U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

|(Mark One)                                                    |                                                                                                            
|------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934,                      
|for the fiscal year ended December 31, 2004,                 
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required),
|for the transition period
from                             to

Commission file number: 000-24601

---

PSB BANCORP, INC.(Exact name of registrant as specified in its charter)

|Pennsylvania(State or other jurisdiction of
incorporation or organization)              |  | 23-2930740(I.R.S. Employer
Identification No.)
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1835 Market Street
Philadelphia, PA 19103(Address of principal executive offices)      
|(215) 979-7900Registrant's telephone number, including area code:                      
|SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None                       
|SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock (no par value)

---

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the
Act. Yes o    No ý

As of December 31, 2004 the aggregate market value of the 3,609,307 shares of voting and non-voting common equity of the Registrant
outstanding on such date, held by non-affiliates of the Registrant, was approximately $36,381,814.00. This figure is based on the last known sales price, prior to July 1, 2004,
reported to the Registrant of $10.08 per share for Common Stock. Although directors, officers and five percent beneficial owners of the Registrant were assumed to be "affiliates" of the Registrant for
purposes of this calculation, the classification is not to be interpreted as an admission of such status.

Documents
incorporated by reference: None



---



PSB BANCORP, INC.    FORM 10-K    For the Year Ended December 31, 2004    TABLE OF CONTENTS

|PART I   |  | 1       
|-------- |  | --------
|         |  | ITEM 1. 
|         |  | ITEM 2. 
|         |  | ITEM 3. 
|         |  | ITEM 4. 
|PART II  |  | 8       
|         |  | ITEM 5. 
|         |  | ITEM 6. 
|         |  | ITEM 7. 
|         |  | ITEM 7A.
|         |  | ITEM 8. 
|         |  | ITEM 9. 
|         |  | ITEM 9A.
|         |  | ITEM 9B.
|PART III |  | 33      
|         |  | ITEM 10.
|         |  | ITEM 11.
|         |  | ITEM 12.
|         |  | ITEM 13.
|         |  | ITEM 14.
|PART IV  |  | 43      
|         |  | ITEM 15.

---





PART I

ITEM 1.    BUSINESS

PSB Bancorp, Inc. ("PSB") was organized as a Pennsylvania business corporation on October 3, 1997, for the purpose of becoming a holding company for
First Penn Bank (the "Bank"). PSB is subject to regulation by the Federal Reserve Bank of Philadelphia, and its principal business is the ownership of First Penn Bank. At December 31, 2004, PSB
had total assets of $533.1 million, total deposits of $475.3 million and shareholders' equity of $52.2 million.

On
October 12, 1999, PSB completed its acquisition of First Bank of Philadelphia. In connection with the acquisition, each outstanding share of First Bank of Philadelphia was
exchanged for .857 shares of PSB common stock ("Common Stock"). In addition, options to acquire 1,612,500 shares of First Bank of Philadelphia were converted into options to acquire 1,381,912 shares
of Common Stock. Subsequent to the conversion of the options, 1,371,200 of the original First Bank of Philadelphia options were deemed by PSB to be invalid and were voided. The purported option
holders are contesting this determination. See "Legal Proceedings."

As
part of the transaction, PSB merged Pennsylvania Savings Bank, which held a state savings bank charter, with and into First Bank of Philadelphia, which held a state commercial bank
charter. The resulting operating subsidiary operates under the name First Penn Bank and holds a state commercial bank charter. This provides the Bank with greater lending flexibility.

On
June 29, 2001, PSB acquired Jade Financial Corp. ("Jade") and its wholly-owned subsidiary, IGA Federal Savings Bank ("IGA"), in a cash transaction valued at approximately
$25 million. As part of that transaction, IGA, which held a federal thrift charter, was merged with and into the Bank.

The
Bank operates 12 full-service offices, eight of the offices are located in Philadelphia, Pennsylvania, one office is located in each of Montgomery County, Bucks County,
Delaware County,
and Chester County, Pennsylvania. The Bank plans to open a new branch office in the Chinatown section of Philadelphia, Pennsylvania in 2005.

The
Bank is primarily engaged in the business of attracting deposits from the general public in the Bank's market area and investing the deposits in loans secured by commercial real
estate loans, commercial business loans, construction loans, residential mortgage loans, student loans, and mortgage-backed securities. The Bank's deposits are insured by the Savings Association
Insurance Fund of the FDIC to the extent that such deposits were assumed from the mutual savings bank in the 1995 mutual holding company reorganization or in connection with the acquisition of IGA.
Deposits accepted by the Bank after the mutual holding company reorganization or as a result of the acquisition of First Bank of Philadelphia are insured by the FDIC's Bank Insurance Fund.

Historically,
the Bank focused its lending activities primarily on the origination of loans secured by first mortgages on owner-occupied, one- to four-family
residences for retention in the Bank's portfolio. As part of a strategy to diversify its loan portfolio, achieve a higher net interest margin, and reduce interest rate risk, the Bank has increased its
origination of commercial real estate loans, commercial business loans, construction loans, multifamily real estate loans, consumer loans, and student loans. The Bank is continuing to pursue its
strategy of increasing its loan concentration in commercial lending.

The
addition of the IGA loan portfolio with a high concentration of consumer loans, particularly automobile and personal loans has helped diversify the Bank's loan portfolio. The
acquisition of IGA also provided the Bank with an additional five branch offices in Philadelphia and the counties surrounding the Philadelphia metropolitan area which increased the Bank's geographical
reach and provided access to a larger customer base.

Through
the Bank's subsidiary, Transnational Mortgage Company, the Bank has conducted a mortgage banking operation since 1989. Mortgage banking consists primarily of the origination,
sale,

1

---



and
servicing of first mortgage loans secured by one- to four-family homes. Such loans are sold either as individual loans or as participation certificates issued or guaranteed
by FNMA. Loans may be sold either on a servicing retained or servicing released basis.

First
Penn Bank's principal sources of funds are deposits and the principal and interest payments on loans, investment securities, and mortgage-backed securities. The Bank has available
credit with the Federal Home Loan Bank of Pittsburgh ("FHLB"). At December 31, 2004, the Bank had no advances outstanding with the FHLB. The Bank's principal source of income is interest
received from loans, investment securities and mortgage-backed securities. The Bank's principal expenses are the interest paid on deposits and borrowings and the cost of employee compensation and
benefits.

BUSINESS STRATEGY

PSB's strategy is to maximize profitability by providing quality deposit and loan products in an efficient manner. Generally, PSB seeks to implement this strategy
by emphasizing retail deposits as its primary source of funds and by maintaining a substantial part of its assets in locally-originated commercial real estate loans, commercial business loans,
construction loans, residential first mortgage loans, student loans, mortgage-backed securities, and other liquid investment securities. PSB's business strategy incorporates the following elements:
(1) increasing deposits by expanding its retail branch network to include other contiguous segments of the metropolitan Philadelphia market, (2) expanding its lending operations
throughout the metropolitan Philadelphia area and the adjacent counties of Pennsylvania, New Jersey, and Delaware, and (3) increasing net interest income and reducing interest rate risk by
emphasizing primarily the origination of commercial real estate, construction, commercial business loans, and consumer loans that generally bear higher interest rates and have shorter terms than
residential mortgage loans.

