SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]  Annual report  pursuant to section 13 or 15 (d) of the Securities  Exchange
     Act of 1934

         For the fiscal year ended   June 30, 2001
                                   ----------------

                                          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 No. 0-21885

                            Advance Financial Bancorp
            --------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

Delaware                                                 55-0753533
---------------------------------------------       ---------------------
(State or Other Jurisdiction of                      (I.R.S. Employer
Incorporation or Organization)                        Identification No.)

1015 Commerce Street, Wellsburg, West Virginia            26070
----------------------------------------------      ---------------------
(Address of Principal Executive Offices)               (Zip Code)

Issuer's Telephone Number, Including Area Code:       (304) 737-3531
                                                      --------------

Securities registered under to Section 12(b) of the Exchange Act:    None
                                                                    ------

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

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                         Preferred Share Purchase Rights
                         -------------------------------
                                (Title of Class)

         Check  whether  the issuer:  (1) has filed all  reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 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  X   NO
    ---     ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         State issuer's revenues for its most recent fiscal year.  $13,030,000

         The aggregate  market value of the voting and non-voting  common equity
held by  non-affiliates  of the  registrant,  based on the average bid and asked
price of the  registrant's  Common Stock on the Nasdaq Smallcap Market at August
31, 2001, was approximately $10.0 million.

         As of August 31, 2001, there were issued and outstanding 932,285 shares
of the registrant's Common Stock.

         Transition Small Business Disclosure Format (check one): YES     NO  X
                                                                      ---    ---

                       DOCUMENTS INCORPORATED BY REFERENCE

          1.   Portions of the Annual Report to Stockholders for the Fiscal Year
               ended June 30, 2001. (Part II)
          2.   Portions  of the  Proxy  Statement  for  the  Annual  Meeting  of
               Stockholders for the Fiscal Year ended June 30, 2001. (Part III)

<PAGE>

                                     PART I

         Advance Financial Bancorp (the "Company" or "Registrant") may from time
to time make written or oral "forward-looking  statements," including statements
contained in the Company's  filings with the Securities and Exchange  Commission
(including this Annual Report on Form 10-KSB and the exhibits  thereto),  in its
reports to Stockholders and in other  communications  by the Company,  which are
made in good faith by the Company  pursuant to the "Safe  Harbor"  provisions of
the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and  the  strength  of  the  local  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, monetary and fiscal policies
and laws,  including  interest  rate  policies of the Board of  Governors of the
Federal  Reserve  System,   inflation,   interest  rate,   market  and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the company and the perceived  overall  value of these  products and
services by users,  including  the  features,  pricing  and quality  compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and  savings  habits;  and the  success  of the  Company at  managing  the risks
involved in the foregoing.

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company does not  undertake  to update any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the company.

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

General

         The Company is a Delaware  corporation  organized in September  1996 at
the direction of Advance  Financial  Savings Bank (the "Bank") to acquire all of
the  capital  stock that the Bank  issued in its  conversion  from the mutual to
stock form of ownership  (the  "Conversion").  On December  31,  1996,  the Bank
completed the  Conversion  and became a wholly owned  subsidiary of the Company.
The Company is a unitary savings and loan holding company which,  under existing
laws,  generally is not restricted in the types of business  activities in which
it may engage provided that the Bank retains a specified amount of its assets in
housing-related investments.

         On April  18,  2001,  the  Company  entered  into a  definitive  merger
agreement to acquire Ohio State  Financial  Services,  Inc. of Bridgeport,  Ohio
("OSFS").  The merger is subject to  regulatory  approvals,  OSFS's  shareholder
approval and other  conditions.  The Company will acquire all of the outstanding
common  stock of OSFS for  $16.00  per  share in  cash,  or  approximately  $8.0
million.  Bridgeport S&LA, OSFS wholly-owned subsidiary, will be merged with and
into the Bank. The  acquisition to acquire OSFS and its subsidiary was completed
on September 7, 2001.

                                        1
<PAGE>

         The Company  conducts no significant  business or operations of its own
other than holding all of the outstanding  stock of the Bank.  References to the
Company or Registrant generally refers to the consolidated entity which includes
the main operating company, the Bank, unless the context indicates otherwise.

         The Bank is a federally  chartered stock savings bank  headquartered in
Wellsburg,  West  Virginia.  It is  subject  to  examination  and  comprehensive
regulation  by the Office of Thrift  Supervision  ("OTS") and its  deposits  are
federally insured by the Savings Association  Insurance Fund ("SAIF").  The Bank
is a member of and owns capital  stock in the Federal Home Loan Bank ("FHLB") of
Pittsburgh, which is one of the 12 regional banks in the FHLB System.

         The Bank  operates a  traditional  savings  bank  business,  attracting
deposit accounts from the general public and using those deposits, together with
other  funds,  primarily  to  originate  and invest in loans  secured by one- to
four-family residential real estate, non-residential real estate, and commercial
loans.  To a lesser extent,  the Bank also originates  multi-family  real estate
loans and consumer loans.

Competition

         The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift  institutions,  credit unions, and
multi-state regional banks in the Registrant's market area of Brooke and Hancock
counties of West Virginia and the northern portion of Jefferson County, Ohio and
Washington County, Pennsylvania.  Upon consummation of the merger with OSFS, the
Registrant  will  enter into the market of Ohio and  Marshal  counties,  of West
Virginia,  Belmont County,  Ohio and the southern  portion of Jefferson  County,
Ohio.

         Deposit  competition also includes a number of insurance  products sold
by  local  agents  and  investment  products  such as  mutual  funds  and  other
securities sold by local and regional brokers. Loan competition varies depending
upon market conditions and comes from other insured financial  institutions such
as commercial banks, thrift  institutions,  credit unions,  multi-state regional
banks, and mortgage bankers.

                                        2
<PAGE>

Lending Activities

         The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and in  percentages of the respective  portfolios at
the dates indicated.

<TABLE>
<CAPTION>
                                                                   June 30,
                                               -----------------------------------------------
                                                       2001                      2000
                                               ---------------------     ---------------------
                                                Amount       Percent      Amount       Percent
                                               --------      -------     --------      -------
                                                            (Dollars in Thousands)
<S>                                         <C>             <C>        <C>            <C>
Type of Loans:
-------------
Real Estate Loans:
  One- to four-family ........................$ 64,696        48.88%     $ 62,163       50.81%
  Non-residential.............................  27,957        21.12        24,544       20.06
  Multi-family ...............................   6,003         4.54         5,470        4.47
  Construction................................   2,456         1.86         3,242        2.65
                                              --------       ------      --------      ------
Total real estate loans                        101,112        76.40        95,419       77.99
                                              --------       ------      --------      ------
Consumer Loans:
  Automobile..................................  13,000         9.82        10,904        8.91
  Other.......................................   2,756         2.08         2,653        2.17
  Share.......................................   1,595         1.21         1,406        1.15
  Home improvement............................   1,208         0.91         1,439        1.18
  Education...................................      23         0.02            23        0.02
                                              --------      -------      --------     -------
Total consumer loans                            18,582        14.04        16,425       13.43
                                              --------      -------      --------      ------

Commercial business loans.....................  12,651         9.56        10,500        8.58
                                              --------      -------      --------     -------
     Total loans                               132,345       100.00%      122,344      100.00%
                                                            =======                    ======
Less:
  Loans in process............................  (1,861)                    (1,813)
  Deferred loan origination fees and costs....    (109)                      (128)
  Allowance for loan losses...................    (779)                      (682)
                                              --------                   --------
     Total loans, net                         $129,596                   $119,721
                                              ========                    =======
</TABLE>

                                        3
<PAGE>

Loan Maturity Tables

         The  following   table  sets  forth  the  estimated   maturity  of  the
Registrant's  loan  portfolio,  at June 30,  2001.  The table  does not  include
prepayments or scheduled principal  repayments.  All mortgage loans are shown as
maturing based on contractual maturities.

