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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
[X]      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 For the fiscal year ended: September 30, 2006
                                       or
[_]      Transition  report  pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 For the transition period from ______ to ______

                         Commission File Number: 0-29709

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

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

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

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

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

         Title of each class           Name of each exchange on which registered
-------------------------------------- -----------------------------------------
Common Stock, $.01 par value per share           Nasdaq Global Market

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. YES [_] NO [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. YES [_] NO [X]

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

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

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

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

The aggregate market value of the 3,404,325  shares of the  Registrant's  Common
Stock held by  non-affiliates  3,864,665 shares  outstanding less 460,340 shares
held by affiliates), based upon the closing price of $17.45 for the Common Stock
on March 31, 2006,  as reported by the Nasdaq Stock  Market,  was  approximately
$59.4  million.  Shares of  Common  Stock  held by each  executive  officer  and
director and by each person who owns 5% or more of the outstanding  Common Stock
have  been  excluded  since  such  persons  may  be  deemed   affiliates.   This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

Number of shares of Common Stock outstanding as of December 19, 2006: 3,859,958

                       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, 2006 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 2007 Annual Meeting
         of  Stockholders  are  incorporated  by reference  into Part III, Items
         10-14 of this Form 10-K.

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<PAGE>
<TABLE>
<CAPTION>

                                    HARLEYSVILLE SAVINGS FINANICAL CORPORATION
                                          2006 ANNUAL REPORT ON FORM 10-K

                                                 TABLE OF CONTENTS

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

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

Item 1A.        Risk Factors..............................................................................      22

Item 1B.        Unresolved Staff Comments.................................................................      24

Item  2.        Properties................................................................................      24

Item  3.        Legal Proceedings.........................................................................      25

Item  4.        Submission of Matters to a Vote of Security Holders.......................................      25

                                                      PART II

Item  5.        Market for the Registrant's Common Equity, Related Stockholder Matters and
                Issuer Purchases of Equity Securities.....................................................      25

Item  6.        Selected Financial Data...................................................................      25

Item  7.        Management's Discussion and Analysis of Financial Condition and Results of Operations.....      25

Item 7A.        Quantitative and Qualitative Disclosures About Market Risk................................      25

Item 8.         Financial Statements and Supplementary Data...............................................      26

Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......      26

Item 9A.        Controls and Procedures...................................................................      26

Item 9B.        Other Information.........................................................................      26

                                                     PART III

Item 10.        Directors and Executive Officers of the Registrant........................................      26

Item 11.        Executive Compensation....................................................................      26

Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
                Matters...................................................................................      27

Item 13.        Certain Relationships and Related Transactions............................................      27

Item 14.        Principal Accounting Fees and Services....................................................      27

                                                      PART IV

Item 15.        Exhibits, Financial Statement Schedules...................................................      27

SIGNATURES

</TABLE>

                                                        i

<PAGE>

                           Forward-Looking Statements

         This  Annual  Report  on Form 10-K  contains  certain  forward  looking
statements  (as  defined  in  the  Securities  Exchange  Act  of  1934  and  the
regulations hereunder).  Forward looking statements are not historical facts but
instead  represent only the beliefs,  expectations  or opinions of  Harleysville
Savings Financial  Corporation and its management  regarding future events, many
of which, by their nature, are inherently uncertain.  Forward looking statements
may  be  identified  by  the  use  of  such  words  as:   "believe",   "expect",
"anticipate",  "intend",  "plan",  "estimate",  or words of similar meaning,  or
future or conditional terms such as "will", "would",  "should",  "could", "may",
"likely", "probably", or "possibly." Forward looking statements include, but are
not  limited  to,  financial  projections  and  estimates  and their  underlying
assumptions;  statements  regarding  plans,  objectives  and  expectations  with
respect to future operations,  products and services;  and statements  regarding
future performance.  Such statements are subject to certain risks, uncertainties
and assumption,  many of which are difficult to predict and generally are beyond
the control of Harleysville  Savings  Financial  Corporation and its management,
that could cause actual results to differ materially from those expressed in, or
implied or projected by,  forward  looking  statements.  The following  factors,
among  others,  could  cause  actual  results  to  differ  materially  from  the
anticipated  results or other  expectations  expressed  in the  forward  looking
statements:  (1)  economic  and  competitive  conditions  which could affect the
volume of loan  originations,  deposit  flows and real  estate  values;  (2) the
levels of  non-interest  income and expense and the amount of loan  losses;  (3)
competitive pressure among depository institutions increasing significantly; (4)
changes in the interest rate environment  causing reduced interest margins;  (5)
general  economic  conditions,  either  nationally  or in the  markets  in which
Harleysville Savings Financial  Corporation is or will be doing business,  being
less favorable than expected;(6) political and social unrest,  including acts of
war or  terrorism;  or (7)  legislation  or changes in  regulatory  requirements
adversely  affecting  the  business  in  which  Harleysville  Savings  Financial
Corporation  will  be  engaged.   Harleysville  Savings  Financial   Corporation
undertakes no obligation to update these forward  looking  statements to reflect
events or circumstances  that occur after the date on which such statements were
made.

         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.

                                     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  six
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, 2006,
the Company had $775.6  million of total assets,  $429.3

                                       1
<PAGE>

million of deposits and $48.5  million of  stockholders'  equity.  The Company's
stockholders' equity constituted 6.25% of total assets as of September 30, 2006.

         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.

Competition

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

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

         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.

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,  2006,  first  mortgage  loans on
residential  properties,  including  loans  on  single-family  and  multi-family
residential  properties and construction  loans on such properties,  amounted to
$97.8 million or 16.0% of the Company's total loan and

                                       2
<PAGE>

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,  2006,  mortgage-backed
securities totaled $220.3 million and comprised 35.9% of the portfolio.

         As of  September  30, 2006,  loans  secured by  commercial  real estate
comprised $5.9 million or 1.0% 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 $97.8 million or 16.0% of the total loan and mortgage-backed
securities portfolio as of September 30, 2006.

         As of September 30, 2006, the Company had $220.3 million,  or 35.9%, 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.