On
March 10, 2005, PSB issued a press release announcing the engagement of Griffin Financial Group LLC, an investment banking firm, to evaluate PSB's strategic alternatives,
including but not limited to a possible sale of PSB.

SUBSIDIARIES

PSB has three subsidiaries: First Penn Bank, Jade Abstract Company, and Jade Insurance Company. Jade Abstract Company is engaged in the business of issuing title
insurance for residential and commercial real estate properties. Jade Insurance Company is an inactive corporation that was formed by Jade to act as an insurance agency. First Penn Bank owns four
subsidiaries as follows: Transnational Mortgage Company is engaged in a mortgage banking business, PSA Service Corp. conducts real estate appraisals, processes credit applications and provides other
services in connection with the origination of loans, PSA Financial Corp. primarily originated business loans. First Penn Bank Revocable Trust is the owner and beneficiary of bank owned life insurance
policies purchased by the trust on a select group of employees.

PERSONNEL

As of December 31, 2004, PSB and the Bank had 150 full-time and equivalent part-time employees. The Bank is not a party to any
collective bargaining agreements.

COMPETITION

In the Philadelphia metropolitan market area, the banking business is highly competitive. The Bank competes with local commercial banks as well as numerous
regional commercial banks that have assets, capital, and lending limits significantly larger than those of the Bank. The Bank also competes with thrift institutions, savings institutions, credit
unions, issuers of commercial paper and other securities, and other non-depository institutions. The Bank seeks to be competitive with respect to

2

---



interest
rates paid and charged, and for service charges on customer accounts. Among the additional advantages many of the Bank's competitors have over the Bank in addition to larger asset and capital
bases, are the ability to finance wide-ranging advertising campaigns and to allocate their deposits and other funding to the geographic regions offering highest yield and demand. Many
international banking services are indirectly offered by the Bank's competitors through correspondent relationships. By virtue of their greater capital base, most competitors have a substantially
higher lending limit than the Bank. Although the Bank is at some disadvantage when competing with larger banks, the Bank believes that its philosophy of providing high-quality service to
small and mid-size customers offsets much of the bigger banks' advantages and provides a growth opportunity for the Bank.

REGULATION OF FIRST PENN BANK

As a state-chartered bank, the Bank is subject to regulation, supervision, and regulatory examination by the Pennsylvania Department of Banking (the "Department")
and is subject to the applicable provisions of the Pennsylvania Banking Code of 1965, as amended (the "Banking Code"). The Bank is a member of the Federal Reserve System and is subject to regulation,
supervision, reporting requirements, and regulatory examinations by the Federal Reserve Board. In addition, the Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") up
to a maximum of $100,000 per insured account holder. Some aspects of the lending and deposit business that are regulated by the Federal Reserve Board and the FDIC include personal lending, commercial
lending, mortgage lending, reserve requirements against certain deposit and loan accounts and the maintenance of the requisite capital to asset ratios. The Bank is also subject to numerous federal,
state, and local laws and regulations that set forth specific restrictions and procedural requirements with respect to the extension of credit, credit practices, the disclosure of credit terms, and
discrimination in credit transactions. As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank's business is particularly susceptible to changes in
federal and state legislation and regulation that may negatively affect the cost of doing business.

In
December of 1992, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA provided increased funding for the FDIC Bank
Insurance Fund ("BIF") and provides for expanded regulation of depository institutions and their affiliates, including parent holding companies. FDICIA provides the federal banking agencies with broad
powers to take corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are categorized as
"well-capitalized," "adequately-capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." A depository institution's capital tier will depend
upon where its capital levels are in relation to various relevant capital measures, which will include risk-based capital measures, a leverage ratio, and certain other factors. A bank is
deemed to be "well-capitalized" if it has a total risk-based capital ratio of 10.0% or greater, a tier 1 risk-based capital ratio of 6.0% or greater, and a leverage
ratio of 5.0% or greater. At December 31, 2004, First Penn Bank was "well-capitalized" under these regulations.

REGULATION OF PSB

PSB is a bank holding company subject to supervision and regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended. As a bank
holding company, PSB's activities and those of its subsidiaries are limited to the business of banking and activities closely related or incidental to banking, and PSB may not directly or indirectly
acquire the ownership or control of more than 5% of any class of voting shares or substantially all of the assets of any company, without prior approval of the Federal Reserve.

Under
Federal Reserve policy, PSB is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank, i.e., to downstream funds to the Bank. Any
capital loans

3

---



by
PSB to the Bank are subordinate in right of payment to deposits and to certain other indebtedness of the Bank. In the event of PSB's bankruptcy, any commitment by PSB to a federal bank regulatory
agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

PSB
is subject to restrictions under federal law that limit its ability to receive funds from the Bank, whether in the form of loans, other extensions of credit, investments, or asset
purchases. Such transfers by the Bank to PSB are generally limited in amount to 10% of the Bank's capital and surplus. Furthermore, any loans or extensions of credit are required to be secured in
specific amounts, and all transactions are required to be on an arm's length basis. The Bank has never made any loan or extension of credit to PSB nor has it purchased any assets from PSB.

SARBANES-OXLEY ACT OF 2002

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002. The stated goals of this sweeping legislation are to enhance penalties for
accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures under the federal securities laws. The
Sarbanes-Oxley Act generally applies to all companies, including PSB, that file or are required to file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act
of 1934 (the "Exchange Act"). The legislation includes provisions, among other things, governing the services that can be provided by a public company's independent auditors and the procedures for
approving such services, requiring the chief executive officer and chief financial officer to certify certain matters relating to PSB's periodic filings under the Exchange Act, requiring expedited
filings of reports by insiders of their securities transactions and containing other provisions relating to insider conflicts of interest, increasing disclosure requirements relating to critical
financial accounting policies and their application, increasing penalties for securities law violations, and creating a new public accounting oversight board, a regulatory body subject to SEC
jurisdiction with broad powers to set auditing, quality control and ethics standards for accounting firms. The legislation also required the national securities exchanges and Nasdaq to adopt rules
relating to certain matters, including the independence of members of a company's audit committee as a condition to listing or continued listing. Section 404 of the Sarbanes-Oxley Act requires
companies to assess its internal controls and requires the independent auditor to issue a report with respect to such internal controls. PSB must be compliant with this section of the Sarbanes-Oxley
Act by December 31, 2006. Although PSB cannot quantify the cost of compliance at this time, PSB expects such costs to be minimal.

