EXHIBIT 13ANNUAL REPORT TO SHAREHOLDERS

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TABLE OF CONTENTS






|Letter to
Shareholders                                                                |  |  |  | 1 
|------------------------------------------------------------------------------------- |  |  |  | --
|Selected
Financial Information and Other Data                                         |  |  |  | 2 
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  |  | 4 
|Independent
Auditors Report                                                          |  |  |  | 13
|Consolidated
Financial Statements                                                     |  |  |  | 14
|Directors and
Executive Officers                                                      |  |  |  | 38
|Shareholder
Information                                                               |  |  |  | 39

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Dear Shareholder,



We are pleased to present you with our 2004 Annual
Report, which covers our first full year of operations as a public company.




Net income for the year was $1,383,000 or $0.87 per
share ($.086 fully diluted) an increase of 16.5% over fiscal 2003. For the year, net interest income reached $6.2 million compared to $5.7 million in
the prior year. Non-interest income was up 20% for the year and non-interest expense increased 6.4%. The return on average assets for the year
increased to 0.92% from 0.87% in the prior year.




Our successful financial performance for the year
resulted in an excellent return for our valued shareholders. Atlantic Liberty Financial Corporations share price rose to $19.34 at March 31, 2004
from $14.97 at the end of fiscal 2003, representing an annual return of 29.2 percent. Since our October 22, 2002 initial public offering price of
$10.00 per share, Atlantic Liberty Financial Corporation shareholders who purchased stock in the initial public offering have enjoyed a 93.4 percent
increase in their investment. The Companys market capitalization at March 31, 2004 was approximately $32.7 million.




Capital management continues to be a strong priority
for us. Shortly after our third quarter of operation as a public company, our Board of Directors declared a cash dividend of five cents per share and
later increased the dividend to six cents per share for the most recent quarter ended March 31, 2004.




During the year, the company sought to further
enhance shareholder value when the board approved our first stock repurchase program. At the end of our fiscal year, we had repurchased 19,400
shares.




The volume of loan production and our asset quality
continue at impressive levels. Lending activity was excellent throughout fiscal 2004, resulting in a 12.4% increase in total loans outstanding. The
continued low interest rate environment encouraged borrowers to refinance their debt in all loan categories, particularly one-to-four family mortgages.
Additionally, we experienced growth in our commercial real estate and multi-family portfolios. Asset quality remains very strong. At year end, the
proportion of non-performing loans to total loans was 0.08% compared to 0.13% the prior year.




Looking forward, we are committed to fundamentally
the same operating posture, which is to strive for controlled and profitable growth. My expectations for continued growth are primarily based on the
solid asset base we enjoy, the excellent market areas in which we are located, the strong economic outlook and our emphasis on doing what we do best;
serving our surrounding communities to the best of our ability.




Our employees are key to our success and we believe
that the high level of service provided to our customers truly differentiates us from our larger competition. Our employees performance is also
motivated by their ownership position in our Employee Stock Ownership Plan and our newly implemented stock based benefit plan.




On behalf of our Directors, management and staff, I
want to thank you for your continued confidence and investment in Atlantic Liberty Financial Corp.




Sincerely,




Barry M. Donohue President &
CEO


1

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Atlantic Liberty Financial Corp.

SELECTED FINANCIAL AND OTHER DATA

Selected Financial Condition Data:






|                           |  |  |  | At March 31, |        
|-------------------------- |  |  |  | ------------ | -------
|
|
|Total
assets               |  |  |  | $            | 160,003
|Loans
receivable, net (1)  |  |  |  |              | 113,059
|Mortgage-backed securities |  |  |  |              |        
|Available for
sale         |  |  |  |              | 1,088  
|Held to
maturity           |  |  |  |              | 30,691 
|Investment
securities      |  |  |  |              |        
|Available for
sale         |  |  |  |              | 2,332  
|Held to
maturity           |  |  |  |              | 2,016  
|Deposits                   |  |  |  |              | 107,861
|Total
borrowings           |  |  |  |              | 23,200 
|Stockholders Equity       |  |  |  |              | 26,231 








(1)  Net of allowance
for loan losses and deferred loan fees


Selected Operating Data:

|                                                               |  |  |  | Years ended March 31, |      
|-------------------------------------------------------------- |  |  |  | --------------------- | -----
|
|
|Total
interest income                                          |  |  |  | $                     | 8,390
|Total
interest expense                                         |  |  |  |                       | 2,151
|Net interest
income                                            |  |  |  |                       | 6,239
|Provision
(recovery) for loan losses                           |  |  |  |                       |     
|Net interest
income after provision (recovery) for loan losses |  |  |  |                       | 6,239
|Non-interest
income                                            |  |  |  |                       | 414  
|Non-interest
expense                                           |  |  |  |                       | 4,176
|Income before
taxes                                            |  |  |  |                       | 2,477
|Income tax
provision                                           |  |  |  |                       | 1,094
|Net
income                                                     |  |  |  | $                     | 1,383
|Net income
per share  Basic                                   |  |  |  | $                     | 0.87 
|Net income
per share  Fully Diluted                           |  |  |  | $                     | 0.86 

2

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Performance Ratios:






|                                                                                 |  |  |  | At or for the years ended March 31, |     
|-------------------------------------------------------------------------------- |  |  |  | ----------------------------------- | ----
|
|
|Return on
assets (ratio of net income to average total assets)                   |  |  |  |                                     | 0.92
|Return on
equity (ratio of net income to average equity)                         |  |  |  |                                     | 5.35
|Interest rate
spread (1)                                                         |  |  |  |                                     | 4.07
|Net interest
margin (2)                                                          |  |  |  |                                     | 4.36
|Ratio of
non-interest expense to average total assets                            |  |  |  |                                     | 2.77
|Ratio of
average interest-earning assets to average interest-bearing liabilities |  |  |  |                                     | 1.19

Asset Quality Ratios:






|                                                      |  |  |  | At or for the years ended March 31, |       
|----------------------------------------------------- |  |  |  | ----------------------------------- | ------
|
|Non-performing assets to toal assets at end of period |  |  |  |                                     | 0.11  
|Allowance for
loan losses to non performing loans     |  |  |  |                                     | 606.25
|Allowance for
loan losses to total loans receivable   |  |  |  |                                     | 0.51  
|Capital
Ratios:                                       |  |  |  |                                     |       
|Stockholders equity to total assets at end of period |  |  |  |                                     | 16.39 
|Average
stockholders equity to average assets        |  |  |  |                                     | 17.17 
|Other
Data:                                           |  |  |  |                                     |       
|Number of
full-service offices                        |  |  |  |                                     | 2     






|(1) |  | The difference between the yield on average interest-earning
assets and the cost of average interest-bearing liabilities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|(2) |  | Net interest income divided by average interest earning
assets.
|--- |  | ---------------------------------------------------------------

3

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND
RESULTS OF OPERATION



The Company is a Delaware Corporation, which began
operations on October 22, 2002 following the completion of Atlantic Liberty Savings, F.A.s (The Bank) conversion from mutual to stock
ownership. On that date, the Company sold 1,710,984 shares of common stock at $10 per share and received net proceeds of $14.8 million, exclusive of
conversion expenses of $900,000 and $1.4 million to fund the purchase of shares for our employee stock ownership plan. Approximately 50% of the net
proceeds were used by the Company to acquire all of the capital stock of the Association.




Our results of operations depend primarily on our
net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of
loans, mortgage-backed securities, investment securities and other interest-earning assets, and the interest we pay on our interest-bearing
liabilities, consisting primarily of savings accounts and time deposits and advances from the Federal Home Loan Bank of New York (FHLB). Our results of
operations are also affected by our provisions for loan losses, non-interest income and non interest expense. Non interest income consists primarily of
fees and service charges. Non interest expense consists primarily of salaries and employee benefits, occupancy, equipment, data processing and deposit
insurance premiums, professional fees, and other operating expenses. Our results of operations also may be affected significantly by general and local
economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.


Comparison of Financial Condition at March 31, 2004 and March 31,
2003



Our total assets at March 31, 2004 were $160.0
million an increase of $22.8 million or 16.6% from the $137.2 million at March 31, 2003. The increase reflects growth in loans receivable and
mortgage-backed securities primarily funded by a net increase in advances from the FHLB and a decrease in cash and cash equivalents. Loans increased by
$12.4 million or 12.3% to $113.1 million at March 31, 2004 from $100.7 million at March 31, 2003. The increase in loans resulted principally from
increased multi-family mortgage loan originations as well as $15.5 million in commercial real estate mortgages, of which $8.3 million were purchased
from other financial institutions. Mortgage-backed securities increased $9.1 million or 40.1% to $31.8 million at March 31, 2004 from $22.7 million at
March 31, 2003 reflecting new purchases of $19.7 million, partially offset by pre-payments and amortization of $10.6 million. The increase in
mortgage-backed securities reflects managements decision to implement a leveraged growth strategy which resulted in a positive interest rate
spread. The underlying assets are adjustable rate mortgages which, over time, should re-price in accordance with then current interest rates.
Repayments of mortgage-backed securities may not be able to be reinvested at an equivalent or higher yield. Other investment securities increased $3.3
million to $4.3 million at March 31, 2004 from $1.0 million at March 31, 2003. The new investment securities provide a higher yield than overnight
funds. Cash and cash equivalents decreased $2.6 million or 41.9% to $3.6 million at March 31, 2004 from $6.2 million at March 31, 2003 to provide
funding for loan originations and purchases of loans. The increase in assets was primarily funded by a net increase in advances from the FHLB of $21.6
million to $23.2 million at March 31, 2004 from $1.6 million at March 31, 2003. In addition, deposits of $107.9 million at March 31, 2004 increased
$400,000 or 0.4% from $107.5 million at March 31, 2003.




Stockholders equity increased $1.1 million, or
4.5% to $26.2 million at March 31, 2004 reflecting net income for the year ended March 31, 2004 of $1.4 million, partially offset by treasury stock
purchases of $400,000.


Comparison of Operating Results for the years ended March 31, 2004 and March 31,
2003



General. Net income for the year ended March
31, 2004 increased 16.5% to $1,383,000 from $1,187,000 for the year ended March 31, 2003. The increase in net income was primarily due to an increase
of $538,000 in net interest income, a $69,000 increase in non-interest income and a reduction of $40,000 in the provision for loan losses partially
offset by increases of $252,000 in non-interest expense and $199,000 in income tax expense.




Interest Income. Interest income increased by
$208,000 or 2.5% to $8.4 million for the year ended March 31, 2004 from $8.2 million for the year ended March 31, 2003. The increase in interest income
resulted primarily from increases of $47,000 in interest received from loans, $204,000 in interest received on mortgage-backed securities, and $91,000
in interest on investment securities, partially offset by a decrease of $134,000 in interest received on other interest-earning assets. The increase in
interest income reflected a $11.9 million or 9.1% increase in the average balance


4

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of interest-earning assets to $143.1 million from $131.2 million. Partially
offsetting the increase in average interest-earning assets was a 38 basis point decrease in the average yield on interest earning assets to 5.86% for
the year ended March 31, 2004 from 6.24% for the year ended March 31, 2003 reflecting a decrease in market interest rates generally.



