This Form 10-Q contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder) which are not historical facts or which indicate the intentions, plans, beliefs, expectations or opinions of the Company's management. Forward looking statements may be identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "should," "could," "may," "likely," "probably," or "possibly". These statements reflect our current view with respect to future events and are subject to certain risks, uncertainties, and assumptions. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Willow Financial Bancorp, Inc. and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward looking information and statements. Factors that may affect the Company's future operations are discussed in documents filed by Willow Financial Bancorp, Inc. with the Securities and Exchange Commission ("SEC") from time to time, including the Company's annual report on Form 10-K for the fiscal year ended June 30, 2008. Additional factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions and the interest rate yield curve, legislative and regulatory changes, demand for loan products, changes in deposit flows, competition, changes in the quality or composition of the Company's loan and investment portfolios, the impact of the Emergency Economic Stabilization Act or other related legislative and regulatory developments, including heightened regulatory scrutiny, practices, requirements or expectations, among other things. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended. We do not intend to update these forward-looking statements. Copies of the above referenced documents may be obtained from Willow Financial Bancorp, Inc. upon request without charge (except for Exhibits thereto) or can be accessed at the website maintained by the SEC at http://www.sec.gov.

Description of Business

On May 21, 2008, the Company and Harleysville National Corporation ("HNC") announced that they had entered into an Agreement and Plan of Merger ("Merger Agreement"), dated May 20, 2008, which sets forth the terms and conditions pursuant to which the Company will be merged with and into HNC (the "Merger"). The Merger Agreement provides, among other things, that as a result of the Merger each outstanding share of common stock of the Company, par value $0.01 per share, will be converted into a right to receive 0.7300 shares of common stock of HNC, par value $1.00 per share, plus cash in lieu of any fractional share interest.

Consummation of the Merger is subject to a number of customary conditions, including but not limited to (i) the approval of the Merger Agreement by both the shareholders of the Company and HNC and (ii) the requisite regulatory approvals of the Merger and the proposed merger of the Company's banking subsidiary, Willow Financial Bank, with and into HNC's banking subsidiary Harleysville National Bank, following consummation of the Merger. The Merger is intended to qualify as reorganization for federal income tax purposes, such that the shares of the Company exchanged for shares of HNC Common Stock will be issued to the Company's shareholders on a tax-free basis.

The Merger Agreement contains certain termination rights for each of the Company and HNC and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay to HNC a termination fee of $7.0 million.

The Boards of Directors of the Company and HNC approved the Merger Agreement on May 20, 2008. On September 10, 2008, shareholders of both the Company and HNC also approved the Merger Agreement.

On September 25, 2008, The Harleysville National Bank and Trust Company, received approval from the Office of the Comptroller of the Currency to acquire Willow Financial Bank. The Office of Thrift Supervision has also not objected to the transaction. HNC expects to receive the approvals from the Federal Reserve Board and the Pennsylvania Department of Banking in November 2008 to acquire Willow Financial Bancorp, Inc. in a previously announced transaction. HNC expects to close the transaction by early December 2008. For further information regarding the proposed merger with HNC, see the joint proxy statement/prospectus, dated July 31, 2008, included in the Form S-4, as amended, filed by Harleysville National Corporation (SEC File No. 333-152007).

Willow Financial Bancorp, Inc. (the "Company"), is a Pennsylvania corporation and parent holding company for Willow Financial Bank (the "Bank"). The Bank, which was originally organized in 1909, is a federally chartered savings bank and wholly owned subsidiary of the Company. The Bank's business consists primarily of making commercial business and consumer loans as well as real estate loans, both commercial and residential, funded primarily by retail and business deposits along with borrowings obtained from the Federal Home Loan Bank ("FHLB") of Pittsburgh. The Company's trading symbol is "WFBC."

