2 0 0 2   A N N U A L   R E P O R T




                              Harleysville Savings
                              Financial Corporation




<PAGE>



Board of Directors

                           [PHOTO-BOARD OF DIRECTORS]


   Mark R. Cummins, George W. Meschter, Ronald B. Geib, Sanford L. Alderfer,
      Philip A. Clemens, David J. Friesen, Edward J. Molnar, Paul W. Barndt


<TABLE>
<CAPTION>

Senior Officers


     [PHOTO]                        [PHOTO]                           [PHOTO]                         [PHOTO]
 <S>                      <C>                                <C>                              <C>
 Edward J. Molnar                Ronald B. Geib                 Marian Bickerstaff                Brendan J. McGill
  President and           Executive Vice President and         Senior Vice President          Senior Vice President
Chief Executive Officer   Chief Operating Officer              and Chief Lending Officer      and Chief Financial Officer

</TABLE>




<PAGE>

Selected Consolidated Financial and Other Data Selected

<TABLE>
<CAPTION>

Selected Balance Sheet Data:
(in thousands except per share data)                                            As of September 30,
                                                          2002           2001         2000         1999          1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>           <C>           <C>           <C>
Total Assets                                            $620,264      $558,388      $488,554      $459,848      $417,533
Mortgage-backed securities held to maturity              163,815       167,727       116,304       116,778        78,793
Mortgage-backed securities available-for-sale             29,515                       7,440         7,916         3,695
Loans receivable - net                                   295,354       290,213       262,774       252,260       251,729
Investment securities held to maturity                    55,665        62,202        71,281        61,015        50,622
Investment securities available-for-sale                  12,000         3,294         3,310         3,202         1,586
Other investments (1)                                     45,369        16,538        10,221         9,155        22,740
Deposits                                                 371,947       350,147       309,836       303,660       289,827
FHLB advances and other borrowings                       207,502       171,309       145,134       125,180        99,953
Total stockholders' equity                                37,868        34,264        31,398        28,963        26,100
Book value per share                                       16.75         15.32         14.05         12.83         11.68

</TABLE>

<TABLE>
<CAPTION>

Selected Operations Data:
                                                                              Year Ended September 30,
                                                           2002            2001        2000          1999          1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>             <C>         <C>           <C>           <C>
Interest income                                          $35,176         $36,303     $33,182       $29,716       $27,129
Interest expense                                          24,226          26,583      22,795        20,199        17,949
                                                         -------         -------     -------       -------       -------
Net interest income                                       10,950           9,720      10,387         9,517         9,180
Provision for loan losses                                                                               17           120
                                                          ------           -----      ------         -----         -----
Net interest income after provision for loan losses       10,950           9,720      10,387         9,500         9,060

Gain on sales of loans and securities                          7             191          40            35           101
Other income                                               1,110           1,055         512           451           453
Other expense                                              6,434           5,832       5,380         4,858         4,528
                                                         -------         -------     -------       -------       -------

Income before taxes                                        5,633           5,134       5,559         5,128         5,086
Income tax expense                                         1,218           1,219       1,702         1,622         1,605
                                                         -------         -------     -------       -------       -------

Net income                                               $ 4,415         $ 3,915     $ 3,857       $ 3,506       $ 3,481
                                                         =======         =======     =======       =======       =======

Earnings per share - basic                               $  1.96         $  1.76     $  1.72       $  1.56       $  1.57
Earnings per share - diluted                                1.93            1.73        1.70          1.53          1.52
Dividends per share                                         0.54            0.48        0.44          0.36          0.32

</TABLE>


<TABLE>
<CAPTION>

Selected Other Data:
                                                                              Year Ended September 30,
                                                            2002            2001        2000          1999          1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>         <C>           <C>           <C>
Return on average assets (2)                                0.75%           0.74%       0.81%         0.81%         0.93%
Return on average equity (2)                               12.31%          12.00%      12.82%        12.83%        14.24%
Average equity to average assets (2)                        6.10%           6.15%       6.43%         6.32%         6.52%
Interest rate spread (2)                                    1.75%           1.63%       1.92%         1.91%         2.15%
Net yield on interest-earning assets (2)                    1.92%           1.90%       2.24%         2.25%         2.50%
Ratio of non-performing assets to
  total assets at end of period                             0.03%           0.05%       0.04%         0.07%         0.04%
Ratio of interest-earning assets to
  interest-bearing liabilities at end of period              105%            105%        107%          107%          107%
Full service banking offices at
  end of period                                                5               5           4             4             4

</TABLE>

(1)  Includes interest-bearing deposits at other depository institutions & stock
     of the Federal Home Loan Bank of Pittsburgh.
(2)  All ratios  are based on  average  monthly  balances  during the  indicated
     periods.

<PAGE>

                                                            2002 ANNUAL REPORT 1
President's Report to the Stockholders

To our Stockholders:

We are pleased to report to you that fiscal 2002 brought a sixth consecutive
year of record earnings for the Company. Net income amounted to $4,415,000,
which is the most that Harleysville Savings has earned in any year in its
87-year history.

Net income amounted to $1.93 per share on a diluted basis. Return on average
equity was 12.31% and return on average assets was .75% for the year.
Stockholders' equity increased to $16.75 per share compared to $15.32 per share
a year ago. During fiscal year 2002 assets increased 11.09% to $620 million.

Creating value for our stockholders is one of the four important pillars in our
mission statement. As with most businesses, the creation of value starts with
the customer. The delivery of customer service is the true test and that is why
we have remained focused on our mission of serving the personal banking needs of
families and individuals in our communities. We have recognized that a
well-trained staff and quality financial products and services add up to
success. What begins with the customer, ends with the investor receiving a
financial return greater than their original investment.

Those of us who have witnessed lower stock market indices over the last few
years understand that stock market values may be influenced by many factors
beyond what management can control. Nevertheless, we are pleased to report to
you that the increase in market value plus cash dividends provided our
stockholders with an overall return of 22.1% for this past fiscal year. On
October 16, 2002 our board of directors declared a regular quarterly cash
dividend of $.16 per share, which is an increase of 23% over last year.

Many of you have been investors for many years and it is interesting to note
that during the past 15 years, Harleysville Savings' common stock has returned
an average yearly return of 16.4%. This compares favorably with what an investor
in the S & P 500 index would have earned over those same 15 years, an average of
6.4%.


                                [PHOTO OF BANK]


In my letter to you last year, I noted that we have not jumped on every latest
fad to come along, but have consistently strived to perform the fundamentals
that have positioned the bank as our customers' "Trusted Financial Partner".
Words like "trust, conservative, old fashioned, cautious, prudent, integrity,
stability and reputation" have returned to prominence among the corporate world.

Adherence to these time-tested principles is what has made us successful over
the years. Being cautious does not mean that one has to "put their head in the
sand". We have reported to you in prior year reports how we have invested in
technology to provide an electronic delivery system that rivals the largest
banks in the country.

Customers want convenience and we are providing our customers with access to
their accounts through our Online Banking System. Our customers can view their
account information, pay bills, transfer funds, and receive information about
rates and services.

We have expanded our ATM network to twenty convenient locations throughout our
communities. Checking account customers can use their Harleysville Savings'
MasterMoney Debit Card (Star System) to get cash or make purchases worldwide.

For those customers who don't have access to the Internet, our Access 24
Telephone Banking System gives our customers access to their account information
and the ability to move money between accounts.

Convenience also means that our customers want branch offices where they can
receive personal attention to their financial affairs. Our new Lansdale location
has been open a little over a year and it has already grown to over $20 million
in deposits. We are pleased that our customers in the Lansdale area have found
it to be a nice place to do their banking. Our customers in the Upper Perkiomen
area are now enjoying our freshly remodeled office in Sumneytown. This office
has grown to over $42 million in deposits.

Financial results establish a picture of the performance of a company. Our story
begins with the quality of our assets. Our primary mission is to provide money
for people to own their own homes. We believe that this makes sense because
people take pride in the home that they own and live in. Because of this, when
we make a loan to them, there is an expectation that the loan will be repaid.
Our ratio of non-performing loans is an excellent 0.03% of assets. The loan loss
reserve that we have established has an outstanding coverage-ratio of 1093% of
non-performing loans. For the purpose of comparison, the average financial
institution in Pennsylvania has a non-performing loan ratio of 0.51% and a
coverage ratio of 134%.


2 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

                            [PHOTO - LOBBY OF BANK]

Because we have focused our business plan on providing quality financial
services and products to families and individuals, we have been able to achieve
exceptional operating efficiencies. There are generally two measurements that
are used by the financial industry to determine the efficiency of a bank's
operation. One is the ratio of operating expenses to assets. Harleysville
Savings' ratio was an excellent 1.09% for this fiscal year. The average bank in
Pennsylvania had a ratio of 3.47% as of June 2002. The second measurement is the
efficiency ratio. Harleysville Savings' ratio was 53.35% for the fiscal year and
the average bank in Pennsylvania had an efficiency ratio of 59.94%. In both
cases, lower ratios indicate that fewer revenues go to pay for overhead
expenses, and thus a larger proportion of earnings is available to reward
stockholders in the form of dividends or to build up capital and finance
additional growth.

The active management of Harleysville Savings' capital position remains a high
priority. We manage our capital position to allow adequate resources for growth,
while not allowing our capital to be under-utilized. As mentioned earlier, we
have increased the cash dividend to our stockholders by 23% over last year. We
have also been repurchasing shares of our common stock through the Company's
repurchase program, while growing our assets by 11% to $620 million.

                                    [PHOTO]


Location! Location! Location! Harleysville Savings operates in a market area
that provides exceptional growth opportunity for the bank. Montgomery County is
the third most populous county in the state of Pennsylvania and is second in per
capita income. The housing market is expanding, home values are increasing and
employment is strong.

The success that Harleysville Savings has enjoyed is a tribute to our greatest
asset, the talented and experienced personnel who serve our customers.
Harleysville Savings has a group of employees who are bonded together by their
pride and devotion to their work. A well-trained and experienced staff
contributes significantly to Harleysville Savings' outstanding results. Seven of
our employees were recognized this year for long-term service. Receiving awards
for five years were Denise Monaghan, Sheri Strouse, Cindy Skzrat and Rollie
Koffel. Receiving awards for fifteen years were Steph Weiss and Lori McCausland.
Receiving an award for 20 years of service was Ella Gehringer.

In carrying out our mission, our desire is to follow a business philosophy that
is consistent with the Proverb that God has given us: "A good name is to be more
desired than great riches." By doing so, we hope to remain focused on the core
values that have enabled this Company to be successful.

Looking ahead to the year 2003 and beyond, we are very optimistic about the new
opportunities that exist for Harleysville Savings. We want to express our
appreciation to you for the confidence that you have expressed in the management
of this Company. We hope to see you at our Annual Stockholders' meeting in
January.


           Sincerely,



           /s/ Edward J. Molnar
           ------------------------------------
           Edward J. Molnar
           President and Chief Executive Officer


                                                            2002 ANNUAL REPORT 3


<PAGE>


                     Management's Discussion and Analysis of
                 Financial Condition and Results of Operations

General

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

The Company's total assets at September 30, 2002, amounted to $620.3 million,
compared to $558.4 million and $488.6 million as of September 30, 2001 and 2000,
respectively. Deposits as of September 30, 2002, ed $371.9 million,
compared to $350.1 million and $309.8 million at September 30, 2001 and 2000,
respectively. Stockholders' equity totaled $37.9 million as of September 30,
2002, compared to $34.3 million and $31.4 million at September 30, 2001 and
2000, respectively.