Interest income from loans increased $47,000 or 0.7%
to $7.2 million for the year ended March 31, 2004 from $7.1 million for the year ended March 31, 2003. The average yield on loans declined 60 basis
points to 6.73% for the year ended March 31. 2004 from 7.33% for the year ended March 31, 2003 reflecting a decrease in market interest rates
generally. The effect of the decline was more than offset by a $9.3 million or 9.6% increase in the average balance of loans outstanding to $106.4
million for the year ended March 31, 2004 from $97.1 million for the year ended March 31, 2003. The increase in loans receivable occurred primarily in
multi-family and commercial real estate loans, which increased by $7.0 million and $11.0 million, respectively during fiscal 2004.




Interest income from mortgage-backed securities
increased $204,000 or 25.5% to $1.0 million for the year ended March 31, 2004 from $801,000 for the year ended March 31, 2003. The increase was due to
an increase in average mortgage-backed securities of $8.1 million or 39.3% to $28.7 million for the year ended March 31, 2004 from $20.6 million for
the year ended March 31, 2003, partially offset by a 38 basis point decrease in the average yield to 3.51% from 3.89%.




Interest income on investment securities increased
$91,000 or 142.2% to $155,000 for the year ended March 31, 2004, from $64,000 for the year ended March 31, 2003. The increase in interest income on
investment securities was due to an increase in the average balance of investment securities to $2.6 million from $1.0 million, partially offset by a
decrease of 22 basis points in the average yield to 6.00% for the year ended March 31, 2004 from 6.22% in the previous year.




Interest income on other interest earning assets,
consisting of cash and cash equivalents and Federal Home Loan Bank Stock, decreased $134,000 or 66.0% to $69,000 for the year ended March 31, 2004 from
$203,000 for the prior fiscal year. The decrease reflects a decrease of $7.0 million in average other interest-earning assets to $5.5 million for the
year ended March 31,2004 from $12.5 million as well as a decline in the average yield on other interest-earning assets to 1.26% from
1.62%.




Interest Expense. Total interest expense
decreased by $330,000 or 13.3% to $2.2 million for the year ended March 31, 2004 from $2.5 million for the year ended March 31, 2003. The decrease in
interest expense resulted from a decrease in the average cost of our interest bearing liabilities to 1.79% from 2.12% reflecting lower market interest
rates during fiscal year 2004, which was partially offset by a $3.0 million increase in the average balance of interest-bearing liabilities to $119.9
million from $116.9 million.




Interest expense on deposits decreased $652,000 or
27.3% to $1.7 million for the year ended March 31, 2004 from $2.4 million for the year ended March 31, 2003. The average balance of certificates of
deposit accounts decreased $5.8 million from $62.9 million for the year ended March 31, 2003 to $57.1 million for the year ended March 31, 2004, and
the average cost of such accounts decreased to 2.35% from 2.96%. In addition, the average balance of transaction and savings deposits decreased $3.5
million or 6.8% to $48.0 million for the year ended March 31, 2004 from $51.5 million for the year ended March 31, 2003 and the average cost on such
accounts declined 20 basis points to 0.83% from 1.03%.




Interest expense on advances and other borrowed
funds increased $322,000 or 361.8% to $411,000 for the year ended March 31, 2004, from $89,000 for the year ended March 31, 2003. The increase reflects
an increase in the average FHLB advances and other borrowed funds of $12.3 million to $14.8 million for the year ended March 31, 2004, from $2.5
million during the prior period partially offset by a decrease of 72 basis points in the average cost of such funds.




Net Interest Income. Net interest income
increased $538,000 or 9.4% to $6.2 million for the year ended March 31, 2004 from $5.7 million for the year ended March 31, 2003. The increase
primarily resulted from an increase of $11.9 million in interest earning assets, partially offset by a decrease in our net interest spread of 4 basis
points to 4.07% from 4.11%. Net interest margin for the year ended March 31, 2004 increased 2 basis points to 4.36% from 4.34% in the prior fiscal
year.




Provision for Loan Losses. We establish
provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable and reasonably estimable
credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the
nature


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and volume of the loan portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available or as
future events change. Based on our evaluation of these factors, management made no provision for the year ended March 31, 2004 and a provision of
$40,000 for the year ended March 31, 2003.



We used the same methodology and generally similar
assumptions in assessing the adequacy of the allowance for both periods. The allowance for loan losses was $582,000 or 0.51% of loans outstanding at
March 31, 2004 as compared with $484,000 or 0.48% of loans outstanding at March 31, 2003. During the year ended March 31, 2004, we recorded a $98,000
recovery of a previously charged off loan. The allowance for loan losses represented 606.25% of non-performing loans at March 31, 2004 and 381.10% of
non-performing loans at March 31, 2003. The level of the allowance is based on estimates and the ultimate losses may vary from the
estimates.




Management assesses the allowance for loan losses on
a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available
information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan
losses as of March 31, 2004 is maintained at a level that represents managements best estimate of inherent losses in the loan portfolio, and such
losses were both probable and reasonably estimable.




Non-Interest Income. Non-interest income
increased $69,000 or 20.1% to $413,000 for the year ended March 31, 2004, as compared to $344,000 for the year ended March 31, 2003. Income from fees
and service charges increased by $7,000 or 3.3% to $219,000 from $212,000. The increase was primarily attributed to an increase in checking account
fees of $34,000, partially offset by decreases of $18,000 in loan prepayment penalties and other miscellaneous mortgage fees and $9,000 in net credit
report and appraisal fees. Miscellaneous non-interest income increased $62,000 or 46.6% to $195,000 from $133,000 principally as a result of an
increase of $61,000 from the banks investment in Bank Owned Life Insurance (BOLI), which was held for the entire fiscal year as compared to one
quarter of the year in the prior fiscal period.




Non-Interest Expense. Non-interest expense
for the year ended March 31, 2004 was $4.2 million compared to $3.9 million for the year ended March 31, 2003, an increase of $252,000 or 6.6%. The
increase was primarily attributable to increases of $181,000 in salaries and employee benefits, $18,000 in directors compensation, $57,000 in
occupancy expense, $87,000 in legal fees and $100,000 in miscellaneous expense, partially offset by a $191,000 decrease in equipment expense. The
increase of $181,000 or 7.9% in salaries and employee benefits includes increases of $54,000 in salaries and bonuses, $21,000 in ESOP expenses and
$106,000 in management recognition plan expenses for which there was no comparable expense in the prior year. The increase in directors
compensation of $18,000 or 12.3% is primarily attributable to an increase in board and committee meeting fees during the year ended March 31, 2004. The
increase in occupancy expenses of $57,000 or 54.8% is primarily attributable to a decrease in rental income of $41,000 and an increase of $16,000 in
real estate taxes and depreciation on the Companys office buildings. The $87,000 increase in legal fees resulted primarily from fees incurred in
connection with the Companys ongoing action against its former auditors. Miscellaneous expenses, which increased $100,000 or 15.1%, included in
fiscal year 2004 a entire years costs for numerous expenses associated with being a public company such as preparation of the financial and business
reports required to be filed with the regulatory agencies and provided to stockholders. Fiscal year 2003 included approximately one-half of the annual
costs for these expenses since the company converted to stock ownership in October 2002. Miscellaneous expense also consists of telephone, postage,
office supply and various other non-classifiable operating expenses. The decrease in equipment expense of $191,000 or 33.7% primarily reflects a net
reduction of $217,000 in expenses related to the conversion to a new data service provider, which occurred in fiscal year 2003, partially offset by an
increase of $25,000 in depreciation expense on furniture, fixtures and equipment.




Provision for Income taxes. The provision for
income taxes for the year ended March 31, 2004 increased to $1.1 million from $895,000 for the year ended March 31, 2003. The increase in the provision
for income taxes is primarily due to our higher level of income before taxes of $2.5 million for the year ended March 31, 2004 compared with $2.1
million in the prior period.


6

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Average Balance Sheet



The following tables present for the periods
indicated the total dollar amount of interest income on average interest-earning assets and the resultant yields, as well as the interest expense on
average interest-bearing liabilities, expressed both in dollars and rates. All average balances are derived from daily balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.


|                                                                                         |  |   |         |  |  | Years
      Ended March 31,
|---------------------------------------------------------------------------------------- |  | - | ------- |  |  | ---------------------------
|
|
|
|Interest-earning assets:                                                                 |  |   |         |  |  |                            
|Loan
        receivable (1)                                                              |  | $ | 113,059 |  |  |                            
|Mortgage-backed
        securities (2)                                                   |  |   | 31,779  |  |  |                            
|Investment
        securities (2)                                                        |  |   | 4,349   |  |  |                            
|Other
        interest earnings
        assets (3)                                       |  |   | 3,444   |  |  |                            
|Total
        interest-earning assets                                                    |  | $ | 152,631 |  |  |                            
|Non-interest
        earning assets                                                      |  |   | 7,372   |  |  |                            
|Total
        assets                                                                     |  | $ | 160,003 |  |  |                            
|Interest-bearing liabilities:                                                            |  |   |         |  |  |                            
|Interest-bearing deposits:                                                               |  |   |         |  |  |                            
|NOW
        and money market accounts                                                    |  | $ | 27,622  |  |  |                            
|Savings
        and club accounts                                                        |  |   | 21,895  |  |  |                            
|Certificates
        of Deposit                                                          |  |   | 55,916  |  |  |                            
|Advances
        and other borrowed funds (4)                                            |  |   | 24,145  |  |  |                            
|Total
        interest-bearing liabilities                                               |  | $ | 129,578 |  |  |                            
|Non-interest
        bearing deposits                                                    |  |   | 2,428   |  |  |                            
|Non-interest
        bearing
        liabilities                                         |  |   | 1,766   |  |  |                            
|Total
        liabilities                                                                |  | $ | 133,772 |  |  |                            
|Retained
        earnings                                                                |  |   | 26,231  |  |  |                            
|Total
        liabilities and retained earnings                                          |  | $ | 160,003 |  |  |                            
|Net
        interest income/interest rate spread                                         |  |   |         |  |  |                            
|Net
        interest earning assets/net yield on interest-bearing assets                 |  | $ | 23,053  |  |  |                            
|Ratio
        of average interest-bearing assets to average interest-bearing liabilities |  |   |         |  |  |                            

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|(1) |  | Net of allowance for loan loss and net deferred fees and
costs.
|--- |  | ---------------------------------------------------------------

|(2) |  | Amounts shown are at amortized cost.
|--- |  | ------------------------------------

|(3) |  | Includes stock in the FHLB of New York.
|--- |  | ---------------------------------------

|(4) |  | Includes mortgage escrow funds.
|--- |  | -------------------------------

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Rate/Volume Analysis



The following table presents the dollar amount of
changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes
between the changes related to changes in outstanding balances and those due to the changes in interest rates. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume(i.e., changes in volume multiplied by
old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and
volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


|                                   |  |  |  | Years Ended March 31, |     
|---------------------------------- |  |  |  | --------------------- | ----
|
|
|
|
|Interest-earning assets:           |  |  |  |                       |     
|Loan
receivable                    |  |  |  | $                     | 685 
|Mortgage-backed securities         |  |  |  |                       | 313 
|Investment
securities              |  |  |  |                       | 97  
|Other
interest earnings assets     |  |  |  |                       | (114
|Total
interest-earning assets      |  |  |  | $                     | 981 
|Interest-bearing liabilities:      |  |  |  |                       |     
|Transaction                        |  |  |  | $                     | (33 
|Savings                            |  |  |  |                       | 11  
|Certificate
accounts               |  |  |  |                       | (170
|Borrowings                         |  |  |  |                       | 428 
|Total
interest-bearing liabilities |  |  |  | $                     | 236 
|Net interest
income                |  |  |  | $                     | 745 

8

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Management of Market Risk



General. The majority of our assets and
liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of
mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy
is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our board of
directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in our assets and
liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing the risk consistent with the guidelines approved by the board of directors. Senior management monitors the
level of interest rate risk on a regular basis and the Asset/Liability Management Committee, which consists of senior management operating under a
policy adopted by the board of directors, meets as needed to review our asset/liability policies and interest rate risk position. We have sought to
manage our interest rate risk by more closely matching the maturities of our interest rate sensitive assets and liabilities. In particular, we offer
one, three, and five year adjustable rate mortgage loans, a loan product that has a fixed rate of interest for seven years and which adjusts annually
thereafter, and three and five year balloon loans. We also invest in mortgage-backed securities which reprice within one and three years. We do not
solicit high-rate jumbo certificates of deposit or brokered funds.




