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 (No Fee required)

      For the fiscal year ended   June 30, 1997

[ ]   Transition report pursuant to section 13 or 15(d) of the Securities 
      Exchange Act of 1934 (No Fee required)
      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 Incorporation                  I.R.S. Employer
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
                     ---------------------------------------
                                (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. [X]

      State issuer's revenues for its most recent fiscal year.   $7,900,000

      The aggregate market value of the voting stock held by  non-affiliates  of
the  registrant,  based on the average  bid and asked price of the  registrant's
Common Stock on September 15, 1997 was $14.5 million.

      As of September  30,  1997,  there were issued and  outstanding  1,084,450
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, 1997. (Part II)

      2. Portions of the Proxy  Statement for the Annual Meeting of Stockholders
for the Fiscal Year ended June 30, 1997. (Part III)

                                        1

<PAGE>



PART I

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

General

      Advance  Financial  Bancorp  (the  "Company")  is a  Delaware  corporation
organized in September 1996 at the direction of Advance  Financial  Savings Bank
(the "Bank" or  "Advance")  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.  The Company conducts no significant  business or operations of its
own other than holding all of the  outstanding  stock of the Bank and  investing
the Company's portion of the net proceeds obtained in the conversion.

      The Bank,  chartered  in 1935 under the name Advance  Federal  Savings and
Loan of West Virginia, is a federally chartered stock savings bank headquartered
in  Wellsburg,   West  Virginia.   The  Bank  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  FHLB of
Pittsburgh,  which is one of the 12 regional banks in the FHLB System.  The Bank
has an investment in one service corporation.

      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  single-family
residential real estate.

Competition

      The Bank is one of many  financial  institutions  serving  its market area
which  consists of Brooke and Hancock  counties of West Virginia and portions of
Jefferson County Ohio and Washington County,  Pennsylvania.  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 Bank's market area.  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.

Lending Activities

      General.   The   Bank's   loan   portfolio   predominantly   consists   of
adjustable-rate  mortgage loans secured by one- to four-family residences and to
a lesser extent,  the Bank originates  commercial  loans secured by real estate,
construction  loans, land lot loans and savings account loans. It is the current
policy of the Bank to remain  primarily a portfolio  lender.  From time to time,
the Bank sells one- to four family fixed rate loans in the secondary market.


                                        2

<PAGE>



      Analysis of Loan  Portfolio.  Set forth below is selected data relating to
the  composition  of the  Bank's  loan  portfolio  by type of loan  and  type of
security on the dates indicated:

<TABLE>
<CAPTION>
                                                         June 30,
                                       ---------------------------------------------
                                               1997                    1996
                                       --------------------     --------------------
                                        Amount      Percent      Amount      Percent
                                       -------      -------     -------      -------

                                                  (Dollars in Thousands)
<S>                                   <C>           <C>       <C>            <C>  
Type of Loans:
Real Estate Loans:
  Construction......................  $  2,455        2.78%   $  1,901         2.35%
  One- to four-Family(1) ...........    57,746       65.32      55,975        69.05
  Multi-family .....................     1,595        1.80       1,697         2.09
  Non-residential...................    11,482       12.99       8,327        10.27
Consumer Loans:
  Home improvement..................       906        1.02       1,119         1.38
  Automobile........................     7,419        8.39       6,178         7.62
  Share.............................     1,270        1.44       1,125         1.39
  Education.........................        89         .10         128          .16
  Other.............................     1,973        2.23       1,512         1.87
Commercial loans....................     3,478        3.93       3,100         3.82
                                         -----      ------     -------       ------
     Total loans....................    88,413      100.00%     81,062       100.00%
                                                    ======                   ======

Less:
  Loans in process..................   (1,761)                 (1,549)
  Deferred loan origination fees
     and costs......................     (216)                   (247)
  Allowance for loan losses.........     (368)                   (325)
                                        -----                  ------
     Total loans, net...............  $86,068                 $78,941
                                       ======                  ======
</TABLE>

-----------------
(1)   At June 30, 1996, includes $1,375,000 in loans held for sale.

