutions,  such as the Bank, to 27
basis points for  undercapitalized  institutions  with  substantial  supervisory
concerns.

      In  addition,  all  institutions  with  deposits  insured  by the FDIC are
required to pay  assessments  to fund  interest  payments on bonds issued by the
Financing Corporation,  a mixed-ownership  government corporation established to
recapitalize  the  predecessor to the SAIF.  The  assessment  rate for the third
quarter of 2005 was 0.0134% of insured deposits and is adjusted quarterly. These
assessments will continue until the Financing Corporation bonds mature in 2019.

      Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding  that the  institution  has engaged or is engaging in unsafe and unsound
practices,  is in an unsafe or unsound  condition to continue  operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or written agreement entered into with the FDIC. The management of


                                       23
<PAGE>

the Bank does not know of any practice,  condition or violation  that might lead
to  termination  of  deposit  insurance.  At  September  30,  2005,  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 risk-weight  of 0% to 100%,  based on the risks the
FDIC believes are inherent in the type of asset or item.

      The components of Tier I capital are equivalent to those  discussed  above
under the 3% leverage standard. The components of supplementary (Tier 2) capital
include  certain  perpetual  preferred  stock,  certain  mandatory   convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan losses.  Allowance  for loan losses  includable in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of capital  counted  toward  supplementary  capital  cannot
exceed 100% of core  capital.  At September  30, 2005,  the Bank met each of its
capital requirements.


                                       24
<PAGE>

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


                                       25
<PAGE>

      The FDIC has adopted final  regulations  pertaining to the other  activity
restrictions  imposed  upon  insured  savings  banks and their  subsidiaries  by
Section 24.  Pursuant to such  regulations,  insured  savings banks  engaging in
impermissible  activities  may seek  approval  from the  FDIC to  continue  such
activities.  Savings  banks not engaging in such  activities  but that desire to
engage in otherwise  impermissible  activities  may apply for approval  from the
FDIC  to do so;  however,  if  such  bank  fails  to meet  the  minimum  capital
requirements or the activities  present a significant risk to the FDIC insurance
funds,  such  application  will  not be  approved  by the  FDIC.  The  FDIC  has
authorized the bank's  subsidiary  HARL, LLC, to invest up to 15% of its capital
in the equity securities of bank holding companies,  banks or thrifts.  $859,000
was invested by HARL, LLC as of September 30, 2005 in such equity securities.

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

Federal and State Taxation

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

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

      Bad Debt  Reserves.  The Company  computes its reserve for bad debts under
the specific  charge-off  method.  The bad debt deduction  allowable  under this
method is  available  to large  banks with  assets  greater  than $500  million.
Generally,  this method  allows the Company to deduct an annual  addition to the
reserve  for bad  debts  equal  to its net  charge-offs.  Retained  earnings  at
September 30, 2005 and 2004 includes approximately  $1,325,000  representing bad
debt deductions for which no deferred income taxes have been provided.

      Distributions.   If  the  Bank   distributes   cash  or  property  to  its
stockholders,  and the  distribution  is treated  as being from its  accumulated
pre-1988 tax bad debt  reserves,  the  distribution  will cause the Bank to have
additional taxable income. A distribution to stockholders is deemed to have been
made from  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


                                       26
<PAGE>

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,  2005,  the  Bank  had no net  operating  loss
carryforwards for federal income tax purposes.

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

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

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


                                       27
<PAGE>

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, 2005 amounted
to approximately $141.1 million. The Bank formed two limited liability companies
in 2002, Freedom Financial Solutions LLC ("FFS") and HARL LLC ("HARL").  FFS was
established to engage in the sale of insurance  products  through a third party.
HARL was  established  for the purpose of investing  in FDIC  insured  financial
institutions/holding company equity securities.


                                       28
<PAGE>

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

      As of September 30, 2005, the Company conducted its business from its main
office in Harleysville, Pennsylvania and four other full service branch offices.
The Company is also part of the STAR ATM System,  which provides  customers with
access to their deposits at locations worldwide.