Net Portfolio Value. In past years, many
savings associations have measured interest rate sensitivity by computing the gap between the assets and liabilities which are expected to
mature or reprice within certain time periods, based on assumptions regarding loan prepayment and deposit decay rates formerly provided by the Office
of Thrift Supervision. However, the Office of Thrift Supervision now requires the computation of amounts by which the net present value of an
institutions cash flow from assets, liabilities and off balance sheet items (the institutions net portfolio value or NPV) would
change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a
Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio
value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the
interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of
asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously
by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, we did not receive a NPV
calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 100 basis points
equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the Change in Interest
Rates column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on
information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.




The table below sets forth, as of March 31, 2004,
the latest date for which the Office of Thrift Supervision has provided the Bank with an interest rate sensitivity report of net portfolio value, the
estimated changes in our net portfolio value that would result form the designated instantaneous changes in the United States Treasury yield
curve.


|Net Portfolio Value |  | Net Portfolio Value as a % of Present Value of Assets/Liabilities | 
|------------------- |  | ----------------------------------------------------------------- | 
|
|
|+300                |  |                                                                   | 
|+200                |  |                                                                   | 
|+100                |  |                                                                   | 
|0                   |  |                                                                   | 
|100                |  |                                                                   | 



The table above indicates that at March 31, 2004, in
the event of a 100 basis point decrease in interest rates, we would experience a 4% increase in net portfolio value. In the event of a 200 basis point
increase in interest rates, we would experience a 15% decrease in net portfolio value.


9

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Certain shortcomings are inherent in the methodology
used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not
reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table
presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the
period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration
or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk
exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market
interest rates on its net interest income and will differ from actual results.


Liquidity and Capital Resources



Liquidity. The Bank must maintain an adequate
level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, to satisfy other financial
commitments, and to take advantage of investment opportunities. The Bank invests excess funds in overnight deposits and other short-term
interest-bearing assets to provide liquidity to meet these needs. At March 31, 2004, cash and cash equivalents totaled $3.6 million. At March 31, 2004,
the Bank had commitments to fund loans of $3.9 million. At March 31, 2004, certificates of deposit represented 53.0% of total deposits. The Bank
expects to retain these deposit accounts. In addition, the Bank could borrow up to $24.8 million from the FHLB without providing additional collateral.
The Bank considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs.




Capital Resources. The Bank is subject to
various regulatory capital requirements administered by federal regulatory agencies.




The following table summarizes the Banks
regulatory capital requirements versus actual capital as of March 31, 2004:


|                                            |  |  |  | ACTUAL |       | REQUIRED |  | EXCESS |     
|------------------------------------------- |  |  |  | ------ | ----- | -------- |  | ------ | ----
|
|Core
capital(to adjusted total assets)      |  |  |  |        | $18.8 |          |  |        | 12.0
|Risk-based
capitalTo (risk-weighted assets) |  |  |  |        | $19.3 |          |  |        | 21.3

Impact of Inflation and Changing Prices



The consolidated financial statements and related
notes of Atlantic Liberty Financial Corp. and Subsidiary have been prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP). GAAP generally requires the measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in
the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature As a result, changes in
market interest rates have a greater impact on performance than the effects of inflation.


SAFE HARBOR STATEMENT UNDER THEPRIVATE SECURITIES LITIGATION REFORM ACT OF
1995



This report contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The company intends such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the
Private Securities Reform Act of 1995 as amended and is including these statements for purposes of these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable
by use of the words believe, expect, intend, anticipate, estimate, project, or
similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors
that could have a material adverse affect on the operation and future prospects of the Company and its wholly-owned subsidiaries
include,


10

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but are not limited to, changes in: interest rates; general economic conditions;
legislative/regulatory provision; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve
Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial
services in the Companys market area; and accounting principles, policies and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements, and undue reliance should not be placed on such statements. Further information concerning the Company and its
business, including additional factors that could materially affect the Companys financial results, is included in the companys filings
with the Securities and Exchange Commission.

11

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Intentionally Left Blank]

12

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INDEPENDENT AUDITORS REPORT

To The Board of Directors and Stockholders Atlantic Liberty Financial
Corp.

We have audited the accompanying consolidated statements of financial condition of
Atlantic Liberty Financial Corp. (the Company) and Subsidiary as of March 31, 2004 and 2003, and the related consolidated statements of
income, changes in stockholders equity and cash flows for the years then ended. The consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Atlantic Liberty Financial Corp. and Subsidiary as of March 31, 2004 and 2003,
and the consolidated results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted
in the United States of America.

Pine Brook, New Jersey April 26, 2004

55 US Highway 46 East, Post Office Box 676, Pine Brook, NJ 07058-0676Voice:  973-575-9696        Fax:
973-575-9695Internet: www.radics.com

13

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION

|                                                                                                                                                |  |  |  |                  |  | March 31, |            
|----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------------- |  | --------- | -----------
|
|Assets                                                                                                                                          |  |  |  |                  |  |           |            
|Cash and
amounts due from depository institutions                                                                                               |  |  |  |                  |  | $         | 1,275,674  
|Interest-bearing deposits                                                                                                                       |  |  |  |                  |  |           | 2,284,204  
|Cash and cash
equivalents                                                                                                                       |  |  |  | 1 and
14         |  |           | 3,559,878  
|Investment
securities:                                                                                                                          |  |  |  | 1, 3 and
14      |  |           |            
|Available for
sale                                                                                                                              |  |  |  |                  |  |           | 2,332,370  
|Held to
maturity                                                                                                                                |  |  |  |                  |  |           | 2,016,272  
|Mortgage-backed securities:                                                                                                                     |  |  |  | 1, 4 and
14      |  |           |            
|Available for
sale                                                                                                                              |  |  |  |                  |  |           | 1,088,357  
|Held to
maturity                                                                                                                                |  |  |  |                  |  |           | 30,690,870 
|Loans
receivable                                                                                                                                |  |  |  | 1, 5, 9 and
14   |  |           | 113,058,535
|Investment in
real estate                                                                                                                       |  |  |  |                  |  |           | 78,468     
|Premises and
equipment                                                                                                                          |  |  |  | 1 and
7          |  |           | 1,512,798  
|Federal Home
Loan Bank stock                                                                                                                    |  |  |  | 9                |  |           | 1,160,000  
|Interest
receivable                                                                                                                             |  |  |  | 1, 6 and
14      |  |           | 721,824    
|Deferred tax
asset                                                                                                                              |  |  |  | 1 and
11         |  |           | 370,100    
|Other
assets                                                                                                                                    |  |  |  | 1 and
10         |  |           | 3,413,330  
|Total
assets                                                                                                                                    |  |  |  |                  |  | $         | 160,002,802
|Liabilities and stockholders equity                                                                                                            |  |  |  |                  |  |           |            
|Liabilities                                                                                                                                     |  |  |  |                  |  |           |            
|Deposits                                                                                                                                        |  |  |  | 8 and
14         |  | $         | 107,861,276
|Advances from
Federal Home Loan Bank of New York                                                                                                |  |  |  | 9 and
14         |  |           | 23,200,000 
|Borrowers
escrow for taxes and insurance                                                                                                        |  |  |  |                  |  |           | 944,908    
|Other
liabilities                                                                                                                               |  |  |  |                  |  |           | 1,765,821  
|Total
liabilities                                                                                                                               |  |  |  |                  |  |           | 133,772,005
|Commitments
and contingencies                                                                                                                   |  |  |  | 13 and
14        |  |           |           
|Stockholders equity:                                                                                                                           |  |  |  | 2, 10, 11 and
12 |  |           |            
|Preferred
stock; $0.10 par value; 500,000 shares authorized; none issued and outstanding                                                        |  |  |  |                  |  |           |           
|Common stock;
$0.10 par value; 6,000,000 shares authorized; shares issued 1,710,984; shares outstanding  1,691,584 (2004) and 1,710,984
(2003) |  |  |  |                  |  |           | 171,098    
|Additional
paid-in capital                                                                                                                      |  |  |  |                  |  |           | 16,365,898 
|Retained
earnings-substantially restricted                                                                                                      |  |  |  |                  |  |           | 11,114,813 
|Unearned ESOP
shares                                                                                                                            |  |  |  |                  |  |           | (1,060,811 
|Accumulated
other comprehensive income                                                                                                          |  |  |  |                  |  |           | 23,898     
|Treasury
stock, at cost; 19,400 shares (2004)                                                                                                   |  |  |  |                  |  |           | (384,099   
|Total
stockholders equity                                                                                                                      |  |  |  |                  |  |           | 26,230,797 
|Total
liabilities and stockholders equity                                                                                                      |  |  |  |                  |  | $         | 160,002,802

See notes to consolidated financial statements.