                                        3

<PAGE>



Loan Maturity Tables

      The following  table sets forth the estimated  maturity of the Bank's loan
portfolio,  including  loans held for sale, at June 30, 1997. 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 mortgage......   $ 4,378    $ 1,745   $51,623   $57,746
Multi-family real estate .....................        42         51     1,502     1,595
Non-residential real estate ..................       314        608    10,560    11,482
Construction .................................     1,033        372     1,050     2,455
Consumer .....................................       685      9,712     1,260    11,657
Commercial ...................................     1,299      1,290       889     3,478
                                                 -------    -------   -------   -------
Total Amount Due .............................   $ 7,751    $13,778   $66,884   $88,413
                                                 -------    -------   -------   -------

Less:
Allowance for loan losses ....................                                     (368)
Loans in process .............................                                   (1,761)
Deferred loan origination fees and costs......                                     (216)
                                                                                -------
                                                                                $86,068
                                                                                =======
</TABLE>


      The  following  table sets forth the dollar  amount of all loans due after
June 30, 1998, which have pre-determined  interest rates and which have 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
mortgage ......................     $16,827          $36,541          $53,368
Multi-family ..................         652              901            1,553
Non-residential real estate ...       5,460            5,708           11,168
Construction ..................         372            1,050            1,422
Consumer ......................      10,972               --           10,972
Commercial ....................       1,525              654            2,179
                                    -------          -------          -------
    Total .....................     $35,808          $44,854          $80,662
                                    =======          =======          =======
</TABLE>


      One- to Four-Family Residential Loans. The Bank's primary lending activity
consists of the  origination of one- to four-family  residential  mortgage loans
secured by property  located in the Bank's primary market areas. The Bank's one-
to four-family  residential  loan portfolio also includes  second mortgage loans
and home equity loans secured by second mortgages. The Bank 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 Bank  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.  The Bank also originates  construction permanent
loans on one- to four-family  residences.  The Bank retains most of the mortgage
loans  that it  originates.  Adjustable-rate  mortgage  loans,  which can adjust
annually or every three or five years over

                                        4

<PAGE>



the life of the loan depending on the type of the loan,  can have  maturities of
up to 30 years. Fixed-rate loans can have maturities of up to 30 years depending
on the type of the loan.

      For all adjustable-rate  mortgage loans, the Bank requires the borrower to
qualify at the initial rate. The Bank's  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.   The  Bank  offers
adjustable-rate  loans with initial  interest  rates set below the fully indexed
rate.

      The Bank  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 Bank's cost of
funds. Generally, the Bank's standard underwriting guidelines for mortgage loans
conform to the Federal Home Loan Mortgage  Corporation  ("FHLMC") guidelines and
most of the Bank's loans are salable in the secondary  market. It is the current
policy of the Bank to remain a portfolio lender for its adjustable rate loans.

      Adjustable-rate  mortgage loans decrease the risks associated with changes
in interest rates by more closely  reflecting  these changes,  but involve other
risks  because as  interest  rates  increase,  the  underlying  payments  by the
borrower increase,  thus increasing the potential for default. At the same time,
the  marketability  of the underlying  collateral  may be adversely  affected by
higher interest  rates.  Upward  adjustment of the contractual  interest rate is
also limited by the adjustable-rate mortgage loan documents, thereby potentially
limiting their  effectiveness  during periods of rising  interest  rates.  These
risks have not had an adverse effect on the Bank.

      Non-residential  Real Estate  Loans.  Non-residential  real  estate  loans
consist  of  loans  made  for the  purpose  of  purchasing  or  refinancing  the
non-residential  real estate used as  collateral  and includes  loans secured by
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  lending  entails  significant  additional  risks  when
compared   with  one-  to   four-family   residential   lending.   For  example,
non-residential loans typically involve larger loan balances to single borrowers
or groups of related  borrowers,  the payment experience on such loans typically
is dependent on the  successful  operation of the project and these risks can be
significantly  impacted by the cash flow of the  borrowers and supply and demand
conditions in the market for commercial office, retail and warehouse space.

      Consumer Loans. The Bank offers consumer loans in order to provide a wider
range of financial services to its customers.  Federal savings  associations are
permitted  to make  secured  and  unsecured  consumer  loans  up to 35% of their
assets. In addition,  savings  associations have lending authority above the 35%
limitation for certain consumer loans,  such as home  improvement,  credit card,
education,  savings account or passbook loans.  Consumer or other loans totalled
$11.7  million,  or 13.2% of the Bank's total loans,  of which loans  secured by
automobiles totalled $7.4 million, or 8.4% of the Bank's total loans at June 30,
1997. The Bank originates  automobile  loans with terms of up to 6 years for new
automobiles  and up to 5 years for used  automobiles.  Most of these  automobile
loans are originated  directly by the Bank.  During the past two years, the Bank
has begun to originate automobile loans indirectly by purchasing such loans from
automobile  dealers with whom the Bank provides floor plan  financing.  Indirect
automobile  loans  are  underwritten  by the Bank and a fee is  remitted  to the
automobile dealer upon the successful  underwriting and closing of the loan. The
fee is rebated to the Bank,  on a pro rata basis,  if the loan is repaid  within
the first six months. The Bank does not have recourse against the

                                        5

<PAGE>



automobile dealer in the event of a default by the borrower. The Bank originates
each  indirect  auto loan in  accordance  with its  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.