NATIONAL MONETARY POLICY

As previously indicated, the earnings and growth of the Bank are, and will continue to be, affected by the policies of the regulatory authorities, including the
Pennsylvania Department of Banking, the Federal Reserve, and the FDIC. In addition to the supervisory and regulatory duties as they relate to the operation of a bank, the Federal Reserve is also
responsible for the regulation of the United States money supply and certain credit conditions. Among the means available to the Federal Reserve to implement their objectives are open market
operations in U.S. government securities, establishing the interest rate on temporary loans made to banks (i.e., the discount rate), and other measures. Alternatives to controlling economic conditions
are used in varying combinations to influence overall growth and credit distribution, lending, investing, and savings. The effect of these various controlling influences may affect interest rates
charged on loans or paid on deposits. Bank profitability is significantly dependent on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and
borrowed money and the interest received by a bank on securities held in its investment portfolio, and loans originated and maintained by the bank comprise the major portion of a bank's earnings.
Thus, the earnings and growth of a bank will be subject to the influence

4

---



of
economic conditions, both domestic and foreign, and on the levels of and changes in interest rates. The monetary policies and regulations of the Federal Reserve have had a significant effect on the
operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon the future business, earnings and growth of the Bank cannot be
predicted.

DIVIDEND LIMITATIONS

The Banking Code provides that cash dividends may be declared and paid only out of accumulated net earnings and that, prior to the declaration of any dividend, if
the surplus of the Bank is less than the amount of its capital, the Bank shall, until the surplus is equal to such amount, transfer to surplus an amount which is at least 10% of the net earnings of
the Bank for the period since the end of the last fiscal year or for any shorter period since the declaration of a dividend. If the surplus of the Bank is less than 50% of the amount of the capital,
no dividend may be declared or paid without the prior approval of the PDOB until the surplus is equal to 50% of the Bank's capital. Additionally, the PDOB has the power to issue orders prohibiting the
payment of dividends where such payment is deemed to be an unsafe or unsound banking practice.

Under
the Federal Reserve Act ("FRA"), as amended, if losses have at any time been sustained by the Bank, equal to or exceeding its undivided profits then on hand, no dividend shall be
made; and no dividends shall ever be made in an amount greater than the Bank's net profits. Cash dividends must be approved by the Federal Reserve, if the total of all cash dividends declared by the
Bank in any
calendar year, including the proposed cash dividend, exceeds the total of the Bank's net profits for that year plus its retained net profits from the preceding two years less any required transfers to
surplus or a fund for the retirement of preferred stock, if any. The Federal Reserve has the authority under the FRA to prohibit the payment of cash dividends by a bank when it determines such payment
to be an "unsafe and unsound banking practice" under the existing circumstances. (See Financial StatementsRegulatory MattersNote P.)

TRANSACTIONS WITH AFFILIATES

Extensions of credit by the Bank to executive officers, trustees, and principal shareholders and related interests of such persons are subject to Sections 22(g)
and 22(h) of the FRA and the Federal Reserve's Regulation O. These rules limit the aggregate amount of loans to any such individual and their related interests, and require that all such loans
be pre-approved by the full board of directors of the Bank, voting without such person being present. These rules also provide that no institution shall make any loan or extension of
credit in any manner to any of such persons, unless such loan or extension of credit is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, does not involve more than the normal risk of repayment or present other unfavorable features, and the institution follows underwriting procedures that
are not less stringent than those applicable to comparable transactions by the institution with persons who are not executive officers, directors, principal shareholders, or employees of the
institution. Loans can be made to employees, including executives and directors, on more favorable terms than to the general public, if all employees are eligible for such preferential terms.
Regulation O also sets forth additional limitations on extensions of credit by an institution to its executive officers. Management believes that the Bank is in compliance with Sections 22(g)
and 22(h) of the FRA and the Federal Reserve's Regulation O.

ITEM 2.    PROPERTIES

As of December 31, 2004, the Bank conducted its business through an executive/ administrative office and 12 full-service branch offices. The
aggregate net book value of the Bank's office premises and equipment was $2.5 million as of December 31, 2004. Seven of the branches are owned and five

5

---



are
leased. The Bank is leasing its center city Philadelphia, Pennsylvania full-service office and executive office for a term of 11 years, its 1632 Walnut Street, Philadelphia,
Pennsylvania office for ten years, its Media, Pennsylvania office for a term of four years, its Chesterbrook, Pennsylvania office for a term of one year, and its 23rd Street, Philadelphia,
Pennsylvania office, on a month to month basis.

ITEM 3.    LEGAL PROCEEDINGS

In the fourth quarter of 2001, PSB declared 1,371,200 options previously issued by First Bank of Philadelphia to be void because PSB believes, among other
reasons, that these options were unlawfully and improperly granted.

On
March 6, 2002, certain of the purported option holders brought an action in United States District Court for the Eastern District of Pennsylvania (the "Court") to have the
voided options declared valid and enforceable, or, alternatively, seeking aggregate damages of not less than $4.3 million.

On
April 1, 2004, the Court granted the plaintiffs' motion for summary judgment in an action in which the plaintiffs sought to have certain stock options, previously voided by PSB
Bancorp, Inc., to be declared enforceable. On April 5, 2004, PSB appealed the court's decision to the United States Court of Appeals for the Third Circuit (the "Appeals Court"). Pending
the outcome of the appeal, PSB agreed to allow the purported option holders to exercise the options with the resulting shares and exercise consideration being placed in escrow. Subsequently, on
February 15, 2005, the Appeals Court upheld the grant of summary judgment for the plaintiffs. On February 28, 2005, PSB filed a motion for rehearing with the Appeals Court in which PSB
avers that, based on recently discovered information, the court lacks jurisdiction because at least one of the plaintiffs is a Pennsylvania resident and therefore diversity of citizenship is absent.

RECENT DEVELOPMENTS

On June 17, 2004 and September 7, 2004, the purported holders of the additional 475,960 voided options not subject to the initial suit filed
separate actions in the Court to have the voided options declared valid and enforceable. These actions only effect 475,960 of the 1,371,200 options previously declared void by PSB. PSB has filed a
motion to dismiss both actions for lack of jurisdiction arising from a lack of diversity.

On
December 28, 2004, PSB received a shareholder demand letter (the "Demand Letter") from Mr. David C. Berger, Esq., of Robinson Brog Leinwand Greene Genovese &
Cluck P.C., counsel for the purported holders of the voided options ("Option Counsel"), and counsel for Wellington Limited Partnership, a purported shareholder of PSB, requesting that the board of
directors prosecute certain actions or take certain corrective measures. A shareholder derivative action is an action brought by a shareholder in the name of the corporation to recover alleged damages
incurred by the corporation as a result of the actions of its directors, officers or third parties. Under Pennsylvania law, initially a committee of independent directors must determine whether to
proceed with any action. On January 20, 2005, the board of directors of PSB appointed a special committee composed of three independent directors. The independent directors appointed to the
special committee are Dennis Wesley, James W. Eastwood, and James Kenney. The special committee was charged with (i) investigating the allegations in the Demand Letter, (ii) preparing
and presenting a report to the full board of directors of the results of their investigation, and (iii) making a recommendation to the full board of directors as to whether or not to proceed
with a shareholder derivative action. The special committee has engaged separate legal counsel to assist it in the preparation of its report. If any action is recommended by the special committee, any
recovery would be for the benefit of PSB. Option Counsel was informed of the formation of the special committee.

