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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

(Mark One)

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


                  For the fiscal year ended: September 30, 2004

                                       OR

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

                 For the transition period from ______ to ______

                         Commission File Number: 0-29709

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

        Pennsylvania                                           23-3028464
---------------------------------                         ----------------------
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                         Identification Number)

271 Main Street
Harleysville, Pennsylvania                                        19438
----------------------------------------                        ----------
(Address of principal executive offices)                        (Zip Code)

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

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

                     Common Stock, $.01 par value per share
                     --------------------------------------
                                (Title of Class)

<PAGE>

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES |X|  NO |_|

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

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

The aggregate market value of the 1,808,928  shares of the  Registrant's  Common
Stock held by non-affiliates  (2,299,127 shares  outstanding less 490,199 shares
held by affiliates),  based upon the closing price of $30.0 for the Common Stock
on March 31, 2004,  as reported by the Nasdaq Stock  Market,  was  approximately
$54.8  million.  Shares of  Common  Stock  held by each  executive  officer  and
director and by each person who owns 5% or more of the outstanding  Common Stock
have  been  excluded  since  such  persons  may  be  deemed   affiliates.   This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

Number of shares of Common Stock outstanding as of December 3, 2004:  2,299,127

                      DOCUMENTS INCORPORATED BY REFERENCE

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

(1)   Portions of the Annual Report to Stockholders for the year ended September
      30, 2004 are  incorporated  by reference  into Part II, Items 5-8 and Part
      IV, Item 15 of this Form 10-K.

(2)   Portions of the definitive  Proxy Statement for the 2005 Annual Meeting of
      Stockholders  are  incorporated by reference into Part III, Items 10-14 of
      this Form 10-K.

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<PAGE>

                        HARLEYSVILLE SAVINGS FINANICAL CORPORATION
                             2004 ANNUAL REPORT ON FORM 10-K

                                    TABLE OF CONTENTS

                                                                          Page
                                                                          ----
                                     PART I

Item 1.  Business ......................................................    2
Item 2.  Properties ....................................................   30
Item 3.  Legal Proceedings .............................................   30
Item 4.  Submission of Matters to a Vote of Security Holders ...........   30

                                     PART II

Item 5.  Market for the Registrant's Common Equity, Related Stockholder
         Matters and Issuer Purchases of Equity Securities .............   31
Item 6.  Selected Financial Data .......................................   31
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations .........................................   31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ....   31
Item 8.  Financial Statements and Supplementary Data ...................   32
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure ..........................................   32
Item 9A. Controls and Procedures .......................................   32
Item 9B. Other Information .............................................   32

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ............   32
Item 11. Executive Compensation ........................................   33
Item 12. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters ...............................   33
Item 13. Certain Relationships and Related Transactions ................   33
Item 14. Principal Accounting Fees and Services ........................   33

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules .......................   34

SIGNATURES

<PAGE>
                           Forward-Looking Statements

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

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

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


                                       1
<PAGE>

                                     PART I

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

General

      Harleysville Savings Financial  Corporation is a Pennsylvania  corporation
headquartered in Harleysville, Pennsylvania. The Company became the bank holding
company for  Harleysville  Savings Bank in connection  with the holding  company
reorganization  of the Bank in February 2000 (the  "Reorganization").  In August
1987, the Bank's predecessor, Harleysville Savings Association, converted to the
stock  form  of  organization.   The  Bank,  whose  predecessor  was  originally
incorporated in 1915, converted from a Pennsylvania chartered, permanent reserve
fund savings association to a Pennsylvania  chartered stock savings bank in June
1991.  The Bank operates from five  full-service  offices  located in Montgomery
County, Pennsylvania. The Bank's primary market area includes Montgomery County,
which has the third largest  population and the second highest per capita income
in the Commonwealth of Pennsylvania,  and, to a lesser extent,  Bucks County. As
of September 30, 2004,  the Company had $718.2  million of total assets,  $405.2
million of deposits and $44.3  million of  stockholders'  equity.  The Company's
stockholders' equity constituted 6.2% of total assets as of September 30, 2004.

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

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

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


                                       2
<PAGE>

Lending Activities

      Loan Portfolio Composition.  The Company's loan portfolio is predominantly
comprised  of loans  secured by first  mortgages  on  single-family  residential
properties.  As of  September  30, 2004,  first  mortgage  loans on  residential
properties,  including  loans  on  single-family  and  multi-family  residential
properties and construction loans on such properties, amounted to $263.9 million
or 43.1% of the Company's total loan and mortgage-backed  securities  portfolio.
Loans on the Company's  residential  properties are primarily  long-term and are
conventional (i.e., not insured or guaranteed by a federal agency). At September
30, 2004,  mortgage-backed securities totaled $265.1 million and comprised 43.2%
of the portfolio.

      As of  September  30,  2004,  loans  secured  by  commercial  real  estate
comprised $2.1 million or 0.3% of the total loan and mortgage-backed  securities
portfolio.  Consumer loans, including installment home equity loans, home equity
lines of credit,  automobile  loans,  loans on savings  accounts  and  education
loans,  constituted $80.1 million or 13.1% of the total loan and mortgage-backed
securities portfolio as of September 30, 2004.

      As of September 30, 2004, the Company had $265.1 million, or 43.2%, of the
total portfolio  invested in Federal Home Loan Mortgage  Corporation  ("FHLMC"),
Government National Mortgage  Association  ("GNMA") or Federal National Mortgage
Association  ("FNMA") backed securities.  FHLMC securities are guaranteed by the
FHLMC, GNMA securities by the Federal Housing Administration and FNMA securities
by the FNMA, which are an instrumentality of the United States government,  and,
pursuant to federal  regulations,  are deemed to be part of the  Company's  loan
portfolio.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                              As of September 30,
                                          ------------------------------------------------------------
                                                 2004                 2003                  2002
                                          ------------------   ------------------   ------------------
                                           Amount    Percent    Amount    Percent    Amount    Percent
                                          --------   -------   --------   -------   --------   -------
                                                             (Dollars in Thousands)
<S>                                       <C>         <C>      <C>         <C>      <C>         <C>
Real estate loans:
  Residential:
     Single-family                        $255,023     41.7%   $234,748     43.6%   $233,057     46.7%
     Multi-family                              914      0.1       1,515      0.3       1,056      0.2
     Construction                            7,971      1.3      10,028      1.9       8,607      1.7
  Lot loans                                    576      0.1         923      0.2       1,247      0.2
  Mortgage-backed securities               265,087     43.2     230,247     42.6     193,330     38.8
  Commercial                                 2,141      0.3       1,015      0.2         496      0.1
                                          --------    -----    --------    -----    --------    -----
     Total real estate loans and
        mortgage-backed securities         531,712     86.9%    478,476     88.8%    437,793     87.7%
                                          --------    -----    --------    -----    --------    -----

