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 March 31, 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 May 10, 2004: 1,398,373


Transitional Small Business Disclosure Format ( check one):
Yes       No  X
    ---      ---

<PAGE>

                            Advance Financial Bancorp

                                      Index

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                               Number
                                                                                               ------
<S>                                                                                        <C>
Part I - FINANCIAL INFORMATION

          Item 1 - Financial Statements

                   Consolidated Balance Sheet (Unaudited)  as of
                      March 31, 2004 and June 30, 2003                                            3

                   Consolidated Statement of Income (Unaudited)
                       For the Three Months ended March 31, 2004 and 2003                         4

                   Consolidated Statement of Income (Unaudited)
                       For the Nine Months ended March 31, 2004 and 2003                          5

                   Consolidated Statement of Cash Flows (Unaudited)
                       For the Nine Months ended March  31, 2004 and 2003                         6

                   Notes to the Unaudited Consolidated Financial Statements                    7-10


          Item 2 - Management's Discussion and Analysis                                       11-19


          Item 3 - Controls and Procedures                                                       20


Part II - OTHER INFORMATION

          Item 1 - Legal Proceedings                                                             21

          Item 2 - Changes in Securities, Use of Proceeds and
                     Issuer Purchases of Equity Securities                                       21

          Item 3 - Default Upon Senior Securities                                                21

          Item 4 - Submissions of Matters to a Vote of Security Holders                          21

          Item 5 - Other Information                                                             21

          Item 6 - Exhibits and Reports on Form 8-K                                              21

SIGNATURES                                                                                       22
</TABLE>

<PAGE>
                             ADVANCE FINANCIAL BANCORP
                     CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                     MARCH 31,         JUNE 30,
                                                                                       2004             2003
                                                                                 -------------    -------------
<S>                                                                            <C>              <C>
Assets
     Cash and cash equivalents:
       Cash and amounts due from banks                                           $   2,513,608    $   2,906,568
       Interest bearing deposits with other institutions                             6,905,261       13,163,753
                                                                                 -------------    -------------
          Total cash and cash equivalents                                            9,418,869       16,070,321
                                                                                 -------------    -------------

     Investment securities:
       Securities held to maturity (fair value of $7,221,555 and $15,298,606)        7,090,146       15,086,475
       Securities available for sale                                                    12,938       11,394,701
                                                                                 -------------    -------------
          Total investment securities                                                7,103,084       26,481,176
                                                                                 -------------    -------------
     Mortgaged-backed securities:
       Securities held to maturity (fair value of $13,744,749 and $18,751,018)      13,787,473       18,642,532
       Securities available for sale                                                 6,077,279        8,979,898
                                                                                 -------------    -------------
          Total mortgage-backed securities                                          19,864,752       27,622,430
                                                                                 -------------    -------------

     Loans held for sale                                                               646,750        5,687,708
     Loans receivable,  (net of allowance for loan losses
          of $1,604,768 and $1,095,822 )                                           265,256,747      229,239,547
     Office properties and equipment, net                                            4,841,703        5,069,073
     Federal Home Loan Bank Stock, at cost                                           2,192,500        1,679,400
     Accrued interest receivable                                                     1,308,802        1,447,525
     Goodwill                                                                        4,700,472        4,700,472
     Other intangibles, net                                                          1,575,633        1,709,413
     Other assets                                                                    2,375,647        2,193,526
                                                                                 -------------    -------------
          TOTAL ASSETS                                                           $ 319,284,959    $ 321,900,591
                                                                                 =============    =============

Liabilities:
     Deposits                                                                    $ 266,992,674    $ 272,828,932
     Advances from Federal Home Loan Bank                                           22,300,000       20,000,000
     Other Borrowings                                                                7,200,000        7,200,000
     Advance payments by borrowers for taxes and insurance                             469,498          507,049
     Accrued interest payable and other liabilities                                    919,115        1,276,657
                                                                                 -------------    -------------
          TOTAL LIABILITIES                                                        297,881,287      301,812,638
                                                                                 -------------    -------------
Stockholders' Equity:
     Preferred stock, $.10 par value; 500,000 shares
         authorized, none issued                                                             -                -
     Common stock, $.0667 par value; 3,000,000 shares
          authorized 1,626,621 shares issued                                           108,445          108,445
     Additional paid in capital                                                     10,573,447       10,467,559
     Retained earnings - substantially restricted                                   13,308,106       11,705,306
     Unallocated shares held by Employee Stock Ownership Plan (ESOP)                  (185,536)        (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                                             38,194          497,298
                                                                                 -------------    -------------
          TOTAL STOCKHOLDERS' EQUITY                                                21,403,672       20,087,953
                                                                                 -------------    -------------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 319,284,959    $ 321,900,591
                                                                                 =============    =============
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.
                                      -3-