<TABLE>
<CAPTION>
                                                    Due after
                                      Due within    1 through    Due after
                                        1 year       5 years      5 years        Total
                                        ------       -------      -------        -----
                                                         (In Thousands)
<S>                                  <C>          <C>          <C>          <C>
One- to four-family real estate....    $ 7,882      $ 2,234      $54,580      $  64,696
Non-residential real estate........        580        1,525       25,852         27,957
Multi-family real estate...........        124          328        5,551          6,003
Construction.......................      2,456            -            -          2,456
Consumer loans.....................      1,363       13,845        3,374         18,582
Commercial business loans..........      1,636        4,006        7,009         12,651
                                       -------      -------      -------        -------
Total..............................    $14,041      $21,938      $96,366       $132,345
                                       =======      =======      =======        =======
</TABLE>

         The following table sets forth as of June 30, 2001 the dollar amount of
all loans due after June 30, 2002,  which have fixed interest rates and floating
or adjustable interest rates.

<TABLE>
<CAPTION>
                                                          Floating or
                                          Fixed Rates   Adjustable Rates     Total
                                          -----------   ----------------    -------
                                                         (In Thousands)
<S>                                       <C>              <C>           <C>
One- to four-family real estate.......     $24,336          $32,478       $ 56,814
Multi-family real estate                     2,511            3,368          5,879
Non-residential real estate...........      11,457           15,920         27,377
Consumer loans........................      17,219                -         17,219
Commercial business loans.............       3,751            7,264         11,015
                                           -------          -------       --------
    Total.............................     $59,274          $59,030       $118,304
                                           =======          =======        =======
</TABLE>

         One- to Four-Family Residential Loans. The Registrant's primary lending
activity consists of the origination of one- to four-family residential mortgage
loans secured by property  located in its primary  market areas.  The Registrant
generally  originates  owner-occupied one- to four-family  residential  mortgage
loans in amounts up to 80% of the lesser of the appraised value or selling price
of the mortgaged property without requiring mortgage  insurance.  The Registrant
will  originate  a  mortgage  loan in an amount  up to 95% of the  lesser of the
appraised  value or selling  price of a mortgaged  property,  however,  mortgage
insurance  is  required  for  the  amount  in  excess  of  80%  of  such  value.
Non-owner-occupied  residential  mortgage  loans are originated up to 80% of the
lesser of the appraised value or selling price of the property. Fixed-rate loans
can have maturities of up to 30 years depending on the type of loan.

         For all  adjustable-rate  mortgage loans,  the Registrant  requires the
borrower to qualify at the initial  index  interest  rate.  The  adjustable-rate
mortgage loans provide for periodic  interest rate  adjustments of plus or minus
1% to 2% with a maximum adjustment over the term of the loan as set forth in the
loan agreement and usually ranges from 6% to 7% above the initial  interest rate
depending on the terms of the loan. Adjustable-rate mortgage loans reprice every
year,  every three years or every five years,  and provide for terms of up to 30
years with most loans having terms of between 15 and 30 years.

                                        4
<PAGE>

         The  Registrant  offers  adjustable-rate  mortgage loans indexed to the
weekly  average of the one year U.S.  Treasury  bill.  Interest rates charged on
mortgage  loans are  competitively  priced  based on market  conditions  and the
Registrant's cost of funds.  Generally,  the Registrant's  standard underwriting
guidelines  for  mortgage  loans  conform  to the  Federal  Home  Loan  Mortgage
Corporation  ("FHLMC") guidelines and most of the Registrant's loans are salable
in the secondary  market. It is the current policy of the Registrant to remain a
portfolio  lender for its adjustable  rate loans.  Adjustable rate loans do have
higher  credit risks  compared to  fixed-rate  loans due to the  possibility  of
borrower  default when interest rates reset higher and monthly  payment  amounts
increase.

         The  Registrant's  one-to  four-family  residential loan portfolio also
includes second  mortgage loans and home equity loans.  Such loans are generally
secured by second liens on one-to  four-family  residential real estate. At June
30, 2001,  such loans totalled  $10,208,000 or 15%, of the  Registrant's  one-to
four- family residential loan portfolio.

         Non-Residential  Real Estate Loans.  Non-residential  real estate loans
consist of mixed  residential and commercial use property,  professional  office
buildings,  churches and restaurants.  Loans secured by non-residential property
may be originated in amounts up to 80% of the appraised value for a maximum term
of 20 years. Non-residential real estate loans have significantly more risk than
one-to four-family mortgage loans due to the usually higher loan amounts and the
credit risk, which arises from concentration of principal in a smaller number of
loans, the effects of general economic  conditions on income producing  property
and the difficulty of evaluating and monitoring the loans.

         Construction  Loans.  The  Registrant  originates   construction  loans
primarily  for the  construction  of  single  family  dwellings.  Loans  made to
builders are generally  "pure  construction"  loans which require the payment of
interest  at fixed  rates  during the  construction  term and the payment of the
principal in full at the end of the construction  period, which generally is for
a term of 12  months.  At June 30,  2001,  there were no  construction  loans to
builders.  Loans made to individual property owners are either pure construction
loans or "construction-permanent"  loans which generally provide for the payment
of interest only during a construction  period, after which the loans convert to
a permanent  loan at fixed or adjustable  interest rates having terms similar to
other one- to four-family  residential  loans. At June 30, 2001  construction on
loans to individuals totalled $2,456,000. Construction financing generally has a
higher degree of credit risk than one-to four-family residential loans. The risk
is dependent  largely on the value of the property when completed as compared to
the  estimated  cost,  including  interest,  of building  the  property.  If the
estimated value is inaccurate,  the Registrant may have a completed project with
a value too low to assure full repayment of the loan.

         Construction  loans made to builders  who are building to resell have a
maximum  loan-to-value  ratio of 80% of the  appraised  value  of the  property.
Construction  loans to  individuals  who intend to occupy the finished  premises
generally have a maximum loan-to-value ratio of 80%.