6

---



On
March 17, 2005, prior to the conclusion of the formal review by the special committee, Option Counsel brought a shareholder derivative action on behalf of two of the purported
option holders in the Court against the members of PSB's board of directors for breach of fiduciary duty and self dealing relating to the purported fraudulent solicitation of shareholder approval of
PSB's 2001 Stock Incentive Plan (the "SIP"). This is one of the items contained in the Demand Letter. Plaintiffs are seeking a judgment declaring the SIP null and void and an injunction preventing the
issuance or exercise of any additional options under the SIP. This matter will also be reviewed by the special committee formed in response to the Demand Letter. PSB unequivocally denies the
allegations and intends to vigorously defend the action. However, there can be no assurance regarding the eventual outcome of this litigation.

Periodically,
there have been various claims and lawsuits involving PSB, such as claims to enforce liens, condemnation proceedings on properties in which PSB holds security interests,
claims involving the making and servicing of real property loans, and other issues incident to PSB's business. At this time, there are no such claims or proceedings that are material to the operations
of PSB.

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

None

7

---





PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock of PSB is traded over-the-counter on the National Association of Securities Dealers Automated Quotation System ("Nasdaq")
under the symbol "PSBI." The following table sets forth the high and low bid prices for PSB's common stock, as reported by Nasdaq. The following quotes reflect inter-dealer prices without retail
mark-up, markdown, or commission and may not necessarily represent actual transactions. As the table indicates, PSB did not declare any cash dividends for the periods indicated.

|               |  | 2004 Bid Prices |  | 2003 Bid Prices |  |      
|-------------- |  | --------------- |  | --------------- |  | -----
|
|
|First Quarter  |  | 10.59           |  | 9.70            |  | 7.50 
|Second Quarter |  | 10.25           |  | 9.71            |  | 7.85 
|Third Quarter  |  | 16.19           |  | 10.55           |  | 8.30 
|Fourth Quarter |  | 15.19           |  | 13.15           |  | 10.74

As
of March 30, 2005, PSB's Common Stock was held by approximately 458 holders of record.

8

---



ITEM 6.    SELECTED FINANCIAL DATA

The selected financial and operating information set forth below should be read in conjunction with "Management's Discussion and Analysis of the Financial
Condition and Results of Operations" of PSB and the financial statements of PSB included elsewhere herein (Dollars in thousands, except for per share data.)

|                                                             |  | 2004 |         | 2003 |   | 2002    |   | 2001 |         | 2000 |  
|------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | -
|BALANCE SHEET DATA                                           |  |      |         |      |   |         |   |      |         |      |  
|Total assets                                                 |  | $    | 533,077 |      | $ | 470,330 |   | $    | 496,780 |      | $
|Cash and cash equivalents                                    |  |      | 54,650  |      |   | 52,408  |   |      | 110,269 |      |  
|Loans receivable, net                                        |  |      | 352,985 |      |   | 237,383 |   |      | 288,630 |      |  
|Loans held-for-sale                                          |  |      | 3,792   |      |   | 51,859  |   |      | 18,855  |      |  
|Investment securities available for sale                     |  |      | 94,112  |      |   | 102,882 |   |      | 49,730  |      |  
|Investment securities held to maturity                       |  |      | 1,533   |      |   | 775     |   |      | 6,468   |      |  
|Deposits                                                     |  |      | 475,280 |      |   | 416,160 |   |      | 442,224 |      |  
|Shareholders' equity                                         |  |      | 52,157  |      |   | 47,123  |   |      | 46,167  |      |  
|Book value per share                                         |  | $    | 10.83   |      | $ | 10.39   |   | $    | 9.81    |      | $
|SUMMARY STATEMENT OF OPERATIONS                              |  |      |         |      |   |         |   |      |         |      |  
|Interest income                                              |  | $    | 27,989  |      | $ | 28,327  |   | $    | 31,698  |      | $
|Interest expense                                             |  |      | 8,481   |      |   | 9,575   |   |      | 13,252  |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net interest income                                          |  |      | 19,508  |      |   | 18,752  |   |      | 18,446  |      |  
|Provision for loan losses                                    |  |      | 235     |      |   | 45      |   |      | 1,437   |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net interest income after provision for loan losses          |  |      | 19,273  |      |   | 18,707  |   |      | 17,009  |      |  
|Non-interest income                                          |  |      | 2,070   |      |   | 2,168   |   |      | 3,081   |      |  
|Non-interest expense                                         |  |      | 18,282  |      |   | 17,846  |   |      | 17,052  |      |  
|Loss on investment in Iron Bridge Holdings, Inc.             |  |      |        |      |   |        |   |      | 32      |      |  
|Loss on investment in ZipFinancial.com, Inc.                 |  |      |        |      |   |        |   |      |        |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Income before income taxes                                   |  |      | 3,061   |      |   | 3,029   |   |      | 3,006   |      |  
|Income tax provision                                         |  |      | 1,038   |      |   | 1,024   |   |      | 1,189   |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Income before cumulative effect of accounting change         |  |      | 2,023   |      |   | 2,005   |   |      | 1,817   |      |  
|Cumulative effect of accounting change                       |  |      |        |      |   |        |   |      | 1,329   |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net effect of consolidation of Ironbridge Holdings, Inc.     |  |      | 47      |      |   |        |   |      |        |      |  
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net income                                                   |  | $    | 2,070   |      | $ | 2,005   |   | $    | 3,146   |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|PER SHARE DATA                                               |  |      |         |      |   |         |   |      |         |      |  
|Income before cumulative effect of accounting change basic   |  | $    | 0.47    |      | $ | 0.47    |   | $    | 0.43    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Income before cumulative effect of accounting changediluted |  | $    | 0.40    |      | $ | 0.46    |   | $    | 0.42    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Cumulative effect of accounting changebasic                 |  | $    |        |      | $ |        |   | $    | 0.32    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Cumulative effect of accounting changediluted               |  | $    |        |      | $ |        |   | $    | 0.32    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net incomebasic                                             |  | $    | 0.47    |      | $ | 0.47    |   | $    | 0.75    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|Net incomediluted                                           |  | $    | 0.40    |      | $ | 0.46    |   | $    | 0.74    |      | $
|                                                             |  |      |         |      |   |         |   |      |         |      |  
|PERFORMANCE DATA                                             |  |      |         |      |   |         |   |      |         |      |  
|Return on average assets                                     |  |      | 0.43    | %    |   | 0.41    | % |      | 0.65    | %    |  
|Return on average equity                                     |  |      | 4.42    | %    |   | 4.28    | % |      | 7.07    | %    |  
|Equity to assets                                             |  |      | 9.78    | %    |   | 9.66    | % |      | 9.14    | %    |  
|Interest rate spread                                         |  |      | 3.78    | %    |   | 3.83    | % |      | 3.80    | %    |  