<PAGE>
                      ADVANCE FINANCIAL BANCORP
            CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

                                                          THREE MONTHS ENDED
                                                                MARCH 31,
                                                           2004         2003
                                                       ----------   ----------

INTEREST AND DIVIDEND INCOME
   Loans                                               $3,973,736   $3,372,413
   Investment securities - taxable                         61,222       94,708
   Investment securities - nontaxable                      34,998      111,984
   Interest-bearing deposits with other institutions        2,762      104,729
   Mortgage-backed securities                             200,869      175,231
   Dividends on Federal Home Loan Bank Stock                8,335       13,463
                                                       ----------   ----------

        Total interest and dividend income              4,281,922    3,872,528
                                                       ----------   ----------

INTEREST EXPENSE
   Deposits                                             1,448,446    1,577,652
   Advances from Federal Home Loan Bank                   305,868      287,629
   Other Borrowings                                        80,374       94,034
                                                       ----------   ----------

        Total interest expense                          1,834,688    1,959,315
                                                       ----------   ----------

NET INTEREST INCOME                                     2,447,234    1,913,213

Provision for loan losses                                 233,100      121,800
                                                       ----------   ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     2,214,134    1,791,413
                                                       ----------   ----------

NONINTEREST INCOME
   Service charges on deposit accounts                    201,299      162,942
   Income from loan servicing activity                     29,288       43,255
   Gain on sale of loans                                   31,164       85,342
   Gain on sale of Investments                                120            -
   Other income                                           106,006       86,444
                                                       ----------   ----------

        Total noninterest income                          367,877      377,983
                                                       ----------   ----------

NONINTEREST EXPENSE
   Compensation and employee benefits                     859,134      740,487
   Occupancy and equipment                                275,531      280,623
   Professional fees                                       40,652       44,395
   Advertising                                             46,119       35,408
   Data processing charges                                137,741      147,835
   Amortization of intangible asset                        44,593       24,000
   Other expenses                                         381,647      365,543
                                                       ----------   ----------

        Total noninterest expenses                      1,785,417    1,638,291
                                                       ----------   ----------

Income before income taxes                                796,594      531,105
Income taxes                                              278,157      160,002
                                                       ----------   ----------
Net Income                                             $  518,437   $  371,103
                                                       ==========   ==========

EARNINGS PER SHARE - NET INCOME
        Basic                                          $      .39   $      .28
        Diluted                                        $      .38   $      .28
DECLARED DIVIDEND PER SHARE                            $      .10   $      .10


See accompanying notes to the unaudited consolidated financial statements.

                                       -4-


<PAGE>
                         ADVANCE FINANCIAL BANCORP
               CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED
                                                                MARCH 31,
                                                            2004          2003
                                                        -----------   -----------
<S>                                                   <C>           <C>
INTEREST AND DIVIDEND INCOME
    Loans                                               $11,925,171   $ 9,711,690
    Investment securities - taxable                         303,689       259,214
    Investment securities - nontaxable                      227,074       266,117
    Interest-bearing deposits with other institutions        14,827       185,989
    Mortgage-backed securities                              616,092       416,181
    Dividends on Federal Home Loan Bank Stock                25,592        31,329
                                                        -----------   -----------

         Total interest and dividend income              13,112,445    10,870,520
                                                        -----------   -----------

INTEREST EXPENSE
    Deposits                                              4,443,889     4,341,288
    Advances from Federal Home Loan Bank                    944,028       873,105
    Other Borrowings                                        239,678        94,034
                                                        -----------   -----------

         Total interest expense                           5,627,595     5,308,427
                                                        -----------   -----------

NET INTEREST INCOME                                       7,484,850     5,562,093

Provision for loan losses                                   904,950       276,000
                                                        -----------   -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       6,579,900     5,286,093
                                                        -----------   -----------

NONINTEREST INCOME
    Service charges on deposit accounts                     633,877       467,521
    Income from loan servicing activity                     176,428       118,043
    Gain on sale of loans                                   221,906       249,244
    Gain on sale of Investments                             446,497          --
    Other income                                            284,145       247,504
                                                        -----------   -----------

