United States Securities and Exchange Commission
                             Washington, D.C. 20549
                                   FORM 10QSB


{x}  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended September 30, 2004
                               ------------------

{ }  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT


For the transition period from ________________to__________________


                         Commission file Number 0-21885
                         ------------------------------

                            Advance Financial Bancorp
                            -------------------------
             (Exact name of registrant as specified in its charter)


Delaware                                             55-0753533
-------------------------                      ---------------------------------
(State or jurisdiction of                      (IRS Employer Identification No.)
  incorporation or organization)

                    1015 Commerce Street, Wellsburg, WV 26070
                    -----------------------------------------
                    (Address of principal executive offices)

                                 (304) 737-3531
                                 --------------
              (Registrant's telephone number, including area code)




Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during  the past 12 months  (or such  shorter
period that the registrant was required to file such reports),  and (2) has been
subjected  to such filing  requirements  for the past 90 days.  Yes  x    No
                                                                    ---      ---

State the  number of shares  outstanding  for each of the  issuer's  classes  of
common equity as of the latest practicable date:

       Class:  Common Stock, par value $.0667 per share
        Outstanding at November 10, 2004: 1,383,392


Transitional Small Business Disclosure Format ( check one):
Yes       No  x
    ---      ---
<PAGE>

                            Advance Financial Bancorp

                                      Index



                                                                          Page
                                                                         Number
                                                                         ------


Part I - FINANCIAL INFORMATION

   Item 1 - Financial Statements

            Consolidated Balance Sheet (Unaudited) as of
              September 30, 2004 and June 30, 2004                             3

            Consolidated Statement of Income (Unaudited)
              For the Three Months ended September 30, 2004 and 2003           4

            Consolidated Statement of Cash Flows (Unaudited)
              For the Three Months ended September 30, 2004 and 2003           5

            Notes to the Unaudited Consolidated Financial Statements         6-7


     Item 2 - Management's Discussion and Analysis                          8-14


     Item 3 - Controls and Procedures                                         15


Part II - OTHER INFORMATION

     Item 1 - Legal Proceedings                                               16

     Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds     16

     Item 3 - Default Upon Senior Securities                                  16

     Item 4 - Submissions of Matters to a Vote of Security Holders            16

     Item 5 - Other Information                                               16

     Item 6 - Exhibits                                                        16

SIGNATURES                                                                    17

<PAGE>

                             ADVANCE FINANCIAL BANCORP
                       CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30,      JUNE 30,
                                                                                      2004             2004
                                                                                 -------------    -------------
<S>                                                                            <C>              <C>
Assets
     Cash and cash equivalents:
       Cash and amounts due from banks                                           $   2,561,766    $   2,742,338
       Interest bearing deposits with other institutions                            16,293,621       16,816,375
                                                                                 -------------    -------------
          Total cash and cash equivalents                                           18,855,387       19,558,713
                                                                                 -------------    -------------

     Investment securities:
       Securities held to maturity (fair value of $10,203,542 and $7,061,289)       10,082,626        7,089,742
       Securities available for sale                                                    12,386           13,265
                                                                                 -------------    -------------
          Total investment securities                                               10,095,012        7,103,007
                                                                                 -------------    -------------

     Mortgaged-backed securities:
       Securities held to maturity (fair value of $11,207,774 and $11,927,394)      11,329,708       12,307,317
       Securities available for sale                                                 4,893,755        5,290,846
                                                                                 -------------    -------------
          Total mortgage-backed securities                                          16,223,463       17,598,163
                                                                                 -------------    -------------

     Loans held for sale                                                               136,850          269,800
     Loans receivable,  (net of allowance for loan losses
          of $1,860,733 and $1,798,636 )                                           251,908,282      259,833,742
     Office properties and equipment, net                                            4,666,929        4,762,619
     Federal Home Loan Bank Stock, at cost                                           2,029,100        2,158,100
     Accrued interest receivable                                                     1,212,532        1,227,693
     Goodwill                                                                        4,700,472        4,700,472
     Other intangibles, net                                                          1,486,446        1,531,040
     Other assets                                                                    2,238,433        2,395,820
                                                                                 -------------    -------------
          TOTAL ASSETS                                                           $ 313,552,906    $ 321,139,169
                                                                                 =============    =============