14

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF
INCOME

|                                                      |  |  |  |          |  | Year Ended March 31, |          
|----------------------------------------------------- |  |  |  | -------- |  | -------------------- | ---------
|
|Interest
income:                                      |  |  |  |          |  |                      |          
|Loans                                                 |  |  |  | 1 and
5  |  | $                    | 7,160,925
|Mortgage-backed securities                            |  |  |  | 1        |  |                      | 1,004,684
|Investment
securities                                 |  |  |  | 1        |  |                      | 155,278  
|Other
interest-earning assets                         |  |  |  |          |  |                      | 68,900   
|Total
interest income                                 |  |  |  |          |  |                      | 8,389,787
|Interest
expense:                                     |  |  |  |          |  |                      |          
|Deposits                                              |  |  |  | 8        |  |                      | 1,739,530
|Advances                                              |  |  |  |          |  |                      | 397,717  
|Escrow                                                |  |  |  |          |  |                      | 13,393   
|Total
interest expense                                |  |  |  |          |  |                      | 2,150,640
|Net interest
income                                   |  |  |  |          |  |                      | 6,239,147
|Provision for
loan losses                             |  |  |  | 1 and
5  |  |                      |         
|Net interest
income after provision for loan losses   |  |  |  |          |  |                      | 6,239,147
|Non-interest
income:                                  |  |  |  |          |  |                      |          
|Fees and
service charges                              |  |  |  |          |  |                      | 219,471  
|Miscellaneous                                         |  |  |  |          |  |                      | 194,485  
|Total
non-interest income                             |  |  |  |          |  |                      | 413,956  
|Non-interest
expenses:                                |  |  |  |          |  |                      |          
|Salaries and
employee benefits                        |  |  |  | 10       |  |                      | 2,480,496
|Directors compensation                               |  |  |  |          |  |                      | 163,233  
|Occupancy
expenses, net                               |  |  |  | 1        |  |                      | 161,097  
|Equipment                                             |  |  |  | 1        |  |                      | 374,821  
|Advertising                                           |  |  |  |          |  |                      | 35,546   
|Federal
insurance premium                             |  |  |  |          |  |                      | 17,873   
|Legal
fees                                            |  |  |  |          |  |                      | 179,889  
|Miscellaneous                                         |  |  |  |          |  |                      | 762,757  
|Total
non-interest expenses                           |  |  |  |          |  |                      | 4,175,712
|Income before
income taxes                            |  |  |  |          |  |                      | 2,477,391
|Income
taxes                                          |  |  |  | 1 and
11 |  |                      | 1,094,092
|Net
income                                            |  |  |  |          |  | $                    | 1,383,299
|Net income
per common share:                          |  |  |  | 1        |  |                      |          
|Basic                                                 |  |  |  |          |  | $                    | 0.87     
|Diluted                                               |  |  |  |          |  | $                    | 0.86     
|Weighted
average number of common shares outstanding: |  |  |  | 1        |  |                      |          
|Basic                                                 |  |  |  |          |  |                      | 1,595,947
|Diluted                                               |  |  |  |          |  |                      | 1,600,424

See notes to consolidated financial statements.

15

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYCONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

|                                                 |  |  |  | Common Stock |         | Additional Paid-In Capital |  | Retained Earnings  Substantially Restricted |            | Unearned ESOP Shares |  | Accumulated Other Comprehensive Income |            | Treasury Stock |  | Total
|------------------------------------------------ |  |  |  | ------------ | ------- | -------------------------- |  | -------------------------------------------- | ---------- | -------------------- |  | -------------------------------------- | ---------- | -------------- |  | -----
|Balance
 March 31, 2002                         |  |  |  | $            |        |                            |  | $                                            |           |                      |  | $                                      | 8,789,165  |                |  | $    
|Net
income                                       |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        | 1,186,677  |                |  |      
|Sale of
common stock                             |  |  |  |              | 171,098 |                            |  |                                              | 16,078,096 |                      |  |                                        |           |                |  |      
|Common stock
acquired by ESOP                    |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        |           |                |  |      
|ESOP shares
committed to be released             |  |  |  |              |        |                            |  |                                              | 63,239     |                      |  |                                        |           |                |  |      
|Balance
 March 31, 2003                         |  |  |  |              | 171,098 |                            |  |                                              | 16,141,335 |                      |  |                                        | 9,975,842  |                |  |      
|Net
income                                       |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        | 1,383,299  |                |  |      
|Unrealized
gain on securities available for sale |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        |           |                |  |      
|Comprehensive
income                             |  |  |  |              |         |                            |  |                                              |            |                      |  |                                        |            |                |  |      
|Cash
dividends                                   |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        | (244,328   | )              |  |      
|ESOP shares
committed to be released             |  |  |  |              |        |                            |  |                                              | 119,051    |                      |  |                                        |           |                |  |      
|Amortization
of unearned MRP shares              |  |  |  |              |        |                            |  |                                              | 105,512    |                      |  |                                        |           |                |  |      
|Treasury
stock, at cost                          |  |  |  |              |        |                            |  |                                              |           |                      |  |                                        |           |                |  |      
|Balance
 March 31, 2004                         |  |  |  | $            | 171,098 |                            |  | $                                            | 16,365,898 |                      |  | $                                      | 11,114,813 |                |  | $    

See notes to consolidated financial
statements.

16

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF
CASH FLOWS

|                                                                                  |  |  |  | Year Ended March 31, |            
|--------------------------------------------------------------------------------- |  |  |  | -------------------- | -----------
|
|Cash flows
from operating activities:                                             |  |  |  |                      |            
|Net
income                                                                        |  |  |  | $                    | 1,383,299  
|Adjustments
to reconcile net income to net cash provided by operating activities: |  |  |  |                      |            
|Depreciation
of premises and equipment                                            |  |  |  |                      | 165,201    
|Accretion of
deferred fees, premiums and discounts, net                           |  |  |  |                      | 148,939    
|Provision for
loan losses                                                         |  |  |  |                      |           
|Deferred
income taxes                                                             |  |  |  |                      | (63,199    
|(Increase)
decrease in interest receivable                                        |  |  |  |                      | (49,604    
|Increase in
other assets                                                          |  |  |  |                      | (413,837   
|(Decrease)
increase in other liabilities                                          |  |  |  |                      | (337,906   
|Amortization
of cost of stock contributed to MRP                                  |  |  |  |                      | 105,512    
|ESOP shares
committed to be released                                              |  |  |  |                      | 255,931    
|Net cash
provided by operating activities                                         |  |  |  |                      | 1,194,336  
|Cash flows
from investing activities:                                             |  |  |  |                      |            
|Purchases
of:                                                                     |  |  |  |                      |            
|Mortgage-backed securities available for sale                                     |  |  |  |                      |           
|Investments
securities available for sale                                         |  |  |  |                      | (2,300,000 
|Investment
securities held to maturity                                            |  |  |  |                      | (1,000,000 
|Mortgage-backed securities held to maturity                                       |  |  |  |                      | (19,653,928
|Loans                                                                             |  |  |  |                      | (8,357,288 
|Proceeds from
calls, maturities and principal repayments on:                      |  |  |  |                      |            
|Mortgage-backed securities available for sale                                     |  |  |  |                      | 592,916    
|Investment
securities held to maturity                                            |  |  |  |                      |           
|Mortgage-backed securities held to maturity                                       |  |  |  |                      | 9,768,693  
|Net change in
loans receivable                                                    |  |  |  |                      | (3,978,207 
|Additions to
premises and equipment                                               |  |  |  |                      | (62,066    
|Purchase of
Federal Home Loan Bank of New York stock                              |  |  |  |                      | (277,600   
|Redemption of
Federal Home Loan Bank of New York stock                            |  |  |  |                      | 20,000     
|Net cash
(used in) investing activities                                           |  |  |  |                      | (25,247,480
|Cash flows
from financing activities:                                             |  |  |  |                      |            
|Net increase
(decrease) in deposits                                               |  |  |  |                      | 346,128    
|Advances from
Federal Home Loan Bank of New York                                  |  |  |  |                      | 22,000,000 
|Repayment of
advances from Federal Home Loan Bank of New York                     |  |  |  |                      | (400,000   
|Net increase
(decrease) in borrowers escrow for taxes and insurance               |  |  |  |                      | 58,828     
|Proceeds from
sale of common stock, net of ESOP shares                            |  |  |  |                      |           
|Cash
dividends                                                                    |  |  |  |                      | (244,328   
|Purchase of
treasury stock                                                        |  |  |  |                      | (384,099   
|Net cash
provided by financing activities                                         |  |  |  |                      | 21,376,529 
|Net
(decrease) in cash and cash equivalents                                       |  |  |  |                      | (2,676,615 
|Cash and cash
equivalents  beginning                                             |  |  |  |                      | 6,236,493  
|Cash and cash
equivalents  ending                                                |  |  |  | $                    | 3,559,878  
|Supplemental
information:                                                         |  |  |  |                      |            
|Cash paid
during the period for:                                                  |  |  |  |                      |            
|Interest on
deposits and borrowings                                               |  |  |  | $                    | 2,109,841  
|Income
taxes                                                                      |  |  |  | $                    | 1,176,249  

See notes to consolidated financial statements.

17

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations and basis of consolidated financial statement
presentation

The consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary Atlantic Liberty Savings, F.A. (the Bank). All significant intercompany accounts and transactions have been
eliminated in consolidation.

The Banks principal business consists of attracting retail deposits from the
general public in the areas surrounding its 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. One-to four-family residential real estate in the Banks market areas is characterized by a large number
of attached and semi-detached houses, including a number of two-and three-family homes and cooperative apartments. Revenues are derived principally
from the interest on loans, securities, loan origination and servicing fees, and service charges and fees collected on deposit accounts. The primary
sources of funds are deposits and principal and interest payments on loans and securities.

The Banks lending areas is concentrated in the neighborhoods surrounding the
Banks office locations in Brooklyn, New York. Most of the deposit customers are residents of the greater New York metropolitan area.

The consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of America (GAAP). In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the
consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from
those estimates.

Material estimates that are particularly susceptible to significant change relate
to the determination of the allowance for loan losses, the assessment of prepayment risk associated with mortgage-backed securities and the amount of
deferred taxes which are more likely than not to be realized. Management believes that the allowance for loan losses is adequate, prepayment risks
associated with mortgage-backed securities are properly recognized and that all deferred taxes are more likely than not to be realized. While
management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes
in economic conditions in the Banks market area. Additionally, assessments of prepayment risks related to mortgage-backed securities are based
upon current market conditions, which are subject to frequent change. The assessment of the amount of deferred tax assets more likely than not to be
realized is based upon projected future taxable income, which is subject to continual revisions for updated information.

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

Cash and cash equivalents

Cash and cash equivalents include cash and amounts due from depository institutions
and interest-bearing deposits in other banks with original maturities of three months or less.

Securities

Investments in debt securities that the Bank has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding
gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held-to-maturity securities are
classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, if
applicable, reported in the accumulated other comprehensive income component of stockholders equity.

18

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ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Contd.)

Premiums and discounts on all securities are amortized or accreted to income using
the level-yield method. Gain or loss on sales of securities is based on the specific identification method.

Loans receivable

Loans receivable is stated at unpaid principal balances less the allowance for loan
losses and net deferred loan fees. Interest is calculated by the use of the actuarial method.

Recognition of interest income is discontinued and existing accrued interest
receivable reversed on loans that are more than ninety days delinquent or where management, through its loan review process, feels such interest is
uncollectible. Income is subsequently recognized only to the extent that cash payments are received until, in managements judgment, the
borrowers ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual
status.

Loan origination fees and certain direct loan origination costs are deferred and
accreted to income as an adjustment of yield over the contractual lives of the related loans by use of the interest method.

Allowance for loan losses

An 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 losses 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. The Bank
utilizes 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 its loan portfolio. The Bank maintains a loan review system which allows for a periodic review of
its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency
status, size of loans, types 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 deemed to be impaired when, based on current information and events,
it is probable that the Bank 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. The Bank does 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 and managements judgment. 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. Although management believes that specific and general loan loss allowances are established to absorb losses which are probable
and reasonably estimable, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss
allowances may be necessary. Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

Concentration of risk

The Banks lending activities are concentrated in loans secured by real estate
primarily located in the State of New York. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in
the state.

