UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20429

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

o		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 No.)

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

(215) 256-8828

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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regualtion S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 Par Value, 3,603,409 shares outstanding as of May 11, 2009

 

 

HARLEYSVILLE SAVINGS FINANCIAL CORPORATION

Index

		PAGE(S)
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition as of March 31, 2009, and September 30, 2008			1
Unaudited Consolidated Statements of Income for the Three and Six Months Ended March 31, 2009 and 2008			2
Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2009 and 2008			3
Unaudited Consolidated Statements of Stockholders’ Equity for the Six Months Ended March 31, 2009 and 2008			4
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2009 and 2008			5
Notes to Unaudited Consolidated Financial Statements			6 - 17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18 - 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			20 - 21
Item 4. Controls and Procedures			22
Part II OTHER INFORMATION
Item 1. Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3. Defaults upon Senior Securities			23
Item 4. Submission of Matters to a Vote of Security Holders			23
Item 5. Other information			23
Item 6. Exhibits			23
Signatures			24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.0

Harleysville Savings Financial Corporation

		March 31,				September 30,
(In thousands, except share data)		2009				2008
Assets
Cash and amounts due from depository institutions		$	2,255			$	2,217
Interest bearing deposits in other banks			12,498				7,157
Total cash and cash equivalents			14,753				9,374
Investment securities held to maturity (fair value - March 31, $77,602; September 30, $78,973)			76,457				79,254
Investment securities available-for-sale at fair value			1,014				854
Mortgage-backed securities held to maturity (fair value - March 31, $198,111; September 30, $211,814)			192,383				213,933
Mortgage-backed securities available-for-sale at fair value			796				758
Loans receivable (net of allowance for loan losses - March 31, $2,193; September 30, $1,988)			483,371				476,858
Accrued interest receivable			3,457				3,799
Federal Home Loan Bank stock — at cost			16,096				16,574
Office properties and equipment, net			10,187				10,154
Prepaid expenses and other assets			15,218				14,117
TOTAL ASSETS		$	813,732			$	825,675
Liabilities and Stockholders’ Equity
Liabilities:
Deposits		$	439,493			$	425,513
Short-term borrowings			—				21,800
Long-term debt			318,147				326,046
Accrued interest payable			1,557				1,686
Advances from borrowers for taxes and insurance			4,589				1,483
Accounts payable and accrued expenses			958				1,938
Total liabilities			764,744				778,466
Stockholders’ equity:
Preferred Stock: $.01 par value; 12,500,000 shares authorized; none issued			—				—
Common stock: $.01 par value; 25,000,000 shares authorized; 3,921,177 shares issued; outstanding March 31, 2009 3,603,409 shares September 30, 2008 3,567,934 shares			39				39
Additional Paid-in capital			7,998				7,993
Treasury stock, at cost (March 31, 2009, 317,768 shares; September 30, 2008, 353,243)			(4,531	)			(5,017	)
Retained earnings — partially restricted			45,527				44,235
Accumulated other comprehensive loss			(45	)			(41	)
Total stockholders’ equity			48,988				47,209
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	813,732			$	825,675

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

		For the Three Months Ended								For the Six Months Ended
		March 31,								March 31,
(In thousands, except per share data)		2009				2008				2009				2008
INTEREST INCOME:
Interest on mortgage loans		$	5,096			$	4,671			$	10,105			$	9,256
Interest on commercial loans			740				409				1,449				717
Interest on mortgage-backed securities			2,409				2,437				4,955				4,718
Interest on consumer and other loans			1,188				1,466				2,495				2,982
Interest on taxable investments			743				1,378				1,562				2,829
Interest on tax-exempt investments			325				348				656				699
Dividends on investment securities			3				13				8				22
Total interest income			10,504				10,722				21,230				21,223
Interest Expense:
Interest on deposits			2,744				4,167				5,714				8,312
Interest on borrowings			3,403				3,352				6,974				6,839
Total interest expense			6,147				7,519				12,688				15,151
Net Interest Income			4,357				3,203				8,542				6,072
Provision for loan losses			100				5				200				5
Net Interest Income after Provision for Loan Losses			4,257				3,198				8,342				6,067
Other Income:
Customer service fees			158				140				336				304
Impairment of equity securities			(449	)			—				(449	)			—
Gain on sale of investments			20				—				20				—
Loss on sale of investments			(11	)			4				(11	)			4
Income on bank-owned life insurance			121				121				243				252
Other income			184				202				355				406
Total other income			23				467				494				966
Other Expenses:
Salaries and employee benefits			1,580				1,438				3,195				2,758
Occupancy and equipment			291				262				601				527
Deposit insurance premiums			239				12				257				25
Data processing			127				130				263				248
Other			582				583				1,256				1,252
Total other expenses			2,819				2,425				5,572				4,810
Income before Income Taxes			1,461				1,240				3,264				2,223
Income tax expense			258				206				685				388
Net Income		$	1,203			$	1,034			$	2,579			$	1,835
Basic Earnings Per Share		$	0.33			$	0.28			$	0.72			$	0.49
Diluted Earnings Per Share		$	0.33			$	0.28			$	0.72			$	0.49
Dividends Per Share		$	0.18			$	0.17			$	0.36			$	0.34