Liabilities:
     Deposits                                                                    $ 262,812,042    $ 267,724,634
     Advances from Federal Home Loan Bank                                           20,000,000       23,000,000
     Other Borrowings                                                                7,261,000        7,253,286
     Advance payments by borrowers for taxes and insurance                             377,792          466,634
     Accrued interest payable and other liabilities                                    865,040          964,923
                                                                                 -------------    -------------
          TOTAL LIABILITIES                                                        291,315,874      299,409,477
                                                                                 -------------    -------------
Stockholders' Equity:
     Preferred stock, $.10 par value; 500,000 shares
         authorized, none issued                                                             -                -
     Common stock, $.0667 par value; 3,000,000 shares
          authorized 1,626,675 shares issued                                           108,445          108,445
     Additional paid in capital                                                     10,655,224       10,609,610
     Retained earnings - substantially restricted                                   14,053,388       13,658,888
     Unallocated shares held by Employee Stock Ownership Plan (ESOP)                  (142,115)        (163,825)
     Unallocated shares held by Restricted Stock Plan (RSP)                           (205,719)        (205,719)
     Treasury Stock (228,248 shares at cost)                                        (2,233,265)      (2,233,265)
     Accumulated other comprehensive income (loss)                                       1,074          (44,442)
                                                                                 -------------    -------------
          TOTAL STOCKHOLDERS' EQUITY                                                22,237,032       21,729,692
                                                                                 -------------    -------------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 313,552,906    $ 321,139,169
                                                                                 =============    =============
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                      -3-

<PAGE>

                      ADVANCE FINANCIAL BANCORP
             CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                            2004           2003
                                                        -----------    -----------
<S>                                                   <C>            <C>

INTEREST AND DIVIDEND INCOME
    Loans                                               $ 3,829,472    $ 3,908,300
    Investment securities - taxable                          37,893        140,348
    Investment securities - nontaxable                       34,997        111,984
    Interest-bearing deposits with other institutions        47,323          8,971
    Mortgage-backed securities                              155,468        203,306
    Dividends on Federal Home Loan Bank Stock                 6,765         10,845
                                                        -----------    -----------

        Total interest and dividend income                4,111,918      4,383,754
                                                        -----------    -----------
INTEREST EXPENSE
    Deposits                                              1,306,378      1,505,250
    Advances from Federal Home Loan Bank                    293,518        310,170
    Other Borrowings                                         97,063         86,206
                                                        -----------    -----------

        Total interest expense                            1,696,959      1,901,626
                                                        -----------    -----------

NET INTEREST INCOME                                       2,414,959      2,482,128

Provision for loan losses                                   211,365        321,000
                                                        -----------    -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       2,203,594      2,161,128
                                                        -----------    -----------

NONINTEREST INCOME
    Service charges on deposit accounts                     216,781        205,924
    Income from loan servicing activity                      24,096         81,102
    Gain on sale of loans                                    16,846        132,817
    Loss on sale of repossessed assets                         (800)       (13,370)
    Other income                                            106,751         99,370
                                                        -----------    -----------

        Total noninterest income                            363,674        505,843
                                                        -----------    -----------

NONINTEREST EXPENSE
    Compensation and employee benefits                      866,109        745,887
    Occupancy and equipment                                 271,419        272,439
    Professional fees                                        52,541         41,443
    Advertising                                              47,754         50,706
    Data processing charges                                 140,196        130,238
    Amortization of intangible asset                         44,593         44,593
    Other expenses                                          370,521        400,849
                                                        -----------    -----------

        Total noninterest expenses                        1,793,133      1,686,155
                                                        -----------    -----------

Income before income taxes                                  774,135        980,816
Income taxes                                                244,409        326,445
                                                        -----------    -----------
Net Income                                              $   529,726    $   654,371
                                                        ===========    ===========

EARNINGS PER SHARE - NET INCOME
        Basic                                           $       .39    $       .49
        Diluted                                         $       .38    $       .48
DECLARED DIVIDEND PER SHARE                             $       .10    $       .10

</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       -4-


<PAGE>

                          ADVANCE FINANCIAL BANCORP
              CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                              SEPTEMBER 30,
                                                                          2004           2003
                                                                    ------------    ------------
<S>                                                               <C>             <C>
OPERATING ACTIVITIES
     Net Income                                                     $    529,726    $    654,371
     Adjustments to reconcile net income to net cash provided by
        operating activities:
         Depreciation, amortization and accretion, net                   209,565         204,050
         Provision for loan losses                                       211,365         321,000
         Gain on sale of loans                                           (16,846)       (132,817)
         Loss on sale of repossessed assets                                  800          13,370
         Origination of loans held for sale                           (2,274,761)    (12,089,588)
         Proceeds from the sale of loans                               2,424,557      15,391,999
         Increase in other assets and liabilities                        104,845        (243,047)
                                                                    ------------    ------------

