# SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549

# FORM 10-KSB

|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13
 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | -------------------------------------------------------------------------------------

| |  | For the Fiscal Year Ended March 31, 2005
| |  | ----------------------------------------

OR

|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ----------------------------------------------------------------------------------------

| |  | For the transition period from ___________________ to ______________________
| |  | ----------------------------------------------------------------------------

# Commission
File Number: 000-49967

Atlantic Liberty Financial Corp.(Exact Name of Registrant as Specified in its Charter)

|Delaware                                                      |  |  |  | 16-1615014                         
|------------------------------------------------------------- |  |  |  | -----------------------------------
|(State or Other
Jurisdiction ofIncorporation or Organization) |  |  |  | (I.R.S. EmployerIdentification No.)
|                                                             
|186 Montague Street, Brooklyn, New York 11201                 |  |  |  | 11201                              
|(Address of Principal Executive Offices)                      |  |  |  | (Zip Code)                         

(718) 855-3555(Registrants
Telephone Number including area code)

Securities Registered Pursuant to
Section 12(b) of the Act:

# None

Securities Registered Pursuant to
Section 12(g) of the Act:

Common Stock, par value $.10 per
share(Title of Class)



Indicate
by check mark whether the Registrant (1) has filed all reports required to be  filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the  preceding twelve
months (or for such shorter period that the Registrant was  required to file such
reports) and (2) has been subject to such requirements for  the past 90 days.Yes [X] No [  ]




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of  Regulation S-B
is not contained herein, and will not be contained, to the best  of Registrants
knowledge, in definitive proxy or information statements  incorporated by reference in
Part III of this Form 10-KSB or any amendment to  this Form 10-KSB. [X]




State
issuer's revenues for its most recent fiscal year.............................
$11,286,000




The
aggregate value of the voting stock held by non-affiliates of the Registrant,  computed
by reference to the closing price of the common stock on June 10, 2005  ($24.25) was
$31,425,599.




As
of June 10, 2005, there were 1,682,147 shares issued and outstanding of the  Registrants
Common Stock.


DOCUMENTS INCORPORATED BY REFERENCE

|1. |  | Proxy Statement for the 2005 Annual Meeting of Stockholders (Parts I and III).
|-- |  | ------------------------------------------------------------------------------

|2. |  | Annual Report to Shareholders for the fiscal year ended March 31, 2005 (Parts
II and IV).
|-- |  | -----------------------------------------------------------------------------------------

| |  | Transitional Small Business Disclosure Format:
  Yes [  ] No [X]
| |  | ----------------------------------------------------------------

---

## PART I

ITEM
1.  BUSINESS

## Forward
Looking Statements



This
Annual Report contains certain forward-looking statements which may  be
identified by the use of words such as believe, expect, anticipate, should, planned, estimated and
potential. Examples  of forward-looking statements include, but are not
limited to, estimates with  respect to our financial condition, results of operations and
business that are  subject to various factors which could cause actual results to differ
materially  from these estimates and most other statements that are not historical in
nature. These factors include, but are not limited to, general and local  economic
conditions, changes in interest rates, deposit flows, demand for  mortgage, commercial
and other loans, real estate values, competition, changes  in accounting principles,
policies, or guidelines, changes in legislation or  regulation, and other economic,
competitive, governmental, regulatory, and  technological factors affecting our
operations, pricing products and services.


## General



Atlantic
Liberty  Financial  Corp.  was  incorporated  in 2002 for the  purpose of acting as the
holding  company  parent of  Atlantic  Liberty  Savings,  F.A.  following the completion
of its  mutual-to-stock  conversion.  At March 31, 2005,  Atlantic  Liberty  Financial
Corp. had consolidated assets of $184.0 million,  deposits of $109.1 million and
shareholders'  equity of $27.8 million.  Our  executive office is located at 186 Montague
Street, Brooklyn, New York 11201 and our telephone number is (718) 855-3555.


## Atlantic
Liberty Savings, F.A.



Our
principal business consists of attracting retail deposits from the general  public in the
areas surrounding our two locations in Brooklyn, New York and  investing those deposits,
together with funds generated from operations and  borrowings, primarily in one- to
four-family residential mortgage loans,  multi-family and commercial real estate loans,
mortgage related securities and  various other securities. Our revenues are derived
principally from the interest  on loans, securities, loan origination and servicing fees,
and service charges  and fees collected on deposit accounts. Our primary sources of funds
are  deposits, principal and interest payments on loans and securities and advances  from
the Federal Home Loan Bank of New York.


## Competition



We
face intense competition within our market area both in making loans and  attracting
deposits. The New York City area has a high concentration of  financial institutions
including large money center and regional banks,  community banks and credit unions. Some
of our competitors offer products and  services that we currently do not offer, such as
trust services and private  banking. Our competition for loans and deposits comes
principally from  commercial banks, savings institutions, mortgage banking firms and
credit  unions. We face additional competition for deposits from short-term money market
funds, brokerage firms, mutual funds and insurance companies. Our primary focus  is to
build and develop profitable customer relationships across all lines of  business while
maintaining our role as a community bank.


## Market Area



We
operate in an urban market area that has a stable population and household base.  During
the past 5 years, the population and number of households in Kings County  increased by
approximately 2%. In 2004 per capita income for Kings County was  $24,772 and the median
household income was $34,330. Our primary lending area is  concentrated in the
neighborhoods surrounding both of our office locations in  Brooklyn, New York. One- to
four-family residential real estate in our market  area is characterized by a large
number of attached and semi-detached houses,  including a number of two-and three-family
homes and cooperative apartments.  Most of our deposit customers are residents of the
greater New York metropolitan  area. The economy of our market area is characterized by a
large number of small  retail establishments. Our customer base is comprised of
middle-income  households, and to a lesser extent low-to-moderate-income households. The
median  household income for


---

Brooklyn is below the national
median household income, and  the median household income for the State of New York. In
addition, the  unemployment  rate in the market area served by us is higher than in the
surrounding suburbs.

## Lending
Activities



Historically,
our principal lending activity has been the origination of first mortgage loans  for the
purchase or refinancing of one- to four-family residential real  property, and
cooperative apartments. In recent years, we have retained all  loans that we originated.
One- to four-family residential real estate mortgage  loans represented $59.7 million,
or 49.3% of our loan portfolio at March  31, 2005. We also offer multi-family and
commercial real estate loans.  Multi-family real estate loans totaled $27.7 million, or
22.9%, of the loan  portfolio at March 31, 2005. Commercial real estate loans totaled
approximately  $32.7 million, or 27.0% of the loan portfolio at March 31, 2005. We also
offer  home equity loans to existing customers.




Loan
Portfolio Composition.The following table sets forth the composition of our loan
portfolio by type of loan as of the dates indicated, including a reconciliation of gross
loans receivable after consideration of the allowance for loan losses and net deferred
fees.


|                                    |  |  |  | At
      March 31,
|----------------------------------- |  |  |  | ------------------
|
|
|
|Real
        Estate Loans:          |  |  |  |                   
|One-
        to four-family         |  |  |  | $                 
|Multi-family                        |  |  |  |                   
|Commercial                          |  |  |  |                   
|Total
        real estate loans     |  |  |  |                   
|                                    |  |  |  |                   
|Other
        Loans:                |  |  |  |                   
|Home
        equity                 |  |  |  |                   
|Unsecured                           |  |  |  |                   
|Total
        other loans           |  |  |  |                   
|Total
        loans                 |  |  |  | $                 
|                                    |  |  |  |                   
|Less:                               |  |  |  |                   
|Net
        deferred fees           |  |  |  |                   
|Allowance
        for loan losses   |  |  |  |                   
|Total
        loans receivable, net |  |  |  | $                 

2

---



Loan
Maturity Schedule.The following table shows the remaining contractual maturity of our
loans at March 31, 2005. The table does not include the effect of possible prepayments
or due on sale clause payments.


|                                            |  | At March
      31, 2005
|------------------------------------------- |  | -----------------------
|
|
|Amounts
        Due:                        |  |                        
|One
        year or less                    |  |                        
|                                            |  |                        
|After
        one year:                     |  |                        
|More
        than one year to three years   |  |                        
|More
        than three years to five years |  |                        
|More
        than five years to 10 years    |  |                        
|More
        than 10 years to 20 years      |  |                        
|More
        than 20 years                  |  |                        
|                                            |  |                        
|Total
        due after one year            |  |                        
|                                            |  |                        
|Total
        due                           |  |                        
|Less:                                       |  |                        
|Deferred
        loan fees                  |  |                        
|Allowance
        for loan losses           |  |                        
|                                            |  |                        
|Loans
        receivable, net               |  |                        



The
total amount of loans due after March 31, 2005 which have fixed interest rates  is $35.5
million, and the total amount of loans due after such dates which have  floating or
adjustable interest rates is $85.6 million.




One-
to Four-family Residential Loans.Our primary lending activity consists of the
origination of one- to four-family residential mortgage loans secured by property
located in our lending area. At March 31, 2005, approximately $59.7 million, or 49.3% of
our loan portfolio, consisted of one- to four-family residential loans. Generally, one-
to four-family residential mortgage loans are originated in amounts up to 80% of the
lesser of the appraised value or purchase price of the property, with private mortgage
insurance required on loans with a loan-to-value ratio in excess of 80%. We generally
will not make loans with a loan to value ratio in excess of 90%. Generally, fixed-rate
loans are originated for terms of up to 15 years. We do not sell the loans that we
originate.