During fiscal 2002, net interest income increased $1.2 million or 12.65% from
the prior fiscal year. This increase was the result of an increase in the
interest rate spread from 1.63% in fiscal 2001 to 1.75% in fiscal 2002, and
11.2% growth in the average interest-earning assets and a 12.4% growth in
average interest-bearing liabilities. Earnings for fiscal 2002 were $4.42
million compared to $3.92 million and $3.86 million for the years ended
September 30, 2001 and 2000, respectively. The Company's return on average
assets (net income divided by average total assets) was 0.75% during fiscal 2002
compared to 0.74% and 0.81% during fiscal 2001 and 2000, respectively. Return on
average equity (net income divided by average equity) was 12.31% during fiscal
2002 compared to 12.00% during fiscal 2001 and 12.82% during fiscal 2000.

Results of Operations

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

Interest Income

Interest income on mortgage loans increased by $1.1 million or 6.6% in fiscal
2002 and increased by $1.5 million or 10.3% in fiscal 2001 from the respective
prior years. During fiscal 2002, the average balance of mortgage loans increased
$20.0 million or 9.2% and the yield decreased by 18 basis points. During fiscal
2001, the average balance of mortgage loans increased $18.2 million or 9.1% and
the yield increased by 8 basis points. The increase in the balance of mortgage
loans reflects the Company's ability to originate mortgage loans despite an
increase in refinancing of existing loans. The majority of loans originated
during the 2002 year were fixed rate mortgages. The interest income on
mortgage-backed securities reflected an increase of $38.1 million or 25.9% in
the average balance, which was partially offset by a 128 basis point decrease in
yield earned during fiscal 2002. The increase in the balance of mortgage-backed
securities reflects the need the Company had for mortgage-related products that
the Company was not able to originate in the local market area. The Company
needed a higher volume of mortgage-backed securities during fiscal 2002 and 2001
to offset the lower interest rate spread. In 2002, the decrease in interest
income on consumer and other loans reflected a decrease in the average balance
of $4.4 million or 4.8%, and a decrease in the yield to 6.50%.

During fiscal 2002, the average balance decreased $4.4 million or 4.8% and the
yield decreased 1.9% to produce the $1.9 million or 34.5% decrease in interest
and dividends on investments. The decrease in the average balance in 2002
reflects funds that were redeployed into adjustable rate mortgaged-backed
securities. Interest and dividends on investments increased by $416,000 or 8.0%
in fiscal 2001 over the respective prior years. During fiscal 2001, the increase
resulted from a $10.4 million or 12.8% growth in the average balance and the
yield decreased 0.3%.

Interest Expense

Interest expense on deposits decreased by $3.2 million or 19.1% in fiscal 2002
and increased $1.7 million or 11.1% in fiscal 2001 as compared to the respective
prior years. In fiscal 2002, the average balance increased $36.3 million or
11.4% with a 143 basis point decrease in the average rate paid. In fiscal 2001,
the average balance increased $17.2 million or 5.7% with a 3 basis point
increase in the average rate paid. The increase in the average balance reflects
normal savings activity for the Company. The average rate paid on deposits was
3.8% for the year ended September 30, 2002, compared to 5.2% for the year ended
September 30, 2001.


4 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>


<TABLE>
<CAPTION>
                              As of                          For The Year Ended September 30,
                             Sept 30,
                               -----------------------------------------------------------------------------------------------------
                               2002                  2002                             2001                          2000
                               ------------------------------------       --------------------------    ----------------------------
                                         Average             Yield/       Average             Yield/    Average             Yield/
                               Rate      Balance   Interest   Rate        Balance   Interest   Rate     Balance  Interest    Rate
                               --------------------------------------   -----------------------------  -----------------------------
<S>                            <C>     <C>        <C>          <C>      <C>         <C>         <C>     <C>      <C>          <C>
Interest-earning assets:
  Mortgage loans (2)           6.95%   $ 237,265  $ 17,715     7.47%    $ 217,268   $ 16,613    7.65%   $199,109 $ 15,065     7.57%
  Mortgage-backed securities   5.18%     185,409     9,883     5.33%      147,301      9,739    6.61%    124,418    8,427     6.77%
  Consumer and other loans     6.32%      59,784     3,887     6.50%       56,336      4,313    7.66%     58,009    4,467     7.70%
  Investments                  3.21%      87,185     3,691     4.23%       91,572      5,639    6.16%     81,215    5,223     6.43%
                               ----    ---------  --------     ----     ---------   --------    ----    -------- --------     ----

Total interest-earning
  assets                       5.60%     569,643    35,176     6.18%      512,477     36,304    7.08%    462,751   33,182     7.17%
                               ----    ---------  --------     ----     ---------   --------    ----    -------- --------     ----
Interest-bearing liabilities:
  Deposits                     3.39%     349,268    13,519     3.87%      319,487     16,709    5.23%    302,269   15,037     4.97%
  Borrowings                   5.37%     192,099    10,706     5.57%      168,049      9,875    5.88%    131,514    7,758     5.90%
                               ----    ---------  --------     ----     ---------   --------    ----    -------- --------     ----

Total interest-bearing
  liabilities                  4.10%     541,367    24,225     4.47%     487,536      26,584    5.45%    433,783   22,795     5.25%
                               ----    ---------  --------     ----     ---------   --------    ----    -------- --------     ----

Net interest income/interest
  rate spread                  1.50%             $  10,951    1.71%                  $ 9,720    1.63%             $ 10,387    1.92%
                               ====              =========    ====                   =======    ====               ========   ====


Net interest-earning assets/
  net yield on interest-
  earning assets (1)                   $  28,276               1.92%   $  24,941                1.90%   $ 28,968              2.24%
                                       =========               ====    =========                ====    ========              ====

Ratio of interest-earning
  assets to interest-
  bearing liabilities                                         105.2%                           105.1%                        106.7%
                                                              =====                            =====                         =====

</TABLE>


(1)  Net interest income divided by average interest-earning assets
(2)  Loan fee income is immaterial to this analysis


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

<TABLE>
<CAPTION>
                                                            Fiscal 2002 Compared                          Fiscal 2001 Compared
                                                               to Fiscal 2001                                to Fiscal 2000
                                                             Increase (Decrease)                           Increase (Decrease)
                                                     Volume        Rate          Total         Volume        Rate           Total
                                                     ------        ----          -----         ------        ----           -----
<S>                                                 <C>           <C>           <C>           <C>           <C>           <C>
Interest income on interest-earning assets:
  Mortgage loans                                    $ 1,500       $  (398)      $ 1,102       $ 1,387       $   161       $ 1,548
  Mortgage-backed securities                          2,240        (2,096)          144         1,517          (205)        1,312
  Consumer and other loans                              252          (678)         (426)         (128)          (26)         (154)
  Investments                                          (259)       (1,689)       (1,948)          645          (229)          416
                                                    -------       -------       -------       -------       -------       -------
     Total                                            3,733        (4,861)       (1,128)        3,421          (299)        3,122
                                                    -------       -------       -------       -------       -------       -------

Interest expense on interest-bearing liabilities:
  Deposits                                            1,744        (4,934)       (3,190)          880           792         1,672
  Borrowings                                          1,360          (528)          832         2,147           (31)        2,116
                                                    -------       -------       -------       -------       -------       -------

     Total                                            3,104        (5,462)       (2,358)        3,027           761         3,788
                                                    -------       -------       -------       -------       -------       -------

Net change in net interest income                   $   629       $   601       $ 1,230       $   394       $(1,060)      $  (666)
                                                    =======       =======       =======       =======       =======       =======

</TABLE>


<PAGE>

                                                            2002 ANNUAL REPORT 5

Interest expense on borrowings increased by $833,000 or 8.4% in fiscal 2002 and
by $2.1 million or 27.3% in fiscal 2001 as compared to the respective prior
years. The increase in interest expense during fiscal 2002 was the result of a
$36.2 million or 21.1% increase in the average balance of borrowings partially
offset by a decrease of 31 basis points in the average rate paid. Borrowings
were primarily obtained during fiscal 2002 to fund the purchase of
mortgage-backed securities and long-term fixed-rate mortgages. Long-term FHLB
advances were used to match the maturity terms of these mortgage products.

Net Interest Income

Net interest income increased by $1.2 million or 12.65% in fiscal 2002 and
decreased by $666,000 or 6.4% in fiscal 2001 over the respective prior periods.
The improvements in the net interest income in 2002 were due to a higher amount
of interest-earning assets and an increase in the interest rate spread. The
decrease in 2001 was a direct result of an increased balance in tax advantageous
investments, which have a lower yield and the rapid drop of 400 basis points in
short-term rates by the Federal Reserve.

Provision for Loan Losses

Management establishes reserves for losses on slow loans when it determines that
losses are probable on the underlying properties. The adequacy of loan loss
reserves is based upon a regular monthly review of loan delinquencies and
"classified assets", as well as local and national economic trends. Although
management has currently established no specific reserves for losses, no
assurance can be given as to whether future specific reserves may be required.
The allowance for loan losses totaled $2.0 million at September 30, 2002 and
2001 or 0.7% and 0.8% of total loans at September 30, 2002 and 2001,
respectively.

Other Income

The Company's total other operating income decreased to $1.1 million in fiscal
2002 and increased to $1.2 million in fiscal 2001. The decrease from 2001 to
2002 is attributed to a loss on the sale of an investment available for sale of
$24,000 in fiscal 2002 as compared to a gain of $152,000 in fiscal 2001. The
increase from 2000 to 2001 reflected an increase in income from Bank Owned Life
Insurance ("BOLI") and the sale of investments designated as available for sale.
Other income, which consists primarily of income from fees on demand accounts,
loan servicing fees, the sale of non-deposit products, insurance commissions,
loan late charges and BOLI income, increased by $116,000 or 18.5% during fiscal
year 2002. During fiscal 2001, other income increased by $543,000 or 106.0% over
the prior comparable fiscal year. The fees which comprise other income are set
by the Company at a level which is intended to cover the cost of providing the
related services and expenses to customers and employees.

Other Expenses

Salaries and employee benefits increased by $336,000 or 11.1% in fiscal 2002 and
by $296,000 or 10.9% in fiscal 2001 as compared to prior respective fiscal
years. The increased expenses of salaries and employee benefits during the
periods are attributable to increased staffing needs, normal salary increases
and increased employee benefit expenses.

Occupancy and equipment expense increased $169,000 or 14.5% in fiscal 2002 and
by $132,000 or 12.8% in fiscal 2001 as compared to the prior respective fiscal
years. The increase in 2002 and 2001 was attributable to the opening of a new
full-service branch in June 2001.

Deposit insurance premiums increased by $1,000 or 2.0% in fiscal 2002, and
decreased by $32,000 or 34.2% in fiscal 2001 over the prior respective fiscal
years. The increase in fiscal 2002 is the result of a higher average deposit
balances. The decrease in 2001 is the result of the sharing of FICO bond
interest payments by all FDIC insured institutions resulting in a premium
reduction of an additional 22 basis points effective January 1, 2000.

Other expenses, which consist primarily of advertising expenses, directors'
fees, ATM network fees, professional fees, checking account costs, stockholders
expense, and insurance premiums, increased by $96,000 or 6.1% in fiscal 2002,
and increased by $56,000 or 3.6% in fiscal 2001 over the prior respective fiscal
years. The current year increase is due to the full year of operation of a new
full-service branch, which was opened in June 2001.