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

		Three Months Ended
		March 31,
(In thousands)		2009				2008
Net Income		$	1,203			$	1,034
Other Comprehensive Income
Unrealized loss on securities available for sale, net of tax benefit — 2009, ($66); 2008, ($7) and reclassifications			128	(1)			14	(1)
Total Comprehensive Income		$	1,331			$	1,048

		2009				2008
(1) Disclosure of reclassification amount, net of tax for the three months ended:
Net unrealized gain (loss) arising during the three months ended		$	(246	)		$	25
Reclassification adjustment for net losses (gains) included in net income			440				(4	)
		$	194				21
Tax (expense) benefit			(66	)			(7	)
Net unrealized gain on securities avalaible for sale		$	128			$	14

		Six Months Ended
		March 31,
(In thousands)		2009				2008
Net Income		$	2,579			$	1,835
Other Comprehensive Income
Unrealized loss on securities available for sale, net of tax benefit — 2009, ($2); 2008, ($57) and reclassifications			(4	) (1)			(111	) (1)
Total Comprehensive Income		$	2,575			$	1,724

		2009				2008
(1) Disclosure of reclassification amount, net of tax for the six months ended:
Net unrealized gain (loss) arising during the six months ended		$	(446	)		$	(164	)
Reclassification adjustment for net losses (gains) included in net income			440				(4	)
		$	(6	)			(168	)
Tax (expense) benefit			2				57
Net unrealized loss on securities available for sale		$	(4	)		$	(111	)

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

		Common												Retained				Accumulated
		Stock								Additional				Earnings-				Other								Total
		Shares				Common				Paid-in				Partially				Comprehensive				Treasury				Stockholders’
(In thousands, except share and per share data)		Outstanding				Stock				Capital				Restricted				(Loss) / Income				Stock				Equity
Balance at October 1, 2008			3,567,934			$	39			$	7,993			$	44,235			$	(41	)		$	(5,017	)		$	47,209
Net income															2,579												2,579
Dividends — $.36 per share															(1,287	)											(1,287	)
Stock option compensation											70																70
Treasury stock delivered under employee stock plan			10,000								(17	)											137				120
Treasury stock delivered under reinvestment plan			23,808								(41	)											326				285
Employee options exercised			1,667								(7	)											23				16
Change in unrealized holding loss on available-for-sale securities, net of tax																			(4	)							(4	)
Balance at March 31, 2009			3,603,409			$	39			$	7,998			$	45,527			$	(45	)		$	(4,531	)		$	48,988

		Common												Retained				Accumulated
		Stock								Additional				Earnings-				Other								Total
		Shares				Common				Paid-in				Partially				Comprehensive				Treasury				Stockholders’
(In thousands, except share and per share data)		Outstanding				Stock				Capital				Restricted				(Loss) / Income				Stock				Equity
Balance at October 1, 2007			3,717,519			$	39			$	8,044			$	42,363			$	(89	)		$	(3,316	)		$	47,041
Net income															1,835												1,835
Dividends — $.34 per share															(1,265	)											(1,265	)
Stock option compensation											54																54
Treasury stock purchased			(205,358	)																			(2,557	)			(2,557	)
Treasury stock delivered under employee stock plan			8,000								(26	)											133				107
Treasury stock delivered under reinvestment plan			20,779								(71	)											345				274
Employee options exercised			2,250								(19	)											38				19
Change in unrealized holding loss on available-for-sale securities, net of tax																			(111	)							(111	)
Balance at March 31, 2008			3,543,190			$	39			$	7,982			$	42,933			$	(200	)		$	(5,357	)		$	45,397

See notes to unaudited consolidated financial statements.