         Total noninterest income                         1,762,853     1,082,312
                                                        -----------   -----------
NONINTEREST EXPENSE
    Compensation and employee benefits                    2,424,541     1,982,852
    Occupancy and equipment                                 816,365       803,435
    Professional fees                                       127,431       118,815
    Advertising                                             145,080       119,695
    Data processing charges                                 403,793       313,945
    Amortization of intangible asset                        133,780        24,000
    Other expenses                                        1,231,140     1,045,981
                                                        -----------   -----------

         Total noninterest expenses                       5,282,130     4,408,723
                                                        -----------   -----------

Income before income taxes                                3,060,623     1,959,682
Income taxes                                              1,054,543       701,620
                                                        -----------   -----------
Net Income                                              $ 2,006,080   $ 1,258,062
                                                        ===========   ===========

EARNINGS PER SHARE - NET INCOME
         Basic                                          $      1.49   $       .94
         Diluted                                        $      1.46   $       .94
DECLARED DIVIDEND PER SHARE                             $       .30   $       .26

</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       -5-

<PAGE>
                      ADVANCE FINANCIAL BANCORP
                   CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        NINE MONTHS ENDED
                                                                             MARCH 31,
                                                                       2004            2003
                                                                   ------------    ------------
<S>                                                              <C>             <C>
OPERATING ACTIVITIES
    Net Income                                                     $  2,006,080    $  1,258,062
    Adjustments to reconcile net income to net cash provided by
       operating activities:
        Depreciation, amortization and accretion, net                   582,320         377,925
        Provision for loan losses                                       904,950         276,000
        Gain on sale of loans                                          (221,906)       (249,244)
        Gain on sale of investments                                    (446,497)              -
        Origination of loans held for sale                          (15,579,243)    (18,472,904)
        Proceeds from the sale of loans                              20,842,107      19,300,795
        (Increase) decrease  in other assets and liabilities,net       (345,355)        345,496
                                                                   ------------    ------------

             Net cash provided by operating activities                7,742,456       2,836,130
                                                                   ------------    ------------

INVESTING ACTIVITIES
    Investment securities held to maturity:
        Purchases                                                             -     (12,588,093)
        Maturities and repayments                                     8,000,000               -
    Investment securities available for sale:
        Purchases                                                             -      (4,007,886)
        Maturities and repayments                                         1,000       6,036,342
        Sales                                                        11,211,377               -
    Mortgage-backed securities held to maturity:
        Purchases                                                             -     (14,995,240)
        Maturities and repayments                                     4,728,004         555,308
    Mortgage-backed securities available for sale:
        Purchases                                                             -      (3,723,622)
        Maturities and repayments                                     2,436,953       3,274,505
        Sales                                                           352,881               -
    Purchase of Federal Home Loan Bank Stock, net                      (513,100)       (694,800)
    Net increase in loans                                           (36,498,289)    (33,944,678)
    Purchases of premises and equipment                                (135,438)     (1,255,119)
    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) provided by investing activities    (10,416,612)     20,352,581
                                                                   ------------    ------------
FINANCING ACTIVITIES
    Net (decrease) increase in deposits                              (5,836,258)     12,162,219
    Net increase in short term borrowings                             2,300,000               -
    Proceeds from long term borrowings                                        -       7,200,000
    Net change in advances for taxes and insurance                      (37,551)        (35,330)
    Cash dividends paid                                                (403,487)       (319,230)
                                                                   ------------    ------------
             Net cash (used in) provided by financing activities     (3,977,296)     19,007,659
                                                                   ------------    ------------

             (Decrease) increase in cash and cash equivalents        (6,651,452)     42,196,370

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                         $  9,418,869    $ 53,966,810
                                                                   ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
        Interest on deposits and borrowings                        $  5,648,679    $  5,308,211
        Income taxes                                               $  1,110,000    $    640,000
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       -6-

<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,  2004 or any other
period.

These statements should be read in conjunction with the consolidated  statements
of and for the year ended June 30, 2003 and related  notes which are included on
the Form 10-KSB (file no. 0-21885).


NOTE 2 - EARNINGS PER SHARE


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.  The effects on EPS have been included for the comparative  periods in
the accompanying financial statements.