19

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Contd.)

Premises and equipment

Premises and equipment are comprised of land, at cost, and buildings and
improvements and furnishings and equipment, at cost, less accumulated depreciation. Depreciation charges are computed on the straight-line method over
the following estimated useful lives:

|Buildings and improvements |  |  |  | 30 years    
|-------------------------- |  |  |  | ------------
|Furnishings and equipment  |  |  |  | 3 to 5 years

Significant renewals and betterments are charged to the premises and equipment
account. Maintenance and repairs are charged to expense in the year incurred. Rental income is netted against occupancy expense in the consolidated
statements of income.

Income taxes

The Company and the Bank file consolidated federal income tax returns. Federal
income taxes are allocated to the Company and the Bank based upon the contribution of their respective income or loss to the consolidated return. The
Company and the Bank file separate state and city income tax returns.

Federal, state and city income taxes have been provided on the basis of reported
income. The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the reporting of
certain items for financial reporting and tax reporting purposes. Deferred income taxes are recorded to recognize such temporary differences. The
realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which more likely than
not will not be realized. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income
in future years to realize all deferred tax assets.

Interest rate risk

The Bank is principally engaged in the business of attracting deposits from the
general public and using these deposits, together with other funds, to make loans secured by real estate and, to a lesser extent, to purchase
investment and mortgage-backed securities. The potential for interest-rate risk exists as a result of the shorter duration of interest-sensitive
liabilities compared to the longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets,
thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of interest sensitive assets and
liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Stock-based Compensation Plans

The Company, under a plan approved by its stockholders in 2003, has granted stock
options to employees and outside directors. See note 10 for additional information as to option grants. The Company accounts for options granted using
the intrinsic value method, in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. No compensation expense has been reflected in net income for the options granted as all such grants have an exercise price
equal to the market price of the underlying stock at the date of grant. The following table provided information as to net income and earnings per
share as if the Company had applied the fair value recognition provisions of statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, as amended (SFAS No. 123), to all option grants for the year ended March 31, 2004.

20

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Contd.)



|Net
        income as reported                    |                                                                                                                                                                                                       |  |  | $ | 1,383,299 |         
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | --------- | --------
|                                                  |                                                                                                                                                                                                      
|Remove:                                           | Total
        stock-based compensation expense, net of income taxes,  included
        in reported net income                                                                                         |  |  |   |           |        
|                                                  |                                                                                                                                                                                                      
|Include:                                          | Total stock-based compensation expense, net of income taxes, that would
        have been included in the determination of net income if the fair value
        method had been applied to all grants |  |  |   |           | (158,034
|                                                  |                                                                                                                                                                                                      
|Pro
        forma net income                      |                                                                                                                                                                                                       |  |  | $ | 1,225,265 |         
|                                                  |                                                                                                                                                                                                      
|Net
        income per common share, as reported: |                                                                                                                                                                                                       |  |  |   |           |         
|Basic                                             |                                                                                                                                                                                                       |  |  | $ | 0.87      |         
|Diluted                                           |                                                                                                                                                                                                       |  |  | $ | 0.86      |         
|                                                  |                                                                                                                                                                                                      
|Pro
        forma net income per common share:    |                                                                                                                                                                                                       |  |  |   |           |         
|Basic                                             |                                                                                                                                                                                                       |  |  | $ | 0.77      |         
|Diluted                                           |                                                                                                                                                                                                       |  |  | $ | 0.77      |         

Net income per common share

Basic net income per common share is computed by dividing net income for the year
by the weighted average number of shares of common stock outstanding, adjusted for unearned shares of the ESOP. Diluted net income per common share is
computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and
compensation grants, if dilutive, using the treasury stock method. For the year ended March 31, 2003, per share amounts were calculated based upon
income for the entire year, although the Company converted to stock form on October 22, 2002, and the weighted average number of shares outstanding
since October 22, 2002, as if such shares were outstanding during the entire year.

Reclassification

Certain amounts reported in prior years consolidated financial statements
have been reclassified to conform with the presentation adopted in the current year. These reclassifications have no effect on net income or
shareholders equity of the prior years.

2. STOCK CONVERSION

On April 17, 2002, the Board of Directors of the Bank adopted a Plan of Conversion
(Plan) under which Atlantic Liberty Savings, F.A. converted from a federal mutual savings and loan association to a federal stock savings
and loan association, and formed the Company. The Plan was approved by the Office of Thrift Supervision (OTS) and by the association
members at a Special Meeting of Members held on October 4, 2002.

On October 22, 2002, the Company sold 1,710,984 shares of commons tock at $10 per
share and received net proceeds of $14.8 million, exclusive of conversion expenses of $861,000 and $1.4 million to fund the purchase of shares for the
Employee stock Ownership Plan (the ESOP). Approximately 50% of the net proceeds were used by the Company to acquire all of the capital
stock of the Bank.

At the time of conversion, the Bank established a liquidation account in an amount
equal to its total retained earnings as of March 31, 2002. The liquidation account is maintained by the Bank for the benefit of eligible account
holders as of March 31, 2002, and supplemental eligible account holders as of June 30, 2002, who continue to maintain deposit accounts at the Bank
after the conversion. The Bank will maintain the liquidation account in accordance with applicable federal regulations.

21

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

3. INVESTMENT SECURITIES

Available for sale:

|                                       |  |  |  | March 31, 2004 |          
|-------------------------------------- |  |  |  | -------------- | ---------
|
|
|U.S.
Government Agencies:              |  |  |  |                |          
|Due after
five years through ten years |  |  |  | $              | 2,000,000
|Corporate
Bonds:                       |  |  |  |                |          
|Due after ten
years                    |  |  |  |                | 300,000  
|                                       |  |  |  | $              | 2,300,000

Held to maturity:

|                                       |  |  |  | March 31, 2004 |          
|-------------------------------------- |  |  |  | -------------- | ---------
|
|
|Corporate
bonds:                       |  |  |  |                |          
|Due after one
year through five years  |  |  |  | $              | 1,016,272
|U.S.
Government (including agencies):  |  |  |  |                |          
|Due after
five years through ten years |  |  |  |                | 1,000,000
|                                       |  |  |  | $              | 2,016,272

|                                      |  |  |  | March 31, 2003 |          
|------------------------------------- |  |  |  | -------------- | ---------
|
|
|Corporate
bonds:                      |  |  |  |                |          
|Due after one
year through five years |  |  |  | $              | 1,024,353

There were no sales of investment securities during the years ended March 31, 2004
and 2003.

4. MORTGAGE-BACKED SECURITIES

Available for sale

|                                        |  |  |  | March 31, 2004 |          
|--------------------------------------- |  |  |  | -------------- | ---------
|
|
|Federal Home
Loan Mortgage Corporation: |  |  |  |                |          
|Due after ten
years                     |  |  |  | $              | 1,096,829

|                                        |  |  |  | March 31, 2003 |          
|--------------------------------------- |  |  |  | -------------- | ---------
|
|
|Federal Home
Loan Mortgage Corporation: |  |  |  |                |          
|Due after ten
years                     |  |  |  | $              | 1,702,564

22

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

4. MORTGAGE-BACKED SECURITIES (Contd.)

Held to maturity

|                                         |  |  |  | March 31, 2004 |           
|---------------------------------------- |  |  |  | -------------- | ----------
|
|
|Government
National Mortgage Association |  |  |  | $              | 2,737,455 
|Federal Home
Loan Mortgage Corporation   |  |  |  |                | 2,782,763 
|Federal
National Mortgage Association    |  |  |  |                | 25,111,181
|Collateralized Mortgage Obligations:     |  |  |  |                |           
|Federal Home
Loan Mortgage Corporation   |  |  |  |                | 59,471    
|                                         |  |  |  | $              | 30,690,870

|                                         |  |  |  | March 31, 2003 |           
|---------------------------------------- |  |  |  | -------------- | ----------
|
|
|Government
National Mortgage Association |  |  |  | $              | 4,810,879 
|Federal Home
Loan Mortgage Corporation   |  |  |  |                | 6,112,127 
|Federal
National Mortgage Association    |  |  |  |                | 9,945,608 
|Collateralized Mortgage Obligations:     |  |  |  |                |           
|Federal Home
Loan Mortgage Corporation   |  |  |  |                | 132,877   
|                                         |  |  |  | $              | 21,001,491

Contractual maturity data for mortgage-backed securities held to maturity is as
follows (in thousands):

|                                       |  |  |  | March 31, |       
|-------------------------------------- |  |  |  | --------- | ------
|
|
|Due after one
year through five years  |  |  |  | $         | 4     
|Due after
five years through ten years |  |  |  |           |      
|Due after ten
years                    |  |  |  |           | 30,687
|                                       |  |  |  | $         | 30,691

The amortized costs and carrying values are shown above by contractual final
maturity. Actual maturities will differ from contractual final maturities due to scheduled monthly payments related to mortgage-backed securities and
due to the borrowers having the right to prepay obligations with or without prepayment penalties.

There were no sales of mortgage-backed securities during the years ended March 31,
2004 and 2003.

23

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

5. LOANS RECEIVABLE



|                          |  |  |  | March 31, |            
|------------------------- |  |  |  | --------- | -----------
|
|Real estate
mortgage:     |  |  |  |           |            
|One-to-four
family        |  |  |  | $         | 62,500,496 
|Multi-family              |  |  |  |           | 21,831,067 
|Commercial
and land       |  |  |  |           | 28,790,666 
|                          |  |  |  |           | 113,122,229
|Consumer:                 |  |  |  |           |            
|Home equity
loans         |  |  |  |           | 721,846    
|Unsecured                 |  |  |  |           | 6,569      
|                          |  |  |  |           | 728,415    
|Total
loans               |  |  |  |           | 113,850,644
|Less:                     |  |  |  |           |            
|Allowance for
loan losses |  |  |  |           | 581,882    
|Net deferred
loan fees    |  |  |  |           | 210,227    
|                          |  |  |  |           | 792,109    
|                          |  |  |  | $         | 113,058,535

At March 31, 2004 and 2003, loans for which the accrual of interest had been
discontinued totaled approximately $96,000 and $127,000, respectively. During both the years ended March 31, 2004 and 2003, the Bank recognized
interest income of approximately $2,000, respectively, on these loans. Interest income that would have been recorded, had the loans been performing in
accordance with their original terms, amounted to approximately $5,000 and $6,000, respectively, for the years ended March 31, 2004 and
2003.

