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, 2004

                                       OR

[X]  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 Section 12(b) of the Exchange Act:          None
                                                                       ------

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

                    Common Stock, par value $0.0667 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  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  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.  $19.4 million

         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, 2004, was $25.9 million.

         As of August 31,  2004,  there were  issued and  outstanding  1,398,373
shares of the registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.

<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.  Description of 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.

         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.

                                       1

<PAGE>

         On October 21, 2003, the Company's Board of Directors  approved a three
for two (50%) stock split in the form of a stock  dividend.  The stock split was
effective for holders of record as of November 10, 2003.  After the stock split,
the outstanding shares of the Company increased 466,088 shares to 1,398,373.

         The Bank is a federally  chartered stock savings bank  headquartered in
Wellsburg,  West  Virginia.  It operates  seven full service  facilities.  It is
subject to  examination  and  comprehensive  regulation  by the Office of Thrift
Supervision  ("OTS")  and its  deposits  are  federally  insured by the  Federal
Deposit Insurance Corporation ("FDIC"). 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 consumer
and commercial assets. To a lesser extent, the Bank also originates multi-family
real estate 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,  Ohio,
Marshal and Hancock counties of West Virginia, Belmont and Jefferson Counties of
Ohio, and Washington County, Pennsylvania.

         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, percentages of the respective portfolios, and types
of security, at the dates indicated.

<TABLE>
<CAPTION>
                                                                           June 30,
                              ---------------------------------------------------------------------------------------------------
                                     2004                  2003                  2002                 2001              2000
                              ------------------    ------------------    ------------------  ----------------  -----------------
                                  $          %           $         %          $           %       $         %        $         %
                              -------    -------    --------   -------    --------    ------  --------  ------  --------    -----
                                                                      (Dollars in Thousands)
<S>                        <C>          <C>       <C>         <C>      <C>          <C>     <C>        <C>     <C>        <C>
Type of Loans:
Real Estate Loans:
  One- to four-family......  $136,700      51.38%   $126,107     53.14%   $ 91,665     52.03% $ 64,696   48.88% $ 62,163    50.81%
  Non-residential..........    40,248      15.13      39,099     16.48      36,147     20.52    27,957   21.12    24,544    20.06
  Multi-family ............     8,998       3.38       8,227      3.47       6,864      3.90     6,003    4.54     5,470     4.47
  Construction.............    17,008       6.39      10,075      4.25       4,339      2.46     2,456    1.86     3,242     2.65
                             --------     ------    --------    ------    --------    ------  --------  ------  --------   ------
Total real estate loans       202,954      76.28     183,508     77.34     139,015     78.91   101,112   76.40    95,419    77.99
                             --------     ------    --------    ------    --------    ------  --------  ------  --------   ------
Consumer Loans:
  Automobile...............    40,944      15.39      30,902     13.02      17,176      9.75    13,000    9.82    10,904     8.91
  Other....................     2,146       0.81       2,687      1.13       2,613      1.48     2,779    2.10     2,676     2.19
  Share....................     2,346       0.88       1,915      0.81       1,590      0.90     1,595    1.21     1,406     1.15
  Home improvement.........       681       0.26         900      0.38         943      0.54     1,208    0.91     1,439     1.18
                             --------     ------    --------    ------    --------    ------  --------  ------  --------   ------
Total consumer loans           46,117      17.33      36,404     15.34      22,322     12.67    18,582   14.04    16,425    13.43
                             --------     ------    --------    ------    --------    ------  --------  ------  --------   ------

Commercial business loans..    17,009       6.39      17,384      7.32      14,824      8.42    12,651    9.56    10,500     8.58
                             --------     ------    --------    ------    --------    ------  --------  ------  --------   ------
     Total loans              266,080     100.00%    237,296    100.00%    176,161    100.00%  132,345  100.00%  122,344   100.00%
                                          ======                ======                ======            ======             ======
Less:
  Loans in process.........    (4,339)                (6,845)               (2,966)             (1,861)           (1,813)
  Deferred loan
    origination
    fees and costs.........      (108)                  (116)                  (80)               (109)             (128)
  Allowance for
    loan losses............    (1,799)                (1,096)                 (969)               (779)             (682)
                             --------               --------              --------            --------          --------
     Total loans, net        $259,834               $229,239              $172,146            $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,  2004.  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....      $16,110    $ 4,542        $116,048   $136,700
Non-residential real estate........          270      1,269           7,459      8,998
Multi-family real estate...........        1,207      5,678          33,363     40,248
Construction.......................       17,008          -               -     17,008
Consumer loans.....................        1,582     35,426           9,109     46,117
Commercial business loans..........       10,392      6,191             426     17,009
                                         -------    -------        --------   --------
Total..............................      $46,569    $53,106        $166,405   $266,080
                                         =======    =======        ========   ========
</TABLE>

         The following table sets forth as of June 30, 2004 the dollar amount of
all loans due after June 30, 2005,  which have fixed interest rates and floating
or adjustable interest rates.


                                                     Floating or
                                      Fixed Rates  Adjustable Rates    Total
                                      -----------  ----------------    -----
                                                    (In Thousands)
One- to four-family real estate....     $ 73,958         $46,632    $120,590
Non-residential real estate........       24,115          14,926      39,041
Multi-family real estate...........        5,391           3,337       8,728
Consumer loans.....................       44,222             313      44,535
Commercial business loans..........        2,184           4,433       6,617
                                        --------         -------    --------
    Total..........................     $149,870         $69,641    $219,511
                                        ========         =======    ========

         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,  2004,  such loans  totaled  $16,916,  or 12%,  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,  2004,  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, 2004,  construction
loans to  individuals  for the purpose of  constructing  1-4 family  residential
homes totaled $7,944, while construction loans to individuals for the purpose of
constructing  non-residential  buildings totaled $9,064.  Construction financing
generally has a higher degree of credit risk than  conventional  mortgages.  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
amortized as a yield  adjustment  using the interest method over the life 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,  2004,  automobile  loans
totaled $40,944 or, 89% of the  Registrant's  consumer loan  portfolio.  Of this
amount,  indirect automobile loans totaled $31,902. 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 totaled $5,173,
or 11%, of total  consumer  loans at June 30,  2004.  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.  At June 30, 2004,  automobile  dealer floor plan loans
totaled $7,830 or 46% of the  Registrant's  commercial  loan  portfolio.  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  loans  originated  is  presented  to the  Board of
Directors  monthly for ratification.  The President,  Senior Vice Presidents and
the Senior Loan Officer  each have the  authority  to approve  applications  for
mortgage  loans up to $100,000,  other loans up to $50,000 for secured loans and
up to $10,000 for unsecured loans. Fifteen other loan officers have authority to
approve secured credit  applications in varying amounts up to $40,000.  The loan
committee  reviews  all  other  applications  for  loans,   whether  secured  or
unsecured, and all loans in amounts above the lending limit described above.

         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, 2004, the Registrant
had $1,365 of outstanding  commitments to originate loans, $3,605 in undisbursed
funds related to construction loans and $17,074 in unused lines of credit.

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.  At  each  monthly  board  meeting,  the  Board  of  Directors
determines when foreclosure  proceedings should be initiated and the borrower is
notified when foreclosure has 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. At June
30, 2004,  the Registrant had three loans totaling $138 that meet the definition
of impaired  loans within SFAS 114, as amended by SFAS 118. These impaired loans
were  subject to a specific  allowance  for loan losses of $26 at June 30, 2004.
Interest  income  that  would have been  recorded  on loans  accounted  for on a
nonaccrual basis under the original terms of such loans totaled $33 for the year
ended June 30, 2004. Of such amount, $26 was collected.

                                        7

<PAGE>

<TABLE>
<CAPTION>
                                                                                            At June 30,
                                                                  ---------------------------------------------------------------
                                                                   2004           2003          2002          2001         2000
                                                                  ------         ------        ------        ------       ------
                                                                                          (In Thousands)
<S>                                                             <C>             <C>           <C>           <C>          <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  One- to four-family...................................          $  473         $  619        $  495        $ 252         $286
  Non-residential.......................................             223            745           327          240           16
  Multi-family..........................................              --             35            42           --           --
  Construction..........................................              --             --            --           --           --
  Commercial............................................              --             --            --           --           --
Consumer................................................               1             --            --           --            2
Commercial..............................................              --             --            --           --           --
                                                                  ------         ------        ------        -----         ----
    Total non-accrual loans.............................             697          1,399           864          492          304
                                                                  ------         ------        ------        -----         ----
Accruing loans greater than 90 days past due:
Mortgage loans:
    One- to four-family.................................              --             --            --           --           --
    Non-residential.....................................              --             --            --           --           --
    Multi-family........................................              --             --            --           --           --
    Construction........................................              --             --            --           --           --
Consumer................................................           1,121            676           413          140          189
Commercial..............................................             586          1,005           735          571           --
                                                                  ------         ------        ------        -----         ----
Total accruing loans greater than 90 days past due......           1,707          1,681         1,148          711          189
                                                                  ------         ------        ------        -----         ----
Total non-performing loans..............................           2,404          3,080         2,012        1,203          493
Real estate acquired in settlement of loans.............             253            802           645          355          407
Other non-performing assets.............................              --             29            18           13           21
                                                                  ------         ------        ------        -----         ----
Total non-performing assets.............................          $2,657         $3,911        $2,675       $1,571         $921
                                                                  ======         ======        ======       ======         ====

Total non-performing loans to gross loans...............            0.90%          1.30%         1.14%        0.92%        0.41%
                                                                    ====           ====          ====         ====         ====
Total non-performing loans to total assets..............            0.75%          0.96%         0.94%        0.71%        0.34%
                                                                    ====           ====          ====         ====         ====
Total non-performing assets to total assets.............            0.83%          1.22%         1.25%        0.94%        0.63%
                                                                    ====           ====          ====         ====         ====
</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.

         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

                                        8

<PAGE>

assets.  When an insured  institution  classifies  problem assets as loss, it is
required either to establish a specific  allowance for loan 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, 2004
                                                        ----------------
                                                         (In Thousands)

            Special Mention..................               $  562
            Substandard......................                2,167
            Doubtful.........................                  243
            Loss.............................                   --
                                                            ------
            Total............................               $2,972
                                                            ======

         Allowances for Loan Losses. The Company maintains an allowance for loan
losses  adequate  to  absorb  estimated  probable  losses  inherent  in the loan
portfolio.  The  allowance  for loan losses  consists of specific  reserves  for
individual  credits and general reserves for types and portfolios of loans based
upon  historical  loan loss  experience,  adjusted  for  concentrations  and the
current  economic  environment.  All  outstanding  loans,  letters of credit and
binding  commitments  to provide  financing are  considered  in  evaluating  the
adequacy of the allowance  for loan losses.  Increases to the allowance for loan
losses are made by charges to the provision for loan losses.  Loans deemed to be
uncollectible  are charged against the allowance for loan losses.  Recoveries of
previously charged-off amounts are credited to the allowance for loan losses.

         In  determining   the  adequacy  of  the  allowance  for  loan  losses,
management  reviews and evaluates on a quarterly basis the potential risk in the
loan portfolio. This evaluation process is documented by management and approved
by the  Company's  Board of  Directors.  It is  performed  by senior  members of
management  with years of lending and review  experience.  Management  evaluates
homogenous  consumer-  oriented  loans,  such as 1-4 family  mortgage  loans and
retail consumer loans,  based upon all or a combination of  delinquencies,  loan
concentrations and charge-off  experience.  Management supplements this analysis
by reviewing the local economy,  political  trends  effecting local industry and
business  development  and other known  factors  which may impact  future credit
losses.  Nonhomogenous loans,  generally defined as commercial business and real
estate loans,  are selected by  management  to be reviewed on a quarterly  bases
upon the combination of  delinquencies,  concentrations  and other known factors
that  may  effect  the  local  economy  and  more  specifically  the  individual
businesses. During this evaluation, the individual loans are evaluated quarterly
by senior members of management for impairment as prescribed under SFAS No. 114,
"Accounting  by  Creditors  for  Impairment  of a Loan."  Impairment  losses are
assumed when,  based upon current  information,  it is probably that the Company
will be unable to collect all amounts due according to the contractual  terms of
the loan agreement.  Impairment is measured by a loan's observable market value,
fair  value  of the  collateral  or the  present  value  of  future  cash  flows
discounted at the loan's effective interest rate.

                                        9

<PAGE>

         This  data on  impairment  is  combined  with the  other  data used for
homogenous  loans and is used by the classified  asset  committee in determining
the adequacy of the allowance for loan losses.  Although  management believes it
uses the best  information  available to determine the adequacy of the allowance
for loan losses at the balance  sheet date,  there can be no assurance  that the
allowance for loan losses will be adequate to cover losses which may be realized
in the future and additional provision for loan losses will be required.

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

<TABLE>
<CAPTION>
                                                                          At June 30,
                                               ------------------------------------------------------------------
                                                 2004           2003         2002          2001           2000
                                               ---------     ---------     ---------     ---------     ---------
                                                                    (Dollars in Thousands)
<S>                                           <C>           <C>           <C>           <C>           <C>
Total gross loans outstanding ..............   $ 266,080     $ 237,296     $ 176,161     $ 132,345     $ 122,344
                                               =========     =========     =========     =========     =========

Average loans outstanding ..................     259,511       193,733       157,557       124,726       116,825
                                               =========     =========     =========     =========     =========

Allowance balance (at beginning of period) .   $   1,096     $     969     $     779     $     682     $     582
Acquired allowance of OSFS (1) .............          --            --           170            --            --
Provision ..................................       1,169           399           245           191           175
Charge-offs:
  Real estate ..............................         (69)          (37)          (36)           --            --
  Consumer .................................        (403)         (164)         (122)          (77)          (54)
  Commercial ...............................         (87)         (107)          (83)          (20)          (25)
Recoveries:
  Real estate ..............................           3            --            --            --            --
  Consumer .................................          87            14            16             3             4
  Commercial ...............................           3            22            --            --            --
                                               ---------     ---------     ---------     ---------     ---------
Allowance balance (at end of period) .......   $   1,799     $   1,096     $     969     $     779     $     682
                                               =========     =========     =========     =========     =========


Allowance for gross loan losses as a percent
     of total loans outstanding ............        0.68%         0.46%         0.55%         0.59%         0.56%
                                               =========     =========     =========     =========     =========
Net loans charged off as a percent of
     average loans outstanding .............        0.18%         0.14%         0.14%         0.08%         0.06%
                                               =========     =========     =========     =========     =========
</TABLE>

-----------------
(1)  Acquired  in  connection  with  the  Company's  acquisition  of Ohio  State
     Financial   Services,   Inc.  ("OSFS")  and  its  wholly  owned  subsidiary
     Bridgeport Savings and Loan Association, completed on September 7, 2001.

                                       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>
                                                                     At June 30,
                        ------------------------------------------------------------------------------------------------------------
                               2004                2003                  2002                2001                   2000
                        --------------------  -------------------  ------------------- -------------------  ------------------------
                                  Percent of           Percent of           Percent of          Percent of              Percent of
                                   Loans in             Loans in             Loans in            Loans in                Loans in
                                     Each                 Each                 Each                Each                    Each
                                 Category to          Category to          Category to         Category to             Category to
                         Amount  Total Loans  Amount  Total Loans  Amount  Total Loans Amount  Total Loans    Amount   Total Loans
                         ------  -----------  ------  -----------  ------  ----------- ------  -----------    ------   -----------
<S>                     <C>        <C>       <C>         <C>       <C>      <C>        <C>      <C>           <C>       <C>
Types of Loans
Real Estate:
  One- to four-family... $  145      51.38%   $  164       53.14%   $ 146     52.03%    $ 108     48.88%       $  93      50.81%
  Non-residential ......    661      15.13       269       16.48      309     20.52       308     21.12          270      20.06
  Multi-family..........     43       3.38        33        3.47       32      3.90        36      4.54           33       4.47
  Construction..........     --       6.39        --        4.25       --      2.46        --      1.86           --       2.65
Consumer................    561      17.33       354       15.34      231     12.67       176     14.04          129      13.43
Commercial..............    389       6.39       276        7.32      251      8.42       151      9.56          157       8.58
                         ------     ------    ------      ------    -----    ------     -----    ------        -----     ------
     Total.............. $1,799     100.00%   $1,096      100.00%   $ 969    100.00%    $ 779    100.00%       $ 682     100.00%
                         ======     ======    ======      ======    =====    ======     =====    ======        =====     ======
</TABLE>

                                       11


<PAGE>

  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 regulations 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,  2004,   Registrant  had  securities  (including
  mortgage-backed  securities)  classified as "held to maturity" and  "available
  for sale" at a fair  value of  $37,962  and  $5,304,  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,
  2004, the Registrant's  securities available for sale had an amortized cost of
  $5,371 and market value of $5,304.  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, 2004, 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 ("FreddieMac"),  Government National Mortgage Association
  ("GinnieMae"), and Federal National Mortgage Association ("FannieMae").

         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

                                       12

<PAGE>

  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  FreddieMac,  GinnieMae,  and  FannieMae  make up a majority  of the
  pass-through certificates market.

         At June 30, 2004, the Registrant's securities portfolio did not contain
  any securities 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.

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

<TABLE>
<CAPTION>
                                                                  At June 30,
                                                        ----------------------------
                                                          2004       2003     2002
                                                          ----       ----     ----
                                                              (In Thousands)
<S>                                                   <C>       <C>       <C>
  Securities held to maturity:
    Interest-bearing deposits in other
      financial institutions........................    $ 16,816  $ 13,164  $ 9,995
    U.S. government agency securities...............       4,001    12,000       --
    FHLB stock......................................       2,158     1,679    1,058
    Mortgage-backed securities......................      12,307    18,643    1,397
    Municipal bond obligations......................       3,088     3,088       --
                                                        --------  --------  -------
      Total securities held to maturity.............      38,370    48,574   12,450
                                                        --------  --------  -------
  Securities available for sale:
    U.S. government and agency securities...........          --     3,030    4,868
    Time deposits...................................          --        --      230
    Common stock....................................          --        --       --
    Money fund securities...........................          13        15       17
    Mortgage-backed securities......................       5,291     8,980    7,792
    Municipal bond obligations......................          --     6,305    5,924
    Corporate bond obligations......................          --     2,043    1,960
                                                        --------  --------  -------
      Total securities available for sale...........       5,304    20,373   20,791
                                                        --------  --------  -------
  Total investment and mortgage-backed securities...    $ 43,674  $ 68,947  $33,241
                                                        ========  ========  =======
</TABLE>

         During the year ended June 30,  2004,  the Company  sold  approximately
  $11,000 in available for sale investment securities.  The amounts consisted of
  $2,000 in commercial bonds,  $5,800 in long-term municipal bonds and $3,000 in
  FHLB callable bonds. The Company realized a gain on the sales of approximately
  $446.

                                       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, 2004. The following table
  does not take into  consideration  the effects of scheduled  repayments or the
  effects of possible prepayments.

<TABLE>
<CAPTION>
                                                                       At June 30, 2004
                                    ------------------------------------------------------------------------------------------------
                                                                              Over
                                    Less than 1 year    1 to 5 years      5 to 10 years     Over 10 years      Total 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... $16,816    1.25%    $   --     --%   $   --      --%  $    --       --%  $16,816   1.25% $16,816
  U.S. government and agency
    securities.....................      --      --      4,001   2.97        --      --        --       --     4,001   2.97    3,985
  Municipal bond obligations(1)....      --      --         --     --        --      --     3,088     4.52     3,088   4.52    3,076
  FHLB stock.......................   2,158    1.38         --     --        --      --        --       --     2,158   1.38    2,158
  Mortgage-backed securities.......      --      --      3,604   4.34     4,549    4.57     4,154     5.14    12,307   4.70   11,927
                                    -------    ----     ------   ----    ------    ----   -------     ----   -------   ----  -------
      Total securities held
        to maturity................ $18,974    1.27%    $7,605   3.62%   $4,549    4.57%  $ 7,242     4.88%  $38,370   2.81% $37,962
                                    =======    ====     ======   ====    ======    ====   =======     ====   =======   ====  =======

Securities available for sale:
  Money fund securities............ $    13    4.42%    $   --     --%   $   --      --%  $    --       --   $    13   4.42% $    13
  Mortgage-backed securities.......      --      --         53   5.50     1,641    4.75     3,597     4.66     5,291   4.70    5,291
                                    -------    ----     ------   ----    ------    ----   -------     ----   -------   ----  -------
      Total securities
        available for sale.........      13    4.42         53   5.50     1,641    4.75     3,597     4.66     5,304   4.70    5,304
                                    -------    ----     ------   ----    ------    ----   -------     ----   -------   ----  -------

Total investment and
  mortgage-backed securities....... $18,987    1.27%    $7,658   3.69%   $6,190    4.62%  $10,839     4.81%  $43,674   3.04% $43,266
                                    =======    ====     ======   ====    ======    ====   =======     ====   =======   ====  =======
</TABLE>
-----------------
(1)  Computed at actual value and not tax equivalent rate.