         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,
                            ------------------------------------------------------------------------------------------------------
                                   2006                 2005                 2004                 2003                 2002
                            ------------------   ------------------   ------------------   ------------------   ------------------
                             Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent
                            --------   -------   --------   -------   --------   -------   --------   -------   --------   -------
<S>                            <C>         <C>      <C>         <C>      <C>         <C>     <C>          <C>      <C>         <C>
                                                                    (Dollars in Thousands)
  Residential:
    Single-family           $278,621      45.4%  $267,246      41.8%  $255,023      41.7%  $234,748      43.6%  $233,057      46.7%
    Multi-family               2,933       0.5      2,893       0.5        914       0.2      1,515       0.3      1,056       0.2
    Construction               6,987       1.1      7,640       1.2      7,971       1.3     10,028       1.9      8,607       1.7
  Lot loans                      626       0.1        801       0.1        576       0.1        923       0.2      1,247       0.2
  Mortgage-backed
    securities               220,314      35.9    265,009      41.5    265,087      43.2    230,247      42.6    193,330      38.8
  Commercial                   5,894       1.0      2,002       0.3      2,141       0.4      1,015       0.2        496       0.1
                            --------   -------   --------   -------   --------   -------   --------   -------   --------   -------
    Total real estate
      loans and mortgage-
       backed securities     515,375      84.0    545,591      85.4%   531,712      86.9%   478,476      88.8%   437,793      87.7%
                            --------   -------   --------   -------   --------   -------   --------   -------   --------   -------

Consumer loans:
  Education loans                 --        --         --        --         --        --          1        --        334       0.1%
  Installment equity loans    70,515      11.5     59,724       9.4%    46,257       7.6%    29,726       5.5%    41,451       8.3
  Line of credit loans        25,500       4.3     31,580       5.0     32,329       5.3     29,420       5.5     18,530       3.7
  Savings account loans        1,003       0.2        921       0.1        811       0.1        733       0.1        479       0.1
  Automobile and other
    loans                        812       0.1        772       0.1        732       0.1        578       0.1        726       0.1
                            --------   -------   --------   -------   --------   -------   --------   -------   --------   -------
    Total consumer loans      97,830      16.0%    92,997      14.6%    80,129      13.1%    60,458      11.2%    61,520      12.3%
    Total loans receivable
       and mortgage-backed
       securities            613,205     100.0%   638,588     100.0%   611,841     100.0%   538,934     100.0%   499,313     100.0%
                            --------   -------   --------   -------   --------   -------   --------   -------   --------   -------


Less:
  Loans in process            (4,941)              (4,934)              (5,238)              (7,829)              (6,503)
  Deferred loan fees            (544)                (671)                (955)              (1,520)              (2,091)
  Allowance for loan
     losses                   (1,956)              (1,968)              (1,977)              (1,991)              (2,035)
                            --------             --------             --------             --------             --------
   Total loans receivable
     and mortgage-backed
     securities, net        $605,764             $631,015             $603,671             $527,594             $488,684
                            ========             ========             ========             ========             ========
</TABLE>

         Contractual  Maturities.  The  following  table  sets  forth  scheduled
contractual  maturities of the loan and mortgage-backed  securities portfolio of
the Company as of September 30, 2006 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.

                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                      Principal Repayments Contractually Due in Year(s) Ended September 30,
                                             ---------------------------------------------------------------------------------------
                          Principal Balance
                           at September 30,                                    2009-          2012-          2016-        2021-and
                                2006             2007           2008           2011           2015           2020        Thereafter
                            ------------     ------------   ------------   ------------   ------------   ------------   ------------
<S>                              <C>                <C>            <C>           <C>            <C>            <C>           <C>
                                                                           (In Thousands)
Real estate loans:
  Residential
  Single-family             $    278,621     $      4,179   $      4,458   $     15,046   $     34,270   $     49,037   $    171,631
  Multi-family                     2,933               44             47            158            361            516          1,807
  Construction                     6,987              105            112            377            859          1,230          4,304
Lot loans                            626               34             37            126            284            145             --
Mortgage-backed Securities       220,314            3,305          3,745         12,338         27,760         38,996        134,171
Commercial                         5,894              212            230            807          1,868          2,776             --
Consumer and other loans          97,830           12,033         12,914         44,782         22,012          6,090             --
                            ------------     ------------   ------------   ------------   ------------   ------------   ------------

         Total(1)           $    613,205     $     19,912   $     21,542   $     73,634   $     87,414   $     98,790   $    311,912
                            ============     ============   ============   ============   ============   ============   ============
</TABLE>

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

(1)      With respect to the $593.3 million of loans with  principal  maturities
         contractually  due after September 30, 2006,  $573.0 million have fixed
         rates of interest and $20.3 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
prepayments  and because of enforcement of due-on-sale  clauses,  which give the
Company  the right to declare a loan  immediately  due and payable in the event,
among other things,  that the borrower  sells the real  property  subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to
increase when current mortgage loan rates substantially exceed rates on existing
mortgage loans and,  conversely,  decrease when rates on existing mortgage loans
substantially exceed current mortgage loan rates.

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

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

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

         The Company sold  $921,000 and $2.6 million of loans during fiscal 2005
and  2004,   resulting  in  a  gain  of   approximately   $17,000  and  $61,000,
respectively. During the year ended September 30, 2006, the Company did not sell
any loans.

         The Company's total loan originations decreased by $6.1 million or 5.4%
in fiscal 2006 and  decreased by $24.2  million or 17.6% in fiscal 2005.  Of the
$107.3 million and $113.4 million of  single-family  loans  originated in fiscal
2006 and 2005, respectively,  $7.4 million and $8.7 million, respectively,  were
loans originated to fund multi-family and construction properties, $54.2 million
and $60.6 million,  respectively,  were loans to acquire  residential  property.
During this period,  the Company's  originations  of consumer  loans amounted to
$45.7  million and $44.1  million or 42.6% and 38.9% of total loan  originations
during  fiscal 2006

                                       4
<PAGE>

and 2005, respectively.  Management intends to continue to emphasize origination
of consumer loans which may have  adjustable  rates,  and generally have shorter
terms than residential real estate loans.

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

<TABLE>
<CAPTION>
                                                                 Year Ended September 30,
                                                           ----------------------------------
                                                              2006         2005        2004
                                                           ---------    ---------   ---------
<S>                                                          <C>          <C>         <C>
                                                                     (In Thousands)
Real estate loan originations:
   Residential:
     Single-family                                         $  54,249    $  60,608   $  69,124
     Multi-family                                                493        1,300         300
     Construction                                              6,886        7,433       9,526
    Lot loans                                                     --           --          --
                                                           ---------    ---------   ---------
         Total real estate loan originations                  61,628       69,341      78,950
Consumer loan originations(1)                                 45,688       44,057      58,655
                                                           ---------    ---------   ---------
         Total loan originations                             107,316      113,398     137,605
Purchases of mortgage-backed securities                        2,001       62,027     121,201
                                                           ---------    ---------   ---------
         Total loan originations, and purchases              109,317      175,425     258,806

Principal loan and mortgage-backed securities repayments     134,700      147,757     183,321
Sales of loans and mortgage-backed securities                     --          921       2,578
                                                           ---------    ---------   ---------
         Total principal repayments and sales                134,700      148,678     185,899
                                                           ---------    ---------   ---------
           Net (decrease) increase in loans                $ (25,383)   $  26,747   $  72,907
                                                           =========    =========   =========
</TABLE>

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

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

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

         In the  exercise of any loan  approval  authority,  the officers of the
Company will take into account the risk  associated with the extension of credit
to a single  borrower,  borrowing  entity,  or  affiliation.  The Company has an
aggregate loans to one borrower limit of 15% of the Company's unimpaired capital
and unimpaired surplus in accordance with federal regulations.  At September 30,
2006,  the  largest  aggregate  amount  of loans  outstanding  to any  borrower,
including related entities, was $2.0 million, which did not exceed the Company's
loan to one borrower limitation.