We
also offer adjustable-rate mortgage loans with one, three, and five year  adjustment
periods based on changes in a designated treasury index. We also  offer a loan product
with a fixed rate of interest for seven years, which  adjusts annually thereafter.
Notwithstanding the low interest rate environment  during the past two years, most of our
new loan originations have had adjustable  interest rates. During fiscal 2005, we
originated $9.6 million in  adjustable rate one- to four-family residential loans
and $2.9 million in fixed  rate one- to four-family residential loans. In an effort to
increase our  origination of adjustable rate loans, we price our adjustable rate
mortgages  more aggressively as compared to our fixed rate loans. A substantial portion
of  our adjustable rate mortgage loans provide for maximum rate adjustments of 200  basis
points per adjustment, with a lifetime maximum adjustment of 500 basis  points. Our
adjustable rate mortgage loans amortize over terms of up to 30  years.




Adjustable
rate mortgage loans decrease the risk associated with changes in market interest  rates
by periodically repricing, but involve other risks because, as interest  rates increase,
the underlying payments by the borrower increase, thus  increasing the potential for
default by the borrower. At the same time, the  marketability of the underlying
collateral may be adversely affected by higher  interest rates. Upward adjustment of the
contractual interest rate is also  limited by the maximum periodic and lifetime interest
rate adjustments permitted  by our loan documents and, therefore, is potentially limited
in effectiveness  during periods of rapidly rising interest rates. At March 31, 2005, 69%
of our  one- to four-family residential loans had adjustable rates of interest.




All
one- to four-family residential mortgage loans that we originate include  due-on-sale clauses,
which give us the right to declare a loan  immediately due and payable in the event that,
among other things, the borrower  sells or otherwise disposes of the real property
subject to the mortgage and the  loan is not repaid.


3

---



Regulations
limit the amount that a savings association may lend relative to the appraised  value of
the real estate securing the loan, as determined by an appraisal of the  property at the
time the loan is originated. For all loans, we utilize outside  independent appraisers
approved by the board of directors. All borrowers are  required to obtain title
insurance. We also require homeowners insurance  and fire and casualty insurance on
properties securing real estate loans.




Multi-Family
Real Estate Loans.Loans secured by multi-family real estate totaled approximately $27.7 million,
or 22.9% of the total loan portfolio at March 31, 2005. Multi-family real estate loans
generally are secured by rental properties (including walk-up apartments). Substantially
all multi-family real estate loans are secured by properties located within our lending
area. At March 31, 2005, we had 58 multi-family loans with an average principal balance
of $477,000, and the largest multi-family real estate loan had a principal balance of
$1.8 million. Multi-family real estate loans generally are offered with adjustable
interest rates. Multi-family loans are originated for terms of up to 10 years with a
fixed rate of interest for the initial five year period and with a five year renewal
option. At the time of renewal, the loans interest rate will adjust to the five
year Treasury Note rate plus a minimum of 250 basis points. Multi-family real estate
loans have terms ranging from 5 to 20 years, and may amortize over a period of up to 25
years.




We
consider a number of factors in originating multi-family real estate loans. We  evaluate
the qualifications and financial condition of the borrower (including  credit history),
profitability and expertise, as well as the value and condition  of the mortgaged
property securing the loan. When evaluating the qualifications  of the borrower, we
consider the financial resources of the borrower, the  borrowers experience in
owning or managing similar property and the  borrowers payment history with us and
other financial institutions. In  evaluating the property securing the loan, the factors
we consider include the  net operating income of the mortgaged property before debt
service and  depreciation, the debt service coverage ratio (the ratio of net operating
income  to debt service) to ensure that it is at least 125% of the monthly debt service
and the ratio of the loan amount to the appraised value of the mortgaged  property.
Multi-family real estate loans are originated in amounts up to 70% of  the appraised
value of the mortgaged property securing the loan. All  multi-family loans are appraised
by outside independent appraisers approved by  the board of directors. Personal
guarantees are generally obtained from  multi-family real estate borrowers. During fiscal
2005 we purchased  participation interests totaling $6.0 million which were secured by
multi-family  properties. Such participation interests are purchased once management has
concluded that the underlying loan satisfies our underwriting criteria.




Loans
secured by multi-family real estate generally involve a greater degree of credit  risk
than one- to four-family residential mortgage loans and carry larger loan  balances. This
increased credit risk is a result of several factors, including  the concentration of
principal in a limited number of loans and borrowers, the  effects of general economic
conditions on income producing properties, and the  increased difficulty of evaluating
and monitoring these types of loans.  Furthermore, the repayment of loans secured by
multi-family real estate  typically depends upon the successful operation of the real
estate property  securing the loan. If the cash flow from the project is reduced, the
borrowers ability to repay the loan may be impaired.




Commercial
Real Estate Loans.At March 31, 2005, $32.7 million, or 27.0% of the total loan
portfolio consisted of commercial real estate loans. Commercial real estate loans are
secured by office buildings, private schools, religious facilities, restaurants, mixed
use properties and other commercial properties. We generally originate adjustable rate
commercial real estate loans with maximum terms of up to 10 years. The maximum
loan-to-value ratio of commercial real estate loans is 70%. At March 31, 2005, we had 66
commercial real estate loans with an average outstanding balance of $495,000. At March
31, 2005, our largest commercial real estate loan had a principal balance of $2.0
million and was secured by a shopping mall.




In
underwriting commercial real estate loans, we consider and evaluate the same  criteria as
in underwriting multi-family real estate loans. During fiscal 2005  we purchased
participation interests totaling $4.4 million which were secured by  commercial real
estate properties. Personal guarantees are generally obtained  from commercial real
estate borrowers.




Loans
secured by commercial real estate generally are larger than one- to four-family
residential loans and involve greater credit risk. Commercial real estate loans  often
involve large loan balances to single borrowers or groups of related  borrowers.
Repayment of these loans depends to a large degree on the results of  operations and


4

---

management of the properties
securing the loans or the businesses  conducted on such  property, and may be affected to
a greater extent by adverse  conditions in the real  estate market or the economy in
general. Accordingly, the  nature of these loans makes  them more difficult for
management to monitor and  evaluate.



Origination
and Servicing of Loans.Historically, we have originated mortgage loans pursuant to
underwriting standards that generally conform with the Fannie Mae and Freddie Mac
guidelines. Loan origination activities are primarily concentrated in Brooklyn, New
York. New loans are generated primarily from walk-in customers, customer referrals,
brokers and other parties with whom we do business, and from the efforts of employees
and advertising. Loan applications are underwritten and processed at our main office. We
service all loans that we originate.




The
following table shows our loan origination and repayment activities for the  periods
indicated. During fiscal 2005, we purchased $11.5 million of mortgages  from other
financial institutions, $4.4 million of which were commercial loans,  $6.0 million were
multi-family loans and $1.1 million were one-to four-family.  We did not sell any loans
during the periods indicated.


|                                                      |  | Years
      Ended March 31,
|----------------------------------------------------- |  | ---------------------------
|
|
|Loans
        receivable, net, at beginning of period |  | $                          
|                                                      |  |                            
|Originations
        by type:                         |  |                            
|Real estate  one- to four-family                     |  |                            
|
        multi-family                                |  |                            
|
        commercial                                  |  |                            
|Other  home equity and unsecured                     |  |                            
|Total
        loans originated                        |  |                            
|                                                      |  |                            
|Loan purchases                                        |  |                            
|Principal repayments                                  |  |                            
|Provision and recovery for loan losses                |  |                            
|Amortization                                          |  |                            
|Net increase                                          |  |                            
|Loans receivable, net, at end of period               |  | $                          



Loan
Approval Procedures and Authority.The loan approval process is intended to assess the
borrowers ability to repay the loan, the viability of the loan, and the adequacy
of the value of the property that will secure the loan. To assess the borrowers
ability to repay, we review the employment and credit history and information on the
historical and projected income and expenses of mortgagors. One- to four-family
residential mortgage loans of up to $350,000 may be approved by senior management and
all other one-to four-family residential mortgage loans in excess of $350,000 must be
approved by the board of directors. All multi-family and commercial real estate loans
must be approved by the board of directors. In addition, the board of directors ratifies
all loans approved by management.




We
require appraisals of all real property securing loans. Appraisals are performed  by
independent appraisers who are licensed by the State of New York, and who are  approved
by the board of directors annually. We require fire and extended  coverage insurance in
amounts at least equal to the principal amount of the  loan. Where appropriate, flood
insurance is also required.


## Non-performing
and Problem Assets



After
a mortgage loan becomes eight days past due, we deliver a computer generated  delinquency
notice to the borrower. A second delinquency notice is sent once the  loan becomes 16
days past due. When a loan becomes 30 days past due, we send an  additional delinquency
notice to the borrower and attempt to make personal  contact with the borrower by letter
or telephone to establish an acceptable  repayment schedule. In addition, with respect to
loans secured by a one- to  four-family residence, after 45 days we will attempt to
assist the borrower in  obtaining


5

---

credit counseling. When a mortgage
loan is 90 days  delinquent and no  acceptable resolution has been reached, we send the
borrower a  five-day demand  letter. If the loan is not brought current within 120 days,
we will  generally  refer the matter to our attorney. Management is authorized to begin
foreclosure  proceedings on any loan after determining that it is prudent to do so.



Mortgage
loans are reviewed on a regular basis, and such loans are placed on non-accrual  status
when they are specifically determined to be impaired or when they become  90 days
delinquent. When loans are placed on a non-accrual status, unpaid  accrued interest is
fully reserved, and further income is recognized only to the  extent received. At March
31, 2005, $88,000 or 0.07% of our total loans were  non-performing loans. We had no
accruing loans delinquent more than 90 days as  of March 31, 2005, 2004 or 2003.