              Net cash provided by operating activities                1,189,251       4,119,338
                                                                    ------------    ------------
INVESTING ACTIVITIES
     Investment securities held to maturity:
         Purchases                                                    (2,985,715)              -
         Maturities and repayments                                             -       1,000,000
     Investment securities available for sale:
         Maturities and repayments                                           285             480
     Mortgage-backed securities held to maturity:
         Maturities and repayments                                       950,639       2,504,769
     Mortgage-backed securities available for sale:
         Maturities and repayments                                       458,793       1,268,977
     Purchase of Federal Home Loan Bank Stock                                  -        (898,600)
     Redemption of Federal Home Loan Bank Stock                          129,000               -
     Net decrease (increase) in loans                                  7,714,095     (24,589,203)
     Purchases of premises and equipment                                 (23,014)        (29,483)
                                                                    ------------    ------------

              Net cash provided by (used in) investing activities      6,244,083     (20,743,060)
                                                                    ------------    ------------

FINANCING ACTIVITIES
     Net decrease in deposits                                         (4,912,592)     (7,634,234)
     Net (decrease) increase in short term borrowings                 (3,000,000)     12,500,000
     Net change in advances for taxes and insurance                      (88,842)        (84,514)
     Cash dividends paid                                                (135,226)       (134,130)
                                                                    ------------    ------------
              Net cash (used in) provided by financing activities     (8,136,660)      4,647,122
                                                                    ------------    ------------

              Decrease in cash and cash equivalents                     (703,326)    (11,976,600)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      19,558,713      16,070,321
                                                                    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $ 18,855,387    $  4,093,721
                                                                    ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest on deposits and borrowings                        $  1,679,051    $  1,899,841
         Income taxes                                               $    322,500    $    485,000
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                      -5-

<PAGE>

                            ADVANCE FINANCIAL BANCORP
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The  consolidated   financial  statements  of  Advance  Financial  Bancorp  (the
"Company"),  includes its wholly-owned  subsidiaries,  Advance Financial Savings
Bank (the "Bank") and the Bank's wholly-owned  service  corporation  subsidiary,
Advance  Financial  Service  Corporation  of  West  Virginia.   All  significant
intercompany balances and transactions have been eliminated.

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with the  instructions  to Form  10-QSB and,  therefore,  do not
necessarily  include all information that would be included in audited financial
statements.  The information  furnished reflects all adjustments,  which are, in
the  opinion  of  management,  necessary  for a fair  statement  of  results  of
operations.  All such adjustments are of a normal recurring nature.  The results
of  operations  for the interim  periods are not  necessarily  indicative of the
results  to be  expected  for the fiscal  year ended June 30,  2005 or any other
period.

These statements should be read in conjunction with the consolidated  statements
of and for the year ended June 30, 2004 and related  notes which are included on
the Form 10-KSB (file no. 0-21885).

NOTE 2 - BUSINESS COMBINATIONS

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.

NOTE 3 - EARNINGS PER SHARE

There  were no  convertible  securities  that  would  affect  the  numerator  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.


                                                 Three Months Ended
                                                    September 30
                                                    (Unaudited)
                                                 2004          2003
                                              ----------    ----------

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             (37,781)      (50,795)
                                              ----------    ----------

Weighted -average common shares and
    common stock equivalents used to
    calculate basic earnings per share         1,360,592     1,347,578

Additional common stock equivalents
    (stock options) used to calculate
    diluted earnings per share                    39,874        24,690
                                              ----------    ----------
Weighted-average common shares and
    common stock equivalents used
    to calculate diluted earnings per share    1,400,466     1,372,268
                                              ==========    ==========

                                       -6-

<PAGE>

NOTE 4 - STOCK OPTIONS

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.

On January 20, 1998,  qualified  stock  options were granted for the purchase of
97,591 shares  exercisable  at the market price of $12.50 per share at a rate of
one fourth per year  beginning  January 20, 1998.  All options  expire ten years
from the date of grant. At September 30, 2004, the initial stock options granted
remain outstanding with none being exercised.

On January 1, 2004,  qualified  stock  options  were granted for the purchase of
58,268 shares  exercisable  at the market price of $18.23 per share at a rate of
one fourth per year  beginning  January 2004.  All options expire ten years from
the date of grant.  At September 30, 2004, the stock options remain  outstanding
with none being exercised.