9

---



|ASSET QUALITY DATA                                                               |  |   |       |   |   |       |   |   |       |   |   |       |   |   |       |  
|-------------------------------------------------------------------------------- |  | - | ----- | - | - | ----- | - | - | ----- | - | - | ----- | - | - | ----- | -
|Non-performing loans to total loans                                              |  |   | 1.02  | % |   | 2.16  | % |   | 1.53  | % |   | 1.37  | % |   | 2.10  | %
|Non-performing assets to total assets                                            |  |   | 0.76  | % |   | 1.19  | % |   | 0.98  | % |   | 1.00  | % |   | 1.63  | %
|Allowance for loan losses to total loans                                         |  |   | 0.90  | % |   | 1.28  | % |   | 1.23  | % |   | 0.95  | % |   | 0.91  | %
|Allowance for loan losses to non-performing loans                                |  |   | 86.90 | % |   | 58.99 | % |   | 80.42 | % |   | 69.52 | % |   | 43.59 | %
|Allowance for loan losses to non-performing assets                               |  |   | 77.85 | % |   | 55.03 | % |   | 74.11 | % |   | 61.37 | % |   | 32.58 | %
|Net charge-offs as a percentage of total loans                                   |  |   | 0.04  | % |   | 0.24  | % |   | 0.24  | % |   | 0.21  | % |   |      |  
|Loans past due 90 days or more as to interest or principal and accruing interest |  |   |      |   |   |      |   |   |      |   |   |      |   |   |      |  
|Non-accrual loans                                                                |  | $ | 3,633 |   | $ | 5,203 |   | $ | 4,480 |   | $ | 4,130 |   | $ | 3,095 |  
|                                                                                 |  |   |       |   |   |       |   |   |       |   |  
|Total non-performing loans                                                       |  |   | 3,633 |   |   | 5,203 |   |   | 4,480 |   |   | 4,130 |   |   | 3,095 |  
|Real estate owned (REO)                                                          |  |   | 422   |   |   | 374   |   |   | 382   |   |   | 548   |   |   | 1,046 |  
|                                                                                 |  |   |       |   |   |       |   |   |       |   |  
|Total non-performing assets                                                      |  | $ | 4,055 |   | $ | 5,577 |   | $ | 4,862 |   | $ | 4,678 |   | $ | 4,141 |  
|                                                                                 |  |   |       |   |   |       |   |   |       |   |  

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of PSB should be read in conjunction with the consolidated financial
statements of PSB, including the related notes thereto, included elsewhere herein.

GENERAL

PSB's results of operations depend primarily on the Bank's net interest income, which is the difference between interest income on interest-earning assets, and
interest expense on its interest-bearing liabilities. Its interest-earning assets consist primarily of loans receivable, investment securities, and interest earning deposits while its interest-bearing
liabilities consist primarily of deposits. The Bank's net income is also affected by its provision for loan losses and its level of non-interest income as well as by its
non-interest expense, such as salary and employee benefits, occupancy costs, and charges relating to non-performing and other classified assets.

IMPACT OF INFLATION

The financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles which require
the measurement of financial position and operating results in historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact
of inflation on the operation of the Bank is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as the price of goods and services.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies of the Company and its subsidiaries conform with accounting principles generally accepted in the United States of America
(US GAAP) applicable to the financial services industry. All significant inter-company transactions are eliminated in consolidation and certain reclassifications are made when necessary to conform the
previous year's financial statements to the current year's presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the
reported amount of assets

10

---



and
liabilities as of the dates of the balance sheets and revenues and expenditures for the periods presented. Therefore, actual results could differ significantly from those estimates.

Allowance
For Credit LossesPSB uses the reserve method of accounting for credit losses. The balance in the allowance for loan losses is determined based on management's
review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors,
including management's assumptions as to future delinquencies, recoveries and losses. Increases to the allowance for loan and lease losses are made by charges to the provision for loan losses. Credit
exposures deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses. While
management considers the allowance for loan and lease losses to be adequate based on information currently available, future additions to the allowance may be necessary due to changes in economic
conditions or management's assumptions as to future delinquencies, recoveries and losses and management's intent with regard to the disposition of loans and leases. In addition, the regulators, as an
integral part of their examination process, periodically review PSB's allowance for loan losses. The regulators may require the Bank to recognize additions to the allowance for loan losses based on
their judgments about information available to them at the time of their examination.

Income
TaxesUnder the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets
and liabilities. Based upon the review of all components of the deferred tax assets and liabilities, future taxable income of PSB and regulatory guidelines, management has determined that no allowance
is deemed necessary at December 31, 2004. However, circumstances could arise that would require management to revisit the need for such an allowance.

PERFORMANCE OVERVIEW

PSB's net income for 2004 was $2.1 million or $0.40 on a diluted per share basis, compared to $2.0 million or $0.46 on a diluted per share basis for
2003, and $3.1 million or $0.74 per diluted share for 2002 after the cumulative effect of an accounting change (net income of $1.8 million or $0.42 per diluted share prior to the
cumulative effect of an accounting change).

Upon
adoption of SFAS No. 142, on January 1, 2002, after the revaluation of certain deferred assets relating to the acquisition of Jade, PSB recognized a cumulative effect
of an accounting change of $1.3 million which represented the remaining unamortized portion of negative goodwill related to the Jade acquisition.

NET INTEREST INCOME AND AVERAGE BALANCES



Net interest income is the key component of the Bank's profitability and is managed in coordination with the Bank's interest rate sensitivity position. Net
interest income in 2004 of $19.5 million was $756,000 or 4.03% higher than net interest income in 2003 of $18.8 million.

The
Bank's net interest margin, net interest income divided by total average interest-earning assets, decreased six basis points to 4.02% in 2004 from 4.08% in 2003.

The
Bank's net interest spread, the difference between the yield on interest-earning assets and the rates paid on interest-bearing liabilities, decreased five basis points for 2004 to
3.78% from 3.83% in 2003. During the twelve month period of 2004, the Bank experienced an overall decrease on the yield of its interest-earning assets of 39 basis points. In 2004, the rate paid by the
Bank on its interest-bearing liabilities decreased 34 basis points from 2.33% in 2003 to 1.99%. This is generally reflective of movements in market rates. Toward the end of 2004, the Federal Reserve
began to increase short-term

11

---



rates
but to date long-term rates have not increased proportionately. This may cause further margin compression over time.

Average
investments (including mortgage-backed securities) and interest-earning deposits with banks decreased $8.7 million or 5.11% at December 31, 2004, to
$161.5 million compared to $170.2 million at December 31, 2003. The decrease in 2004 in interest-earning deposits with banks is largely due to an increase in loan demand.

At
December 31, 2004, the Bank's average loans were $323.5 million representing 66.70% of total interest-earning assets and provided a yield of 7.36% compared to average
loans of $289.7 million for 2003 which represented 63.0% of interest-earning assets and provided a yield of 8.28%. The Bank experienced improved commercial, consumer and mortgage loan demand in
2004, leading to higher originations.