After the close of business on August 31, 2005, the Company completed its acquisition of Chester Valley Bancorp Inc. ("Chester Valley"), a registered bank holding company headquartered in Downingtown, Pennsylvania, with over $654 million in assets. Pursuant to the Agreement and Plan of Merger, dated as of January 20, 2005 (the "Merger Agreement"),

Chester Valley was merged with and into the Company, with the Company as the surviving corporation (the "Merger"), and Chester Valley was merged with and into the Bank with the Bank as the surviving bank (the "Bank Merger"). The Company used general corporate funds to pay the aggregate cash consideration of approximately $51.0 million for the shares of Chester Valley Common Stock acquired in the Merger for cash, as well as approximately $3.2 million in acquisition costs.

On March 30, 2007, the Company completed its acquisition of BeneServ, Inc. ("BeneServ") for a purchase price of up to $5.5 million. The purchase price includes a payment of $4.2 million at closing plus an additional amount up to $1.3 million in payments through the three-year anniversary date of the acquisition, subject to the achievement of certain performance thresholds. As of June 30, 2008, approximately $400 thousand of additional payments were earned and paid based on BeneServ achieving the established performance thresholds. Approximately $146 thousand of the additional payments were accrued and are included in other liabilities on the consolidated statement of financial condition. BeneServ is an insurance agency serving the corporate employee benefit market segment. BeneServ and the Company share a target market in small businesses located in Chester, Montgomery, Bucks, Delaware, and Philadelphia counties, Pennsylvania, thereby providing a number of cross selling opportunities for both companies. The Company has recorded goodwill and other intangibles of $4.5 million as a result of this acquisition.

On December 21, 2007, the Bank completed its acquisition of Carnegie Wealth Management ('Carnegie") for a purchase price of up to $4.8 million in cash plus approximately $1.1 million in the Company's common stock. The purchase price includes a payment of $2.3 million at closing plus an amount up to an additional $2.5 million in payments through the three-year anniversary date of the acquisition, subject to the achievement of certain performance thresholds. Carnegie is a $200 million wealth management firm that provides professional investment consulting services to retirement plan administrators, foundations, corporations and high net worth investors. The Company recorded goodwill and other intangibles of $3.2 million as a result of this acquisition based on the preliminary purchase price allocation.

References to Company include its three business segments, the Bank, WIS, and BeneServ, unless the context of the reference indicates otherwise. See Note 13 to the Consolidated Financial Statements included herein. For periods after December 21, 2007, the WIS segment includes the operations of Carnegie.

The consolidated financial statements include the balances of the Company and its wholly owned subsidiaries and business segments. All material intercompany balances and transactions have been eliminated in consolidation. The Company follows accounting and reporting practices, which are in accordance with U.S.
GAAP.

The Bank's customer deposits are insured to the maximum extent provided by law, by the Federal Deposit Insurance Corporation ("FDIC") through the Deposit Insurance Fund ("DIF"). The Bank is subject to examination and comprehensive regulation by the Office of Thrift Supervision ("OTS") and is also regulated by the FDIC. The Bank is also subject to reserve requirements established by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board" or "FRB"), and is a member of the FHLB of Pittsburgh, one of the regional banks comprising the FHLB System.

In preparing the consolidated financial statements, the Company is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and statement of operations for the period. Actual reports could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term include the determination of the allowance for loan losses, income taxes, investment impairment, intangible asset impairment and other-than-temporary impairment on investments.

The Company's executive offices are located at 170 South Warner Road, Wayne, Pennsylvania, and its telephone number is (610) 995-1700.

Changes in Financial Condition

General. Total assets increased by $2.3 million from June 30, 2008 to September 30, 2008. Investment securities increased by $11.0 million. Cash and cash equivalents decreased by $3.3 million. The net loan portfolio decreased $5.9 million while total deposits decreased by $33.0 million or 3.3% over the same period.

Cash and Cash Equivalents. Cash and cash equivalents, which consist of cash on hand and in other banks in interest-earning and non-interest earning accounts, amounted to $32.9 million and $36.2 million at September 30, 2008 and June 30, 2008, respectively. The decrease in cash and cash equivalents of $3.3 million, or 9.1%, was due primarily to the decrease in deposits of $33.0 million, which was offset by the proceeds from additional FHLB advances.