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 March 31
                                                     (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             (44,288)      (57,105)
                                              ----------    ----------

Weighted -average common shares and
    common stock equivalents used to
    calculate basic earnings per share         1,354,085     1,341,268

Additional common stock equivalents
    (stock options) used to calculate
    diluted earnings per share                    30,565         8,872
                                              ----------    ----------
Weighted-average common shares and
    common stock equivalents used
    to calculate diluted earnings per share    1,384,650     1,350,140
                                              ==========    ==========



                                       -7-


<PAGE>

NOTE 2 - EARNINGS PER SHARE (Continued)


                                             Nine-Months Ended March 31
                                                     (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             (48,626)      (61,409)
                                              ----------    ----------

Weighted -average common shares and
    common stock equivalents used to
    calculate basic earnings per share         1,349,747     1,336,964

Additional common stock equivalents
    (stock options) used to calculate
    diluted earnings per share                    27,844           621
                                              ----------    ----------
Weighted-average common shares and
    common stock equivalents used
    to calculate diluted earnings per share    1,377,591     1,337,585
                                              ==========    ==========


NOTE 3 - 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 March 31, 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 March 31, 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.

The options issued would have had no dilutive effect on net income for the three
and nine month  periods  ended March 31, 2004.  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".

                                       -8-


<PAGE>

NOTE 4 - COMPREHENSIVE INCOME

Other accumulated  comprehensive  income consists solely of net unrealized gains
and losses on available for sale securities. For the three and nine months ended
March  31,  2004,   comprehensive   income  totaled   $526,149  and  $1,546,976,
respectively.  For the three and nine months ended March 31, 2003, comprehensive
income totaled $373,924 and $1,341,035,  respectively. For the nine months ended
March 31, 2004, net income included a  reclassification  of net unrealized gains
of $446,497,  primarily as a result of the sale of available for sale securities
in November 2003.


NOTE 5 - 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.

                                       -9-


<PAGE>

NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)


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. 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.  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.

                                      -10-

<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 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 calculations for March 31, 2003 have been restated to reflect
the stock split.

During the period  ended  December  31,  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
nine-month period ended March 31, 2004.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND JUNE 30, 2003
---------------------------------------------------------------------

The Company's total assets decreased by approximately $2,616,000 to $319,284,959
at March 31, 2004,  from  $321,900,591  at June 30, 2003. Net loans increased by
approximately $36,017,000. The increase in net loans was funded by a decrease in
interest bearing deposits with other financial institutions of $6,258,000, sales
and  repayments  of  investment  securities  and  mortgage-backed  securities of
$27,136,000 and a decrease in loans available for sale of $5,041,000. Short-term
advances from the Federal Home Loan Bank "FHLB" increased  $2,300,000 during the
period to partially replace the loss of approximately $5,836,000 in deposits.

Interest-bearing deposits with other financial institutions decreased $6,258,000
to $6,905,261 at March 31, 2004 from  $13,163,753 at June 30, 2003. The decrease
in funds  was used to fund  the  Company's  increased  loan  demand.  Investment
securities   decreased   $19,378,000  to  $7,103,084  at  March  31,  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,  of which  $7,000,000  was during the months of  February  and March
2004. The proceeds from the sales and calls were used to fund the Company's loan
demand.  Mortgage-backed securities decreased $7,758,000 to $19,864,752 at March
31, 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 ended March 31, 2004.

Loans held for sale  decreased  $5,041,000  to  $646,750  at March 31, 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  $36,017,000 to $265,256,747 at March 31, 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  $11,645,000
which includes  approximately  $4,982,000 in fixed rate loans that were added to
the Bank's  portfolio  during the period and $6,663,000 in adjustable rate loans
as these  products  became  attractive  as a result  of the  Bank's  competitive
pricing. Nonresidential mortgages increased approximately $2,540,000 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  $6,832,000.
This  increase  was  split   $3,399,000   and  $3,434,000  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
$2,751,000 and indirect  automobile loans have increased  $11,249,000 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.

                                      -11-


<PAGE>

FHLB stock increased $513,100 to $2,192,500 at March 31, 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.  During the
nine month period ended March 31, 2004, the Company  increased its advance total
by $2,300,000.

Deposits   decreased   $5,836,000  to   $266,992,674  at  March  31,  2004  from
$272,828,932  at June 30, 2003. The decrease is primarily in money market demand
deposits  and Jumbo and "special  term" term  certificate  of deposit  products.
Money  market  accounts  with  balances  in excess  of  $10,000  have  decreased
$3,591,000  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.  Jumbo and "special term" certificates of deposit decreased  $1,195,000
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  $2,300,000 to  $22,300,000  at March 31, 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 March 31,
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
until such time as local market  conditions,  the interest rate market and other
management factors dictate.