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.

Had compensation expense for the stock option plan been recognized in accordance
with the fair value accounting  provisions of Statement of Financial  Accounting
Standards  No.  123, "  Accounting  for  Stock-based  Compensation,"  net income
applicable to common stock,  basic and dilutive net income per common share, for
the period ended September 30 would have been as follows:

                                                      2004                2003
                                                   ----------       -----------
         Net Income:
              As reported                          $  529,726       $   654,371
                                                   ==========       ===========

              Pro forma                            $  511,732       $    654,371
                                                   ==========       ============

         Basic Earnings Per Share:
              As reported                          $       .39      $        .49
                                                   ===========      ============
              Pro forma                            $       .38      $        .49
                                                   ===========      ============

         Diluted Earnings Per Share:
              As reported                          $       .38      $        .48
                                                   ===========      ============
              Pro forma                            $       .37      $        .48
                                                   ===========      ============



NOTE 5 - COMPREHENSIVE INCOME

Other accumulated  comprehensive  income consists solely of net unrealized gains
and  losses  on  available  for sale  securities.  For the  three  months  ended
September 30, 2004 and 2003, comprehensive income totaled $575,242 and $531,620,
respectively.

                                       -7-

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
     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.

     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.

OVERVIEW
--------

On  September  1,  2004,   the  Company  and  Parkvale   Financial   Corporation
("Parkvale")  signed a definitive  merger  agreement for Parkvale to acquire the
Company.  The merger is conditioned upon the receipt of the necessary regulatory
approval  and a majority  vote of the  Company's  shareholders.  Upon  favorable
acceptance by all  regulatory  agencies and by the Company's  shareholders,  the
merger is expected to be completed in late  December  2004 or January  2005.  If
approved,  the  Company's  shareholders  will  receive cash of $26.00 per common
share.


COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2004 AND JUNE 30, 2004
-------------------------------------------------------------------------
The Company's total assets decreased by approximately $7,600,000 to $313,552,906
at September 30, 2004,  from  $321,139,169 at June 30, 2004. Net loans decreased
by approximately  $7,900,000.  The decrease in total assets and net loans is the
result of management's intent to continue  restructuring their Balance Sheet for
future interest rate cycles and growth  opportunities  while minimizing  current
interest rate risk  scenarios.  In response to the decrease in lending  activity
over the past three months,  the Company has permitted high cost certificate and
money market  deposit  products to be  withdrawn  from the  institution  and has
repaid  $3,000,000  in short  term  funding  from the  Federal  Home  Loan  Bank
("FHLB").

Investment securities held to maturity have increased  approximately  $3,000,000
to  $10,082,626  at September  30, 2004 from  $7,089,742  at June 30, 2004.  The
increase  is the  result of the  Company  purchasing  five  short-term  agencies
callable securities.  Each of the purchased securities has maturity of two years
or less with callable options ranging from three months to one year. The average
yield on the investments  purchased is approximately 2.45%. The proceeds used to
purchase the investments were derived from loan repayments during the period.

Loans receivable,  net decreased by approximately  $7,900,000 to $251,908,282 at
September 30, 2004 from $259,833,742 at June 30, 2004. The decrease in net loans
consists primarily of 1-4 family and non-residential  mortgage loans,  including
construction,  which have decreased a combined $6,300,000 during the period. The
decrease in mortgage  lending is attributed to the customers' lack of desire for
adjustable rate loan products when fixed-rate products continue to be offered at
historically low levels and aggressive  competition  from other  institutions as
overall loan demand in the market area decreases. In addition to the decrease in
mortgage  lending,  indirect  automobile  loans have  decreased  $2,800,000  and
automobile  dealer floor plan loans decreased  $500,000  during the period.  The
decrease  in  indirect  lending  and floor  plan  lending  is the  result of the
Company's desire to minimize credit risk and position the bank for future growth
opportunities.  Offsetting  the decreases is an increase in Home Equity Lines of
Credit.  These loan  products  have  increased  $1,400,000  during the period as
customers access equity in their residential property without jeopardizing their
long term fixed rate  mortgages.  The Company  believes  that future loan growth
will be from this product type.