Consumer loans:
  Education loans                               --       --%          1       --%        334      0.1%
  Installment equity loans                  46,257      7.6      29,726      5.5      41,451      8.3
  Line of credit loans                      32,329      5.3      29,420      5.5      18,530      3.7
  Savings account loans                        811      0.1         733      0.1         479      0.1
  Automobile and other loans                   732      0.1         578      0.1         726      0.1
                                          --------    -----    --------    -----    --------    -----
     Total consumer loans                   80,129     13.1%     60,458     11.2%     61,520     12.3%
     Total loans receivable and
        mortgage-backed securities         611,841    100.0%    538,934    100.0%    499,313    100.0%
                                          --------    -----    --------    -----    --------    -----

Less:
  Loans in process                          (5,238)              (7,829)              (6,503)
  Deferred loan fees                          (955)              (1,520)              (2,091)
  Allowance for loan losses                 (1,977)              (1,991)              (2,035)
                                          --------             --------             --------
     Total loans receivable and
        mortgage-backed securities, net   $603,671             $527,594             $488,684
                                          ========             ========             ========

<CAPTION>
                                                    As of September 30,
                                          ---------------------------------------
                                                 2001                 2000
                                          ------------------   ------------------
                                           Amount    Percent    Amount    Percent
                                          --------   -------   --------   -------
                                                   (Dollars in Thousands)
<S>                                       <C>         <C>      <C>         <C>
Real estate loans:
  Residential:
     Single-family                        $224,100     48.2%   $205,560     52.1%
     Multi-family                              972      0.3       1,016      0.3
     Construction                           14,649      3.1       6,580      1.7
  Lot loans                                  1,514      0.3       1,351      0.3
  Mortgage-backed securities               167,727     36.0     123,744     31.4
  Commercial                                   786      0.2         807      0.2
                                          --------    -----    --------    -----
     Total real estate loans and
        mortgage-backed securities         409,748     88.1%    339,058     86.0%
                                          --------    -----    --------    -----

Consumer loans:
  Education loans                            1,041      0.3%      1,414      0.4%
  Installment equity loans                  43,401      9.3      44,727     11.3
  Line of credit loans                       9,807      2.1       7,889      2.0
  Savings account loans                        617      0.1         619      0.1
  Automobile and other loans                   629      0.1         641      0.2
                                          --------    -----    --------    -----

     Total consumer loans                   55,495     11.9%     55,290     14.0%
     Total loans receivable and
        mortgage-backed securities         465,243    100.0%    394,348    100.0%
                                          --------    -----    --------    -----

Less:
  Loans in process                          (9,919)              (3,845)
  Deferred loan fees                        (2,052)              (1,946)
  Allowance for loan losses                 (2,036)              (2,038)
                                          --------             --------
     Total loans receivable and
        mortgage-backed securities, net   $451,236             $386,519
                                          ========             ========
</TABLE>


                                       4
<PAGE>

      Contractual   Maturities.   The  following   table  sets  forth  scheduled
contractual  maturities of the loan and mortgage-backed  securities portfolio of
the Company as of September 30, 2004 by categories of loans and securities.  The
principal  balance  of the  loan is set  forth  in the  period  in  which  it is
scheduled to mature. This table does not reflect loans in process or unamortized
premiums, discounts and fees.

<TABLE>
<CAPTION>
                                Principal         Principal Repayments Contractually Due in Year(s) Ended September 30,
                               Balance at     -------------------------------------------------------------------------------
                              September 30,                                2007-       2009-2014        2015-       2020 and
                              -------------                               --------     ---------      --------     ----------
                                  2004          2005          2006          2008                        2019       Thereafter
                              -------------   --------      --------      --------                    --------     ----------
<S>                             <C>           <C>           <C>           <C>           <C>           <C>           <C>
Real estate loans:                                                     (In Thousands)
  Residential
  Single-family                 $255,023      $  3,826      $  4,080      $ 13,771      $ 31,368      $ 44,884      $157,094
  Multi-family                       914            14            15            49           112           161           563
  Construction                     7,971           120           128           430           980         1,403         4,910
Lot loans                            576            31            34           116           261           134            --
Mortgage-backed Securities       265,087         3,974         4,507        14,847        33,401         6,920       161,438
Commercial                         2,141            78            83           293           679         1,008            --
Consumer and other loans          80,129         9,856        10,577        36,679        18,029         4,988            --
                                --------      --------      --------      --------      --------      --------      --------
           Total(1)             $611,841      $ 17,899      $ 19,424      $ 66,185      $ 84,830      $ 99,498      $324,005
                                ========      ========      ========      ========      ========      ========      ========
</TABLE>

(1)   With  respect to the $594.0  million  of loans with  principal  maturities
      contractually  due after  September  30, 2004,  $558.0  million have fixed
      rates of interest and $36.0 million have  adjustable or floating  rates of
      interest.

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

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

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


                                       5
<PAGE>

      The Company accepts loan applications through its branch network, and also
accepts  mortgage  applications  from  mortgage  brokers who are approved by the
Board of Directors to do business with the Company.

      The Company  generally  does not engage in the  purchase of whole loans or
loan participations.

      During the year ended  September  30,  2004,  the Company did not sell any
mortgage-backed  securities.  During  the year ended  September  30,  2003,  the
Company sold $13.0 million of mortgage-backed securities for a gain of $159,000.
The Company  sold $2.6  million,  $1.4  million and $2.5 million of loans during
fiscal  2004,  2003 and  2002,  resulting  in a gain of  approximately  $61,000,
$16,000 and $31,000, respectively.

      The Company's total loan originations  decreased by $24.9 million or 15.3%
in fiscal 2004 and  increased by $42.0  million or 34.9% in fiscal 2003.  Of the
$137.6 million and $162.5 million of  single-family  loans  originated in fiscal
2004 and  2003,  $16.8  million  and $67.8  million,  respectively,  were  loans
originated   to  refinance   property,   $67.3   million  and  $102.0   million,
respectively,  were loans to acquire residential  property.  During this period,
the Company's originations of consumer loans amounted to $58.6 million and $46.3
million or 43.2% and 28.6% of total loan  originations  during  fiscal  2004 and
2003,  respectively.  Management intends to continue to emphasize origination of
consumer loans which may have adjustable rates, and generally have shorter terms
than residential real estate loans.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Year Ended September 30,
                                                            --------------------------------
                                                              2004        2003        2002
                                                            --------    --------    --------
                                                                     (In Thousands)
<S>                                                         <C>         <C>         <C>
Real estate loan originations:
   Residential:
     Single-family                                          $ 69,124    $102,712    $ 62,939
     Multi-family                                                300       1,380         266
     Construction                                              9,526      12,007      11,224
    Lot loans                                                     --         109         815
                                                            --------    --------    --------
         Total real estate loan originations                  78,950     116,208      75,244
Consumer loan originations(1)                                 58,655      46,288      45,255
                                                            --------    --------    --------
         Total loan originations                             137,605     162,496     120,499
Purchases of mortgage-backed securities                      121,201     277,885      87,280
                                                            --------    --------    --------
         Total loan originations, and purchases              258,806     440,381     207,779