                                       5
<PAGE>

         Real Estate Lending. The Company is permitted to lend up to 100% of the
appraised value of the real property securing a loan. The Company will generally
lend up to 95% of the  lesser of the  appraised  value or the sale price for the
purchase  of  single-family,  owner-occupied  dwellings  which  conform  to  the
secondary  market  underwriting  standards.  Refinancings  are limited to 90% or
less.  Loans  over  $417,000  and other  non-conforming  loans,  secured  by 1-4
residential,  owner-occupied  dwellings, are limited to 90% of the lesser of the
purchase price or appraised value. The purchase of non-owner occupied,  1-4 unit
dwellings may be financed to 80% of the lower of the appraisal or sale price;  a
refinance is limited to 70% of the appraised  value if the borrower's FICO score
is less than 720 and the transaction's purpose is cash-out.

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

         The Company  presently  originates  fixed-rate  loans on  single-family
residential  properties  pursuant  to  underwriting  standards  consistent  with
secondary market guidelines, and which may or may not be sold into the secondary
mortgage market as conditions warrant.  Adjustable rate mortgages  ("ARMs"),  as
well as non-conforming and jumbo fixed-rate loans in amounts up to $1.0 million,
are  held  in the  portfolio.  It is the  Company's  policy  to  originate  both
fixed-rate  loans and ARMs for terms up to 30 years.  As of September  30, 2006,
$285.6 million or 46.6% and $2.9 million or 0.5% of the Company's total loan and
mortgage-backed  securities  portfolio  consisted  of  single-family  (including
construction  loans) and multi-family  residential  loans,  respectively.  As of
September 30, 2006, approximately $478.5 million or 92.8% 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, $36.9 million or 7.2%
of the total mortgage loan portfolio consisted of adjustable-rate  single-family
residential mortgage loans and mortgage-backed securities. Most of the Company's
residential mortgage loans include "due on sale" clauses.

         During  the  years  ended  September  30,  2006 and 2005,  the  Company
originated  $9.1 million and $5.9 million of ARM mortgages,  respectively.  ARMs
represented  20.0%  and 9.7% of the  Company's  total  mortgage  loan  portfolio
originations in fiscal 2006 and 2005, 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 10 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

                                       6
<PAGE>

primary  residence as well as to selected  local  builders for  construction  of
single-family  dwellings.  As of September 30, 2006, $6.9 million or 1.1% of the
total loan and  mortgage-backed  securities  portfolio consisted of construction
loans.

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

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

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

         Consumer  and Other Loans.  The Company  actively  originates  consumer
loans to provide a wider range of  financial  services to its  customers  and to
improve  the  interest  rate   sensitivity  of  its   interest-earning   assets.
Originations of consumer loans as a percent of total loan originations  amounted
to 42.6% and 38.9% during fiscal 2006 and 2005,  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 $96
million  or  15.7%  of the  loan and  mortgage-backed  securities  portfolio  at
September  30, 2006.  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, 2006, the Company had outstanding 3,041 home equity loans of which
1,773 were  installment  equity loans and 1,268 were line of credit loans. As of
such date,  the Company had an  outstanding  balance on line of credit  loans of
approximately  $25.5 million and there was approximately $40.8 million of unused
credit available on such loans.

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

         Loan Fee and Servicing  Income.  The Company receives fees both for the
origination  of loans and for  making  commitments  to  originate  and  purchase
residential and commercial  mortgage loans. The Company also receives  servicing
fees with respect to  residential  mortgage  loans it has sold. It also receives
loan fees related to existing  loans,  including  late charges,  and credit life
insurance commissions.  Loan origination and

                                       7
<PAGE>

commitment fees and discounts are a volatile source of income,  varying with the
volume and type of loans and commitments made and purchased and with competitive
and economic conditions.

         Loans fees generated on origination of real estate mortgage loans under
accounting  principles  generally  accepted in the United  States of America are
deferred  to the extent that they  exceed the costs of  originating  such loans.
Deferred  loan fees and discounts on mortgage  loans  purchased are amortized to
income as a yield  adjustment  over the estimated  remaining terms of such loans
using the interest  method.  The Company  recorded  servicing income of $52,000,
$138,000  and  $459,000 in  deferred  loan fees in fiscal  2006,  2005 and 2004,
respectively.

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

         As of September  30, 2006,  the Company was  servicing  $3.9 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  $270,000  and $3.6
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 2006 and 2005.

         If foreclosure is effected, the property is sold at a public auction in
which the Company may participate as a bidder.  If the Company is the successful
bidder, the acquired real estate property is then included in the Company's real
estate owned ("REO") account until it is sold. When property is acquired,  it is
recorded at the lower of cost or market  value at the date of  acquisition  less
estimated cost to sell and any write-down  resulting is charged to the allowance
for loan losses. Interest accrual, if any, ceases on the date of acquisition and
all costs  incurred  in  maintaining  the  property  from that date  forward are
expended. Costs incurred for the improvement or development of such property are
capitalized.  The Company is permitted under  Department  regulations to finance
sales of real estate  owned by "loans to  facilitate,"  which may  involve  more
favorable  interest  rates and terms than  generally  would be granted under the
Company's underwriting  guidelines.  The Company had no REO at the end of fiscal
2006 and 2005.

                                       8
<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,
                                                   --------------------------
                                                    2006      2005      2004
                                                   ------    ------    ------
                                                     (Dollars in Thousands)
Residential real estate loans:
  Non-accrual loans                                $   --    $   --    $   --
  Accruing loans 90 days overdue                       18       260       291
  Troubled debt restructurings                         --        --        --
                                                   ------    ------    ------
         Total                                         18       260       291
                                                   ------    ------    ------
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                       18       260       291
  Troubled debt restructurings                         --        --        --
                                                   ------    ------    ------
         Total                                     $   18    $  260    $  291
                                                   ======    ======    ======

Total non-performing loans to total loans            .004%      .07%      .09%
Total real estate owned, net of related reserves       --        --        --
Total non-performing loans and other real
  estate owned to total assets                       .002%      .03%      .04%

         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 2006, 2005 or 2004 due to the overall  performance
of the loan portfolio and management's assessment of the overall adequacy of the
allowance for loan losses.  Although  management  believes that it uses the best
information available to make determinations with respect to loan loss reserves,
future  adjustments to reserves may be necessary if economic  conditions  differ
substantially from the assumptions used in making the initial determinations.