Investment Securities Available for Sale. Securities classified as available for sale ("AFS") increased $13.8 million, or 7.6%, from $181.3 million at June 30, 2008 to $195.0 million at September 30, 2008. The unrealized loss, net of income taxes, on

AFS securities amounted to approximately $7.6 million at September 30, 2008 compared to $4.4 million at June 30, 2008. The increase in the unrealized loss was the result of the deterioration in the current interest rate environment in addition to the recent market turmoil and liquidity concerns in the general market.

As included within note 12, the Company's methods for fair valuing investment securities may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Investment Securities Held to Maturity. At September 30, 2008, securities classified as held to maturity ("HTM") totaled $73.0 million as compared to $75.8 million at June 30, 2008. HTM securities were comprised primarily of CMOs and mortgage-backed securities. HTM securities are carried at amortized cost. In order to more effectively manage its interest rate risk, the Company plans limiting additions in its HTM portfolio.

Loans Held for Sale. Real estate loans originated or purchased with the intention of being sold into the secondary market are classified as held for sale and are carried at the lower of aggregate cost or fair value with any unrealized loss reflected in the consolidated statement of operations. At September 30, 2008, $14.4 million of fixed-rate, single-family residential real estate loans were classified as held for sale compared to $14.2 million at June 30, 2008. The increase of $245 thousand resulted primarily from the timing of the origination of the loans and the ultimate delivery to the purchaser of the loans. In order to mitigate the risk of loss on the sale of these loans, the Company generally commits these loans for sale, on a best efforts basis, to a third party at the time that the borrower locks the loan with the Company.

Loans Receivable. The net loan portfolio, which does not include loans held for sale, decreased $5.9 million to $1.13 billion at September 30, 2008 from $1.14 billion at June 30, 2008. The decrease was primarily the result of of management's continued strategy to reduce reliance on long-term single-family residential real estate in its portfolio and to sell newly originated residential real estate loans into the secondary market. Single-family residential loans decreased $10.4 million from June 30, 2008 to September 30, 2008.

The following table sets forth information with respect to non-performing assets identified by the Company, including non-accrual loans and other real estate owned.

                                                       September 30,    June 30,
(Dollars in thousands)                                     2008           2008
Non-accrual loans:
Real estate loans:
Single-family residential                             $         1,861   $     997
Construction                                                    7,273       7,415
Commercial real estate and multi-family residential               114         781
Home Equity                                                       968         729
Consumer loans                                                     29          29
Commercial business loans                                         771         832
Total non-performing loans                                     11,016      10,783
Other real estate owned, net                                      465         166
Total non-performing assets                           $        11,481   $  10,949
Non-performing loans to total loans                              0.96 %      0.94 %
Non-performing assets to total assets                            0.72 %      0.69 %

The allowance for loan losses increased to $16.8 million at September 30, 2008 compared to $14.8 million at June 30, 2008. The increase is primarily the result of the increase in the provision for loan losses in the amount of $2.1 million from June 30, 2008 to September 30, 2008.

Total non-performing loans increased $233 thousand, or 2.2%, to $11.0 million at September 30, 2008 compared to $10.8 million at June 30, 2008. Non-performing loans to total loans and non-performing loans to total assets were 0.96% and 0.72%, respectively, at September 30, 2008 as compared to 0.94% and 0.69%, respectively at June 30, 2008. This increase was due primarily to three loan relationships causing an increase of $864 thousand within single-family residential real estate in addition to the transfer of $465 thousand in residential real estate to other real estate owned; offset by repayments and transfers to classified loans of $258 thousand and $406 thousand, respectively. The allowance for loan losses to gross loans increased to 1.46% at September 30, 2008 from 1.29% at June 30, 2008.