Stockholders' equity increased approximately  $1,316,000 to $21,403,672 at March
31, 2004 from  $20,087,953 at June 30, 2003. This increase was the result of net
income  of  $2,006,000  for the  period  and the  recognition  of  shares in the
Employee  Stock  Ownership  Plan and  Restricted  Stock Plan of $172,000.  These
increases were offset by a decrease in the net unrealized  gain on securities of
$459,000 and by the payment of cash dividends of $403,000.

COMPARISON  OF THE RESULTS OF  OPERATIONS  FOR THE THREE AND NINE  MONTHS  ENDED
--------------------------------------------------------------------------------
MARCH 31, 2004 AND 2003
-----------------------

Net interest income  increased  $534,000 or 27.91%,  to $2,447,000 for the three
months  ended March 31, 2004 from  $1,913,000  for the  comparable  period ended
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 interest-bearing  liabilities.  The net interest spread for the three
months  ended March 31, 2004  increased  to 3.08% from 2.67% for the  comparable
period ended 2003.  The 41 basis point  increase in the net interest rate spread
for the current three month period was primarily due to a 58 basis point decline
in average cost of funds which was offset by a 17 basis point decline in average
yields on assets. See "Average Balance Sheet" for the three-month  periods ended
March 31, 2004 and 2003.

Net interest income increased  $1,923,000 or 34.57%,  to $7,485,000 for the nine
months  ended March 31, 2004 from  $5,562,000  for the  comparable  period ended
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  interest-bearing  liabilities.  The net interest spread for the nine
months  ended March 31, 2004  increased  to 3.12% from 2.96% for the  comparable
period ended 2003.  The 16 basis point  increase in the net interest rate spread
for the current nine month period was  primarily  the result of a 73 basis point
decline in cost of funds which was offset by a 57 basis point decline in average
yields on assets.  See "Average Balance Sheet" for the nine-month  periods ended
March 31, 2004 and 2003.

The  provision  for loan losses  increased  $111,000  to $233,100  for the three
months ended March 31, 2004 from $121,800 for the comparable  period ended 2003.
The provision increased $629,000 to $904,950 for the nine-months ended March 31,
2004 from  $276,000 for the  comparable  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.

                                      -12-


<PAGE>

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,
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. See "Risk Elements."

Noninterest  income decreased $10,000 or 2.67%, to $368,000 for the three months
ended  March 31,  2004 from  $378,000  for the  comparable  period  ended  2003.
Noninterest  income  increased  $681,000  or 62.88% to  $1,763,000  for the nine
months  ended March 31, 2004 from  $1,082,000  for the  comparable  period ended
2003.  The nine month period of 2004  includes  gains on the sales of investment
securities of approximately  $446,000,  as previously  discussed.  Also, for the
three and nine month period ended March 31, 2004, miscellaneous fees and fees on
deposit accounts increased by $38,000 and $166,000, respectively, as a result of
an increase in core customers and related  activity.  For the three month period
ended  March 31,  2004,  gains on sales of fixed rate loans and income from loan
servicing  activity  decreased by $68,000 while  increasing  over the nine-month
period  ended March 31,  2004,  by $31,000.  The  decrease  over the three month
period is due to decreasing  customer  demand for fixed rate 1-4 family mortgage
loans in comparison to the same period ended in 2003.

Noninterest  expense  increased  $147,000 or 8.98%,  to $1,785,000 for the three
months ended March 31, 2004,  from  $1,638,000 for the  comparable  2003 period.
Noninterest  expense  increased  $873,000 or 19.81%,  to $5,282,000 for the nine
months  ended March 31, 2004 from  $4,409,000  for the  comparable  period ended
2003.  For the three and nine month periods  ended March 31, 2004,  compensation
and  employee  benefits  increased  $119,000  and  $442,000,  respectively.  The
increase in  compensation  and  employee  benefits  for the three and nine month
periods ended March 31, 2004 is due in part to the  acquisition of the branch in
Ohio in February 2003 and the de novo branch opening in September  2002. The new
branches account for $20,000 and $154,000 of the increase for the three and nine
month  periods,  respectively.   Occupancy  and  equipment,  professional  fees,
marketing and data processing  expenses have remained stable for the three month
period  while they have  increased  by $137,000  for the nine month period ended
March 31, 2004.  Such  increases  are  primarily due to the operation of the new
branches  acquired and opened since September 2002. For the three and nine month
periods ended March 31, 2004, other expenses,  including the amortization of the
core deposit intangible "CDI" have increased $37,000 and $295,000, respectively.
The increase in other  expense for the three month period is due to increases in
expenses related to other real estate and repossessed  assets of $19,000 and the
amortization  of the CDI of $21,000.  The increase in other expense for the nine
month period is due to increases in supplies and  communications  of $9,000,  in
fees paid for ATM and  consumer  card usage of  $50,000  and in fees paid to the
Federal  Reserve for item  processing  of $13,000,  respectively.  Each of these
increases are primarily  related to customer activity due to the increase in the
Company's core  customers  created  primarily by the branch  purchase and the de
novo branch  opening.  Also,  other expense  increased for the nine month period
ended  March 31,  2004 due to an  increase  in state  franchise  tax  expense of
$32,000 and CDI  amortization of $134,000 as a result of the branch  acquisition
during February 2003. Costs relating to other real estate and repossessed assets
increased for the nine month period ended March 31, 2004 by $47,000.