      Commercial  Loans.  Commercial  loans,  other than  commercial real estate
loans, consist of, among other things, 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 Bank 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.

      Construction  Loans. The Bank makes  construction  loans primarily for the
construction of single-family  dwellings.  Approximately 90% of these loans were
made to persons who are  constructing  properties  for the purpose of  occupying
them. Such loans may also be made to builders to construct  properties for sale.
Loans made to builders are generally "pure construction" loans which require the
payment  of  interest  at fixed  rates  during the  construction  period and the
payment of the principal in full at the end of the  construction  period.  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.

      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%.

      Loan Approval Authority and Underwriting. The Bank 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  of the Bank 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.  Six other
officers  have  authority  to approve  secured  credit  applications  in varying
amounts up to $35,000.

      The Loan Committee  considers all  applications for commercial loans up to
$250,000,  whether secured or unsecured, and all consumer loans in amounts above
the lending limit established above. All loans in excess of those limits set for
the Loan Committee 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 the
construction by a loan officer. For real estate loans, each title is reviewed by
the attorney for the Bank to determine  that title is clear.  Historically,  the
Bank 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  (for loans on property  located in a flood zone,  flood
insurance  is required)  prior to the closing of the loan.  The Bank is named as
mortgagee/loss payee of this insurance.

                                        6

<PAGE>




      Loan  Commitments.  The Bank issues  written  commitments  to  prospective
borrowers on all approved  mortgage loans which generally  expire within 30 days
of the date of issuance. The Bank charges no commitment fees or points to secure
commitments.  A customer  may lock in a fixed rate for 30 days by  depositing  a
nonrefundable fee with the Bank. 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, 1997, the Bank had $866,000 of outstanding commitments to
originate  loans and $1.5 million in undisbursed  funds related to  construction
loans.

      Loans to One  Borrower.  SAIF-insured  savings bank are subject to certain
lending  limitations to a single  borrower or group of borrowers.  Under current
law,  the Bank's  lending  limits  equals an amount  equal to 15% of  unimpaired
capital and unimpaired  surplus on an unsecured  basis and an additional  amount
equal to 10% of unimpaired capital and unimpaired surplus if the loan is secured
by readily marketable  collateral.  Savings  associations are authorized to make
loans to one borrower,  for any purpose, in an amount up to $500,000. The Bank's
maximum  loan-to-one  borrower limit was approximately  $1.8 million at June 30,
1997. At June 30, 1997,  the  aggregate  loans  outstanding  of the Bank's three
largest  borrowers have  outstanding  balances of between $500,000 and $899,000,
and were  secured  by  property  in the Bank's  market  area.  These  loans were
performing in accordance with their contractual terms and were within the Bank's
lending limit.

Non-Performing and Problem Assets

      Loan Delinquencies.  The Bank'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 generally
applied to interest income unless, in the opinion of management,  the collection
of principal and interest is doubtful. In those cases,  subsequent cash payments
would be applied to principal.


                                        7

<PAGE>



      Non-Performing   Assets.   The  following  table  sets  forth  information
regarding  non-accrual  loans,  real estate owned, and certain other repossessed
assets and loans. As of the dates indicated,  the Bank had no loans  categorized
as troubled debt restructuring within the meaning of SFAS 15.