Goodwill and Other Intangible Assets. At September 30, 2008, goodwill and intangible assets aggregated $71.0 million as compared to $71.5 million at June 30, 2008. Intangible assets include a core deposit intangible of $8.8 million, which resulted from the acquisition of Chester Valley. The core deposit intangible is being amortized over a 12-year life. Intangible assets also include goodwill, which primarily represents the excess cost over fair value of assets acquired over liabilities as a result of the Chester Valley acquisition. The goodwill that resulted from the Chester Valley acquisition was approximately $93.7 million. As a result of the BeneServ acquisition, goodwill of $1.4 million and customer intangibles of $3.0 million were recorded at September 30, 2008. In addition, goodwill of $1.2 million and customer intangibles of $1.9 million were recorded at September 30, 2008, as a result of the Carnegie acquisition. The customer intangible balances are being amortized of 10-year lives. The remaining balance of the goodwill relates to a branch acquisition in 1994 of approximately $836 thousand at September 30, 2008. Goodwill is measured for impairment at least annually. As discussed in the Company's June 30, 2008 Form 10-K, the Company recorded an impairment charge to goodwill for the quarter ended December 31, 2007 in the amount of $40.0 million.

Other Assets. Other assets decreased by approximately $1.2 million from June 30, 2008 to September 30, 2008 primarily due to the sale of investment securities which occurred on June 30, 2008, but settled in early July 2008.

Deposits. Total deposits decreased $33.0 million, or 3.3%, to $969.9 million at September 30, 2008 from $1.0 billion at June 30, 2008. The decrease resulted primarily from the decrease in core deposits of $31.6 million, of which $26.3 million was within checking accounts. The Company continues to deploy a strategy to increase core deposit accounts and balances through targeted marketing, cross selling of our existing customer base and expansion of our commercial business lending, which typically results in the opening of a checking account.

Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank of Pittsburgh are an additional source of funds used to supplement the funding of loan demand as well as for liquidity and other asset/liability management purposes. At September 30, 2008, the total amount of these borrowings outstanding was $357.8 million, which is a $46.4 million, or an 14.9%, increase from the $311.4 million outstanding at June 30, 2008. The Bank determined that it was beneficial to utilize these borrowings to fund its new loan originations rather than pay high rates for certificates of deposit.

Trust Preferred Securities. On March 31, 2006, the Company issued $25.8 million of Junior Subordinated Debentures to the Willow Financial Statutory Trust I, a Connecticut Statutory Trust, in which the Company owns all of the common equity. The Trust then issued $25.0 million of Trust Preferred Securities, which pay interest quarterly at three-month Libor plus 1.31% to investors, which are secured by the Junior Subordinated Debentures and the guarantee of the Company. The Junior Subordinated Debentures are treated as debt of the Company but qualify as Tier I capital of the Bank to the extent of the amount of the proceeds, which are invested in the Bank. The Trust Preferred Securities are callable by the Company on or after September 30, 2011. The Trust Preferred Securities must be redeemed by the Company upon their maturity in the year 2036.

Accounting for Derivative Instruments and Hedging. The Company from time to time utilizes derivative instruments such as interest rate swaps, interest rate collars, interest rate floors, interest rate swaptions or combinations thereof to assist in its asset/liability management.

At September 30, 2008 and June 30, 2008, the Company had four interest rate swap arrangements, respectively, tied to specific loans originated by the Bank. The swaps effectively convert the rates from a fixed rate to a floating rate based on Libor throughout the lives of the underlying loans, as of September 30, 2008. At September 30, 2008, the total outstanding notional amount on these swaps was $7.5 million. The weighted average floating and fixed rates on these transactions were 2.97% and 4.73%, respectively, at September 30, 2008. The Company lacked sufficient documentation for these transactions to receive hedge accounting treatment. As such, the Bank has recorded a net payable of $120 thousand at September 30, 2008 as compared to a net payable of $55 thousand at June 30, 2008.

Other Liabilities. Other liabilities decreased by approximately $2.6 million to $9.4 million from $12.0 million at September 30, 2008. This decrease was due primarily to the timing of payments due to the cut-off date of certain third-party services.

Stockholders' Equity. At September 30, 2008, total stockholders' equity amounted to $143.9 million as compared to $150.1 million at June 30, 2008, a decrease of $6.2 million. This decrease was primarily the result of net loss of $1.7 million for the three-month period, an increase of $3.2 million in the accumulated other comprehensive loss resulting from a decrease in the market value of investment securities available for sale, and $1.8 million in cash dividends paid during the three-month period.