<TABLE>
<CAPTION>
                                                                                     Net Book Value
                                                                                      of Property
                                                                                     and Leasehold
                                                                   Lease            Improvements at
                                                 Owned or        Expiration          September 30,
   County                 Address                 Leased            Date                  2005            Deposits
------------      --------------------------    ----------    ----------------      ---------------      ----------
                                                                                              (In Thousands)
<S>               <C>                             <C>          <C>                       <C>              <C>
Montgomery        271 Main Street
                  Harleysville, Pennsylvania       Owned              --                 $1,131           $147,530

Montgomery        640 East Main Street
                  Lansdale, Pennsylvania          Leased         May 2043(1)                932             38,742

Montgomery        1550 Hatfield Valley Road
                  Hatfield, Pennsylvania          Leased       January 2064(1)              854             87,334

Montgomery        2301 West Main Street
                  Norristown, Pennsylvania         Owned              --                    572             95,210

Montgomery        3090 Main Street
                  Sumneytown, Pennsylvania         Owned              --                    336             50,164
                                                                                         ------           --------
                                                                            Total        $3,825           $418,980
                                                                                         ======           ========
</TABLE>

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

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.


                                       29
<PAGE>

                                     PART II

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

      (a) The information required herein is incorporated by reference from page
31 of the Company's  2005 Annual Report to  Stockholders  ("Annual  Report") and
from Part III, Item 12 hereof.

      (b) Not applicable.

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

<TABLE>
<CAPTION>
                                                             Total Number of       Maximum Number
                                                           Shares Purchased as   of Shares that May
                                               Average       Part of Publicly     Yet Be Purchased
                        Total Number of      Price Paid      Announced Plans      Under the Plans
       Period           Shares Purchased      per Share        or Programs         or Programs(1)
--------------------    ----------------     ----------    -------------------   ------------------
<S>                            <C>             <C>                 <C>                <C>
July 1-31, 2005                5,000           $ 17.90             5,000              137,667
August 1-31, 2005                 --                --                --
September 1-30, 2005           2,000             17.34             2,000              135,667
                             -------           -------           -------              -------
       Total                   7,000           $ 17.74             7,000              135,667
                             =======           =======           =======              =======
</TABLE>

----------
(1)   On June 18, 2003, the Company  announced its current program to repurchase
      up to 5.0% of the  outstanding  shares of Common Stock of the Company,  or
      191,667  shares.  The  program  does not have an  expiration  date and all
      shares are purchased in the open market.

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 5
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.


                                       30
<PAGE>

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

      The information required herein is incorporated by reference from pages 12
to 30 of the Annual Report.

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

      Not Applicable.

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

      Our management  evaluated,  with the  participation of our Chief Executive
Officer  and  Chief  Financial  Officer,  the  effectiveness  of our  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange  Act of  1934)  as of  September  30,  2005.  Based on such
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that our  disclosure  controls and  procedures are designed to ensure
that  information  required to be disclosed by us in the reports that we file or
submit  under  the  Securities  Exchange  Act of  1934 is  recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

      No change in our internal control over financial  reporting (as defined in
Rules  13a-15(f)  and  15(d)-15(f)  under the  Securities  Exchange Act of 1934)
occurred  during the fourth  fiscal  quarter of fiscal 2005 that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

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

Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.
------------------------------------------------------------

      The  information  required  herein 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 25, 2006 (the  "Proxy  Statement"),  a copy of which will be
filed with the Securities and Exchange Commission before the meeting date.

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


                                       31
<PAGE>

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

      The  information  required  herein is  incorporated  by reference from the
information contained in the section captioned "Management  Compensation" in the
Proxy Statement.

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

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

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

      The  information  required  herein is  incorporated  by reference from the
information  contained  in the  section  captioned  "Management  Compensation  -
Indebtedness of Management" in the Proxy Statement.