The Bank has granted loans to certain of its officers and managers and to their
associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The activity in such loans is as
follows:

|                    |  |  |  | Year Ended March 31, |      
|------------------- |  |  |  | -------------------- | -----
|
|
|Balance
 beginning |  |  |  | $                    | 2,078
|Newly
associated    |  |  |  |                      |     
|New
loans           |  |  |  |                      | 253  
|Repayments          |  |  |  |                      | (782 
|Balance
 ending    |  |  |  | $                    | 1,549

The following is an analysis of the allowance for loan losses:

|                                |  |  |  | Year Ended March 31, |        
|------------------------------- |  |  |  | -------------------- | -------
|
|Balance
 beginning             |  |  |  | $                    | 483,882
|Provision
charged to operations |  |  |  |                      |       
|Loan
recoveries                 |  |  |  |                      | 98,000 
|Balance
 ending                |  |  |  | $                    | 581,882

24

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

5. LOANS RECEIVABLE (Contd.)

There were no impaired loans at March 31, 2004 and 2003, and during the year ended
March 31, 2004. For the year ended March 31, 2003, the average recorded investment in impaired loans totaled $613,000. Cash basis interest income of
approximately $124,000 for the year ended March 31, 2003, was recognized on such loans during the time such loans were impaired.

6. INTEREST RECEIVABLE

|                                                                                    |  |  |  | March 31, |        
|----------------------------------------------------------------------------------- |  |  |  | --------- | -------
|
|Loans, net of
allowance for uncollected interest of $5,079 (2004) and $1,354 (2003) |  |  |  | $         | 538,900
|Mortgage-backed securities                                                          |  |  |  |           | 125,915
|Investment
securities                                                               |  |  |  |           | 57,009 
|                                                                                    |  |  |  | $         | 721,824

7. PREMISES AND EQUIPMENT

|                              |  |  |  | March 31, |          
|----------------------------- |  |  |  | --------- | ---------
|
|Land                          |  |  |  | $         | 400,000  
|Buildings and
improvements    |  |  |  |           | 2,308,574
|Furnishings
and equipment     |  |  |  |           | 604,852  
|                              |  |  |  |           | 3,313,426
|Less
accumulated depreciation |  |  |  |           | 1,800,628
|                              |  |  |  | $         | 1,512,798

8. DEPOSITS



|                        |  |  |  | March 31, |     
|----------------------- |  |  |  | --------- | ----
|
|
|Demand
accounts:        |  |  |  |           |     
|Non-interest
bearing    |  |  |  |           | 0.00
|Interest
bearing        |  |  |  |           | 0.25
|Regular
savings         |  |  |  |           | 0.75
|Money
Market            |  |  |  |           | 1.15
|Certificates
of deposit |  |  |  |           | 2.20
|Total
deposits          |  |  |  |           | 1.53

25

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

8. DEPOSITS (Contd.)

A summary of certificates of deposit by maturity follows (in thousands):

|                         |  |  |  | March 31, |       
|------------------------ |  |  |  | --------- | ------
|
|One year or
less         |  |  |  | $         | 33,544
|After one to
two years   |  |  |  |           | 7,942 
|After two to
three years |  |  |  |           | 5,427 
|After three
years        |  |  |  |           | 9,003 
|                         |  |  |  | $         | 55,916

Interest expense on deposits consists of the following:

|                           |  |  |  | Year Ended March 31, |          
|-------------------------- |  |  |  | -------------------- | ---------
|
|Demand
deposits            |  |  |  | $                    | 15,247   
|Savings and
money market   |  |  |  |                      | 383,654  
|Certificates
of deposit    |  |  |  |                      | 1,347,646
|                           |  |  |  |                      | 1,746,547
|Early
withdrawal penalties |  |  |  |                      | (7,017   
|                           |  |  |  | $                    | 1,739,530

At March 31, 2004 and 2003, time deposits with denominations of $100,000 or more
amounted to approximately $12,000,000 and $11,367,000, respectively. Deposits in excess of $100,000 are not federally insured.

9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
(FHLB)

|                  |  |  |  |  |      | March 31, | 
|----------------- |  |  |  |  | ---- | --------- | 
|
|September 2,
2003 |  |  |  |  | 4.15 | %         | 
|August 23,
2004   |  |  |  |  | 1.50 | %         | 
|August 30,
2004   |  |  |  |  | 4.63 | %         | 
|November 19,
2004 |  |  |  |  | 1.48 | %         | 
|August 22,
2005   |  |  |  |  | 2.31 | %         | 
|August 30,
2005   |  |  |  |  | 4.94 | %         | 
|November 19,
2005 |  |  |  |  | 2.21 | %         | 
|August 21,
2006   |  |  |  |  | 3.02 | %         | 
|August 30,
2006   |  |  |  |  | 5.16 | %         | 
|August 21,
2007   |  |  |  |  | 3.59 | %         | 
|                  |  |  |  |  |      |           | 

At March 31, 2004 and 2003, the advances are secured by FHLB stock in the amount of
$1,160,000 and $902,400, respectively, and a blanket assignment of qualifying loans.

26

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

10. BENEFIT PLANS

Pension Plan

The Bank has a non-contributory pension plan covering all eligible employees. The
plan is a defined benefit plan which provides benefits based on a participants years of service and compensation. The Banks funding policy
is to contribute annually the maximum amount that can be deducted for federal income tax purposes.

Plan assets are invested in six diversified investment funds of the RSI Retirement
Trust (the Trust), a no loan series open-ended mutual fund. The investment funds include four equity mutual funds and two bond mutual
funds, each with its own investment objectives, investment strategies and risks, as detailed in the Trusts prospectus. The Trust has been given
discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus plan liabilities, as governed by the Trusts
Statement of Investment Objectives and Guidelines (the Guidelines).

The long-term investment objective is to be invested 65% in equity securities
(equity mutual funds) and 35% in debt securities (bond mutual funds). If the plan is underfunded under the Guidelines, the bond fund portion will be
temporarily increased to 50% in order to lessen asset value volatility. When the plan is no longer underfunded, the bond fund portion will be decreased
back to 35%. Asset rebalancing is performed at least annually, with interim adjustments made when the investment mix varies more than 5% from the
target (i.e., a 10% target range).

The investment goal is to achieve investment results that will contribute to the
proper funding of the pension plan by exceeding the rate of inflation over the long-term. In addition, investment managers for the Trust are expected
to provide above average performance when compared to their peer managers. Performance volatility is also monitored. Risk/volatility is further managed
by the distinct investment objectives of ach of the Trust funds and the diversification within each fund.

The plans weighted-average asset allocations by asset category are as
follows:

|                                    |  |  |  | Plan Assets at January 1, |    
|----------------------------------- |  |  |  | ------------------------- | ---
|
|Equity
securities                   |  |  |  |                           | 69 
|Debt
securities (Bond Mutual Funds) |  |  |  |                           | 31 
|Total                               |  |  |  |                           | 100

The long-term rate-of-return-on-assets assumption was set based on historical
returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plans target
allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5-9% and 2-6%,
respectively. The long-term inflation rate was estimated to be 3%. When these overall return expectations are applied to the plan target
allocation, the expected rate of return is determined to be 9.0% which is roughly the midpoint of the range of expected return.

For the fiscal year ending March 31, 2005, the Bank expects to contribute
approximately $157,000 to the Plan.

27

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

10. BENEFIT PLANS (Contd.)

The following table sets forth the plans funded status:

|                                         |  |  |  | March 31, |           
|---------------------------------------- |  |  |  | --------- | ----------
|
|Change in
Benefit Obligation             |  |  |  |           |           
|Benefit
obligation  beginning           |  |  |  | $         | 1,240,189 
|Service
cost                             |  |  |  |           | 137,697   
|Interest
cost                            |  |  |  |           | 85,402    
|Actuarial
loss                           |  |  |  |           | 53,129    
|Settlements
and plan amendments          |  |  |  |           | (42,963   
|Benefit
obligation  ending              |  |  |  | $         | 1,473,454 
|Change in
Plan Assets                    |  |  |  |           |           
|Fair value of
assets  beginning         |  |  |  | $         | 1,101,035 
|Actual gain
(loss) on plan assets        |  |  |  |           | 205,041   
|Employee
contributions                   |  |  |  |           | 170,687   
|Settlements                              |  |  |  |           | (42,963   
|Fair value of
assets  ending            |  |  |  | $         | 1,433,800 
|Reconciliation of Funded Status          |  |  |  |           |           
|Accumulated
benefit obligation           |  |  |  | $         | (1,141,480
|Projected
benefit obligation             |  |  |  | $         | (1,473,454
|Fair value of
assets                     |  |  |  |           | 1,433,800 
|Funded
status                            |  |  |  |           | (39,654   
|Unrecognized
transition (asset)          |  |  |  |           |          
|Unrecognized
loss                        |  |  |  |           | 454,049   
|Unrecognized
past service liability      |  |  |  |           | 92,444    
|Prepaid
expense included in other assets |  |  |  | $         | 506,839   
|Valuation
assumptions:                   |  |  |  |           |           
|Discount
rate                            |  |  |  |           | 6.375     
|Salary
increase rate                     |  |  |  |           | 3.500     

|                                                                 |  |  |  | Year Ended March 31, |         
|---------------------------------------------------------------- |  |  |  | -------------------- | --------
|
|Net
Periodic Pension Expense                                     |  |  |  |                      |         
|Service
cost                                                     |  |  |  | $                    | 137,697 
|Interest
cost                                                    |  |  |  |                      | 85,402  
|Expected
return on assets                                        |  |  |  |                      | (105,005
|Amortization
of:                                                 |  |  |  |                      |         
|Unrecognized
past service liability                              |  |  |  |                      | 13,088  
|Unrecognized
transition (asset)                                  |  |  |  |                      | (7,706  
|Unrecognized
loss                                                |  |  |  |                      | 48,233  
|Total pension
expense included in salaries and employee benefits |  |  |  | $                    | 171,709 
|Valuation
Assumptions                                            |  |  |  |                      |         
|Discount
rate                                                    |  |  |  |                      | 6.50    
|Long term
rate                                                   |  |  |  |                      | 9.00    
|Salary
increase rate                                             |  |  |  |                      | 4.00    

28

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

10. BENEFIT PLANS (Contd.)

Savings and Investment Plan

The Bank sponsors a savings and investment plan, pursuant to Section 401(k) of the
Internal Revenue Code, for all eligible employees. Employees may elect to save up to 10% of their compensation of which the Bank will match 100% of
employees contribution up to 6% of eligible compensation. The plan expense, which is included in salaries and employee benefits, amounted to
approximately $62,000 and $63,000 for the years ended March 31, 2004 and 2003, respectively.

Officers supplemental pension plan

Effective October 17, 1995, the Bank adopted a non-qualified supplemental pension
plan to provide a supplemental pension benefit to the Banks deceased former Chief Executive Officer (the Officer). The plan provides
for payments to be made in the amount of $20,000 per year, adjusted by the consumer price index, for fifteen years commencing with the Officer
attaining age sixty-five and commencing upon retirement or date of death. Such benefit is paid to the Officers designated beneficiaries.
Effective April 1, 1996, the Bank began making payments to the beneficiaries and has accrued $98,000 and $111,000 as of March 31, 2004 and 2003,
respectively, towards this liability. Expense recorded for this plan totalled approximately $7,000 during both the years ended March 31, 2004 and
2003.

ESOP

Effective upon the consummation of the Banks reorganization, an ESOP was
established for all eligible employees who had completed a twelve-month period of employment with the Bank and at least 1,000 hours of service and had
attained the age of 21. The ESOP used $1,368,790 in proceeds from a term loan obtained from the Company to purchase 136,879 shares of the
Companys common stock in the open market. The term loan principal is payable over ten equal annual installments through September 30, 2012.
Interest on the term loan is at the prime rate. Each year, the Bank intends to make discretionary contributions to the ESOP which will be equal to
principal and interest payments required on the term loan. The loan is further paid down by the amount of dividends paid, if any, on the common stock
owned by the ESOP.