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

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

                                       9
<PAGE>
<TABLE>
<CAPTION>

                                                                     Year Ended September 30,
                                            ---------------------------------------------------------------------------
                                                2006            2005            2004           2003             2002
                                            -----------     -----------     -----------     -----------     -----------
<S>                                             <C>             <C>             <C>             <C>              <C>
Allowances at beginning of year             $ 1,967,607     $ 1,976,849     $ 1,990,672     $ 2,034,832     $ 2,036,188
 Provision for loan losses charged to
  operating expenses                                 --              --              --              --              --
Recoveries                                        8,524          83,707           1,571              --           5,113
Loans charged off                               (20,326)        (92,949)        (15,394)        (44,160)         (6,469)
                                            -----------     -----------     -----------     -----------     -----------
Allowances at end of year                   $ 1,955,805     $ 1,967,607     $ 1,976,849     $ 1,990,672     $ 2,034,832
                                            ===========     ===========     ===========     ===========     ===========

Ratio of net charge-offs to average loans
  outstanding                                        --              --              --              --              --
Ratio of allowances to period-end loans             .50%            .54%            .58%            .66%            .68%

</TABLE>

Investment Activities

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

         The Company's  investment portfolio consists primarily of United States
Treasury  securities and obligations of United States government  agencies.  The
other investments include  interest-bearing  deposits in other banks, tax-exempt
obligations, money market mutual funds, and stock of the FHLB of Pittsburgh. The
Company has primarily  invested in  instruments  that reprice within five years;
the amount of such investments as of September 30, 2006 was $57.3 million.

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

                                           2006       2005       2004
                                         --------   --------   --------
      Interest-bearing deposits at
         other depository institutions   $  8,453   $  6,742   $  3,040
      Tax-exempt obligations               24,596     24,799     24,966
      Money market mutual funds             7,110      1,976      6,685
      Equities                                997        859      1,029
      U.S. Government and agency
         obligations held to maturity      86,503     62,566     43,196
      FHLB of Pittsburgh stock             15,499     16,036     15,184
                                         --------   --------   --------
               Total                     $143,158   $112,978   $ 94,100
                                         ========   ========   ========

         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.

                                       10
<PAGE>

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

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

         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,
                                  -----------------------------------------------------------------
                                          2006                  2005                   2004
                                  -------------------    -------------------    -------------------
                                            Percent of             Percent of             Percent of
                                   Amount    Deposits     Amount    Deposits     Amount    Deposits
                                  --------   --------    --------   --------    --------   --------
<S>                                  <C>          <C>       <C>          <C>       <C>          <C>
                                                        (Dollars in Thousands)
Passbook and club accounts        $  3,325        0.8%   $  3,807        0.9%   $  4,047        1.0%
NOW accounts                        15,720        3.7      18,283        4.4      19,839        4.9
Checking accounts                   30,749        7.2      18,721        4.5      11,767        2.9
Money market demand accounts        58,174       13.6      75,874       18.1      99,225       24.5
Certificates of deposit:
         6 month                     5,019        1.2       8,126        1.9       8,650        2.1
         9 month                    25,508        5.9      10,630        2.5       3,031        0.8
         12 month                   22,747        5.3      10,110        2.4      16,471        4.1
         15 month                   45,565       10.6      17,063        4.1       4,554        1.1
         17 month                    1,215        0.3       1,485        0.3       2,474        0.6
         18 month                    6,443        1.5      11,125        2.7      18,967        4.7
         20 month                    7,810        1.8       9,685        2.3          --         --
         24 month                    4,796        1.1       7,740        1.8      12,297        3.0
         27 month                    4,112        1.0       4,966        1.2      12,326        3.0
         36 month                   24,892        5.8      29,302        7.0      35,024        8.7
         48 month                   71,565       16.7      82,402       19.7      60,392       14.9
         60 month                   32,321        7.5      38,431        9.2      38,901        9.6
         Other                      13,104        3.1      16,924        4.0       7,057        1.7
Retirement accounts:
  Money market deposit accounts        815        0.2         707        0.2       1,224        0.3
  Certificates of deposit           55,374       12.9      53,599       12.8      48,985       12.1
                                  --------   --------    --------   --------    --------   --------
     Total deposits               $429,254     100.00%   $418,980      100.0%   $405,231      100.0%
                                  ========   ========    ========   ========    ========   ========
</TABLE>

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

                                       11
<PAGE>

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, 2006 and the scheduled  quarterly
maturities of its certificates of deposit.

<TABLE>
<CAPTION>
                                                                         Weighted
                                                       Percentage of      Average
                                              Amount   Total Deposits  Nominal Rate
                                              ------   --------------  ------------
<S>                                            <C>            <C>           <C>
                                                      (Dollars in Thousands)
Passbook and club accounts                  $    3,325          0.8%         1.17%
NOW accounts                                    15,720          3.7          0.25
Checking accounts                               30,749          7.2          1.63
Money market deposits accounts(1)               58,989         13.7          1.58
                                            ----------   ----------    ----------
         Total                              $  108,783         25.3%         1.39%
                                            ==========   ==========    ==========

Certificate accounts maturing by quarter:
     December 31, 2006                      $   68,436         15.9%         3.62%

     March 31, 2007                             62,135         14.5          3.80
     June 30, 2007                              45,441         10.6          4.46
     September 30, 2007                         33,095          7.7          4.67
     December 31, 2007                          13,087          3.0          4.40

     March 31, 2008                             15,442          3.6          3.85
     June 30, 2008                              14,616          3.4          3.73
     September 30, 2008                         28,199          6.6          3.99
     December 31, 2008                          16,760          3.9          3.95

     March 31, 2009                              7,969          1.9          3.92
     June 30, 2009                               5,496          1.3          3.88
     September 30, 2009                          2,265          0.5          3.77

Thereafter                                       7,530          1.8          4.05
                                            ----------   ----------    ----------
Total certificate accounts(1)                  320,471         74.7          4.00
                                            ----------   ----------    ----------
         Total deposits                     $  429,254        100.0%         3.34%
                                            ==========   ==========    ==========
</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 $209.1 million of
certificates  of deposit which mature during the 12 months ending  September 30,
2007.

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

                                                    Year Ended September 30,
                                               -------------------------------
                                                 2006        2005       2004
                                               --------    --------   --------
                                                        (In Thousands)
Increase (decrease) before interest credited   $   (978)   $  5,112   $  1,770
Interest credited                                11,252       8,637      7,474
                                               --------    --------   --------
     Net deposit increase                      $ 10,274    $ 13,749   $ 24,544
                                               ========    ========   ========

                                       12
<PAGE>

         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, 2006 which mature  during the periods
indicated.

<TABLE>
<CAPTION>
                                                      Amounts at September 30, 2006 Maturing
                                                 -------------------------------------------------
                                      As of
                                   September 30,  One Year
                                       2006        or Less    Two Years   Three Years   Thereafter
                                    ----------   ----------   ----------  -----------   ----------
<S>                                   <C>          <C>           <C>           <C>          <C>
                                                            (In Thousands)
Certificate accounts:
  0.01% to 2.00%                    $      385   $      199   $       86   $       --   $      100
  2.01% to 4.00%                       155,992       81,492       46,564       25,259        2,677
  4.01% to 6.00%                       162,668      125,990       24,695        7,230        4,753
  6.01% to 8.00%                         1,426        1,426           --           --           --
                                    ----------   ----------   ----------   ----------   ----------
    Total certificate accounts(1)   $  320,471   $  209,107   $   71,345   $   32,489   $    7,530
                                    ==========   ==========   ==========   ==========   ==========
</TABLE>

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

(1) Includes retirement accounts.