         Multi-Family.  Multi-family  loans are  primarily  secured by apartment
houses,  located in the  Registrant's  primary  market  area.  Loans  secured by
multi-family  property may be  originated  in amounts up to 75% of the appraised
value with either fixed or  adjustable  rates of interest.  Fixed rate  interest
loans have maturities  generally of up to 20 years,  with principal and interest
payments  calculated on a 20 year  amortization  period.  Adjustable  rate loans
typically have a 15 to 30 year  amortization  period,  with repricing  following
every year,  three years,  or five years.  Multi-family  loans have credit risks
similar to non-residential real estate loans.

                                        5
<PAGE>

         Consumer Loans. Consumer loans primarily consist of direct and indirect
automobile loans. Direct automobile loans are generally originated with terms of
up to 6 years for new  automobiles  and up to 5 1/2 years for used  automobiles.
Indirect  automobile  loans are purchased from automobile  dealers with whom the
Registrant  generally provides floor plan financing.  Indirect  automobile loans
are  underwritten  by the  Registrant  and a fee is remitted  to the  automobile
dealer upon the  successful  underwriting  and  closing of the loan.  The fee is
rebated to the Registrant, on a pro rata basis, if the loan is repaid within the
first six months.  The Registrant  generally does not have recourse  against the
automobile dealer in the event of a default by the borrower.  Each indirect auto
loan is originated in accordance with the  Registrant's  underwriting  standards
and procedures,  which are intended to assess the  applicant's  ability to repay
the  amounts  due on the  loan  and the  adequacy  of the  financed  vehicle  as
collateral.  Direct and indirect automobile loans are secured by the new or used
automobile.  At June 30, 2001,  automobile loans totalled $13,000,000 or, 70% of
the Registrant's  consumer loan portfolio.  Of this amount,  indirect automobile
loans totalled $6,859,000. Loans secured by assets that depreciate rapidly, such
as  automobiles,  are generally  considered to entail  greater risks than one-to
four-family residential loans.

         The  Registrant  also  makes a variety  of other  loans  that  totalled
$5,582,000,  or 30%, of total consumer loans at June 30, 2001.  Included in this
total are home  improvement  loans,  credit card loans,  loan secured by deposit
accounts (share loans) and educational loans.  Underwriting  standards for these
loans vary based on the loan type and the creditworthiness of the borrower.

         Commercial Business Loans.  Commercial business loans primarily consist
of commercial  lines of credit  (which  include  automobile  floor plan lines of
credit),  commercial  vehicle loans, and working capital loans and are typically
secured  by  residential  or  commercial  property,  receivables  or  inventory,
vehicles comprising the automobile floor plan, or some other form of collateral.
Floor plan financing involves continuing financing for an automobile dealer that
is secured by automobiles physically located on the dealer's lot. The Registrant
holds the title to the automobiles  during the pendency of the sale.  Floor plan
financing  typically  involves high loan origination volume and repayment within
90 days of  origination.  Credit risks  involved are similar to commercial  real
estate loans  (non-residential and multi-family loans) with loan repayment often
dependent upon the business generating sufficient cash flow. However, commercial
business loans carry even more credit risk than commercial real estate loans due
to the nature of the collateral underlying the loan.

         Loan  Approval   Authority  and   Underwriting.   The   Registrant  has
established  various  lending  limits  for its  officers  and  maintains  a loan
committee.  A report of all mortgage loans  originated is presented to the Board
of Directors  monthly.  The  President and Senior Vice  President  each have the
authority to approve  applications  for mortgage loans up to $100,000,  consumer
loans up to $40,000 for secured  loans and up to $10,000  for  unsecured  loans.
Eight other loan officers have authority to approve secured credit  applications
in varying amounts up to $35,000.

         The loan committee  reviews all applications for commercial loans up to
$250,000,  whether secured or unsecured, and all consumer loans in amounts above
the lending limit described above. All loans which the committee does not review
require the consideration and approval of the entire Board of Directors.

         Upon  receipt  of a  completed  loan  application  from  a  prospective
borrower,  a credit  report is  generally  ordered,  income  and  certain  other
information is verified and, if necessary,  additional financial  information is
requested.  An  appraisal  from a  licensed  fee  appraiser  of the real  estate
intended  to be used  as  security  for  the  proposed  loan  is  obtained.  For
construction/permanent  loans,  funds advanced during the construction phase are
held in a  loan-in-process  account and disbursed  based upon various  stages of
completion in accordance  with the results of inspection  reports that are based
upon physical inspection of

                                        6
<PAGE>

the  construction  by a loan  officer.  For real  estate  loans,  each  title is
reviewed by the attorney for the  Registrant  to determine  that title is clear.
Historically,  the Registrant has not required title  insurance  except in those
instances where the attorney has seen a need for title insurance. Borrowers must
also obtain fire and casualty  insurance.  Flood  insurance is also required for
loans on property that is located in a flood zone.

         Loan  Commitments.  Written loan  commitments  are given to prospective
borrowers on all approved  mortgage loans which generally  expire within 30 days
of the date of issuance.  No commitment fees or points to secure commitments are
charged to prospective  borrowers.  However, a customer may lock in a fixed rate
for 30 days by  depositing  a  nonrefundable  fee with the  Registrant.  In some
instances, after a review of the rate, terms, and circumstances, commitments may
be renewed or extended beyond the 30-day limit. At June 30, 2001, the Registrant
had  $2,787,000 of outstanding  commitments  to originate  loans and $978,000 in
undisbursed funds related to construction loans.

Non-Performing and Problem Assets

         Loan Delinquencies. The Registrant's collection procedures provide that
when a  mortgage  loan is 30 days past due, a  delinquent  notice is sent to the
borrower and a late charge is imposed in accordance with the mortgage or Deed of
Trust agreement. If payment is still delinquent after 90 days, the borrower will
receive a notice of default establishing a date by which the borrower must bring
the account current or foreclosure proceedings will be instituted.  Late charges
are also imposed in accordance with the mortgage or Deed of Trust agreement.  If
the delinquency continues,  similar subsequent efforts are made to eliminate the
delinquency.  If the loan continues in a delinquent  status for 90 days past due
and no  repayment  plan is in effect,  the account is turned over to an attorney
for  foreclosure.  Management  meets  regularly  to determine  when  foreclosure
proceedings  should be initiated and the borrower is notified  when  foreclosure
has been commenced.

         Loans are  reviewed  on a monthly  basis and are placed on  non-accrual
status when considered  doubtful of collection by management.  Generally,  loans
past due 90 days or more as to  principal  or  interest  and,  in the opinion of
management,  are not  adequately  secured to insure the collection of the entire
outstanding  balance  of the loan  including  accrued  interest  are  placed  on
non-accrual status.  Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income.  Subsequent cash payments
are applied to interest  income.  Loans are returned to accrual  status when, in
management's  judgment, the borrower has the ability and intent to make periodic
principal  and  interest  payments  (this  generally  requires  that the loan be
brought current in accordance with its original terms).