<TABLE>
<CAPTION>
                                                               At June 30,
                                                          ----------------------
                                                               1997    1996
                                                               ----    ----
                                                          (Dollars in Thousands)
<S>                                                            <C>     <C> 
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family ................................         $ 76    $ 82
  Multi-family .......................................           --      55
  Non-residential ....................................           77      --
  Construction .......................................           --      --
Consumer .............................................            2       2
Commercial ...........................................           --      --
                                                               ----    ----
    Total non-accrual loans ..........................          155     139
                                                               ----    ----
Accruing loans greater than 90 days past due:                  
  Mortgage loans:                                              
    One- to four-family ..............................           26     132
    Multi-family .....................................           --      --
    Commercial .......................................           --      77
    Construction .....................................           --      --
Consumer .............................................          268      85
Commercial ...........................................          159       9
                                                               ----    ----
Total accruing loans greater than 90 days past due              453     303
                                                               ----    ----
Total non-performing loans ...........................          608     442
Real estate acquired in settlement of loans ..........           --      --
                                                               ----    ----
Other non-performing assets ..........................           --      --
                                                               ----    ----
Total non-performing assets ..........................         $608    $442
                                                               ====    ====
Total non-performing loans to total loans ............         0.70%   0.55%
                                                               ====    ====
Total non-performing loans to total assets ...........         0.58%   0.48%
                                                               ====    ====
Total non-performing assets to total assets ..........         0.58%   0.48%
                                                               ====    ====
</TABLE>
                                                               
                                                               
      Interest  income that would have been recorded on loans accounted for on a
non-accrual  basis  under the  original  terms of such loans was $18,000 for the
year ended June 30, 1997 and $11,000 was  collected  and  included in the Bank's
interest income from non-accrual loans for the year ended June 30, 1997.

      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

                                        8

<PAGE>



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.

      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.

      In accordance with its classification of assets policy, the Bank regularly
reviews the problem  assets in its  portfolio  to  determine  whether any assets
require classification in accordance with applicable  regulations.  On the basis
of management's  review of its assets, at June 30, 1997, the Bank had classified
$485,000 of assets as substandard,  $31,000 of assets as doubtful,  and $771,000
of assets as special mention.

      Real Estate  Acquired in Settlement of Loans.  Real estate acquired by the
Bank as a result of  foreclosure or by deed in lieu of foreclosure is classified
as real estate owned until it is sold. When property is acquired, it is recorded
at  the  fair  value  at  the  date  of  foreclosure  less  estimated  costs  of
disposition.

      Allowances  for Loan  Losses.  It is  management's  policy to provide  for
losses on unidentified loans in its loan portfolio.  A provision for loan losses
is charged to operations based on management's evaluation of the losses that may
be incurred in the Bank'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 Bank'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 Bank's
allowance for loan losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                                                          ---------------------
                                                                            1997         1996
                                                                            ----         ----
                                                                         (Dollars in Thousands)

<S>                                                                       <C>          <C>     
Total loans outstanding(1) ............................................   $ 88,413     $ 81,062
                                                                          ========     ========
Average loans outstanding .............................................   $ 83,694     $ 76,096
                                                                          ========     ========
Allowance balance (at beginning of period) ............................   $    325     $    198
Provision:
  Mortgages ...........................................................         31           --
  Consumer ............................................................         10           33
  Commercial ..........................................................         10          230
Charge-offs:
  Mortgages ...........................................................         (1)          --
  Consumer(2) .........................................................        (18)          (4)
  Commercial(2) .......................................................         --         (141)
Recoveries:
  Mortgages ...........................................................          3           --
  Consumer ............................................................          5            9
  Commercial ..........................................................          3           --
                                                                          --------     --------
Allowance balance (at end of period) ..................................   $    368     $    325
                                                                          ========     ========
Allowance for loan losses as a percent of total loans outstanding......       0.42%        0.40%
Net loans charged off as a percent of average loans outstanding........       0.02%        0.19%
</TABLE>


----------------
(1)   At June 30, 1996 includes $1,375,000 in loans held for sale.
(2)   At June 30, 1996, the charge-offs constitute two secured loans aggregating
      $145,000 from one borrower who declared bankruptcy in 1996.


                                       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,
                                 --------------------------------------------
                                       1997                    1996
                                 --------------------     -------------------
                                           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>   
Mortgages:
  One- to four-family.....       $  83        65.32%        $ 75      69.05%
  Multi-family............           8         1.80            8       2.09
  Non-residential ........          65        12.99           41      10.27
  Construction............          --         2.78           --       2.35
  Consumer................          82        13.18           85      12.42
  Commercial..............         130         3.93          116       3.82
                                   ---       ------          ---     ------
     Total................       $ 368       100.00%        $325     100.00%
                                   ===       ======          ===     ======
</TABLE>