At
December 31, 2004, total average interest-bearing liabilities increased $15.4 million or 3.75% to $426.4 million compared to $411.0 million at
December 31, 2003. Total interest expense decreased $1.1 million at December 31, 2004, to $8.5 million as compared to total interest expense of $9.6 million at
December 31, 2003. The increase in the Bank's total average interest-bearing liabilities was caused by a decision by the Bank to increase deposits to enable the Bank to meet increased loan
demand. The Bank's cost of funds over the last two years was 1.99% in 2004 and 2.33% in 2003.

12

---





AVERAGE BALANCE SHEETS AND RATE/YIELD ANALYSIS

Net interest income is affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities. The
following table presents, on a tax equivalent basis, the average daily balances of assets, liabilities and shareholders' equity and the respective interest earned or incurred on interest-earning
assets and interest-bearing liabilities, as well as average rates for the period indicated:

|                                                                 |  | Year Ended December 31, |        
|---------------------------------------------------------------- |  | ----------------------- | -------
|
|
|
|ASSETS                                                           |  |                         |        
|Interest-earning assets:                                         |  |                         |        
|Interest-earning deposits                                        |  | $                       | 65,664 
|Investment securities(1)                                         |  |                         | 50,583 
|Mortgage-backed securities                                       |  |                         | 45,296 
|Net loans(2)                                                     |  |                         | 323,523
|                                                                 |  |                         |        
|Total interest-earning assets                                    |  |                         | 485,066
|Noninterest-earning assets                                       |  |                         | 32,519 
|                                                                 |  |                         |        
|Total assets                                                     |  | $                       | 517,585
|                                                                 |  |                         |        
|LIABILITIES                                                      |  |                         |        
|Interest-bearing liabilities:                                    |  |                         |        
|Now checking accounts                                            |  | $                       | 25,946 
|Money market accounts                                            |  |                         | 67,759 
|Savings deposits                                                 |  |                         | 90,592 
|Certificates                                                     |  |                         | 240,968
|                                                                 |  |                         |        
|Total deposits                                                   |  |                         | 425,265
|Borrowed money                                                   |  |                         | 1,106  
|                                                                 |  |                         |        
|Total interest-bearing liabilities                               |  |                         | 426,371
|Noninterest-bearing liabilities                                  |  |                         | 41,245 
|                                                                 |  |                         |        
|Total liabilities                                                |  |                         | 467,616
|Retained earnings and shareholders' equity                       |  |                         | 49,969 
|                                                                 |  |                         |        
|Total liabilities and retained earnings and shareholders' equity |  | $                       | 517,585
|                                                                 |  |                         |        
|Net interest income                                              |  |                         |        
|Interest rate spread                                             |  |                         |        
|Net yield on interest-earning assets                             |  |                         |        
|Ratio of interest-earning assets to interest-bearing liabilities |  |                         |        

---

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Bank's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the
net change. The changes attributable to the combined impact of changes in volume and rate

13

---



have
been allocated proportionately to the changes due to volume and the changes due to rate (in thousands):

|                                     |  | 2004 versus 2003 |       | 2003 versus 2002 |  
|------------------------------------ |  | ---------------- | ----- | ---------------- | -
|
|
|Interest Income:                     |  |                  |       |                  |  
|Interest bearing deposits with banks |  | $                | (361  | )                | $
|Investment securities                |  |                  | 327   |                  |  
|Mortgage-backed securities           |  |                  | 370   |                  |  
|Loans                                |  |                  | 2,490 |                  |  
|                                     |  |                  |       |                  |  
|Total interest income                |  |                  | 2,826 |                  |  
|Interest Expense:                    |  |                  |       |                  |  
|Now checking accounts                |  |                  | 17    |                  |  
|Money market accounts                |  |                  | (49   | )                |  
|Savings accounts                     |  |                  | (35   | )                |  
|Certificates of deposit              |  |                  | 529   |                  |  
|Borrowings                           |  |                  | 0     |                  |  
|                                     |  |                  |       |                  |  
|Total interest expense               |  |                  | 462   |                  |  
|Net change in net interest income    |  | $                | 2,364 |                  | $
|                                     |  |                  |       |                  |  

PROVISION FOR LOAN LOSSES

The provision for loan losses represents the charge against earnings that is required to fund the allowance for loan losses. The Bank determines the level of the
allowance for loan losses through a regular review of the loan portfolio. Management's evaluation of the adequacy of the allowance for loan losses is based upon an examination of the portfolio as well
as such factors as declining trends, the volume of loan concentrations, adverse situations that may affect the borrower's ability to pay, prior loss experience within the portfolio, current economic
conditions and the results of the most recent regulatory examinations. The Bank allocated $235,000, $45,000, and $1.4 million as additions to the allowance for loan loss and had
charge-offs against the allowance of $362,000, $762,000, and $856,000 for the years ended December 31, 2004, 2003, and 2002, respectively. For 2004, management determined that,
based on relatively stable economic conditions and a review of the specific factors affecting the allowance, the addition to the provision was deemed adequate.

The
methodology for determining the adequacy of the allowance for loan loss considers both risk and economic factors. The analysis includes all types of loans, with the applied
methodology commensurate to the risk assessment for the portfolio and present economic conditions. The risk rating of the loan portfolio is updated quarterly by management and utilized for an overall
assessment of the loan loss reserve adequacy, the results of which are reported quarterly to the Board. The results of the assessment of the adequacy of the loan loss reserve, utilizing the risk
ratings and economic factors, receive the close attention of management on an ongoing basis, with appropriate revisions made to the methodology in accordance with regulatory standards, changes in
lending policies, economic/business conditions, past due/classified loans, quality of loan review, concentration of credit, and examination input. It is important to note that an effective internal
loan review function is an essential element in satisfactorily implementing the Bank's methodology.

Although
management utilizes its best judgment in providing for loan losses, there can be no assurance that the Bank will not have to increase its provision for loan losses in the future
as a result of possible future increases to its non-performing loans or for other reasons based on changes in facts and circumstances. In addition, various regulatory agencies, as an
integral part of their examination

14

---



process,
periodically review the Bank's allowance for loan losses and the carrying value of its non-performing assets. Such agencies may require the Bank to recognize additions to its
allowance for loan losses based on their judgments about information available to them at the time of their examination.

NON-INTEREST INCOME

The following table provides a summary of non-interest income, by category of income, for the three years ended December 31, 2004, 2003, and
2002 (in thousands):

Year Ended December 31,2004

2003

2002Service fees on deposit accounts

$
1,004

$
1,105

$
1,665Loss on write down of equity investment


(51
)

(37
)

(32
)Loss on sale of loans and real estate owned


(48
)

(14
)

(16
)Bank owned life insurance


433


504


560Other


732


610


904Total

$
2,070

$
2,168

$
3,081


The
major source of non-interest income is income from bank owned life insurance and service fees on deposit accounts. Non-interest income decreased $98,000 or
4.5% from $2.2 million in 2003 to $2.1 million in 2004. This decrease is primarily due the loss of a significant service fee relationship and increased losses on the sale of loans and
equity investments in the current year.