The following table presents the average daily balances for various categories of assets and liabilities, and income and expense related to those assets and liabilities for the three-month periods ended September 30, 2008 and 2007. Loans receivable include non-accrual loans. To adjust the yield on nontaxable loans and securities to a taxable equivalent yield, a 34.0% effective rate has been used for the three-month periods ended September 30, 2008 and 2007. The adjustment of tax-exempt loans and securities to a tax equivalent

yield in the table below may be considered to include non-GAAP financial information. Management believes that it is a standard practice in the banking industry to present net interest margin, net interest spread and net interest income on a fully tax equivalent basis. Therefore, management believes, these measures provide useful information to investors by allowing them to make peer comparisons. A GAAP reconciliation also is included below.

                                            Three months Ended September 30,
                                        2008                                2007
                           Average                  Yield/      Average                 Yield/
(Dollars in Thousands)     Balance      Interest     Rate       Balance     Interest     Rate
Interest-earning
assets:
Single family
residential              $    247,591   $   3,360      5.43 % $   276,846   $   4,128      5.96 %
Construction and land          89,373       1,141      5.00        75,809       1,402      7.40
Commercial real estate        286,438       4,816      6.72       281,435       4,709      6.69
Commercial business           200,199       2,828      5.53       137,997       2,620      7.59
Consumer                      341,153       4,616      5.29       291,482       4,741      6.51
Total loans              $  1,164,754   $  16,761      5.69   $ 1,063,569   $  17,600      6.62
Securities and other
investments                   287,494       3,798      5.17       310,807       4,446      5.72
Total interest-earning
assets                      1,452,248   $  20,559      5.58 %   1,374,376   $  22,046      6.42 %
Non-interest earning
assets                        122,186                             161,833
Total assets             $  1,574,434                         $ 1,536,209

Liabilities and
Stockholders' Equity:
Interest-bearing
deposits                 $    874,255   $   4,946      2.24   $   939,503   $   8,567      3.65
FHLB borrowings               313,963       2,966      3.75       193,234       2,192      4.54
Repurchase agreements          75,000         769      4.07        26,141         282      4.32
Trust preferred
securities                     27,035         295      4.33        25,774         418      6.49
Total interest-bearing
liabilities                 1,290,253       8,976      2.76 %   1,184,652      11,459      3.87 %
Non-interest-bearing
deposits                      123,185                             138,333
Non-interest-bearing
liabilities                    10,163                              13,841
Stockholders' equity          150,833                             199,383
Total liabilities and
stockholders' equity     $  1,574,434                         $ 1,536,209
Net interest-earning
assets                   $    161,995                         $   189,724
Net interest income                     $  11,583                           $  10,587
Interest rate spread                                   2.82 %                              2.55 %
Net interest margin                                    3.15 %                              3.08 %
Ratio of average
interest-earning
assets to
interest-bearing
liabilities                                             113 %                               116 %

Although management believes that the above-mentioned non-GAAP financial measures enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliation of these non-GAAP financial measures from GAAP to non-GAAP is presented below.

                                                  Three months Ended September 30,
                                          2008                                       2007
                         Interest         Tax          Adjusted     Interest         Tax          Adjusted
                          Income       Adjustment       Income       Income       Adjustment       Income
                                                       (Dollars in thousands)
Loans                    $  16,687    $         74    $   16,761    $  17,503    $         97    $   17,600
Investment securities        3,628             170         3,798        4,262             184         4,446
Total                    $  20,315    $        244    $   20,559    $  21,765    $        281    $   22,046

The net interest margin on a GAAP basis was 3.08% and 3.00%, respectively, for the three months ended September 30, 2008 and 2007.

Results of Operations

General. Net loss for the three-month period ended September 30, 2008 was $1.7 million or $(0.11) diluted earnings per share as compared to net income of $1.2 million or $0.08 diluted earnings per share for the comparable quarter in the prior year. The Company's net interest margin on a tax-equivalent basis increased 7 basis points to 3.15% for the three months ended September 30, 2008 from 3.08% for the three months ended September 30, 2007.

Interest Income. Interest income on loans decreased $816 thousand, or 4.7%, for the three-month period ended September 30, 2008 compared to the three-month . . .