Investment Activities and Mortgage-Backed Securities

      General.  The Bank is required  under  federal  regulations  to maintain a
minimum  amount of liquid  assets which may be invested in specified  short term
securities  and certain other  investments.  The Bank has maintained a liquidity
portfolio  in  excess  of  regulatory  requirements.  Liquidity  levels  may  be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its expectation of future yield levels,
as well as management's  projections as to the short term demand for funds to be
used in the Bank's loan  origination and other  activities.  The Bank classifies
its investments as securities available for sale or investments  securities held
to  maturity in  accordance  with SFAS No.  115.  At June 30,  1997,  the Bank's
investment  portfolio  policy allowed  investments  in instruments  such as U.S.
Treasury  obligations,   U.S.  federal  agency  or  federally  sponsored  agency
obligations,   municipal  obligations,   mortgage-backed  securities,   banker's
acceptances,  certificates of deposit,  federal funds,  including FHLB overnight
and term  deposits (up to six months),  as well as  investment  grade  corporate
bonds,  commercial paper and the mortgage  derivative  products described below.
The Board of Directors may authorize additional investments.

      The Bank's securities available for sale and investment securities held to
maturity  portfolios  at June 30, 1997 did not contain  securities of any issuer
with an aggregate  book value in excess of 10% of the Bank's  equity,  excluding
those issued by the United States Government or its agencies.

                                       11

<PAGE>



      Mortgage-Backed Securities. To supplement lending activities, the Bank 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,  the principal and interest
payments  on  which  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 such as the
Bank. Such quasi-governmental agencies, which guarantee the payment of principal
and interest to investors, primarily include FHLMC, Government National Mortgage
Association ("GNMA"), and FNMA.

      The Bank's mortgage-backed  securities were classified as held to maturity
at  June  30,  1997  and  were  all  issued  by  GNMA  or  FHLMC,   representing
participating interests in direct pass-through pools of long-term mortgage loans
originated and serviced by the issuers of the  securities.  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  typically  are issued with  stated  principal
amounts and the securities are backed by pools of mortgages that have loans with
interest  rates  that  are  within  a 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.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate), as well as 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.  Mortgage-backed
securities  issued  by FHLMC  and GNMA make up a  majority  of the  pass-through
certificates market.

Investment Activities

      Investment Portfolio. The following table sets forth the carrying value of
the Bank's securities at the dates indicated.  At June 30, 1997, the approximate
fair value of the Bank's securities  available for sale was $55,000 resulting in
a net unrealized loss of $10,000.

<TABLE>
<CAPTION>
                                                                     At June 30,
                                                                ----------------------
                                                                   1997       1996
                                                                   ----       ----
                                                                (Dollars in Thousands)

<S>                                                               <C>       <C>    
U.S. Government and agency securities .........................   $ 7,844   $ 4,800
Securities available for sale .................................        55        68
Mortgage-backed securities ....................................       367       537
Interest-bearing deposits in other financial institutions......     5,888     3,068
FHLB Stock ....................................................       577       560
                                                                  -------   -------
  Total .......................................................   $14,731   $ 9,033
                                                                  =======   =======
</TABLE>



                                       12

<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, 1997. The following  table
does not take into  consideration  the effects of  scheduled  repayments  or the
effects of possible prepayments.

<TABLE>
<CAPTION>
                                                                       At June 30, 1997
                         -----------------------------------------------------------------------------------------------------------
                               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>    
U.S. Government and
  agencies securities ... $ 1,750     5.84% $ 5,594    6.85%     $  --         --%  $   500    7.40%    $ 7,844    6.66%    $ 7,831
Securities available for
  sale ..................      37    11.78       --      --         18      11.16        --      --          55   11.59          55
Mortgage-backed
  securities ............      --       --       --      --        106       8.00       261   10.00         367    9.42         395
Interest-bearing deposits
  in other financial
  institutions ..........   5,888     6.26       --      --         --         --        --      --       5,888    6.26       5,888

FHLB stock (1) ..........     577     6.38       --      --         --         --        --      --         577    6.38         577
                          -------     ----  -------    ----     ------       ----   -------    ----     -------    ----     -------

  Total ................. $ 8,252     6.20% $ 5,594    6.85%    $  124       8.46%  $   761    8.29%    $14,731    6.58%    $14,746
                          =======     ====  =======    ====     ======       ====   =======    ====     =======    ====     =======
</TABLE>


----------------------------
(1)  Recorded at cost.


                                       13

<PAGE>



Sources of Funds

      General.  Deposits are the major  external  source of the Bank's funds for
lending and other investment purposes.  The Bank 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 Bank'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,  1997,  the Bank had no
brokered accounts.