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,  provide  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 March 31, 2004,  liquid assets totalled
$15.5  million or 4.9% 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.

                                      -13-


<PAGE>

Operating  activities provided net cash of $7.7 million and $2.8 million for the
nine-month  periods  ended  March  31,  2004 and  2003,  respectively,  and were
generated  principally  from net  income  and net sales of fixed rate 1-4 family
mortgages.

Investing  activities  used $10.4  million and provided  $20.3  million in funds
during the  nine-month  periods  ended  March 31,  2004 and 2003,  respectively.
During the period ended March 31, 2004, the Company used cash to originate a net
$36.5  million in loans.  This usage was offset by net  proceeds  from the sale,
repayment and maturity of  investment  and  mortgage-backed  securities of $26.7
million.  During the period  ended  March 31,  2003,  the  Company  used cash to
originate  a net  $33.9  million  in loans  and to  purchase  $25.5  million  in
investment and mortgage-backed securities.  Offsetting the uses of funds for the
period ended March 31, 2003 was $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 $4.0 million and provided
$19.0   million   during  the  nine  months  ended  March  31,  2004  and  2003,
respectively.  For the period ending 2004,  deposits had decreased $5.8 million.
This decrease had been partially offset by an increase in short-term  borrowings
of $2.3  million.  For 2003,  deposits  increased  $12.2 million and the Company
received $7.2 million 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
$144 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.

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 March 31,  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
4.84% and 10.87%, 10.12% and 6.87%, respectively, at March 31, 2004.

                                      -14-


<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.

<TABLE>
<CAPTION>
                                                Three Months Ended March 31,
                                        ----------------------------------------------
                                            2004            Vs             2003
                                        ----------------------------------------------
                                                      Increase (Decrease)
                                                          Due to
                                        ----------------------------------------------
                                           Volume          Rate             Net
                                        ----------------------------------------------
<S>                                      <C>             <C>               <C>
Interest Income:
    Loans                                  $1,140,220       $(538,897)       $601,323
    Investments                              (216,688)         24,759        (191,929)
                                        ----------------------------------------------
      Total interest-earning assets           923,532        (514,138)        409,394
                                        ----------------------------------------------

Interest Expense
    Core Deposits                              62,127        (127,759)        (65,632)
    Certificates of Deposit                   159,506        (223,080)        (63,574)
    FHLB Borrowings                            53,680         (35,441)         18,239
    Other Borrowings                                -         (13,660)        (13,660)
                                        ----------------------------------------------
      Total interest-bearing liabilities      275,313        (399,940)       (124,627)

                                        ==============================================
Change in net interest income               $ 648,219       $(114,198)      $ 534,021
                                        ==============================================
</TABLE>

<TABLE>
<CAPTION>
                                                Nine Months Ended March 31,
                                        ----------------------------------------------
                                            2004            Vs             2003
                                        ----------------------------------------------
                                                      Increase (Decrease)
                                                          Due to
                                        ----------------------------------------------
                                           Volume          Rate             Net
                                        ----------------------------------------------
<S>                                      <C>           <C>               <C>
Interest Income:
    Loans                                  $3,899,444    $(1,685,963)      $2,213,481
    Investments                                61,997        (33,553)          28,444
                                        ----------------------------------------------
      Total interest-earning assets         3,961,441     (1,719,516)       2,241,925
                                        ----------------------------------------------

Interest Expense
    Core Deposits                             384,521       (544,077)        (159,556)
    Certificates of Deposit                 1,032,679       (770,522)         262,157
    FHLB Borrowings                           234,600       (163,677)          70,923
    Other Borrowings                          230,433        (84,789)         145,644
                                        ----------------------------------------------
      Total interest-bearing liabilities    1,882,233     (1,563,065)         319,168