Principal loan and mortgage-backed securities repayments     183,321     386,359     170,574
Sales of loans and mortgage-backed securities                  2,578      14,401       9,840
                                                            --------    --------    --------
         Total principal repayments and sales                185,899     400,760     180,414
                                                            --------    --------    --------
           Net increase in loans                            $ 72,907    $ 39,621    $ 27,365
                                                            ========    ========    ========
</TABLE>

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

      Loan Underwriting Policies.  Each loan application received by the Company
is underwritten to the standards of the Company's written underwriting  policies
as adopted by the Company's Board of Directors. The Company's Board of Directors
has granted loan  approval  authority to several  officers and  employees of the
Company,  provided  that the loan meets the  guidelines  set out in its  written
underwriting  policies.  Individual  approval  authority  of  $500,000  has been
granted to the Company's Chief Executive Officer, the Company's  President,  and
the Company's Chief Lending  Officer.  Joint approval  authority of $1.0 million
has  been  granted  to a  combination  of  at  least  two  of  the  above  named
individuals.  Individual  lending  authority of $250,000 has been granted to the
Bank's Assistant Vice President/Loan  Administration Manager, the Assistant Vice
President/Loan  Customer  Service  Manager and to the Bank's  Consumer  Loan and
Residential Mortgage Underwriter,  employed by the Company.  Additional consumer
loan  lending  authority  of  $50,000  has been  granted  to  several  delegated
underwriters, employed by the Bank. All approved loans are ratified by the Board
of Directors at the next succeeding board meeting.  Any loan which does not meet
the  guidelines  set  forth in the  lending  policies  must be  approved  by the
Company's Board of Directors.


                                       7
<PAGE>

      In the  exercise  of any loan  approval  authority,  the  officers  of the
Company will take into account the risk  associated with the extension of credit
to a single  borrower,  borrowing  entity,  or  affiliation.  The Company has an
aggregate loans to one borrower limit of 15% of the Company's unimpaired capital
and unimpaired surplus in accordance with federal regulations.  At September 30,
2004,  the  largest  aggregate  amount  of loans  outstanding  to any  borrower,
including related entities, was $2.1 million, which did not exceed the Company's
loan to one borrower limitation.

      Real Estate  Lending.  The Company is  permitted to lend up to 100% of the
appraised value of the real property securing a loan. The Company will generally
lend up to 95% of the  lesser of the  appraised  value or the sale price for the
purchase  of  single-family,  owner-occupied  dwellings  which  conform  to  the
secondary  market  underwriting  standards.  Refinancings  are limited to 90% or
less.  Loans  over  $333,700  and other  non-conforming  loans,  secured  by 1-4
residential,  owner-occupied  dwellings, are limited to 90% of the lesser of the
purchase price or appraised value. The purchase of non-owner occupied,  1-4 unit
dwellings may be financed to 80% of the lower of the appraisal or sale price;  a
refinance is limited to 75% of the appraised value.

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

      The  Company  presently  originates   fixed-rate  loans  on  single-family
residential  properties  pursuant  to  underwriting  standards  consistent  with
secondary market guidelines, and which may or may not be sold into the secondary
mortgage market as conditions warrant.  Adjustable rate mortgages  ("ARMs"),  as
well as non-conforming and jumbo fixed-rate loans in amounts up to $1.0 million,
are  held  in the  portfolio.  It is the  Company's  policy  to  originate  both
fixed-rate  loans and ARMs for terms up to 30 years.  As of September  30, 2004,
$263.9  million or 43.1% and  $914,000  or .1% of the  Company's  total loan and
mortgage-backed  securities  portfolio  consisted  of  single-family  (including
construction  loans) and multi-family  residential  loans,  respectively.  As of
September 30, 2004, approximately $498.1 million or 93.7% of the Company's total
mortgage loans and mortgage-backed securities portfolio consisted of fixed-rate,
single-family residential mortgage loans. As of such date, $33.6 million or 6.3%
of the total mortgage loan portfolio consisted of adjustable-rate  single-family
residential mortgage loans and mortgage-backed securities. Most of the Company's
residential mortgage loans include "due on sale" clauses.

      During the year ended  September  30, 2004,  the Company  originated  $5.5
million of ARM mortgages.  ARMs represented 6.9% and 1.1% of the Company's total
mortgage loan portfolio originations


                                       8
<PAGE>

in fiscal 2004 and 2003, respectively.  The ARM mortgages offered by the Company
are originated with initial adjustment periods varying from one to 10 years, and
provide for initial  rates of interest  below the rates which would prevail were
the index used for repricing applied initially. The Company expects to emphasize
the  origination  of ARMs as market  conditions  permit,  in order to reduce the
impact of rising interest rates in the market place.  Such loans,  however,  may
not adjust as rapidly as changes in the Company's cost of funds.

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

      Construction  Loans.  The Company offers  fixed-rate  and  adjustable-rate
construction loans on residential properties. Residential construction loans are
originated for individuals  who are building their primary  residence as well as
to selected local builders for  construction of single-family  dwellings.  As of
September 30, 2004,  $8.0 million or 1.3% of the total loan and  mortgage-backed
securities portfolio consisted of construction loans.

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

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

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

      Consumer and Other Loans. The Company actively  originates  consumer loans
to provide a wider range of financial  services to its  customers and to improve
the interest rate sensitivity of its  interest-


                                       9
<PAGE>

earning  assets.  Originations  of  consumer  loans as a percent  of total  loan
originations   amounted  to  42.6%  and  28.6%  during  fiscal  2004  and  2003,
respectively.  The shorter-term and normally higher interest rates on such loans
help the Company to maintain a profitable  spread between its average loan yield
and its cost of funds. The Company's  consumer loan department  offers a variety
of loans,  including home equity installment loans and lines of credit,  vehicle
loans,  personal loans and lines of credit. Loans secured by deposit accounts at
the Company are also made to  depositors in an amount up to 90% of their account
balances with terms of up to 15 years.

      Home equity loans continue to be a popular product and  represented  $78.6
million  or  12.8%  of the  loan and  mortgage-backed  securities  portfolio  at
September  30, 2004.  After taking into account  first  mortgage  balances,  the
Company  will lend up to 80% of the value of  owner-occupied  property  on fixed
rate terms up to 15 years.  This  amount may be raised to 100% when  considering
other  factors,  such as  excellent  credit  history  and income  stability.  At
September 30, 2004, the Company had outstanding 2,707 home equity loans of which
1,309 were  installment  equity loans and 1,398 were line of credit loans. As of
such date,  the Company had an  outstanding  balance on line of credit  loans of
approximately  $32.3 million and there was approximately $36.2 million of unused
credit available on such loans.

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

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

      Loans fees generated on  origination  of real estate  mortgage loans under
accounting  principles  generally  accepted in the United  States of America are
deferred  to the extent that they  exceed the costs of  originating  such loans.
Deferred  loan fees and discounts on mortgage  loans  purchased are amortized to
income as a yield  adjustment  over the estimated  remaining terms of such loans
using the interest method. The Company recorded income of $513,000, $2.0 million
and $635,000 in deferred loan fees in fiscal 2004, 2003 and 2002, respectively.