Deposits  decreased  $4,900,000  to  $262,812,042  at  September  30,  2004 from
$267,724,634  at June 30,  2004.  The  decrease  is spread  throughout  the core
checking,  saving and money  market  accounts.  Core  checking  and savings have
decreased  $2,000,000  each for the period,  while money  market  accounts  have
decreased $4,500,000.  Offsetting these decreases were increases in certificates
of deposits  of  $3,600,000.  The  decrease in core  accounts,  including  money
markets,  is  principally  due to  customers  moving  "parked"  funds to  higher
yielding investment  alternatives.  To some extent, customers have opted for the
Company's  current  certificate of deposit  products that yield greater  returns
than core accounts. To an equal extent,  customers have gone outside the Company
into the equity markets and to local  competitors to find higher yields than the
Company currently offers or feels the need to offer in the current interest rate
environment.  If the Company  begins to realize an increase in lending growth in
future  periods,  management  feels that  deposit  outflows  can be  modified by
increasing  funding costs to create  deposit growth needed to fund the increased
lending activity.

                                       -8-
<PAGE>

Advances from the FHLB decreased $3,000,000 to $20,000,000 at September 30, 2004
from $23,000,000 at June 30, 2004. This decrease is in the short-term  Open-Repo
line of credit product offered by the FHLB of Pittsburgh.  As stated above,  the
primary  reason for the  decrease  is due to the  decrease in loan demand in the
market area, as well as management's intent to restructure the Balance Sheet. At
September  30,  2004,  the  Company  has no  outstanding  balance on the line of
credit.

Stockholders'  equity  increased   approximately   $507,000  to  $22,237,032  at
September  30, 2004 from  $21,729,692  at June 30, 2004.  This  increase was the
result of net income of $530,000 for the period,  the  recognition  of shares in
the  Employee  Stock  Ownership  Plan  of  $67,000  and an  increase  in the net
unrealized  gain on securities of $45,000.  These  increases  were offset by the
payment of cash dividends of $135,000.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2003 AND 2002
-------------

Net interest  income  decreased  $67,000 or 2.71%,  to $2,415,000  for the three
months ended September 30, 2004 from $2,482,000 for the comparable  period ended
2003. The decrease in net interest income resulted  primarily from a decrease in
the average  volume of the  underlying  principle  balances in interest  earning
assets and  liabilities.  The net  interest  spread for the three  months  ended
September  30,  2004,  decreased to 3.08% from 3.10% for the  comparable  period
ended 2003.  The 2 basis point  decrease in the net interest rate spread for the
current  three-month  period was  primarily  due to a 24 basis point  decline in
average yields on assets which was offset by a 22 basis point decline in average
cost of funds.  See "Average  Balance Sheet" for the  three-month  periods ended
September 30, 2004 and 2003.

The  provision  for loan losses  decreased  $109,000  to $211,365  for the three
months ended  September 30, 2004 from $321,000 for the  comparable  period ended
2003.  The  decrease  in the  provision  for loan losses was  precipitated  by a
decrease 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  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.

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. See "Risk Elements".

Noninterest  income  decreased  $142,000 or 28.11%,  to  $363,674  for the three
months ended  September 30, 2004 from $505,843 for the  comparable  period ended
2003. For the three-month period of 2004, miscellaneous fees and fees on deposit
accounts  increased  by  $11,000  or 5.27% as a result  of an  increase  in core
customers and related activity and individual fee item increases.  For the three
month  period of 2004,  gains on sales of fixed rate loans and income  from loan
servicing  activity decreased a combined $173,000 as a result of the decrease in
customer  demand  for fixed 1-4  family  mortgage  loans  during  the  period in
comparison to the period ended in 2003.

Noninterest  expense  increased  $107,000 or 6.34%,  to $1,793,133 for the three
months ended September 30, 2004, from $1,686,155 for the comparable 2003 period.
For the three-month  period ended September 30, 2004,  compensation and employee
benefits increased $120,000.  The increase in compensation and employee benefits
is due primarily to a decrease of $94,000 in Loan Compensation Contra due to the
decrease in loan  production  for the three months ended  September  30, 2004 in
comparison to the same period ended 2003.  Also,  fringe  benefit  expenses have
increased  $21,000 or 9.84% for the three-month  period of 2004 in comparison to
the same period ended in 2003.  Consequently,  actual salaries paid to employees
for the three-month  period increased by only $4,600 or .70%. The small increase
in  actual  salaries  is due to  management's  intention  to  control  costs  by
attrition in a period of limited growth.