Income Taxes

The Company recorded income tax provisions of $1.2 million for fiscal year 2002
and 2001. The primary reason for the income tax provision remaining the same in
fiscal 2002 and 2001 even though income before taxes increased $499,000 was do
to the increase in tax-free income resulting from purchases of tax-exempt
securities and BOLI, as the Company employed various strategies to reduce taxes.
See Note 12 of the "Notes to Financial Statements" which provides an analysis of
the provision for income taxes.

Asset and Liability Management

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

The authority and responsibility for interest rate management is vested in the
Company's Board of Directors. The Chief Executive Officer implements the Board
of


6 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

Directors' policies during the day-to-day operations of the Company. Each month,
the Chief Executive Officer presents the Board of Directors with a report which
outlines the Company's asset and liability "gap" position in various time
periods. The "gap" is the difference between interest-earning assets and
interest-bearing liabilities which mature or reprice over a given time period.
He also meets weekly with the Company's other senior officers to review and
establish policies and strategies designed to regulate the Company's flow of
funds and coordinate the sources, uses and pricing of such funds. The first
priority in structuring and pricing the Company's assets and liabilities is to
maintain an acceptable interest rate spread while reducing the effects of
changes in interest rates and maintaining the quality of the Company's assets.
The following table summarizes the amount of interest-earning assets and
interest-bearing liabilities outstanding as of September 30, 2002, which are
expected to mature, prepay or reprice in each of the future time periods shown.
Except as stated below, the amounts of assets or liabilities shown which mature
or reprice during a particular period were determined in accordance with the
contractual terms of the asset or liability. Adjustable and floating-rate assets
are included in the period in which interest rates are next scheduled to adjust
rather than in the period in which they are due, and fixed-rate loans and
mortgage-backed securities are included in the periods in which they are
anticipated to be repaid.

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

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

Liquidity and Capital Resources

The Company's assets increased from $488.6 million as of September 30, 2000, to
$558.4 million as of September 30, 2001, and to $620.3 million as of September
30, 2002. Stockholders' equity increased from $31.4 million as of September 30,
2000, to $34.3 million as of September 30,

<TABLE>
<CAPTION>
                                                      1 Year          1 to 3            3 to 5          Over 5
                                                      or Less          Years            Years           Years           Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>              <C>              <C>             <C>
Interest-earning assets:
  Mortgage loans                                    $  33,339       $  40,358        $  29,171        $ 134,292       $ 237,160
  Mortgage-backed securities                           90,194          21,553           18,377           71,196         201,320
  Consumer and other loans                             33,778          15,230            8,644                           57,652
  Investment securities and other investments          79,085           9,874                            25,874         114,833
                                                    ---------       ---------        ---------        ---------       ---------
Total interest-earning assets                         236,396          87,015           56,192          231,362         610,965
                                                    ---------       ---------        ---------        ---------       ---------
Interest-bearing liabilities:
  Passbook and Club accounts                                                                              3,327           3,327
  NOW accounts                                                                                           22,624          22,624
  Money Market Deposit accounts                        24,710                                            39,366          64,076
  Choice Savings                                        4,847                                            14,541          19,388
  Certificate accounts                                136,073          80,059           46,399                          262,531
  Borrowed money                                       20,445          42,771           21,487          122,799         207,502
                                                    ---------       ---------        ---------        ---------       ---------

Total interest-bearing liabilities                    186,075         122,830           67,886          202,657         579,448
                                                    ---------       ---------        ---------        ---------       ---------

Repricing GAP during the period                     $  50,321       $ (35,815)       $ (11,694)       $  28,705       $  31,517
                                                    =========       =========        =========        =========       =========

Cumulative GAP                                      $  50,321       $  14,506        $   2,812        $  31,517
                                                    =========       =========        =========        =========

Ratio of GAP during the period to total assets           8.24%          -5.86%           -1.91%            4.70%
                                                         ====            ====             ====             ====

Ratio of cumulative GAP to total assets                  8.24%           2.37%            0.46%            5.16%
                                                         ====            ====             ====             ====
</TABLE>

                                                            2002 ANNUAL REPORT 7

<PAGE>

2001, and to $37.9 million as of September 30, 2002. As of September 30, 2002,
stockholders' equity amounted to 6.1% of Harleysville Savings' total assets
under accounting principles generally accepted in the United States of America
("GAAP").

For a financial institution, liquidity is a measure of the ability to fund
customers' needs for loans and deposit withdrawals. Harleysville Savings
regularly evaluates economic conditions in order to maintain a strong liquidity
position. One of the most significant factors considered by management when
evaluating liquidity requirements is the stability of the Company's core deposit
base. In addition to cash, the Company maintains a portfolio of short-term
investments to meet its liquidity requirements. Harleysville Savings also relies
upon cash flow from operations and other financing activities, generally
short-term and long-term debt. Liquidity is also provided by investing
activities including the repayment and maturity of loans and investment
securities as well as the management of asset sales when considered necessary.
The Company also has access to and sufficient assets to secure lines of credit
and other borrowings in amounts adequate to fund any unexpected cash
requirements.

Impact of Inflation and Changing Prices

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

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

Critical Accounting Policies

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

Allowance for Loan Losses - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). The
Company's periodic evaluation of the allowance is based on the known and
inherent risks in the portfolio, past loan loss experience, current economic
conditions, trends within the Company's market area and other relevant factors.
The first step in determining the allowance for loan losses is recognizing a
specific allowance on individual impaired loans. Special mention, nonaccrual,
substandard and doubtful residential and other consumer loans are considered for
impairment. An allowance is recognized for loan losses in the remainder of the
loan portfolio based on known and inherent risk characteristics in the
portfolio, past loss experience and prevailing market conditions. Because
evaluating losses involves a high degree of management judgement, a margin is
included for the imprecision inherent in making these estimates. While
management believes that the allowance is adequate to absorb estimated credit
losses in its existing loan portfolio, future adjustments may be necessary in
circumstances that differ substantially from the assumptions used in evaluating
the adequacy of the allowance for loan losses.

Controls and Procedures

Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures within 90 days of the filing date of this quarterly report, and based
on their evaluation, our chief executive officer and chief financial officer
have concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.

Forward-Looking Statements

This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. In
addition, in those and other portions of this document, the words "anticipate,"
"believe," "estimate," "except," "intend," "should" and similar expressions, or
the negative thereof, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future-looking events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.


8 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

Independent Auditors' Report

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


We have audited the consolidated statements of financial condition of
Harleysville Savings Financial Corporation and subsidiary (the "Company") as of
September 30, 2002 and 2001, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30,
2002 and 2001, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.




/s/ Deloitte & Touche LLP
-------------------------

Philadelphia, Pennsylvania
October 24, 2002




                                                            2002 ANNUAL REPORT 9

<PAGE>

<TABLE>
<CAPTION>

         Consolidated Statements of Financial Condition
                                                                                       September 30,
                                                                                  2002               2001
-------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>
Assets
Cash and amounts due from depository institutions                            $  1,431,186      $  1,360,099
Interest-bearing deposits in other banks                                       34,871,718         7,588,033
                                                                             ------------      ------------

    Total cash and cash equivalents                                            36,302,904         8,948,132

Investment securities held to maturity
  (fair value - 2002, $57,555,000; 2001, $63,568,000)                          55,665,399        62,202,405
Investment securities available-for-sale at fair value                         11,999,611         3,293,981
Mortgage-backed securities held to maturity
  (fair value - 2002, $168,529,000; 2001, $171,236,000)                       163,814,970       167,726,725
Mortgage-backed securities available-for-sale at fair value                    29,514,940
Loans receivable (net of allowance for loan losses -
  2002, $2,035,000; 2001, $2,036,000)                                         295,353,734       290,213,221
Accrued interest receivable                                                     2,836,448         3,402,945
Federal Home Loan Bank stock - at cost                                         10,496,500         8,950,200
Office properties and equipment, net                                            5,013,031         5,224,482
Deferred income taxes                                                             134,493           260,041
Prepaid expenses and other assets                                               9,132,423         8,165,985
                                                                             ------------      ------------

Total Assets                                                                 $620,264,453      $558,388,117
                                                                             ============      ============
</TABLE>

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

<TABLE>
<CAPTION>

<S>                                                                         <C>               <C>
Liabilities and Stockholders' Equity

Liabilities:
  Deposits                                                                  $ 371,946,978     $ 350,146,555
  Advances from Federal Home Loan Bank                                        207,502,346       171,309,384
  Accrued interest payable                                                      1,041,892           727,501
  Advances from borrowers for taxes and insurance                                 983,083           979,964
  Accounts payable and accrued expenses                                           922,522           960,825
                                                                            -------------     -------------

  Total liabilities                                                           582,396,821       524,124,229
                                                                            -------------     -------------


Commitments and Contingencies (Note 16 and 17)
Stockholders' Equity:
  Preferred Stock: $.01 par value;
    7,500,000 shares authorized; none issued
  Common stock: $.01 par value; 15,000,000
    shares authorized; issued and outstanding,
    2002, 2,316,490 shares; 2001, 2,306,455 shares                                 23,165            23,065
  Paid-in capital in excess of par                                              7,551,849         7,358,681
  Treasury stock, at cost (2002, 55,912 shares; 2001, 69,899 shares)             (881,227)       (1,024,733)
  Retained earnings - partially restricted                                     31,124,031        27,922,182
  Accumulated other comprehensive gain (loss)                                      49,814           (15,307)
                                                                            -------------     -------------

  Total stockholders' equity                                                   37,867,632        34,263,888
                                                                            -------------     -------------

Total Liabilities and Stockholders' Equity                                  $ 620,264,453     $ 558,388,117
                                                                            =============     =============
</TABLE>


See notes to consolidated financial statements.

10 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Income
                                                                        Year Ended September 30,
                                                               2002              2001              2000
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>               <C>
Interest Income:
Interest on mortgage loans                                $ 17,714,638       $ 16,612,758      $ 15,064,856
Interest on mortgage-backed securities                       9,882,883          9,738,939         8,426,701
Interest on consumer and other loans                         3,887,249          4,312,688         4,466,858
Interest on taxable investments                              1,818,917          3,638,277         3,858,091
Interest on tax-exempt investments and dividends             1,872,563          2,000,655         1,365,231
                                                          ------------       ------------      ------------

Total interest and dividend income                          35,176,250         36,303,317        33,181,737
                                                          ------------       ------------      ------------

Interest Expense:
Interest on deposits                                        13,519,464         16,709,367        15,037,450
Interest on borrowings                                      10,706,298          9,873,560         7,757,625
                                                          ------------       ------------      ------------

Total interest expense                                      24,225,762         26,582,927        22,795,075
                                                          ------------       ------------      ------------

Net Interest Income
Provision for Loan Losses                                   10,950,488          9,720,390        10,386,662
                                                          ------------       ------------      ------------

Net Interest Income, after Provision for Loan Losses        10,950,488          9,720,390        10,386,662
                                                          ------------       ------------      ------------

Other Income:
Gain on sales of loans                                          31,132             39,647            40,245
(Loss) gain on sales of investments                            (23,894)           151,663
Increase in cash surrender value                               363,000            424,262            29,000
Other income                                                   747,428            630,968           483,071
                                                          ------------       ------------      ------------
Total other income                                           1,117,666          1,246,540           552,316
                                                          ------------       ------------      ------------

Other Expenses:
Salaries and employee benefits                               3,361,728          3,025,304         2,729,174
Occupancy and equipment                                      1,331,537          1,162,742         1,030,401
Deposit insurance premiums                                      62,012             60,815            92,439
Data processing                                                535,425            461,600           445,785
Other                                                        1,144,130          1,122,102         1,082,302
                                                          ------------       ------------      ------------


Total other expenses                                         6,434,832          5,832,563         5,380,101
                                                          ------------       ------------      ------------

Income before Income Taxes                                   5,633,322          5,134,367         5,558,877

Income tax expenses                                          1,218,017          1,219,200         1,701,980
                                                             ---------          ---------         ---------

Net Income                                                $  4,415,305       $  3,915,167      $  3,856,897
                                                          ============       ============      ============


Earnings Per Share:
  Basic                                                   $       1.96       $       1.76      $       1.72
                                                          ============       ============      ============
  Diluted                                                 $       1.93       $       1.73      $       1.70
                                                          ============       ============      ============


Weighted Average Shares Outstanding:
  Basic                                                      2,249,816          2,228,747         2,252,308
                                                          ============       ============      ============
  Diluted                                                    2,292,191          2,257,370         2,275,764
                                                          ============       ============      ============
</TABLE>


See notes to consolidated financial statements.