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


                                       10
<PAGE>

      As of September 30, 2004,  the Company was servicing $4.5 million of loans
for others,  which related to loans sold by the Company to the FHLMC and Federal
Home Loan Bank of  Pittsburgh  in the amounts of $2.0 million and $2.5  million,
respectively. The Company receives a servicing fee of 0.25% on such loans.

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

      All  interest  accrued  but  not  collected  for  loans  that  are  placed
nonaccrual or charged off is reversed against  interest income.  The interest on
these loans is accounted for on the cash-basis or  cost-recovery  method,  until
qualifying for return to accrual.  Loans are returned to accrual status when all
the principal and interest  amounts  contractually  due are brought  current and
future payments are reasonably assured.  Interest income is recognized using the
interest  method when the collection is reasonably  assured.  The Company had no
loans  outstanding  which were recorded as loans  accounted for on a non-accrual
basis as of the end of fiscal 2004 and 2003.

      If  foreclosure  is effected,  the property is sold at a public auction in
which the Company may participate as a bidder.  If the Company is the successful
bidder,  the acquired  real estate  property is then  included in the  Company's
"real estate owned" ("REO") account until it is sold. When property is acquired,
it is  recorded  at the  lower  of  carrying  or  market  value  at the  date of
acquisition and any write-down  resulting is reclassed to the allowance for loan
losses.  Interest  accrual,  if any,  ceases on the date of acquisition  and all
costs incurred in maintaining  the property from that date forward are expended.
Costs  incurred  for  the  improvement  or  development  of  such  property  are
capitalized.  The Company is permitted under  Department  regulations to finance
sales of real estate  owned by "loans to  facilitate,"  which may  involve  more
favorable  interest  rates and terms than  generally  would be granted under the
Company's underwriting  guidelines.  The Company had no REO at the end of fiscal
2004 and 2003.


                                       11
<PAGE>

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

                                                           As of September 30,
                                                         ----------------------
                                                         2004     2003     2002
                                                         ----     ----     ----
                                                         (Dollars in Thousands)
Residential real estate loans:
  Non-accrual loans                                      $ --     $ --     $ --
  Accruing loans 90 days overdue                          291      273      167
  Troubled debt restructurings                             --       --       --
                                                         ----     ----     ----
           Total                                          291      273      167
                                                         ----     ----     ----
Consumer loans:
  Non-accrual loans                                        --       --       --
  Accruing loans 90 days overdue                           --       --       --
  Troubled debt restructurings                             --       --       --
                                                         ----     ----     ----
           Total                                           --       --       --
                                                         ----     ----     ----

Total non-performing loans:
  Non-accrual loans                                        --       --       --
  Accruing loans 90 days overdue                          291      273      167
  Troubled debt restructurings                             --       --       --
                                                         ----     ----     ----
           Total                                         $291     $273     $167
                                                         ====     ====     ====

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

      Management  establishes  reserves for losses on  delinquent  loans when it
determines that losses are probable.  The Company did not record a provision for
general loan losses in fiscal 2004, 2003 or 2002 due to the overall  performance
of the loan portfolio and management's assessment of the overall adequacy of the
allowance for loan losses.  Although  management  believes that it uses the best
information available to make determinations with respect to loan loss reserves,
future  adjustments to reserves may be necessary if economic  conditions  differ
substantially from the assumptions used in making the initial determinations.

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


                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Year Ended September 30,
                                             -------------------------------------------------------------------------------
                                                 2004             2003             2002             2001             2000
                                             -----------      -----------      -----------      -----------      -----------
<S>                                          <C>              <C>              <C>              <C>              <C>
Allowances at beginning of year              $ 1,990,672      $ 2,034,832      $ 2,036,188      $ 2,038,131      $ 2,040,000
 Provision for loan losses charged to
  operating expenses                                  --               --               --               --               --
Recoveries                                         1,571               --            5,113               --               --
Loans charged off                                (15,394)         (44,160)          (6,469)          (1,943)          (1,869)
                                             -----------      -----------      -----------      -----------      -----------
Allowances at end of year                    $ 1,976,849      $ 1,990,672      $ 2,034,832      $ 2,036,188      $ 2,038,131
                                             ===========      ===========      ===========      ===========      ===========

Ratio of net charge-offs to average loans
  outstanding                                         --               --               --               --               --
Ratio of allowances to period-end loans              .58%             .66%             .68%             .69%             .77%
</TABLE>

Investment Activities

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

      The Company's  investment  portfolio  consists  primarily of United States
Treasury  securities and obligations of United States government  agencies.  The
other investments include  interest-bearing  deposits in other banks, tax-exempt
obligations,  ARM mutual funds, and stock of the FHLB of Pittsburgh. The Company
has primarily invested in instruments that reprice within five years; the amount
of such investments as of September 30, 2004 was $99.6 million.


                                       13
<PAGE>

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

                                                As of September 30,
                                          -------------------------------
                                           2004        2003        2002
                                          -------    --------    --------
                                                  (In Thousands)
      Interest-bearing deposits at
         other depository institutions    $ 3,040    $  4,836    $ 34,872
      Tax-exempt obligations               24,966      25,290      24,881
      ARM mutual funds                      6,685       3,812      12,000
      Equities                                971       1,061          --

      U.S. Government and agency
         obligations held to maturity      43,196      58,036      30,784
      FHLB of Pittsburgh stock             15,184      13,782      10,497
                                          -------    --------    --------
                 Total                    $94,042    $106,817    $113,034
                                          =======    ========    ========

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

Sources of Funds

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

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

      The Company's deposits are obtained primarily from residents of Montgomery
and  Bucks  Counties;  the  Company  does not  utilize  brokered  deposits.  The
principal  methods used by the Company to attract deposit accounts include local
advertising,  offering a wide  variety of  services  and  accounts,  competitive


                                       14
<PAGE>

interest rates and convenient office locations.  The Company also is a member of
the "STAR" ATM network.