                                       -9-

<PAGE>

Data  processing  costs  increased  $10,000  for the three  month  period  ended
September 30, 2004 in  comparison  to the same period ended 2003  primarily as a
result of customers'  increased usage of the Company's  internet  banking module
which increased $18,000 for the period. Other expenses decreased $30,000 for the
same three-month period as a result of a decrease in office supplies and postage
of  $19,000  and of  expenses  related to  repossessed  assets of  $13,000.  The
decrease  in  supplies  and postage is  primarily  the result of a reduction  in
purchasing  inventory in  anticipation  of the pending  merger.  The decrease in
expenses  related to  repossessed  assets is the result of the  decrease in real
estate foreclosure activity in comparison to the same period ended 2003.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

LIQUIDITY
---------

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,  provides  the core  ingredients  to meet
depositor, borrower, and creditor needs.

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  September  30,  2004,  liquid  assets
totalled  $23.8 million or 7.58% 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 are  expected to enable the Company to
meet cash obligations and off-balance sheet commitments as they come due.

Operating  activities provided net cash of $1.2 million and $4.1 million for the
three-month  periods  ended  September  30,  2004 and  2003,  respectively.  The
operating cash flows from 2003 were generated  principally from the net sales of
fixed rate 1-4 family mortgages.

Investing  activities  provided  $6.2  million  and used $20.7  million in funds
during the three-month periods ended September 30, 2004 and 2003,  respectively.
The cash flows primarily are determined by net loan payments of $7.7 million and
$(24.6) million for 2004 and 2003, respectively. Offsetting these cash flows for
the period ended September 30, 2004 and 2003,  respectively were investment cash
flows of $(1.5) million and $3.8 million.

Financing  activities  consist of the  solicitation  and  repayment  of customer
deposits and  borrowings.  Financing  activities  used $8.1 million and provided
$4.6  million  during  the  three  months  ended  September  30,  2004 and 2003,
respectively.  For the period ended  September 30, 2004,  deposits  decreased by
$4.9 million and borrowed funds  deceased by $3.0 million.  For the period ended
September  30, 2003,  deposits  decreased  by $7.6  million and  borrowed  funds
increased by $13.0 million.

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  anticipates  it will have
sufficient  liquidity  available  to meet  estimated  short-term  and  long-term
funding needs.

CAPITAL
-------

Management monitors both the Company's equity capital ratio and the Bank's total
risk-based,  Tier I risk-based  and Tier I leveraged  capital ratios in order to
assess  compliance with regulatory  guidelines.  At September 30, 2004, both the
Company  and the Bank  exceeded  the  minimum  capital  requirements,  including
risk-based and leveraged capital ratios.  The Company's equity capital ratio and
the Bank's total  risk-based,  Tier I risk-based and Tier I leverage  ratios are
5.22% and 12.06%, 11.15% and 7.37%, respectively, at September 30, 2004.

                                      -10-

<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 and
(ii)  changes in rate.  Changes  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.



                                             Three Months Ended September 30,
                                         --------------------------------------
                                           2004            Vs             2003
                                         --------------------------------------
                                                   Increase (Decrease)
                                                         Due to
                                         --------------------------------------
                                              Volume       Rate          Net
                                         --------------------------------------
Interest Income:
    Loans                                  $ 177,425    $(256,253)   $ (78,828)
    Investments                             (134,995)     (58,013)    (193,008)
                                         --------------------------------------
      Total interest-earning assets           42,430     (314,266)    (271,836)
                                         --------------------------------------

Interest Expense
    Core Deposits                             (9,638)     (75,831)     (85,469)
    Certificates of Deposit                    9,069     (122,472)    (113,403)
    FHLB Borrowings                          (59,785)      43,133      (16,652)
    Other Borrowings                             386       10,471       10,857
      Total interest-bearing liabilities     (59,968)    (144,699)    (204,667)
                                         --------------------------------------

Change in net interest income              $ 102,398    $(169,567)   $ (67,169)
                                         ======================================