                                                           2002 ANNUAL REPORT 11
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Comprehensive Income
                                                                                          2002             2001             2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>               <C>             <C>
Net Income                                                                           $ 4,415,305       $ 3,915,167     $ 3,856,897
Other Comprehensive Income (Loss)
  Unrealized gain (loss) on securities net of tax (benefit)
  expense-2002, (39,800); 2001, ($55,430); 2000, ($54,606)                                65,121 (1)        90,694 (1)      (5,245)
                                                                                     -----------       -----------     -----------

Total Comprehensive Income                                                           $ 4,480,426       $ 4,005,861     $ 3,851,652
                                                                                     ===========       ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
<S>                                                                                    <C>             <C>
                                                                                           2002             2001
                                                                                           ----             ----
(1) Disclosure of reclassification amount, net of tax for the years
    ended:
    Net unrealized gain arising during the year                                        $  49,590       $   190,792
    Less: Reclassification adjustment for net loss (gains) included in net income         15,531          (100,098)
                                                                                       ---------       -----------

    Net unrealized gain on securities                                                  $  65,121       $    90,694
                                                                                     ===========       ===========
</TABLE>


<TABLE>
<CAPTION>

Consolidated Statements of Stockholders' Equity

                                                           Paid-in       Retained        Accumulated
                                                           Capital       Earnings-         Other                          Total
                                             Common       in Excess      Partially     Comprehensive    Treasury       Stockholders'
                                             Stock          of Par       Restricted    (Loss) Income     Stock            Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>             <C>            <C>           <C>               <C>
Balance at October 1, 1999                $    22,568    $ 6,829,794     $22,211,041    $(100,756)                      $28,962,647

Net Income                                                                 3,856,897                                      3,856,897
Issuance of Common Stock                          283        289,593                                                        289,876
 Dividends - $.44 per share                                                 (991,625)                                      (991,625)
Treasury stock purchased                                                                              $  (714,163)         (714,163)
Change in unrealized holding loss on
 available-for-sale securities, net of tax                                                 (5,245)                           (5,245)
                                          -----------    -----------     -----------   -----------    -----------       -----------

Balance at September 30, 2000                  22,851      7,119,387      25,076,313     (106,001)       (714,163)       31,398,387

Net Income                                                                 3,915,167                                      3,915,167
Issuance of Common Stock                          214        239,294                                                        239,508
Dividends - $.48 per share                                                (1,069,298)                                    (1,069,298)
Treasury stock purchased                                                                                 (429,874)         (429,874)
Treasury stock used                                                                                       119,304           119,304
Change in unrealized holding loss on
 available-for-sale securities, net of tax                                                 90,694                            90,694
                                          -----------    -----------     -----------    ---------     -----------       -----------
Balance at September 30, 2001                  23,065      7,358,681      27,922,182      (15,307)     (1,024,733)       34,263,888

Net Income                                                                 4,415,305                                      4,415,305
Issuance of Common Stock                          100        106,932                                                        107,032
Dividends - $.54 per share                                                (1,213,456)                                    (1,213,456)
Treasury stock purchased                                                                                 (336,335)         (336,335)
Treasury stock delivered under
  employee stock plans                                       (7,329)                                      186,323           178,994
Treasury stock delivered under
Dividend Reinvestment Plan                                   93,565                                       293,518           387,083
Change in unrealized holding loss on
 available-for-sale securities, net
 of tax                                                                                    65,121                            65,121
                                          -----------    -----------     -----------    ---------     -----------       -----------
Balance at September 30, 2002             $    23,165    $ 7,551,849     $31,124,031    $  49,814     $  (881,227)      $37,867,632
                                          ===========    ===========     ===========    =========     ===========       ===========
</TABLE>



See notes to consolidated financial statements.

12 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows
                                                                                               Year Ended September 30,
                                                                                     2002                2001              2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                 <C>                 <C>
Operating Activities:
Net Income                                                                     $   4,415,305       $   3,915,167       $  3,856,897
Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
    Provision for loan losses
    Depreciation                                                                     407,721             474,970            426,771
    Deferred income taxes                                                             40,264              56,076              3,557
    Realized gain on sales of loans                                                  (31,131)            (39,647)           (40,245)
    Realized gain on sales of mortgage-backed securities                                                (151,663)
    Realized loss on sale of investment securities                                    23,894
    Realized gain on sale of real estate owned                                                                              (13,606)
    Proceeds from the sale of loans held for sale                                  2,508,725           3,268,895          3,369,004
    Amortization of deferred loan fees                                              (549,352)            (27,203)          (139,351)
Changes in assets and liabilities which provided (used) cash:
    (Decrease) increase in accounts payable and accrued expenses
      and income taxes payable                                                       (38,303)            319,677             72,080
    Increase in prepaid expenses and other assets                                   (966,438)           (170,030)        (7,624,387)
    Decrease (increase) in accrued interest receivable                               566,497            (156,231)          (351,605)
    Increase (decrease) in accrued interest payable                                  314,391             (97,171)           222,859
                                                                               -------------       -------------       ------------

Net cash provided by (used in) operating activities                                6,691,573           7,392,840           (218,026)
                                                                               -------------       -------------       ------------

Investing Activities:
Purchase of mortgage-backed securities held to maturity                          (56,591,573)        (80,175,532)       (13,038,000)
Purchase of mortgage-backed securities available-for-sale                        (30,687,596)
Purchase of investment securities held to maturity                               (44,228,155)        (37,250,830)       (11,747,185)
Purchase of investment securities available-for-sale                             (12,624,099)           (106,612)          (112,069)
Purchase of FHLB stock                                                            (1,546,300)         (1,585,000)          (892,300)
Proceeds from the sale of mortgage-backed securities available-for-sale                                7,331,055
Proceeds from the sale of investment securities available-for-sale                 3,918,469
Proceeds from maturities of investment securities                                 50,765,161          46,329,291          1,480,926
Principal collected on long-term loans & mortgage-backed securities              175,238,565         106,529,446         60,356,491
Long-term loans originated or acquired                                          (120,498,996)       (107,985,365)       (60,199,446)
Purchases of premises and equipment                                                 (202,099)         (1,249,531)          (198,806)
Proceeds from sale of real estate owned                                                                   32,309             133,221
                                                                               -------------       -------------       ------------

Net cash used in investing activities                                            (36,456,623)        (68,130,769)       (24,217,168)
                                                                               -------------       -------------       ------------

Financing Activities:
Net increase (decrease) in demand deposits, NOW accounts
  and savings accounts                                                            19,799,753          20,762,070         (5,527,563)
Net increase in certificates of deposit                                            2,000,670          19,548,675         11,703,274
Cash dividends                                                                    (1,213,456)         (1,069,298)          (991,625)
Net increase in FHLB advances                                                     36,192,962          26,175,101         19,954,355
Purchase of treasury stock                                                          (336,335)           (429,874)          (714,163)
Proceeds from the sale of treasury stock                                             479,841             119,304
Net proceeds from issuance of stock                                                  193,268             239,508            289,876
Net increase (decrease) in advances from borrowers for taxes and insurance             3,119             260,373           (154,576)
                                                                               -------------       -------------       ------------

Net cash provided by financing activities                                         57,119,822          65,605,859         24,559,578
                                                                               -------------       -------------       ------------
Increase in cash and cash equivalents                                             27,354,772           4,867,930            124,384

Cash and cash equivalents at beginning of year                                     8,948,132           4,080,202          3,955,818
                                                                               -------------       -------------       ------------
Cash and cash equivalents at end of year                                       $  36,302,904       $   8,948,132       $  4,080,202
                                                                               =============       =============       ============

Supplemental Disclosure of Cash Flow Information-
Cash paid during the period for:
  Interest (credited and paid)                                                 $  24,540,153       $  26,485,756       $ 22,572,216
  Non cash transfer from loans to real estate owned                                                       32,309            119,615
</TABLE>


           See notes to consolidated financial statements.

                                                           2002 ANNUAL REPORT 14

<PAGE>

Notes to Consolidated Financial Statements

1. Nature of Operations and Organizational Structure

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

The Company is a bank holding company that is regulated by the Federal Reserve
Bank of Philadelphia. The Bank is a wholly owned subsidiary and is regulated by
the FDIC and the Pennsylvania Department of Banking. The Bank is principally in
the business of attracting deposits through its branch offices and investing
those deposits, together with funds from borrowings and operations, primarily in
single family residential and consumer loans. The Bank has three wholly owned
subsidiaries: HSB, Inc., Freedom Financial Solutions LLC, ("FFS") and HARL LLC,
("HARL"). HSB, Inc. is a Delaware holding company of which the principal
business is investing. FFS was established in 2002 to engage in the sale of
insurance products through a third party. HARL was established during 2002 for
the purpose of investing in FDIC insured financial institutions/holding company
equity securities. Both FFS and HARL were inactive during 2002.

2. Summary of Significant Accounting Policies

Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company, the Bank, and the Bank's wholly owned
subsidiaries, HSB Inc, Freedom Financial LLC and HARL. LLC. All significant
intercompany accounts and transactions have been eliminated in consolidation.

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

Cash and Cash Equivalents - For purposes of the consolidated statements of cash
flows, cash and cash equivalents include cash and balances due from banks,
federal funds sold and securities purchased under agreements to resell, all of
which mature within ninety days.

Interest-bearing Deposits in Banks - Interest-bearing deposits in banks mature
within one year and are carried at cost.

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

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

Available for Sale - Debt and equity securities that will be held for indefinite
periods of time, including securities that may be sold in response to changes in
market interest or prepayment rates, needs for liquidity and changes in the
availability of and the yield of alternative investments are classified as
available for sale. These assets are carried at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive
income. Fair value is determined using published quotes as of the close of
business.

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

Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and recognized as an adjustment
of the related loan yield using the interest method.

The accrual of interest on mortgage loans is discontinued at the time the loan
is 90 days delinquent unless the credit is well-secured and in process of
collection. Other personal loans are typically charged off no later than 180
days past due. In all cases, loans are placed on nonaccrual or charged off at an
earlier date if collection of principal or interest is considered doubtful.

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

Interest on loans is recognized as income when earned.

Allowance for Loan Losses - Allowances for loan losses primarily include charges
to reduce the recorded balances of mortgage loans receivable. The charges can
represent a general reserve on the entire mortgage portfolio or specific
reserves for individual loans.