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

<TABLE>
<CAPTION>
                                                  As of September 30,
                            -----------------------------------------------------------------
                                   2004                  2003                  2002
                            --------------------  --------------------  ---------------------
                                      Percent of            Percent of            Percent of
                             Amount    Deposits    Amount    Deposits    Amount    Deposits
                            --------  ----------  --------  ----------  --------  -----------
                                                 (Dollars in Thousands)
<S>                         <C>          <C>      <C>          <C>      <C>          <C>
Passbook and club
  Accounts                  $  4,047      1.0%    $  4,027      1.1%    $  3,327      0.9%
NOW accounts                  19,839      4.9       17,340      4.6       14,052      3.8
Checking accounts             11,767      2.9       10,047      2.6        8,572      2.3
Money market demand
  Accounts                    99,225     24.5       95,729     25.1       82,562     22.2
Certificates of deposit:
         6 month               8,650      2.1       10,649      2.8       16,497      4.4
         9 month               3,031      0.7        3,431      0.9        5,240      1.4
         12 month             16,471      4.1       18,798      4.9       20,640      5.5
         15 month              4,554      1.1        6,774      1.8        8,343      2.2
         17 month              2,474      0.6        3,573      0.9        5,384      1.4
         18 month             18,967      4.7       26,565      7.0       39,080     10.5
         24 month             12,297      3.0       17,041      4.5       32,345      8.7
         27 month             12,326      3.0       23,359      6.1       19,133      5.1
         36 month             35,024      8.6       23,655      6.2       22,290      6.0
         48 month             60,392     14.9       25,020      6.6       11,701      3.1
         60 month             38,901      9.6       39,495     10.4       34,257      9.2
         Other                 7,057      1.7        8,988      2.4        5,268      1.4

Retirement accounts:
 Money market deposit
   Accounts                    1,224      0.3        1,242      0.3          902      0.2
 Certificates of deposit      48,985     12.1       44,954     11.8       42,354     11.4
                            --------    -----     --------    -----     --------    -----
Total deposits              $405,231    100.0%    $380,687    100.0%    $371,947    100.0%
                            ========    =====     ========    =====     ========    =====
</TABLE>

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


                                       15
<PAGE>

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

      The following table presents certain information  concerning the Company's
deposit accounts as of September 30, 2004 and the scheduled quarterly maturities
of its certificates of deposit.

<TABLE>
<CAPTION>
                                                          Percentage of   Weighted Average
                                                Amount    Total Deposits    Nominal Rate
                                               --------   --------------  ----------------
                                                       (Dollars in Thousands)
<S>                                            <C>             <C>              <C>
Passbook and club accounts                     $  4,047          1.0%           0.67%
NOW accounts                                     19,839          4.9            0.15
Checking accounts                                11,767          2.9            0.22
Money market deposits accounts(1)               100,449         24.8            1.03
                                               --------        -----           -----
         Total                                 $136,102         33.6%           0.82%
                                               ========        =====           =====

Certificate accounts maturing by quarter:
     December 31, 2004                         $ 34,023          8.4            2.15

     March 31, 2005                              28,284          7.0            1.92
     June 30, 2005                               21,168          5.2            2.07
     September 30, 2005                          14,012          3.5            2.17
     December 31, 2005                            8,682          2.1            3.15

     March 31, 2006                               6,622          1.6            3.09
     June 30, 2006                                7,608          1.9            3.85
     September 30, 2006                          19,202          4.7            4.04
     December 31, 2006                           24,954          6.2            3.20

     March 31, 2007                              17,417          4.3            3.40
     June 30, 2007                               11,617          2.9            4.07
     September 30, 2007                          15,069          3.7            4.35

Thereafter                                       60,471         14.9            3.71
                                               --------        -----           -----
Total certificate accounts(1)                   269,129         66.4            3.09
                                               --------        -----           -----
         Total deposits                        $405,231        100.0%           2.33%
                                               ========        =====           =====
</TABLE>

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

      Management of the Company expects,  based on historical experience and its
pricing  policies,  to retain a  significant  portion  of the $97.5  million  of
certificates  of deposit which mature  during the 12 months ended  September 30,
2005.


                                       16
<PAGE>

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


                                                   Year Ended September 30,
                                                ------------------------------
                                                  2004       2003        2002
                                                -------    -------     -------
                                                        (In Thousands)
(Decrease)/increase before interest credited    $ 1,770    $    (9)    $11,241
Interest credited                                 7,474      8,749      10,559
                                                -------    -------     -------
Net deposit increase                            $24,544    $ 8,740     $21,800
                                                =======    =======     =======

      The  following  table  presents by various  interest rate  categories  the
amounts of  certificate  accounts as of the dates  indicated  and the amounts of
certificate  accounts as of September  30, 2004 which mature  during the periods
indicated.

<TABLE>
<CAPTION>
                                                     Amounts at September 30, 2004 Maturing
                                    As of       ------------------------------------------------
                                 September 30,  One Year
                                     2004       or Less     Two Years   Three Years   Thereafter
                                 -------------  -------     ---------   -----------   ----------
                                                          (In Thousands)
<S>                                <C>           <C>          <C>          <C>          <C>
Certificate accounts:
  0.01% to 2.00%                   $ 78,220      $67,555      $10,660      $     5      $    --
  2.01% to 4.00%                    135,114       22,006        9,985       44,854       58,269
  4.01% to 6.00%                     52,358        7,129       18,833       24,194        2,202
  6.01% to 8.00%                      3,437          797        2,636            4           --
                                   --------      -------      -------      -------      -------
Total certificate accounts(1)      $269,129      $97,487      $42,114      $69,057      $60,471
                                   ========      =======      =======      =======      =======
</TABLE>

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

      The  following  table sets forth the maturity of  certificate  deposits in
excess of $100,000 as of September 30, 2004.

                                          Amount
                                       --------------
                                       (In Thousands)
    1 to 3 months                        $ 2,385
    4 to 6 months                          2,672
    7 to 12 months                         2,374
    Thereafter                            20,665
                                         -------
    Total                                $28,096
                                         =======

      Borrowings. The Bank obtains advances from the FHLB of Pittsburgh upon the
security of its  capital  stock in the FHLB of  Pittsburgh  and a portion of its
first  mortgages.  See  "Regulation - Regulation of the Bank - Federal Home Loan
Bank System." At September 30, 2004, the Bank had FHLB advances with  maturities
of one year or less totaling  $40.4 million at an interest rate of 3.4% and FHLB
advances with


                                       17
<PAGE>

maturities of 13 months to 10 years totaling  $225.5  million at  interest-rates
ranging  from  3.55% to  6.08%.  Such  advances  are made  pursuant  to  several
different credit programs,  each of which has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of advances are
based on  either  a fixed  percentage  of  assets  or the  FHLB of  Pittsburgh's
assessment of the Bank's creditworthiness. FHLB advances are generally available
to meet  seasonal  and  other  withdrawals  of  deposit  accounts,  to  purchase
mortgage-backed securities, investment securities and to expand lending.

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

<TABLE>
<CAPTION>
                                                        September 30,
                            -----------------------------------------------------------------------
                                    2004                     2003                    2002
                            --------------------     --------------------      --------------------
                                        Weighted                 Weighted                 Weighted
                                         Average                  Average                  Average
                             Balance      Rate        Balance       Rate        Balance      Rate
                            --------    --------     --------    --------      --------   ---------
                                                    (Dollars in Thousands)
<S>                         <C>           <C>        <C>            <C>        <C>           <C>
Advances from FHLB
   of Pittsburgh            $265,953      4.34%      $228,817       4.76%      $207,502      5.37%
</TABLE>

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

                                                 Year Ended September 30,
                                            ------------------------------------
                                              2004          2003          2002
                                            -------       -------       --------
                                                   (Dollars in Thousands)
Advances from FHLB of Pittsburgh:
   Average balance outstanding              $20,267       $ 4,496       $    --

   Maximum amount outstanding at any
      month-end during the period            25,600        18,500         1,900

   Weighted average interest rate
     during the period                         1.38%         1.20%         2.08%

Competition

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


                                       18
<PAGE>

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

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

Employees

      The Company had 53 full-time  employees  and 46 part-time  employees as of
September  30,  2004.  None of these  employees is  represented  by a collective
bargaining  agent,  and the Company  believes that it enjoys good relations with
its personnel.