                                       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,
  2004, 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, 2004.


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

        Within three months.........................             $ 6,206
        More than three through six months..........               3,741
        More than six through nine months...........               2,810
        Over nine months............................              20,554
                                                                 -------
               Total................................             $33,311
                                                                 =======

  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,  2004,  borrowings  with the FHLB  totaled  $23  million of which $20
  million was classified as long-term.

  Subordinated Debentures

         On December  19,  2002,  the Company  formed an  affiliated  trust that
  issued $7.2 million in Guaranteed  Capital Trust  Securities  (Trust preferred
  Securities).  This affiliate,  Advance  Statutory Trust 1 (the "Trust") issued
  Trust Preferred Securities as part of a pooled offering.  The offering is at a
  floating  rate of 3 month LIBOR plus 3.25% with an initial rate of 4.66%.  The
  current rate effective until September 26, 2004 is 4.84%.  During the year end
  June 30, 2004, the average rate was 4.36% The company has  guaranteed  payment
  of the principal and interest on the Trust Preferred  Securities.  The capital
  securities mature in 2032, and they may be redeemed at face value after 2007.

                                       15

<PAGE>

  Employees

         At June 30, 2004,  the  Registrant  had 88 full-time and five 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.

  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") 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, 1999. As a result,  the Company's
  freedom  from  activity  restrictions  as a unitary  savings and loan  holding
  company was 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,  FDIC-insured savings association,  the
  Bank is subject to  extensive  regulation  by the OTS and the Federal  Deposit
  Insurance Corporation ("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.

                                       16

<PAGE>

         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.

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
  are insured by the FDIC 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. Under the risk-based  system  established by
  the FDIC for setting deposit insurance premiums,  the assessment rate for most
  savings  institutions  is 0%.  The Bank  currently  qualifies  for the  lowest
  assessment rate under the risk-based assessment system and,  accordingly,  did
  not pay any deposit insurance assessments during the past fiscal year.

         In addition, all FDIC-insured institutions are required through 2017 to
  pay  assessments to the FDIC 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.

         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, 2004, the Registrant's  lending limit for loans to
  one  borrower  was   approximately   $4,507,043  and  the  Registrant  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, 2004, 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,  except  for  certain
  mortgage  servicing  rights,  and less certain  investments.  Core, or Tier 1,
  capital is defined as common  stockholders'  equity,  noncumulative  perpetual
  preferred stock and

                                       17

<PAGE>

  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, general valuation loan
  and lease loss  allowances up to a maximum of 1.25% of risk- weighted  assets,
  and up to 45% of unrealized gains on equity securities. 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.

         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 in the "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,  2004,  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.

                                       18

<PAGE>

         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."  Qualified thrift investments consist
  primarily of an institution's  residential  mortgage loans and other loans and
  investments  relating to residential real estate and manufactured  housing and
  also include student,  credit card and small business loans, stock issued by a
  Federal Home Loan Bank, the FreddieMac and the FannieMae, and other enumerated
  assets.  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, 2004, the Bank was in compliance with its QTL requirement,  with 89.38% of
  its assets invested in Qualified Thrift Investments.

         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, 2004, 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, 2004,  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 six branch
offices.

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

                                       19

<PAGE>

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

    805 Main Street
    Wintersville, Ohio                   Leased (2)                 1997

    435 Main Street                      Owned                      2001
    Bridgeport, Ohio

    4000 Central Avenue                  Owned                      2001
    Shadyside, Ohio

    125 Dunbar Avenue                    Leased (3)                 2002
    Steubenville, Ohio

    4420 Sunset Boulevard                Owned                      2003
    Steubenville, Ohio
</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.  In  addition,  the Bank owns
     property at 901 Main Street, Follansbee,  West Virginia, which was formerly
     a branch office.

(2)  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)  The Bank holds a 20 year  lease on the land on which its  branch  office is
     located. The Bank owns the branch building.

         (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.

                                       20

<PAGE>

  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, Related Stockholder Matters and Small
  -------  ---------------------------------------------------------------
           Business Issuer Purchases of Equity Securities.
           -----------------------------------------------

         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 NASDAQ.  The  quotations  reflect  inter-dealer  prices,  without
  retail  mark-up,  mark-down,  or  commission,  and  may not  represent  actual
  transactions.

                                                                    Dividends
         Date                                     High ($)  Low ($) Declared ($)
         ----                                     --------  ------- ------------

         July 1, 2002 to September 30, 2002       12.46     11.13       0.08
         October 1, 2002 to December 31, 2002     12.59     11.67       0.08
         January 1, 2003 to March 31, 2003        14.21     12.69       0.08
         April 1, 2003 to June 30, 2003           15.93     14.17       0.10
         July 1, 2003 to September 30, 2003       17.33     14.40       0.10
         October 1, 2003 to December 31, 2003     21.75     16.70       0.10
         January 1, 2004 to March 31, 2004        18.98     17.00       0.10
         April 1, 2004 to June 30, 2004           18.41     17.25       0.10

         The number of  stockholders  of record of common stock as of August 31,
  2004,  was  approximately  396. This does not reflect the number of persons or
  entities who held stock in nominee or "street" name through various  brokerage
  firms.  At August 31,  2004,  there were  1,398,373  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.

                                       21

<PAGE>

         Set  forth  below  is   information   regarding  the  Company's   stock
  repurchases during the fourth quarter of the fiscal year ended June 30, 2004.

<TABLE>
<CAPTION>
                                ISSUER PURCHASES OF EQUITY SECURITIES
------------------------------------------------------------------------------------------
                      (a)        (b)            (c)                       (d)
                   Total                     Total Number of         Maximum Number
                  Number of    Average     Shares (or Units)      (or Approximate Dollar
                   Shares     Price Paid   Purchased as Part   Value) of Shares (or Units)
                 (or Units)   per Share       of Publicly       that May Yet Be Purchased
        Period    Purchased   (or Unit)   Announced Plans or   Under the Plans or Programs
                                               Programs
------------------------------------------------------------------------------------------
<S>               <C>        <C>             <C>                     <C>
  April 1-30,        N/A         N/A              N/A                      N/A
  2004
------------------------------------------------------------------------------------------
  May  1-31,         N/A         N/A              N/A                      N/A
  2004
------------------------------------------------------------------------------------------
  June 1-30,         N/A         N/A              N/A                      N/A
  2004
------------------------------------------------------------------------------------------
  Total
------------------------------------------------------------------------------------------
</TABLE>

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

  Selected Financial Ratios and Other Data

                                                         For  the Years Ended
                                                              June 30,
                                                           2004        2003
                                                           ----        ----

   Return on average assets                                0.77%         0.72%
        (net income divided by average total assets)
   Return on average equity                               11.85          9.86
        (net income divided by average equity)
   Average equity to average assets ratio                  6.51          7.30
        (average equity divided by average assets)
   Equity to assets at period end                          6.77          6.24
   Net interest spread                                     3.11          2.93
   Dividend payout ratio                                  21.61         24.05
   Net yield on average interest-earning assets            3.25          3.14
   Non-performing loans to total assets                    0.75          0.96
   Non-performing loans to total loans                     0.92          1.30
   Allowance for loan losses to non-performing assets     67.70         28.02

  General

         The Private  Securities  Litigation  Reform Act of 1995  contains  safe
  harbor  provisions  regarding  forward-looking  statements.  When used in this
  discussion, the words "believes",  "anticipates",  "contemplates",  "expects",
  and similar expressions are intended to identify  forward-looking  statements.
  Such  statements are subject to certain risks and  uncertainties,  which could
  cause actual results to differ  materially from those  projected.  Those risks
  and uncertainties include changes in interest rates, risks associated with the
  ability to control costs and expenses, and general economic conditions.

                                       22

<PAGE>

         The Company  conducts no significant  business or operations of its own
  other than  holding  all of the  outstanding  stock of the  Advance  Financial
  Savings Bank (the "Bank").  As a result,  references to the Company  generally
  refer to the Bank unless the context indicates otherwise.

  Fiscal 2004 Highlights

         On October 21, 2003, the Company's Board of Directors  approved a three
  for two (50%) stock split in the form of a stock dividend. The stock split was
  effective  for  holders of record as of  November  10,  2003.  After the stock
  split,  the  outstanding  shares of the Company  increased  466,088  shares to
  1,398,373.  The  earnings  per share  calculation  for June 30, 2003 have been
  restated to reflect the stock split.

         During  November  2003, the Company sold  approximately  $11,765,000 in
  available for sale investment securities.  The amounts consisted of $2 million
  in commercial bonds, $5.8 million in long-term  municipal bonds and $3 million
  in  FHLB  callable  bonds.  The  Company  realized  a  gain  on the  sales  of
  approximately  $446,000  that is included in the  Statement  of Income for the
  year ended June 30, 2004.

  Asset and Liability Management

       The  Company's  net  interest  income is sensitive to changes in interest
  rates,  as the rates paid on  interest-bearing  liabilities  generally  change
  faster than the rates  earned on  interest-earning  assets.  As a result,  net
  interest  income will  frequently  decline in periods of rising interest rates
  and increase in periods of decreasing interest rates.

         To  mitigate  the impact of  changing  interest  rates on net  interest
  income,  the Company manages  interest rate  sensitivity  and  asset/liability
  products through an  asset/liability  management  committee (the "Committee").
  The Committee  meets as necessary to determine the rates of interest for loans
  and deposits.  Rates on deposits are primarily based on the Company's need for
  funds and on a review of rates offered by other financial  institutions in the
  Company's  market area.  Interest  rates on loans are  primarily  based on the
  interest rates offered by other financial institutions in the Company's market
  area, as well as, the Company's cost of funds.

         The Committee manages the imbalance between its interest-earning assets
  and  interest-bearing  liabilities through the determination and adjustment of
  asset/liability   composition  and  pricing  strategies.  The  Committee  then
  monitors the impact of the interest  rate risk and  earnings  consequences  of
  such strategies for consistency with the Company's liquidity needs, growth and
  capital adequacy. The Committee's principal strategy is to reduce the interest
  rate  sensitivity  of  interest-earning   assets  and  attempt  to  match  the
  maturities of interest-earning assets with interest-bearing liabilities, while
  allowing for a mismatch in an attempt to increase net interest income.

         In an effort to reduce  interest rate risk and protect  itself from the
  negative effects of rapid or prolonged  changes in interest rates, the Company
  has also instituted certain asset and liability management measures, including
  underwriting  long-term  fixed rate loans that are  saleable in the  secondary
  market,  offering  longer term  deposit  products  and  diversifying  the loan
  portfolio  into  shorter term  consumer  and  commercial  business  loans.  In
  addition, the Company originates one year, three-year and five year adjustable
  rate mortgage loans.

                                       23

<PAGE>

  Net Portfolio Value

         The Company  computes  amounts by which the net  present  value of cash
  flow assets,  liabilities  and off balance sheet items ("NPV") would change in
  the  event of a range  of  assumed  changes  in  market  interest  rates.  The
  computations  estimate the effect on the Company's NPV from  instantaneous and
  permanent 1% to 3% (100 to 300 basis points)  increases or decreases in market
  interest rates.

         Based upon the Office of Thrift Supervision assumptions,  the following
  table presents the Company's NPV at June 30, 2004.

               Changes in rates   NPV Ratio (1)       Change(2)
               ----------------   -------------       ---------
                   +300 bp           6.34 %            (329) bp
                   +200 bp           7.74              (189) bp
                   +100 bp           8.84              ( 79) bp
                      0 bp           9.63
                   -100 bp           9.70                 7  bp
                   -200 bp           9.48               (15) bp
                   -300 bp           9.09               (54) bp

  ---------------
  (1)    Calculated  as the  estimated  NPV  divided by  present  value of total
         assets.
  (2)    Calculated  as the excess  (deficiency)  of the NPV ratio  assuming the
         indicated  change  in  interest  rates  over the  estimated  NPV  ratio
         assuming no change in interest rates.

         Computations  of  prospective  effects of  hypothetical  interest  rate
  changes are based on numerous assumptions, including relative levels of market
  interest rates,  prepayments,  and deposit run-offs,  and should not be relied
  upon as indicative of actual  results.  Certain  shortcomings  are inherent in
  such  computations.  Although  certain assets and liabilities may have similar
  maturity  or periods of  repricing  they may react at  different  times and in
  different  degrees to changes in market interest rates.  The interest rates on
  certain types of assets and liabilities may fluctuate in advance of changes in
  market  interest  rates,  while rates on other types of assets and liabilities
  may lag behind  changes in market  interest  rates.  Certain  assets,  such as
  adjustable rate mortgages,  generally have features, which restrict changes in
  interest  rates on a short-term  basis and over the life of the asset.  In the
  event of a change in interest rates,  prepayments and early withdrawal  levels
  could  deviate  significantly  from those assumed in making  calculations  set
  forth above. Additionally,  an increased credit risk may result as the ability
  of many  borrowers  to  service  their  debt may  decrease  in the event of an
  interest rate increase.

                                       24

<PAGE>

  Average Balance Sheet

         The  following  table sets forth  certain  information  relating to the
  Company's  average  balance sheet and reflects the average yield on assets and
  average cost of liabilities  for the periods  indicated and the average yields
  earned and rates paid. Such yields and costs are derived by dividing income or
  expense by the average balance of assets or liabilities, respectively, for the
  periods  presented.  Average  balances  are derived from  month-end  balances.
  Management  does not believe  that the use of  month-end  balances  instead of
  daily average balances has caused any material  differences in the information
  presented.

<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                            --------------------------------------------------------------------------------------
                                                       2004                        2003                       2002
                                            --------------------------- ----------------------------  ----------------------------
                                                                Average                      Average                      Average
                                            Average             Yield/   Average             Yield/                       Yield/
                                            Balance  Interest    Cost    Balance  Interest    Cost    Balance Interest     Cost
                                            -------  --------    ----    -------  --------    ----    ----------------     ----
<S>                                      <C>        <C>        <C>    <C>       <C>         <C>    <C>       <C>         <C>
  Interest-earning assets:
    Loans receivable (1)                   $259,511   $15,855    6.11%  $193,733  $13,347     6.89%  $157,557  $12,209     7.75%
    Investment securities (2)                23,931       659    2.76%    40,863    1,084     2.65%    20,165      832     4.12%
    Mortgage-backed securities               21,938       775    3.53%    14,817      666     4.50%     9,490      582     6.14%
                                           --------   -------  ------   --------  -------   ------   --------  -------   ------
       Total interest-earning assets        305,380    17,289    5.66%   249,413   15,097     6.05%   187,212   13,623     7.28%
                                                      -------  ------             -------   ------             -------   ------
  Non-interest-earning assets                17,480                       12,464                        7,789
                                           --------                     --------                     --------
       Total assets                        $322,860                     $261,877                     $195,001
                                           ========                     ========                     ========

  Interest-bearing liabilities:
    Interest-bearing demand deposits       $ 52,806   $   544    1.03%  $ 39,465  $   627     1.59%  $ 25,010  $   608     2.43%
    Certificates of deposit                 153,536     4,785    3.12%   127,871    4,606     3.60%    95,157    4,577     4.81%
    Savings deposits                         49,775       491    0.99%    41,066      685     1.67%    29,966      812     2.71%
    FHLB borrowings                          25,575     1,233    4.82%    20,291    1,163     5.73%    20,000    1,164     5.82%
    Other borrowings                          7,200       320    4.44%     3,900      178     4.56%         -        -         -
                                           --------   -------  ------   --------  -------   ------   --------  -------   ------
       Total interest-bearing liabilities   288,892     7,373    2.55%   232,593    7,259     3.12%   170,133    7,161     4.21%
                                                      -------  ------             -------   ------             -------   ------
  Non-interest bearing liabilities           12,936                       10,170                        7,608
                                           --------                     --------                     --------
       Total liabilities                    301,828                      242,763                      177,741
  Stockholders' equity                       21,032                       19,114                       17,260
                                           --------                     --------                     --------
       Total liabilities and stockholders'
         equity                            $322,860                     $261,877                     $195,001
                                           ========                     ========                     ========

  Net interest income                                 $ 9,916                     $ 7,838                      $ 6,462
                                                      =======                     =======                      =======
  Interest rate spread (3)                                       3.11%                        2.93%                        3.07%
                                                               ======                       ======                       ======
  Net Yield on interest-earning assets (4)                       3.25%                        3.14%                        3.45%
                                                               ======                       ======                       ======
  Ratio of average interest-earning
    assets  to average interest-bearing
    liabilities                                                105.71%                      107.23%                      110.04%
                                                               ======                       ======                       ======
</TABLE>
---------------------------
(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions and FHLB
     stock.
(3)  Interest-rate spread represents the difference between the average yield on
     interest   earning   assets  and  the  average  cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       25

<PAGE>

  Rate/Volume Analysis

         The table below sets forth  certain  information  regarding  changes in
  interest income and interest expense of the Company for the periods indicated.
  For each category of interest-earning assets and interest-bearing liabilities,
  information  is  provided  on changes  attributable  to (i ) changes in volume
  (changes in average  volume  multiplied by old rate) and (ii ) changes in rate
  (changes in rate  multiplied by old average  volume).  Changes,  which are not
  solely attributable to rate or volume, are allocated to changes in rate due to
  rate sensitivity of interest-earning assets and interest-bearing liabilities.

<TABLE>
<CAPTION>
                                                 Year Ended June 30,                  Year Ended June 30,
                                        ---------------------------------- -------------------------------
                                                     2004 vs 2003                        2003 vs 2002
                                        ---------------------------------- -------------------------------
                                                 Increase (Decrease)                  Increase (Decrease)
                                                        Due to                              Due to
                                        ---------------------------------- -------------------------------
                                           Volume       Rate       Net      Volume     Rate        Net
                                        ---------------------------------- -------------------------------
                                                                (Dollars in Thousands)
<S>                                      <C>        <C>        <C>        <C>       <C>        <C>
Interest Income:
  Loans receivable                        $ 4,628    $(2,120)   $ 2,508    $ 2,812   $(1,674)   $ 1,138
  Investment securities                      (270)      (155)      (425)       835      (583)       252
  Mortgage-backed securities                  320       (211)       109        394      (310)        84
                                          -------    -------    -------    -------   -------    -------
     Total interest-earning assets          4,678     (2,486)     2,192      4,041    (2,567)     1,474
                                          -------    -------    -------    -------   -------    -------

Interest Expense:
  Interest-bearing demand deposits            210       (269)       (59)       331      (322)         9
  Certificates of Deposit                     923       (767)       156      1,570    (1,537)        33
  Savings Deposits                            145       (341)      (196)       299      (420)      (121)
  FHLB borrowings                             331       (261)        70         66       (67)        (1)
  Other borrowings                            145         (2)       143        178        --        178
                                          -------    -------    -------    -------   -------    -------
     Total interest-bearing liabilities     1,754     (1,640)       114      2,444    (2,346)        98
                                          -------    -------    -------    -------   -------    -------
Net change in interest income             $ 2,924    $  (846)   $ 2,078    $ 1,597   $  (221)   $ 1,376
                                          =======    =======    =======    =======   =======    =======
</TABLE>

  Comparison of Financial Condition

         The  Company's  total  assets  decreased by  approximately  $784,000 to
  $321,139,169  at June 30, 2004 from  $321,923,020  at June 30, 2003. Net loans
  and interest-bearing  deposits with other financial  institutions increased by
  approximately $30,600,000 and $3,650,000,  respectively.  The increases in net
  loans and interest-bearing  deposits were funded by the sale and repayments of
  investment  securities and  mortgage-backed  securities of  $28,800,000  and a
  decrease in loans available for sale of $5,400,000.  Short-term  advances from
  the Federal Home Loan Bank "FHLB"  increased  $3,000,000  during the period to
  partially replace the loss of approximately $5,100,000 in deposits.

         Investment  securities decreased  $19,378,000 to $7,103,007 at June 30,
  2004 from  $26,481,176  at June 30, 2003.  This  decrease was due primarily to
  sales  of  available  for  sale  securities  of  $11,765,000  and the  call of
  approximately  $9,000,000.  The  proceeds  from the sales and calls  were used
  primarily  to fund  the  Company's  loan  demand.  Mortgage-backed  securities
  decreased $10,024,000 to $17,598,163 at June 30, 2004 from $27,622,430 at June
  30, 2003. The decrease was due primarily to accelerated  principal  repayments
  on higher yielding  securities due to the low interest rate environment during
  the period.