Allowances are provided for specific loans when losses are probable and
can be estimated. When this occurs, management considers the remaining principal
balance and

15 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

estimated net realizable value of the property collateralizing the loan. Current
and future operating and/or sales conditions are considered. These estimates are
susceptible to changes that could result in material adjustments to results of
operations. Recovery of the carrying value of such loans is dependent, to a
great extent, on economic, operating and other conditions that may be beyond
management's control.

Loan loss reserves are established as an allowance for losses based on the
perceived risk of loss in the loan portfolio. In assessing risk, management
considers historical experience, volume and composition of lending conducted by
the Company, industry standards, status of nonperforming loans, general economic
conditions as they relate to the Company's market area, and other factors
related to the collectibility of the Company's loan portfolio. An adjustment to
the carrying value of a loan through the provision for loan losses occurs when
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan.

Real Estate Owned - Real estate owned is initially recorded at the lower of
carrying value of the loan or fair value at the date of foreclosure less
estimated costs to dispose. Costs relating to the development and improvement of
the property are capitalized, and those relating to holding the property are
charged to expense. Land is reoffered at cost.

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

Deferred Loan Fees - The Company recognizes loan fees and certain direct loan
origination costs in accordance with Statement of Financial Accounting Standards
("SFAS") No. 91, Accounting for Nonrefundable Fees and Costs Associated With
Originating or Acquiring Loans and Indirect Costs of Leases. SFAS No. 91
requires the deferral of all loan fee income, net of certain direct loan
origination costs. Net deferred loan fees are accreted into income as a yield
adjustment over the life of the loan using the interest method. SFAS No. 91
permits the deferral only of direct loan origination costs relating to
successful loan origination efforts, not idle time or overcapacity.

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

Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -
The Company accounts for transfers and servicing of financial assets in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (a replacement of Financial
Accounting Standards Board "FASB" Statement No. 125). This statement revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS No. 125 provisions without reconsideration. This statement is effective
for all fiscal years ending after December 15, 2000.

The adoption of this statement did not have a material impact on the Company's
financial position or results of operations.

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

Accounting for Stock Options - The Company accounts for stock-based compensation
in accordance with the Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. This method calculates compensation
expense using the intrinsic value method, which recognizes as expense the
difference between the market value of the stock and the exercise price at grant
date. The Company has not recognized any compensation expense under this method.
The Company adopted the reporting disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, which requires the Company to disclose
the pro forma effects of accounting for stock-based compensation using the fair
value method as described in the accounting requirements of SFAS No. 123. As
permitted by SFAS No. 123, the Company continues to account for stock-based
compensation under APB Opinion No. 25. FASB Interpretation No. 44, Accounting
for Certain Transaction Involving Stock Compensation ("FIN No. 44") clarifies
the application of APB No. 25 for certain issues. The Company adopted the
provisions of FIN No. 44 in fiscal year 2000. The adoption of the interpretation
did not have a material effect on the consolidated financial statements.

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

<TABLE>
<CAPTION>

                                Year Ended September 30,
                            2002         2001          2000
---------------------------------------------------------------
<S>                       <C>          <C>           <C>
Average shares
outstanding - basic       2,249,816    2,228,747     2,252,308

Increase in shares due
to diluted options           42,375       28,623        23,456
                          ---------    ---------     ---------
Average shares
outstanding - diluted     2,292,191    2,257,370     2,275,764
                          =========    =========     =========
</TABLE>


                                                     2002 ANNUAL REPORT       16
<PAGE>

Accounting for Comprehensive Income - In accordance with SFAS No. 130, Reporting
Comprehensive Income, the Company presents, as a component of comprehensive
income, amounts from transactions and other events, which are currently excluded
from the statement of income and are recorded directly to stockholders' equity.

Recent Accounting Pronouncements - In June 2001, the FASB issued two new
pronouncements: SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS 141 is effective as follows: a) use of the
pooling-of-interest method is prohibited for business combinations initiated
after June 30, 2001; and b) the provisions of SFAS No.141 also apply to all
business combinations accounted for by the purchase method that are completed
after June 30, 2001 (that is, the date of the acquisition is July 2001 or
later). There are also transition provisions that apply to business combinations
completed before July 1, 2001, that were accounted for by the purchase method.
SFAS No.142 is effective for fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized in an entity's statement of
financial position at that date, regardless of when those assets were initially
recognized. The adoption of these standards will not have a material impact on
the Company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No.144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business (as previously defined in that Opinion). This statement
also amends ARB No. 51, Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The Company is currently evaluating the provisions of this
pronouncement and has not yet determined the effect that adoption of this
standard will have on its consolidated financial statements.

In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The
provisions of this statement related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. Certain provisions of
the statement relating to SFAS No. 13 are effective for transactions occurring
after May 15, 2002. All other provisions of the statement are effective for
financial statements issued on or after May 15, 2002. These provisions had no
impact on the Company's financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. In October 2002, the FASB issued No. 147, Acquisitions of Certain
Financial Institutions. This statement address the financial accounting and
reporting for the acquisition of all or part of a financial institution, except
for a transaction between two or more mutual enterprises. This statement removes
acquisitions of financial institutions, other than transactions between two or
more mutual enterprises, from the scope of SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9,
Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a
Similar Institution Is Acquired in a Business Combination Accounted for by the
Purchase Method. This statement also provides guidance on the accounting for the
impairment or disposal of acquired long-term customer-relationship intangible
assets (such as depositor- and borrower-relationship intangible assets and
credit cardholder intangible assets), including those acquired in transactions
between two or more mutual enterprises. The effective date of this statement is
October 1, 2002. The adoption of this standard will not have a material impact
on the Company's consolidated financial statements.

Cash Surrender Value of Life Insurance - The Company is the beneficiary of
insurance policies on the lives of officers and some employees of the Bank. The
Company has recognized the amount that could be realized under the insurance
policies as an asset in the statement of financial condition.

Accounting for Derivative Instruments and Hedging Activities - The Company
adopted the provisions of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities as amended by SFAS Nos. 137 and 138, and as interpreted
by the FASB and the Derivatives Implementation Group through "Statement 133
Implementation Issues", as of October 1, 2000. Currently, no embedded
derivatives require bifurcation. The Company currently does not employ hedging
activities that require designation as either fair value or cash flow hedges, or
hedges of a net investment in a foreign operation.

Interest Rate Risk - The Company is engaged principally in providing first
mortgage loans to individuals and commercial enterprises. At September 30, 2002,
the Company's assets that earned interest at fixed and variable interest rates
were funded primarily with long-term liabilities that have interest rates that
are fixed.

The Company is vulnerable to a decrease in interest rates to the extent that
interest-earning assets mature or reprice more rapidly than interest-bearing
liabilities. In the current market, the Company primarily originates long-term
fixed-rate loans secured by single-family residences and purchases short-term
investments. The source of these funds has been long-term advances.

At September 30, 2002, the Company had interest-earning assets of approximately
$601,717,000 having a weighted average effective yield of 5.60% and
interest-bearing liabilities of approximately $572,199,000 having a weighted
average effective interest rate of 4.10%.

Reclassification - Certain items in the 2001 and 2000 financial statements have
been reclassified to conform with the presentation in the 2002 consolidated
financial statements.


17 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>


3. Investment Securities Held to Maturity

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

<TABLE>
<CAPTION>
                                                              September 30, 2002
                                                              Gross           Gross
                                           Amortized        Unrealized      Unrealized      Approximate
                                              Cost            Gains           Losses         Fair Value
--------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>              <C>
U.S. Government Agencies
 Due after 1 year through 5 years         $ 7,026,952      $   26,048                        $ 7,053,000
 Due after 5 years through 10 years         2,000,000          75,000                          2,075,000
 Due after 10 years through 15 years       21,757,858         415,571      $  (117,429)       22,056,000
Tax Exempt Obligations
 Due after 10 years through 15 years        3,235,924         124,076                          3,360,000
 Due after 15 years                        21,644,665       1,406,010          (39,675)       23,011,000
                                          -----------      ----------      -----------       -----------
Total Investment Securities               $55,665,399      $2,046,705      $  (157,104)      $57,555,000
                                          ===========      ==========      ===========       ===========
</TABLE>

<TABLE>
<CAPTION>

                                                               September 30, 2001
                                                               Gross       Gross
                                            Amortized       Unrealized   Unrealized    Approximate
                                              Cost            Gains        Losses      Fair Value
--------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>           <C>          <C>
U.S. Government Agencies
 Due after 2 years through 5 years        $ 1,000,000                                  $1,000,000
 Due after 5 years through 10 years        12,985,052      $  214,948                  13,200,000
 Due after 10 years through 15 years       24,446,500         304,500                  24,751,000
Tax Exempt Obligations
 Due after 15 years                        23,770,853         846,147                  24,617,000
                                          -----------      ----------                 -----------
Total Investment Securities               $62,202,405      $1,365,595                 $63,568,000
                                          ===========      ==========                 ===========
</TABLE>

At September 30, 2002, U.S. Government Agencies include structured note
securities with periodic interest rate adjustments and are callable periodically
by the issuing agency. These structured notes were comprised of step-up bonds
with par values of $10.0 million at September 30, 2002.The Company has the
positive intent and the ability to hold these securities to maturity. At
September 30, 2002, neither a disposal, nor conditions that could lead to a
decision not to hold these securities to maturity were reasonably foreseen.
There were no step-up bonds as of September 30, 2001.

4.  Investment Securities Available-For-Sale

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

<TABLE>
<CAPTION>
                                                         September 30, 2002
                                                        Gross           Gross
                                  Amortized           Unrealized      Unrealized      Approximate
                                     Cost               Gain            Losses        Fair Value
-------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>            <C>               <C>
ARM Mutual Funds                 $11,999,611                                          $11,999,611
                                 -----------                                          -----------
Total Investment Securities      $11,999,611                                          $11,999,611
                                 ===========                                          ===========

</TABLE>


<TABLE>
<CAPTION>
                                                          September 30, 2001
                                                        Gross           Gross
                                  Amortized           Unrealized      Unrealized      Approximate
                                     Cost               Gain            Losses        Fair Value
-------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>            <C>               <C>
ARM Mutual Funds                  $3,317,173                        $(23,192)         $3,293,981
                                  ----------                        --------          ----------
Total Investment Securities       $3,317,173                        $(23,192)         $3,293,981
                                  ==========                        ========          ==========
</TABLE>

Proceeds from the sale of investment available for sale during the year ended
September 30, 2002 were $3,918,469 resulting in a loss of $23,894. There were no
sales in the years ended September 30, 2001 and 2000.