Non-performing
Assets.The table below sets forth the amounts and categories of our non-performing
assets as of March 31, 2005, 2004 and 2003. Delinquent loans that are 90 days or more
past due are considered non-performing assets. During the periods presented, we did not
have any troubled debt restructurings.


|                                                                    |  | At
      March 31,
|------------------------------------------------------------------- |  | ------------------
|
|
|Non-performing
        loans:                                       |  |                   
|One-
        to four-family                                         |  | $                 
|Multi-family                                                        |  |                   
|Commercial
        real estate                                      |  |                   
|Unsecured                                                           |  |                   
|Total non-performing loans                                          |  |                   
|Other
        real estate (1)                                       |  |                   
|Total
        non-performing assets                                 |  | $                 
|                                                                    |  |                   
|Total non-performing assets as a percentage of total assets         |  |                   
|                                                                    |  |                   
|Allowance for loan losses as a percentage of non-performing loans   |  |                   
|Allowance for loan losses as a percentage of gross loans receivable |  |                   

______________

|(1) |  | Represents a $78,000 investment in real estate.
|--- |  | -----------------------------------------------



For
the year ended March 31, 2005, gross interest income which would have been  recorded had
our non-accruing loans been current in accordance with their  original terms amounted to
$3,000. Interest income recognized on such loans for  the year ended March 31, 2005 was
$900.


6

---



Delinquent
Loans.The following table sets forth our loan delinquencies by type of loan, by amount
and by percentage of type at March 31, 2005.


|                                        |  |  |  | Loans
      Delinquent For:
|--------------------------------------- |  |  |  | ---------------------------
|
|
|
|One-
        to four-family             |  |  |  |                            
|Multi-family                            |  |  |  |                            
|Commercial
        real estate          |  |  |  |                            
|Home
        equity and unsecured       |  |  |  |                            
|Total                                   |  |  |  |                            
|Delinquent
        loans to total loans |  |  |  |                            

7

---



Classified
Assets.Office of Thrift Supervision regulations and our Asset Classification Policy
provide that loans and other assets considered to be of lesser quality be classified as
substandard, doubtful or loss assets. An asset is
considered substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the distinct possibility that the institution
will sustain some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those
classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable. Assets
classified as loss are those considered uncollectible and of
such little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. We classify an asset as special mention if
the asset has a potential weakness that warrants managements close attention.
While such assets are not impaired, management has concluded that if the potential
weakness in the asset is not addressed, the value of the asset may deteriorate,
adversely affecting the repayment of the asset.




An
insured institution is required to establish general allowances for loan losses  in an
amount deemed prudent by management for loans classified substandard or  doubtful, as
well as for other problem loans. General allowances represent loss  allowances which have
been established to recognize the inherent risk associated  with lending activities, but
which, unlike specific allowances, have not been  allocated to particular problem assets.
When an insured institution classifies  problem assets as loss, it is
required either to establish a  specific allowance for losses equal to 100% of the amount
of the asset so  classified or to charge off such amount. An institutions
determination as  to the classification of its assets and the amount of its valuation
allowances  is subject to review by the Office of Thrift Supervision which can order the
establishment of additional general or specific loss allowances.




On
the basis of managements review of its assets, at March 31, 2005 we had  classified
$229,000 of our assets as substandard which consisted of 2  non-accruing loans totaling
$88,000 secured by a one- to four-family property  and 1 loan secured by a commercial
property of $141,000. There were no loans  classified as doubtful at either March 31,
2005 or March 31, 2004. There were no  loans classified as loss at either March 31, 2005
or March 31, 2004.




The
loan portfolio is reviewed on a regular basis to determine whether any loans  require
classification in accordance with applicable regulations. Not all  classified assets
constitute non-performing assets.


## Allowance for
Loan Losses



Our
allowance for loan losses is maintained at a level necessary to absorb loan  losses which
are both probable and reasonably estimable. Management, in  determining the allowance for
loan losses, considers the risks inherent in its  loan portfolio and changes in the
nature and volume of loan activities, along  with the general economic and real estate
market conditions. We utilize a  two-tier approach: (1) identification of impaired loans
and establishment of  specific loss allowances on such loans; and (2) establishment of
general  valuation allowances on the remainder of our loan portfolio. We maintain a loan
review system, which allows for a periodic review of our loan portfolio and the  early
identification of potential impaired loans. Such system takes into  consideration, among
other things, delinquency status, size of loans, type and  market value of collateral and
financial condition of the borrowers. Specific  loan loss allowances are established for
identified losses based on a review of  such information. A loan evaluated for impairment
is considered to be impaired  when, based on current information and events, it is
probable that we will be  unable to collect all amounts due according to the contractual
terms of the loan  agreement. All loans identified as impaired are evaluated
independently. We do  not aggregate such loans for evaluation purposes. Loan impairment
is measured  based on the present value of expected future cash flows discounted at the
loans effective interest rate or, as a practical expedient, at the  loans
observable market price or the fair value of the collateral if the  loan is collateral
dependent. General loan loss allowances are based upon a  combination of factors
including, but not limited to, actual loan loss  experience, composition of the loan
portfolio, current economic conditions,  managements judgment and losses which are
probable and reasonably  estimable. The allowance is increased through provisions charged
against current  earnings and recoveries of previously charged-off loans. Loans which are
determined to be uncollectible are charged against the allowance. While  management uses
available information to recognize probable and reasonably  estimable loan losses, future
loss provisions may be necessary based on changing  economic conditions. Payments
received on impaired loans are applied first to  accrued interest receivable and then to
principal. The allowance for loan losses  as of March 31, 2005 was maintained at a


8

---

level  that represents managements
best estimate of losses in the loan portfolio, and  such losses were both  probable and
reasonably estimable.



In
addition, various regulatory agencies, as an integral part of their examination  process,
periodically review our allowance for loan losses. Such agencies may  require that we
recognize additions to the allowance based on their judgments of  information available
to them at the time of their examination.




Allowance
for Loan Losses.The following table analyzes changes in the allowance for the periods
presented.


|                                                                                                                       |  | For
      the Years Ended March 31,
|---------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------
|
|
|Balance
        at beginning of period                                                                                 |  | $                                  
|                                                                                                                       |  |                                    
|Charge-offs:                                                                                                           |  |                                    
|One-
        to four-family                                                                                            |  |                                    
|Multi-family                                                                                                           |  |                                    
|Commercial
        real estate                                                                                         |  |                                    
|Home
        equity                                                                                                    |  |                                    
|Unsecured                                                                                                              |  |                                    
|Total                                                                                                                  |  |                                    
|                                                                                                                       |  |                                    
|Recoveries:                                                                                                            |  |                                    
|One-
        to four-family                                                                                            |  |                                    
|Multi-family                                                                                                           |  |                                    
|Commercial
        real estate                                                                                         |  |                                    
|Home
        equity                                                                                                    |  |                                    
|Unsecured                                                                                                              |  |                                    
|Total                                                                                                                  |  |                                    
|                                                                                                                       |  |                                    
|Net
        charge-offs(recoveries)                                                                                    |  |                                    
|Provisions
        charged to operations (recovery credited to operations)                                             |  |                                    
|Balance
        at end of period                                                                                       |  | $                                  
|                                                                                                                       |  |                                    
|Ratio
        of (recoveries) net charge-offs during the period to average loans outstanding
        during the period |  |                                    

9

---



Allocation
of Allowance for Loan Losses.The following table presents an analysis of the allocation
of the allowance for loan losses at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in other categories.


|                               |  | At
      March 31,
|------------------------------ |  | ------------------
|
|
|
|One-
        to four-family    |  | $                 
|Multi-family                   |  |                   
|Commercial
        real estate |  |                   
|Home
        equity            |  |                   
|Unsecured                      |  |                   
|Unallocated                    |  |                   
|Total                          |  | $                 



Each
quarter, management evaluates the  total balance of the allowance for loan losses  based
on several factors that are not  loan specific, but are reflective of the  inherent
losses in the loan portfolio. This  process includes, but is not limited  to, a periodic
review of loan collectibility in  light of historical experience,  the nature and volume
of loan activity, conditions that  may affect the ability  of the borrower to repay,
underlying value of collateral, if  applicable, and  economic conditions in our immediate
market area. First, we group loans  by  delinquency status. All loans 90 days or more
delinquent are evaluated  individually,  based primarily on the value of the collateral
securing the loan.  Specific loss  allowances are established as required by this
analysis. All loans  for which a specific  loss allowance has not been assigned are
segregated by type  and delinquency status and a  loss allowance is established by using
loss  experience data and managements  judgment concerning other matters it
considers significant. The allowance is allocated  to each category of loan based  on the
results of the above analysis. Small differences  between the allocated  balances and
recorded allowance are reflected as unallocated to  absorb losses  resulting from the
inherent imprecision involved in the loss analysis  process.




This
analysis process is inherently subjective, as it requires us to make estimates  that are
susceptible to revisions as more information becomes available.  Although we believe that
we have established the allowance at levels to absorb  probable and estimable losses,
future additions may be necessary if economic or  other conditions in the future differ
from the current environment.


## Investments



Our
investment portfolio at March 31, 2005 consisted of investments of $2.3 million  in
corporate obligations and notes of U.S. Government agencies and U.S.  Government
sponsored enterprises classified as available for sale, and $4.0  million in corporate
obligations and notes of U.S. Government agencies and U.S.  Government sponsored
enterprises classified as held to maturity. We also had an  investment of $2.2 million in
Federal Home Loan Bank stock which has no stated  maturity and we had $5.1 million in
interest-earning deposits with other  financial institutions which are payable on demand.
Our investment policy  objectives are to maintain liquidity within the guidelines
established by the  board of directors.