                                      -11-
<PAGE>

Average Balance Sheet for the Three-Month Period ended September 30

     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>
                                                                   Three-Month Period Ended September 30,
                                           ----------------------------------------------------------------------------------------
                                                            2004                                           2003
                                           -----------------------------------------     ------------------------------------------
                                              Average                      Average          Average                       Average
                                              Balance        Interest     Yield/Cost        Balance        Interest      Yield/Cost
                                           ------------   ------------   -----------     -------------   ------------   -----------
<S>                <C>                      <C>              <C>            <C>            <C>              <C>            <C>
Interest-earning assets:
  Loans receivable (1)                        $256,804         $3,829         5.96%          $246,043         $3,908         6.35%
  Investment securities (2)                     25,926            127         1.96%            33,947            272         3.21%
  Mortgage-backed securities                    16,854            156         3.69%            25,796            204         3.15%
                                              --------        -------       ------           --------         ------       ------
     Total interest-earning assets             299,584          4,112         5.49%           305,786          4,384         5.73%
                                                              -------       ------                            ------       ------
Non-interest-earning assets                     16,930                                         17,641
                                              --------                                       --------
     Total assets                             $316,514                                       $323,427
                                              ========                                       ========
Interest-bearing liabilities:
  Interest-bearing demand deposits            $ 49,438            114         0.92%          $ 53,445            143         1.07%
  Certificates of deposit                      155,552          1,116         2.87%           154,300          1,229         3.19%
  Savings deposits                              49,057             77         0.63%            49,369            134         1.08%
  FHLB Borrowings                               20,500            293         5.73%            25,391            310         4.89%
  Other Borrowings                               7,257             97         5.35%             7,226             86         4.77%
                                              --------        -------       ------           --------         ------       ------
     Total interest-bearing liabilities        281,804          1,697         2.41%           289,731          1,902         2.63%
                                                              -------       ------                            ------       ------
Non-interest bearing liabilities                12,700                                         13,248
                                              --------                                       --------
     Total liabilities                         294,504                                        302,979
Stockholders' equity                            22,010                                         20,448
                                              --------                                       --------
     Total liabilities and stockholders'
       equity                                 $316,514                                       $323,427
                                              ========                                       ========

Net interest income                                           $ 2,415                                        $ 2,482
                                                              =======                                        =======
Interest rate spread (3)                                                      3.08%                                          3.10%
                                                                            ======                                         ======
Net Yield on interest-earning assets (4)                                      3.22%                                          3.25%
                                                                            ======                                         ======
Ratio of average interest-earning assets to
  average interest-bearing liabilities                                      106.31%                                        105.54%
                                                                            ======                                         ======
</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.

                                      -12-
<PAGE>

RISK ELEMENTS
-------------
The table below presents information  concerning  nonperforming assets including
nonaccrual loans,  renegotiated loans, loans 90 days past due, other real estate
loans and repossessed  assets.  A loan is classified as nonaccrual  when, in the
opinion of management, there are serious doubts about collectibility of interest
and  principal.  At the time the  accrual of interest  is  discontinued,  future
income is recognized  only when cash is received.  Renegotiated  loans are those
loans which terms have been  renegotiated  to provide a reduction or deferral of
principal or interest as a result of the deterioration of the borrower.


                                                      September 30,    June 30,
                                                          2004           2004
                                                      -------------   ----------

Loans on a nonaccrual basis                                 $  877       $  697
Loans past due 90 days or more and still accruing            1,598        1,707
                                                            ------       ------
         Total nonperforming loans                           2,475        2,404
                                                            ------       ------

Other real estate                                              258          253
Repossessed assets                                              34            -
                                                            ------       ------
         Total nonperforming assets                         $2,767       $2,657
                                                            ------       ------

Nonperforming loans as a percentage of total net loans         .98%         .93%
                                                             =====        =====

Nonperforming assets as a percentage of total assets           .88%         .83%
                                                             =====        =====

Allowance for loan losses to nonperforming loans             75.17%       74.81%
                                                             =====        =====


Nonaccrual  loans at September  30, 2004,  consisted of $620,596 in  one-to-four
family  residential  mortgages  and  $256,028  in  non-residential  real  estate
mortgages.

The Company considers a loan 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,  homogenous  loans  that  are  to  be  collectively  evaluated.
Management does not consider an  insignificant  delay,  which is defined as less
than 90 days by the Company,  to be a reason to classify a loan as  impaired.  A
loan is not  impaired  during  the  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 through the allowance for loan losses by evaluating the recorded
investment in the impaired loan to the estimated present value of the underlying
collateral or the present value of expected cash flows.

As of September 30, 2004,  the total  investment in impaired loans was $267,189,
and such amount was subject to a specific allowance for loan losses of $105,852.
The average  investment in the impaired loans for the  three-month  period ended
September 30, 2004 was $282,375.  The interest  income  potential based upon the
original  terms of the  contracts  of these  impaired  loans was  $4,780 for the
three-month period ended September 30, 2004, all of which has been recognized as
income.