NON-INTEREST EXPENSE

The following table provides a summary of non-interest expense, by category of expense, for the three years ended December 31, 2004, 2003 and
2002 (in thousands):

Year Ended December 31,2004

2003

2002Salaries and employee benefits

$
9,795

$
9,543

$
8,294Occupancy and equipment expense


2,380


2,086


1,932Professional services


918


1,046


1,062FDIC insurance expense


177


187


73General insurance


306


256


246Advertising


296


309


257Data processing


792


640


677Director fees


338


447


388Other operating expense


3,280


3,332


4,155Total

$
18,282

$
17,846

$
17,084


Total
non-interest expense for 2004 increased $436,000 or 2.4% to $18.3 million from $17.8 million in 2003. The increase in non-interest expense for
2003 was primarily attributable to: (i) an increase in salaries and employee benefits related to the staffing of a new credit administration department; (ii) the implementation of
supplementary employee retirement plans for certain senior executives and (iii) an increase in occupancy expense related to additional costs related to the completion of a new branch to be
opened in the Chinatown area of Philadelphia, Pennsylvania in the second quarter of 2005. Total other expenses for 2004 decreased $52,000 or 1.56% from $3.3 million in 2003.

15

---



INCOME TAXES

PSB accounts for income taxes under the liability method specified by SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No
109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The principal types of accounts resulting in differences between
assets and liabilities for financial statement and tax return purposes are the allowance for loan losses, leased assets, deferred loan fees and compensation. PSB had an income tax provision of
$1.0 million, $1.0 million and $1.2 million for the years ended December 31, 2004, 2003 and 2002, respectively. PSB had an effective tax rate of 34.00%, 33.81% and 29.55%
for the years ended December 31, 2004, 2003 and 2002.

LIQUIDITY AND INTEREST RATE SENSITIVITY

Integral to the management of PSB's balance sheet is the maintenance of adequate liquidity and the ability to evaluate and control interest rate risk. Liquidity
represents the ability to meet potential cash outflows resulting from deposit customers who need to withdraw funds or borrowers who need available credit. Interest rate sensitivity focuses on the
impact of fluctuating interest rates and the repricing characteristics of rate sensitive assets and liabilities on net interest income.

PSB's
asset/liability management committee monitors the level of short-term assets and liabilities to maintain an appropriate balance between liquidity, risk, and return.
Liquidity is derived from various sources that include increases in core deposits, sales of certificates of deposits, loan principal repayments, loan maturities, and cash received on maturities or
amortization of investment securities.

At
December 31, 2004, PSB had $54.7 million of cash and cash equivalents. The liquidity position of PSB is also strengthened by the availability of a $231.1 million
credit facility with the FHLB. Advances are secured by FHLB stock and qualifying mortgage loans. There were no advances outstanding against this line at December 31, 2004, or at
December 31, 2003.

Management
anticipates utilizing its excess liquidity to increase its commercial lending portfolio during 2005.

Maximizing
cash flow over time is crucial to the maintenance of adequate liquidity. PSB's total cash flow is a product of its operating activities, investing activities and financing
activities. During the twelve month period ended December 31, 2004, net cash used in operating activities was $25.2 million,
compared to net cash used by operating activities of $32.1 million for the same period of 2003. During 2004, net cash used in investing activities was $34.7 million, compared to net cash
provided by investing activities of $948,000 for the same period of 2003. Financing activities provided cash of $62.1 million during the twelve months ended December 31, 2004, compared
to $26.7 million in net cash used in financing activities for the same period of 2003. The net result of these items was a $2.2 million increase in cash and cash equivalents for the
twelve month period ended December 31, 2004, compared to a $57.9 million decrease in cash and cash equivalents for the same period of 2003. The significant change in cash and cash
equivalents from year-to-year reflects PSB's emphasis on deposit generation.

Interest
rate risk management is closely related to liquidity management because each is directly affected by the maturity of assets and liabilities. Interest rate risk management
monitors the effect that fluctuations in interest rates have on net interest income. The primary function of PSB's interest rate sensitivity management is to reduce exposure to interest rate risk
through an appropriate balance between interest-earning assets and interest-bearing liabilities. The goal is to minimize fluctuations in the net interest margin of the Bank due to general changes in
interest rates.

The
net interest margin of a bank that does not have a relatively close relationship between the quantity of assets that mature or re-price within a given time period and the
quantity of liabilities that

16

---



mature
or re-price within the same time period will fluctuate more widely than a bank that has a closer match. Furthermore, a bank that has liabilities that reprice earlier than its assets
will have a decline in its net interest margin as interest rates rise.

The
blending of fixed and floating-rate loans and investments to match their pricing and maturity characteristics against those of the various funding sources is a continuous
process in an attempt to minimize fluctuations in net interest income caused by changes in interest rates. The composition of the balance sheet is designed to minimize any significant fluctuation in
net interest income and to maximize liquidity.

One
tool used by management to gauge the structure of the balance sheet is a "gap" analysis that categorizes assets and liabilities on the basis of maturity date, the date of next
re-pricing, and the applicable amortization schedule. This analysis summarizes the matching or mismatching of rate-sensitive assets versus rate sensitive liabilities according
to specified time periods. Management concentrates on the zero to three month and one year gap intervals. At December 31, 2004, PSB had a one-five year positive cumulative gap of
$32.7 million and a gap ratio of 2.31 or 6.13% of total assets as of that date.

The
following table shows the interest rate sensitive data at December 31, 2004 (in thousands):