      Time Deposits. The following table indicates the amount of the Bank's time
deposits  of $100,000 or more by time  remaining  until  maturity as of June 30,
1997.

             Maturity Period                     Time Deposits
             ---------------                     -------------
                                             (Dollar in Thousands)

  
Within three months......................             $1,286
More than three through six months.......              1,892
More than six through nine months........              1,289
Over nine months.........................              3,257
                                                       -----
      Total..............................             $7,724
                                                       =====
Borrowings

      The Bank 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 Bank's stock in the FHLB of Pittsburgh  and a portion
of the Bank'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 Bank, 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.


                                       14

<PAGE>



      The following table sets forth  information  concerning  borrowings during
the periods indicated.


                                                      Year Ended June 30,
                                                    -----------------------
                                                      1997           1996
                                                    --------       -------- 
                                                     (Dollars In Thousands)
FHLB advances:
   Ending Balance................................    $7,747         $4,376
   Average Balance during year ..................     7,329          3,105
   Maximum month-end balance during the year.....     8,267          3,712
   Average interest rate during the year.........      5.43%          5.57%
   Weighted average rate at year end.............      5.73%          5.49%




Subsidiary Activity

      The Bank is  permitted  to  invest up to 2% of its  assets in the  capital
stock of, or secured or unsecured  loans to,  subsidiary  corporations,  with an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community deveopment purposes. At June 30, 1997, the Bank
had one wholly-owned  subsidiary,  Advance Financial Service Corporation of West
Virginia ("Service Corporation").  The Service Corporation was formed in 1989 to
hold stock in the Bank's outside data processing servicer. The Bank's investment
in its  subsidiary  totalled  $15,000 at June 30, 1997. As of June 30, 1997, the
Service  Corporation  had not  conducted any  operations  other than to hold the
stock of that servicer.

Employees

      At June 30, 1997 the Bank had 35 full-time and 2 part-time employees. None
of the Bank's  employees are represented by a collective  bargaining  group. The
Bank believes that its relationship with its employees is good.

Regulation

      Set forth below is a brief  description  of certain laws which  related 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.

Company Regulation

      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
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.


                                       15

<PAGE>



      Qualified  Thrift  Lender  Test.  As a unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the Qualified  Thrift  Lender  ("QTL") test. If the Company
acquires  control of another savings  association as a separate  subsidiary,  it
would become a multiple savings and loan holding company,  and the activities of
the  Company  and any of its  subsidiaries  (other  than the  Bank or any  other
SAIF-insured   savings   association)   would  become  subject  to  restrictions
applicable to bank holding  companies unless such other  associations  each also
qualify  as a QTL  and  were  acquired  in a  supervisory  acquisition.  See  "-
Regulation of the Bank Qualified Thrift Lender Test."

Regulation of the Bank

      General. 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, in  conjunction  with the FDIC,  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 and the  FDIC  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.

      Under  separate   proposed   legislation,   Congress  is  considering  the
elimination of the federal thrift charter and the separate federal regulation of
thrifts.  As a result,  the Bank might have to convert to a different  financial
institution  charter and be  regulated  under  federal law as a bank,  including
being subject to the more restrictive  activity  limitations imposed on national
banks.  The Bank cannot  predict the impact of its  conversion to, or regulation
as, a bank until the legislation requiring such change is enacted.

      Insurance of Deposit Accounts.  The Bank's deposit accounts 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 FDIC may also prohibit an insured depository institution
from engaging in any activity the FDIC determines  poses a serious threat to the
SAIF.

      The FDIC charges an annual  assessment for the insurance of deposits based
on the risk a  particular  institution  poses  to its  deposit  insurance  fund,
depending upon the institution's risk  classification.  This risk classification
is based on an institution's capital group and supervisory subgroup

                                       16

<PAGE>



assignment.  In addition,  the FDIC is authorized to increase deposit  insurance
rates on a semi-annual  basis if it determines  that such action is necessary to
cause the balance in the SAIF to reach the designated  reserve ratio of 1.25% of
SAIF-insured  deposits  within a reasonable  period of time. The FDIC may impose
special  assessments  on SAIF members to repay  amounts  borrowed  from the U.S.
Treasury  or for any  other  reason  deemed  necessary  by the  FDIC.  Prior  to
September 30, 1996, savings  associations paid within a range of .23% to .31% of
domestic  deposits and the SAIF was  substantially  underfunded.  By comparison,
prior to  September  30,  1996,  members  of the Bank  Insurance  Fund  ("BIF"),
predominantly  commercial banks,  were required to pay  substantially  lower, or
virtually no, federal deposit insurance premiums.