         The following table sets forth the maturity of certificate  deposits in
excess of $100,000 as of September 30, 2006.

                                                      Amount
                                                  (In Thousands)
                1 to 3 months                        $ 6,875
                4 to 6 months                          9,033
                7 to 12 months                         8,689
                Thereafter                            18,576
                                                     -------
                     Total                           $43,173
                                                     =======

         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, 2006, the Bank had FHLB advances with  maturities
of one year or less totaling $79.5 million at an interest rate of 4.92% and FHLB
advances with  maturities of 13 months to 10 years  totaling  $215.1  million at
interest-rates  ranging from 3.80% to 5.38%.  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,
                                   -----------------------------------------------------------------------------
                                             2006                       2005                      2004
                                   -----------------------    -----------------------    -----------------------
                                                  Weighted                  Weighted                   Weighted
                                                  Average                   Average                    Average
                                     Balance       Rate         Balance      Rate          Balance       Rate
                                   ----------   ----------    ----------   ----------    ----------   ----------
<S>                                <C>                <C>     <C>                <C>     <C>                <C>
                                                               (Dollars in Thousands)
Advances from FHLB of Pittsburgh   $  294,611         4.67%   $  297,268         4.38%   $  265,953         4.34%

</TABLE>

                                       13
<PAGE>

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

                                                       Year Ended September 30,
                                                     --------------------------
                                                       2006     2005      2004
                                                     -------  -------   -------
                                                        (Dollars in Thousands)
Advances from FHLB of Pittsburgh:
   Average balance outstanding                       $29,278  $29,355   $20,267
   Maximum amount outstanding at any
      month-end during the period                     59,400   36,100    25,600
   Weighted average interest rate during the period     4.89%    2.98%     1.38%

Employees

         The Company had 67 full-time employees and 37 part-time employees as of
September  30,  2006.  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.

Regulation of the Company

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

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

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the  ownership of shares by a bank holding  company in any company,  the
activities of which the Federal  Reserve  Board has  determined to be so closely
related  to  banking  or to  managing  or  controlling  banks  as to be a proper
incident thereto.  In making such  determinations,  the Federal Reserve Board is
required  to  weigh  the  expected  benefit  to  the  public,  such  as  greater
convenience,  increased competition or gains in efficiency, against the possible
adverse effects,  such as undue concentration of resources,  decreased or unfair
competition,  conflicts of interest or unsound banking  practices.  The 1999 Act
permits a bank holding  company

                                       14
<PAGE>

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 FHC 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  banks and any  affiliate  are  governed by Sections  23A and 23B of the
Federal  Reserve  Act. An  affiliate  of a savings bank is any company or entity
which  controls,  is controlled  by or is under common  control with the savings
bank. In a holding company context, the parent holding company of a savings bank
(such as the  Company) and any  companies  which are  controlled  by such parent
holding company are affiliates of the savings bank.  Generally,  Section 23A (i)
limits the extent to which the savings  bank or its  subsidiaries  may engage in
"covered  transactions" with any one affiliate to an amount equal to 10% of such
bank'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.  Section 23B applies to "covered  transactions"  as well as certain
other transactions and requires that all transactions be on terms  substantially
the same, or at least favorable,  to the bank or subsidiary as those provided to
a non-affiliate. The term "covered transaction" includes the making of loans to,
purchase of assets from,  issuance of a guarantee  to an  affiliate  and similar
transactions.  Section 23B transactions  also apply to the provision of services
and the sale of assets by a savings bank to an affiliate.

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

                                       15
<PAGE>

with at least  one-half of that amount  consisting of Tier I or core capital and
up to one-half of that amount  consisting of Tier II or  supplementary  capital.
Tier I capital  for bank  holding  companies  generally  consists  of the sum of
common  stockholders'  equity and perpetual preferred stock (subject in the case
of the latter to  limitations on the kind and amount of such stocks which may be
included  as Tier I  capital),  less  goodwill  and,  with  certain  exceptions,
intangibles.  Tier II capital generally consists of hybrid capital  instruments;
perpetual  preferred  stock  which  is not  eligible  to be  included  as Tier I
capital;  term  subordinated  debt and  intermediate-term  preferred stock; and,
subject to limitations,  general allowances for loan losses. Assets are adjusted
under  the   risk-based   guidelines  to  take  into  account   different   risk
characteristics,  with the  categories  ranging from 0% (requiring no additional
capital)  for  assets  such as cash to 100% for the  bulk of  assets  which  are
typically held by a bank holding company, including multi-family residential and
commercial  real estate loans,  commercial  business  loans and consumer  loans.
Single-family  residential  first mortgage loans which are not past-due (90 days
or more) or  non-performing  and which have been made in accordance with prudent
underwriting  standards are assigned a 50% level in the risk-weighing system, as
are certain  privately-issued  mortgage-backed  securities representing indirect
ownership of such loans.  Off-balance sheet items also are adjusted to take into
account certain risk characteristics.

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

         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,  President George W. Bush
signed into law the  Sarbanes-Oxley  Act of 2002, which generally  establishes a
comprehensive  framework to modernize and reform the oversight of public company
auditing,  improve the quality and transparency of financial  reporting by those
companies and strengthen the independence of auditors.  Among other things,  the
new legislation (i) created a public company accounting oversight board which is
empowered to set  auditing,  quality  control and ethics  standards,  to inspect
registered  public  accounting  firms,  to  conduct  investigations  and to take
disciplinary  actions,  subject to SEC oversight and review;  (ii)  strengthened
auditor independence from corporate management by, among other things,  limiting
the scope of consulting  services  that auditors can offer their public  company
audit clients;  (iii) heightened the  responsibility of public company directors
and senior  managers for the quality of the financial  reporting and  disclosure
made by their companies; (iv) adopted a number of provisions to deter wrongdoing
by  corporate  management;  (v)  imposed  a number of new  corporate  disclosure
requirements;  (vi) adopted  provisions which generally seek to limit and expose
to public view possible conflicts of interest affecting securities analysts; and
(vii)  imposed a range of new criminal  penalties

                                       16
<PAGE>

for fraud and other  wrongful  acts, as well as extended the period during which
certain types of lawsuits can be brought against a company or its insiders.

Regulation of the Bank

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

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

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

         The Department generally examines each savings bank not less frequently
than once every two years.  Although the Department may accept the  examinations
and  reports of the FDIC in lieu of the  Department's  examination,  the present
practice  is  for  the  Department  to  conduct  individual  examinations.   The
Department  may order any savings bank to  discontinue  any  violation of law or
unsafe or  unsound  business  practice  and may  direct  any  trustee,  officer,
attorney or employee of a savings  bank  engaged in 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.