                                       26

<PAGE>

         Loans held for sale  decreased  $5,418,000 to $269,800 at June 30, 2004
  from $5,687,708 at June 30, 2003. The decrease is indicative of an increase in
  interest rates on fixed rate 1-4 family  mortgages and the related decrease in
  customer demand for these mortgages.

         Loans receivable, net increased $30,600,000 to $259,833,742 at June 30,
  2004 from  $229,239,547  at June 30, 2003. The increase in net loans is spread
  over the Company's  entire  portfolio.  One-four  family  mortgages  increased
  $10,600,000 which includes  approximately  $4,300,000 in fixed rate loans that
  were  added to the Bank's  portfolio  during  the  period  and  $6,300,000  in
  adjustable rate loans as these products  became  attractive as a result of the
  Bank's competitive pricing.  Nonresidential  mortgages increased approximately
  $1,150,000  as a result  of  continued  demand  from  existing  customers  and
  municipalities within the local trade area. The increase in construction loans
  for the  period  was  $6,933,000.  This  increase  was  split  $3,500,000  and
  $3,433,000  for 1-4 family and  nonresidential  mortgages,  respectively.  The
  increase  in  construction   loans  is  due  to  the  demand  created  by  the
  anticipation  of near future  interest  rate  increases in mortgage  products.
  Dealer Floor Plan loans have  increased  $2,570,000  and  indirect  automobile
  loans have increased $9,760,000 during the period primarily as a result of new
  relationships  the Company has developed  over the past year with the creation
  of an Indirect Loan Department  within the Business  Division of the Bank. The
  success of the department is indicated by the substantial growth in both floor
  plan and indirect auto lending.  Future growth in these areas will depend upon
  the local economy,  competition from other institutions and the manufacturers'
  incentive  programs,  as well as, the  Company's  evaluation of the risk level
  involved.

         FHLB stock  increased  $479,000  to  $2,158,100  at June 30,  2004 from
  $1,679,400  at June 30, 2003.  The  increase is primarily  due to the required
  purchases of stock as a result of the  corresponding  increase in  outstanding
  advances.

         Deposits  decreased  $5,100,000 to  $267,724,634  at June 30, 2004 from
  $272,828,932  at June 30,  2003.  The  decrease is  primarily  in money market
  demand  deposits and "special  term"  certificate of deposit  products.  Money
  market  accounts with balances in excess of $10,000 have decreased  $4,309,000
  during the period as customers  continue to search for higher  yields on their
  investments  in  equities  or other  investment  vehicles.  The  money  market
  accounts had been utilized by some customers as a "parking"  mechanism as they
  wait for an increase in the  interest  rate cycle and  stability in the equity
  markets.  The "special  term"  certificates  of deposit  decreased  $1,850,000
  during  the  period  due  to  similar  customer  sentiments.  These  types  of
  certificates  are  generally  the  highest  costing  deposits  offered  by the
  Company,  and as such,  the need for this deposit  funding is evaluated  based
  upon the  availability of alternative  funding  sources and other factors.  At
  this time,  the Company's  strategy is to not offer the higher yields on these
  certificates,  but instead to borrow on a short-term basis from the FHLB. This
  funding  approach  could  change in future  periods  depending  upon the local
  demand  for  loans,  the  local  deposit  market  or  other  factors  such  as
  management's consideration of interest rate risk.

         Advances from the FHLB increased  $3,000,000 to $23,000,000 at June 30,
  2004 from $20,000,000 at June 30, 2003. This increase is currently  applied to
  the Bank's Open Repo Line of Credit with the FHLB.  For the period  ended June
  30, 2004, the average rate paid on the line was approximately  1.2%. It is the
  Company's  intent to  continue to use the short term  advances  offered by the
  FHLB when necessary until such time as local market  conditions,  the interest
  rate market and other management factors dictate otherwise.

         Stockholders' equity increased approximately  $1,642,000 to $21,729,692
  at June 30, 2004 from  $20,087,953  at June 30,  2003.  This  increase was the
  result of net  income of  $2,492,000  for the period  and the  recognition  of
  shares in the Employee Stock Ownership Plan of $230,000. These increases were

                                       27

<PAGE>

  offset by a decrease in the net unrealized  gain on securities of $542,000 and
  by the payment of cash dividends of $538,000.

  Comparison  of  the  Results of  Operations  for the Years Ended June 30, 2004
  and 2003

         Net  Interest  Income.  The  Company's  net interest  income  increased
  $2,078,000,  or 26.51%,  to  $9,916,000  for the year ended June 30, 2004 from
  $7,838,000 for 2003. The increase in net interest  income  resulted  primarily
  from an increase in the average volume of the underlying principal balances in
  interest earning assets and liabilities.  The net interest spread increased to
  3.11% for the period  ended June 30,  2004 from  2.93% for 2003.  The  average
  yield on interest earning assets decreased 39 basis points to 5.66% for fiscal
  2004 from 6.05% for 2003. The average cost of funds  decreased 57 basis points
  to 2.55% for the year ended June 30,  2004 from  3.12% for 2003.  See  Average
  Balance Sheet Table included herein for additional detail.

         Interest  and Dividend  Income.  Total  interest  and  dividend  income
  increased  $2,192,000,  or 14.52%,  to $17,289,000 for the year ended June 30,
  2004 from  $15,097,000 for 2003. The increase was primarily due to an increase
  in earnings on loans of $2,508,000 as the average  principal balance increased
  $65,778,000 to $259,511,000 for fiscal 2004 from $193,733,000 for fiscal 2003.
  Interest and dividend income on investments,  mortgaged-backed securities, and
  interest  bearing  deposits  with  other  financial   institutions   decreased
  approximately  $316,000 as the aggregate  average  balances of these  interest
  earning  assets  decreased  $9,811,000  to  $45,869,000  for fiscal  2004 from
  $55,680,000  for fiscal 2003. See Average  Balance Sheet Table included herein
  for additional detail.

         Interest Expense. Total interest expense increased $114,000 or 1.57% to
  $7,373,000  for the year ended June 30, 2004 compared to $7,259,000  for 2003.
  The increase was  primarily due to an increase of $141,000 in interest paid on
  Subordinated  Debentures  issued  to  an  unconsolidated  affiliate,   Advance
  Statutory Trust 1, which  participated in a pooled trust preferred offering in
  December 2002. This increase resulted in part from an increase in the floating
  rate paid on these  debentures.  This  increase  was offset by a  decrease  in
  interest paid on deposits of $98,000 as the average cost of deposits decreased
  57 basis  points to 2.27% for the year ended June 30, 2004 from 2.84% for 2003
  offset by a $47,715,000  increase in the average  balance of deposits for 2004
  compared to 2003.  See Average  Balance Sheet  included  herein for additional
  detail.

         Provision  for Loan  Losses.  For the year  ended  June 30,  2004,  the
  provision for loan losses  increased  $769,950 to $1,168,650 from $398,700 for
  the same period ended 2003.  The increase in the provision for loan losses was
  precipitated by an increase in loan volume. In determining the adequacy of the
  allowance  for loan losses,  management  reviews and  evaluates on a quarterly
  basis the potential risk in the loan  portfolio.  This  evaluation  process is
  documented  by management  and approved by the  Company's  Board of Directors.
  Management  evaluates homogenous  consumer-oriented  loans, such as 1-4 family
  mortgage loans and retail consumer  loans,  based upon all or a combination of
  delinquencies,  loan  concentrations  and  charge-off  experience.  Management
  supplements  this analysis by reviewing the local  economy,  trends  affecting
  local industry and business  development  and other known  factors,  which may
  impact  future  credit  losses.  Nonhomogenous  loans,  generally  defined  as
  commercial  business and real estate  loans,  are selected by management to be
  reviewed  on  a  quarterly  basis  upon  the  combination  of   delinquencies,
  concentrations  and other known  factors that may affect the local economy and
  more specifically the individual businesses.

         During this evaluation, the individual loans are evaluated quarterly by
  senior members of management for impairment as prescribed  under SFAS No. 114,
  "Accounting by Creditors for

                                       28

<PAGE>

  Impairment of a Loan."  Impairment losses are assumed when, based upon current
  information,  it is probable  that the  Company  will be unable to collect all
  amounts  due  according  to  the  contractual  terms  of the  loan  agreement.
  Impairment is measured by a loan's  observable market value, the present value
  of future cash flows discounted at the loan's effective  interest rate, or the
  fair value of the  collateral.  This data on  impairment  is combined with the
  other  data  used for  homogenous  loans and is used by the  classified  asset
  committee in determining the adequacy of the allowance for loan losses.

         The allowance for loan losses is maintained at a level that  represents
  management's  best  estimates  of losses in the loan  portfolio at the balance
  sheet date.  However,  there can be no assurance  that the  allowance for loan
  losses will be adequate  to cover  losses  which may be realized in the future
  and that additional provision for loan losses will not be required.

         Noninterest Income.  Noninterest income increased $603,000 or 38.86% to
  $2,153,000 for the year ended June 30, 2004 from $1,550,000 for 2003. The year
  ended June 30, 2004 included  gains on the sales of  investment  securities of
  approximately $446,000, as previously discussed. Also, for the year ended June
  30,  2004,  miscellaneous  fees  and fees on  deposit  accounts  increased  by
  $148,000 as a result of an increase in core  customers  and related  activity.
  For the year  ended  June 30,  2004,  gains on sales of fixed  rate  loans and
  income from loan servicing activity decreased by $54,000. The decrease for the
  fiscal  year is due to  decreasing  customer  demand for fixed rate 1-4 family
  mortgage loans in comparison to 2003.

         Noninterest Expense.  Noninterest expense increased $972,000 or 15.94%,
  to $7,068,000  for the year ended June 30, 2004 from  $6,096,000 for 2003. For
  the year ended June 30, 2004,  compensation  and employee  benefits  increased
  $523,000.  The increase in  compensation  and  employee  benefits for the year
  ended  June  30,  2004 is due in  part  to the  branch  purchase  and  deposit
  acquisition  of the Second  National Bank of Warren's two  Steubenville,  Ohio
  branches in February  2003 and the de novo branch  opening in September  2002.
  The new branches account for $154,000 of the increase for the year.  Occupancy
  and equipment,  professional fees, marketing and data processing expenses have
  increased  by $188,000 for the year ended June 30, 2004.  Such  increases  are
  primarily due to the  operation of the new branches  acquired and opened since
  September 2002. For the year ended June 30, 2004,  other  expenses,  including
  the amortization of the core deposit intangible "CDI" have increased $262,000.
  The  increase in other  expense for the year is due to  increases in fees paid
  from ATM and  consumer  card usage of $48,000  and in fees paid to the Federal
  Reserve  for item  processing  of  $8,000,  offsetting  these  increases  is a
  decrease in supplies and  communications  of $21,000.  Each of these increases
  and decreases are primarily  related to customer  activity and  administrative
  activity as a result of  increased  core  customers  created  primarily by the
  branch purchase and the de novo branch opening.  Also, other expense increased
  for the year ended June 30,  2004 due to an increase  in state  franchise  tax
  expense of $28,000 and CDI  amortization of $104,000 as a result of the branch
  purchase  during  February  2003.  Costs  relating  to other  real  estate and
  repossessed  assets increased for the year ended June 30, 2004 by $47,000 as a
  result of increased activity in this area.

         Liquidity and Capital Resources.  Liquidity  management for the Company
  is  measured  and  monitored  on both a short  and  long-term  basis,  thereby
  allowing  management to better  understand and react to emerging balance sheet
  trends. After assessing actual and projected cash flow needs, management seeks
  to obtain funding at the most economical  cost to the Company.  Both short and
  long-term  liquidity needs are addressed by maturities and sales of investment
  securities,  loan payments and maturities,  and liquidating  overnight deposit
  accounts.  The use of these  resources,  in conjunction with access to credit,
  provide the core ingredients to meet depositor, borrower, and creditor needs.

                                       29

<PAGE>

         The Company's  liquid assets consist of cash and cash  equivalents  and
  investment and  mortgage-backed  securities  classified as available for sale.
  The level of these assets is dependent on the Company's operating,  investing,
  and  financing  activities  during any given period.  At June 30,2004,  liquid
  assets  totaled $24.9 million or 7.74% of total  assets.  Management  believes
  that the liquidity  needs of the Company are satisfied by the current  balance
  of cash and cash equivalents,  readily available access to traditional funding
  sources, FHLB advances,  and the portion of the investment and loan portfolios
  that mature within one year. These sources of funds will enable the Company to
  meet cash obligations and off-balance sheet commitments as they come due.

         Operating  activities  provided  net cash of $9.4 million and used $2.6
  million for the year ended June 30, 2004 and 2003, respectively. The operating
  activity   results  are  principally  the  results  from  activity   generated
  principally from net income and net proceeds and origination of fixed rate 1-4
  family mortgages held for sale.

         Investing  activities used $3.2 and $9.4million  during the years ended
  June 30, 2004 and 2003, respectively. During the year ended June 30, 2004, the
  Company  used cash to originate a net $31.3  million in loans.  This usage was
  offset by net proceeds from the sale, repayment and maturity of investment and
  mortgage-backed  securities of $28.8  million.  During the year ended June 30,
  2003,  the Company used cash to originate a net $57.5  million in loans and to
  purchase   $31.6  million  in  investment  and   mortgage-backed   securities.
  Offsetting  the uses of funds for the year ended June 30, 2003 was a net $81.3
  million received from the branch purchase in February 2003.

         Financing  activities  consist of the  solicitation  and  repayment  of
  customer deposits and borrowings.  Financing  activities used $2.7 million and
  provided  $16.3  million  during  the  years  ended  June 30,  2004 and  2003,
  respectively. For the period ending 2004, deposits had decreased $5.1 million.
  This  decrease  had  been  partially  offset  by  an  increase  in  short-term
  borrowings of $3.0 million.  For 2003, deposits increased $9.5 million and the
  Company  received  $7.2  million by issuing  subordinating  debentures  for an
  affiliated  Trust's  securities  sold  as  part of a  Pooled  Trust  Preferred
  Offering.

         Liquidity  may be adversely  affected by unexpected  deposit  outflows,
  excessive interest rates paid by competitors,  and similar matters. Management
  monitors projected liquidity needs and determines the level desirable based in
  part  on the  Bank's  commitment  to  make  loans,  as  well  as  management's
  assessment of the Company's  ability to generate funds. The Company  currently
  has approximately  $146.0 million in unused borrowing  capacity at the FHLB of
  Pittsburgh.  As a  result  of this  unused  borrowing  capacity,  the  Company
  anticipates  it will have  sufficient  liquidity  available to meet  estimated
  short-term and long-term funding needs.

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

         The Company's financial  statements are contained in this Annual Report
  on Form 10-KSB immediately following Item 14.

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

         Not applicable.


                                       30

<PAGE>

  Item 8A.  Controls and Procedures.
  --------  ------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
  evaluation of the Company's  disclosure controls and procedures (as defined in
  Rule  13a-15(e)  under the  Securities  Exchange  Act of 1934  (the  "Exchange
  Act")),  the Company's  principal  executive  officer and principal  financial
  officer have concluded that as of the end of the period covered by this Annual
  Report on Form 10-KSB such disclosure controls and procedures are effective to
  ensure that  information  required to be  disclosed  by the Company in reports
  that it files or  submits  under  the  Exchange  Act is  recorded,  processed,
  summarized  and reported  within the time periods  specified in Securities and
  Exchange Commission rules and forms.

         (b) Changes in internal  control over financial  reporting.  During the
  last quarter of the year under  report,  there was no change in the  Company's
  internal control over financial reporting that has materially affected,  or is
  reasonably likely to materially  affect,  the Company's  internal control over
  financial reporting.

  Item 8B.  Other Information.
  --------  ------------------

         Not applicable.

                                    PART III

  Item 9.  Directors and Executive Officers of the Registrant.
  -------  ---------------------------------------------------

<TABLE>
<CAPTION>
                                                                               Current Term
  Name                             Age(1)       Position with Company           to Expire
  ----                             ------       ---------------------           ---------

<S>                               <C>             <C>                          <C>
  Kelly M. Bethel                   44               Director                     2004

  William E. Watson                 68               Director                     2004

  Frank Gary Young                  66               Director                     2004

  Walker Peterson Holloway, Jr.     55               Director                     2005

  John R. Sperlazza                 66               Director                     2005

  Dominic J. Teramana, Jr.          60               Director                     2005

  William B. Chesson                68               Director                     2006

  Stephen M. Gagliardi              56               President, Chief             2006
                                                       Executive Officer
                                                       and Director
</TABLE>
------------------------
  (1) As of June 30, 2004

         Set forth below is certain  information  with respect to the  directors
  and executive  officers of the Company.  All directors and executive  officers
  have held their present positions for five years unless otherwise stated.

                                       31

<PAGE>

         Kelly M.  Bethel is the real  estate  appraiser  and  president  of the
  Bethel  Agency  located  in  Steubenville,  Ohio.  Mr.  Bethel is  a member of
  the Steubenville  Board  of  Realtors,  the Ohio  Association  of  Realtors
  and the National Association of Realtors.

         William E. Watson is an attorney in  Wellsburg,  West  Virginia and has
  practiced  law since 1961.  Mr. Watson also serves as counsel for the Bank. He
  is the chancellor  (general  counsel) of the West Virginia  Conference  United
  Methodist Church,  chairman of the Board of Trustees of West Virginia Wesleyan
  College and chairman of the Administrative Board of Wellsburg United Methodist
  Church.

         Frank  Gary Young is the former  director  of the Brooke  Hills Park in
  Wellsburg,  West  Virginia  and is also a member of the board of  directors of
  Healthways  Inc.  located in Brooke County,  West  Virginia.  Mr. Young is the
  former  sheriff of Brooke  County and prior to 1980,  was the owner of Young's
  Market.

         Walker  Peterson  Holloway,  Jr. is a senior vice president of Hazlett,
  Burt & Watson,  Inc., a regional  brokerage  headquartered  in Wheeling,  West
  Virginia. He serves on the boards of Oglebay Institute, West Virginia Northern
  Community College Foundation,  and Tuberculosis Association of Ohio County. He
  is past president of the Wheeling  Rotary Club.  Previously he was a member of
  West  Virginia   Aeronautics   Commission  and  the  West  Virginia   Business
  Foundation.

         John R. Sperlazza is retired and was a co-owner of trucking, mining and
  coal companies.

         Dominic J. Teramana,  Jr. is president of Century 21 Teramana-Westling,
  Inc. in Steubenville,  Ohio and managing  officer of Teramana  Enterprises and
  Hollywood  Center,  Inc.,  also in  Steubenville,  Ohio. He is a member of the
  Steubenville Board of Realtors, Steubenville Area Chamber of Commerce, Brooke,
  Hancock, and Jefferson Regional Planning Commission,  and the Trinity Hospital
  Board of Directors.

         William B.  Chesson is the retired  president of the  Jefferson  County
  Chamber of Commerce.

         Stephen M.  Gagliardi is the president and chief  executive  officer of
  the Bank and the Company. Mr. Gagliardi is trustee and treasurer of the Christ
  Episcopal  Church of  Wellsburg.  He is the past director of the West Virginia
  Appraiser  Licensing and Certification  Board and past president of the Brooke
  County Rotary and the Brooke County United Way.

         Steven D.  Martino is vice  president of the Company and is senior vice
  president and chief operating  officer of the Bank. Mr. Martino is a member of
  the board of  directors  of the  Brooke  County  United  Way,  a member of the
  advisory board of the West Liberty State College  School of Business,  and the
  past president of the Wellsburg Chamber of Commerce.  He is also a real estate
  appraiser licensed by the State of West Virginia.

         Stephen M. Magnone has been treasurer of the Company and vice president
  and  chief  financial  officer  of the Bank  since  September  1998.  Prior to
  September 1998, Mr. Magnone was employed for twelve years with the CPA firm of
  S.R.  Snodgrass,  A.C.,  and prior to his departure with the firm, Mr. Magnone
  held the  position of vice  president.  Mr.  Magnone  currently  serves on the
  corporate board of the Weirton  Medical  Center,  Inc. and also as a member of
  the medical center's finance committee.  He is a past president of the Weirton
  Rotary Club and has served on numerous  committees of the Weirton Area Chamber
  of Commerce. Mr. Magnone has been a CPA since 1986 and holds active

                                       32

<PAGE>

  memberships in the American  Institute of Certified Public Accountants and the
  West Virginia Society of CPAs.

         Marc A. DeSantis is vice president of investor relations of the Company
  and is senior vice  president of the Bank in charge of the business  division.
  Previous to his appointment as senior vice president of the Bank, Mr. DeSantis
  served  as the vice  president  of  Branch  Administration.  Mr.  DeSantis  is
  president of the Steubenville Country Club, is president of the Family Service
  Association  of  Steubenville,  and serves as an ambassador  for the Jefferson
  County Chamber of Commerce.