Harleysville Savings Financial Corporation

		Six Months Ended March 31,
(In thousands)		2009				2008
Operating Activities:
Net Income		$	2,579			$	1,835
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			224				257
Provision for loan losses			200				5
Gain on sales of securities			(20	)			(4	)
Loss on sales of securities			11				—
Loss on impairment of securities			449				—
Amortization of deferred loan fees			25				12
Net amortization of premiums and discounts			63				17
Increase in cash surrender value			(243	)			(252	)
Compensation charge on stock options			70				54
Changes in assets and liabilities which provided (used) cash:
Decrease in accounts payable and accrued expenses			(980	)			(296	)
Increase in prepaid expenses and other assets			(858	)			(104	)
Decrease in accrued interest receivable			342				166
Decrease in accrued interest payable			(129	)			(74	)
Net cash provided by operating activities			1,733				1,616
Investing Activities:
Purchase of mortgage-backed securities held to maturity			—				(48,147	)
Purchase of investment securities held to maturity			—				(18,086	)
Purchase of investment securities available-for-sale			(651	)			—
Net redemption of FHLB stock			478				44
Proceeds from the sale of investment securities available-for-sale			—				568
Proceeds from maturities of investment securities held to maturity			1,365				29,948
Principal collected on mortgage-backed securities			22,928				19,388
Principal collected on long-term loans			64,116				42,899
Long-term loans originated or acquired			(70,854	)			(65,394	)
Purchases of premises and equipment			(257	)			(311	)
Net cash provided by (used in) investing activities			17,125				(39,091	)
Financing Activities:
Net increase (decrease) in demand deposits, NOW accounts and savings accounts			8,941				(620	)
Net increase in certificates of deposit			5,039				27,101
Cash dividends			(1,002	)			(1,265	)
Net decrease in short-term borrowings			(21,800	)			(23,500	)
Proceeds from long-term debt			24,500				63,000
Repayment of long-term debt			(32,399	)			(28,824	)
Acquisition of treasury stock			—				(2,557	)
Treasury stock delivered under employee stock plans			136				400
Net increase in advances from borrowers for taxes and insurance			3,106				3,167
Net cash (used in) provided by financing activities			(13,479	)			36,902
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			5,379				(573	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			9,374				8,317
CASH AND CASH EQUIVALENTS AT END OF YEAR		$	14,753			$	7,744
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest (credited and paid)		$	12,817			$	15,225
Income taxes			1,203				433

See notes to consolidated financial statements.

Harleysville Savings Financial Corporation

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The unaudited condensed consolidated financial statements include the accounts of Harleysville Savings Financial Corporation (the “Company”) and its subsidiary. Harleysville Savings Bank (the “Bank”) is the wholly owned subsidiary of the Company. The accompanying consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s wholly owned subsidiaries, HSB Inc, a Delaware corporation which was formed in order to hold certain assets, Freedom Financial LLC that allows the Company to offer non deposit products and HARL LLC that allows the Bank to invest in equity investments. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three and six months ended March 31, 2009 are not necessarily indicative of the results which may be expected for the entire fiscal year ending September 30, 2009 or any other period. The financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the period ended September 30, 2008.

Use of Estimates in Preparation of Consolidated Financial Statements — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant of these estimates is the allowance for loan losses, the determination of other-than-temporary impairment on securities and the valuation of deferred tax assets. Actual results could differ from those estimates.

Recent Accounting Pronouncements — In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for our Company October 1, 2008. The adoption of SFAS No. 159 did not have an impact on our consolidated financial statements

In September 2006, the Emerging Issues Task Force (EITF) of FASB issued EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements” (EITF 06-04). EITF 06-4 requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer

(who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The disclosures are required in fiscal years beginning after December 15, 2007, with early adoption permitted. The adoption of this new accounting standard did not have an impact to our consolidated financial statements.

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The adoption of EITF 06-10 did not have an impact on the Company’s consolidated financial position and results of operations.

In December of 2007, FASB issued statement No. 141 (R) “Business Combinations”. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The new pronouncement will impact the Company’s accounting for business combinations completed beginning October 1, 2009.

In December 2007, FASB issued statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement will have an immaterial impact on the Company’s financial statements in future periods.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (Statement 161).  Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives.  Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows.  Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (FSP 133-1 and FIN 45-4). FSP 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

In December 2008, the FASB issued FSP SFAS 140-4 and FASB Interpretation (FIN) 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (FSP SFAS 140-4 and FIN 46(R)-8). FSP SFAS 140-4 and FIN 46(R)-8 amends FASB SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FIN 46(R), “Consolidation of Variable Interest Entities”, to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE. The disclosures required by FSP SFAS 140-4 and FIN 46(R)-8 are intended to provide greater transparency to financial statement users about a transferor’s continuing involvement with transferred financial assets and an enterprise’s involvement with variable interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) is effective for reporting periods (annual or interim) ending after December 15, 2008. This new pronouncement will not have an impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively.