                                                           2002 ANNUAL REPORT 18
<PAGE>


5. Mortgage-Backed Securities Held to Maturity

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

<TABLE>
<CAPTION>
                                                                 September 30, 2002
                                                              Gross             Gross
                                           Amortized        Unrealized        Unrealized       Approximate
                                             Cost             Gains             Losses          Fair Value
------------------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>             <C>                <C>
Collateralized mortgage obligations      $ 45,143,747      $  255,218      $     (5,965)      $ 45,393,000
FHLMC pass-through certificates            33,697,029       1,166,921            (4,950)        34,859,000
FNMA pass-through certificates             29,674,733       1,062,267                           30,737,000
GNMA pass-through certificates             55,299,461       2,240,539                           57,540,000
                                         ------------      ----------      ------------       ------------
Total Mortgage-Backed Securities         $163,814,970      $4,724,945      $    (10,915)      $168,529,000
                                         ============      ==========      ============       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                 September 30, 2001
                                                              Gross             Gross
                                           Amortized        Unrealized        Unrealized       Approximate
                                             Cost             Gains             Losses          Fair Value
------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>              <C>                <C>
Collateralized mortgage obligations     $  68,183,560    $   887,139       $    (181,699)     $  68,889,000
FHLMC pass-through certificates            14,315,089        544,911                             14,860,000
FNMA pass-through certificates             19,714,010        528,990                             20,243,000
GNMA pass-through certificates             65,514,066      1,729,934                             67,244,000
                                        -------------    -----------       -------------      -------------
Total Mortgage-Backed Securities        $ 167,726,725    $ 3,690,974       $    (181,699)     $ 171,236,000
                                        =============    ===========       =============      =============
</TABLE>


The Company has the positive intent and ability to hold these securities to
maturity. At September 30, 2002, neither a disposal nor conditions that could
lead to a decision not to hold these securities to maturity, were reasonably
foreseen.


6. Mortgage-Backed Securities Available-For-Sale

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


<TABLE>
<CAPTION>
                                                                 September 30, 2002
                                                              Gross             Gross
                                           Amortized        Unrealized        Unrealized       Approximate
                                             Cost             Gains             Losses          Fair Value
------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>              <C>               <C>
FHLMC pass-through certificates         $  22,322,686       $ 69,129                         $   22,391,815
GNMA pass-through certificates              7,116,778          6,347                              7,123,125
                                        -------------       --------                         --------------
Total Mortgage-Backed Securities        $  29,439,464       $ 75,476                         $   29,514,940
                                        =============       ========                         ==============
</TABLE>

Proceeds from the sale of mortgage-backed securities available for sale during
the year ended September 30, 2001 were $7,331,055 resulting in a gain of
$151,663. There were no mortgage-backed securities available for sale at
September 30, 2001.


19 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

7. Loans Receivable
Loans receivable consist of the following:
                                                        September 30,
-------------------------------------------------------------------------------
                                                  2002                 2001
-------------------------------------------------------------------------------
Residential Mortgages                        $ 235,359,382       $ 233,290,694
Commercial Mortgages                               495,647             785,923
Construction                                     8,607,450          14,649,063
Education                                          334,271           1,041,197
Savings Account                                    478,969             617,244
Home Equity                                     41,451,058          43,401,198
Automobile and other                               725,883             628,752
Line of Credit                                  18,529,734           9,806,918
                                             -------------       -------------

Total                                          305,982,394         304,220,989
Undisbursed portion of loans in process         (6,502,564)         (9,919,306)
Deferred loan fees                              (2,091,264)         (2,052,274)
Allowance for loan losses                       (2,034,832)         (2,036,188)
                                             -------------       -------------

Loans Receivable - net                       $ 295,353,734       $ 290,213,221
                                             =============       =============


The Company originates and purchases both adjustable and fixed interest rate
loans and mortgage-backed securities. At September 30, 2002, the composition of
these loans and mortgage-backed securities, in thousands, is as follows:

<TABLE>
<CAPTION>
                            Fixed-Rate                             Adjustable-Rate
              Term to Maturity      Book Value          Term to Maturity      Book Value
 ----------------------------------------------------------------------------------------


              <S>                   <C>                  <C>                <C>
              1 year or less          $ 3,721            1 year or less      $    97,407

              1-3 years                 8,161            1-3 years                 8,823

              3-5 years                14,840            3-5 years                10,234

              5-10 years               28,772            5-10 years                6,389

              over 10 years           254,563
                                    ---------                                -----------
                                    $ 310,057                                $   122,853
                                    =========                                ===========

</TABLE>


The adjustable-rate loans have interest rate adjustment limitations and are
generally indexed to the 1-year U.S. Treasury Securities rate. Future market
factors may affect the correlation of the interest rate adjustment with the
rates the Company pays on the short-term deposits that have been primarily
utilized to fund these loans. At September 30, 2002, 2001 and 2000, the Company
was servicing loans for others amounting to approximately $3,519,000, $4,873,000
and $6,586,000, respectively. Servicing loans for others generally consists of
collecting mortgage payments, maintaining escrow accounts, disbursing payments
to investors and foreclosure processing. Loan servicing income is recorded upon
receipt and includes servicing fees from investors and certain charges collected
from borrowers, such as late payment fees. In connection with the loans serviced
for others, the Company held borrowers' escrow balances of approximately
$21,000, $32,000, and $31,000 at September 30, 2002, 2001, and 2000,
respectively. Loans to officers and directors at September 30, 2002 and 2001,
were approximately $71,000 and $301,000, respectively. Additional loans and
repayments for the year ended September 30, 2002, were $101,000 and $331,000,
respectively, and for the year ended September 30, 2001, were approximately
$75,000 and $4,000, respectively. The Company provides loans primarily in its
local market area to borrowers that share similar attributes. This concentration
of credit exposes the Company to a higher degree of risk in this regard.



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

                                           Year Ended September 30,
                                    2002             2001              2000
-------------------------------------------------------------------------------
Balance, beginning of year      $ 2,036,188      $ 2,038,131       $ 2,040,000
 Provision for loan losses
 Loans charged off, net              (1,356)          (1,943)           (1,869)
                                -----------      -----------       -----------
Balance, end of year            $ 2,034,832      $ 2,036,188       $ 2,038,131
                                ===========      ===========       ===========


The provision for loan losses charged to expense is based upon past loan and
loss experiences and an evaluation of potential losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS No. 114. A loan
is considered to be impaired when, based upon current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan. An insignificant delay or insignificant
shortfall in amount of

                                                           2002 ANNUAL REPORT 20

<PAGE>

payments does not necessarily result in the loan being identified as impaired.
For this purpose, delays less than 90 days are considered to be insignificant.
As of September 30, 2002, 100% of the impaired loan balance was measured for
impairment based on the fair value of the loans' collateral. SFAS No. 114 does
not apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, except for those loans restructured under
a troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans. At September 30, 2002
and 2001, the Company's impaired loans consisted of smaller balance residential
mortgage loans collectively evaluated for impairment. Non-performing loans
(which include loans in excess of 90 days delinquent) at September 30, 2002 and
2001, amounted to approximately $167,000 and $298,000, respectively. The loans
were collectively evaluated for impairment.


8. Accrued Interest Receivable
Accrued interest receivable consists of the following:

                                                       September 30,
                                                   2002             2001
--------------------------------------------------------------------------------
Investments and interest-bearing deposits      $  626,218        $1,073,364
Mortgage-backed securities                        835,170           821,006
Loans receivable                                1,375,060         1,508,575
                                               ----------        ----------
Total                                          $2,836,448        $3,402,945
                                               ==========        ==========


9. Office Properties and Equipment
Office properties and equipment are summarized by major classifications as
follows:

                                                       September 30,
                                                   2002             2001
--------------------------------------------------------------------------------
Land and buildings                            $ 5,190,758       $ 5,081,110
Furniture, fixtures and equipment               3,406,672         3,243,153
Automobiles                                        81,059            56,164
                                              -----------       -----------
Total                                           8,678,489         8,380,427
Less accumulated depreciation                  (3,665,458)       (3,155,945)
                                              -----------       -----------

Net                                           $ 5,013,031       $ 5,224,482
                                              ===========       ===========

Depreciation expense for the years ended September 30, 2002, 2001 and 2000
amounted to approximately $515,000, $475,000 and $503,000, respectively.


10. Deposits
Deposits are summarized as follows:

                                                    September 30,
                                            2002                  2001

                                               Weighted                Weighted
                                               Interest                Interest
                                      Amount     Rate        Amount      Rate
--------------------------------------------------------------------------------
NOW accounts                     $ 14,051,771    0.75%   $ 12,280,113    1.00%
Checking accounts                   8,572,256    0.04%      6,859,090    0.03%
Money Market Deposit accounts      83,464,010    1.98%     67,941,336    2.09%
Passbook and Club accounts          3,327,338    2.09%      2,535,083    3.27%
Certificate accounts              262,531,603    4.01%    260,530,933    5.38%
                                 ------------    ----    ------------    ----
Total Deposits                   $371,946,978    3.33%   $350,146,555    4.69%
                                 ============    ====    ============    ====

At September 30, 2002, the amounts of scheduled maturities of certificate
accounts were as follows:

For the year ended September 30:                     2003      $  135,896,071
                                                     2004          61,933,157
                                                     2005          17,516,888
                                                     2006          23,278,193
                                                     2007          23,907,294
                                                               --------------
                                      Total                    $  262,531,603
                                                               ==============

22 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

The aggregate amount of certificate accounts in denominations of $100,000 or
more at September 30, 2002 and 2001 amounted to approximately $20.5 million and
$23.2 million, respectively. Deposits in excess of $100,000 are not federally
insured.

Interest expense on savings deposits is composed of the following:

                                                September 30,
                                   2002             2001             2000
-----------------------------------------------------------------------------
NOW and MMDA accounts         $  1,823,985      $ 2,356,735      $ 1,927,618
Passbook and Club accounts          45,535           48,234           53,360
Certificate accounts            11,649,944       14,304,398       13,056,472
                              ------------      -----------      -----------
Total                         $ 13,519,464      $16,709,367      $15,037,450
                              ============      ===========      ===========


11. Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank consist of the following:

                                            September 30,
                                2002                            2001

                                      Weighted                         Weighted
                                      Interest                         Interest
Maturing Period           Amount        Rate            Amount           Rate
--------------------------------------------------------------------------------
1 to 12 months        $  1,443,853      6.52%       $  5,532,489         6.35%
13 to 24 months         14,930,708      5.57           4,597,598         6.50
25 to 36 months         27,399,643      6.45          20,614,517         5.69
37 to 48 months          8,310,583      5.17          34,289,819         6.44
49 to 60 months         10,786,600      4.66          10,372,844         5.17
61 to 72 months         52,630,959      5.43
73 to 84 months         10,000,000      5.55          55,902,117         5.43
85 to 108 months        82,000,000      5.01          40,000,000         5.57
                      ------------      ----        ------------         ----

Total                 $207,502,346      5.37%       $171,309,384         5.74%
                      ============      ====        ============         ====


The advances are collateralized by Federal Home Loan Bank stock and
substantially all first mortgage loans. The Company has a line of credit of
which none of the available $16.5 million was used at September 30, 2002 and
2001.

12. Income Taxes
As of January 1, 1996, the Company changed its method of computing reserves for
bad debts to the experience method. The bad debt deduction allowable under this
method is available to small banks with assets less than $500 million. Beginning
October 1, 2000, the Company changed its method of computing reserves for bad
debts to the specific charge-off method. The bad debt deduction allowable under
this method is available to large banks with assets greater than $500 million.
Generally, this method allows the Company to deduct an annual addition to the
reserve for bad debts equal to its net charge-offs.

A thrift institution required to change its method of computing reserves for bad
debts to the experience method treats such change as a change in method of
accounting determined solely with respect to the "applicable excess reserves" of
the institution. The amount of applicable excess reserves is taken into account
ratably over a six-taxable-year period, beginning with the first taxable year
beginning after December 31, 1995. For financial reporting purposes, the Company
has not incurred any additional tax expense. Amounts that had been previously
deferred will be reversed for financial reporting purposes and will be include
in the income tax return of the Company, increasing income tax payable. The
change from the experience method to the specific charge-off method in the
current year will not result in a recapture of bad debt reserves for tax
purposes. Retained earnings at September 30, 2002 and 2001 includes
approximately $1,325,000 representing bad debt deductions for which no deferred
income taxes have been provided.