      Effective  September  30,  1996,  federal  law was  revised  to  mandate a
one-time  special  assessment on SAIF members such as the Bank of  approximately
 .657% of deposits held on March 31, 1995.  The Bank recorded a $470,000  pre-tax
expense for this  assessment at September 30, 1996.  Beginning  January 1, 1997,
deposit  insurance  assessments  for SAIF members were reduced to  approximately
 .064% of deposits on an annual basis;  this rate may continue through the end of
1999. During this same period,  BIF members are expected to be annually assessed
approximately  .013%  of  deposits.  Thereafter,  assessments  for BIF and  SAIF
members  should be the same and the SAIF and BIF may be merged.  It is  expected
that these continuing  assessments for both SAIF and BIF members will be used to
repay outstanding Financing  Corporation bond obligations.  As a result of these
changes,  beginning January 1, 1997, the rate of deposit insurance  assessed the
Bank substantially declined.

      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) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based  capital  requirement equal to
8.0% of total risk-weighted assets.

      Dividend  and Other  Capital  Distribution  Limitations.  OTS  regulations
require  the  Bank  to  give  the OTS 30 days  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.

      OTS  regulations  impose  limitations  upon all capital  distributions  by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional capital  distributions  require prior regulatory approval.  As of
June 30,  1997,  the Bank was a Tier 1  institution.  In the  event  the  Bank's
capital fell below its fully  phased-in  requirement or the OTS notified it that
it was in need of more than  normal  supervision,  the  Bank's  ability  to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound practice.


                                       17

<PAGE>



      Qualified Thrift Lender Test.  Savings  institutions must meet a QTL test.
If the Bank  maintains  an  appropriate  level of Qualified  Thrift  Investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing  privileges  from the FHLB of  Pittsburgh.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as all assets
minus  intangible  assets,  property used by the  institution  in conducting its
business and liquid  assets equal to 10% of total  assets).  Certain  assets are
subject to a  percentage  limitation  of 20% of portfolio  assets.  In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying  QTIs. An  association  must be in compliance  with the QTL test on a
monthly basis in nine out of every 12 months.  As of June 30, 1997, the Bank was
in  compliance  with its QTL  requirement  with 81.9% of its assets  invested in
QTIs.

      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 at least 1% of its  aggregate  unpaid
residential mortgage loans, home purchase contracts or similar obligations or 5%
of its  outstanding  borrowings to the FHLB of  Pittsburgh,  at the beginning of
each year.

      Liquidity Requirements.  All savings associations are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations.  At June 30, 1997, the Bank's required liquid
asset ratio was 17.5%.

      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,
1997, the Bank was in compliance with these Federal Reserve Board requirements.


                                       18

<PAGE>



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

(a)   Properties.

      The Bank operates from its main office and one branch office.
<TABLE>
<CAPTION>

                                                       Year Leased
Location                             Leased or Owned   or Acquired
--------                             ---------------   -----------
<S>                                    <C>                <C> 
MAIN OFFICE:
  1015 Commerce Street                   Owned            1984
  Wellsburg, West Virginia 27060

BRANCH OFFICE:
  1409 Main Street                     Leased (1)         1996
  Follansbee, West Virginia 26037

</TABLE>

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

(1)   The Bank holds a 40 year lease on the land upon which its branch office is
      located. The Bank owns the branch building.

      The Bank leases  property in  Wintersville,  Ohio upon which it expects to
construct and open a branch  office during the Spring of 1998. In addition,  the
Bank owns  property at 901 Main Street,  Follansbee,  West  Virginia,  which was
formerly a branch office.

(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.


                                       19

<PAGE>



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 Company's  common stock has been traded on the Nasdaq  SmallCap Market
under the trading  symbol of "AFBC" since it commenced  trading in January 1997.
The following  table  reflects  high and low bid  quotations as published by The
Wall Street Journal. The quotations reflect inter-dealer prices,  without retail
mark-up, mark-down, or commission, and may not represent actual transactions.