Regulation

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

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

Regulation of the Company

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


                                       19
<PAGE>

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

      The BHCA also prohibits a bank holding company,  with certain  exceptions,
from  acquiring  more than 5% of the voting  shares of any company that is not a
bank and from  engaging  in any  business  other  than  banking or  managing  or
controlling  banks.  Under the BHCA, the Federal  Reserve Board is authorized to
approve the  ownership of shares by a bank holding  company in any company,  the
activities of which the Federal  Reserve  Board has  determined to be so closely
related  to  banking  or to  managing  or  controlling  banks  as to be a proper
incident thereto.  In making such  determinations,  the Federal Reserve Board is
required  to  weigh  the  expected  benefit  to  the  public,  such  as  greater
convenience,  increased competition or gains in efficiency, against the possible
adverse effects,  such as undue concentration of resources,  decreased or unfair
competition,  conflicts of interest or unsound banking  practices.  The 1999 Act
permits a bank holding  company to elect to be  considered  a financial  holding
company ("FHC").  A bank holding company that makes an FHC election is permitted
to engage in  activities  that are  financial  in nature or  incidental  to such
financial activities.  The 1999 Act lists certain activities that are considered
financial in nature and permits the Federal Reserve Board to expand that list to
include  other  activities  that  are  complementary  to the  activities  on the
preapproved   list.   The   preapproved   activities   include  (1)   securities
underwriting,  dealing  and  market  making;  (2)  insurance  underwriting;  (3)
merchant banking; and (4) insurance company portfolio  investments.  The Company
has not made the financial holding company election.

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

      Limitations on Transactions with Affiliates.  Transactions between savings
institutions  and any  affiliate  are  governed by  Sections  23A and 23B of the
Federal  Reserve Act. An affiliate  of a savings  institution  is any company or
entity which controls, is controlled by or is under common control with the


                                       20
<PAGE>

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

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

      Capital  Requirements.  The  Federal  Reserve  Board has  adopted  capital
adequacy  guidelines  pursuant to which it assesses  the  adequacy of capital in
examining and supervising a bank holding  company and in analyzing  applications
to it under the BHCA.  The Federal  Reserve  Board capital  adequacy  guidelines
generally  require bank holding  companies to maintain total capital equal to 8%
of total risk-adjusted  assets, with at least one-half of that amount consisting
of Tier I or core capital and up to one-half of that amount  consisting  of Tier
II or supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions,  intangibles.  Tier II capital generally  consists of hybrid capital
instruments;  perpetual  preferred stock which is not eligible to be included as
Tier I capital;  term subordinated debt and  intermediate-term  preferred stock;
and,  subject to  limitations,  general  allowances for loan losses.  Assets are
adjusted  under the  risk-based  guidelines to take into account  different risk
characteristics,  with the  categories  ranging from 0% (requiring no additional
capital)  for  assets  such as cash to 100% for the  bulk of  assets  which  are
typically held by a bank holding company, including multi-family residential and
commercial  real estate loans,  commercial  business  loans and consumer  loans.
Single-family  residential  first mortgage loans which are not past-due (90 days
or more) or  non-performing  and which have


                                       21
<PAGE>

been made in accordance with prudent  underwriting  standards are assigned a 50%
level   in  the   risk-weighing   system,   as  are   certain   privately-issued
mortgage-backed  securities  representing  indirect  ownership  of  such  loans.
Off-balance  sheet items also are  adjusted to take into  account  certain  risk
characteristics.

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

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

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


                                       22
<PAGE>

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

      The Act also increases the oversight of, and codifies certain requirements
relating to audit  committees of public companies and how they interact with the
company's "registered public accounting firm" ("RPAF").  Audit committee members
must be independent and are barred from accepting consulting,  advisory or other
compensatory fees from the issuer. In addition,  companies must disclose whether
at least one member of the committee is a "financial  expert" (as such term will
be defined by the SEC) and if not, why not.  Under the Act, a RPAF is prohibited
from  performing  statutorily  mandated  audit  services  for a company  if such
company's chief executive officer, chief financial officer,  comptroller,  chief
accounting  officer  or any  person  serving in  equivalent  positions  has been
employed by such firm and  participated  in the audit of such company during the
one-year period  preceding the audit initiation date. The Act also prohibits any
officer  or  director  of a  company  or any other  person  acting  under  their
direction from taking any action to fraudulently influence,  coerce,  manipulate
or mislead any independent  public or certified  accountant engaged in the audit
of the company's financial statements for the purpose of rendering the financial
statement's  materially  misleading.  The Act also requires the SEC to prescribe
rules  requiring  inclusion  of an internal  control  report and  assessment  by
management in the annual report to  shareholders.  This will be required for the
Company in fiscal  2005.  The Act requires the RPAF that issues the audit report
to attest to and report on  management's  assessment of the  company's  internal
controls.  In addition,  the Act requires that each financial report required to
be  prepared  in  accordance  with  (or  reconciled  to)  accounting  principles
generally  accepted  in the  United  States of  America  and filed  with the SEC
reflect all material  correcting  adjustments  that are  identified by a RPAF in
accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the SEC.

Regulation of the Bank

      General.  The Bank is subject to extensive  regulation and  examination by
the Department and by the FDIC, which insures its deposits to the maximum extent
permitted  by law.  The  federal  and  state  laws  and  regulations  which  are
applicable to banks regulate,  among other things,  the scope of their business,
their  investments,   their  reserves  against  deposits,   the  timing  of  the
availability  of deposited funds and the nature and amount of and collateral for
certain loans. There are periodic examinations by the Department and the


                                       23
<PAGE>

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

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

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

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

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


                                       24
<PAGE>

      FDIC Insurance Premiums. The deposits of the Bank are insured by the SAIF,
which is administered by the FDIC. Under current FDIC regulations,  SAIF-insured
institutions  are assigned to one of three capital groups which are based solely
on the level of an institution's capital. SAIF assessment rates are then tied to
the level of an institution's  supervisory concern based on risk classifications
derived from the capital groups. Rates during the last six months of 2004 ranged
from zero for well capitalized,  healthy  institutions,  such as the Bank, to 27
basis points for  undercapitalized  institutions  with  substantial  supervisory
concerns.

      In  addition,  all  institutions  with  deposits  insured  by the FDIC are
required to pay  assessments  to fund  interest  payments on bonds issued by the
Financing Corporation,  a mixed-ownership  government corporation established to
recapitalize  the  predecessor to the SAIF.  The  assessment  rate for the third
quarter of 2004 was 0.015% of insured deposits and is adjusted quarterly.  These
assessments will continue until the Financing Corporation bonds mature in 2019.

      Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding  that the  institution  has engaged or is engaging in unsafe and unsound
practices,  is in an unsafe or unsound  condition to continue  operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or written agreement entered into with the FDIC. The management of the Bank
does not  know of any  practice,  condition  or  violation  that  might  lead to
termination of deposit  insurance.  At September 30, 2004, the Bank's regulatory
capital exceeded all of its capital requirements.

      Capital Requirements.  The FDIC has promulgated  regulations and adopted a
statement of policy  regarding  the capital  adequacy of  state-chartered  banks
which, like the Bank, are not members of the Federal Reserve System.  The FDIC's
capital regulations establish a minimum 3.0% Tier I leverage capital requirement
for the most highly-rated state-chartered,  non-member banks, with an additional
cushion  of at least 100 to 200  basis  points  for all  other  state-chartered,
non-member  banks,  which  effectively will increase the minimum Tier I leverage
ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's regulation,
highest-rated  banks are those that the FDIC determines are not  anticipating or
experiencing  significant  growth and have well diversified  risk,  including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general,  which are considered a strong  banking  organization,
rated  composite  1 under the  Uniform  Financial  Institutions  Rating  System.
Leverage or core  capital is defined as the sum of common  stockholders'  equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
related surplus, and minority interests in consolidated subsidiaries,  minus all
intangible  assets  other than  certain  qualifying  supervisory  goodwill,  and
certain   purchased   mortgage   servicing   rights  and  purchased  credit  and
relationships.


                                       25
<PAGE>

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

      The components of Tier I capital are equivalent to those  discussed  above
under the 3% leverage standard. The components of supplementary (Tier 2) capital
include  certain  perpetual  preferred  stock,  certain  mandatory   convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan losses.  Allowance  for loan losses  includable in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of capital  counted  toward  supplementary  capital  cannot
exceed 100% of core  capital.  At September  30, 2004,  the Bank met each of its
capital requirements.

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

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

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


                                       26
<PAGE>

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

      The FDIC has adopted final  regulations  pertaining to the other  activity
restrictions  imposed  upon  insured  savings  banks and their  subsidiaries  by
Section 24.  Pursuant to such  regulations,  insured  savings banks  engaging in
impermissible  activities  may seek  approval  from the  FDIC to  continue  such
activities.  Savings  banks not engaging in such  activities  but that desire to
engage in otherwise  impermissible  activities  may apply for approval  from the
FDIC  to do so;  however,  if  such  bank  fails  to meet  the  minimum  capital
requirements or the activities  present a significant risk to the FDIC insurance
funds,  such  application  will  not be  approved  by the  FDIC.  The  FDIC  has
authorized the bank's  subsidiary  HARL, LLC, to invest up to 15% of its capital
in the equity  securities  of bank  holding  companies,  banks or thrifts.  $1.3
million was invested in HARL, LLC as of September 30, 2004.

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

Federal and State Taxation

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


                                       27
<PAGE>

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

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

      A thrift  institution  required to change its method of computing reserves
for bad debts to the experience  method treats such change as a change in method
of accounting determined solely with respect to the "applicable excess reserves"
of the  institutions.  The amount of  applicable  excess  reserves is taken into
account ratably over a six taxable-year period, beginning with the first taxable
year beginning after December 31, 1995. For financial  reporting  purposes,  the
Company has not  incurred  any  additional  tax  expense.  Amounts that had been
previously  deferred will be reversed for financial  reporting purposes and will
be  included  in the  income tax return of the  Company,  increasing  income tax
payable. The change from the experience method to the specific charge-off method
in the current year will not result in a recapture of bad debt  reserves for tax
purposes.   Retained   earnings  at  September   30,  2004  and  2003   included
approximately  $1,325,000 representing bad debt deductions for which no deferred
income taxes have been provided.

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

      Minimum Tax. The Code imposes an alternative  minimum tax at a rate of 20%
on a base of regular taxable income plus certain tax  preferences  ("alternative
minimum  taxable income" or "AMTI").  The alternative  minimum tax is payable to
the extent such AMTI is in excess of an exemption amount. The Code provides that
an item of tax preference is the excess of the bad debt deduction  allowable for
a taxable year


                                       28
<PAGE>

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

      Net Operating Loss Carryovers.  A financial institution may carry back net
operating  losses  to the  preceding  three  taxable  years and  forward  to the
succeeding 15 taxable years.  Effective for net operating  losses arising in tax
years  beginning  after October 1, 1997,  the  carryback  period is reduced from
three years to two years and the  carryforward  period is extended from 15 years
to 20  years.  At  September  30,  2004,  the  Bank  had no net  operating  loss
carryforwards for federal income tax purposes.

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

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

      Pennsylvania  Taxation.  The Bank is subject to tax under the Pennsylvania
Mutual Thrift  Institutions Tax Act, which imposes a tax at the rate of 11.5% on
the Bank's net earnings,  determined in accordance  with  accounting  principles
generally  accepted in the United States of America,  as shown on its books. For
fiscal years  beginning in 1983,  and  thereafter,  net operating  losses may be
carried forward and allowed as a deduction for three succeeding  years. This Act
exempts the Bank from all other  corporate  taxes  imposed by  Pennsylvania  for
state tax purposes,  and from all local taxes imposed by political  subdivisions
thereof, except taxes on real estate and real estate transfers.

Subsidiary

      The Bank is the only direct wholly owned  subsidiary  of the Company.  The
Bank formed HSB, Inc., a Delaware  company,  as a wholly owned subsidiary of the
Bank during  fiscal  1997.  HSB,  Inc.  was formed in order to  accommodate  the
transfer  of  certain  assets  that are  legal  investments  for the Bank and to
provide for a greater  degree of protection to claims of creditors.  The laws of
the State of Delaware and the court system create a more  favorable  environment
for the proposed business affairs of the subsidiary. HSB, Inc. currently manages
the investment  securities for the Bank, which as of September 30, 2004 amounted
to approximately $135.7 million. The Bank formed two limited liability companies
in 2002, Freedom Financial Solutions LLC ("FFS") and HARL LLC ("HARL").  FFS was
established to engage in the sale of insurance


                                       29
<PAGE>

products  through  a third  party.  HARL  was  established  for the  purpose  of
investing  in  FDIC  insured  financial   institutions/holding   company  equity
securities.

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

      As of September 30, 2004, the Company conducted its business from its main
office in Harleysville, Pennsylvania and five other full service branch offices.
The Company is also part of the STAR ATM System,  which provides  customers with
access to their deposits at locations worldwide.