We
also invest in mortgage-backed securities, substantially all of which are  classified as
held to maturity. Our mortgage-backed securities are principally  adjustable rate
instruments that reprice at one to seven year intervals. At  March 31, 2005,
mortgage-backed securities totaled $42.7 million, or 23.2% of  total assets.


10

---



The
following table sets forth the carrying value and composition of our investment
portfolio at the dates indicated.


|                                                          |  | At March
      31, 2005 |   | At March
      31, 2004
|--------------------------------------------------------- |  | ----------------------- | - | -----------------------
|
|
|Available
        for sale:                               |  |                         |   |                        
|U.S.
        Government or government-sponsored agencies: |  |                         |   |                        
|Due
        after nine years                              |  |                         | $ | 2,000                  
|Corporate
        bonds:                                  |  |                         |   |                        
|Due
        after ten years                               |  |                         |   | 300                    
|Total                                                     |  |                         | $ | 2,300                  
|                                                          |  |                         |   |                        
|Held
        to maturity:                                 |  |                         |   |                        
|Corporate
        bonds:                                  |  |                         |   |                        
|Due
        after one year through five years             |  |                         | $ | 1,008                  
|U.S.
        Government or government-sponsored agencies: |  |                         |   |                        
|Due
        after nine years                              |  |                         |   | 3,000                  
|Total                                                     |  |                         | $ | 4,008                  



The
following table sets forth the composition of our mortgage-backed securities at  the
dates indicated.


|                                             |  | At March
      31, 2005 |   | At March
      31, 2004
|-------------------------------------------- |  | ----------------------- | - | -----------------------
|
|
|Available
        for sale:                  |  |                         |   |                        
|Freddie
        Mac:                         |  |                         |   |                        
|Due
        after ten years                  |  |                         | $ | 693                    
|                                             |  |                         |   |                        
|Held
        to maturity:                    |  |                         |   |                        
|Ginnie
        Mae                           |  |                         |   | 1,909                  
|Freddie
        Mac                          |  |                         |   | 1,758                  
|Fannie
        Mae                           |  |                         |   | 38,270                 
|Collateralized
        Mortgage Obligations: |  |                         |   |                        
|Freddie
        Mac:                         |  |                         | $ | 41                     
|Total                                        |  |                         | $ | 41,978                 



Set
forth below are the carrying value and estimated fair value of mortgage-backed
securities at March 31, 2005 by contractual maturity.


|                                              |  | Carrying
      Value |   | Estimated
      Fair Value
|--------------------------------------------- |  | -------------------- | - | --------------------------
|
|Due
        after one year through five years |  |                      | $ | 2                         
|Due after five years through ten years        |  |                      |   | 36                        
|Due after ten years                           |  |                      |   | 41,940                    
|                                              |  |                      |   |                           
|Total                                         |  |                      | $ | 41,978                    

## Sources of Funds



General.Deposits have traditionally been the primary source of funds for use in lending and
investment activities. In addition to deposits, funds are derived from scheduled loan
payments, investment maturities, loan prepayments, retained earnings, income on earning
assets and borrowings. While scheduled loan payments and income on earning assets are
relatively stable sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of competition.
Borrowings from the Federal Home Loan Bank of New York may be used in the short-term to
compensate for reductions in deposits and to fund loan growth. Advances from the FHLB
were also used to fund leveraged growth transactions executed during the years ended
March 31, 2005 and March 31, 2004.


11

---



Deposits.Deposits are not actively solicited outside of the New York City metropolitan area, and
substantially all of our depositors are persons who work or reside in Brooklyn, New
York. We offer a selection of deposit instruments, including passbook savings accounts,
money market accounts, fixed-term certificates of deposit, and individual retirement
accounts. Deposit account terms vary, with the principal differences being the minimum
balance required, the amount of time the funds must remain on deposit and the interest
rate. We do not pay broker fees for any deposits.




Interest
rates paid, maturity terms, service fees and withdrawal penalties are  established on a
periodic basis. Deposit rates and terms are based primarily on  current operating
strategies and market rates, liquidity requirements, rates  paid by competitors and
growth goals. Personalized customer service and  long-standing relationships with
customers are relied upon to attract and retain  deposits.




The
flow of deposits is influenced significantly by general economic conditions,  changes in
money market and other prevailing interest rates and competition. The  variety of deposit
accounts offered allows us to be competitive in obtaining  funds and responding to
changes in consumer demand. In recent years, we have  become more susceptible to
short-term fluctuations in deposit flows as customers  have become more interest rate
conscious. Deposits are priced to reflect our  interest rate risk management and
profitability objectives. Based on experience,  management believes that passbook
accounts and money market accounts are  relatively stable sources of deposits. However,
the ability to attract and  maintain certificates of deposit, and the rates paid on these
deposits, have  been and will continue to be significantly affected by market conditions.
At  March 31, 2005, $52.9 million, or 48.5% of our deposit accounts were  certificates of
deposit, of which $28.9 million have maturities of one year or  less. A significant
portion of the certificates of deposit consist of accounts  that were opened at the
direction of the county or surrogate court for the  benefit of minors or others who are
deemed to be incompetent to handle their  affairs. At March 31, 2005, $20.0 million of
the certificates of deposit  consisted of such court-directed deposits. Court-directed
deposits must remain  deposited at Atlantic Liberty Savings, F.A. until the intended
beneficiary  attains his or her majority or is deemed competent to handle his or her own
affairs.




Deposit
Accounts.The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs we offered as of the dates indicated.


|                                           |  | At
      March 31,
|------------------------------------------ |  | ------------------
|
|
|
|Transactions
        and Savings Deposits: |  |                   
|Demand:                                    |  |                   
|Non-interest-bearing                       |  | $                 
|Interest-bearing                           |  |                   
|Regular
        Savings                    |  |                   
|Money
        Market Accounts              |  |                   
|                                           |  |                   
|Total
        Non-Certificates             |  | $                 
|                                           |  |                   
|Certificates:                              |  |                   
|                                           |  |                   
|0.00
         1.99%                       |  | $                 
|2.00
         3.99%                       |  |                   
|4.00
         5.99%                       |  |                   
|6.00
         7.99%                       |  |                   
|8.00
         9.99%                       |  |                   
|                                           |  |                   
|Total
        Certificates                 |  |                   
|Total
        Deposits                     |  | $                 

12

---



Time
Deposit Maturity Schedule.The following table presents, by rate category, the remaining
period to maturity of time deposit accounts outstanding as of March 31, 2005.


|                                                         |  | 0.00-1.99% |        | 2.00%-3.99% |  | 4.00%-5.99% |   | Total  |   | Percent
      of
      Total
|-------------------------------------------------------- |  | ---------- | ------ | ----------- |  | ----------- | - | ------ | - | ----------------------------
|
|Certificate
        accounts maturing in quarter ending: |  |            |        |             |  |             |   |        |   |                             
|June
        30, 2005                                    |  | $          | 12,451 |             |  |             | $ | 202    |   |                             
|September
        30, 2005                               |  |            | 6,625  |             |  |             |   | 1,019  |   |                             
|December
        31, 2005                                |  |            | 2,852  |             |  |             |   | 97     |   |                             
|March
        31, 2006                                   |  |            | 1,858  |             |  |             |   | 2,522  |   |                             
|June
        30, 2006                                    |  |            | 387    |             |  |             |   | 3,618  |   |                             
|September
        30, 2006                               |  |            | 254    |             |  |             |   | 2,230  |   |                             
|December
        31, 2006                                |  |            | 210    |             |  |             |   | 1,124  |   |                             
|March
        31, 2007                                   |  |            | 101    |             |  |             |   | 1,491  |   |                             
|June
        30, 2007                                    |  |            |       |             |  |             |   | 1,234  |   |                             
|September
        30, 2007                               |  |            |       |             |  |             |   | 1,260  |   |                             
|December
        31, 2007                                |  |            | 1      |             |  |             |   | 823    |   |                             
|March
        31, 2008                                   |  |            | 12     |             |  |             |   | 1,035  |   |                             
|Thereafter                                               |  |            | 12     |             |  |             |   | 7,213  |   |                             
|                                                         |  |            |        |             |  |             |   |        |   |                             
|Total                                                    |  | $          | 24,763 |             |  |             | $ | 23,868 |   |                             
|Percent
        of total                                 |  |            | 46.8   | %           |  |             |   | 45.2   | % |                             

13

---



Deposit
Activity.The following table sets forth the deposit activities for the periods
indicated.


|                            |  |  |  | Years Ended March 31, |         
|--------------------------- |  |  |  | --------------------- | --------
|
|
|Opening
balance             |  |  |  | $                     | 107,861 
|Deposits                    |  |  |  |                       | 157,256 
|Withdrawals                 |  |  |  |                       | (157,680
|Interest
credited           |  |  |  |                       | 1,666   
|Ending
balance              |  |  |  | $                     | 109,103 
|Net
increase/(decrease)     |  |  |  | $                     | 1,242   
|Percent
increase/(decrease) |  |  |  |                       | 1.15    



Certificates
of Deposit.The following table indicates the amount of our certificates of deposit by
time remaining until maturity as of March 31, 2005.


|                                            |  |  |  | Maturity |       
|------------------------------------------- |  |  |  | -------- | ------
|
|
|Certificates
of deposit less than $100,000  |  |  |  | $        | 7,968 
|Certificates
of deposit of $100,000 or more |  |  |  |          | 5,107 
|Total
certificates of deposit               |  |  |  | $        | 13,075



Borrowings.We may obtain advances from the Federal Home Loan Bank of New York upon the security of
the common stock we own in the Federal Home Loan Bank and our qualifying residential
mortgage loans and mortgage-backed securities, provided certain standards related to
creditworthiness are met. These advances are made pursuant to several credit programs
each of which has its own interest rate and range of maturities. Federal Home Loan Bank
advances are generally available to meet seasonal and other withdrawals of deposit
accounts and to permit increased lending and other investment activities. During the
year ended March 31, 2005, we borrowed $20.0 million, which we used to fund the purchase
of mortgage-backed securities in a leveraged transaction which resulted in a positive
interest rate spread.