<TABLE>
<CAPTION>

                                                                Dividends
              Date                     High           Low       Declared
              ----                     ----           ---       --------

<S>                                   <C>            <C>          <C> 
January 1, 1997 - March 31, 1997      $14.50         $12.25       $.08

April 1, 1997 to June 30, 1997        $15.13         $13.50       $.08

</TABLE>

      The number of shareholders of record of common stock as of the record date
of September 15, 1997, was  approximately  489. This does not reflect the number
of persons or  entities  who held stock in  nominee  or  "street"  name  through
various  brokerage  firms.  At September 15, 1997,  there were 1,084,450  shares
outstanding. The Company's ability to pay dividends to stockholders is dependent
upon the dividends it receives from the Bank.  The Bank may not declare or pay a
cash  dividend on any of its stock if the effect  thereof would cause the Bank's
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the Conversion,  or (2) the
regulatory capital requirements imposed by the OTS.

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.


                                       20

<PAGE>



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

      Not applicable.

                                    PART III

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

      The  information  contained  under the sections  captioned  "Section 16(a)
Beneficial Ownership Reporting  Compliance" and "I - Information with Respect to
Nominees for Director,  Directors Continuing in Office, and Executive Officers -
Election  of  Directors"  and  "  -  Biographical  Information"  in  the  "Proxy
Statement" is incorporated herein by reference.

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

      The information contained in the section captioned "Director and Executive
Officer   Compensation"  in  the  Proxy  Statement  is  incorporated  herein  by
reference.

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

      (a)   Security Ownership of Certain Beneficial Owners

            Information   required  by  this  item  is  incorporated  herein  by
            reference  to  the  first  chart  in  the  section  captioned  "I  -
            Information  with  Respect  to  Nominees  for  Director,   Directors
            Continuing  in  Office,   and  Executive   Officers"  in  the  Proxy
            Statement.

      (b)   Security Ownership of Management

            Information   required  by  this  item  is  incorporated  herein  by
            reference  to  the  first  chart  in  the  section  captioned  "I  -
            Information  with  Respect  to  Nominees  for  Director,   Directors
            Continuing  in  Office,   and  Executive   Officers"  in  the  Proxy
            Statement.

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

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

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


                                       21

<PAGE>



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

      (a) The following documents are filed as a part of this report:

            1. The following financial  statements and the report of independent
accountants  of the  Registrant  included in the  Registrant's  Annual Report to
Stockholders for the fiscal year ending June 30, 1997 are incorporated herein by
reference and also in Item 7 hereof.

      Report of Independent Auditors

      Consolidated Balance Sheet as of June 30, 1997 and 1996.

      Consolidated  Statement  of Income for the Years  Ended June 30,  1997 and
      1996.

      Consolidated  Statement of Changes In  Shareholders'  Equity for the Years
      Ended June 30, 1997 and 1996.

      Consolidated  Statements  of Cash Flows for the Years  Ended June 30, 1997
      and 1996.

      Notes to Consolidated Financial Statements.

            2. Other than as set forth below,  Financial Statement Schedules for
which  provision  is  made  in  the  applicable  accounting  regulations  of the
Securities  and Exchange  Commission  ("SEC") are not required under the related
instructions or are inapplicable and therefore have been omitted.

            3.  The   following   exhibits   are  included  in  this  Report  or
incorporated herein by reference:

            (a)   List of Exhibits:

             3(i) Certificate of Incorporation of Advance Financial Bancorp *
             3(ii)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
            11    Statement re Computation of Per Share Earnings
            13    Portions of the 1997 Annual Report to Stockholders
            21    Subsidiaries  of the  Registrant  (See "Item 1- Description of
                  Business and -- Subsidiary Activities.")
            27    Financial Data Schedule (electronic filing only)

---------------------
*     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 July 17,
      1997.

            (b)   Filed  8-K on July  17,  1997  (Items 5 and 7)  reporting  the
                  adoption of the Shareholder Rights Plan.


                                       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 23, 1997.


                                    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 23, 1997.
                                                 



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


/s/ Noreen Mechling                          /s/ John R. Sperlazza
----------------------------------           -----------------------------
Noreen Mechling                              John R. Sperlazza
Treasurer, Chief Financial Officer           Director
  and Director 
(Principal Accounting Officer)


/s/ Steven D. Martino                        /s/ William E. Watson
----------------------------------           -----------------------------
Steven D. Martino                            William E. Watson
Vice President                               Director


/s/ Gary Young                               /s/ James R. Murphy
----------------------------------           -----------------------------
Gary Young                                   James R. Murphy
Director                                     Director


                                        
----------------------------------
William B. Chesson
Director