         Florence  K.  McAlpine  is  corporate  secretary  of the Company and is
  assistant vice president of operations of the Bank.

  Audit Committee

         The Audit  Committee  is comprised  of  directors  Chesson,  Sperlazza,
  Teramana,  Holloway and Young.  Each of the members of the Audit  Committee is
  independent  in  accordance  with the listing  requirements  for Nasdaq  Stock
  Market  issuers.  No member of the committee  has been  designated as an audit
  committee financial expert as defined by the regulations of the Securities and
  Exchange  Commission  because none has the qualifications to be so designated.
  The Board of Directors has adopted a written audit  committee  charter,  which
  was attached to the 2003 proxy  statement as an appendix.  The Audit Committee
  is a standing  committee  and reports to the Board of  Directors.  Its primary
  function  is  to  assist  the  board  in  fulfilling  its   responsibility  to
  stockholders  related to financial  accounting  and  reporting,  the system of
  internal  controls  established  by  management  and the  adequacy of auditing
  relative to these  activities.  The Audit  Committee met four times during the
  2004 fiscal year.

  Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the 1934 Act requires  the  Company's  directors  and
  executive  officers to file reports of  ownership  and changes in ownership of
  their  equity  securities  of the Company  with the  Securities  and  Exchange
  Commission and to furnish the Company with copies of such reports. To the best
  of the Company's knowledge,  all of the filings by the Company's directors and
  executive  officers  were made on a timely  basis during the 2004 fiscal year.
  The Company is not aware of other  beneficial  owners of more than ten percent
  of its Common Stock.

         The Company has adopted a Code of Ethics that applies to its  principal
  executive officer,  principal financial officer,  principal accounting officer
  or controller or persons performing  similar functions.  The Company's Code of
  Ethics  will  be  provided  without  charge  upon  request  to  the  Corporate
  Secretary,  Advance Financial Bancorp, 1015 Commerce Street,  Wellsburg,  West
  Virginia 26070.

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

         Summary Compensation Table. The following table sets forth the cash and
  non-cash  compensation awarded to or earned by the chief executive officer. No
  other  executive  officer of either the Bank or the  Company  had a salary and
  bonus for the three  fiscal  years then  ended,  that  exceeded  $100,000  for
  services rendered in all capacities to the Bank or the Company.

                                       33

<PAGE>

<TABLE>
<CAPTION>

                                                 Annual Compensation
  Name and               Fiscal                               Other Annual          All Other
  Principal Position      Year    Salary ($)  Bonus ($)    Compensation ($)(1)   Compensation($)
  --------- --------      ----    ----------  ---------    -------------------   ---------------
<S>                      <C>     <C>           <C>              <C>                 <C>
  Stephen M. Gagliardi    2004    140,743       15,000           16,613              13,632(2)
    President and Chief   2003    142,637       15,000           15,313              13,375
    Executive Officer     2002    120,366       12,500           13,893              13,760
</TABLE>

----------------------------
(1)  For 2004, 2003 and 2002, other annual  compensation  consisted of directors
     fees of $13,800,  $13,400,  and $11,700,  respectively,  and an  automobile
     allowance of $2,813, $1,913, and $2,193, respectively.
(2)  For the year ended June 30, 2004,  consisted of a contribution  of $258 for
     term life insurance,  a matching contribution of $4,515 to the 401(k) plan,
     and 1,329  shares  of stock  allocated  under  the ESOP at a total  cost of
     $8,860. (At June 30, 2004, the ESOP shares had an aggregate market value of
     $24,228).

  Other Benefits

         Employment  Agreement.  The Bank entered into an  employment  agreement
  with Stephen M. Gagliardi,  President and Chief Executive  Officer of the Bank
  (the  "Agreement").  The Agreement has a three-year term. Under the Agreement,
  Mr.  Gagliardi's  employment may be terminated by the Bank for "just cause" as
  defined in the Agreement.  If the Bank terminates Mr.  Gagliardi  without just
  cause, Mr. Gagliardi will be entitled to a continuation of his salary from the
  date of  termination  through the remaining term of the Agreement but not less
  than one year's  salary.  In the event of the  termination  of  employment  in
  connection  with any  change in  control  of the Bank  during  the term of the
  Agreement,  Mr.  Gagliardi  will be paid in a lump sum an amount equal to 2.99
  times his five year average taxable compensation.  In the event of a change in
  control at June 30, 2004, Mr. Gagliardi would have been entitled to a lump sum
  payment of approximately $505,245.

         Stock Awards.  The following table sets forth  information with respect
  to  previously  awarded  stock options to purchase the Common Stock granted in
  1998 to Mr. Gagliardi and held by him as of June 30, 2004. The Company has not
  granted to Mr. Gagliardi any stock appreciation rights.

<TABLE>
<CAPTION>
                         Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Values
                         -------------------------------------------------------------------------

                                                                  Number of Securities           Value of Unexercised
                                 Shares                          Underlying Unexercised          In-The-Money Options
                              Acquired on         Value           Options at FY-End (#)              at FY-End ($)
  Name                        Exercise (#)    Realized($)(1)    Exercisable/Unexercisable    Exercisable/Unexercisable(1)
  ----                        ------------    --------------    -------------------------    -------------------------
<S>                              <C>             <C>              <C>                            <C>
  Stephen M. Gagliardi              --              --              40,666 / 0                     $195,197 / $ 0
</TABLE>

-----------------------
(1)  Based upon an exercise price of $12.50 per share and estimated market price
     of $17.30 at June 30, 2004.

  Director Compensation

         In the  fiscal  year  ended  June  30,  2004  members  of the  Board of
  Directors  received a monthly  retainer  of $700 and a meeting fee of $300 for
  the period July to December  2003. For the period January to June 2004, a $500
  meeting  fee was  paid  for  each  board  meeting  attended  and $100 for each
  committee  meeting  attended.  For the fiscal year ended June 30, 2004,  total
  fees paid by the Bank to Directors were $125,800.

                                       34

<PAGE>

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

         (a) Security Ownership of Certain Beneficial Owners. Persons and groups
  owning in excess  of 5% of the  Common  Stock  are  required  to file  certain
  reports  regarding such ownership  pursuant to the Exchange Act. The following
  table sets forth,  as of August 31, 2004,  persons or groups who own more than
  5% of the Common  Stock.  Other than as noted  below,  management  knows of no
  person or group  that owns  more than 5% of the  outstanding  shares of Common
  Stock.

<TABLE>
<CAPTION>

                                                                  Percent of Shares of
                                           Amount and Nature of       Common Stock
  Name and Address of Beneficial Owner      Beneficial Ownership    Outstanding (%)
  ------------------------------------      --------------------    ---------------
<S>                                               <C>                    <C>
  Advance Financial Savings Bank
  Employee Stock Ownership Plan ("ESOP")
  1015 Commerce Street
  Wellsburg, West Virginia 26070(1)                 128,550                9.2%

  Jeffrey L. Gendell
  Tontine Financial Partners, L.P.
  Tontine Management, L.L.C.
  200 Park Avenue, Suite 3900
  New York, New York 10166(2)                       138,450                9.9%

  J. David Rosenberg
  3436 Vista Avenue
  Cincinnati, Ohio 45208(3)                          85,003                6.1%

  Stephen M. Gagliardi
  1015 Commerce Street
  Wellsburg, West Virginia(4)                        76,353                5.3%
</TABLE>

---------------------
(1)  The  ESOP  purchased  such  shares  for  the  exclusive   benefit  of  plan
     participants with funds borrowed from the Company. These shares are held in
     a suspense account and will be allocated among ESOP  participants  annually
     on the  basis of  compensation  as the ESOP  debt is  repaid.  The board of
     directors of the bank has appointed a committee  consisting of non-employee
     directors Chesson, Holloway, Sperlazza,  Teramana, Watson, Young and Bethel
     to serve as the ESOP  administrative  committee  ("ESOP  Committee") and to
     serve as the ESOP  trustees  ("ESOP  Trustee").  The ESOP  Committee or the
     Board instructs the ESOP Trustee regarding  investment of ESOP plan assets.
     The ESOP Trustee must vote all shares  allocated  to  participant  accounts
     under the ESOP as directed by participants.  Unallocated  shares and shares
     for which no timely voting direction is received, will be voted by the ESOP
     Trustee as directed by the ESOP  Committee.  As of August 31, 2004,  97,434
     shares have been allocated under the ESOP to participant accounts.
(2)  The information as to Jeffrey L. Gendell, Tontine Financial Partners, L.P.,
     and Tontine Management, L.L.C., (collectively, the "Reporting Persons"), is
     derived from an amended  Schedule 13G, dated February 6, 2004, which states
     that the Reporting Persons,  through certain of its affiliates,  had shared
     voting power and shared dispositive power with regard to 138,450 shares.
(3)  The  information  as to J. David  Rosenberg is derived from a Schedule 13G,
     dated  September  26, 2001,  which states that J. David  Rosenberg has sole
     voting and dispositive power with regard to 85,003 shares.
(4)  Includes  40,666  shares of common stock which may be acquired  pursuant to
     the exercise of options within 60 days of August 31, 2004.

                                       35

<PAGE>

         (b)      Security Ownership of Management.

<TABLE>
<CAPTION>
                                       Number of Shares
                                       Beneficially Owned         Percent of Shares
  Name                                 as of August 31, 2004 (1)    Outstanding
  ----                                 -------------------------    -----------
<S>                                       <C>                      <C>
  Kelly M. Bethel                              3,664 (2)                  *
  William E. Watson                           35,782 (2)                 2.5%
  Frank Gary Young                            24,532 (2)                 1.7%
  Walker Peterson Holloway, Jr.                4,814 (2)                  *
  John R. Sperlazza                           38,541 (2)                 2.7%
  Dominic J. Teramana, Jr.                     2,314 (2)                  *
  William B. Chesson                          18,532 (2)                 1.3%
  Stephen M. Gagliardi                        76,353 (2)                 5.3%
  All directors and executive officers
  of the Company as a group                  263,861                    17.7%
</TABLE>

------------
(1)  The share amounts include shares of Common Stock that the following persons
     may acquire  through the exercise of stock options within 60 days of August
     31, 2004:  John R.  Sperlazza - 9,487  shares,  William B. Chesson - 9,487,
     Stephen M.  Gagliardi - 40,666  shares,  William E. Watson - 9,487  shares,
     Frank Gary Young - 9,487 shares,  Kelly M. Bethel - 814 shares,  Dominic J.
     Teramana,  Jr. - 814 shares, Walker Peterson Holloway, Jr. - 814 shares and
     other executive officers of the Company - 8,750.
(2)  Excludes  128,550  shares and 14,981  shares of Common Stock held under the
     ESOP and the Restricted  Stock Plan ("RSP"),  respectively,  for which such
     individual serves as a member of the ESOP Committee, ESOP Trust and the RSP
     Trust.  Such  individual  disclaims  beneficial  ownership  with respect to
     shares held in a fiduciary capacity.
*    Less than 1% of the Common Stock outstanding.

         (c) Changes in Control.  On September 1, 2004, the Company entered into
  a definitive  merger  agreement  with  Parkvale  Financial  Corporation  which
  provides for the  acquisition of the Company by Parkvale.  The  acquisition is
  subject to a number of  conditions  including  approval  of  shareholders  and
  receipt of all required regulatory approvals.

           (d)  Securities  Authorized  for Issuance  Under Equity  Compensation
  Plans.  Set forth below is  information  as of June 30,  2004 with  respect to
  compensation  plans  under  which  equity  securities  of the  Registrant  are
  authorized for issuance.

<TABLE>
<CAPTION>
                                                      EQUITY COMPENSATION PLAN INFORMATION
                                                              (a)                (b)                       (c)
                                                           Number  of         Weighted-
                                                       securities to be   average exercise          Number of securities
                                                          issued upon         price of            remaining available for
                                                          exercise of       outstanding            future issuance under
                                                          outstanding         options,              equity compensation
                                                       options, warrants      warrants          plans (excluding securities
                                                          and rights         and rights           reflected in column (a))
                                                          ----------         ----------           ------------------------
<S>                                                       <C>                <C>                         <C>
  Equity compensation plans approved by shareholders:
  1998 Stock Option Plan.................                   155,859            $14.64                      6,808
  Restricted Stock Plan..................                        --                --                      2,931
  Equity compensation plans
  not approved by shareholders(1)........                       N/A               N/A                        N/A
                                                            -------            ------                      -----
       TOTAL............................                    155,859            $14.64                      9,739
                                                            =======            ======                      =====
</TABLE>
--------------
(1)  Not applicable.


                                       36

<PAGE>

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

         The Bank,  like many financial  institutions,  has followed a policy of
  granting  various types of loans to officers,  directors,  and employees.  The
  loans have been made in the ordinary  course of business and on  substantially
  the same terms,  including interest rates and collateral,  as those prevailing
  at the time for comparable  transactions with the Bank's other customers,  and
  do not involve more than the normal risk of  collectibility,  or present other
  unfavorable features.

  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,  2004  and  2003  and  the  related
  consolidated  statements of income,  changes in stockholders'  equity and cash
  flows for each of the two years ended June 30, 2004, 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.

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

                           (a) List of Exhibits:
                               -----------------
<TABLE>
<CAPTION>
                        <S>       <C>
                            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 2004 Annual Report to Stockholders
                           21       Subsidiaries of the Registrant (See "Item 1- Description of Business")
                           23       Consent of S.R. Snodgrass, A.C.
                           31       Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                           32       Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

-------------------
*      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 March 31, 2003 Form 10-QSB
       (File No. 0-21885) filed with the SEC on May 13, 2003.
***    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 March 31, 2004 Form 10-QSB
       (File No. 0-21885) filed with the SEC on May 13, 2004.
*****  Incorporated  by reference to the Proxy  Statement for the Special
       Meeting of Stockholders (File No. 0-21885) filed with the SEC on
       December 12, 1997.
+      Management or compensatory plan.


                                       37

<PAGE>

         (b) Reports on Form 8-K:

         A report on Form 8-K was filed on April 22, 2004 to  announce  earnings
  for the quarter ended March 31, 2004 (Items 7 and 12).

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

         Effective   July  30,  2002,  the  Exchange  Act  was  amended  by  the
  Sarbanes-Oxley  Act of 2002 to require all  auditing  services  and  non-audit
  services  provided  by an issuer's  independent  auditor to be approved by the
  issuer's  audit  committee  prior to such  services  being  rendered  or to be
  approved pursuant to pre-approval  policies and procedures  established by the
  issue's audit  committee.  The Company's  Audit  Committee has not established
  pre-approval  procedures and instead specifically  approves each service prior
  to the engagement of the auditor for all audit and non-audit services.

         All of the services listed below for 2003 and 2004 were approved by the
  Audit Committee  prior to the service being  rendered.  There were no services
  that were not  recognized  to be non-audit  services at the time of engagement
  that were approved after the fact.

         Audit Fees.  The aggregate  fees billed by Snodgrass  for  professional
  services rendered for the audit of the Company's annual consolidated financial
  statements  and  for  the  review  of the  consolidated  financial  statements
  included  in the  Company's  Quarterly  Reports on Form  10-QSB for the fiscal
  years ended June 30, 2004 and 2003 were $34,500 and $32,000, respectively.

         Audit  Related  Fees.  There were no fees billed by Snodgrass for audit
  related services for the years ended June 30, 2004 or 2003.

         Tax Fees.  The  aggregate  fees billed by  Snodgrass  for  professional
  services  rendered  for tax  compliance,  tax advice and tax  planning for the
  years ended June 30, 2004 and 2003 were $7,700 and $7,000, respectively.  Such
  tax-related  services  consisted in both years of tax return  preparation  and
  consultation.

         All Other Fees. The aggregate fees billed by Snodgrass for professional
  services  rendered for services or products  other than those listed under the
  captions "Audit Fees,"  "Audit-Related  Fees," and "Tax Fees" totaled $-0- and
  $4,250,  respectively,  for the  years  ended  June  30,  2004 and  2003,  and
  consisted of consultations of tax valuations related to business combinations.

                                       38
<PAGE>
                            ADVANCE FINANCIAL BANCORP
                    AUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

                                                                     Page
                                                                    Number
                                                                    ------

Report of Independent Registered Public Accounting Firm                F-2

Financial Statements

     Consolidated Balance Sheet                                        F-3

     Consolidated Statement of Income                                  F-4

     Consolidated Statement of Stockholders' Equity                    F-5

     Consolidated Statement of Cash Flows                              F-6

Notes to Consolidated Financial Statements                           F-7 - F-28


                                       F-1

<PAGE>

             Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
Advance Financial Bancorp

We have audited the accompanying consolidated balance sheet of Advance Financial
Bancorp  and  subsidiary  as  of  June  30,  2004  and  2003,  and  the  related
consolidated statements of income,  stockholders' equity, and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by management,  as well as,  evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Advance Financial
Bancorp and  subsidiary  as of June 30, 2004 and 2003,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.


/s/S.R. Snodgrass, A.C.

Steubenville, Ohio
August 12, 2004
(Except for Note 27, as to
 which the date is September 8, 2004)


                                      F-2

<PAGE>

                            ADVANCE FINANCIAL BANCORP
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                                        June 30,
                                                                                          ------------------------------------
                                                                                               2004                   2003
                                                                                          --------------       ---------------
<S>                                                                                     <C>                  <C>
ASSETS Cash and cash equivalents:
     Cash and amounts due from banks                                                      $    2,742,338       $     2,906,568
     Interest-bearing deposits with other institutions                                        16,816,375            13,163,753
                                                                                            ------------          ------------
              Total cash and cash equivalents                                                 19,558,713            16,070,321
                                                                                            ------------          ------------
Investment securities:
     Securities held to maturity (estimated market value of $7,061,289
      and $15,298,606)                                                                         7,089,742            15,086,475
     Securities available for sale                                                                13,265            11,394,701
                                                                                            ------------          ------------
              Total investment securities                                                      7,103,007            26,481,176
                                                                                            ------------          ------------
Mortgage-backed securities:
     Securities held to maturity (estimated market value of $11,927,394
      and $18,751,018)                                                                        12,307,317            18,642,532
     Securities available for sale                                                             5,290,846             8,979,898
                                                                                            ------------          ------------
              Total mortgage-backed securities                                                17,598,163            27,622,430
                                                                                            ------------          ------------
Loans held for sale                                                                              269,800             5,687,708
Loans receivable (net of allowance for loan losses of
 $1,798,636 and $1,095,822)                                                                  259,833,742           229,239,547
Premises and equipment, net                                                                    4,762,619             5,069,073
Federal Home Loan Bank stock, at cost                                                          2,158,100             1,679,400
Accrued interest receivable                                                                    1,227,693             1,447,525
Goodwill                                                                                       4,700,472             4,700,472
Other intangibles, net                                                                         1,531,040             1,709,413
Other assets                                                                                   2,395,820             2,215,955
                                                                                            ------------          ------------
              TOTAL ASSETS                                                                  $321,139,169          $321,923,020
                                                                                            ============          ============

LIABILITIES
Deposits                                                                                    $267,724,634          $272,828,932
Advances from Federal Home Loan Bank                                                          23,000,000            20,000,000
Subordinated Debentures                                                                        7,253,286             7,222,429
Advance payments by borrowers for taxes and insurance                                            466,634               507,049
Accrued interest payable and other liabilities                                                   964,923             1,276,657
                                                                                            ------------          ------------
              TOTAL LIABILITIES                                                              299,409,477           301,835,067
                                                                                            ------------          ------------

STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value; authorized 500,000 shares; none issued                                -                     -
Common stock, $.0667 par value, 3,000,000 shares authorized;
 1,626,621 shares issued at June 30, 2004 and 2003                                               108,445               108,445
Additional paid in capital                                                                    10,609,610            10,467,559
Retained earnings - substantially restricted                                                  13,658,888            11,705,306
Unallocated shares held by Employee Stock Ownership Plan (ESOP)                                 (163,825)             (250,634)
Unallocated shares held by Restricted Stock Plan (RSP)                                          (205,719)             (206,756)
Treasury stock (228,248 shares at cost)                                                       (2,233,265)           (2,233,265)
Accumulated other comprehensive income (loss)                                                    (44,442)              497,298
                                                                                            ------------          ------------
              TOTAL STOCKHOLDERS' EQUITY                                                      21,729,692            20,087,953
                                                                                            ------------          ------------
              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $321,139,169          $321,923,020
                                                                                            ============          ============
</TABLE>
See accompanying notes to the consolidated financial statements.