The
following tables sets forth the maturity, interest rate and balances of advances  from
the Federal Home Loan Bank of New York at March 31, 2005 and 2004. The  average balance
of our Federal Home Loan Bank advances during the years ended  March 31, 2005 and 2004
was $42.7 million and $14.1 million, respectfully.


14

---

|                      |  |  |  |  |      | March 31, | 
|--------------------- |  |  |  |  | ---- | --------- | 
|
|August 23,
2004       |  |  |  |  | 1.50 | %         | 
|August 30,
2004       |  |  |  |  | 4.63 |           | 
|November 19,
2004     |  |  |  |  | 1.48 |           | 
|April 21,
2005        |  |  |  |  | 1.69 |           | 
|April 26,
2005        |  |  |  |  | 1.71 |           | 
|July 27,
2005         |  |  |  |  | 2.63 |           | 
|August 22,
2005       |  |  |  |  | 2.31 |           | 
|August 23,
2005       |  |  |  |  | 2.43 |           | 
|August 30,
2005       |  |  |  |  | 4.94 |           | 
|November 21,
2005     |  |  |  |  | 2.21 |           | 
|April 21,
2006        |  |  |  |  | 2.43 |           | 
|April 26,
2006        |  |  |  |  | 2.45 |           | 
|August 7,
2006        |  |  |  |  | 3.14 |           | 
|August 21,
2006       |  |  |  |  | 3.02 |           | 
|August 30,
2006       |  |  |  |  | 5.16 |           | 
|April 23,
2007        |  |  |  |  | 3.05 |           | 
|April 26,
2007        |  |  |  |  | 3.07 |           | 
|August 21,
2007       |  |  |  |  | 3.59 |           | 
|August 23,
2007       |  |  |  |  | 3.42 |           | 
|April 21,
2008        |  |  |  |  | 3.55 |           | 
|April 28,
2008        |  |  |  |  | 3.57 |           | 
|                      |  |  |  |  |      |           | 
|Weighted
average rate |  |  |  |  |      |           | 

## Service
Corporation Subsidiary



We
do not have any subsidiary corporations.


## Legal
Proceedings



We
are not involved in any pending legal proceedings as a defendant other than  routine
legal proceedings occurring in the ordinary course of business. At March  31, 2005, we
were not involved in any legal proceedings, the outcome of which  would be material to
our financial condition or results of operations.


## Personnel



As
of March 31, 2005, we had 21 full-time employees and seven part-time employees.  Our
employees are not represented by any collective bargaining group. Management  believes
that we have good relations with our employees.


# FEDERAL AND
STATE TAXATION

## Federal
Taxation



General.Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A. are subject to
federal income taxation in the same general manner as other corporations, with some
exceptions discussed below. Atlantic Liberty Savings, F.A.'s tax returns have not
been audited during the past five years. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax matters
and is not a comprehensive description of the tax rules applicable to Atlantic Liberty
Financial Corp. or Atlantic Liberty Savings, F.A.




Atlantic
Liberty Financial Corp. and Atlantic Liberty Savings, F.A. file separate New  York State
and New York City income tax returns. New York State and New York  City enacted
legislation in 1996, which among other


15

---

things, decoupled the  Federal tax
laws regarding  thrift bad debt deductions and permits the continued  use of the bad debt
provisions that  applied under federal law prior to the  enactment of the 1996 Act.
Provided Atlantic  Liberty Savings, F.A. continues to  satisfy certain definitional tests
and other  conditions, for New York State and  New York City income tax purposes, it is
permitted to  continue to use a reserve  method for bad debt deductions. The deductible
annual addition  to such reserves  may be computed using a specific formula based on an
institutions  loss  history (the experience method) or a statutory
percentage equal to  32%  of its New York State and New York City taxable income (the
percentage  method)  before bad debt deduction.



Method
of Accounting.For Federal income tax purposes, Atlantic Liberty Financial Corp.
currently reports its income and expenses on a separate company basis on the
accrual method of accounting and uses a tax year ending December 31 for filing its
Federal income tax returns.




Bad
Debt Reserves.Prior to the Small Business Protection Act of 1996 (the 1996
Act), Atlantic Liberty Savings, F.A. was permitted to establish a reserve for bad
debts and to make annual additions to the reserve. These additions could, within
specified formula limits, be deducted in arriving at our taxable income. Atlantic
Liberty Savings, F.A. was required to use the specific charge off method in computing
its bad debt deduction beginning with its 1996 federal tax return. Savings institutions
were required to recapture any excess reserves over those established as of December 31,
1987 (base year reserve). Atlantic Liberty Savings, F.A. had no reserves subject to
recapture.




Taxable
Distributions and Recapture.Prior to the 1996 Act, bad debt reserves created prior to
January 1, 1988 were subject to recapture into taxable income should Atlantic Liberty
Savings, F.A. fail to meet certain thrift asset and definitional tests. Federal
legislation has eliminated these thrift related recapture rules.




At
March 31, 2005, our total federal pre-1988 base year reserve was approximately  $1.3 million.
However, under current law, pre-1988 base year reserves  remain subject to recapture
should Atlantic Liberty Savings, F.A. make certain  non-dividend distributions,
repurchase any of its stock, pay dividends in excess  of tax earnings and profits, or
cease to maintain a bank charter.




Alternative
Minimum Tax.The Internal Revenue Code of 1986, as amended (the Code)
imposes an alternative minimum tax (AMT) at a rate of 20% on a base of
regular taxable income plus certain tax preferences (alternative minimum taxable
income or AMTI). The AMT is payable to the extent such AMTI is in
excess of an exemption amount and the AMT exceeds the regular income tax. Net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax
may be used as credits against regular tax liabilities in future years. Atlantic Liberty
Savings, F.A. has not been subject to the alternative minimum tax and has no such
amounts available as credits for carryover.




Net
Operating Loss Carryovers.A financial institution may carry back net operating
losses to the preceding two taxable years and forward to the succeeding 20 taxable
years. At March 31, 2005, Atlantic Liberty Savings, F.A. had no net operating loss
carryforwards for federal income tax purposes.




Corporate
Dividends-Received Deduction.Atlantic Liberty Financial Corp. may exclude from its
income 100% of dividends received from Atlantic Liberty Savings, F.A. as a member of the
same affiliated group of corporations. The corporate dividends-received deduction is 80%
in the case of dividends received from corporations with which a corporate recipient
does not file a consolidated return, and corporations which own less than 20% of the
stock of a corporation distributing a dividend may deduct only 70% of dividends received
or accrued on their behalf.


## State Taxation



New
York State Taxation.Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A.
report income on a calendar year basis to New York State. New York State franchise tax
on corporations is imposed in an amount equal to the greater of (a) 8.0% (for 2002) and
7.5% (for 2003 and forward) of entire net income allocable to New York
State, (b) 3% of alternative entire net income allocable to New York State,
(c) 0.01 % of the average value of assets allocable to New York State, or (d) nominal
minimum tax. Entire net income is based on Federal


16

---

taxable income, subject to certain
modifications. Alternative entire net income is equal to entire net income without
certain modifications.

# SUPERVISION
AND REGULATION

## General



Atlantic
Liberty Savings, F.A. is examined and supervised by the Office of Thrift  Supervision and
the Federal Deposit Insurance Corporation. This regulation and  supervision establishes a
comprehensive framework of activities in which an  institution may engage and is intended
primarily for the protection of the  Federal Deposit Insurance Corporations deposit
insurance funds and  depositors. Under this system of federal regulation, financial
institutions are  periodically examined to ensure that they satisfy applicable standards
with  respect to their capital adequacy, assets, management, earnings, liquidity and
sensitivity to market interest rates. Following completion of its examination,  the
federal agency critiques the institutions operations and assigns its  rating (known
as an institutions CAMELS rating). Under federal law, an  institution may not
disclose its CAMELS rating to the public. Atlantic Liberty  Savings, F.A. also is a
member of and owns stock in the Federal Home Loan Bank  of New York, which is one of the
twelve regional banks in the Federal Home Loan  Bank System. Atlantic Liberty Savings,
F.A. also is regulated to a lesser extent  by the Board of Governors of the Federal
Reserve System, governing reserves to  be maintained against deposits and other matters.
The Office of Thrift  Supervision examines Atlantic Liberty Savings, F.A. and prepares
reports for the  consideration of its board of directors on any operating deficiencies.
Atlantic  Liberty Savings, F.A.s relationship with its depositors and borrowers
also  is regulated to a great extent by both federal and state laws, especially in
matters concerning the ownership of deposit accounts and the form and content of
Atlantic Liberty Savings, F.A.s mortgage documents.




Any
change in these laws or regulations,  whether by the Federal Deposit Insurance
Corporation,  Office of Thrift Supervision  or Congress,  could have a material  adverse
impact on Atlantic Liberty  Financial Corp. and Atlantic  Liberty Savings,  F.A. and
their  operations.