                                                           2002 ANNUAL REPORT 21
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                           2002                            2001                         2000
                                                  Percentage                     Percentage                    Percentage
                                                   of Pretax                     of Pretax                     of Pretax
                                    Amount          Income         Amount          Income       Amount           Income
--------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>       <C>                 <C>       <C>                 <C>
At statutory rate                $ 1,915,329         34.0%     $ 1,745,685         34.0%     $ 1,890,018         34.0%
Adjustments resulting from:
Tax exempt income                   (576,795)       (10.3)        (498,555)        (9.7)        (165,040)        (3.0)
State tax-net of federal
 tax benefit                                                                                         528
Other                               (120,517)        (2.1)         (27,930)        (0.6)         (23,526)        (0.4)
                                 -----------         ----      -----------         ----      -----------         ----
Expense per consolidated
  statements of income           $ 1,218,017         21.6%     $ 1,219,200         23.7%     $ 1,701,980         30.6%
                                 ===========         ====      ===========         ====      ===========         ====
</TABLE>

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


                                                       September 30,
                                                   2002            2001
--------------------------------------------------------------------------------
Deferred Tax Assets:
  Deferred Loan Fees                            $ 117,165       $  80,541
  Unrealized Loss on Investment Securities                          7,885
  Allowance for Loan Losses                       691,843         589,089
  Other                                                             9,192
                                                ---------       ---------
   Sub-Total                                      809,008         686,707
                                                ---------       ---------
Deferred Tax Liabilities:
  Unrealized Gain                                 (25,662)
  Property                                       (414,419)       (426,667)
  Other                                          (234,434)
                                                 --------       ----------
   Sub-Total                                     (674,515)       (426,667)
                                                ---------       ---------
  Total                                         $ 134,493       $ 260,040
                                                =========       =========

Income taxes paid were approximately $1,333,769, $957,500, and $1,826,500 for
the years ended September 30, 2002, 2001, and 2000, respectively.

13. Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors. Quantitative measures established by regulation
to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined), and of Tier 1 capital (as
defined) to assets (as defined). Management believes, as of September 30, 2002,
that the Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 2002, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.


22 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       To Be Considered Well
                                                                                                        Capitalized Under
                                                                               For Capital              Prompt Corrective
                                                       Actual               Adequacy Purposes           Action Provisions

                                                 Amount       Ratio        Amount        Ratio         Amount        Ratio
-------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>         <C>            <C>          <C>            <C>
As of September 30, 2002
 Tier 1 Capital (to assets)                   $37,815,445      6.20%      $24,377,760    4.00%        $30,472,200     5.00%
 Tier 1 Capital (to risk-weighted assets)      37,815,445     14.32%       10,563,800    4.00%         15,845,700     6.00%
 Total Capital (to risk-weighted assets)       39,850,445     15.09%       21,127,600    8.00%         26,409,500    10.00%

As of September 30, 2001
 Tier 1 Capital (to assets)                   $33,951,154      6.12%      $22,190,440    4.00%        $27,738,050     5.00%
 Tier 1 Capital (to risk-weighted assets)      33,951,154     13.85%        9,806,400    4.00%         14,709,600     6.00%
 Total Capital (to risk-weighted assets)       35,971,154     14.67%       19,612,800    8.00%         24,516,000    10.00%

</TABLE>

14. Profit Sharing Plan

The Company has a defined contribution plan covering all full-time employees
meeting certain eligibility requirements. Contributions are at the discretion of
the Company's Board of Directors. Profit sharing expense was $204,203, $165,730
and $177,234 for the years ended September 30, 2002, 2001, and 2000,
respectively.

15. Stock Options

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

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

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

A summary of transactions under this plan follows:

<TABLE>
<CAPTION>

                                                 2002                      2001                     2000
                                                       Weighted                  Weighted                  Weighted
                                                       Average                    Average                   Average
                                       Options          Price     Options          Price     Options         Price
---------------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>          <C>           <C>          <C>           <C>
Outstanding, beginning of year         128,568       $   12.57    120,609       $   11.81    139,306       $   11.34
 Exercised                             (16,510)          10.41    (16,439)           9.75    (19,197)           8.70
 Canceled                                 (750)          14.17     (1,562)          15.67     (6,250)          12.75
 Granted                                16,900           18.02     25,960           14.50      6,750           13.50
                                       -------       ---------    -------       ---------    -------       ---------
 Outstanding, end of year              128,208       $   13.56    128,568       $   12.57    120,609       $   11.81
                                       =======       =========    =======       =========    =======       =========

Options exercisable, end of year        82,658       $   11.89     77,646       $   10.76     63,001       $   10.49
                                       =======       =========    =======       =========    =======       =========

</TABLE>


                                                           2002 ANNUAL REPORT 23
<PAGE>

Had compensation cost for the Company's three stock option plans been determined
based on the fair value at the dates of awards under those plans consistent with
the method of SFAS No. 123, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                                         Year Ended September 30,
                                                                                2002               2001              2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>                <C>               <C>
Net income:                                              As reported        $ 4,415,305        $ 3,915,167       $ 3,856,897
                                                          Pro forma           4,401,347          3,863,999         3,846,658
Net income per common and common equivalent share:
  Diluted                                                As reported        $      1.93        $      1.73       $      1.70
                                                          Pro forma                1.92               1.71              1.69

Significant assumptions used to calculate the above are as follows:
  Risk-free interest rate of return                                                1.75%              6.50%             5.50%
  Expected option life                                                        84 months          84 months         84 months
  Expected volatility                                                             10.00%             10.00%            11.00%
  Expected dividends                                                               3.00%              2.50%             2.50%
</TABLE>


The Company also has established an Employee Stock Purchase Plan (the "Purchase
Plan") whereby employees may elect to make contributions to the Purchase Plan in
an aggregate amount not less than 2% nor more than 10% of such employee's total
compensation. These contributions would then be used to purchase stock during an
offering period determined by the Company's Salary and Benefits Committee. The
purchase price of the stock would be the lesser of 85% of the market price on
the first day or the last day of the offering period. The SFAS No. 123 impact of
the Purchase Plan on pro forma net income and income per share was deemed to be
immaterial. During 2002, 3,876 shares were issued to employees. At September 30,
2002, there were 30,305 shares available for future purchase.


16. Commitments
At September 30, 2002, the Company had approximately $11.0 million in
outstanding commitments to originate mortgage loans, all of which were at fixed
rates ranging from 5.25 to 7.00%. The unfunded line of credit commitments at
September 30, 2002 were $20.6 million. The amounts of undisbursed portions of
loans in process at September 30, 2002 were $6.5 million. Also, at September 30,
2002, the Company had no outstanding futures or options positions.

The Company leases land for two of its branch offices. Minimum rental
commitments at September 30, 2002, are summarized below:

                               Fiscal                         Rental
                                Year                          Amount
                               ------                       ----------
                                2003                            90,724
                                2004                            90,724
                                2005                            90,724
                                2006                            94,174
                                2007                            94,174
                                                            ----------
                     Total                                  $  460,520
                                                            ==========
17. Legal Contingencies

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

18. Conversion To A Stock Savings Bank

At the time of conversion, in 1987, the Bank established a liquidation account
in an amount equal to the Bank's net as reflected in the latest consolidated
statement of financial condition of the Bank contained in the offering circular
in the conversion. The function of the liquidation account is to establish a
priority on liquidation and, except with to the payment of cash dividends on, or
the re-purchase of, any of the common stock by the Bank, the existence of the
liquidation account will not operate to restrict the use or application of any
of the net worth accounts of the Bank. In event of a complete liquidation of the
Bank (and only in such event), each eligible account holder will be entitled to
a pro rata distribution from the liquidation account, based on such holder's
proportionate amount of the total current adjusted balances from deposit
accounts then held by all eligible account holders, before any liquidation
distribution made with respect to stockholders. The liquidation account was
approximately $2,300,000 at September 30, 2002. Furthermore, the Company may not
repurchase any of its stock if the effect thereof would cause the Company's net
be reduced below (i) the amount required for the liquidation account or (ii) the
regulatory capital requirements.


24 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

19. Fair Market Value of Financial Instruments

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

<TABLE>
<CAPTION>
                                                                                             September 30,
                                                                             2002                                2001
                                                                   Carrying        Estimated Fair       Carrying      Estimated Fair
                                                                    Amount             Value             Amount           Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>               <C>               <C>
Assets:
  Cash and cash equivalents                                      $ 36,302,904      $ 36,302,904      $  8,948,132      $  8,948,132
  Investment securities held to maturity                           55,665,399        57,555,000        62,202,405        63,568,000
  Investment securities available-for-sale at fair value           11,999,611        11,999,611         3,293,981         3,293,981
  Mortgage-backed securities held to maturity                     163,814,970       168,529,000       167,726,725       171,236,000
  Mortgage-backed securities available-for-sale at fair value
  Loans receivable - net                                          295,353,734       303,998,913       290,213,221       295,729,868
  Federal Home Loan Bank Stock                                     10,496,500        10,496,500         8,950,200         8,950,200

Liabilities:
  Passbook, Club and NOW accounts                                  25,951,365        25,951,365        21,674,286        21,674,286
  Money Market Demand accounts                                     83,464,010        83,464,010        67,941,336        67,941,336
  Certificate accounts                                            262,531,603       267,148,551       260,530,933       265,745,503
  Advances from Federal Home Loan Bank                            207,502,346       188,367,030       171,309,384       180,285,382

Off Balance Sheet Instruments:
  Commitments                                                      31,168,928        31,168,928        30,735,000        30,735,000
</TABLE>

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

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

The fair value estimates presented herein are based on pertinent information
available to management as of September 30, 2002. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.