                                        ==============================================
Change in net interest income              $2,079,208    $ (156, 451)      $1,922,757
                                        ==============================================
</TABLE>

                                      -15-

<PAGE>

  Average Balance Sheet for the Three-Month Period ended March 31

     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 March 31,
                                             --------------------------------------------------------------------------------------
                                                              2004                                        2003
                                             ------------------------------------------  ------------------------------------------
                                                 Average                      Average       Average                       Average
                                                 Balance       Interest      Yield/Cost     Balance        Interest      Yield/Cost
                                             ------------   ------------   ------------  -------------   ------------   -----------
<S>                                           <C>              <C>            <C>         <C>              <C>            <C>
Interest-earning assets:
  Loans receivable (1)                          $265,520         $3,974         5.99%       $198,431         $3,372         6.80%
  Investment securities (2)                       18,201            107         2.36%         53,000            325         2.45%
  Mortgage-backed securities                      20,675            201         3.89%         15,597            175         4.49%
                                             ------------   ------------   -----------  -------------   ------------   -----------
     Total interest-earning assets               304,396          4,282         5.63%        267,028          3,873         5.80%
                                                            ------------   -----------                  ------------   -----------
Non-interest-earning assets                       17,630                                      13,449
                                             ------------                               -------------
     Total assets                               $322,026                                    $280,477
                                             ============                               =============

Interest-bearing liabilities:
  Interest-bearing demand deposits              $ 52,377            134         1.02%       $ 43,285            168         1.55%
  Certificates of deposit                        153,667          1,184         3.08%        136,232          1,246         3.66%
  Savings deposits                                49,610            131         1.06%         42,607            163         1.53%
  FHLB Borrowings                                 25,117            306         4.87%         21,167            288         5.44%
  Other Borrowings                                 7,200             80         4.47%          7,200             94         5.22%
                                             ------------   ------------   -----------  -------------   ------------   -----------
     Total interest-bearing liabilities          287,971          1,835         2.55%        250,491          1,959         3.13%
                                                            ------------   -----------                  ------------   -----------
Non-interest bearing liabilities                  12,840                                      10,730
                                             ------------                               -------------
     Total liabilities                           300,811                                     261,221
Stockholders' equity                              21,215                                      19,256
                                             ------------                               -------------
     Total liabilities and stockholders'
       equity                                   $322,026                                    $280,477
                                             ============                               =============

Net interest income                                              $2,447                                      $1,913
                                                            ============                                ============
Interest rate spread (3)                                                        3.08%                                       2.67%
                                                                           ===========
                                                                                                                       ===========
Net yield on interest-earning assets (4)                                        3.22%                                       2.87%
                                                                           ===========                                 ===========
Ratio of average interest-earning assets to
  average interest-bearing liabilities                                        105.70%                                     106.60%
                                                                           ===========                                 ===========
</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.

                                      -16-

<PAGE>

  Average Balance Sheet for the Nine-Month Period ended March 31

     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>
                                                                      Nine-Month Period Ended March 31,
                                            --------------------------------------------------------------------------------------
                                                             2004                                        2003
                                            -----------------------------------------  -------------------------------------------
                                                Average                     Average         Average                      Average
                                                Balance       Interest     Yield/Cost       Balance       Interest      Yield/Cost
                                            ------------   ------------   -----------  -------------   ------------   ------------
<S>                                         <C>             <C>             <C>         <C>              <C>            <C>
Interest-earning assets:
  Loans receivable (1)                         $257,790        $11,925         6.17%       $184,904         $9,712         7.00%
  Investment securities (2)                      25,381            571         3.00%         34,837            743         2.84%
  Mortgage-backed securities                     23,011            616         3.57%         11,097            416         5.00%
                                            ------------   ------------   -----------  -------------   ------------   -----------
     Total interest-earning assets              306,182         13,112         5.71%        230,838         10,871         6.28%
                                                           ------------   -----------                  ------------   -----------
Non-interest-earning assets                      17,653                                      10,638
                                            ------------                               -------------
     Total assets                              $323,835                                    $241,476
                                            ============                               =============