Retrospective application to a prior interim or annual reporting period is not permitted. This new pronouncement did not have an impact on the Company’s consolidated financial statements.

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4). FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

2. INVESTMENT SECURITIES HELD TO MATURITY

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

		March 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Approximate
(In thousands)		Cost				Gains				Losses				Fair Value
U.S. Government Agencies		$	51,816			$	652			$	(19	)		$	52,449
Tax Exempt Obligations			24,641				868				(356	)			25,153
Total Investment Securities		$	76,457			$	1,520			$	(375	)		$	77,602

		September 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Approximate
(In thousands)		Cost				Gains				Losses				Fair Value
U.S. Government Agencies		$	54,315			$	147			$	(385	)		$	54,077
Tax Exempt Obligations			24,939				592				(635	)			24,896
Total Investment Securities		$	79,254			$	739			$	(1,020	)		$	78,973

3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

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

		March 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized
(In thousands)		Cost				Gains				Losses				Fair Value
Equity Securities		$	452			$	—			$	(79	)		$	373
Money Market Mutual Funds			641				—				—				641
Total Investment Securities		$	1,093			$	—			$	(79	)		$	1,014

During the three month period ended March 31,2009, the Company recognized an impairment charge of $449,000 on the equity securities of four financial institutions. In addition, there were three equity securities in an unrealized loss position. Management evaluated the length of time and the extent to which the market value has been less than cost; the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may effect the future earnings potential. The Company has the ability and intent to hold these securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of March 31, 2009 represents an other-than-temporary impairment.

		September 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized
(In thousands)		Cost				Gains				Losses				Fair Value
Equity Securities		$	877			$	46			$	(81	)		$	842
Money Market Mutual Funds			12				—				—				12
Total Investment Securities		$	889			$	46			$	(81	)		$	854

4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

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

		March 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Approximate
(In thousands)		Cost				Gains				Losses				Fair Value
Collateralized mortgage obligations		$	13,344			$	54			$	(560	)		$	12,838
FHLMC pass-through certificates			78,578				2,673				(1	)			81,250
FNMA pass-through certificates			100,461				3,563				(1	)			104,023
Total Mortgage-Backed Securities		$	192,383			$	6,290			$	(562	)		$	198,111

		September 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Approximate
(In thousands)		Cost				Gains				Losses				Fair Value
Collateralized mortgage obligations		$	14,708			$	8			$	(624	)		$	14,092
FHLMC pass-through certificates			88,594				283				(826	)			88,051
FNMA pass-through certificates			110,431				99				(1,061	)			109,469
GNMA pass-through certificates			200				2				—				202
Total Mortgage-Backed Securities		$	213,933			$	392			$	(2,511	)		$	211,814

5. MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE

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

		March 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized
(In thousands)		Cost				Gains				Losses				Fair Value
FNMA pass-through certificates		$	785			$	11			$	—			$	796
Total Mortgage-Backed Securities		$	785			$	11			$	—			$	796

		September 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized
(In thousands)		Cost				Gains				Losses				Fair Value
FNMA pass-through certificates		$	785			$	—			$	(27	)		$	758
Total Mortgage-Backed Securities		$	785			$	—			$	(27	)		$	758

6. LOANS RECEIVABLE

Loans receivable consist of the following:

		(In thousands)
		March 31, 2009				September 30, 2008
Residential Mortgages		$	341,527			$	337,316
Commercial Mortgages			49,974				44,407
Construction			5,604				8,346
Savings Account			1,075				955
Home Equity			58,156				66,280
Automobile and other			1,047				1,000
Home Equity Line of Credit			31,504				26,103
Total			488,887				484,407
Undisbursed portion of loans in process			(2,773	)			(5,109	)
Deferred loan fees			(550	)			(452	)
Allowance for loan losses			(2,193	)			(1,988	)
Loans Receivable — net		$	483,371			$	476,858

The total amount of loans being serviced for the benefit of others was approximately $2,883,000 and $2,918,000 at March 31, 2009 and September 30, 2008, respectively.

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

		Three Months Ended								Six Months Ended
		March 31, 2009				March 31,2008				March 31, 2009				March 31,2008
		(In thousands)								(In thousands)
Balance, beginning of period		$	2,097			$	1,924			$	1,988			$	1,933
Provision for loan losses			100				5				200				5
Recoveries			2				2				17				7
Charge offs			(6	)			(6	)			(12	)			(20	)
Balance, end of period		$	2,193			$	1,925			$	2,193			$	1,925

7. Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (FHLB) to hold stock of its district FHLB according to a predetermined formula. The restricted stock is carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock.