<TABLE>
<CAPTION>
                                                                                    Net Book Value of
                                                                                      Property and
                                                                                        Leasehold
                                                                    Lease            Improvements at
                                                 Owned or         Expiration          September 30,
  County                    Address               Leased             Date                  2004           Deposits
----------        --------------------------    ----------    ----------------      -----------------   -----------
                                                                                             (In Thousands)
<S>               <C>                             <C>          <C>                        <C>            <C>
Montgomery        271 Main Street
                  Harleysville, Pennsylvania      Owned              --                   $1,184         $142,761

Montgomery        640 East Main Street
                  Lansdale, Pennsylvania          Leased         May 2043(1)                 958           32,480

Montgomery        1550 Hatfield Valley Road
                  Hatfield, Pennsylvania          Leased       January 2064(1)               882           89,501

Montgomery        2301 West Main Street
                  Norristown, Pennsylvania         Owned              --                     594           91,724

Montgomery        3090 Main Street
                  Sumneytown, Pennsylvania         Owned              --                     354           48,765
                                                                                          ------         --------
                                                                            Total         $3,972         $405,231
                                                                                          ======         ========
</TABLE>

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

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

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

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

      Not Applicable.


                                       30
<PAGE>

                                     PART II

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

      (a) The information required herein is incorporated by reference from page
27 of the Company's  2004 Annual Report to  Stockholders  ("Annual  Report") and
from Part III, Item 12 hereof.

      (b) Not applicable.

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

<TABLE>
<CAPTION>
                                                         Total Number of
                                                       Shares Purchased as      Maximum Number of
                          Total Number    Average       Part of Publicly     Shares that May Yet Be
                           of Shares     Price Paid     Announced Plans or     Purchased Under the
        Period             Purchased     per Share          Programs          Plans or Programs(1)
----------------------   -------------  ------------  --------------------   ----------------------
<S>                            <C>        <C>                  <C>                  <C>
July 1-31, 2004                --         $    --              --                   106,600
August 1-31, 2004              --              --              --                   106,600
September 1-30, 2004           --              --              --                   106,600
                            -----         -------           -----                   -------
     Total                     --         $    --              --                   106,600
                            =====         =======           =====                   =======
</TABLE>

------------
(1)   On June 18, 2003, the Company  announced its current program to repurchase
      up to 5.0% of the  outstanding  shares of Common Stock of the Company,  or
      115,000  shares.  The  program  does not have an  expiration  date and all
      shares are purchased in the open market.

Item 6. Selected Financial Data.
-------------------------------

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

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

      The information  required herein is incorporated by reference from pages 4
to 9 of the Annual Report.

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

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


                                       31
<PAGE>

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

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

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

      Not Applicable.

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

      Our management  evaluated,  with the  participation of our Chief Executive
Officer  and  Chief  Financial  Officer,  the  effectiveness  of our  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange  Act of  1934)  as of  September  30,  2004.  Based on such
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that our  disclosure  controls and  procedures are designed to ensure
that  information  required to be disclosed by us in the reports that we file or
submit  under  the  Securities  Exchange  Act of  1934 is  recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

      No change in our internal control over financial  reporting (as defined in
Rules  13a-15(f)  and  15(d)-15(f)  under the  Securities  Exchange Act of 1934)
occurred  during the fourth  fiscal  quarter of fiscal 2004 that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

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

Not applicable.

                                    PART III

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

      The  information  required  herein is  incorporated  by reference from the
information  contained  in the section  captioned  "Information  with Respect to
Nominees for Director, Directors Whose Terms Continue and Executive Officers" in
the Company's  definitive Proxy Statement for the Annual Meeting of Stockholders
to be held  January 26, 2005 (the  "Proxy  Statement"),  a copy of which will be
filed with the Securities and Exchange Commission before the meeting date.


                                       32
<PAGE>

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

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

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

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

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

      Equity  Compensation  Plan  Information.  The  following  table sets forth
certain   information   for  all  equity   compensation   plans  and  individual
compensation  arrangements  (whether with  employees or  non-employees,  such as
directors), in effect as of September 30, 2004.

<TABLE>
<CAPTION>
                                  Number of Shares to be      Weighted-             Number of Shares
                                      issued upon the      Average Exercise     Remaining Available for
                                        Exercise of            Price of       Future Issuance (Excluding
                                    Outstanding Options,     Outstanding        Shares Reflected in the
          Plan Category             Warrants and Rights        Options                First Column)
--------------------------------  ----------------------   ----------------   --------------------------
<S>                                        <C>                <C>                         <C>
Equity Compensation Plans
  Approved by Security Holders             121,189            $   18.26                   54,625
Equity Compensation Plans Not
   Approved by Security Holders                 --                   --                       --
                                           -------            ---------                   ------
             Total                         121,189            $   18.26                   54,625
                                           =======            =========                   ======

</TABLE>

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

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

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

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


                                       33
<PAGE>

                                     PART IV

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

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

      Report of Independent Registered Public Accounting Firm
      Consolidated Statements of Financial Condition as of September 30, 2004
         and 2003
      Consolidated Statements of Income for the Years Ended September 30, 2004,
         2003 and 2002
      Consolidated Statements of Stockholders' Equity for the Years Ended
         September 30, 2004, 2003 and 2002
      Consolidated Statements of Cash Flows for the Years Ended September 30,
         2004, 2003 and 2002
      Notes to Consolidated Financial Statements

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

      (b) Exhibits

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

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


                                       34
<PAGE>

<TABLE>
<CAPTION>
          No.                                    Exhibits                                            Location
      ---------  -------------------------------------------------------------------------      -----------------
<S>              <C>                                                                             <C>
         32.1    Section 1350 Certification of the Chief Executive Officer                       Filed herewith
         32.2    Section 1350 Certification of the Chief Financial Officer                       Filed herewith
           99    Code of Conduct and Ethics                                                            (3)
</TABLE>

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

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

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

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


                                       35
<PAGE>

                                   SIGNATURES

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

                                       HARLEYSVILLE SAVINGS
                                       FINANCIAL CORPORATION


December 17, 2004                      By:  /s/ Edward J. Molnar
                                            ------------------------------------
                                            Edward J. Molnar
                                            Chief Executive Officer and Director

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


/s/ Edward J. Molnar                                      December 17, 2004
----------------------------------------
Edward J. Molnar
Chief Executive Officer
and Director
(principal executive officer)


/s/ Brendan J. McGill                                     December 17, 2004
----------------------------------------
Brendan J. McGill
Senior Vice President, Treasurer
and Chief Financial Officer
(principal financial and principal
accounting officer)


/s/ Sanford L. Alderfer                                   December 17, 2004
----------------------------------------
Sanford L. Alderfer
Director


/s/ Paul W. Barndt                                        December 17, 2004
----------------------------------------
Paul W. Barndt
Director

<PAGE>


/s/ Philip A. Clemens                                      December 17, 2004
----------------------------------------
Philip A. Clemens
Director


/s/ Mark R. Cummins                                        December 17, 2004
----------------------------------------
Mark R. Cummins
Director


/s/ David J. Friesen                                       December 17, 2004
----------------------------------------
David J. Friesen
Director


/s/ Ronald B. Geib                                         December 17, 2004
----------------------------------------
Ronald B. Geib
Director,  President and
   Chief Operating Officer


/s/ George W. Meschter                                     December 17, 2004
----------------------------------------
George W. Meschter
Director