Interest-bearing liabilities:
  Interest-bearing demand deposits             $ 52,948            418         1.06%       $ 34,171            449         1.75%
  Certificates of deposit                       153,400          3,629         3.15%        117,430          3,367         3.82%
  Savings deposits                               49,553            396         1.07%         38,496            526         1.82%
  FHLB Borrowings                                27,139            944         4.64%         20,789            873         5.60%
  Other Borrowings                                7,200            240         4.44%          2,400             94         5.22%
                                            ------------   ------------   -----------  -------------   ------------   -----------
     Total interest-bearing liabilities         290,040          5,627         2.59%        213,286          5,309         3.32%
                                                           ------------   -----------                  ------------   -----------
Non-interest bearing liabilities                 12,962                                       9,270
                                            ------------                               -------------
     Total liabilities                          303,002                                     222,556
Stockholders' equity                             20,833                                      18,920
                                            ------------                               -------------
     Total liabilities and stockholders'
       equity                                  $323,835                                    $241,476
                                            ============                               =============

Net interest income                                             $7,485                                      $5,562
                                                           ============                                ============
Interest rate spread (3)                                                       3.12%                                       2.96%
                                                                          ===========
                                                                                                                      ===========
Net Yield on interest-earning assets (4)                                       3.26%                                       3.21%
                                                                          ===========                                 ===========
Ratio of average interest-earning assets to
  average interest-bearing liabilities                                       105.57%                                     108.23%
                                                                          ===========                                 ===========
</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.

                                      -17-

<PAGE>

RISK ELEMENTS
-------------
The table below presents information  concerning  nonperforming assets including
nonaccrual  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.

                                                        March 31,    June 30,
                                                          2004         2003
                                                         ------       ------

Loans on a nonaccrual basis                              $  568       $1,398
Loans past due 90 days or more and still accruing         1,046        1,681
                                                         ------       ------
         Total nonperforming loans                        1,614        3,079
                                                         ------       ------

Other real estate                                           328          802
Repossessed assets                                            7           28
                                                         ------       ------
         Total nonperforming assets                      $1,949       $3,909
                                                         ------       ------


Nonperforming loans as a percentage of total net loans     0.61%        1.34%
                                                         ======       ======

Nonperforming assets as a percentage of total assets       0.61%        1.21%
                                                         ======       ======

Allowance for loan losses to nonperforming loans          99.44%       35.60%
                                                         ======       ======


Nonaccrual loans at March 31,  2004,consisted of $369,900 in one-to-four  family
residential mortgages and $198,480 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  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 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 March 31, 2004,
the Company had no loans that were classified as impaired.

                                       -18-

<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.  The  Company's
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 recent loss experience.
Similarly, by basing the past graded loss factors on historical loss experience,
the methodology is further designed to take the Company's recent loss experience
into account.  In addition to historical  and recent loss trends,  the Company's
methodology incorporates the current volume and trend in delinquencies,  as well
as,  a  self-assessment  of the  status  of the  local  economy.  The  Company's
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,  the
Company's   methodology  includes  its  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, the Company is 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 March 31, 2004
and June 30, 2003:

                                               March 31,           June 30,
                                                2004                2003
                                            ------------        ------------
Mortgage loans:
           1-4 family                       $137,751,868        $126,106,815
           Multi-family                        9,214,970           8,227,328
           Non-residential                    41,639,174          39,099,195
           Construction                       16,906,946          10,074,633
                                            ------------        ------------
                                             205,512,958         183,507,971
                                            ------------        ------------
Consumer Loans:
           Home Improvement                      762,219             900,060
           Automobile-Direct                   9,488,828           8,761,516
           Automobile-Indirect                33,390,186          22,140,818
           Share loans                         2,163,369           1,914,628
           Other                               2,204,969           2,687,302
                                            ------------        ------------
                                              48,009,571          36,404,324
                                            ------------        ------------

Commercial Loans                              18,323,338          17,383,993

Less:
           Loans in process                    4,875,368           6,844,741
           Net deferred loan fees                108,983             116,178
           Allowance for loan losses           1,604,768           1,095,822
                                            ------------        ------------
                                               6,589,119           8,056,741
                                            ------------        ------------
                Total                       $265,256,748        $229,239,547
                                            ============        ============

                                     -19-


<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.

                                      -20-


<PAGE>

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

                NONE

Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
         Securities

                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 and reports on Form 8-K

        (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>

        (b) Form 8-Ks filed during the quarter:

               The Registrant  filed a report on Form 8-K dated January 23, 2004
               to report  earnings  for the quarter  ended  December  31,  2003.
               (Items 7 and 12)

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

*    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.

                                      -21-


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

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


                                      -22-