Shares purchased with the loan proceeds were initially pledged as collateral for
the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the
suspense account will be allocated among the participants on the basis of compensation, as described by the Plan, in the year of allocation.

The ESOP is accounted for in accordance with Statement of Position 93-6
Accounting for Employee Stock Ownership Plans, which was issued by the American Institute of Certified Public Accountants in November 1993.
Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As
shares are committed to be released from collateral, compensation expense equal to the current market value of the shares is recorded, and the shares
become outstanding for basic net income per common share computations. ESOP compensation expense was $256,000 and $234,000 for the years ended March
31, 2004 and 2003.

The ESOP shares are summarized as follows:

|                                |  |  |  | March 31, |          
|------------------------------- |  |  |  | --------- | ---------
|
|Allocated
shares                |  |  |  |           | 26,924   
|Shares
committed to be released |  |  |  |           | 3,874    
|Unreleased
shares               |  |  |  |           | 105,629  
|Total ESOP
shares               |  |  |  |           | 136,427  
|Fair value of
unreleased shares |  |  |  | $         | 2,042,865

29

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

10. BENEFIT PLANS (Contd.)

2003 Incentive Stock Benefit Plan (the Stock Benefit
Plan)

In December, 2003, the Companys stockholders approved, and the Company
implemented, the Stock Benefit Plan. Under the Stock Benefit Plan, employees of the Company and its subsidiary may be awarded shares of Company common
stock (the Stock Awards) and issued options to purchase shares of Company common stock (the Stock Options) covering up to
256,648 shares in the aggregate.

Stock Awards

Stock Awards under the Stock Benefit Plan are granted in the form of Company common
stock, which are held by a Plan trustee, and vest over a period of five years (20% annually from the date of grant). The Stock Awards become fully
vested upon the death or disability of the holder. On December 8, 2003, the Company awarded 85,550 shares of its common stock. At March 31, 2004, none
of the Stock Awards were vested. During the year ended March 31, 2004, approximately $105,500 in expense related to the Stock Awards was recorded. The
amount of expense recorded for the Stock Awards is based upon the number of shares awarded, the market price of the Companys common stock at the
grant date ($18.50 per share) and the period over which the Stock Awards are earned (60 months).

Stock Options

Stock Options granted under the Stock Benefit Plan may be either options that
qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory options. Options
granted will vest and will be exercisable on a cumulative basis in equal installments at the rate of 20% per year commencing on December 8, 2003. All
options granted will be exercisable in the event the optionee terminates his employment due to death or disability. The options expire ten years from
the date of grant.

On December 8, 2003, options to purchase 171,098 shares of Company common stock
were granted, which include non-incentive stock options to directors and incentive stock options to officers and employees. The options granted, none
of which were exercised or forfeited during the year ended March 31, 2004, are summarized as follows:

|Shares | 
|------ | 
|
|46,196 | 

At March 31, 2004, 34,220 options were exercisable.

The Company, as permitted by SFAS No. 123, recognizes compensation cost for stock
options granted based on the intrinsic value method instead of the fair value based method. The weighted-average grant-date fair value of the stock
options granted during 2004, which have an exercise price equal to the market price of the Companys common stock at the grant date, is estimated
using the Black-Scholes option-pricing model. Such fair value and the assumptions used for estimating fair value are as follows:

|Weighted
average grant-date fair value per share |  |  |  | $ | 6.40      | 
|------------------------------------------------ |  |  |  | - | --------- | 
|Expected
common stock dividend yield             |  |  |  |   | 1.08%     | 
|Expected
volatility                              |  |  |  |   | 29.74%    | 
|Expected
option life                             |  |  |  |   | 7.0 years | 
|Risk-free
interest rate                          |  |  |  |   | 3.81%     | 

11. INCOME TAXES

The Bank qualifies as a savings institution under the provisions of the Internal
Revenue Code and therefore, must calculate its tax bad debt deduction using either the experience method or the specific charge off method. Retained
earnings at March 31, 2004, includes approximately $1.3 million of pre-1988 (base year) bad debt allowance for which federal income taxes have not been
provided. In addition, deferred New York State and New York City taxes

30

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

11. INCOME TAXES (Contd.)

have not been provided on bad debt allowances in the amount of $2.3 million and
$2.4 million, respectively. If such amounts are used for purposes other than to absorb bad debts, including distributions in liquidation, their will be
subject to income taxes at the then current rates.

The components of income tax expense are summarized as follows:

|                               |  |  |  | Year Ended March 31, |          
|------------------------------ |  |  |  | -------------------- | ---------
|
|Current
income tax expense:    |  |  |  |                      |          
|Federal                        |  |  |  | $                    | 794,568  
|State and
city                 |  |  |  |                      | 362,723  
|                               |  |  |  |                      | 1,157,291
|Deferred
income tax (benefit): |  |  |  |                      |          
|Federal                        |  |  |  |                      | (39,854  
|State and
city                 |  |  |  |                      | (23,345  
|                               |  |  |  |                      | (63,199  
|                               |  |  |  | $                    | 1,094,092

The components of the net deferred income tax asset are as follows:

|                                 |  |  |  | March 31, |         
|-------------------------------- |  |  |  | --------- | --------
|
|Deferred
income tax assets:      |  |  |  |           |         
|Deferred
compensation            |  |  |  | $         | 245,363 
|Deferred loan
fees               |  |  |  |           | 1,778   
|Allowance for
loan losses        |  |  |  |           | 254,257 
|Uncollected
interest             |  |  |  |           | 2,219   
|Officers
supplemental pension    |  |  |  |           | 42,822  
|Accrued
bonus                    |  |  |  |           | 88,373  
|                                 |  |  |  |           | 634,812 
|Deferred
income tax liabilities: |  |  |  |           |         
|Prepaid
pension                  |  |  |  |           | (221,467
|Depreciation                     |  |  |  |           | (43,245 
|                                 |  |  |  |           | (264,712
|Net deferred
income tax asset    |  |  |  | $         | 370,100 

The following table presents a reconciliation between the reported income tax
expense and the income tax expense which would be computed by applying the normal federal income tax rate of 34% to income before income
taxes:

|                                                                     |  |  |  | Year Ended March 31, |          
|-------------------------------------------------------------------- |  |  |  | -------------------- | ---------
|
|Federal
income tax expense                                           |  |  |  | $                    | 842,313  
|Increases in
taxes resulting from:                                   |  |  |  |                      |          
|New York
state and city income tax, net of federal income tax effect |  |  |  |                      | 223,989  
|Other items,
net                                                     |  |  |  |                      | 27,790   
|Effective
income tax expense                                         |  |  |  | $                    | 1,094,092
|Effective
income tax rate                                            |  |  |  |                      | 44.16    

31

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

12. REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Banks financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require
the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and
of Tier 1 capital to adjusted total assets (as defined). The following tables present a reconciliation of capital per GAAP and regulatory capital and
information as to the Banks capital levels at the dates presented:

|                                         |  |  |  | March 31, |       
|---------------------------------------- |  |  |  | --------- | ------
|
|
|GAAP capital
(core and tangible capital) |  |  |  | $         | 18,775
|Add: general
valuation allowance         |  |  |  |           | 582   
|Less:
investment in real estate          |  |  |  |           | (78   
|Total
regulatory capital                 |  |  |  | $         | 19,279

|                                                |  |  |  | As of March 31, 2004 |       
|----------------------------------------------- |  |  |  | -------------------- | ------
|
|
|
|Total
Capital(to risk-weighted assets)          |  |  |  | $                    | 19,279
|Tier 1
Capital (to risk-weighted assets)        |  |  |  | $                    | 18,775
|Core (Tier 1)
Capital(to adjusted total assets) |  |  |  | $                    | 18,775
|Tangible
Capital (to adjusted total assets)     |  |  |  | $                    | 18,775

|                                                |  |  |  | As of March 31, 2003 |       
|----------------------------------------------- |  |  |  | -------------------- | ------
|
|
|
|Total
Capital (to risk-weighted assets)         |  |  |  | $                    | 17,371
|Tier 1
Capital(to risk-weighted assets)         |  |  |  | $                    | 16,965
|Core (Tier 1)
Capital(to adjusted total assets) |  |  |  | $                    | 16,965
|Tangible
Capital(to adjusted total assets)      |  |  |  | $                    | 16,965

32

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

12. REGULATORY CAPITAL (Contd.)

As of June 30, 2003, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions existing or events which have
occurred since notification that management believes have changed the Banks category.

13. COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These commitments include commitments to originate loans and purchase
securities. These financial instruments primarily include commitments to extend credit and involve, to varying degrees, elements of credit and interest
rate risk in excess of amounts recognized in the consolidated statements of financial condition.

The Banks exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to originate loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on managements credit evaluation of the counterparty. Collateral held varies but
primarily includes residential real estate and income-producing commercial properties.

Commitments to purchase securities are contacts for delayed delivery of securities
in which seller agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from possible
inability of counterparties to meet the terms of their contracts and from movement in securities values and interest rates.

The Bank had the following commitments outstanding:

|                   |  |  |  | March 31, |          
|------------------ |  |  |  | --------- | ---------
|
|To originate
loans |  |  |  | $         | 8,434,000

At March 31, 2004, of the $8,434,000 in outstanding commitments to originate loans,
$2,250,000 were for fixed rate loans with rates ranging from 5.75% to 7.00%, $1,668,000 were for adjustable rate loans with initial rates ranging from
3.75% to 7.00%, $3,116,000 were for fixed rate participation loans with rates ranging from 7.00% to 7.50% and $1,400,000 was for an adjustable rate
participation loan with an initial rate of 7.00%.

The Bank also has, in the normal course of business, commitments for services and
supplies. Management does not anticipate losses on any of these transactions.

The Company and the Bank are parties to various litigation which arises primarily
in the ordinary course of business. In the opinion of management, the ultimate disposition of such litigation should not have a material effect on the
consolidated financial position or results of operations of the Company.

14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties, other than a forced or liquidation sale. Significant estimations were
used by management for the purposes of this disclosure. Estimated fair values have been determined using the best available data and estimation
methodology suitable for each category of financial instruments. Fair value estimates, methods and assumptions are set forth below.

33

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
(Contd.)

Cash and cash equivalents and interest receivable

The carrying amounts for cash and cash equivalents and interest receivable
approximate fair value because they mature in three months or less.

Securities

The fair value of securities, both available for sale and held to maturity, are
based on quoted market or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market
prices for similar securities.

Loans receivable

Fair value is estimated by discounting future cash flows, using the current rates
at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.

Deposits

The fair value of demand and savings deposit accounts is equal to the amount
payable on demand at the reporting date. The fair value of certificates of deposit is estimated by discounting future cash flow using rates currently
offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding
provided by deposit liabilities compared to the cost of borrowing funds in the market.

Advances from Federal Home Loan Bank of New York

The fair value is estimated using rates currently offered for liabilities of
similar remaining maturities, or when available, quoted market prices.