         Non-Performing  Assets.  The  following  table sets  forth  information
regarding nonaccrual loans and real estate owned, as of the dates indicated. The
Registrant has no loans categorized as troubled debt  restructurings  within the
meaning of the Statement of Financial  Accounting  Standards  ("SFAS") 15 and no
impaired loans within the meaning of SFAS 114, as amended by SFAS 118.  Interest
income that would have been  recorded  on loans  accounted  for on a  nonaccrual
basis under the original terms of such loans totaled  $25,317 for the year ended
June 30, 2001.

                                        7
<PAGE>

<TABLE>
<CAPTION>
                                                                           At June 30,
                                                                       -------------------
                                                                         2001         2000
                                                                         ----         ----
                                                                   (Dollars in Thousands)
<S>                                                                  <C>           <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family.......................................           $  252        $ 286
  Non-residential...........................................              240           16
  Multi-family..............................................               --            -
  Construction..............................................               --            -
  Commercial................................................               --            -
Consumer....................................................               --            2
Commercial..................................................                -           --
                                                                        -----         ----
    Total non-accrual loans.................................              492          304
                                                                        -----         ----
Accruing loans greater than 90 days past due:
Mortgage loans:
    One- to four-family.....................................               --            -
    Non-residential.........................................               --            -
    Multi-family............................................               --            -
    Construction............................................               --            -
Consumer....................................................              140          189
Commercial..................................................              571           --
                                                                        -----         ----
Total accruing loans greater than 90 days past due..........              711          189
                                                                        -----         ----
Total non-performing loans..................................            1,203          493
Real estate acquired in settlement of loans.................              355          407
Other non-performing assets.................................               13           21
                                                                        -----         ----
Total non-performing assets.................................           $1,571        $ 921
                                                                        =====         ====
Total non-performing loans to total loans...................             .92%         .41%
                                                                        ====          ===
Total non-performing loans to total assets..................             .71%         .34%
                                                                        ====          ===
Total non-performing assets to total assets.................             .94%         .63%
                                                                        ====          ===
</TABLE>

         Classified Assets. OTS regulations provide for a classification  system
for problem assets of insured  institutions.  Under this classification  system,
problem  assets  of  insured   institutions  are  classified  as  "substandard,"
"doubtful," or "loss." An asset is considered  substandard if it is inadequately
protected by the current net worth and paying  capacity of the obligor or of the
collateral  pledged,  if any.  Substandard assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as doubtful have all of
the  weaknesses  inherent in those  classified  as  substandard,  with the added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable  and  improbable."  Assets  classified as loss are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
may be designated  "special mention" because of potential weakness that does not
currently warrant classification in one of the aforementioned categories.

                                        8
<PAGE>

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem assets as loss, it is required either to establish a specific  allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's  determination as to the classification of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS, which may order the  establishment  of additional  general or specific loss
allowances.  A portion of general loss allowances  established to cover possible
losses  related to assets  classified as substandard or doubtful may be included
in determining an institution's  regulatory  capital,  while specific  valuation
allowances for loan losses generally do not qualify as regulatory capital.

         The following table sets forth the  Registrant's  classified  assets in
accordance with its classification system:


                                                  At June 30, 2001
                                                  ----------------
                                                   (In Thousands)

              Special Mention..................         $  877
              Substandard......................          1,920
              Doubtful.........................             80
              Loss.............................              -
                                                        ------
              Total............................         $2,877
                                                        ======

         Allowances  for Loan Losses.  A provision for loan losses is charged to
operations  based on management's  evaluation of the losses that may be incurred
in the Registrant's loan portfolio. Such evaluation,  which includes a review of
all loans of which full  collectibility  of interest  and  principal  may not be
reasonably assured, considers the Registrant's past loan loss experience,  known
and inherent  risks in the  portfolio,  adverse  situations  that may affect the
borrower's ability to repay, estimated value of any underlying  collateral,  any
existing guarantees,  past performance of the loan, available  documentation for
the loan, legal impediments to collection,  financial condition of the borrower,
and current economic conditions.

         Management  will  continue  to review  the  entire  loan  portfolio  to
determine the extent, if any, to which further additional loss provisions may be
deemed  necessary.  There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.

                                        9
<PAGE>

         The  following  table  sets  forth  information  with  respect  to  the
Registrant's allowance for loan losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                                                    -----------------------
                                                                       2001         2000
                                                                    ---------     ---------
                                                                     (Dollars in Thousands)
<S>                                                               <C>           <C>
Total loans outstanding .........................................   $ 132,345     $ 122,344
                                                                    =========     =========
Average loans outstanding .......................................     124,726       116,825
                                                                    =========     =========

Allowance balance (at beginning of period) ......................   $     682     $     582
Provision:
  Real estate ...................................................          56            57
  Consumer ......................................................          93            64
  Commercial ....................................................          42            54
Charge-offs:
  Real estate ...................................................          --            --
  Consumer ......................................................         (77)          (54)
  Commercial ....................................................         (20)          (25)
Recoveries:
  Real estate ...................................................          --            --
  Consumer ......................................................           3             4
  Commercial ....................................................          --            --
                                                                    ---------     ---------
Allowance balance (at end of period) ............................   $     779     $     682
                                                                    =========     =========

Allowance for loan losses as a percent of total loans outstanding         .59%          .56%
                                                                    =========     =========
Net loans charged off as a percent of average loans outstanding .         .08%          .06%
                                                                    =========     =========
</TABLE>

                                       10
<PAGE>

Analysis of the Allowance for Loan Losses

     The following table sets forth the allocation of the allowance by category,
which  management  believes can be allocated only on an approximate  basis.  The
allocation of the allowance to each  category is not  necessarily  indicative of
future loss and does not restrict the use of the  allowance to absorb  losses in
any category.

<TABLE>
<CAPTION>
                                                       June 30,
                                   ---------------------------------------------
                                         2001                       2000
                                   ---------------------      ------------------
                                           Percent of               Percent of
                                            Loans in                 Loans in
                                             Each                     Each
                                            Category                 Category
                                            to Total                 to Total
                                   Amount    Loans          Amount    Loans
                                   ------    -----          ------    -----
                                            (Dollars in Thousands)
<S>                              <C>       <C>            <C>          <C>
Types of Loans
--------------
Real Estate:
  One- to four-family........       $ 108     48.88%         $  93        50.81%
  Non-residential ...........         308     21.12            270        20.06
  Multi-family...............          36      4.54             33         4.47
  Construction...............          --      1.86             --         2.65
Consumer.....................         176     14.04            129        13.43
Commercial...................         151      9.56            157         8.58
                                    -----     -----          -----       ------
     Total...................       $ 779    100.00%         $ 682       100.00%
                                    =====    ======          =====       ======
</TABLE>

Investment Activities

     The  Registrant  is  required  under  federal  regulations  to  maintain  a
sufficient amount of liquid assets which may be invested in specified short-term
securities  and  certain  other  investments.  The OTS  does  not  prescribe  by
regulation a minimum amount or percentage of liquid assets.  The level of liquid
assets  varies  depending  upon several  factors,  including:  (i) the yields on
investment alternatives,  (ii) management's judgment as to the attractiveness of
the yields then available in relation to other opportunities,  (iii) expectation
of future yield levels,  and (iv) management's  projections as to the short-term
demand for funds to be used in loan origination and other activities. Investment
securities,  including mortgage-backed securities, are classified at the time of
purchase,  based upon management's  intentions and abilities, as securities held
to maturity or securities  available for sale. Debt securities acquired with the
intent and ability to hold to maturity  are  classified  as held to maturity and
are stated at cost and adjusted  for  amortization  of premium and  accretion of
discount,  which are  computed  using the level yield method and  recognized  as
adjustments  of interest  income.  All other debt  securities  are classified as
available for sale to serve principally as a source of liquidity.