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

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

                                     PART IV

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

(a) (1) The following  financial  statements are  incorporated by reference from
Item 8 hereof (see Exhibit 13.0):

      Report of Independent Registered Public Accounting Firm

      Consolidated  Statements  of Financial  Condition as of September 30, 2005
       and 2004

      Consolidated  Statements of Income for the Years Ended September 30, 2005,
       2004 and 2003

      Consolidated  Statements  of  Stockholders'  Equity  for the  Years  Ended
       September 30, 2005, 2004 and 2003

      Consolidated  Statements  of Cash Flows for the Years Ended  September 30,
       2005, 2004 and 2003

      Notes to Consolidated Financial Statements


                                       32
<PAGE>

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

      (3) Exhibits

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

<TABLE>
<CAPTION>
   No.                                   Exhibits                                             Location
---------  -------------------------------------------------------------------------    --------------------
<S>        <C>                                                                             <C>
    3.1    Articles of Incorporation                                                             (1)
    3.2    Bylaws                                                                                (1)
    4.0    Common Stock Certificate                                                              (1)
   10.1    1995 Employee Stock Purchase Plan*                                                    (3)
   10.2    1995 Stock Option Plan*                                                               (3)
   10.3    2000 Stock Option Plan*                                                               (2)
   10.4    Profit Sharing Incentive Plan*                                                        (3)
   10.5    Employment Agreements with Edward J. Molnar, Ronald B. Geib,
               and Marian Bickerstaff*                                                           (2)
   13.0    Annual Report to Stockholders                                                   Filed herewith
   22.0    Subsidiaries of the Registrant - Reference is made to "Item 1. Business
             - Subsidiaries" of this Form 10-K for the required information                      --
   23.0    Consent of Deloitte & Touche LLP                                                Filed herewith
   31.1    Certification of Chief Executive Officer                                        Filed herewith
   31.2    Certification of Chief Financial Officer                                        Filed herewith
   32.0    Section 1350 Certification of the Chief Executive Officer and Chief             Filed herewith
             Financial Officer
   99.0    Code of Conduct and Ethics                                                            (3)
</TABLE>

----------
*     Denotes management compensation plan or arrangement.

(1)   Incorporated  herein by reference to the Company's  Current Report on Form
      8-K filed with the Securities and Exchange  Commission ("SEC") on February
      25, 2000.

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

(3)   Incorporated  herein by reference to the  Company's  Annual Report on Form
      10-K for the year ended September 30, 2003, filed with the SEC on December
      23, 2003.

      (b)   Exhibits

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

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


                                       33
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       HARLEYSVILLE SAVINGS
                                       FINANCIAL CORPORATION

December 21, 2005                      By:  /s/ Edward J. Molnar
                                            ------------------------------------
                                            Edward J. Molnar
                                            Chief Executive Officer and Director

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


/s/ Edward J. Molnar                                     December 21, 2005
------------------------------------
Edward J. Molnar
Chief Executive Officer
and Director
(principal executive officer)


/s Brendan J. McGill                                     December 21, 2005
----------------------------------
Brendan J. McGill
Senior Vice President, Treasurer
and Chief Financial Officer
(principal financial and principal
accounting officer)


/s/ Sanford L. Alderfer                                  December 21, 2005
----------------------------------
Sanford L. Alderfer
Director


/s/ Philip A. Clemens                                    December 21, 2005
----------------------------------
Philip A. Clemens
Director


<PAGE>

/s/ Mark R. Cummins                                      December 21, 2005
----------------------------------
Mark R. Cummins
Director


/s/ David J. Friesen                                     December 21, 2005
----------------------------------
David J. Friesen
Director


/s/ Ronald B. Geib                                       December 21, 2005
----------------------------------
Ronald B. Geib
Director, President and
Chief Operating Officer


/s/ Charlotte A. Hunsberger                              December 21, 2005
----------------------------------
Charlotte A. Hunsberger
Director


/s/ George W. Meschter                                   December 21, 2005
----------------------------------
George W. Meschter
Director


/s/ James L. Rittenhouse                                 December 21, 2005
----------------------------------
James L. Rittenhouse
Director