                                       F-3


<PAGE>

                            ADVANCE FINANCIAL BANCORP
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                                   Year Ended June 30,
                                                                                               -------------------------------
                                                                                                   2004               2003
                                                                                               -----------         -----------
<S>                                                                                          <C>                 <C>
INTEREST AND DIVIDEND INCOME
     Loans                                                                                     $15,854,932         $13,346,912
     Investment securities- taxable                                                                333,220             387,804
     Investment securities- non-taxable                                                            262,070             385,505
     Interest-bearing deposits with other institutions                                              30,358             269,692
     Mortgage-backed securities                                                                    774,897             666,336
     Federal Home Loan Bank stock                                                                   33,767              40,886
                                                                                               -----------         -----------
              Total interest and dividend income                                                17,289,244          15,097,135
                                                                                               -----------         -----------
INTEREST EXPENSE
     Deposits                                                                                    5,820,439           5,918,577
     Advances from Federal Home Loan Bank                                                        1,233,585           1,162,662
     Subordinated Debentures                                                                       319,505             178,196
                                                                                               -----------         -----------
              Total interest expense                                                             7,373,529           7,259,435
                                                                                               -----------         -----------
NET INTEREST INCOME                                                                              9,915,715           7,837,700

Provision for loan losses                                                                        1,168,650             398,700
                                                                                               -----------         -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                              8,747,065           7,439,000
                                                                                               -----------         -----------
NONINTEREST INCOME
     Service charges on deposit accounts                                                           813,163             665,055
     Income from loan servicing activity                                                           233,712             161,765
     Gain on sale of loans                                                                         251,185             376,989
     Gain on sale of investments                                                                   456,999                   -
     Other income                                                                                  397,575             346,411
                                                                                               -----------         -----------
              Total noninterest income                                                           2,152,634           1,550,220
                                                                                               -----------         -----------

NONINTEREST EXPENSE
     Compensation and employee benefits                                                          3,279,994           2,757,312
     Occupancy and equipment                                                                     1,089,268           1,093,434
     Professional fees                                                                             191,735             143,430
     Advertising                                                                                   206,335             162,457
     Data processing                                                                               537,715             437,884
     Amortization of intangible asset                                                              178,374              74,322
     Other operating expenses                                                                    1,584,182           1,426,721
                                                                                               -----------         -----------
              Total noninterest expense                                                          7,067,603           6,095,560
                                                                                               -----------         -----------
Income before income taxes                                                                       3,832,096           2,893,660
Income taxes                                                                                     1,340,007           1,009,197
                                                                                               -----------         -----------

NET INCOME                                                                                     $ 2,492,089         $ 1,884,463
                                                                                               ===========         ===========

EARNINGS PER SHARE - NET INCOME
     Basic                                                                                     $      1.84         $      1.41
     Diluted                                                                                   $      1.81         $      1.40
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       F-4

<PAGE>

                            ADVANCE FINANCIAL BANCORP
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                           Accumulated
                                                                                                             Other
                                                          Retained    Unallocated                            Compre-    Total
                                             Additional   Earnings      Shares   Unallocated                 hensive    Stock-
                                  Common      Paid In   Substantially   Held By  Shares Held    Treasury     Income     holders'
                                  Stock       Capital     Restricted     ESOP      By RSP        Stock       (loss)     Equity
                                 --------   -----------   -----------  ---------  ---------   -----------   --------  -----------
<S>                            <C>        <C>           <C>          <C>        <C>         <C>           <C>       <C>
Balance, June 30, 2002           $108,445   $10,380,430   $10,274,004  $(337,394) $(215,775)  $(2,233,265)  $247,301  $18,223,746

Comprehensive income:
   Net income                                               1,884,463                                                   1,884,463
   Net unrealized gain on
    securities, net of tax
    of $128,786                                                                                              249,997      249,997
                                                                                                                      -----------
Comprehensive income                                                                                                    2,134,460
Accrued compensation expense
  for RSP                                                                            12,102                                12,102
RSP forfeited shares                                                                 (3,083)                               (3,083)
Release of earned ESOP shares                    87,129                   86,760                                          173,889
Cash dividends declared
   ($.34 per share)                                          (453,161)                                                   (453,161)
                                 --------   -----------   -----------  ---------  ---------   -----------   --------  -----------
Balance, June 30, 2003            108,445    10,467,559    11,705,306   (250,634)  (206,756)   (2,233,265)   497,298   20,087,953
Comprehensive income:
   Net income                                               2,492,089                                                   2,492,089
   Net unrealized loss on
    securities, net of tax
    benefit of $279,078                                                                                     (541,740)    (541,740)
                                                                                                                      -----------
Comprehensive income                                                                                                    1,950,349
Accrued compensation expense
  for RSP                                                                             1,037                                 1,037
Release of earned ESOP shares                   142,051                   86,809                                          228,860
Cash dividends declared
   ($.40 per share)                                          (538,507)                                                   (538,507)
                                 --------   -----------   -----------  ---------  ---------   -----------   --------  -----------
Balance, June 30, 2004           $108,445   $10,609,610   $13,658,888  $(163,825) $(205,719)  $(2,233,265)  $(44,442) $21,729,692
                                 ========   ===========   ===========  =========  =========   ===========   ========  ===========

Disclosure of reclassification amount:
                                                                                                   2003        2004
                                                                                                 --------   ---------
   Unrealized holding gains/losses arising during the period                                     $249,997   $(240,121)
   Less reclassification adjustment for gains included
     in net income, net of tax benefit of $155,380                                                      -    (301,619)
                                                                                                 --------   ---------
        Net unrealized losses/gains on securities                                                $249,997   $(541,740)
                                                                                                 ========   =========
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       F-5

<PAGE>

                            ADVANCE FINANCIAL BANCORP
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                         Year Ended June 30,
                                                                         2004            2003
                                                                    ------------    ------------
<S>                                                                <C>             <C>
OPERATING ACTIVITIES
     Net income                                                     $  2,492,089    $  1,884,463
     Adjustments to reconcile net income to net cash provided by
      operating activities:
         Depreciation, amortization and accretion, net                   803,319         500,040
         Provision for loan losses                                     1,168,650         398,700
         Gain on sale of loans                                          (251,185)       (376,989)
         Gain on sale of investments                                    (456,999)              -
         Origination of loans held for sale                          (20,841,325)    (33,279,462)
         Proceeds from the sale of loans                              26,510,420      28,547,390
         Decrease (increase) in accrued interest receivable              219,832        (287,213)
         Decrease in accrued interest payable                            (25,545)           (622)
         Other, net                                                     (264,021)        (33,861)
                                                                    ------------    ------------
              Net cash provided by (used in) operating activities      9,355,235      (2,647,554)
                                                                    ------------    ------------
INVESTING ACTIVITIES
     Investment securities held to maturity:
         Purchases                                                             -     (18,587,601)
         Maturities and repayments                                     8,000,000       3,500,000
     Investment securities available for sale:
         Purchases                                                             -      (5,507,886)
         Maturities and repayments                                         1,790       7,536,997
         Sales                                                        11,211,377               -
     Mortgage-backed securities held to maturity:
         Purchases                                                             -     (19,142,043)
         Maturities and repayments                                     6,167,816       1,856,087
     Mortgage-backed securities available for sale:
         Purchases                                                             -      (5,756,301)
         Maturities and repayments                                     3,103,284       4,494,423
         Sales                                                           324,284               -
     Purchases of Federal Home Loan Bank Stock                          (478,700)       (621,300)
     Net increase in loans                                           (31,338,984)    (57,565,028)
     Purchases of premises and equipment                                (174,490)     (1,322,534)
     Branch Acquisition:
         Loans purchased                                                       -         (85,347)
         Purchase of premises and equipment                                    -        (440,592)
         Premium paid on deposits                                              -      (5,853,373)
         Deposits assumed                                                      -      88,260,100
         Other, net                                                            -        (184,924)
                                                                    ------------    ------------
              Net cash used in investing activities                   (3,183,623)     (9,419,322)
                                                                    ------------    ------------
FINANCING ACTIVITIES
     Net (decrease) increase in deposits                              (5,104,298)      9,510,089
     Net increase in short term borrowings                             3,000,000               -
     Net proceeds from issuance of subordinated debentures                     -       7,207,000
     Net change in advances for taxes and insurance                      (40,415)        102,829
     Cash dividends paid                                                (538,507)       (453,161)
                                                                    ------------    ------------
         Net cash (used in) provided by financing activities          (2,683,220)     16,366,757
                                                                    ------------    ------------

         Increase in cash and cash equivalents                         3,488,392       4,299,881

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                        16,070,321      11,770,440
                                                                    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                            $ 19,558,713    $ 16,070,321
                                                                    ============    ============
</TABLE>

See accompanying notes to the consolidated financial statements

                                       F-6

<PAGE>

                            ADVANCE FINANCIAL BANCORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of significant  accounting and reporting  policies applied in the
     presentation of the accompanying financial statements follows:

     Nature of Operations and Basis of Presentation
     ----------------------------------------------

     Advance Financial Bancorp (the "Company") is the holding company of Advance
     Financial Savings Bank, (the "Bank"). The Bank and its wholly-owned service
     corporation  subsidiary,  Advance  Financial  Service  Corporation  of West
     Virginia are wholly-owned  subsidiaries of the Company. The Company and its
     subsidiaries  derive  substantially  all  their  income  from  banking  and
     bank-related  services which include interest  earnings on residential real
     estate,  commercial real estate,  and consumer loan  financing,  as well as
     interest earnings on investment securities,  interest-bearing deposits with
     other  financial  institutions,  and charges  for  deposit  services to its
     customers.  The Bank is a federally chartered stock savings bank located in
     Wellsburg,  WV. The  Company  and the Bank are  subject to  regulation  and
     supervision by the Office of Thrift Supervision.

     The consolidated  financial  statements include the accounts of the Company
     and its wholly-owned subsidiary, the Bank, and its wholly-owned subsidiary,
     Advance  Financial  Service  Corporation  of West  Virginia.  All  material
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.  The Company's  fiscal year end for  financial  reporting is
     June 30. For  regulatory  and income tax  reporting  purposes,  the Company
     reports on a December 31 calendar year basis.

     The consolidated financial statements have been prepared in conformity with
     accounting  principles  generally accepted in the United States of America.
     In preparing the consolidated financial statements,  management is required
     to make  estimates  and  assumptions  that affect the  reported  amounts of
     assets and liabilities as of the date of the balance sheet and revenues and
     expenses for the period.  Actual  results could differ  significantly  from
     those estimates. The major accounting policies and practices are summarized
     below.

     Investment Securities Including Mortgage-Backed Securities
     ----------------------------------------------------------

     Debt and Equity  securities  consist of  mortgage-backed  securities,  U.S.
     Government and federal agency  obligations,  obligations of state and local
     governments  and, money funds.  Securities are  classified,  at the time of
     purchase based upon  management's  intention and ability,  as available for
     sale or held to  maturity.  The  company  does not hold any  securities  as
     trading.  Securities  classified as held to maturity are stated at cost and
     adjusted for  amortization of premium and accretion of discount,  which are
     computed  using a level yield method and are  recognized as  adjustments of
     interest income. Securities classified as available for sale are carried at
     estimated fair value with unrealized  holding gains and losses reflected as
     a separate component of shareholders' equity.  Realized gains and losses on
     the sale of debt and equity  securities  are  computed  using the  specific
     identification method.  Interest and dividends on investment securities are
     recognized as income when earned.

     Common  stock  of the  Federal  Home  Loan  Bank  (the  "FHLB")  represents
     ownership  in an  institution,  which is  wholly-owned  by other  financial
     institutions.  This equity  security is accounted  for at cost and reported
     separately on the consolidated balance sheet.

     Loans Held for Sale
     -------------------

     Mortgage  loans  originated  and held for sale in the secondary  market are
     carried at the lower of cost or market  value  determined  on an  aggregate
     basis.  Net  unrealized  losses are  recognized  in a  valuation  allowance
     through  charges to income.  Gains and losses on the sale of loans held for
     sale are determined using the specific  identification  method. The company
     had  $269,800  and  $5,687,708  in loans held for sale at June 30, 2004 and
     2003, respectively.

                                       F-7

<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Mortgage Servicing Rights
     -------------------------

     Mortgage  Servicing rights ("MSR") are the rights to service mortgage loans
     for others and are acquired  primarily through loan sales.  Capitalized MSR
     are  reported in other  assets.  After the  serviced  residential  mortgage
     portfolio  is  stratified  by interest  rate,  the fair value of the MSR is
     determined  using the  present  value of the  estimated  future cash flows,
     assuming a market discount and certain  forecasted  prepayment  rates based
     upon industry experience.  MSR are amortized in proportion to, and over the
     period of, the estimated net servicing  income of the underlying  financial
     assets.  The  assessment  of the  impairment on MSR is based on the current
     fair  value of those  rights.  Such  impairment  is  recognized  through  a
     valuation  allowance  established  through a charge  against  gains on loan
     sales.  Total  income from  servicing  was  $233,712  and  $161,765 for the
     periods ended June 30, 2004 and 2003, respectively.

     Loans
     -----

     Loans are stated at unpaid principal balances,  less loans in process,  net
     deferred loan fees, and the allowance for loan losses. Interest on loans is
     credited  to income as earned on an accrual  basis.  Loan  origination  and
     commitment  fees and  certain  direct  loan  origination  costs  are  being
     deferred  and the net amount  amortized  as an  adjustment  of the  related
     loan's yield.  The Company is amortizing these amounts over the contractual
     life of the related loans using the interest method.

     A loan is  considered  impaired  when it is probable that the borrower will
     not repay the loan according to the original  contractual terms of the loan
     agreement.   Management  has  determined   that  first  mortgage  loans  on
     one-to-four family properties and all consumer loans represent large groups
     of   smaller-balance,   homogeneous  loans  that  are  to  be  collectively
     evaluated. Management considers an insignificant delay, which is defined as
     less than 90 days by the Company, will not cause a loan to be classified as
     impaired. A loan is not impaired during a period of delay in payment if the
     Company  expects to collect all amounts due including  interest  accrued at
     the  contractual  interest  rate  during  the  period of  delay.  All loans
     identified  as impaired are  evaluated  independently  by  management.  The
     Company  estimates  credit  losses on  impaired  loans based on the present
     value of expected cash flows or the fair value of the underlying collateral
     if the loan  repayment  is expected to come from the sale or  operation  of
     said collateral.  Impaired loans or portions thereof,  are charged-off when
     it is determined  that a realized  loss has  occurred.  Until such time, an
     allowance for loan losses is maintained for estimated losses. Cash receipts
     on impaired loans are applied first to accrued interest receivable,  unless
     otherwise required by the loan terms,  except when an impaired loan is also
     a nonaccrual  loan,  in which case the portion of the  receipts  related to
     interest is recognized as income.

     Loans considered to be nonperforming  include  nonaccrual  loans,  accruing
     loans  delinquent  more  than  90  days  and  restructured  loans.  A loan,
     including an impaired loan, is classified as nonaccrual when collectability
     is in doubt. When a loan is placed on nonaccrual status, unpaid interest is
     reversed and an allowance is established by a charge to income equal to all
     accrued interest. Income is subsequently recognized only to the extent that
     cash payments are received.  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).

     Allowance for Loan Losses
     -------------------------

     The Company  maintains  an  allowance  for loan  losses  adequate to absorb
     estimated probable losses inherent in the loan portfolio. The allowance for
     loan losses  consists  of  specific  reserves  for  individual  credits and
     general  reserves for types and  portfolios of loans based upon  historical
     loan loss experience,  adjusted for concentrations and the current economic
     environment.   All  outstanding  loans,   letters  of  credit  and  binding
     commitments to provide  financing are considered in evaluating the adequacy
     of the  allowance  for loan  losses.  Increases to the  allowance  for loan
     losses are made by charges to the provision  for loan losses.  Loans deemed
     to be  uncollectible  are charged  against the  allowance  for loan losses.
     Recoveries of previously  charged-off amounts are credited to the allowance
     for loan losses.

                                       F-8

<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Allowance for Loan Losses (Continued)
     -------------------------------------

     In  determining  the adequacy of the allowance for loan losses,  management
     reviews and evaluates on a quarterly  basis the potential  risk in the loan
     portfolio. This evaluation process is documented by management and approved
     by the Company's  Board of Directors.  It is performed by senior members of
     management  with  years  of  lending  and  review  experience.   Management
     evaluates homogenous  consumer-oriented  loans, such as 1-4 family mortgage
     loans  and  retail  consumer  loans,  based  upon all or a  combination  of
     delinquencies,  loan concentrations and charge-off  experience.  Management
     supplements this analysis by reviewing the local economy,  political trends
     effecting  local industry and business  development and other known factors
     which may impact  future  credit  losses.  Nonhomogenous  loans,  generally
     defined as  commercial  business  and real estate  loans,  are  selected by
     management  to be  reviewed on a quarterly  bases upon the  combination  of
     delinquencies,  concentrations  and other known factors that may effect the
     local economy and more specifically the individual businesses.  During this
     evaluation,  the individual loans are evaluated quarterly by senior members
     of management for impairment as prescribed under SFAS No. 114,  "Accounting
     by Creditors for Impairment of a Loan". Impairment losses are assumed when,
     based upon  current  information,  it is probable  that the Company will be
     unable to collect all amounts due according to the contractual terms of the
     loan agreement. Impairment is measured by a loan's observable market value,
     fair value of the  collateral  or the  present  value of future  cash flows
     discounted at the loan's effective interest rate.

     This data on impairment is combined with the other data used for homogenous
     loans and is used by the  classified  asset  committee in  determining  the
     adequacy of the allowance for loan losses.  Although management believes it
     uses the best  information  available  to  determine  the  adequacy  of the
     allowance  for loan losses,  future  adjustments  to the  allowance  may be
     necessary  and  the  results  of  operations  could  be  significantly  and
     adversely   affected  if  circumstances   differ   substantially  from  the
     assumptions used in making the determination.

     Real Estate Acquired in Settlement of Loans
     -------------------------------------------

     Real estate  acquired in  settlement  of loans  ("REO") are reported at the
     lower of cost or fair value at the  acquisition  date, and  subsequently at
     the lower of its new cost or fair  value  minus  estimated  selling  costs.
     Costs  represents  the unpaid  loan  balance at the  acquisition  date plus
     expenses,  when  appropriate,  incurred to bring the  property to a salable
     condition.  REO assets are  reviewed  periodically  by  management  and any
     subsequent  decrease in the estimated market value of the asset is taken as
     a loss on the income statement in the current period. Operating expenses of
     such properties, net of related income and losses on their disposition, are
     expenses as incurred and included in the "other  expense"  line item on the
     income statement in the current period.

     Premises and Equipment
     ----------------------

     Land is carried at cost;  buildings and equipment are stated at cost,  less
     accumulated  depreciation.  The  provision  for  depreciation  is  computed
     primarily by the straight-line method based upon the estimated useful lives
     of the assets in the following ranges:

              Buildings                                       40 Years
              Building Improvements and Fixtures           10-20 Years
              Office Equipment and Furniture                3-10 Years

     Expenditures  for  maintenance  and repairs are charged  against  income as
     incurred. Costs of major additions and improvements are capitalized.

     Other Intangibles, net
     ----------------------

     Other intangibles,  net include core deposit intangibles.  The core deposit
     intangibles are being amortized over a ten year life. The recoverability of
     the carrying  value of intangible  assets is evaluated on an ongoing basis,
     and permanent declines in value, if any, are charged to expense.

                                       F-9

<PAGE>

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill
--------

Goodwill is the excess cost over the fair value of assets acquired in connection
with a business  acquisition.  On July 1, 2001, the Company adopted Statement of
Financial  Accounting  Standards  ("FAS") No. 142, Goodwill and Other Intangible
Assets, which changed the accounting for goodwill from an amortization method to
an  impairment-only  approach.  This statement calls for a two-step  process for
testing the  impairment of goodwill on at least an annual  basis.  This approach
could  cause more  volatility  in the  Company's  reported  net  income  because
impairment  losses, if any, could occur irregularly and in varying amounts.  The
Company  performed its impairment  analysis of goodwill and determined  that the
estimated fair value exceeded the carrying amount.

Income Taxes
------------

Deferred tax assets and  liabilities  are reflected at currently  enacted income
tax  rates  applicable  to the  period  in which  the  deferred  tax  assets  or
liabilities  are  expected to be realized or settled.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision for income taxes.  Deferred  income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period. The
Company and its subsidiary file a consolidated income tax return.