     Current   regulatory  and  accounting   guidelines   regarding   investment
securities  (including  mortgage  backed  securities)  require the Registrant to
categorize  securities as "held to maturity," "available for sale" or "trading."
As of June  30,  2001,  Registrant  had  securities  (including  mortgage-backed
securities)  classified  as "held to maturity" and  "available  for sale" in the
amount  of  $10,795,000  and  $19,531,000,  respectively  and had no  securities
classified as  "trading."  Securities  classified  as  "available  for sale" are
reported  for  financial  reporting  purposes at the fair market  value with net
changes  in the  market  value  from  period to period  included  as a  separate
component of  stockholders'  equity,  net of income taxes. At June 30, 2001, the
Registrant's  securities available for sale had an amortized cost of $19,437,000
and

                                       11
<PAGE>

market value of $19,531,000. Changes in the market value of securities available
for sale do not affect the Company's income. In addition,  changes in the market
value of  securities  available  for sale do not affect  the  Bank's  regulatory
capital requirements or its loan-to-one borrower limit.

         At June 30, 2001, the Registrant's  investment portfolio policy allowed
investments in instruments  such as: (i) U.S.  Treasury  obligations,  (ii) U.S.
federal  agency or  federally  sponsored  agency  obligations,  (iii)  municipal
obligations,  (iv) mortgage-backed  securities,  (v) banker's acceptances,  (vi)
certificates  of  deposit,  and (vii)  investment  grade  corporate  bonds,  and
commercial paper. The board of directors may authorize additional investments.

         As a  source  of  liquidity  and  to  supplement  Registrant's  lending
activities,   the  Registrant   has  invested  in  residential   mortgage-backed
securities.  Mortgage-backed  securities  can serve as collateral for borrowings
and, through repayments,  as a source of liquidity.  Mortgage-backed  securities
represent a participation  interest in a pool of  single-family or other type of
mortgages.  Principal  and  interest  payments  are  passed  from  the  mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the  participation  interests in the form of  securities,  to
investors,  like us. The  quasi-governmental  agencies  guarantee the payment of
principal  and interest to investors  and include the Federal Home Loan Mortgage
Corporation  ("FHLMC"),  Government National Mortgage Association ("GNMA"),  and
Federal National Mortgage Association ("FNMA").

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable  rate) and the prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying  mortgages.  Expected  maturities will differ from contractual
maturities due to scheduled  repayments and because borrowers may have the right
to  call  or  prepay   obligations   with  or  without   prepayment   penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass- through certificates market.

         At June 30, 2001, the Registrant's  securities  portfolio contained one
security  of an  issuer,  other  than  those  issued by U.S.  government  or its
agencies,  with an  aggregate  book  value in excess of 10% of the  Registrant's
equity.  That  security is a bank  qualified  triple A rated  municipal  general
obligation bond with a book value of $1,960,000 and a market value of $1,996,000
at June 30, 2001.

                                       12
<PAGE>

         Investment Portfolio. The following table sets forth the carrying value
of the Registrant's securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                                 At June 30,
                                                                          ------------------------
                                                                            2001            2000
                                                                          --------        --------
                                                                              (In Thousands)
Securities held to maturity:
<S>                                                                     <C>             <C>
  Interest-bearing deposits in other financial institutions......         $ 7,375         $ 4,642
  U.S. government agency securities..............................             750           1,250
  FHLB stock.....................................................           1,075             800
  Mortgage-backed securities.....................................           1,595           2,089
                                                                          -------         -------
    Total securities held to maturity............................          10,795           8,781
                                                                          -------         -------
Securities available for sale:
  U.S. government and agency securities..........................           2,933           8,129
  Common stock...................................................             373              80
  Money fund securities..........................................              20              26
  Mortgage-backed securities.....................................           8,383           1,556
  Municipal bond obligations.....................................           5,819               -
  Corporate bond obligations.....................................           2,003               -
                                                                          -------         -------
    Total securities available for sale..........................          19,531           9,791
                                                                          -------         -------
Total investment and mortgage-backed securities..................         $30,326         $18,572
                                                                          =======         =======
</TABLE>
                                       13
<PAGE>

         The  following  table sets forth  information  regarding  the scheduled
maturities,  carrying  values,  market value and weighted average yields for the
Bank's  investment  securities  portfolio at June 30, 2001. The following  table
does not take into  consideration  the effects of  scheduled  repayments  or the
effects of possible prepayments.

<TABLE>
<CAPTION>
                                                                         At June 30, 2001
                                  --------------------------------------------------------------------------------------------------
                                      Less than             1 to             Over 5 to         Over 10              Total
                                       1 year              5 years           10 years           years             Securities
                                  ------------------ ------------------ ---------------- ---------------- --------------------------
                                  Carrying   Average Carrying   Average Carrying Average Carrying Average Carrying          Market
                                   Value      Yield   Value      Yield   Value    Yield   Value    Yield   Value     Yield  Value
                                   -----      -----   -----      -----   -----    -----   -----    -----   -----     -----  -----
                                                                         (Dollars in Thousands)
<S>                                <C>        <C>    <C>         <C>   <C>      <C>   <C>          <C>   <C>         <C>   <C>
Securities held to maturity:
  Interest-bearing deposits
    in other financial
    institutions..................  $7,375     3.91%  $    -         -% $    -      -%  $    -         -% $ 7,375     3.91% $ 7,375
  U.S. government and agency
    securities....................       -        -      250      6.50       -      -      500      6.74      750     6.66      742
  FHLB stock......................   1,075     6.75        -         -       -      -        -         -    1,075     6.75    1,075
  Mortgage-backed securities......       -        -        -         -     357   6.50    1,238      7.02    1,595     6.90    1,602
                                    ------     ----   ------      ----  ------   ----  -------      ----  -------     ----  -------
      Total securities held
        to maturity...............   8,450     4.27      250      6.50     357   6.50    1,738      6.94   10,795     4.83   10,794
                                    ------     ----   ------      ----  ------   ----  -------      ----  -------     ----  -------

Securities available for sale:
  U.S. government and agency
     securities...................       -        -      472      7.28   1,494   6.40      967      6.45    2,933     6.56    2,933
  Common stock....................     373     2.00        -         -       -      -        -         -      373     2.00      373
  Money fund securities...........       -        -        -         -      20   5.06        -         -       20     5.06       20
  Municipal bond obligations......       -        -        -         -       -      -    5,819      5.31    5,819     5.31    5,819
  Corporate bond obligations......       -        -    2,003      5.85       -      -        -         -    2,003     5.85    2,003
  Mortgage-backed securities......       -        -      487      5.50     987   5.50    6,909      7.02    8,383     6.75    8,383
                                    ------     ----   ------      ----  ------   ----  -------      ----  -------     ----  -------
      Total securities
        available for sale........     373     2.00    2,962      5.81   2,501   6.52   13,695      6.55   19,531     6.11   19,531
                                    ------     ----   ------      ----  ------   ----  -------      ----  -------     ----  -------