20.  Parent Company Condensed Financial Information

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

Condensed Statements of Financial Condition

                                           September 30,
                                     2002                 2001
--------------------------------------------------------------------------------
Assets
  Cash                          $       43,004      $     328,751
  Investment in subsidiary          37,864,805         33,935,137
                                --------------      -------------
Total Assets                    $   37,907,809      $  34,263,888
                                ==============      =============





                                                           2002 ANNUAL REPORT 25

<PAGE>

<TABLE>
<CAPTION>

                                                                              September 30,
                                                                   2002            2001                 2000
-------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>                    <C>
Liabilities & Stockholders' Equity
Liabilities
  Other liabilities                                                40,178
  Stockholders' equity                                        $37,867,631      $34,263,888
                                                              -----------      -----------
Total liabilities & stockholders' equity                      $37,907,809      $34,263,888
                                                              ===========      ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                  Year Ended September 30,
Condensed Statement of Income                                                                 For the Period Feb. 25, 2000
Income:                                                            2002              2001     to September 30, 2000
<S>                                                            <C>               <C>                  <C>
Equity in undistributed income of subsidiary                   $4,679,920        $3,915,167           $2,908,857
Other expense                                                     264,615
                                                               ----------        ----------           ----------
Net income                                                     $4,415,305        $3,915,167           $2,908,857
                                                               ==========        ==========           ==========

</TABLE>

<TABLE>
<CAPTION>

                                                                 Year Ended September 30,
                                                                                              For the Period Feb. 25, 2000
                                                                   2002              2001     to September 30, 2000
<S>                                                           <C>               <C>                  <C>
Condensed Statement of Cash Flows

Net income                                                    $ 4,415,305       $ 3,915,167          $ 2,908,857
Increase in other liabilities                                      40,178
Undistributed income of Harleysville Savings Bank              (4,700,448)       (3,915,167)          (2,908,857)
                                                              -----------       -----------          -----------
Net cash used by operating activities                            (244,965)
                                                              -----------       -----------          -----------

Investing activities:
Dividends received from subsidiaries                              836,000                              2,547,183
                                                              -----------       -----------          -----------
Net cash provided by investing activities                         836,000                              2,547,183
                                                              -----------       -----------          -----------

Financing activities:
  Acquisition of treasury stock                                  (336,335)         (310,570)            (714,163)
  Use of treasury stock                                           479,841
  Net proceeds from issuance of stock                             193,168           239,508              129,394
  Dividends paid                                               (1,213,456)       (1,069,298)            (493,303)
                                                              -----------       -----------          -----------
Net cash used in financing activities                            (876,782)       (1,140,360)          (1,078,072)
                                                              -----------       -----------          -----------


Net (decrease) increase in cash and cash equivalents             (285,747)       (1,140,360)           1,469,111
Cash and cash equivalents at the beginning of the period          328,751         1,469,111
                                                              -----------       -----------          -----------
Cash and cash equivalents at the end of the period            $    43,004       $   328,751          $ 1,469,111
                                                              ===========       ===========          ===========

</TABLE>


21. Quarterly Financial Data (Unaudited)

Unaudited quarterly financial data for the years ended September 30, 2002 and
2001 is as follows:

<TABLE>
<CAPTION>
                                                     2002                                                2001
                                 --------------------------------------------        --------------------------------------------
                                    1st         2nd        3rd         4th             1st         2nd         3rd         4th
                                    QTR         QTR        QTR         QTR             QTR         QTR         QTR         QTR
                                 --------------------------------------------        --------------------------------------------
<S>                               <C>         <C>         <C>         <C>             <C>         <C>         <C>         <C>
Interest Income                   $8,938      $8,646      $8,832      $8,760          $8,899      $9,091      $9,066      $9,248
Interest Expense                   6,446       5,986       5,879       5,915           6,541       6,658       6,675       6,710
                                 --------------------------------------------        --------------------------------------------
Net Interest Income                2,492       2,660       2,953       2,845           2,358       2,433       2,391       2,538
Provision for loan loss

Net interest income after        --------------------------------------------        --------------------------------------------
 provision for loan losses         2,492       2,660       2,953       2,845           2,358       2,433       2,391       2,538
Non-interest income                  268         236         277         336             224         365         280         378
Non-interest expense               1,526       1,572       1,682       1,655           1,362       1,417       1,504       1,550
                                 --------------------------------------------        --------------------------------------------
Income before income taxes         1,234       1,324       1,548       1,526           1,220       1,381       1,167       1,366
Income tax expense                   229         264         376         349             320         349         243         307
                                 --------------------------------------------        --------------------------------------------
Net income                        $1,005      $1,060      $1,172      $1,177          $  900      $1,032      $  924      $1,059
                                 ============================================        ============================================
Per Common Share:
 Earnings per share - basic       $ 0.45      $ 0.47      $ 0.52      $ 0.52          $ 0.40      $ 0.46      $ 0.41      $ 0.47
 Earnings per share - diluted     $ 0.44      $ 0.46      $ 0.51      $ 0.51          $ 0.40      $ 0.46      $ 0.41      $ 0.47

</TABLE>


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

26 HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

<PAGE>

Market and Corporate Information

Market Information

Harleysville Savings Financial Corporation's Common Stock is traded in the
Over-the-Counter Market and quoted on the NASDAQ National Market System under
the symbol "HARL". The Common Stock was issued at an adjusted price of $2.42 per
share in connection with the Company's conversion from mutual to stock form and
the Common Stock commenced trading on the NASDAQ National Market System on
September 3, 1987. Prices shown below reflect the prices reported by the NASDAQ
systems. The closing price on September 30, 2002, was $20.11 per share. There
were 2,316,490 shares outstanding as of September 30, 2002, held by
approximately 1,000 stockholders.


                                                                  Cash Dividends
For The Quarter Ended          High         Low          Close       Declared
-----------------------------------------------------------------------------
September 30, 2000        $   15.75     $   15.00     $   15.06     $   0.11
December 31, 2000             15.25         14.13         14.25         0.12
March 31, 2001                16.50         14.50         16.00         0.12
June 30, 2001                 17.00         15.50         16.00         0.12
September 30, 2001            18.20         15.76         16.90         0.12
December 31, 2001             18.50         16.75         17.66         0.13
March 31, 2002                20.75         17.66         20.00         0.13
June 30, 2002                 21.65         19.60         20.60         0.14
September 30, 2002            21.50         20.00         20.11         0.14
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                   <C>
Corporate Information

Auditors                                              General Counsel
Deloitte & Touche                                     James J. Garrity
1700 Market Street                                    Wisler, Pearlstine, Talone, Craig, Garrity & Potash
Philadelphia, PA 19103-3984                           Office Court at Walton Point
(215) 246-2300                                        484 Norristown Road
                                                      Blue Bell, PA 19422
                                                      (610) 825-8400
Annual Meeting
Family Heritage Restaurant
Franconia, PA                                         Investor Information
Wednesday, January 22, 2003                           Investors, Analysts and others seeking
9:30 A.M.                                             financial information may contact:
                                                      Chief Financial Officer
Market Makers                                         Harleysville Savings Financial Corporation
F.J. Morrissey & Co., Inc.                            271 Main Street
Ryan Beck & Co., Inc.                                 Harleysville, PA 19438
Spear, Leeds & Kellogg                                (215) 256-8828
Midwest Res. First Tennessee

Special Counsel                                       Transfer Agent
Elias, Matz, Tiernan & Herrick                        Direct questions regarding dividend
734 15th Street, N.W.                                 checks, address and name changes or
Washington, DC 20005                                  lost certificates to:
(202) 347-0300
                                                      Registrar and Transfer Company
                                                      10 Commerce Drive
Dividend Reinvestment Plan                            Cranford, NJ 07016
The Company has a Dividend Reinvestment and Stock     web site: www.rtco.com
Purchase Plan. Interested stockholders can            email: invrel@rtco.com
obtain more information regarding the Plan by
contacting:                                           Upon request, the Company's Annual Report or
                                                      form 10-K for the year ended September 30, 2002,
Registrar and Transfer Company                        and the exhibits thereto required to be filed with
10 Commerce Drive                                     the Securities and Exchange Commission under
Cranford, NJ  07016                                   the Securities Act of 1934 will be furnished
(800) 525-7686, extension 2542                        without charge to any stockholder.


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                                                           2002 ANNUAL REPORT 27
<PAGE>

<TABLE>
<CAPTION>

BOARD OF DIRECTORS

<S>                                 <C>                              <C>                             <C>
Sanford L. Alderfer                 Paul W. Barndt                   Philip A. Clemens               Mark R. Cummins, CPA, CFA
President                           Founder                          Chairman/CEO                    Executive Vice President,
Alderfer Auction Co.                The Barndt Agency, Inc.          Clemens Family Corporation      CIO, and Treasurer
Hatfield, PA                        Sumneytown, PA                   Hatfield, PA                    Harleysville Insurance
                                                                                                     Companies Harleysville, PA

David J. Friesen, CPA               George W. Meschter               Edward J. Molnar                Ronald B. Geib
Director of Development             President                        President/CEO                   Executive Vice President/COO
Penn View Christian School          Meschter Insurance Group         Harleysville Savings            Harleysville Savings Financial
Souderton, PA                       Collegeville, PA                 Financial Corporation           Corporation Harleysville, PA
                                                                     Harleysville, PA


SENIOR OFFICERS

Edward J. Molnar                    Ronald B. Geib                   Marian Bickerstaff              Brendan J. McGill
President and                       Executive Vice President and     Senior Vice President           Senior Vice President,
Chief Executive Officer             Chief Operating Officer          Chief Lending Officer           Chief Financial Officer
                                                                     and Corporate Secretary         and Treasurer




MANAGERS

Adrian D. Gordon                    Sheri Strouse                    Michelle A. Beck                Diane M. Carlson
Vice President                      Vice President and               Assistant Vice President        Assistant Vice President and
and Information                     Branch Administrator             and Security Officer            Human Resource Manager
Systems Manager


Kathleen Clairmont                  Dawn L. Hufnagle                 Kim A. Licata                   Lori N. McCausland
Assistant Vice President            Assistant Vice President         Assistant Vice President        Assistant Vice President
and West Norriton                   and Sumneytown                   and Loan Customer               and Loan Administration
Office Manager                      Office Manager                   Service Manager                 Manager


M. Shane Michalak                   Denise L. Monaghan               Anne J. Rostosky                Jason L. Yoder
Assistant Vice President,           Assistant Vice President         Assistant Vice President        Assistant Vice President
Controller and Accounting           and Hatfield Office Manager      and Lansdale                    and Harleysville
Department Manager                                                   Office Manager                  Office Manager

</TABLE>


28 HARLEYSVILLE SAVINGS FIANACIAL CORPORATION

<PAGE>

Managers


Adrian D. Gordon
Vice President
and Information
Systems Manager

Sheri L. Strouse
Vice President and
Branch Administrator

[PHOTO - ADRIAN D. GORDON AND SHERI L. STROUSE]




Kathleen Clairmont
Assistant Vice President
and West Norriton
Office Manager

Anne J. Rostosky
Assistant Vice President
and and Lansdale
Office Manager

Jason L. Yoder
Assistant Vice President
and Harleysville
Office Manager

Dawn L. Hufnagle
Assistant Vice President
and Sumneytown
Office Manager

Denise L. Monaghan
Assistant Vice President and
Hatfield Office Manager


[PHOTO - KATHLEEN CLAIRMONT, ANNE J. ROSTOSKY, JASON L. YODER, DAWN L. HUFNAGLE,
 DENISE L. MONAGHAN]



Diane M. Carlson
Assistant Vice President and
Human Resource Manager

Lori N. McCausland
Assistant Vice President
and Loan Administration
Manager

Kim A. Licata
Assistant Vice President
and Loan Customer
Service Manager

M. Shane Michalak
Assistant Vice President,
Controller and Accounting
Department Manager

Michelle A. Beck
Assistant Vice President
and Security Officer

[PHOTO - DIANE M. CARLSON, LORI N. MCCAUSLAND, KIM A. LICATA, M. SHANE MICHALAK
 MICHELLE A. BECK]

<PAGE>





       MISSION STATEMENT

                 Harleysville Savings Financial Corporation's focus is to
                 be your trusted financial partner by providing quality
                 financial products and services to families and individuals;
                 by providing a rewarding place for our employees to
                 work; by being a responsible corporate citizen of the
                 community; and by achieving a fair and reasonable
                 return for our stockholders.


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<CAPTION>
<S>                       <C>                   <C>                    <C>                      <C>
HARLEYSVILLE OFFICE       HATFIELD OFFICE       LANSDALE OFFICE        SUMNEYTOWN OFFICE        WEST NORRITON OFFICE
271 Main Street           1550 Cowpath Road     640 East Main Street   3090 Main Street         2301 West Main Street
Harleysville, PA 19438    Hatfield, PA 19440    Lansdale, PA 19446     Sumneytown, PA 18084     Norristown, PA 19403
(215) 256-8828            (215) 362-0750        (215) 855-1011         (215) 234-8053           (610) 631-0887

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                 h a r l e y s v i l l e s a v i n g s . c o m