Management evaluates the restricted stock for impairment in accordance with Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB or restricted stock as of March 31, 2009.

8. DEPOSITS

Deposits are summarized as follows:

		(In thousands)
		March 31, 2009				September 30, 2008
Non-interest bearing checking accounts		$	11,921			$	10,963
NOW accounts			16,773				14,315
Interest bearing checking accounts			30,929				27,888
Money market demand accounts			54,546				52,005
Passbook and club accounts			2,584				2,641
Certificate of deposit accounts			322,740				317,701
Total deposits		$	439,493			$	425,513

The aggregate amount of certificate accounts in denominations of more than $100,000 at March 31, 2009 and September 30, 2008 amounted to approximately $57.3 million and $53.4 million, respectively.

9. COMMITMENTS

At March 31, 2009, the following commitments were outstanding:

		(In thousands)
Letters of credit		$	588
Commitments to originate loans			14,916
Unused portion of home equity lines of credits			44,333
Unused portion of commercial lines of credits			3,600
Undisbursed portion of construction loans in process			2,251
Total		$	65,688

10. EARNINGS PER SHARE

The following shares were used for the computation of earnings per share:

		For the Three Months Ended								For the Six Months Ended
		March 31,								March 31,
		2009				2008				2009				2008
Basic			3,592,286				3,730,759				3,582,760				3,726,061
Diluted			3,600,292				3,746,480				3,592,571				3,743,211

The difference between the number of shares used for computation of basic earnings per share and diluted earnings per share represents the dilutive effect of stock options.

11. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Advances consists of the following:

		March 31,								September 30,
		2009								2008
		(In thousands)
						Weighted								Weighted
						Interest								Interest
Maturing Period		Amount				Rate				Amount				Rate
1 to 12 months		$	21,230				4.48	%		$	35,855				3.18	%
13 to 24 months			20,000				4.52	%			31,405				4.36	%
25 to 36 months			33,152				4.40	%			17,739				4.33	%
37 to 48 months			49,339				4.26	%			57,090				4.48	%
49 to 60 months			54,905				4.04	%			39,282				3.97	%
61 to 72 months			4,360				3.58	%			26,444				4.05	%
73 to 84 months			15,000				3.89	%			19,683				3.81	%
85 to 120 months			120,161				4.39	%			120,348				4.25	%
Total		$	318,147				4.29	%		$	347,846				4.12	%

Federal Home Loan Bank (FHLB) advances are collateralized by Federal Home Loan Bank (“FHLB”) stock and substantially all first mortgage loans. The Company has a line of credit with the FHLB of which $0 out of $75.0 million was used at March 31, 2009 and $21.8 million was used as of September 30, 2008, for general purposes. Included in the table above at March 31, 2009 and September 30, 2008 are convertible advances whereby the FHLB has the option at a predetermined strike rate to convert the fixed interest rate to an adjustable rate tied to London Interbank Offered Rate (“LIBOR”). The Company then has the option to repay these advances if the FHLB converts the interest rate. These advances are included in the periods in which they mature. The Company has a total FHLB borrowing capacity of $513.3 million of which $268.1 million was used as of March 31, 2009. In addition, there are three long-term advances from other financial institutions that are secured by investment and mortgage-backed securities totaling $50 million.

12. REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Companie’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of March 31, 2009, that the Bank meets all capital adequacy requirements to which it is subject.

As of March 31, 2009, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are also presented in the table. The Company’s capital ratios are not significantly different than the Bank’s ratios disclosed below.

																		To Be Considered Well
																		Capitalized Under
										For Capital								Prompt Corrective
		Actual								Adequacy Purposes								Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(In thousands)
As of March 31, 2009
Tier 1 Capital (to assets)		$	48,978				5.98	%		$	32,799				4.00	%		$	40,985				5.00	%
Tier 1 Capital (to risk weighted assets)			48,978				11.39	%			17,200				4.00	%			25,800				6.00	%
Total Capital (to risk weighted assets)			51,170				11.90	%			34,400				8.00	%			43,000				10.00	%
As of September 30, 2008
Tier 1 Capital (to assets)		$	47,191				5.69	%		$	33,167				4.00	%		$	41,459				5.00	%
Tier 1 Capital (to risk weighted assets)			47,191				10.97	%			17,203				4.00	%			25,804				6.00	%
Total Capital (to risk weighted assets)			49,179				11.44	%			34,406				8.00	%			43,007				10.00	%