Total investment and
  mortgage-backed
  securities......................  $8,823     4.17%  $3,212      5.86% $2,858   6.52% $15,433      6.59% $30,326     5.65% $30,325
                                    ======     ====   ======      ====  ======   ====  =======      ====  =======     ====  =======
</TABLE>

                                       14
<PAGE>

Sources of Funds

         General.  Deposits are the major  external  source of the  Registrant's
funds for lending and other investment  purposes.  The Registrant  derives funds
from  amortization  and  prepayment  of  loans  and,  to a much  lesser  extent,
maturities of investment securities, borrowings,  mortgage-backed securities and
operations.  Scheduled loan principal  repayments are a relatively stable source
of  funds,   while  deposit  inflows  and  outflows  and  loan  prepayments  are
significantly influenced by general interest rates and market conditions.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from  within the  Registrant's  primary  market area  through the  offering of a
selection of deposit  instruments  including  regular  savings  accounts,  money
market  accounts,  and term  certificate  accounts.  Deposit  account terms vary
according to the minimum balance required, the time period the funds must remain
on deposit,  and the interest rate,  among other factors.  At June 30, 2001, the
Registrant had no brokered accounts.

         Time  Deposits.  The  following  table  indicates  the  amount  of  the
Registrant's  time deposits of $100,000 or more by time remaining until maturity
as of June 30, 2001.


             Maturity Period                     Time Deposits
             ---------------                     -------------
                                                (In Thousands)

Within three months......................           $ 3,838
More than three through six months.......             3,117
More than six through nine months........             2,811
Over nine months.........................             2,945
                                                    -------
         Total...........................           $12,711
                                                    =======

Borrowings

         The  Registrant  may obtain  advances  from the FHLB of  Pittsburgh  to
supplement  its supply of lendable  funds.  Advances from the FHLB of Pittsburgh
are  typically  secured  by a pledge  of the  Registrant's  stock in the FHLB of
Pittsburgh  and a portion of the  Registrant's  first mortgage loans and certain
other assets.  Each FHLB credit program has its own interest rate,  which may be
fixed or variable, and range of maturities.  The Registrant, if the need arises,
may also access the Federal  Reserve  Bank  discount  window to  supplement  its
supply of lendable funds and to meet deposit  withdrawal  requirements.  At June
30, 2001, borrowings with the FHLB totalled  $20,000,000,  which were classified
as long-term.

Employees

         At June 30,  2001,  the  Registrant  had 53  full-time  and 4 part-time
employees.  None of the  Registrant's  employees are represented by a collective
bargaining  group.  The  Registrant  believes  that  its  relationship  with its
employees is good.

Regulation

         Set forth below is a brief  description of certain laws which relate to
the regulation of the Company and the Bank. The description  does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

                                       15
<PAGE>

Regulation of the Company

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Company and its non-savings association  subsidiaries,  should such subsidiaries
be  formed,  which  authority  also  permits  the OTS to  restrict  or  prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.  This  regulation  and  oversight  is  intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.

         As a unitary savings and loan holding company, the Company generally is
not  subject  to  any  restrictions  on  its  business  activities.   While  the
Gramm-Leach-Bliley Act (the "GLB Act"), enacted in November 2000, terminated the
"unitary  thrift  holding  company"  exemption from activity  restrictions  on a
prospective basis, the Company enjoys  grandfathered status under this provision
of the GLB Act because it acquired  the Bank prior to May 4, 2000.  As a result,
the Company's  freedom from activity  restrictions as a unitary savings and loan
holding company were not affected by the GLB Act.  However,  if the Company were
to acquire control of an additional savings association, its business activities
would be subject to restriction under the Home Owners' Loan Act. Furthermore, if
the Company were in the future to sell control of the Bank to any other company,
such company would not succeed to the Company's  grandfathered  status under the
GLB Act and would be subject to the same activity restrictions. The continuation
of the Company's exemption from restrictions on business activities as a unitary
savings and loan  holding  company is also  subject to the  Company's  continued
compliance  with the Qualified  Thrift Lender ("QTL") test. See "- Regulation of
the Bank - Qualified Thrift Lender Test."

Regulation of the Bank

         General.  Set forth below is a brief  description  of certain laws that
relate to the  regulation of the Bank.  The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.  As a federally chartered,  SAIF-insured  savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Federal Reserve Board.

         The OTS,  regularly  examines  the Bank and  prepares  reports  for the
consideration  of the Bank's  Board of Directors  on any  deficiencies  that are
found in the Bank's operations.  The Bank's relationship with its depositors and
borrowers  is also  regulated  to a great  extent  by  federal  and  state  law,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents.

         The Bank must file reports with the OTS  concerning  its activities and
financial  condition,  in addition to obtaining  regulatory  approvals  prior to
entering into certain transactions such as mergers with or acquisitions of other
savings   institutions.   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 SAIF 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.

                                       16
<PAGE>

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
are insured by the SAIF to a maximum of  $100,000  for each  insured  member (as
defined by law and  regulation).  Insurance of deposits may be terminated by the
FDIC  upon a finding  that the  institution  has  engaged  in unsafe or  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 the institution's primary regulator.

         The Bank is required to pay insurance premiums based on a percentage of
its insured  deposits to the FDIC for insurance of its deposits by the SAIF. The
FDIC has set the deposit insurance assessment rates for SAIF-member institutions
for the  first  six  months  of 2001 at 0% to .027% of  insured  deposits  on an
annualized basis, with the assessment rate for most savings  institutions set at
0%. In addition,  all FDIC-insured  institutions are required to pay assessments
to the FDIC at an annual  rate of  approximately  .0212% of insured  deposits to
fund interest payments on bonds issued by the Financing Corporation ("FICO"), an
agency of the Federal government  established to recapitalize the predecessor to
the SAIF. These assessments will continue until the FICO bonds mature in 2017.

         Loans to One  Borrower.  A savings  association  may not make a loan or
extend  credit to a single or related group of borrowers in excess of 15% of the
associations's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of the unimpaired capital and surplus, under certain circumstances.
At June 30, 2001, the  Registrant's  lending limit for loans to one borrower was
approximately  $2,429,000 and had no outstanding  commitments  that exceeded the
loans to one borrower limit at the time originated or committed.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets for savings  institutions  that receive the highest  supervisory
rating for safety and  soundness and 4% of total  adjusted  assets for all other
thrifts,  and (3) risk-based capital equal to 8% of total risk-weighted  assets.
At June 30,  2001,  the  Bank was in  compliance  with  its  regulatory  capital
requirements.