Earnings per Share
------------------

The Company provides dual  presentation of basic and diluted earnings per share.
Basic  earnings  per share is  calculated  by dividing  net income  available to
common stockholders by the weighted-average  number of common shares outstanding
during the period.  Diluted  earnings  per share is  calculated  by dividing net
income  available  to  common  stockholders,  adjusted  for the  effects  of any
dilutive   securities,   by  the   weighted-average   number  of  common  shares
outstanding, adjusted for the effects of any dilutive securities.

Effective for shareholders of record as of November 10, 2003, the Company issued
a three for two  stock  split.  The stock  split was done in the form of a stock
dividend.  All references in the accompanying financial statements to the number
of common  shares and per share  amounts for 2003 have been  restated to reflect
the stock split.

Comprehensive Income
--------------------

     The Company is required  to present  comprehensive  income in a full set of
general  purpose  financial   statements  for  all  periods   presented.   Other
comprehensive income is comprised exclusively of unrealized holding gains on the
available for sale securities  portfolio.  The Company has elected to report the
effects of other  comprehensive  income as part of the  Statement  of Changes in
Stockholders' Equity.

Cash Flow Information
---------------------

The Company has defined cash and cash  equivalents as cash on hand,  amounts due
from depository institutions,  and overnight deposits with the Federal Home Loan
Bank and the Federal Reserve Bank.

Cash  payments  for  interest  for the fiscal years ended June 30, 2004 and 2003
were $7,399,074 and $7,258,813, respectively. Cash payments for income taxes for
the fiscal years ended June 30, 2004 and 2003 were  $1,530,205  and  $1,038,195,
respectively.

Stock Options
-------------

The Company  maintains  a stock  option plan for the  directors,  officers,  and
employees.  The  stock  options  typically  have  expiration  terms of ten years
subject to certain  extensions  and early  terminations.  The per share exercise
price of a stock  option  shall be, at a  minimum,  equal to the fair value of a
share of common  stock on the date the option is granted.  Because the  exercise
price of the Company's  stock options  equals the market price of the underlying
stock on the date of the grant,  no  compensation  expense is  recognized in the
Company's financial statements.  Pro forma net income and earnings per share are
presented to reflect the impact of the stock option plan  assuming  compensation
expense had been effected  based on the fair value of the stock options  granted
under this plan during the vesting  period.  For the periods ended June 30, 2004
and 2003,  stock  options  granted  and  vesting  had no effect on pro forma net
income or earnings.  For the period ended June 30, 2004,  stock options  granted
during the period were  anti-dilutive  due to the exercise  price of the options
exceeding  the strike price by $.93  ($18.23-$17.30).  For the period ended June
30,  2003,  the  company  had no options  granted  that would  require pro forma
calculations.

                                      F-10

<PAGE>
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements
--------------------------------

In December  2003, the Financial  Accounting  Standards  Board ("FASB")  revised
Statement  of  Financial   Accounting  Standards  ("FAS")  No.  132,  Employers'
Disclosures  about Pension and Other  Postretirement  Benefits.  This  statement
retains  the  disclosures  required  by FAS  No.  132,  which  standardized  the
disclosure  requirements for pensions and other  postretirement  benefits to the
extent practicable and requires additional information on changes in the benefit
obligations  and  fair  value of plan  assets.  Additional  disclosures  include
information   describing  the  types  of  plan  assets,   investment   strategy,
measurement  date(s),  plan  obligations,  cash  flows,  and  components  of net
periodic benefit cost recognized during interim periods.  This statement retains
reduced disclosure  requirements for nonpublic entities from FAS No. 132, and it
includes reduced disclosure for certain of the new requirements.  This statement
is effective for financial  statements  with fiscal years ending after  December
15, 2003. The interim  disclosures  required by this statement are effective for
interim  periods  beginning  after  December  15,  2003.  The  adoption  of this
statement  did  not  have  a  material   effect  on  the  Company's   disclosure
requirements.

In April,  2003,  the FASB issued FAS No. 149,  Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities.  This  statement  amends  and
clarifies  accounting for derivative  instruments,  including certain derivative
instruments  embedded in other contracts,  and for hedging  activities under FAS
No. 133. The amendments set forth in FAS No. 149 improve financial  reporting by
requiring  that  contracts  with  comparable  characteristics  be accounted  for
similarly.  In particular,  this statement  clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as  discussed  in FAS No. 133.  In  addition,  it  clarifies  when a  derivative
contains a financing  component that warrants special reporting in the statement
of cash flows.  FAS No.149 amends certain other existing  pronouncements.  Those
changes  will  result  in  more  consistent  reporting  of  contracts  that  are
derivatives in their entirety or that contain embedded  derivatives that warrant
separate  accounting.  This statement is effective for contracts entered into or
modified  after  September  30,  2003,  except as stated  below and for  hedging
relationships  designated  after  September  30, 2003.  The  guidance  should be
applied  prospectively.  The provisions of this statement that relate to FAS No.
133  Implementation  Issues that have been  effective  for fiscal  quarters that
began prior to September 15, 2003,  should  continue to be applied in accordance
with their respective effective dates. In addition,  certain provisions relating
to forward purchases or sales of when-issued securities or other securities that
do not yet  exist,  should  be  applied  to  existing  contracts  as well as new
contracts  entered into after September 30, 2003. The adoption of this statement
did not have a material effect on the Company's financial position or results of
operations.

In May 2003,  the FASB issued FAS No.  150,  Accounting  for  Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity. This statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Such  instruments may have
been previously  classified as equity. This statement is effective for financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period beginning after September
15, 2003. The adoption of this  statement did not have a material  effect on the
Company's reported equity.

In  January,  2003,  the FASB issued  Interpretation  No. 46,  Consolidation  of
Variable Interest Entities,  in an effort to expand upon and strengthen existing
accounting  guidance  that  addresses  when  a  company  should  include  in its
financial  statements the assets,  liabilities and activities of another entity.
The  objective  of this  interpretation  is not to restrict  the use of variable
interest entities but to improve financial  reporting by companies involved with
variable  interest  entities.  Until now,  one company  generally  has  included
another entity in its  consolidated  financial  statements only if it controlled
the  entity  through  voting  interests.  This  interpretation  changes  that by
requiring a variable  interest  entity to be  consolidated  by a company if that
company is subject to a majority of the risk of loss from the variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns or both. The  consolidation  requirements of this  interpretation  apply
immediately to variable  interest  entities  created after January 31, 2003. The
consolidation  requirements  apply to older entities in the first fiscal year or
interim  period  beginning  after  June  15,  2003.  Certain  of the  disclosure
requirements  apply in all financial  statements  issued after January 31, 2003,
regardless of when the variable  interest  entity was  established.  In October,
2003, the FASB decided to defer to the fourth quarter from the third quarter the
implementation  date for  Interpretation  No. 46. This  deferral only applies to
variable  interest entities that existed prior to February 1, 2003. The adoption
of this  interpretation has not and is not expected to have a material effect on
the Company's financial position or results of operations

                                      F-11

<PAGE>

     Reclassification of Comparative Amounts
     ---------------------------------------

     Certain  comparative  account  balances  for the  prior  period  have  been
     reclassified  to  conform  to  the  current  period  classifications.  Such
     reclassifications did not affect net income.

2.   BUSINESS COMBINATIONS

     Branch acquisition from The Second National Bank of Warren
     ----------------------------------------------------------

     At the close of business,  February 7, 2003, the Company completed a branch
     purchase  and deposit  assumption  of The Second  National  Bank of Warren,
     Ohio's two Steubenville, Ohio branches. The assumption and purchase had the
     following  net  classifications  on the  Company's  Balance Sheet as of the
     close of business February 7, 2003:

              ASSETS
              ------
              Cash on hand and in banks                              $   403,482
              Interest-bearing deposits with other institutions       81,569,300
              Loans, net                                                  85,347
              Office Properties and Equipment, net                       368,650
              Goodwill                                                 4,700,472
              Core Deposit Intangible                                  1,783,735
                                                                     -----------
                  Total Assets                                       $88,910,986
                                                                     ===========

              Liabilities
              -----------

              Deposits                                               $88,665,696
              Accrued interest payable                                   182,189
              Accounts payable and other liabilities                      63,101
                                                                     -----------
                  Total Liabilities                                  $88,910,986
                                                                     ===========

     The "Core Deposit  Intangible" noted above is included on the Balance Sheet
     in the line item "Other  Intangibles,  net". The amortization of intangible
     assets  totaled  $178,374 and $74,322 for the years ended June 30, 2004 and
     2003,  respectively.  The estimated life of the Core Deposit  Intangible is
     120 months.

     On March 31, 2003, the Bank notified the Office of Thrift  Supervision  and
     the customers of the Market Street branch of the Company's  intent to close
     that branch  effective June 30, 2003. The Market Street location was one of
     the two branches  acquired  from the Second  National  Bank of Warren as of
     February  7, 2003.  The closure was due to this  branch's  close  proximity
     (approximately  1.1 miles) to the de novo branch built on Dunbar  Avenue in
     Steubenville, Ohio and opened in September 2002.

3.   EARNINGS PER SHARE

     There were no convertible securities, which would affect the denominator in
     calculating basic and diluted earnings per share; therefore,  net income as
     presented  on the  Consolidated  Statement  of  Income  will be used as the
     numerator.   The  following   table  sets  forth  the  composition  of  the
     weighted-average  common shares (denominator) used in the basic and diluted
     earnings per share computation.

<TABLE>
<CAPTION>
                                                                              2004             2003
                                                                            ---------        ---------
<S>                                                                       <C>              <C>
         Weighted-average common shares outstanding                         1,626,621        1,626,621
         Average treasury stock shares                                       (228,248)        (228,248)
         Average unearned ESOP and RSP shares                                 (47,542)         (60,349)
                                                                            ---------        ---------
         Weighted-average common shares and
             common stock equivalents used to calculate basic EPS           1,350,831        1,338,024

         Additional common stock equivalents (155,860 options granted,
           none exercised) used to calculate diluted EPS                       27,644            6,282
                                                                            ---------        ---------
         Weighted-average common shares and
             common stock equivalents used to calculate
              diluted EPS                                                   1,378,475        1,344,306
                                                                            =========        =========
</TABLE>

                                      F-12

<PAGE>

4.   INVESTMENT SECURITIES

     The  amortized  cost  and  estimated  market  value of  investments  are as
follows:

<TABLE>
<CAPTION>
                                                                                   2004
                                                           -----------------------------------------------------
                                                                            Gross        Gross
                                                            Amortized     Unrealized   Unrealized   Est. Market
                                                               Cost         Gains        Losses        Value
                                                           -----------     --------     ---------    -----------
<S>                                                       <C>            <C>        <C>              <C>
     Held-to-maturity
     ----------------
         U.S. Government and Agency Obligations             $4,001,147     $  1,246    $   (17,243)    $3,985,150
         Municipal Bond Obligations                          3,088,595        4,154        (16,610)     3,076,139
                                                            ----------     --------    -----------     ----------
              Total held to maturity                         7,089,742        5,400        (33,853)     7,061,289
                                                            ----------     --------    -----------     ----------

     Available-for-sale
     ------------------
         Money Fund Securities                                  13,569            -           (304)        13,265
                                                            ----------     --------    -----------     ----------
              Total available for sale                          13,569            -           (304)        13,265
                                                            ----------     --------    -----------     ----------
              Total Investment Securities                   $7,103,311     $  5,400    $   (34,157)    $7,074,554
                                                            ==========     ========    ===========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                   2003
                                                           -----------------------------------------------------
                                                                            Gross        Gross
                                                            Amortized     Unrealized   Unrealized   Est. Market
                                                               Cost         Gains        Losses        Value
                                                           -----------     --------     ---------    -----------
<S>                                                       <C>            <C>          <C>           <C>
     Held-to-maturity
     ----------------
         U.S. Government and Agency Obligations            $11,998,214     $ 90,088     $       -    $12,088,302
         Municipal Bond Obligations                          3,088,261      122,043             -      3,210,304
                                                           -----------     --------     ---------    -----------
              Total held to maturity                        15,086,475      212,131             -     15,298,606
                                                           -----------     --------     ---------    -----------
     Available-for-sale
     ------------------
         U.S. Government and Agency Obligations              3,000,000       31,508             -      3,031,508
         Municipal Bond Obligations                          5,759,116      545,736             -      6,304,852
         Corporate Bond Obligations                          1,995,418       47,878             -      2,043,296
         Money Fund Securities                                  15,392            -          (347)        15,045
                                                           -----------     --------     ---------    -----------
              Total available for sale                      10,769,926      625,122          (347)    11,394,701
                                                           -----------     --------     ---------    -----------
              Total Investment Securities                  $25,856,401     $837,253     $    (347)   $26,693,307
                                                           ===========     ========     =========    ===========
</TABLE>

     The amortized cost and estimated fair value of debt  securities at June 30,
     2004, by contractual  maturity,  are shown below.  Expected maturities will
     differ from contractual  maturities because borrowers may have the right to
     call or repay obligations with or without call or repayment penalties.

<TABLE>
<CAPTION>
                                                                                       Amortized       Est. Market
                                                                                          Cost            Value
                                                                                      -----------    -----------
<S>                                                                                   <C>            <C>
         One year or less                                                             $    13,569    $    13,265
         After one through five years                                                   4,001,147      3,985,150
         After five through ten years                                                           -              -
         After ten years                                                                3,088,595      3,076,139
                                                                                      -----------    -----------
              Total                                                                   $ 7,103,311    $ 7,074,554
                                                                                      ===========    ===========
</TABLE>

     Proceeds  received on securities as a result of maturities  and calls prior
     to maturity were  $8,001,790 and  $11,036,997  for the years ended June 30,
     2004 and 2003,  respectively.  Proceeds  received on  securities  sold were
     $11,211,377   and  $0  for  the  years   ended  June  30,  2004  and  2003,
     respectively. The company realized gross gains of $454,096 and gross losses
     of $7,719 as a result of the sales.

                                      F-13

<PAGE>

5    MORTGAGE-BACKED SECURITIES

     The amortized cost and estimated market value of mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
                                                                                   2004
                                                           -----------------------------------------------------
                                                                            Gross        Gross
                                                            Amortized     Unrealized   Unrealized   Est. Market
                                                               Cost         Gains        Losses        Value
                                                           -----------     --------     ---------    -----------
<S>                                                       <C>            <C>        <C>              <C>
     Held-to-maturity
     ----------------
         Government National Mortgage Association         $ 3,975,998    $        -   $  (98,987)   $  3,877,011
         Federal Home Loan Mortgage Corporation             5,949,903             -     (232,804)      5,717,099
         Federal National Mortgage Association              2,381,416         7,082      (55,214)      2,333,284
                                                          -----------    ----------    ---------     -----------
              Total held to maturity                       12,307,317         7,082     (387,005)     11,927,394
                                                          -----------    ----------    ---------     -----------
     Available-for-sale
     ------------------
         Government National Mortgage Association           3,603,306        28,153      (54,596)      3,576,863
         Federal Home Loan Mortgage Corporation               101,542         4,713            -         106,255
         Federal National Mortgage Association              1,653,026         3,312      (48,610)      1,607,728
                                                          -----------    ----------    ---------     -----------
              Total available for sale                      5,357,874        36,178     (103,206)      5,290,846
                                                          -----------    ----------    ---------     -----------
              Total mortgage backed securities            $17,665,191    $   43,260    $(490,211)    $17,218,240
                                                          ===========    ==========    =========     ===========

</TABLE>

<TABLE>
<CAPTION>
                                                                                   2003
                                                           -----------------------------------------------------
                                                                            Gross        Gross
                                                            Amortized     Unrealized   Unrealized   Est. Market
                                                               Cost         Gains        Losses        Value
                                                           -----------     --------     ---------    -----------
<S>                                                       <C>            <C>        <C>            <C>
     Held-to-maturity
     ----------------
         Government National Mortgage Association         $ 5,193,798      $ 44,823     $      -     $ 5,238,621
         Federal Home Loan Mortgage Corporation             9,669,740        28,705            -       9,698,445
         Federal National Mortgage Association              3,778,994        34,958            -       3,813,952
                                                          -----------      --------    ---------     -----------
              Total held to maturity                       18,642,532       108,486            -      18,751,018
                                                          -----------      --------    ---------     -----------
     Available-for-sale
     ------------------
         Government National Mortgage Association           5,835,216       113,113      (18,299)      5,930,030
         Federal Home Loan Mortgage Corporation               259,153        12,665            -         271,818
         Federal National Mortgage Association              2,754,986        23,064            -       2,778,050
                                                          -----------      --------    ---------     -----------
              Total available for sale                      8,849,355       148,842      (18,299)      8,979,898
                                                          -----------      --------    ---------     -----------
              Total mortgage backed securities            $27,491,887      $257,328    $ (18,299)    $27,730,916
                                                          ===========      ========    =========     ===========
</TABLE>

     Mortgage-backed   securities  provide  for  periodic,   generally  monthly,
     payments of principal and interest and have contractual  maturities ranging
     from two to twenty-eight years at June 30, 2004.  However,  due to expected
     repayment terms being  significantly less than the underlying mortgage loan
     pool contractual maturities,  the estimated lives of these securities could
     be significantly shorter. As of June 30, 2004,  mortgage-backed  securities
     with a book value of $1,780,123 and a fair value of $1,741,290 are one-year
     adjustable types currently paying a weighted average 2.905%.  The remaining
     instruments  are all fixed  rate types  with a  weighted  average  yield of
     4.90%. Certain instruments have been classified as available for sale based
     on management's  evaluation of liquidity needs while  optimizing  return at
     the time of purchase.

     Proceeds  from the sale of  mortgage-backed  securities  for the year ended
     June 30,  2004  totaled  $324,284.  The sales  resulted  in gross  gains of
     $10,997  and gross  losses of $375 as a result of the sales.  There were no
     sales for the year ended June 30, 2003.

                                      F-14

<PAGE>

6    UNREALIZED LOSSES ON INVESTMENT AND MORTGAGE-BACKED SECURITIES

The following table shows the Company's gross unrealized  losses and fair value,
aggregate  by  investment  category  and  length  of time  that  the  individual
securities have been in a continuous unrealized loss position, at June 30, 2004.

<TABLE>
<CAPTION>
                              Less than Twelve Months   Twelve Months or Greater               Total
                              -----------------------   ------------------------   ---------------------------
                              Estimated    Gross        Estimated       Gross        Estimated       Gross
                                Market   Unrealized      Market       Unrealized      Market       Unrealized
                                Value      Losses        Value          Losses        Value          Losses
                                -----      ------        -----          ------        -----          ------
<S>                          <C>           <C>       <C>              <C>        <C>             <C>
Investment Securities
  US Government and
    Agency Obligations         $      -      $   -     $ 2,983,904     $ 17,243    $ 2,983,904     $ 17,243
  Municipal Bond Obligations          -          -       1,876,643       16,610      1,876,643       16,610
  Money Fund Securities          13,265        304               -            -         13,265          304
Mortgage-Backed Securities
  GNMA                                -          -       6,950,693      153,583      6,950,693      153,583
  FHLMC                               -          -       5,717,099      232,804      5,717,099      232,804
  GNMA                                -          -       3,359,324      103,824      3,359,324      103,824
                               --------      -----     -----------     --------    -----------     --------
    Total                      $ 13,265      $ 304     $20,887,663     $524,064    $20,900,928     $524,368
                               ========      =====     ===========     ========    ===========     ========
</TABLE>

The Company's  investment  and  mortgage-backed  securities  portfolio  contains
unrealized losses of direct  obligations of US Government  agencies,  states and
political subdivisions, and Money Fund securities.

On a  monthly  basis,  the  Company  evaluates  the  severity  and  duration  of
impairment for its investment and  mortgage-backed  securities  portfolio unless
the Company has the ability to hold the security to maturity without incurring a
loss.  Generally,   impairment  is  considered  other  than  temporary  when  an
investment has sustained a decline of 10% or more for six months.

The  Company  has  concluded   that  any   impairment  of  its   investment  and
mortgage-backed  securities  portfolio  is not other than  temporary  but is the
result  of  interest  rate  changes  that  is  not  expected  to  result  in the
noncollection of principal and interest.