## Federal
Banking Regulation



Business
Activities. A federal savings association derives its lending and investment powers from
the Home Owners Loan Act, as amended, and the regulations of the Office of Thrift
Supervision. Under these laws and regulations, Atlantic Liberty Savings, F.A. may invest
in mortgage loans secured by residential and commercial real estate, commercial business
and consumer loans, certain types of debt securities and certain other assets. Atlantic
Liberty Savings, F.A. also may establish subsidiaries that may engage in activities not
otherwise permissible for Atlantic Liberty Savings, F.A., including real estate
investment and securities and insurance brokerage.




Capital
Requirements.Office of Thrift Supervision regulations require savings associations to
meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio
(3% for associations receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. The prompt corrective action standards discussed below, in
effect, establish a minimum 2% tangible capital standard.




The
risk-based capital standard for savings associations requires the maintenance of  Tier 1
(core) and total capital (which is defined as core capital and  supplementary capital) to
risk-weighted assets of at least 4% and 8%,  respectively. In determining the amount of
risk-weighted assets, all assets,  including certain off-balance sheet assets, are
multiplied by a risk-weight  factor of 0% to 100%, assigned by the Office of Thrift
Supervision based on the  risks believed inherent in the type of asset. Core capital is
defined as common  stockholders equity (including retained earnings), certain
noncumulative  perpetual preferred stock and related surplus and minority interests in
equity  accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of  supplementary
capital currently include cumulative preferred stock, long-term  perpetual preferred
stock, mandatory convertible securities, subordinated debt  and intermediate preferred
stock, the allowance for loan and lease losses  limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of net  unrealized gains on available-for-sale equity
securities with readily  determinable fair market values. Overall, the amount of
supplementary capital  included as part of total capital cannot exceed 100% of core
capital.


17

---



At
March 31, 2005, Atlantic Liberty Savings, F.A.s capital exceeded all  applicable
requirements.




Loans-to-One
Borrower.A federal savings association generally may not make a loan or extend credit
to a single or related group of borrowers in excess of 15% of unimpaired capital and
surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and
surplus, if the loan is secured by readily marketable collateral, which generally does
not include real estate. As of March 31, 2005, Atlantic Liberty Savings, F.A. was in
compliance with the loans-to-one borrower limitations.




Qualified
Thrift Lender Test.As a federal savings association, Atlantic Liberty Savings, F.A. is
subject to a qualified thrift lender, or QTL, test. Under the QTL test,
Atlantic Liberty Savings, F.A. must maintain at least 65% of its portfolio assets in
qualified thrift investments in at least nine of the most recent 12 month
period. Portfolio assets generally means total assets of a savings
institution, less the sum of specified liquid assets up to 20% of total assets, goodwill
and other intangible assets, and the value of property used in the conduct of the
savings associations business.




Qualified
thrift investments includes various types of loans made for residential  and
housing purposes, investments related to such purposes, including certain
mortgage-backed and related securities, and loans for personal, family,  household and
certain other purposes up to a limit of 20% of portfolio assets.  Qualified thrift
investments also include 100% of an  institutions credit card loans,
education loans and small business loans.  Atlantic Liberty Savings, F.A. also may
satisfy the QTL test by qualifying as a  domestic building and loan association as
defined in the Internal  Revenue Code.




A
savings association that fails the qualified thrift lender test must either  convert to a
bank charter or operate under specified restrictions. At March 31,  2005, Atlantic
Liberty Savings, F.A. maintained approximately 93% of its  portfolio assets in qualified
thrift investments.




Community
Reinvestment Act and Fair Lending Laws.All savings associations have a responsibility
under the Community Reinvestment Act and related regulations of the Office of Thrift
Supervision to help meet the credit needs of their communities, including low- and
moderate-income neighborhoods. In connection with its examination of a federal savings
association, the Office of Thrift Supervision is required to assess the associations
record of compliance with the Community Reinvestment Act. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their
lending practices on the basis of characteristics specified in those statutes. An
associations failure to comply with the provisions of the Community Reinvestment
Act could, at a minimum, result in regulatory restrictions on its activities. The
failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could
result in enforcement actions by the Office of Thrift Supervision, as well as other
federal regulatory agencies and the Department of Justice. Atlantic Liberty Savings,
F.A. received a satisfactory Community Reinvestment Act rating in its most recent
federal examination.




Transactions
with Related Parties.A federal savings associations authority to engage in
transactions with its affiliates is limited by Office of Thrift Supervision
regulations and by Sections 23A and 23B of the Federal Reserve Act (the FRA).
The term affiliates for these purposes generally means any company that
controls or is under common control with an institution. Atlantic Liberty Financial
Corp. is an affiliate of Atlantic Liberty Savings, F.A. In general, transactions with
affiliates must be on terms that are as favorable to the association as comparable
transactions with non-affiliates. In addition, certain types of these transactions are
restricted to an aggregate percentage of the associations capital. Collateral in
specified amounts must usually be provided by affiliates in order to receive loans from
the association. In addition, Office of Thrift Supervision regulations prohibit a
savings association from lending to any of its affiliates that are engaged in activities
that are not permissible for bank holding companies and from purchasing the securities
of any affiliate, other than a subsidiary.




Atlantic
Liberty Savings, F.A.s authority to extend credit to its directors,  executive
officers and 10% shareholders, as well as to entities controlled by  such persons, is
currently governed by the requirements of Sections 22(g)  and 22(h) of the FRA and
Regulation O of the Federal Reserve Board. Among other  things, these provisions require
that extensions of credit to insiders (i) be  made on terms that are substantially the
same as, and follow credit underwriting  procedures that are not less stringent than,
those prevailing for comparable  transactions with unaffiliated persons and that do not
involve more than the  normal risk of repayment or present other unfavorable features,
and (ii) not  exceed certain limitations on the amount of credit extended to such
persons,


18

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individually and in the aggregate,
which limits are based, in part, on the  amount of Atlantic Liberty Savings, F.A.s
capital. In addition, extensions  of  credit in excess of certain limits must be approved
by Atlantic Liberty  Savings, F.A.s  board of directors.



Enforcement.The Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring enforcement action against all institution-affiliated
parties, including stockholders, and attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse effect
on an insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or directors of
the institution, receivership, conservatorship or the termination of deposit insurance.
Civil penalties cover a wide range of violations and actions, and range up to $25,000
per day, unless a finding of reckless disregard is made, in which case penalties may be
as high as $1 million per day. The Federal Deposit Insurance Corporation also has the
authority to recommend to the Director of the Office of Thrift Supervision that
enforcement action be taken with respect to a particular savings institution. If action
is not taken by the Director, the Federal Deposit Insurance Corporation has authority to
take action under specified circumstances.




Standards
for Safety and Soundness.Federal law requires each federal banking agency to prescribe
certain standards for all insured depository institutions. These standards relate to,
among other things, internal controls, information systems and audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
compensation, and other operational and managerial standards as the agency deems
appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing
Standards for Safety and Soundness to implement the safety and soundness standards
required under federal law. The guidelines set forth the safety and soundness standards
that the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address internal
controls and information systems, internal audit systems, credit underwriting, loan
documentation, interest rate risk exposure, asset growth, compensation, fees and
benefits. If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance with the
standard. If an institution fails to meet these standards, the appropriate federal
banking agency may require the institution to submit a compliance plan.




Prompt
Corrective Action Regulations.Under the prompt corrective action regulations, the
Office of Thrift Supervision is required and authorized to take supervisory actions
against undercapitalized savings associations. For this purpose, a savings association
is placed in one of the following five categories based on the associations
capital:


| | well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based
capital and 10% total risk-based capital);
|- | ---------------------------------------------------------------------------------------------------------------

| | adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based
capital and 8% total risk-based capital);
|- | --------------------------------------------------------------------------------------------------------------------

| | undercapitalized (less than 8% total risk-based capital, 4% Tier 1
risk-based capital or 3% leverage capital);
|- | --------------------------------------------------------------------------------------------------------------

| | significantly undercapitalized (less than 6% total risk-based capital, 3%
Tier 1 risk-based capital or 3% leverage capital); and
|- | --------------------------------------------------------------------------------------------------------------------------------

| | critically undercapitalized (less than 2% tangible capital).
|- | ------------------------------------------------------------



Generally,
the banking regulator is required to appoint a receiver or conservator for an
association that is critically undercapitalized. The regulations  also
provide that a capital restoration plan must be filed with the Office of  Thrift
Supervision within 45 days of the date an association receives notice  that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. In addition,  numerous
mandatory supervisory actions become immediately applicable to the  association,
including, but not limited to, restrictions on growth, investment  activities, capital
distributions and affiliate transactions. The Office of  Thrift Supervision may also take
any one of a number of discretionary  supervisory actions against undercapitalized
associations, including the  issuance of a capital directive and the replacement of
senior executive officers  and directors.


19

---



At
March 31, 2005, Atlantic Liberty Savings, F.A. met the criteria for being considered
well-capitalized.




Insurance
of Deposit Accounts.Deposit accounts in Atlantic Liberty Savings, F.A. are insured by
the Federal Deposit Insurance Corporation, generally up to a maximum of $100,000 per
separately insured depositor. Atlantic Liberty Savings, F.A.s deposits therefore
are subject to Federal Deposit Insurance Corporation deposit insurance assessments. The
Federal Deposit Insurance Corporation has adopted a risk-based system for determining
deposit insurance assessments. The Federal Deposit Insurance Corporation is authorized
to raise the assessment rates as necessary to maintain the required ratio of reserves to
insured deposits of 1.25%. In addition, all Federal Deposit Insurance
Corporation-insured institutions must pay assessments to the Federal Deposit Insurance
Corporation at an annual rate of approximately .02% of insured deposits to fund interest
payments on bonds maturing in 2017 issued by a federal agency to recapitalize the
predecessor to the Savings Association Insurance Fund.