         For  purposes  of the OTS  capital  regulations,  tangible  capital  is
defined as core  capital  less all  intangible  assets,  less  certain  mortgage
servicing  rights and less  certain  investments.  Core,  or Tier 1,  capital is
defined as common stockholders' equity,  noncumulative perpetual preferred stock
and minority  interests  in the equity  accounts of  consolidated  subsidiaries,
certain  nonwithdrawable   accounts  and  pledged  deposits  of  mutual  savings
associations and qualifying supervisory goodwill, less nonqualifying  intangible
assets, certain mortgage servicing rights and certain investments.

         The risk-based capital standard for savings  institutions  requires the
maintenance  of  total  risk-based  capital  of  8%  of  risk-weighted   assets.
Risk-based  capital  equals  the  sum of core  and  supplementary  capital.  The
components  of  supplementary  capital  include,  among other items,  cumulative
perpetual preferred stock,  perpetual  subordinated debt, mandatory  convertible
subordinated  debt,  intermediate-term  preferred  stock,  the  portion  of  the
allowance for loan losses not designated for specific loan losses, and up to 45%
of unrealized gains on equity securities.  The portion of the allowance for loan
and lease losses includable in supplementary  capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100%
of core capital. A savings  association must calculate its risk-weighted  assets
by multiplying each asset and off-balance  sheet item by various risk factors as
determined  by the OTS,  which  range  from 0% for  cash to 100% for  delinquent
loans,  property  acquired  through  foreclosure,  commercial  loans,  and other
assets.

                                       17
<PAGE>

         In addition to the above  regulatory  capital  requirements,  the OTS's
prompt corrective action regulation  classifies savings  associations by capital
levels and provides that the OTS will take various corrective actions, including
imposing significant operational restrictions,  against any thrift that fails to
meet  the  regulation's  capital  standards.  Under  this  regulation,  a  "well
capitalized"  savings  association  is one that has a total  risk-based  capital
ratio of at least 10%, a Tier 1  risk-based  capital  ratio of at least 6% and a
leverage  capital  ratio  of 5%,  and is not  subject  to any  capital  order or
directive.  A thrift is deemed  "adequately  capitalized"  category  if it has a
total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio
of at least 4%, and a leverage capital ratio of at least 4%.  Institutions  with
lower  capital  levels  are  deemed  to  be  "undercapitalized,"  "significantly
undercapitalized" or "critically  undercapitalized,"  depending on their capital
levels. A thrift that falls within any of the three undercapitalized  categories
is subject to severe  regulatory  sanctions under the prompt  corrective  action
regulation. At June 30, 2001, the Bank was classified as "well capitalized."

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends.

         A savings  association,  such as the Bank,  that is a  subsidiary  of a
savings and loan holding company,  must file an application or a notice with the
OTS at least 30 days before making a capital distribution.  Savings associations
are not  required  to file  an  application  for  permission  to make a  capital
distribution  and need only file a notice if the following  conditions  are met:
(1) they are eligible for expedited  treatment under OTS  regulations,  (2) they
would  remain  adequately  capitalized  after the  distribution,  (3) the annual
amount of capital  distribution does not exceed net income for that year to date
added to retained net income for the two  preceding  years,  and (4) the capital
distribution  would not violate any  agreements  between the OTS and the savings
association  or any OTS  regulations.  Any  other  situation  would  require  an
application to the OTS.

         The OTS may disapprove an application or notice if the proposed capital
distribution   would:  (i)  make  the  savings   association   undercapitalized,
significantly  undercapitalized,  or  critically  undercapitalized;  (ii)  raise
safety  or  soundness  concerns;  or (iii)  violate  a  statue,  regulation,  or
agreement  with  the OTS (or  with  the  FDIC),  or a  condition  imposed  in an
OTS-approved application or notice. Further, a federal savings association, like
the  Bank,  cannot  distribute   regulatory  capital  that  is  needed  for  its
liquidation account.

         Qualified Thrift Lender Test.  Federal savings  institutions  must meet
one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal  Revenue Code by maintaining at least 60% of its total assets
in specified types of assets,  including cash,  certain  government  securities,
loans  secured  by and  other  assets  related  to  residential  real  property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by  maintaining at
least 65% of its "portfolio  assets" in  certain"Qualified  Thrift  Investments"
(defined  to include  residential  mortgages  and  related  equity  investments,
certain  mortgage-related  securities,  small business loans,  student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the  statutory QTL test,  portfolio  assets are defined as total assets minus
intangible assets,  property used by the institution in conducting its business,
and liquid  assets  equal to 10% of total  assets.  A savings  institution  must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months.  A failure to qualify  as a QTL would  result in a number of  sanctions,
including  certain  operating  restrictions.  At June 30, 2001,  the Bank was in
compliance  with its QTL  requirement,  with  80.77% of its assets  invested  in
Qualified Thrift Investments.

                                       18
<PAGE>

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Pittsburgh,  which  is  one of 12  regional  FHLBs  that  administers  the  home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Pittsburgh  in an amount  equal to the  greater of 1% of its  aggregate
unpaid   residential   mortgage  loans,  home  purchase   contracts  or  similar
obligations at the beginning of each year or 5% of the Bank's  advances from the
FHLB. At June 30, 2001, the Bank was in compliance with this requirement.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits.  The balances  maintained
to meet the reserve  requirements  imposed by the Federal  Reserve  Board may be
used to satisfy the liquidity  requirements that are imposed by the OTS. At June
30,  2001,  the  Bank  was  in  compliance  with  these  Federal  Reserve  Board
requirements.

Item 2.  Description of Property
--------------------------------

         (a)      Properties.

                  The  Registrant  operates  from its main office and two branch
offices.


                                                                     Year Leased
Locations(3)                               Leased or Owned           or Acquired
---------                                  ---------------           -----------

MAIN OFFICE:
  1015 Commerce Street                       Owned                      1984
  Wellsburg, West Virginia

BRANCH OFFICES:
  1409 Main Street                           Leased (1)                 1996
  Follansbee, West Virginia

  805 Main Street
  Wintersville, Ohio                         Leased (2)                 1997

                  -----------------------
                  (1)      The Bank holds a 40 year lease on the land upon which
                           its  branch  office  is  located.  The Bank  owns the
                           branch building. In addition,  the Bank owns property
                           at 901 Main Street, Follansbee,  West Virginia, which
                           was formerly a branch office.

                  (2)      The Wintersville office opened June 8, 1998. The Bank
                           holds a ten year  lease  (with two five year  renewal
                           options) on the land upon which its branch  office is
                           located. The Bank owns the branch building.

                  (3)      Upon  consummation  of  the  merger  with  OSFS,  the
                           Registration  will add two additional  branch offices
                           located at 435 Main Street, Bridgeport, Ohio and 4000
                           Central  Avenue,  Shadyside,  Ohio.  The new branches
                           will be owned by the Registrant.


                                       19
<PAGE>



         (b) Investment  Policies.  See "Item 1.  Business"  above for a general
description  of the Bank's  investment  policies and any  regulatory or Board of
Directors' percentage of assets limitations  regarding certain investments.  The
Bank's  investments are primarily  acquired to produce  income,  and to a lesser
extent, possible capital gain.