7    LOANS RECEIVABLE

     Loans receivable are comprised of the following at June 30:

                                               2004                2003
                                          ------------        ------------
Mortgage loans:
     1 - 4 family                         $136,700,253        $126,106,815
     1 - 4 family construction               7,944,357           4,444,470
     Multi-family                            8,997,796           8,227,328
     Non-residential                        40,247,378          39,099,195
     Non-residential construction            9,063,738           5,630,163
                                          ------------        ------------
          Total mortgage loans             202,953,522         183,507,971
                                          ------------        ------------
Consumer loans:
     Home improvement                          680,206             900,060
     Automobile - Direct                     9,042,103           8,761,516
     Automobile - Indirect                  31,902,157          22,140,818
     Share loans                             2,346,149           1,914,628
     Other                                   2,146,204           2,687,302
                                          ------------        ------------
          Total consumer loans              46,116,819          36,404,324
                                          ------------        ------------
Commercial loans:
     Automobile Dealer floor plans           7,829,890           5,260,190
     Other                                   9,179,332          12,123,803
                                          ------------        ------------
          Total Commercial Loans            17,009,222          17,383,993
                                          ------------        ------------

         Gross loans                       266,079,563         237,296,288
Less:
     Loans in process                        4,338,890           6,844,741
     Net deferred loan fees                    108,295             116,178
     Allowance for loan losses               1,798,636           1,095,822
                                          ------------        ------------
                                             6,245,821           8,056,741
                                          ------------        ------------
         Total loans, net                 $259,833,742        $229,239,547
                                          ============        ============

                                      F-15
<PAGE>

7    LOANS RECEIVABLE (Continued)

     Single  family  mortgage  loans  serviced  for Freddie  Mac,  which are not
     included  in  the  Consolidated  Balance  Sheet,  totaled  $55,994,506  and
     $42,152,677 at June 30, 2004 and 2003, respectively.

     The Company is a party to financial instruments with off-balance-sheet risk
     in the  normal  course  of  business  to meet  the  financing  needs of its
     customers.  These  financial  instruments  include  commitments  to  extend
     credit. These instruments  involve, to varying degrees,  elements of credit
     risk in excess of the  amount  recognized  in the  statement  of  financial
     condition.  The contract amounts of these instruments reflect the extent of
     involvement the Company has in particular classes of financial instruments.

     The Company's exposure to credit loss in the event of nonperformance by the
     other party to the financial instrument for commitments to extend credit is
     represented by the  contractual  amount of those  instruments.  The Company
     uses the  same  credit  policies  in  making  commitments  and  conditional
     obligations  as it does for  on-balance-sheet  instruments.  No losses  are
     anticipated by management as a result of these commitments.

     The following  represents  financial  instruments  whose  contract  amounts
represent credit risk at June 30:

                                                   2004                 2003
                                                -----------        -----------
         Commitments to originate loans
              Fixed rate                        $   289,013        $ 7,340,000
              Variable rate                     $ 1,075,995        $ 1,921,900
         Loans in process                       $ 4,338,890        $ 6,844,741
         Unused lines of credit                 $17,073,709        $15,013,399
         Letters of credit                      $    50,000        $   126,305

     The range of  interest  rates on fixed rate loan  commitments  was 5.50% to
     7.75% at June 30, 2004.

     Commitments  to extend credit are  agreements to lend to a customer as long
     as there is no  violation of any  condition  established  in the  contract.
     Commitments  generally  expire  within  30 days or have  other  termination
     clauses and may require payment of a fee. Since many of the commitments are
     expected to expire without being drawn upon, the total  commitment  amounts
     do  not  necessarily  represent  future  cash  requirements.   The  Company
     evaluates each customer's  creditworthiness  on a case-by-case  basis.  The
     amount of  collateral  obtained,  if deemed  necessary  by the Company upon
     extension of credit,  is based on  management's  credit  evaluation  of the
     counter  party.   Collateral  held  consists   primarily  of  single-family
     residences and income-producing commercial properties.

     In the  normal  course  of  business,  loans  are  extended  to  directors,
     executive  officers and their  associates.  A summary of loan  activity for
     those  directors,  executive  officers,  and  their  associates  with  loan
     balances  in excess  of  $60,000  for the year  ended  June 30,  2004 is as
     follows:

           Balance                              Amount          Balance
             2003           Additions          Collected          2004
             ----           ---------          ---------          ----

           $1,474,953       $1,384,500           $354,769      $2,504,684

     The Company's  primary business  activity is with customers  located within
     its local trade  area.  Residential,  consumer,  and  commercial  loans are
     granted. The Company also selectively funds loans originated outside of its
     trade area provided such loans meet its credit policy guidelines.  Although
     the Company has a diversified  loan  portfolio,  at June 30, 2004 and 2003,
     loans  outstanding  to  individuals  and  businesses are dependent upon the
     local economic conditions in its immediate trade area.

                                      F-16

<PAGE>

8    ALLOWANCE FOR LOAN LOSSES

     Activity  in the  allowance  for loan losses for the years ended June 30 is
     summarized as follows:


                                                        2004         2003
                                                     ----------   ----------
         Balance, beginning of period                $1,095,822   $  969,088
         Add:
              Provisions charged to operations        1,168,650      398,700
              Loan recoveries                            93,607       38,343
                                                     ----------   ----------
                  Total                               2,358,079    1,406,131
         Less: loans charged off                        559,443      310,309
                                                     ----------   ----------

         Balance, end of period                      $1,798,636   $1,095,822
                                                     ==========   ==========

     Nonperforming  loans totaled $2,404,134 and $3,080,446 at June 30, 2004 and
     2003,  respectively.  Impaired loans totaled  $138,351 and $589,659 at June
     30, 2004 and 2003, respectively. Such amounts have been subject to specific
     allowances  for loan  losses of $25,866  and  $80,104 at June 30,  2004 and
     2003,  respectively.  The average investment in impaired loans for the year
     ended June 30, 2004 was $358,003.  The interest income potential based upon
     the original terms of the contracts of these impaired loans was $32,714 for
     the year ended June 30, 2004, of this amount,  $26,309 has been  recognized
     as income for the period ended June 30, 2004.

9    PREMISES AND EQUIPMENT, NET

     Premises and equipment are summarized by major classification as follows:

                                                        2004          2003
                                                     ----------    ----------
         Land                                        $  462,972    $  416,857
         Buildings and improvements                   4,652,277     4,639,219
         Furniture, fixtures, and equipment           3,311,106     3,195,790
                                                     ----------    ----------
              Total                                   8,426,355     8,251,866
         Less accumulated depreciation                3,663,736     3,182,793
                                                     ----------    ----------
              Premises and equipment, net            $4,762,619    $5,069,073
                                                     ==========    ==========

     Depreciation  charged to  operations  amounted to $480,943 and $526,906 for
     the years ended June 30, 2004 and 2003, respectively.

10.  GOODWILL

     As of June 30,  2004 and  2003,  Goodwill  had a gross  carrying  amount of
     $4,700,472.  The gross carrying amount of goodwill is tested for impairment
     in the fourth quarter of each fiscal period,  after the annual  forecasting
     process.  Due to an expected retention of assumed deposits  associated with
     the premium paid creating the  goodwill,  no goodwill  impairment  loss was
     recognized in the current year.

11   OTHER INTANGIBLES, NET

     Other  intangibles,  net had a gross  carrying  amount  of  $1,783,735  and
     accumulated  amortization  of $252,695  and $74,322 as of June 30, 2004 and
     2003, respectively.  The estimated amortization of the intangible asset for
     the years  ending June 30, 2005 through 2012 is expected to be $178,374 for
     each year.

12.  FEDERAL HOME LOAN BANK STOCK

     The Bank is a member of the Federal Home Loan Bank System. As a member, the
     Bank  maintains an investment in the capital stock of the Federal Home Loan
     Bank  of  Pittsburgh,  at  cost.  Currently,  the  required  investment  is
     determined to be 5% of outstanding borrowings to the Federal Home Loan Bank
     of Pittsburgh plus .75% of the Bank's unused borrowing capacity. The amount
     may vary  between  4.5% -6.0% of  outstanding  borrowings  plus  0%-1.5% of
     unused  borrowing  capacity as  determined by the Federal Home Loan Bank of
     Pittsburgh's Board of Directors routinely throughout the calendar year.

                                      F-17

<PAGE>

13.  ACCRUED INTEREST RECEIVABLE

     Accrued interest receivable consists of the following:

<TABLE>
<CAPTION>
                                                                                       2004              2003
                                                                                   ----------         ----------
<S>                                                                              <C>               <C>
         Investment securities                                                     $   64,524         $  240,342
         Mortgage-backed securities                                                    68,370            110,314
         Loans receivable                                                           1,094,799          1,096,869
                                                                                   ----------         ----------
              Total                                                                $1,227,693         $1,447,525
                                                                                   ==========         ==========
</TABLE>

14.  DEPOSITS

     Deposit accounts are summarized as follows:

<TABLE>
<CAPTION>
                                                                  2004                            2003
                                                    -----------------------------    ----------------------------
                                                                        Percent of                      Percent of
                                                          Amount        Portfolio         Amount        Portfolio
                                                          ------        ---------         ------        ---------
<S>                                                <C>                  <C>         <C>                  <C>
         Non-interest-bearing                         $ 11,462,602         4.3%        $ 11,502,265        4.2%
                                                      ------------       -----         ------------      -----

         Savings accounts                               49,962,421        18.7           49,058,886       18.0
         NOW accounts                                   14,153,141         5.3           12,813,920        4.7
         Money market accounts                          38,194,799        14.2           42,048,231       15.4
                                                      ------------       -----         ------------      -----
                                                       102,310,361        38.2          103,921,037       38.1
                                                      ------------       -----         ------------      -----
         Time certificates of deposit:
              0.00 -  2.00%                             49,369,031        18.4           41,540,868       15.2
              2.01 -  4.00%                             62,025,713        23.2           69,369,394       25.4
              4.01 -  6.00%                             35,666,772        13.3           42,750,722       15.7
              6.01 -  8.00%                              6,890,155         2.6            3,744,646        1.4
                                                      ------------       -----         ------------      -----
                                                       153,951,671        57.5          157,405,630       57.7
                                                      ------------       -----         ------------      -----
                  Total                               $267,724,634       100.0%        $272,828,932      100.0%
                                                      ============       =====         ============      =====
</TABLE>


     The scheduled  maturities of time  certificates of deposit at June 30, 2004
are as follows:

<TABLE>
<CAPTION>
                                                                                                         Amount
                                                                                                    ------------
<S>                                                                                               <C>
         Within one year                                                                            $ 81,941,884
         Beyond one year but within two years                                                         28,693,888
         Beyond two years but within three years                                                      18,281,034
         Beyond three years but within five years                                                     12,368,055
         Beyond five years                                                                            12,666,810
                                                                                                    ------------
              Total                                                                                 $153,951,671
                                                                                                    ============
</TABLE>

     The Company had time certificates  with a minimum  denomination of $100,000
     in the amount of approximately $33,310,836 and $20,798,171 at June 30, 2004
     and 2003  respectively.  Deposits in excess of $100,000  are not  federally
     insured. The Company does not have any brokered deposits.

     Interest  expense by  deposit  category  for the years  ended June 30 is as
follows:

<TABLE>
<CAPTION>
                                                                                      2004               2003
                                                                                   ----------         ----------
<S>                                                                              <C>                <C>
         Passbooks                                                                 $  490,676         $  685,340
         NOW and Money Market Deposit accounts                                        544,446            634,213
         Time certificates                                                          4,785,317          4,599,024
                                                                                   ----------         ----------
                                                                                   $5,820,439         $5,918,577
                                                                                   ==========         ==========
</TABLE>

                                      F-18

<PAGE>

15.  ADVANCES FROM FEDERAL HOME LOAN BANK

     Advances from the Federal Home Loan Bank consists of the following:

<TABLE>
<CAPTION>
                                Principal   Interest   Interest
                                   Due        Due        Rate          2004              2003
                                   ---        ---        ----          ----              ----
<S>                          <C>          <C>         <C>         <C>             <C>
         Open-Repo Plus        10-22-2005   Monthly      Variable   $ 3,000,000     $         -
         Advance               06-30-2005   Monthly      6.36%        5,000,000       5,000,000
         Advance               11-03-2010   Monthly      6.05%        5,000,000       5,000,000
         Advance               12-20-2010   Monthly      5.54%        5,000,000       5,000,000
         Advance               02-28-2011   Quarterly    4.96%        5,000,000       5,000,000
                                                                    -----------     -----------
                                                                    $23,000,000     $20,000,000
                                                                    ===========     ===========
</TABLE>

     These  borrowings  are subject to the terms and conditions of the Advances,
     Collateral Pledge and Security Agreement between the Federal Home Loan Bank
     of Pittsburgh and the Bank. All advances, at June 30, 2004 have fixed rates
     with putable options. In the event the advances are called, the Company has
     the right to payoff the advance without penalty. The putable options are as
     follows:

<TABLE>
<CAPTION>
                                Principal     Putable      Interest
                                   Due         Date          Rate       Renewable Terms
                                   ---         ----          ----       ---------------

<S>                          <C>            <C>           <C>        <C>
         Advance               06-30-2005     9-30-2004     6.36%      3 month Libor +.15
         Advance               11-03-2010     8-03-2004     6.05%      3 month Libor +.20
         Advance               12-20-2010    12-20-2004     5.54%      3 month Libor +.20
         Advance               02-28-2011     8-27-2004     4.96%      3 month Libor +.20
</TABLE>

     In addition, the Bank entered into a "RepoPlus" Advance credit arrangement,
     which is renewable  annually and incurs no service charges.  As of June 30,
     2004 the Bank has a borrowing  limit of  approximately  $146 million with a
     variable  rate of  interest,  based  upon the  FHLB's  cost of  funds.  All
     borrowings  from  the FHLB  are  secured  by a  blanket  lien on  qualified
     collateral, defined principally as investment securities and mortgage loans
     which are owned by the Bank free and clear of any liens or encumbrances.


16.  SUBORDINATED DEBENTURES

     On December 19, 2002,  the Company  formed an affiliated  trust that issued
     $7.2 million in  Guaranteed  Capital  Trust  Securities  ( Trust  Preferred
     Securities). This affiliate, Advance Statutory Trust 1 (the "Trust") issued
     Trust Preferred Securities as part of a pooled offering. The offering is at
     a floating  rate of 3 month LIBOR plus 3.25% with an initial rate of 4.66%.
     The current rate effective  until  September 26, 2004 is 4.84%.  During the
     year ended June 30,  2004,  the  average  rate was 4.36%.  The  Company has
     guaranteed  payment of the  principal  and interest on the Trust  Preferred
     Securities. The capital securities mature in 2032, and they may be redeemed
     at face value after 2007.

     Under new accounting  guidance,  FASB  Interpretation No. 46, as revised in
     December 2003, the Trust is not consolidated with the Company. Accordingly,
     the  Company  does  not  report  the  securities  issued  by the  Trust  as
     liabilities, and instead reports as liabilities the subordinated debentures
     issued  by the  Company  and  held by the  Trust,  as these  are no  longer
     eliminated in  consolidation.  Accordingly,  these balances are reported as
     "Subordinated  Debentures"  and continue to be presented in the liabilities
     section of the Balance  Sheet.  The  deconsolidation  of the net assets and
     results of operations of the trust had no material  impact on the Company's
     financial  statements since the Company  continues to be obligated to repay
     debentures  held by the  trust  and  guarantees  repayment  of the  capital
     securities issued by the Trust.

                                      F-19

<PAGE>

17.  INCOME TAXES

     The  components  of income  tax  expense  for the years  ended  June 30 are
     summarized as follows:

                                                        2004           2003
                                                     ----------     ----------
         Currently payable:
              Federal                                $1,272,164     $  848,056
              State                                     246,265        201,423
                                                     ----------     ----------
                                                      1,518,429      1,049,479
              Deferred                                 (178,422)       (40,282)
                                                     ----------     ----------
                  Total                              $1,340,007     $1,009,197
                                                     ==========     ==========


     The  following  temporary  differences  gave rise to deferred tax asset and
     liabilities:

                                                        2004            2003
                                                     ----------     ----------
         Deferred tax assets
              Allowance for loan losses              $  611,536       $372,579
              Loan origination fees, net                  2,785          6,338
              Net unrealized loss on securities          22,895              -
              Other, net                                 29,321         30,468
                                                     ----------     ----------
                  Deferred tax assets                   666,537        409,385
                                                     ----------     ----------

         Deferred tax liabilities
              Premise and equipment depreciation        168,250        136,743
              Tax reserve for loan losses                     -         12,203
              Net unrealized gain on securities               -        256,184
              Other, net                                162,179        125,648
                                                     ----------     ----------
                  Deferred tax liabilities              330,429        530,778
                                                     ----------     ----------
                  Net deferred tax liability         $  336,108      $(121,393)
                                                     ==========      =========

     The  reconciliation  between the actual  provision for income taxes and the
     amount of income taxes,  which would have been provided at statutory  rates
     for the years ended June 30, is as follows:

<TABLE>
<CAPTION>
                                                                          2004                   2003
                                                                 --------------------   -----------------------
                                                                    Amount    Percent       Amount      Percent
                                                                    ------    -------       ------      -------
<S>                                                            <C>            <C>      <C>              <C>
         Provision at statutory rate                             $1,302,913     34.0%    $  983,844       34.0%
         State income tax expense, net of federal
          tax benefit                                               162,535      4.2        132,939        4.6
         Tax exempt interest                                       (116,254)    (3.0)      (108,465)      (3.8)
         Intangible amortization, net                               (74,783)    (2.0)       (35,644)      (3.5)
         Other, net                                                  65,596      1.8         36,523        3.6
                                                                 ----------     ----     ----------       ----
              Actual expense and effective rate                  $1,340,007     35.0%    $1,009,197       34.9%
                                                                 ==========     ====     ==========       ====
</TABLE>

18.  RETIREMENT PLAN

     The Company has a  profit-sharing  plan with a 401(k)  feature.  The 401(k)
     allows  employees  to make  contributions  to the  plan up to 10% of  their
     annual compensation. The Company will match 50% of the employees' voluntary
     contributions up to 3% of the employee's compensation.  Additional employer
     contributions  are made at the  discretion of the Board of  Directors.  The
     plan covers  substantially all employees with more than one year's service.
     The Company's  contributions for the benefit of covered employees  amounted
     to  $64,083  and  $51,360  for the  years  ended  June 30,  2004 and  2003,
     respectively.

                                      F-20

<PAGE>

19.  RESTRICTED STOCK PLAN (RSP)

     In 1998,  the  Board of  Directors  adopted  a RSP for  directors,  certain
     officers and  employees,  which was approved by  stockholders  at a special
     meeting held on January 20, 1998.  The  objective of this Plan is to enable
     the Company and the Bank to retain its corporate  officers,  key employees,
     and directors who have the experience and ability necessary to manage these
     entities.  Directors,  officers,  and key  employees  who are  selected  by
     members of a Board  appointed  committee  are eligible to receive  benefits
     under the RSP. The non-employee directors of the Company and the Bank serve
     as trustees for the RSP, which has the  responsibility  to invest all funds
     contributed by the Bank to the Trust created for the RSP.

     On February 23, 1998,  the Trust  purchased  with funds  contributed by the
     Bank,  65,067 shares of the common stock of the Company.  At June 30, 2004,
     22,770  shares have been issued to  non-employee  directors,  39,366 shares
     have  been  issued  to  officers,   and  2,931  shares  remained  unissued.
     Directors, officers, and key employees who terminate their association with
     the Company  shall  forfeit the right to any shares  which were awarded but
     not  earned.  Shares are vested  over a  four-year  period from their grant
     date.  A total of 62,136  shares  were  vested as of June 30,  2004.  Total
     operating expense  attributed to the RSP amounted to $1,037 and $12,102 for
     the years ended June 30, 2004 and 2003.

20. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)

     In conjunction  with the Bank's  conversion from mutual to stock,  the Bank
     adopted an ESOP for the  benefit of  officers  and  employees  who have met
     certain eligibility  requirements  related to age and length of service. An
     ESOP trust was created,  and acquired 130,134 shares of common stock in the
     Company's  initial public offering,  using proceeds of a loan obtained from
     the Company,  which bears  interest at the Wall Street  Journal prime rate,
     adjusted  quarterly.  The loan,  which is  secured  by the  shares of stock
     purchased,  calls for quarterly  interest over a ten year period and annual
     principal payments of $86,756.

     The Bank makes quarterly  contributions  to the trust to allow the trust to
     make the required  loan  payments to the Company.  Shares are released from
     collateral based upon the proportion of annual  principal  payments made on
     the loan each year and  allocated  to  qualified  employees.  As shares are
     released from collateral,  the Bank reports compensation expense based upon
     the amounts  contributed or committed to be  contributed  each year and the
     shares become  outstanding for earnings per share  computations.  Dividends
     paid on  allocated  ESOP shares are  recorded  as a  reduction  in retained
     earnings.  Dividends  paid on  unallocated  shares  were used to reduce the
     company's  contribution  to the ESOP plan for the years ended June 30, 2004
     and 2003.  Compensation  expense for the ESOP was $228,860 and $173,889 for
     the years ended June 30, 2004 and 2003, respectively.