Prohibitions
Against Tying Arrangements.Federal savings associations are prohibited, subject to some
exceptions, from extending credit to or offering any other service, or fixing or varying
the consideration for such extension of credit or service, on the condition that the
customer obtain some additional service from the institution or its affiliates or not
obtain services of a competitor of the institution.




Federal
Home Loan Bank System.Atlantic Liberty Savings, F.A. is a member of the Federal Home
Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal
Home Loan Bank System provides a central credit facility primarily for member
institutions. As a member of the Federal Home Loan Bank of New York, Atlantic Liberty
Savings, F.A. is required to acquire and hold shares of capital stock in the Federal
Home Loan Bank in an amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its borrowings from the Federal Home Loan Bank, whichever is greater.
As of March 31, 2005, Atlantic Liberty Savings, F.A. was in compliance with this
requirement.


## Company
Regulation



Atlantic
Liberty Financial Corp. is a unitary savings and loan holding company, subject  to
regulation and supervision by the Office of Thrift Supervision. The Office of  Thrift
Supervision has enforcement authority over Atlantic Liberty Financial  Corp. and its
non-savings institution subsidiaries. Among other things, this  authority permits the
Office of Thrift Supervision to restrict or prohibit  activities that are determined to
be a risk to Atlantic Liberty Savings, F.A.




Under
prior law, a unitary savings and loan holding company generally had no  regulatory
restrictions on the types of business activities in which it may  engage, provided that
its subsidiary savings bank was a qualified thrift lender.  The Gramm-Leach-Bliley Act of
1999, however, restricts unitary savings and loan  holding companies not existing or
applied for before May 4, 1999 to those  activities permissible for financial holding
companies or for multiple savings  and loan holding companies. Atlantic Liberty Financial
Corp. will not be a  grandfathered unitary savings and loan holding company and,
therefore, will be  limited to the activities permissible for financial holding companies
or for  multiple savings and loan holding companies. A financial holding company may
engage in activities that are financial in nature, including underwriting equity
securities and insurance, incidental to financial activities or complementary to  a
financial activity. A multiple savings and loan holding company is generally  limited to
activities permissible for bank holding companies under Section  4(c)(8) of the Bank
Holding Company Act, subject to the prior approval of the  Office of Thrift Supervision,
and certain additional activities authorized by  Office of Thrift Supervision
regulations.




Federal
law prohibits a savings and loan holding company, directly or indirectly, or  through one
or more subsidiaries, from acquiring control of another savings  institution or holding
company thereof, without prior written approval of the  Office of Thrift Supervision. It
also prohibits the acquisition or retention of,  with specified exceptions, more than 5%
of the equity securities of a company  engaged in activities that are not closely related
to banking or financial in  nature or acquiring or retaining control of an institution
that is not federally  insured. In evaluating applications by holding companies to
acquire savings  institutions, the Office of Thrift Supervision must


20

---

consider the  financial and
managerial resources, future prospects of the savings institution  involved, the  effect
of the acquisition on the risk to the insurance fund, the  convenience and  needs of the
community and competitive factors.

## The USA
PATRIOT Act



In
response to the events of September 11, 2001, the Uniting and Strengthening  America by
Providing Appropriate Tools Required to Intercept and Obstruct  Terrorism Act of 2001, or
the USA PATRIOT Act, was signed into law on October  26, 2001. The USA PATRIOT Act gives
the federal government new powers to address  terrorist threats through enhanced domestic
security measures, expanded  surveillance powers, increased information sharing and
broadened anti-money  laundering requirements. By way of amendments to the Bank Secrecy
Act, Title III  of the USA PATRIOT Act takes measures intended to encourage information
sharing  among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of  financial
institutions, including banks, thrifts, brokers, dealers, credit  unions, money transfer
agents and parties registered under the Commodity  Exchange Act.




Among
other requirements, Title III of the USA PATRIOT Act imposes the following  requirements
with respect to financial institutions:


| | All financial institutions must establish anti-money laundering programs that
include, at minimum: (i) internal policies, procedures, and controls; (ii)
specific designation of an anti-money laundering compliance officer; (iii)
ongoing employee training programs; and (iv) an independent audit function to
test the anti-money laundering program.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Secretary of the Department of Treasury is authorized, in conjunction with
other bank regulators, to issue regulations that provide for minimum standards
with respect to customer identification at the time new accounts are opened. On
July 23, 2002, the Office of Thrift Supervision and the other federal bank
regulators jointly issued proposed rules to implement these standards. The
proposed rules require financial institutions to establish a program specifying
procedures for obtaining identifying information from customers seeking to open
new accounts. This identifying information would be essentially the same
information currently obtained by most financial institutions for individual
customers.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All financial institutions that establish, maintain, administer, or manage
private banking accounts or correspondence accounts in the United States for
non-United States persons or their representatives (including foreign
individuals visiting the United States) must establish appropriate, specific,
and, where necessary, enhanced due diligence policies, procedures, and controls
designed to detect and report money laundering.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial institutions are prohibited from establishing, maintaining,
administering or managing correspondent accounts for foreign shell banks
(foreign banks that do not have a physical presence in any country), and will be
subject to certain record keeping obligations with respect to correspondent
accounts of foreign banks.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Bank regulators are directed to consider a holding companys effectiveness
in combating money laundering when ruling on Federal Reserve Act and Bank Merger
Act applications.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
federal banking agencies have proposed and implemented regulations pursuant to  the USA
PATRIOT Act. These proposed and interim regulations would require  financial institutions
to adopt the policies and procedures contemplated by the  USA PATRIOT Act.


## Sarbanes-Oxley
Act of 2002



The
Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), mandates certain  corporate
governance, accounting and related reforms that intended to address  corporate and
accounting fraud. In addition to the establishment of a new  accounting oversight board
that will enforce auditing, quality control and  independence standards and will be
funded by fees from all publicly traded  companies, Sarbanes-Oxley places certain
restrictions on the scope of


21

---

services  that may be provided by
accounting firms to their  public company audit clients.  Any non-audit services being
provided to a public company  audit client will  require preapproval by the companys
audit committee. In  addition,  Sarbanes-Oxley makes certain changes to the requirements
for audit partner  rotation after a period of time. Sarbanes-Oxley requires chief
executive  officers and  chief financial officers, or their equivalent, to certify to the
accuracy of periodic  reports filed with the Securities and Exchange Commission,  subject
to civil and criminal  penalties if they knowingly or willingly violate  this
certification requirement. The  Companys Chief Executive Officer and  Chief
Financial Officer have signed  certifications to this Form 10-KSB as  required by
Sarbanes-Oxley. In addition, under  Sarbanes-Oxley, counsel will be  required to report
evidence of a material violation of  the securities laws or a  breach of fiduciary duty
by a company to its chief executive  officer or its  chief legal officer, and, if such
officer does not appropriately respond,  to  report such evidence to the audit committee
or other similar committee of the  board  of directors or the board itself.



Under
Sarbanes-Oxley, longer prison terms will apply to corporate executives who  violate
federal securities laws; the period during which certain types of suits  can be brought
against a company or its officers is extended; and bonuses issued  to top executives
prior to restatement of a companys financial statements  are now subject to
disgorgement if such restatement was due to corporate  misconduct. Executives are also
prohibited from trading the companys  securities during retirement plan blackout periods,
and loans to  company executives (other than loans by financial institutions permitted by
federal rules and regulations) are restricted. In addition, a provision directs  that
civil penalties levied by the Securities and Exchange Commission as a  result of any
judicial or administrative action under Sarbanes-Oxley be  deposited to a fund for the
benefit of harmed investors. Sarbanes-Oxley also  requires the Securities and Exchange
Commission to develop methods of improving  collection rates. Sarbanes-Oxley accelerates
the time frame for disclosures by  public companies, as they must immediately disclose
any material changes in  their financial condition or operations. Directors and executive
officers must  also provide information for most changes in ownership in a companys
securities within two business days of the change.




Sarbanes-Oxley
also increases the oversight of, and codifies certain requirements relating to  audit
committees of public companies and how they interact with the  companys registered
public accounting firm. Audit Committee  members must be independent and are
absolutely barred from accepting consulting,  advisory or other compensatory fees from
the issuer. In addition, companies must  disclose whether at least one member of the
committee is a financial  expert (as such term is defined by the Securities
and Exchange Commission)  and if not, why not. Under Sarbanes-Oxley, a companys
registered public  accounting firm is prohibited from performing statutorily mandated
audit  services for a company if such companys chief executive officer, chief
financial officer, comptroller, chief accounting officer or any person serving  in
equivalent positions had been employed by such firm and participated in the  audit of
such company during the one-year period preceding the audit initiation  date.
Sarbanes-Oxley also prohibits any officer or director of a company or any  other person
acting under their direction from taking any action to fraudulently  influence, coerce,
manipulate or mislead any independent accountant engaged in  the audit of the companys
financial statements for the purpose of  rendering the financial statements materially
misleading. Sarbanes-Oxley also  requires the Securities and Exchange Commission to
prescribe rules requiring  inclusion of any internal control report and assessment by
management in the  annual report to shareholders. Sarbanes-Oxley requires the companys
registered public accounting firm that issues the audit report to attest to and  report
on managements assessment of the companys internal controls.




Although
we have incurred additional expense in complying with the provisions of the
Sarbanes-Oxley Act and the resulting regulations, management does not expect  that such
compliance will have a material impact on our results of operations or  financial
condition.