                  (1)  Investments  in Real Estate or  Interests in Real Estate.
See "Item 1.  Business - Lending  Activities  and - Regulation of the Bank," and
"Item 2. Description of Property."

                  (2)  Investments  in  Real  Estate  Mortgages.  See  "Item  1.
Business - Lending Activities and - Regulation of the Bank."

                  (3)  Investments  in  Securities  of or  Interests  in Persons
Primarily  Engaged in Real Estate  Activities.  See "Item 1.  Business - Lending
Activities and - Regulation of the Bank."

         (c) Description of Real Estate and Operating Data. Not Applicable.

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

         There are various  claims and lawsuits in which the Company or the Bank
are  periodically  involved,  such as  claims  to  enforce  liens,  condemnation
proceedings  on properties in which the Bank holds  security  interests,  claims
involving  the making and  servicing of real  property  loans,  and other issues
incident to the Bank's business. In the opinion of management,  no material loss
is expected from any of such pending claims or lawsuits.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

         The  information  contained under the section  captioned  "Stock Market
Information" of the Company's  Annual Report to stockholders for the fiscal year
ended June 30, 2001 (the "Annual Report") is incorporated herein by reference.

Item 6.  Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

Item 7.  Financial Statements
-----------------------------

         The  Registrant's   financial  statements  listed  under  Item  13  are
incorporated herein by reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  On  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure.
         ---------------------

         Not applicable.

                                       20
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
--------------------------------------------------------------------------------
        with Section 16(a) of the Exchange Act.
        ---------------------------------------

         The  information  required  under this item is  incorporated  herein by
reference  to the  Proxy  Statement  for the 2001  Annual  Meeting  (the  "Proxy
Statement")  contained under the sections  captioned  "Section 16(a)  Beneficial
Ownership  Reporting  Compliance,"  "Proposal I - Election of Directors," and "-
Biographical Information."

Item 10.  Executive Compensation
--------------------------------

         The  information  required by this item is incorporated by reference to
the  Proxy  Statement  contained  under  the  section  captioned  "Director  and
Executive Officer Compensation."

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners
         (b)      Security Ownership of Management

                  The information  required by items (a) and (b) is incorporated
                  herein by reference to the Proxy Statement contained under the
                  sections  captioned  "Principal  Holders"  and  "Proposal  I -
                  Election of Directors."

         (c)      Management of the Company knows of no arrangements,  including
                  any pledge by any person of  securities  of the  Company,  the
                  operation of which may at a subsequent date result in a change
                  in control of the Company.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference to the Proxy Statement  contained under the section captioned "Certain
Relationships and Related Transactions."

Item 13. Exhibits, List, and Reports on Form 8-K
------------------------------------------------

         (a)     Listed below are all financial statements and exhibits filed as
                 part of this report.

                    1.   The  consolidated  balance sheets of Advance  Financial
                         Bancorp and Subsidiary as of June 30, 2001 and 2000 and
                         the related consolidated  statements of income, changes
                         in stockholders'  equity and cash flows for each of the
                         two  years  ended  June  30,  2001,  together  with the
                         related notes and the independent  auditors'  report of
                         S. R.  Snodgrass,  A.C.  independent  certified  public
                         accountants.

                    2.   Schedules omitted as they are not applicable.

                                       21
<PAGE>

                    3.   The  following  exhibits are included in this Report or
                         incorporated herein by reference:
<TABLE>
<CAPTION>
                           (a)      List of Exhibits:
                              <S>         <C>
                                     2      Agreement and Plan of Merger between Advance Financial
                                            Bancorp and Ohio State Financial Services, Inc.******
                                     3(i)   Certificate of Incorporation of Advance Financial Bancorp *
                                     3(ii)  Amended Bylaws of Advance Financial Bancorp*****
                                     4(i)   Specimen Stock Certificate *
                                     4(ii)  Shareholder Rights Plan **
                                    10      Employment Agreement between the Bank and Stephen M.
                                            Gagliardi ***
                                    10.1    1998 Stock Option Plan ****
                                    10.2    Restricted Stock Plan and Trust Agreement ****
                                    13      Portions of the 2001 Annual Report to Stockholders
                                    21      Subsidiaries of the Registrant (See "Item 1- Description of
                                            Business")
                                    23      Consent of S.R. Snodgrass, A.C.
</TABLE>

         (b)      A Form 8-K (Items 5 and 7) dated April 18, 2001 was filed with
                  the SEC on April 19, 2001,  which  announced the  Registrant's
                  definitive   merger   agreement  with  Ohio  State   Financial
                  Services, Inc.


         -------------------
         *          Incorporated by reference to the registration  statement  on
                    Form S-1 (File No. 333-13021) declared effective by the  SEC
                    on November 12, 1996.
         **         Incorporated by reference to the Form 8-K (File No. 0-21885)
                    filed with the SEC on July 17, 1997.
         ***        Incorporated  by  reference to the June 30, 1997 Form 10-KSB
                    filed with the SEC on September 24, 1997.
         ****       Incorporated  by  reference to the Proxy  Statement  for the
                    Special  Meeting of  Stockholders  on January  20,  1998 and
                    filed with the SEC on December 12, 1997.
         *****      Incorporated  by  reference to the June 30, 1999 Form 10-KSB
                    filed with the SEC on September 28, 1999.
         ******     Incorporated by reference to the Form 8-K filed with the SEC
                    on April 19, 2001.

                                       22
<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 as of  September 14,
2001.

                           ADVANCE FINANCIAL BANCORP


                           By:   /s/Stephen M. Gagliardi
                                 -----------------------------------------------
                                 Stephen M. Gagliardi
                                 President, Chief Executive Officer and Director
                                 (Duly Authorized Representative)

         Pursuant to the  requirement  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 indicated as of September 14, 2001.

<TABLE>
<CAPTION>
<S>                                                          <C>

/s/Stephen M. Gagliardi                                       /s/George H. Johnson
-----------------------------------------------               -----------------------------------------------
Stephen M. Gagliardi                                          George H. Johnson
President, Chief Executive Officer and Director               Director
(Principal Executive Officer)

/s/John R. Sperlazza                                          /s/Kelly M. Bethel
-----------------------------------------------               -----------------------------------------------
John R. Sperlazza                                             Kelly M. Bethel
Director                                                      Director

/s/William E. Watson                                          /s/Frank Gary Young
-----------------------------------------------               -----------------------------------------------
William E. Watson                                             Frank Gary Young
Director                                                      Director

/s/James R. Murphy                                            /s/William B. Chesson
-----------------------------------------------               -----------------------------------------------
James R. Murphy                                               William B. Chesson
Director                                                      Director


/s/Stephen M. Magnone                                         /s/Steven D. Martino
-----------------------------------------------               -----------------------------------------------
Stephen M. Magnone                                            Steven D. Martino
Treasurer                                                     Senior Vice President
(Principal Accounting Officer)

</TABLE>