                                      -13-

<PAGE>

The  allowance  for loan  losses is based  upon  estimates  of  probable  losses
inherent in the loan portfolio.  The amount actually  observed in respect to the
losses  can vary  significantly  from the  estimated  amounts.  Our  methodology
includes  several  features that are intended to reduce the differences  between
estimated and actual losses.  The historical loss experience  model that is used
to established  the loan loss factors for problem graded loans is designed to be
self-correcting by taking into account our recent loss experience. Similarly, by
basing  the  past  graded  loss  factors  on  historical  loss  experience,  the
methodology is further designed to take our recent loss experience into account.
In addition to historical and recent loss trends,  our methodology  incorporates
the current volume and trend in delinquencies,  as well as, a self-assessment of
the status of the local economy.  Our methodology requires the monitoring of the
changing  loan  portfolio  mix and the effect that the  changing  mix has on the
trend in delinquencies, as well as actual loss factors.

The combination of the historical loss factors, recent loss experience,  current
trend in delinquencies,  the local economic  environment,  and the assessment of
the changing loan portfolio mix are used in  conjunction  with the internal loan
grading system to adjust our allowance on a quarterly  basis.  Furthermore,  our
methodology includes our impaired loan assessment and permits adjustments to any
loss factor used in determining the allowance in the event that, in management's
judgement,  significant  conditions  which  effect  the  collectibility  of  the
portfolio as of the  evaluation  date are not reflected in the loss factors.  By
assessing  the probable  estimated  losses  inherent in the loan  portfolio on a
quarterly  basis,  we are able to adjust  specific and inherent  loss  estimates
based upon recent information, as it becomes available.

The following is a breakdown of the loan portfolio  composition at September 30,
2004 and June 30, 2004:

                                                 September 30,       June 30,
                                                     2004              2004
                                             ----------------------------------
Mortgage loans:
           1-4 Family                            $119,596,515     $119,783,861
           1-4 Family construction                  5,532,946        7,944,357
           Multi-family                             8,901,225        8,997,796
           Non-residential                         40,936,484       40,247,378
           Non-residential construction             5,489,866        9,063,738
                                                 ------------     ------------
                                                  180,457,036      186,037,130
                                                 ------------     ------------
Consumer Loans:
           Home Improvement                           572,594          680,206
           Home Equity LOC                         18,307,802       16,916,392
           Automobile-Direct                        8,724,540        9,042,103
           Automobile-Indirect                     29,088,092       31,902,157
           Share loans                              2,192,688        2,346,149
           Other                                    1,956,348        2,146,205
                                                 ------------     ------------
                                                   60,842,064       63,033,212
                                                 ------------     ------------

                                                 ------------     ------------
Commercial Loans                                   15,961,363       17,009,222
                                                 ------------     ------------

                                                 ------------     ------------
           Gross Loans                            257,260,463      266,079,564
Less:
           Loans in process                         3,376,303        4,338,892
           Net deferred loan fees                     115,145          108,294
           Allowance for loan losses                1,860,733        1,798,636
                                                 ------------     ------------
                                                    5,352,181        6,245,822
                                                 ------------     ------------
           Total                                 $251,908,282     $259,833,742
                                                 ============     ============

                                      -14-

<PAGE>

ITEM 3 - CONTROLS AND PROCEDURES
--------------------------------
(1) 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 Quarterly  Report on
Form 10-QSB 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.

(2) Changes in internal  control  over  financial  reporting  During the quarter
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.


                                      -15-

<PAGE>

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

                NONE

Item 2 - Unregistered Sales of Equity Securities and  Use of Proceeds

                NONE

Item 3 - Defaults upon Senior Securities

                NOT APPLICABLE

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

                NONE

Item 5 - Other Information

                NONE

Item 6  - Exhibits

(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)  Shareholders 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 ****
          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 10-Q.  (File No.  0-021885)
     filed May 13, 2003.
***  Incorporated  by reference to the Form 8-K ( File No.  0-21885)  filed July
     17, 1997.
**** Incorporated by reference to the proxy statement for the Special Meeting of
     the Stockholders on January 20, 1998 and filed with the SEC on December 12,
     1997.

                                      -16-

<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  the  report  to be  signed  on its  behalf  by the
undersigned, thereunto duly authorized.


                                      Advance Financial Bancorp

Date:  November 12, 2004              By:  /s/Stephen M. Gagliardi
                                           -------------------------------------
                                           Stephen M. Gagliardi
                                           President and Chief Executive Officer

Date:  November 12, 2004              By:  /s/Stephen M. Magnone
                                           -------------------------------------
                                           Stephen M. Magnone
                                           Treasurer (Chief Financial Officer)



                                      -17-