## Executive
Officers of the Company



Listed
below is information, as of March 31, 2005, concerning the Companys  executive
officers. There are no arrangements or understandings between the  Company and any of the
persons named below with respect to which he was or is to  be selected as an officer.


|Name             |  |  |  | Age |    | Position and Term
|---------------- |  |  |  | --- | -- | -----------------
|Barry M. Donohue |  |  |  |     | 64 |                  

22

---

|William M. Gilfillan |  |  |  |  | 60 |  |  | Executive Vice President, Chief Financial Officer,
                                                     Accounting Officer and Corporate Secretary
|-------------------- |  |  |  |  | -- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------

## Availability
of Annual Report on Form 10-KSB



Our
Annual Report on Form 10-KSB may be accessed on our website at
www.atlanticlibertysavings.com.


ITEM 2.  PROPERTIES

The
following table provides certain information with respect to our offices as of
March 31, 2005:

|Location                                           |  |  |  | Leased or Owned |  | Year Acquired |  | Net Book Value of Real Property
|-------------------------------------------------- |  |  |  | --------------- |  | ------------- |  | -------------------------------
|Main Office
186 Montague Street Brooklyn, NY 11201 |  |  |  | Owned           |  | 1983          |  | $1,067,678                     
|Branch
Office1402 Avenue J Brooklyn, NY 11230      |  |  |  | Owned           |  | 1978          |  | $422,958                       



The
net book value of our premises, land and equipment was approximately $1.7  million at
March 31, 2005.


ITEM 3.  LEGAL PROCEEDINGS



We
are involved, from time to time, as plaintiff or defendant in various legal  actions
arising in the normal course of our business. At March 31, 2005, we were  not involved in
any legal proceedings, the outcome of which would be material to  our financial condition
or results of operations.


ITEM 4.  SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS



None


# PART II

|ITEM 5. | MARKET
FOR COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS  ISSUER PURCHASES OF
EQUITY SECURITIES
|------- | ----------------------------------------------------------------------------------------------------------------

(a) The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
ALFC.

The
following table sets forth the range of the high and low bid prices of the Companys
Common Stock for the prior two fiscal years  and is based upon information provided by
Nasdaq.

|                           |  |  |  | Prices of Common Stock |      
|-------------------------- |  |  |  | ---------------------- | -----
|
|Calendar
Quarter Ended (1) |  |  |  |                        |      
|June 30,
2003              |  |  |  | $                      | 19.60
|September 30,
2003         |  |  |  |                        | 20.40
|December 31,
2003          |  |  |  |                        | 20.47
|March 31,
2004             |  |  |  |                        | 20.34
|June 30,
2004              |  |  |  |                        | 19.34
|September 30,
2004         |  |  |  |                        | 19.62
|December 31,
2004          |  |  |  |                        | 24.00
|March 31,
2005             |  |  |  |                        | 25.22

_________________________

|(1) |  | The
Companys common stock began trading on October 23, 2002.
|--- |  | -------------------------------------------------------------

|(b) |  | As of March 31, 2005, the Company had 289 stockholders of record.
|--- |  | -----------------------------------------------------------------

23

---

|(c) |  | None.
|--- |  | -----

|(d) |  | Issuer Purchases of Equity Securities:
|--- |  | --------------------------------------

|                        |  |  |  | Total Number of Shares Purchased |        | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of a Publicly
Announced Plan |       | Maximum Number of Shares That May Be Purchased Under Plan
|----------------------- |  |  |  | -------------------------------- | ------ | ---------------------------- |  | --------------------------------------------------------------------- | ----- | ---------------------------------------------------------
|January 
March 2004    |  |  |  |                                  | 19,400 |                              |  | $                                                                     | 19.80 |                                                          
|April 
June 2004       |  |  |  |                                  | 10,490 |                              |  |                                                                       | 18.12 |                                                          
|July 
September 2004   |  |  |  |                                  |       |                              |  |                                                                       |      |                                                          
|October 
December 2004 |  |  |  |                                  | 4,826  |                              |  |                                                                       | 21.64 |                                                          
|January 
March 2005    |  |  |  |                                  | 12,875 |                              |  |                                                                       | 23.32 |                                                          
|Total                   |  |  |  |                                  | 47,591 |                              |  |                                                                       | 21.46 |                                                          

ITEM 6.  MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



The
information required by this item is incorporated by reference to our Annual  Report to
Shareholders.


ITEM 7.  FINANCIAL STATEMENTS



The
financial statements identified in Item 13(a)(1) hereof are incorporated by  reference
hereunder.


ITEM 8.  CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE



None.


ITEM 8A.  CONTROLS AND PROCEDURES



(a) Evaluation
of disclosure controls and procedures.




Under
the supervision and with the participation of our management, including our  Chief
Executive Officer, President and Chief Financial Officer, we evaluated the  effectiveness
of the design and operation of our disclosure controls and  procedures (as defined in
Rule 13a-14(c) under the Exchange Act) as of a date  (the Evaluation Date)
within 90 days prior to the filing date of  this report. Based upon that evaluation, the
Chief Executive Officer, President  and Chief Financial Officer concluded that, as of the
Evaluation Date, our  disclosure controls and procedures were effective in timely
alerting them to the  material information relating to us (or our consolidated
subsidiaries) required  to be included in our periodic SEC filings.




(b) Changes
in internal controls.




There
were no significant changes made in our internal controls during the period  covered by
this report or, to our knowledge, in other factors that could  significantly affect these
controls subsequent to the date of their evaluation.


ITEM 8B.  OTHER INFORMATION



None.


24

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## PART III

|ITEM 9. | DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|------- | ---------------------------------------------------------------------------------------------------------------------------------



Information
concerning Directors of the Company is incorporated herein by reference from our
definitive Proxy Statement (the Proxy Statement), specifically the  section
captioned Proposal IElection of Directors. In  addition, see Executive
Officers of the Company in Item 1 for  information concerning our executive
officers.


ITEM 10.  EXECUTIVE COMPENSATION



Information
concerning executive compensation is incorporated herein by reference from our  Proxy
Statement, specifically the section captioned Executive  Compensation.


|ITEM 11. | SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



Information
concerning security ownership of certain owners and management and related  stockholder
matters is incorporated herein by reference from our Proxy  Statement, specifically the
sections captioned Voting Securities and  Principal Holders Thereof and Benefit
Plans.


ITEM 12.  CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Information
concerning relationships and transactions is incorporated herein by reference
from our Proxy Statement, specifically the section captioned Transactions
with Certain Related Persons.

## PART IV

ITEM 13.  EXHIBITS



The
exhibits and financial statement schedules filed as a part of this Form 10-KSB  are as
follows:




(a)(1) Financial
Statements


| |  | Report of Independent Registered Public Accounting Firm
|- |  | -------------------------------------------------------

| |  | Consolidated
Statements of Financial Condition at March 31, 2005 and 2004
|- |  | -------------------------------------------------------------------------

| |  | Consolidated
Statements of Income for the Years Ended March 31, 2005 and 2004
|- |  | -----------------------------------------------------------------------------

| |  | Consolidated Statements of Stockholders Equity for the Years Ended March
31, 2005 and 2004
|- |  | -------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Cash Flows for the Years
Ended Years Ended March 31, 2005 and 2004
|- |  | ---------------------------------------------------------------------------------------------

| |  | Notes to Consolidated Financial
Statements.
|- |  | -------------------------------------------



(a)(2) Financial
Statement Schedules


| |  | No
financial statement schedules are filed because the required information is not
applicable or is included in the consolidated financial statements or related
notes.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



(a)(3) Exhibits


|13 |  | Annual Report to Shareholders
|-- |  | -----------------------------

|14 |  | Code of Ethics*
|-- |  | ---------------

|21 |  | Subsidiaries of the Registrant
|-- |  | ------------------------------

|31.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- |  | -----------------------------------------------------------------------

|31.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- |  | -----------------------------------------------------------------------

25

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|32.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
                           906 of the Sarbanes-Oxley Act of 2002
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

__________

|* |  | (Previously filed under cover of Form 10-KSB for the fiscal year ended March 31,
2004)
|- |  | --------------------------------------------------------------------------------------

ITEM 14.  PRINCIPAL ACCOUNTING FEES
AND SERVICE



Information
required by this Item is incorporated by reference to the Proxy Statement under  the
caption Proposal II-Ratification of Auditors.


26

---

## SIGNATURES



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


| |  | Atlantic
Liberty Financial Corp.
| |  | --------------------------------

|Date: June 28, 2005 |  | By: /s/ Barry M. Donohue
Barry M. Donohue, President andChief Executive Officer
|------------------- |  | -------------------------------------------------------------------------------



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been  signed
below by the following persons on behalf of the registrant and in the  capacities and on
the dates indicated.


|By: /s/ Barry M. Donohue
Barry M. Donohue, President, Chief Executive Officer and Director (Principal Executive Officer)Date: June 28, 2005 |  | By: /s/ Richard T. Arkwright
Richard T. Arkwright Chairman of the BoardDate: June 28, 2005
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------

|By: /s/ William M. Gilfillan
William M. GilfillanChief Financial Officer(Principal
Financial and Accounting Officer)Date: June 28, 2005 |  | By: /s/ Hon. Guy J. Mangano
Hon. Guy J. ManganoDirectorDate: June 28, 2005
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|By: /s/ George M. Spanakos
George M. SpanakosDirectorDate: June 28, 2005 |  | By: /s/ Thomas M. DeMartino
Thomas M. DeMartinoDirectorDate: June 28, 2005
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