                                       17
<PAGE>

         FDIC  Insurance  Premiums.  The deposits of the Bank are insured by the
Deposit  Insurance Fund,  which is administered by the FDIC.  Under current FDIC
regulations,  insured  institutions  are assigned to one of three capital groups
which  are  based  solely  on the  level of an  institution's  capital.  Deposit
Insurance Fund 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 2006  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 a predecessor to the Deposit  Insurance  Fund. The assessment  rate
for the third  quarter of 2006 was .00315% 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,  2006,  the  Bank's
regulatory capital exceeded all of its capital requirements.

         Deposit Insurance Reform. On February 8, 2006, President George W. Bush
signed into law legislation  that merged the Bank Insurance Fund and the Savings
Association  Insurance Fund to form the Deposit  Insurance Fund,  eliminated any
disparities  in bank and thrift  risk-based  premium  assessments,  reduced  the
administrative  burden of  maintaining  and  operating  two  separate  funds and
established  certain new insurance  coverage limits and a mechanism for possible
periodic  increases.  The legislation  also gave the Federal  Deposit  Insurance
Corporation  greater  discretion to identify the relative risks all institutions
present to the Deposit Insurance Fund and set risk-based premiums.

         Major provisions in the legislation include:

         o        merging  the  Savings  Association  Insurance  Fund  and  Bank
                  Insurance Fund, which became effective March 31, 2006;

         o        maintaining  basic  deposit and  municipal  account  insurance
                  coverage at $100,000 but providing  for a new basic  insurance
                  coverage  for  retirement  accounts  of  $250,000.   Insurance
                  coverage for basic deposit and  retirement  accounts  could be
                  increased for inflation every five years in $10,000 increments
                  beginning in 2011;

         o        providing the Federal Deposit  Insurance  Corporation with the
                  ability to set the designated  reserve ratio within a range of
                  between 1.15% and 1.50%,  rather than maintaining 1.25% at all
                  times regardless of prevailing economic conditions;

         o        providing  a  one-time  assessment  credit of $4.7  billion to
                  banks and savings  associations  in  existence on December 31,
                  1996, which may be used to offset future premiums with certain
                  limitations; and

         o        requiring  the payment of dividends of 100% of the amount that
                  the  insurance  fund  exceeds  1.5% of the  estimated  insured
                  deposits  and  the  payment  of  50% of the  amount  that  the
                  insurance fund exceeds 1.35% of the estimated insured deposits
                  (when  the  reserve  is  greater  than  1.35% but no more than
                  1.5%).

                                       18
<PAGE>

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

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

         The  components  of Tier I capital are  equivalent  to those  discussed
above under the 3% leverage standard.  The components of supplementary  (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities,  certain  subordinated  debt and  intermediate  preferred  stock and
general  allowances  for loan losses.  Allowance  for loan losses  includable in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of capital  counted  toward  supplementary  capital  cannot
exceed 100% of core  capital.  At September  30, 2006,  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.

                                       19
<PAGE>

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

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

         The FDIC has adopted final regulations pertaining to the other activity
restrictions  imposed  upon  insured  savings  banks and their  subsidiaries  by
Section 24.  Pursuant to such  regulations,  insured  savings banks  engaging in
impermissible  activities  may seek  approval  from the  FDIC to  continue  such
activities.  Savings  banks not engaging in such  activities  but that desire to
engage in otherwise  impermissible  activities  may apply for approval  from the
FDIC  to do so;  however,  if  such  bank  fails  to meet  the  minimum  capital
requirements or the activities  present a significant risk to the FDIC insurance
funds,  such  application  will  not be  approved  by the  FDIC.  The  FDIC  has
authorized the bank's  subsidiary  HARL, LLC, to invest up to 15% of its capital
in the equity securities of bank holding companies,  banks or thrifts.  $997,000
was invested by HARL, LLC as of September 30, 2006 in such equity securities.

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

Federal and State Taxation

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

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

                                       20
<PAGE>

         Bad Debt Reserves. The Company computes its reserve for bad debts under
the specific  charge-off  method.  The bad debt deduction  allowable  under this
method is  available  to large  banks with  assets  greater  than $500  million.
Generally,  this method  allows the Company to deduct an annual  addition to the
reserve  for bad  debts  equal  to its net  charge-offs.  Retained  earnings  at
September 30, 2006 and 2005 includes approximately $1.3 million 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 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,  2006,  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

                                       21
<PAGE>

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, 2006 amounted
to approximately $146.3 million. The Bank formed two limited liability companies
in 2002, Freedom Financial Solutions LLC ("FFS") and HARL LLC ("HARL").  FFS was
established to engage in the sale of insurance  products  through a third party.
HARL was  established  for the purpose of investing  in FDIC  insured  financial
institutions/holding company equity securities.

Item 1A. Risk Factors.
----------------------

         In  analyzing  whether  to make or to  continue  an  investment  in our
securities,  investors should consider,  among other factors, the following risk
factors.

Our results of operations are significantly dependent on economic conditions and
related uncertainties.

         Commercial  banking is affected,  directly and indirectly,  by domestic
and international economic and political conditions and by governmental monetary
and fiscal  policies.  Conditions  such as inflation,  recession,  unemployment,
volatile  interest  rates,  real  estate  values,  government  monetary  policy,
international  conflicts, the actions of terrorists and other factors beyond our
control  may  adversely  affect our results of  operations.  Changes in interest
rates, in particular,  could adversely affect our net interest income and have a
number  of  other  adverse  effects  on  our  operations,  as  discussed  in the
immediately  succeeding  risk factor.  Adverse  economic  conditions  also could
result in an  increase in loan  delinquencies,  foreclosures  and  nonperforming
assets and a decrease  in the value of the  property or other  collateral  which
secures  our  loans,  all  of  which  could  adversely  affect  our  results  of
operations.  We are particularly sensitive to changes in economic conditions and
related  uncertainties in Eastern  Pennsylvania  because we derive substantially
all of our loans,  deposits and other business from this area.  Accordingly,  we
remain subject to the risks  associated  with prolonged  declines in national or
local economies.

Changes  in  interest  rates  could  have  a  material  adverse  effect  on  our
operations.

         The operations of financial  institutions such as ours are dependent to
a large  extent on net  interest  income,  which is the  difference  between the
interest income earned on  interest-earning  assets such as loans and investment
securities and the interest expense paid on interest-bearing liabilities such as
deposits  and  borrowings.  Changes in the general  level of interest  rates can
affect our net interest income by affecting the difference  between the weighted
average  yield earned on our  interest-earning  assets and the weighted  average
rate paid on our interest-bearing  liabilities, or interest rate spread, and the
average life of our interest-earning  assets and  interest-bearing  liabilities.
Changes in interest  rates also can affect our ability to originate  loans;  the
value of our  interest-earning  assets and our ability to realize gains from the
sale of such assets;  our ability to obtain and retain  deposits in  competition
with other available  investment  alternatives;  the ability of our borrowers to
repay  adjustable or variable rate loans;  and the fair value of the derivatives
carried on our balance sheet,  derivative  hedge  effectiveness  testing and the
amount of ineffectiveness recognized in our earnings.