Commitments

The fair value of loan commitments is estimated using fees currently charged to
enter into similar agreements taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For
fixed rate loan commitments, fair value also considers the difference between current levels of interest and the committed rates.

|                                              |  |  |  | March 31, |        
|--------------------------------------------- |  |  |  | --------- | -------
|
|
|
|Financial
assets                              |  |  |  |           |        
|Cash and cash
equivalents                     |  |  |  | $         | 3,560  
|Investment
securities available for sale      |  |  |  |           | 2,332  
|Mortgage-backed securities available for sale |  |  |  |           | 1,088  
|Investment
securities held to maturity        |  |  |  |           | 2,016  
|Mortgage-backed securities held to maturity   |  |  |  |           | 30,691 
|Loans
receivable                              |  |  |  |           | 113,059
|Interest
receivable                           |  |  |  |           | 722    
|Financial
liabilities                         |  |  |  |           |        
|Deposits                                      |  |  |  |           | 107,861
|Advances                                      |  |  |  |           | 23,200 
|Commitments                                   |  |  |  |           |        
|To originate
loans                            |  |  |  |           | 8,434  

34

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
(Contd.)

The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no market exists for a significant portion of the financial instruments,
fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments, without attempting to estimate the value of anticipated future business, and exclude the value of assets and liabilities that
are not considered financial instruments. Other significant assets that are not considered financial assets and liabilities include premises and
equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely
due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair
values.

15. PARENT ONLY FINANCIAL INFORMATION

The following are condensed financial statements for Atlantic Liberty Financial
Corp. (Parent company only).

STATEMENTS OF CONDITION

|                                           |  |  |  | March 31, |           
|------------------------------------------ |  |  |  | --------- | ----------
|
|Assets:                                    |  |  |  |           |           
|Cash and due
from banks                    |  |  |  | $         | 2,888,841 
|Securities
available for sale              |  |  |  |           | 3,420,727 
|ESOP loan
receivable                       |  |  |  |           | 1,095,032 
|Investment in
subsidiary                   |  |  |  |           | 18,774,632
|Interest
receivable                        |  |  |  |           | 34,959    
|Other
assets                               |  |  |  |           | 26,870    
|Total
assets                               |  |  |  | $         | 26,241,061
|Liabilities                                |  |  |  |           | 10,264    
|Stockholders equity                       |  |  |  |           | 26,230,797
|Total
liabilities and stockholders equity |  |  |  | $         | 26,241,061

35

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

15. PARENT ONLY FINANCIAL INFORMATION (Contd.)

STATEMENTS OF INCOME

|                                                                                   |  |  |  | Year Ended March 31, |          
|---------------------------------------------------------------------------------- |  |  |  | -------------------- | ---------
|
|Interest
income                                                                    |  |  |  | $                    | 151,510  
|Total
income                                                                       |  |  |  |                      | 151,510  
|Legal
expense                                                                      |  |  |  |                      | 53,995   
|Other
expense                                                                      |  |  |  |                      | 115,120  
|Total
non-interest expenses                                                        |  |  |  |                      | 169,115  
|(Loss) income
before income tax and equity in undistributed earnings of subsidiary |  |  |  |                      | (17,605  
|Income
tax                                                                         |  |  |  |                      | 46,980   
|(Loss) income
before equity in undistributed earnings of subsidiary                |  |  |  |                      | (64,585  
|Equity in
undistributed earnings of subsidiary                                     |  |  |  |                      | 1,447,884
|Net
income                                                                         |  |  |  | $                    | 1,383,299

STATEMENTS OF CASH FLOWS

|                                                                              |  |  |  | Year Ended March 31, |           
|----------------------------------------------------------------------------- |  |  |  | -------------------- | ----------
|
|Cash flows
from operating activities:                                         |  |  |  |                      |           
|Net
income                                                                    |  |  |  | $                    | 1,383,299 
|Adjustments
to reconcile net income to net cash used in operating activities: |  |  |  |                      |           
|Net
amortization of premium                                                   |  |  |  |                      | 12,819    
|(Increase) in
interest receivable                                             |  |  |  |                      | (9,170    
|(Increase) in
other assets                                                    |  |  |  |                      | (9,770    
|Increase in
other liabilities                                                 |  |  |  |                      | 10,264    
|Equity in
undistributed earnings of subsidiary                                |  |  |  |                      | (1,447,884
|Net cash used
in operating activities                                         |  |  |  |                      | (60,442   
|Cash flows
from investing activities:                                         |  |  |  |                      |           
|Purchase of
securities available for sale                                     |  |  |  |                      | (2,300,000
|Proceeds from
repayments of securities available for sale                     |  |  |  |                      | 592,916   
|Decrease
(increase) in loans receivable                                       |  |  |  |                      | 136,879   
|Initial
investment in subsidiary                                              |  |  |  |                      |          
|Net cash used
in investing activities                                         |  |  |  |                      | (1,570,205
|Cash flows
from financing activities:                                         |  |  |  |                      |           
|Cash
dividends                                                                |  |  |  |                      | (244,328  
|Purchase of
treasury stock                                                    |  |  |  |                      | (384,099  
|Net proceeds
from issuance of common stock                                    |  |  |  |                      |          
|Net cash
(used in) provided by financing activities                           |  |  |  |                      | (628,427  
|Net
(decrease) increase in cash and cash equivalents                          |  |  |  |                      | (2,259,074
|Cash and cash
equivalents  beginning                                         |  |  |  |                      | 5,147,915 
|Cash and cash
equivalents  ending                                            |  |  |  | $                    | 2,888,841 

36

---

ATLANTIC LIBERTY FINANCIAL CORP. AND SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Contd.)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                                       |  |  |  | Quarter Ended |          
|------------------------------------------------------ |  |  |  | ------------- | ---------
|
|
|Total
interest income                                  |  |  |  | $             | 1,986    
|Total
interest expense                                 |  |  |  |               | 480      
|Net interest
income                                    |  |  |  |               | 1,506    
|Provision for
loan losses                              |  |  |  |               |         
|Non-interest
income                                    |  |  |  |               | 105      
|Non-interest
expenses                                  |  |  |  |               | 948      
|Income
taxes                                           |  |  |  |               | 294      
|Net
income                                             |  |  |  | $             | 369      
|Net income
per common share                           |  |  |  |               |          
|Basic                                                  |  |  |  | $             | 0.23     
|Diluted                                                |  |  |  | $             | 0.23     
|Weighted
average number of common shares outstanding  |  |  |  |               |          
|Basic                                                  |  |  |  |               | 1,592,369
|Diluted                                                |  |  |  |               | 1,592,369

|                                                                         |  |  |  | Quarter Ended |       
|------------------------------------------------------------------------ |  |  |  | ------------- | ------
|
|
|Total
interest income                                                    |  |  |  | $             | 2,004 
|Total
interest expense                                                   |  |  |  |               | 706   
|Net interest
income                                                      |  |  |  |               | 1,298 
|Provision for
loan losses                                                |  |  |  |               |      
|Non-interest
income                                                      |  |  |  |               | 100   
|Non-interest
expenses                                                    |  |  |  |               | 805   
|Income
taxes                                                             |  |  |  |               | 247   
|Net
income                                                               |  |  |  | $             | 346   
|Net income
per common share  basic and diluted                          |  |  |  |               | N/A (1
|Weighted
average number of common shares outstanding  basic and diluted |  |  |  |               | N/A (1








N/A(1)  Converted to
stock form on October 22, 2002


37

---



ATLANTIC LIBERTY FINANCIAL CORP.

and

ATLANTIC LIBERTY SAVINGS, F.A.

DIRECTORS AND EXECUTIVE OFFICERS

Directors

|Barry M.
DonohuePresident and Chief Executive Officer, Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A.                                         |  |  |  | Thomas DeMartinoOwner of T.M. De Martino Consulting Services, a business and government services
consultant                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Richard T.
ArkwrightChairman of the Board, Atlantic Liberty Financial Corp. and Atlantic Liberty Savings, F.A. Chief Investment Officer,
Analytic Asset Management |  |  |  | Honorable Guy J. ManganoJustice, Appellate Division, Second Department, NY State Appellate Court, retired George M.
SpanakosAttorney at Law President, St. Georges Realty

Executive Officers

|Barry M.
DonohuePresident and Chief Executive Officer |  |  |  | William M. GilfillanExecutive Vice President and Chief Financial Officer
|----------------------------------------------------- |  |  |  | ------------------------------------------------------------------------

38

---

SHAREHOLDER INFORMATION

|Annual
MeetingThe Annual Meeting of Shareholderswill be held at 186 Montague StreetBrooklyn, NY 11201 on August 18, 2004at 3:30 p.m. local
time |  |  |  | Independent AuditorsRadics & Co., LLC 55 US Highway 46 East Pine Brook, NJ 07058                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Stock
ListingNasdaqNational Market under the symbol ALFC                                                                                      |  |  |  | Transfer Agent and Registrar Registrar & Transfer 10 Commerce Drive Cranford, NJ 07016(800)
368-5948                                                                                                                                                                                                               
|Local
Counsel Cullen Dykman Bleakly Platt, LLP177 Montague StreetBrooklyn, NY 11201                                                             |  |  |  | Contact our transfer agentdirectly for assistance in changing your address, elimination of duplicate mailings, transferring
stock, orreplacing lost, stolen or destroyed stock certificates.                                                                                                                       
|Special
CounselLuse Gorman Pomerenk & Schick, P.C.5335 Wisconsin Avenue, NW Washington, DC 20015                                                |  |  |  | Annual Report on Form 10-KSBA copy of the Companys Form 10-KSB for the fiscal year ended March 31, 2004, as filed
with the Securities and Exchange Commissionis available without charge toshareholders by written request tothe company. It may also be
accessed on our website at:www.atlanticlibertysavings.com

39

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Price Range of Common Stock

|Fiscal 2003                     |  |  |  | High |       | Low |  | Dividends
|------------------------------- |  |  |  | ---- | ----- | --- |  | ---------
|Quarter ended
December 31, 2002 |  |  |  | $    | 14.09 |     |  | $        
|Quarter ended
March 31, 2003    |  |  |  |      | 16.05 |     |  |          

|Fiscal 2004                      |  |  |  | High |       | Low |  | Dividends
|-------------------------------- |  |  |  | ---- | ----- | --- |  | ---------
|Quarter ended
June 30, 2003      |  |  |  |      | 19.60 |     |  |          
|Quarter ended
September 30, 2003 |  |  |  |      | 20.40 |     |  |          
|Quarter ended
December 31, 2003  |  |  |  |      | 20.47 |     |  |          
|Quarter ended
March 31, 2004     |  |  |  |      | 20.34 |     |  |          



The stock price information set forth in the table
above was provided by the National Association of Securities Dealers Inc. automated quotable system (Nasdaq). Atlantic Liberty Financial Corp.s
common stock is traded on the Nasdaq National Market under the symbol ALFC. The common stock began trading on October 23, 2002. On June 14,
2004 there were 1,691,094 shares of Atlantic Liberty Financial Corporation common stock outstanding (including unallocated ESOP shares) and there were
323 holders of record.


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