     The following table represents the components of the ESOP shares:

                                                      2004           2003
                                                    --------       --------

         Allocated shares                             97,434         84,420
         Shares released for allocation                6,507          6,507
         Shares distributed                           (1,584)        (1,584)
         Unreleased shares                            26,193         39,207
                                                    --------       --------
         Total ESOP share                            128,550        128,550
                                                    --------       --------
         Fair value of unreleased shares            $453,139       $594,640
                                                    ========       ========

                                      F-21

<PAGE>

21.  STOCK OPTION PLAN

     In December  1997,  the Board of Directors  adopted a Stock Option Plan for
     the directors,  officers, and employees, which was approved by stockholders
     at a special  meeting  held on January 20,  1998.  An  aggregate of 162,667
     shares of authorized but unissued common stock of the Company were reserved
     for  future  issuance  under the plan.  The stock  options  typically  have
     expiration  terms of ten years  subject  to  certain  extensions  and early
     terminations. The per share exercise price of a stock option shall be, at a
     minimum, equal to the fair value of a share of common stock on the date the
     option is granted.  Proceeds  from the  exercise  of the stock  options are
     credited  to common  stock for the  aggregate  par value and the  excess is
     credited to additional paid-in capital.

     The Company has issued  options  twice since the  inception of the plan. In
     January 1998, they issued 97,591 shares and in January 2004, they issued an
     additional  58,268. No other issuances have been made.

     The Company  accounts  for its stock  option plan under  provisions  of APB
     Opinion No. 25, " Accounting  for Stock Issued to  Employees,"  and related
     interpretations.  Under this  opinion,  no  compensation  expense  has been
     recognized  with  respect to the plan  because  the  exercise  price of the
     Company's  employee stock options equals the market price of the underlying
     stock on the grant date.

     The following table presents share data related to the Stock Option Plan:

                                                Weighted               Weighted
                                                Average                Average
                                                Exercise               Exercise
                                  2004           Price      2003         Price
                                -------         ------     ------      ------
     Outstanding July 1,         97,591         $12.50     97,591      $12.50
         Granted                 58,268          18.23          -           -
         Exercised                    -              -          -           -
         Forfeited                    -              -          -           -
                                -------         ------     ------      ------
     Outstanding June 30        155,859         $14.64     97,591      $12.50
                                =======         ======     ======      ======

     Exercisable June 30        112,158         $13.24     97,591      $12.50
                                =======         ======     ======      ======


     The following table summarizes characteristics of stock options outstanding
     and exercisable at June 30, 2004:

                    Outstanding                            Exercisable
----------------------------------------------------  ------------------------

                                            Average                  Average
                            Remaining       Exercise                 Exercise
Exercise Price    Shares      Life           Price      Shares         Price
--------------    ------      ----           -----      ------         -----
     $12.50       97,591    3.5 years        $12.50     97,591        $12.50
     $18.23       58,268    9.5 years        $18.23     14,567        $18.23
                 -------                               -------
 Total           155,859                               112,158
                 =======                               =======


     The options issued would have had no dilutive  effect on net income for the
     years  ended  June 30,  2004  and  2003.  Had the  options  been  dilutive,
     compensation  expense for the stock option plan would have been  recognized
     in  accordance  with the fair value  accounting  provisions of Statement of
     Financial  Accounting  Standards  No.  123, "  Accounting  for  Stock-based
     Compensation".

     Dividend  Equivalent  Rights  may be granted  concurrently  with any option
     granted.  These  rights  provide that upon the payment of a dividend on the
     Common  Stock,  the  holder  of  such  Options  shall  receive  payment  of
     compensation  in an amount  equivalent  to the dividend  payable as if such
     Options had been  exercised  and such Common  Stock held as of the dividend
     date. Dividend Equivalent Rights were granted  concurrently with respect to
     all stock options granted.

     Compensation  expense resulting from Dividend Equivalent Rights was $44,863
     and $33,181 for the years ended June 30, 2004 and 2003.

                                      F-22
<PAGE>

22.  PREFERRED SHARE PURCHASE RIGHTS PLAN

     In July 1997,  the Board of Directors  adopted a Preferred  Share  Purchase
     Rights Plan and  correspondingly  issued one Preferred Share Purchase Right
     ("a  Right")  for each  share of common  stock of the  Company.  Each Right
     entitles  the   registered   holder  to  purchase   from  the  Company  one
     one-hundredth  of a share of the Company's junior  Participating  Preferred
     Stock,   Series  A  ("Preferred   Shares"),   at  a  price  of  $37.00  per
     one-hundredth  of a Preferred  Share. The Rights will not be exercisable or
     separable  from the common shares until ten business days after a person or
     group  acquire  15% or more  or  tenders  for 50% or more of the  Company's
     outstanding common shares.

     The Plan also  provides  that if any person or group  becomes an "Acquiring
     Person," each Right, other than Rights  beneficially owned by the Acquiring
     Person (which will thereafter be void),  will entitle its holder to receive
     upon  exercise  that number of common  shares  having a market value of two
     times the exercise price of the Right. In the event the Company is acquired
     in a merger or other  business  combination  transaction,  each  Right will
     entitle its holder to receive  upon  exercise of the Right,  at the Right's
     then current exercise price, that number of the acquiring  company's common
     shares having a market value of two times the exercise  price of the Right.
     The  company  is  entitled  to redeem the Rights at a price of one cent per
     Right at any time prior to them becoming exercisable, and the Rights expire
     on July 17,  2007.  The Plan was  designed to protect  the  interest of the
     Company's  shareholders against certain coercive tactics sometimes employed
     in takeover attempts.

23.  COMMITMENTS AND CONTINGENT LIABILITIES

     Lease Commitments
     -----------------
     The future  lease  commitments  as of June 30, 2004 for all  noncancellable
     equipment and land leases follows:

                      Fiscal Year
                    Ending June 30,                    Amount
                    ---------------                ------------

                          2005                     $   108,600
                          2006                         112,560
                          2007                         102,160
                          2008                          83,160
                          2009                          83,160
                   2010 and thereafter               2,104,290
                                                   -----------
                                                   $ 2,593,930
                                                   ===========

     Litigation
     ----------

     The  Company is  involved  in  litigation  arising in the normal  course of
     business.  Management believes that liabilities, if any, arising from these
     proceedings  will not have a material  adverse  effect on the  consolidated
     financial position, operating results, or liquidity.

                                      F-23

<PAGE>

24   FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

     The estimated carrying amounts and fair values at June 30 are as follows:

<TABLE>
<CAPTION>
                                                               2004                             2003
                                                 -------------------------------     ---------------------------
                                                                    Estimated                         Estimated
                                                     Carrying         Fair              Carrying        Fair
                                                     Amount           Value             Amount          Value
                                                 -------------     -------------     ------------  -------------
<S>                                            <C>               <C>               <C>           <C>
         Financial assets:
              Cash and cash equivalents           $ 19,558,713      $ 19,558,713     $ 16,070,321   $ 16,070,321
              Investment securities
                    Held to maturity                 7,089,742         7,061,289       15,086,475     15,298,606
                    Available for sale                  13,265            13,265       11,394,701     11,394,701
              Mortgage-backed securities:
                   Held to maturity                 12,307,317        11,927,394       18,642,532     18,751,018
                   Available for sale                5,290,846         5,290,846        8,979,898      8,979,898
              Loans held for sale                      269,800           269,800        5,687,708      5,772,410
              Loans receivable                     259,833,742       261,156,742      229,239,547    235,999,547
              Federal Home Loan Bank Stock           2,158,100         2,158,100        1,679,400      1,679,400
              Accrued interest receivable            1,227,693         1,227,693        1,447,525      1,447,225

         Financial liabilities:
              Deposits                            $267,724,634      $267,882,634     $272,828,932   $276,541,932
              Advances from FHLB                    23,000,000        24,337,000       20,000,000     22,989,000
              Subordinated Debentures                7,253,286         7,613,049        7,222,429      8,192,160
              Advance payment by borrowers
               for taxes and insurance                 466,634           466,634          507,049        507,049
              Accrued interest payable                  60,418            60,418           85,963         85,963
</TABLE>

     Financial  instruments are defined as cash, evidence of ownership  interest
     in an entity, or a contract which creates an obligation or right to receive
     or deliver cash or another financial  instrument from/to a second entity on
     potentially favorable or unfavorable terms.

     Fair value is defined as the amount at which a financial  instrument  could
     be exchanged in a current transaction between willing parties other than in
     a forced or  liquidation  sale. If a quoted market price is available for a
     financial  instrument,  the estimated fair value would be calculated  based
     upon the market price per trading unit of the instrument.

     If no  readily  available  market  exists,  the fair  value  estimates  for
     financial  instruments should be based upon management's judgment regarding
     current  economic  conditions,  interest  rate risk,  expected  cash flows,
     future estimated  losses,  and other factors as determined  through various
     option  pricing  formulas  or  simulation   modeling.   As  many  of  these
     assumptions  result from judgments made by management  based upon estimates
     which are inherently uncertain, the resulting estimated fair values may not
     be  indicative  of the  amount  realizable  in  the  sale  of a  particular
     financial  instrument.  In addition,  changes in  assumptions  on which the
     estimated  fair  values  are  based  may have a  significant  impact on the
     resulting estimated fair values.

     As certain  assets such as deferred tax assets and  premises and  equipment
     are not  considered  financial  instruments,  the  estimated  fair value of
     financial instruments would not represent the full value of the Company.

     The Company employed  simulation modeling in determining the estimated fair
     value of  financial  instruments  for which quoted  market  prices were not
     available based upon the following assumptions:

     Cash and Cash Equivalents,  Federal Home Loan Bank Stock,  Accrued Interest
     ---------------------------------------------------------------------------
     Receivable,  Accrued Interest Payable, and Advance Payment by Borrowers for
     ---------------------------------------------------------------------------
     Taxes and Insurance
     -------------------

     The fair value is equal to the current carrying value.

     Investment Securities, Mortgage-backed Securities, and Loans Held for Sale
     ---------------------------------------------------------------------------

     The fair value of investment  securities,  mortgage-backed  securities  and
     loans held for sale is equal to the available  quoted  market price.  If no
     quoted market price is available,  fair value is estimated using the quoted
     market price for similar securities.

                                      F-24
<PAGE>
     Loans,  Deposits,  Advances from Federal Home Loan Bank,  and  Subordinated
     ---------------------------------------------------------------------------
     Debentures
     ----------

     The fair value of loans is estimated by  discounting  the future cash flows
     using a  simulation  model  which  estimates  future cash flows and employs
     discount  rates  that  consider   reinvestment   opportunities,   operating
     expenses, non-interest income, credit quality, and prepayment risk. Demand,
     savings, and money market deposit accounts are valued at the amount payable
     on demand as of  year-end.  Fair values for time  deposits,  advances  from
     Federal Home Loan Bank and  subordinated  debentures are estimated  using a
     discounted cash flow  calculation and applies  contractual  costs currently
     being  offered in the  existing  portfolio  to current  market  rates being
     offered for deposits and notes of similar remaining maturities.

     Commitments to Extend Credit
     ----------------------------

     These financial instruments are generally not subject to sale and estimated
     fair values are not readily available.  The carrying value,  represented by
     the net deferred fee arising from the unrecognized commitment, and the fair
     value,  determined by discounting  the remaining  contractual  fee over the
     term of the commitment  using fees currently  charged to enter into similar
     agreements  with  similar  credit  risk,  are not  considered  material for
     disclosure.  The contractual amounts of unfunded  commitments are presented
     in Note 6.

25.  CAPITAL REQUIREMENTS

     The Company,  on a  consolidated  basis and the Bank are subject to various
     regulatory  capital  requirements  administered  by the federal  regulatory
     agencies. Failure to meet minimum capital requirements can initiate certain
     mandatory and possibly additional  discretionary  actions by the regulators
     that, if undertaken,  could have a direct  material  effect on the entity's
     financial statements.

     Under capital adequacy  guidelines and the regulatory  framework for prompt
     corrective  action,  the  Company and the Bank must meet  specific  capital
     guidelines  that involve  quantitative  measures of the  entities'  assets,
     liabilities,  and  certain  off-balance  sheet  items as  calculated  under
     regulatory  accounting  practices.  The  Company's  and the Bank's  capital
     amounts and classification are also subject to qualitative judgments by the
     regulators about components, risk weighting, and other factors.

     Quantitative  measures  established  by the  regulation  to ensure  capital
     adequacy  require  the  Company to  maintain a minimum  amount and ratio of
     Total capital, and the Bank to maintain minimum amounts and ratios of Total
     and Tier I capital (as defined in the regulations) to risk-weighted assets,
     and of  tangible  and core  capital  (as  defined  in the  regulations)  to
     adjusted assets (as defined).  Management believes that as of June 30, 2004
     the Company and the Bank meet all capital  adequacy  requirements  to which
     they are subject.

     As of June 30, 2004 the most recent  notification  from the Bank's  primary
     regulatory  authorities  have  categorized  the entity as well  capitalized
     under  the  regulatory  framework  for  prompt  corrective  action.  To  be
     categorized as well  capitalized,  the Bank must maintain minimum tangible,
     core, and risk-based ratios.  There have been no conditions or events since
     that  notification  that  management   believes  have  changed  the  Bank's
     category.

     The following  table  reconciles  the  Company's  and Bank's  capital under
     generally accepted accounting principles to regulatory capital:

<TABLE>
<CAPTION>
                                                        Company                                 Bank
                                               ----------------------------         ----------------------------
                                                        June 30,                              June 30,
                                                    2004           2003                  2004            2003
                                               -----------      -----------         -----------      -----------
<S>                                            <C>              <C>                 <C>              <C>
         Total equity                          $21,729,692      $20,087,953         $28,218,320      $25,995,905
         Intangibles                             6,193,276        6,336,047           6,193,276        6,336,047
         Unrealized gain (loss) - securities       (44,442)         497,298             (44,442)         497,298
                                               -----------      -----------         -----------      -----------

         Tier I, core, and tangible capital     15,580,858       13,254,608          22,069,486       19,162,560

         Allowance for loan losses               1,798,636        1,095,822           1,798,636        1,095,822
                                               -----------      -----------         -----------      -----------
         Risk-based capital                    $17,379,494      $14,350,430         $23,868,122      $20,258,382
                                               ===========      ===========         ===========      ===========
</TABLE>
                                      F-25
<PAGE>
25.  CAPITAL REQUIREMENTS (continued)

     The actual capital amounts and ratios were as follows:

<TABLE>
<CAPTION>
                                                                           Company at June 30,
                                                          -------------------------------------------------------
                                                                      2004                            2003
                                                             Amount         Ratio            Amount        Ratio
                                                          -------------    --------       -----------     -------
<S>                                                     <C>                <C>          <C>              <C>
     Tangible Capital to Adjusted Assets
     -----------------------------------

         Actual                                           $  15,580,858      4.85%        $13,254,608      4.12%
         For Capital Adequacy Purposes                        4,816,288      1.50           4,875,706      1.50
         To be "Well Capitalized"                             N/A              N/A            N/A           N/A
</TABLE>

<TABLE>
<CAPTION>
                                                                               Bank at June 30,
                                                          -------------------------------------------------------
                                                                      2004                            2003
                                                             Amount         Ratio            Amount        Ratio
                                                          -------------    --------       -----------     -------
<S>                                                     <C>                <C>          <C>              <C>
     Total Capital to Risk-Weighted Assets
     -------------------------------------

         Actual                                           $  23,868,122     11.39%     $  20,258,382      10.24%
         For Capital Adequacy Purposes                       16,759,659      8.00         15,820,836       8.00
         To be "Well Capitalized"                            20,949,574     10.00         19,776,045      10.00

     Tier I Capital to Risk-Weighted Assets
     --------------------------------------

         Actual                                           $  22,069,486     10.53%     $  19,162,560       9.69%
         For Capital Adequacy Purposes                        8,379,829      4.00          7,910,241       4.00
         To be "Well Capitalized"                            12,569,744      6.00         11,865,362       6.00

     Core Capital to Adjusted Assets
     -------------------------------

         Actual                                           $  22,069,486      7.01%     $  19,162,560       6.09%
         For Capital Adequacy Purposes                       12,596,145      4.00         12,576,597       4.00
         To be "Well Capitalized"                            15,745,182      5.00         15,720,746       5.00

     Tangible Capital to Tangible Assets
     -----------------------------------

         Actual                                           $  22,069,486      6.87%     $  19,162,560       5.96%
         For Capital Adequacy Purposes                        4,815,444      1.50          4,822,567       1.50
         To be "Well Capitalized"                                   N/A        N/A           N/A            N/A
</TABLE>

     Prior to the  enactment  of the Small  Business  Job  Protection  Act,  the
     Company  accumulated  approximately  $924,000  of retained  earning,  which
     represents  allocations  of income to bad debt  deductions for tax purposes
     only.  Since there is no amount that  represents the  accumulated  bad debt
     reserves  subsequent to 1987, no provision for federal  income tax has been
     made for such  amount.  If any portion of this amount is used other than to
     absorb loan losses (which is not  anticipated),  the amount will be subject
     to federal income tax at the current corporate rate.

                                      F-26

<PAGE>

26.      SELECTED QUARTERLY FINANCIAL DATA( UNAUDITED)
             (IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                    Three Months Ended
                                      -------------------------------------------------
                                       September     December      March       June
                                          2003         2003        2004         2004
                                      ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>
Total interest income                 $    4,384   $    4,447   $    4,282   $    4,177
Total interest expense                     1,894        1,899        1,835        1,746
                                      ----------   ----------   ----------   ----------

Net interest income                        2,490        2,548        2,447        2,431
Provision for loan losses                    321          351          233          264
                                      ----------   ----------   ----------   ----------
Net interest income after
  provision for loan losses                2,169        2,197        2,214        2,167

Total other income                           506          890          368          375
Total other expense                        1,694        1,804        1,785        1,771
                                      ----------   ----------   ----------   ----------

Income before income taxes                   981        1,283          797          771
Income taxes                                 327          450          278          285
                                      ----------   ----------   ----------   ----------

Net Income                            $      654   $      833   $      518          486
                                      ==========   ==========   ==========   ==========

Per share data:
Net Earnings                                 .49          .61          .39          .35
                                      ==========   ==========   ==========   ==========

Weighted average shares outstanding    1,347,632    1,350,831    1,354,085    1,357,339
                                      ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                      -------------------------------------------------
                                       September     December      March         June
                                         2002          2002        2003          2003
                                      ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>
Total interest income                 $    3,510   $    3,488   $    3,872   $    4,227
Total interest expense                     1,677        1,672        1,959        1,951
                                      ----------   ----------   ----------   ----------
Net interest income                        1,833        1,815        1,913        2,276
Provision for loan losses                     49          105          122          123
                                      ----------   ----------   ----------   ----------
Net interest income after
  provision for loan losses                1,784        1,710        1,791        2,153

Total other income                           404          302          378          454
Total other expense                        1,356        1,416        1,638        1,673
                                      ----------   ----------   ----------   ----------

Income before income taxes                   832          596          531          934
Income taxes                                 307          235          160          308
                                      ----------   ----------   ----------   ----------

Net Income                            $      525   $      362   $      371   $      626
                                      ==========   ==========   ==========   ==========

Per share data:
Net Earnings                                 .39          .27          .28          .47
                                      ==========   ==========   ==========   ==========

Weighted average shares outstanding    1,334,855    1,338,054    1,341,268    1,344,482
                                      ==========   ==========   ==========   ==========

</TABLE>

                                      F-27

<PAGE>

27. SUBSEQUENT EVENTS

Effective  September 1, 2004, Advance Financial Bancorp ("Advance") and Parkvale
Financial Corporation ("Parkvale") have signed a definitive merger agreement for
Parkvale to acquire Advance.  Advance  shareholders  will receive $26.00 in cash
per  share.  The  merger  is  conditioned  upon  the  receipt  of the  necessary
regulatory approval of Advance and Parkvale and shareholder approval of Advance.


                                      F-28
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
  Exchange Act of 1934,  the registrant has duly caused this report to be signed
  on its behalf by the  undersigned,  thereunto duly  authorized as of September
  21, 2004.

                         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 21, 2004.

<TABLE>
<CAPTION>

<S>                                                     <C>
  /s/Stephen M. Gagliardi                                     /s/Dominic J. Teramana, Jr.
  -----------------------------------------------             ------------------------------
  Stephen M. Gagliardi                                        Dominic J. Teramana, Jr.
  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/  William B. Chesson                                     /s/Walker Peterson Holloway, Jr.
  -----------------------------------------------             ------------------------------
  William B. Chesson                                          Walker Peterson Holloway, Jr.
  Director                                                    Director

  /s/  Stephen M. Magnone
  -----------------------------------------------
  Stephen M. Magnone
  Treasurer
  (Principal Accounting Officer)
</TABLE>