                                       22
<PAGE>

Interest  rates are highly  sensitive to many  factors,  including  governmental
monetary policies,  domestic and international economic and political conditions
and other  factors  beyond our control.  Although we believe that the  estimated
maturities  of our  interest-earning  assets  currently  are  well  balanced  in
relation to the estimated maturities of our interest-bearing  liabilities (which
involves  various  estimates as to how changes in the general  level of interest
rates will impact these assets and liabilities),  there can be no assurance that
our profitability  would not be adversely  affected during any period of changes
in interest rates.

There are increased  risks involved with  multi-family  residential,  commercial
real estate, commercial business and consumer lending activities.

         Our lending activities  include loans secured by existing  multi-family
residential  and  commercial  real  estate.  In  addition,  from time to time we
originate loans for the construction of multi-family residential real estate and
land acquisition and development  loans.  Multi-family  residential,  commercial
real estate and construction lending generally is considered to involve a higher
degree of risk  than  single-family  residential  lending  due to a  variety  of
factors,  including generally larger loan balances, the dependency on successful
completion  or  operation  of the project for  repayment,  the  difficulties  in
estimating  construction  costs and loan terms which  often do not require  full
amortization  of the loan  over its term  and,  instead,  provide  for a balloon
payment at stated  maturity.  Our lending  activities  also  include  commercial
business  loans and leases to small to medium  businesses,  which  generally are
secured by various  equipment,  machinery and other corporate assets, and a wide
variety of consumer loans,  including home improvement loans, home equity loans,
education  loans  and  loans  secured  by  automobiles,   boats,  mobile  homes,
recreational vehicles and other personal property.  Although commercial business
loans and leases and consumer  loans  generally  have  shorter  terms and higher
interests  rates than  mortgage  loans,  they  generally  involve more risk than
mortgage loans because of the nature of, or in certain cases the absence of, the
collateral which secures such loans.

We are subject to extensive regulation which could adversely affect our business
and operations.

         We and our  subsidiaries  are  subject to  extensive  federal and state
governmental  supervision and regulation,  which are intended  primarily for the
protection of depositors.  In addition,  we and our  subsidiaries are subject to
changes  in  federal  and  state  laws,  as  well  as  changes  in  regulations,
governmental  policies  and  accounting  principles.  The  effects  of any  such
potential  changes cannot be predicted but could  adversely  affect the business
and operations of us and our subsidiaries in the future.

We face strong competition which may adversely affect our profitability.

         We are subject to vigorous  competition in all aspects and areas of our
business from banks and other financial institutions, including savings and loan
associations,   savings  banks,  finance  companies,  credit  unions  and  other
providers of financial  services,  such as money market mutual funds,  brokerage
firms, consumer finance companies and insurance companies.  We also compete with
non-financial  institutions,  including  retail stores that  maintain  their own
credit  programs  and  governmental  agencies  that make  available  low cost or
guaranteed  loans to certain  borrowers.  Certain of our  competitors are larger
financial  institutions with substantially  greater  resources,  lending limits,
larger  branch  systems  and a  wider  array  of  commercial  banking  services.
Competition from both bank and non-bank organizations will continue.

Our  ability  to  successfully  compete  may be reduced if we are unable to make
technological advances.

         The banking  industry is experiencing  rapid changes in technology.  In
addition to improving customer services,  effective use of technology  increases
efficiency and enables financial  institutions to reduce costs. As a result, our
future  success  will depend in part on our  ability to address  our  customers'
needs  by  using  technology.  We  cannot  assure  you  that  we will be able to
effectively develop new technology-driven products

                                       23
<PAGE>

and services or be successful in marketing these products to our customers. Many
of our  competitors  have  far  greater  resources  than we have  to  invest  in
technology.

We and our banking  subsidiary  are  subject to capital  and other  requirements
which restrict our ability to pay dividends.

         Our ability to pay  dividends  to our  shareholders  depends to a large
extent upon the dividends we receive from Harleysville  Savings Bank.  Dividends
paid by the Bank are subject to restrictions under Pennsylvania and federal laws
and regulations.  In addition,  Harleysville  Savings Bank must maintain certain
capital  levels,  which may restrict the ability of the Bank to pay dividends to
us and our ability to pay dividends to our shareholders.

Holders  of our  common  stock  have no  preemptive  rights  and are  subject to
potential dilution.

         Our articles of  incorporation  do not provide any  shareholder  with a
preemptive  right to subscribe  for  additional  shares of common stock upon any
increase  thereof.  Thus,  upon the issuance of any additional  shares of common
stock or other voting  securities of the Company or securities  convertible into
common stock or other voting securities,  shareholders may be unable to maintain
their pro rata voting or ownership interest in us.

Item 1B. Unresolved Staff Comments.
-----------------------------------

         Not applicable.

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

         As of September 30, 2006,  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
                                                                     Lease        Property and Leasehold
                                                    Owned or       Expiration         Improvements at
      County                   Address               Leased          Date           September 30, 2006       Deposits
-------------------   ---------------------------   ---------   ----------------  -----------------------   ---------
<S>                       <C>                          <C>            <C>                   <C>                <C>
                                                                                               (In Thousands)
  Montgomery          1889 Ridge Park
                      Royersford, Pennsylvania        Owned            --                 $3,266             $  2,448
  Montgomery          271 Main Street
                      Harleysville, Pennsylvania      Owned            --                  1,092              148,152
  Montgomery          640 East Main Street
                      Lansdale, Pennsylvania          Leased       May 2043(1)               906               42,901
  Montgomery          1550 Hatfield Valley Road
                      Hatfield, Pennsylvania          Leased     January 2064(1)             825               88,126
  Montgomery          2301 West Main Street
                      Norristown, Pennsylvania        Owned            --                    550               95,424
  Montgomery          3090 Main Street
                      Sumneytown, Pennsylvania        Owned            --                    318               52,203
                                                                                          ------             --------
                                                                            Total         $6,957             $429,254
                                                                                          ======             ========
</TABLE>

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

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

                                       24
<PAGE>

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

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

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

         Not Applicable.

                                     PART II

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

         (a) The  information  required herein is incorporated by reference from
page 31 of the Company's 2006 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, 2006                         --        $   --               --                 39,787
August 1-31, 2006                       --            --               --                 39,787
September 1-30, 2006                    --            --               --                 39,787
                                     -----         -----           ------                 ------
             Total                      --        $   --               --                 39,787
                                     =====         =====           ======                 ======
</TABLE>

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

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

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

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

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

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

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

                                       25
<PAGE>


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

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

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

         Not Applicable.

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

         Our management evaluated, with the participation of our Chief Executive
Officer  and  Chief  Financial  Officer,  the  effectiveness  of our  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange  Act of  1934)  as of  September  30,  2006.  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 2006 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 24, 2007 (the  "Proxy  Statement"),  a copy of which will be
filed with the Securities and Exchange Commission before the meeting date.

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

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.

                                       26
<PAGE>

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,
2006.

<TABLE>
<CAPTION>


                                 Number of Shares to be
                                issued upon the Exercise      Weighted-Average       Number of Shares Remaining Available for
                                 of Outstanding Options,     Exercise Price of          Future Issuance (Excluding Shares
       Plan Category             Warrants and Rights(1)     Outstanding Options         Reflected in the First Column)(2)
-----------------------------    ----------------------     --------------------     ---------------------------------------
<S>                                    <C>                        <C>                               <C>
Equity compensation plans
   approved by security holders        243,100                    $ 15.01                            313,675
Equity compensation plans not
   approved by security holders             --                         --                                 --
                                       -------                    -------                            -------
     Total                             243,100                    $ 15.01                            313,675
                                       =======                                                       =======
</TABLE>

-----------
(1)  Does not take into account  purchase  rights  accruing  under the Company's
     1995 Employee Stock Purchase Plan,  which was approved by stockholders  and
     provides for up to 87,281  shares to be issued.  Under the  Employee  Stock
     Purchase Plan,  each eligible  employee may purchase shares of common stock
     at semi-annual  intervals  each year at a purchase price  determined by the
     committee of the board of directors which administers the plan, which shall
     not be less than the lesser of (i) 85% of the fair market  value of a share
     of common  stock on the first  business day of the  applicable  semi-annual
     offering  period or (ii) 85% of the fair market  value of a share of common
     stock on the last business day of such offering period. In no event may the
     amount of common stock  purchased by a  participant  in the Employee  Stock
     Purchase Plan in a calendar year exceed $25,000, measured as of the time an
     option under the plan is granted.

(2)  Includes  shares  available for future  issuance  under the Employee  Stock
     Purchase  Plan.  As of September 30, 2006, an aggregate of 53,583 shares of
     common stock were available for issuance under this plan.

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

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

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

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

                                     PART IV

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

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

         Report of Independent Registered Public Accounting Firm
         Consolidated Statements of Financial Condition as of September 30, 2006
             and 2005
         Consolidated  Statements  of Income for the Years Ended  September  30,
             2006, 2005 and 2004

                                       27
<PAGE>

         Consolidated  Statements  of  Stockholders'  Equity for the Years Ended
             September 30, 2006, 2005 and 2004
         Consolidated Statements of Cash Flows for the Years Ended September 30,
             2006, 2005 and 2004
         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.

         (3) Exhibits

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

<TABLE>
<CAPTION>

          No.                                           Exhibits                                      Location
      ---------  -----------------------------------------------------------------------------   ------------------
       <S>       <C>                                                                                 <C>
          3.1    Articles of Incorporation                                                              (1)
          3.2    Bylaws                                                                                 (1)
          4.0    Common Stock Certificate                                                               (1)
         10.1    1995 Employee Stock Purchase Plan*                                                     (2)
         10.2    1995 Stock Option Plan*                                                                (2)
         10.3    2000 Stock Option Plan*                                                                (3)
         10.4    2005 Stock Option Plan*                                                                (4)
         10.5    Profit Sharing Incentive Plan*                                                         (2)
         10.6    Employment Agreement with Edward J. Molnar and Marian Bickerstaff*                     (5)
         10.7    Amended and Restated Employment Agreement between the Company,
                    the Bank and Ronald B. Geib*                                                        (6)
         13.0    Annual Report to Stockholders                                                     Filed herewith
         22.0    Subsidiaries of the Registrant - Reference is made to "Item 1. Business
                    - Subsidiaries" of this Form 10-K for the required information                       --
         23.0    Consent of  Deloitte & Touche LLP                                                 Filed herewith
         31.1    Certification  of Chief  Executive  Officer                                       Filed herewith
         31.2    Certification  of Chief  Financial  Officer                                       Filed herewith
         32.0    Section 1350  Certification of the Chief Executive Officer and
                 Chief Financial Officer                                                           Filed herewith
         99.0    Code of Conduct and Ethics                                                             (3)
</TABLE>

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

*        Denotes management compensation plan or arrangement.
(1)      Incorporated  herein by reference to the  Company's  Current  Report on
         Form 8-K filed with the Securities and Exchange  Commission  ("SEC") on
         February 25, 2000.
(2)      Incorporated 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.
(3)      Incorporated by reference to the Company's  definitive  proxy statement
         dated December 19, 2000 filed with the SEC.
(4)      Incorporated by reference from the Company's definitive proxy statement
         for the 2005  Annual  Meeting  of  Stockholders  filed  with the SEC on
         December 16, 2005.
(5)      Incorporated  herein  by  reference  to  Harleysville   Savings  Bank's
         Registration Statement on Form 10 filed with the Federal Home Loan Bank
         Board, the predecessor to the Office of Thrift Supervision,  on July 1,
         1987.
(6)      Incorporated  by reference to the Company's  Current Report on Form 8-K
         filed with the SEC on November 1, 2006.

(b)      Exhibits

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

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


                                       28
<PAGE>

                                   SIGNATURES

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

                                   HARLEYSVILLE SAVINGS
                                   FINANCIAL CORPORATION


December 20, 2006                  By:   /s/ Edward J. Molnar
                                         ------------------------------------
                                         Edward J. Molnar
                                         Chairman and Chief Executive Officer

         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.

<TABLE>
<CAPTION>
             Name                                      Title                               Date
------------------------------------          ----------------------------------     -----------------
<S>                                            <C>                                    <C>
/s/ Edward J. Molnar                          Chairman and                           December 20, 2006
------------------------------------           Chief Executive Officer
Edward J. Molnar                              (principal executive officer)


/s/ Ronald B. Geib                            President and                          December 20, 2006
------------------------------------           Chief Operating Officer
Ronald B. Geib


/s/ Brendan J. McGill                         Senior Vice President, Treasurer       December 20, 2006
------------------------------------           and Chief Financial Officer
Brendan J. McGill                             (principal financial and principal
                                               accounting officer)


/s/ Sanford L. Alderfer                                                              December 20, 2006
------------------------------------
Sanford L. Alderfer                           Director


/s/ Philip A. Clemens                         Director                               December 20, 2006
------------------------------------
Philip A. Clemens



/s/ Mark R. Cummins                           Director                               December 20, 2006
------------------------------------
Mark R. Cummins

</TABLE>

                                       29
<PAGE>


<TABLE>
<CAPTION>
             Name                                      Title                               Date
------------------------------------          ----------------------------------     -----------------
<S>                                            <C>                                    <C>
/s/ David J. Friesen                          Director                               December 20, 2006
------------------------------------
David J. Friesen


/s/ Charlotte A. Hunsberger                   Director                               December 20, 2006
------------------------------------
Charlotte A. Hunsberger


/s/ George W. Meschter                        Director                               December 20, 2006
------------------------------------
George W. Meschter


/s/ James L. Rittenhouse                      Director                               December 20, 2006
------------------------------------
James L. Rittenhouse

</TABLE>

                                       30