INTEREST RATE SENSITIVITY ANALYSIS

|Gap Table At December 31, 2004                              |  | 0-3 Months |         | 4-12 Months |   | 1-5 Yrs. |   | More than
5 Yrs. |         | No Stated
Maturity |   | Balance at
12/31/04 |  
|----------------------------------------------------------- |  | ---------- | ------- | ----------- | - | -------- | - | ---------------- | ------- | ------------------ | - | ------------------- | -
|Cash due and from banks                                     |  |            |        |             |   |         |   |                  |        |                    |   |                    |  
|Interest bearing deposits with banks and federal funds sold |  |            | 50,295  |             |   |          |   |                  |         |                    |   |                     |  
|Investment securities                                       |  |            | 6,818   |             |   | 15,427   |   |                  | 57,646  |                    |   | 14,066              |  
|Mortgage loans                                              |  |            | 15,598  |             |   | 17,835   |   |                  | 45,395  |                    |   | 49,415              |  
|Commercial loans                                            |  |            | 65,893  |             |   | 20,234   |   |                  | 73,967  |                    |   | 25,395              |  
|Consumer loans                                              |  |            | 10,823  |             |   | 3,741    |   |                  | 6,314   |                    |   | 509                 |  
|Construction loans                                          |  |            | 2,024   |             |   | 4,962    |   |                  | 14,017  |                    |   | 3,812               |  
|Loan loss reserve                                           |  |            |        |             |   |         |   |                  |        |                    |   |                    |  
|Other assets                                                |  |            |        |             |   |         |   |                  |        |                    |   |                    |  
|Total assets                                                |  | $          | 151,451 |             | $ | 62,199   |   |                  | 197,339 |                    | $ | 93,197              |  
|                                                            |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|Noninterest bearing deposits                                |  |            | 15,322  |             |   |         |   |                  |        |                    |   | 15,464              |  
|NOW accounts                                                |  |            | 2,704   |             |   |         |   |                  |        |                    |   | 26,481              |  
|Money market accounts                                       |  |            | 41,583  |             |   |         |   |                  |        |                    |   | 15,712              |  
|Savings accounts                                            |  |            | 42,594  |             |   |         |   |                  |        |                    |   | 43,287              |  
|Time deposits                                               |  |            | 63,989  |             |   | 126,004  |   |                  | 85,036  |                    |   | 218                 |  
|Borrowed funds                                              |  |            | 202     |             |   | 403      |   |                  | 500     |                    |   |                    |  
|Other liabilities                                           |  |            |        |             |   |         |   |                  |        |                    |   |                    |  
|                                                            |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|Total liabilities                                           |  |            | 166,394 |             |   | 126,407  |   |                  | 85,536  |                    |   | 101,162             |  
|                                                            |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|Shareholders' equity                                        |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|                                                            |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|Total liabilities and shareholders' equity                  |  | $          | 166,394 |             | $ | 126,407  |   | $                | 85,536  |                    | $ | 101,162             |  
|                                                            |  |            |         |             |   |          |   |                  |         |                    |   |                     |  
|GAP                                                         |  |            | (14,943 | )           |   | (64,208  | ) |                  | 111,803 |                    |   | (7,965              | )
|Gap Ratio                                                   |  |            | 0.91    |             |   | 0.49     |   |                  | 2.31    |                    |   | 0.92                |  
|Cumulative Gap                                              |  |            | (14,943 | )           |   | (79,151  | ) |                  | 32,652  |                    |   | 24,687              |  
|Cumulative Gap Ratio                                        |  |            | 0.91    |             |   | 0.73     |   |                  | 1.09    |                    |   | 1.05                |  

Management also simulates possible economic conditions and interest rate scenarios in order to quantify the impact on interest income. The effect
that changing interest rates have on PSB's net interest income is simulated by increasing and decreasing interest rates. This simulation is known as rate shocking. The report below forecasts changes
in PSB's market value of equity under alternative

17

---



interest
rate environments. The market value of equity is defined as the net present value of PSB's existing assets and liabilities.

|                  |  | Market Value of Equity |  | Change in Market Value of Equity |   | Percentage Change |  
|----------------- |  | ---------------------- |  | -------------------------------- | - | ----------------- | -
|+300 Basis Points |  | 6,838                  |  | (20,344                          | ) | -74.84            | %
|+200 Basis Points |  | 13,126                 |  | (14,056                          | ) | -51.71            | %
|+100 Basis Points |  | 19,911                 |  | (7,271                           | ) | -26.75            | %
|Flat Rate         |  | 27,182                 |  |                                 |   |                  |  
|-300 Basis Points |  | 47,620                 |  | 20,438                           |   | 75.19             | %
|-200 Basis Points |  | 41,196                 |  | 14,014                           |   | 51.56             | %
|-100 Basis Points |  | 35,119                 |  | 7,937                            |   | 29.20             | %

A
plus or minus 300 basis point rate shock test for the change in the market value of equity indicates at most limited economic value sensitivity to changes in interest rates. A rate
shock test indicates the market value of equity increases as rates rise and decreases as rates decline. The Bank's largest exposure is a negative 74.84% reduction in the change in the market value of
equity in a plus 300 basis point scenario and a gain of 75.19% in a minus 300 basis point scenario.

In
the event PSB should experience a mismatch in its desired gap ranges or an excessive decline in its market value of equity resulting from changes in interest rates, it has a number of
options that it could utilize to remedy such a mismatch. PSB could restructure its investment portfolio through the sale or purchase of securities with more favorable repricing attributes. It could
also emphasize growth in loan products with appropriate maturities or repricing attributes, or seek to attract deposits or obtain borrowings with desired maturities.

There
are no known trends or any known demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in liquidity increasing or decreasing in
any material way in 2005.

The
commitment expiration periods for commitments of PSB as of December 31, 2004 are as follows(in thousands):

Commitment PeriodTotal Amount
Committed

One Year or
Less

1-3 yrs.

4-5 yrs.

Over 5 yrs.COMMITMENTSLines of Credit

$
34,525

$
16,939

$
11,964

$
614

$
5,008Unfunded commitments

$
27,980

$
27,980








Standby letters of credit

$
3,286

$
2,762

$
524





Leases

$
3,511

$
901

$
1,042

$
765

$
803Remaining contractual maturities of time deposits

$
275,247

$
149,004

$
116,568

$
9,042

$
633


Comparison of Results of Operations in 2003 and 2002

Net interest income is the key component of the Bank's profitability and is managed in coordination with the Bank's interest rate sensitivity position. Net
interest income in 2003 of $18.8 million was $306,000 or 1.66% higher than 2002 net interest income of $18.4 million. In 2003 total interest income decreased $3.4 million or
10.63% to $28.3 million from $31.7 million in 2002. The Bank had a decrease in total interest expense in 2003 of $3.7 million.

The
Bank's net interest margin, net interest income divided by total average interest-earning assets, increased one basis point to 4.08% in 2003. The modest increase in 2003 is primarily
related to the

18

---



decision
to allow some of the Bank's higher rate deposits to run off, therefore decreasing the Bank's overall cost of funds and improving the net interest margin.

The
Bank's net interest spread, the difference between the yield on interest-earning assets and the rates paid on interest-bearing liabilities, increased three basis points for 2003 to
3.83% from 3.80% in 2002. During the twelve month period of 2003, the Bank experienced an overall decrease on the yield of its interest-earning assets of 84 basis points. In 2003, the rate paid by the
Bank on its interest-bearing liabilities decreased 87 basis points from 3.20% in 2002 to 2.33%. Because of the Bank's excellent liquidity position, it was able to decrease the rate paid on deposits
and allow some run off without affecting its ability to meet loan demand. The result was a modest increase in the interest rate spread and net interest margin and increased interest income.

At
December 31, 2003, the Bank's average loans were $289.7 million representing 63.0% of total interest-earning assets and provided a yield of 8.28% compared to average
loans of $319.5 million for 2002 which represented 70.55% of total assets and provided a yield of 8.25%. The three basis point increase in the yield on the loan portfolio in 2003 is almost
exclusively due to a $1.0 million facility fee on a construction loan that was received in 2003.

Average
investments (including mortgage-backed securities) and interest-earning deposits with banks increased $36.8 million or 27.62% at December 31, 2003 to
$170.2 million compared to $133.4 million at December 31, 2002. The increase in 2003 in average investments and interest-earning deposits with banks is largely due to a decrease
in loan demand. Due to the declining interest rate environment, the Bank experienced a high volume of consumer and mortgage loan amortization that the Bank was unable to replace because of weak loan
demand. However, this run off of loans and lack of new loan demand did provide PSB the opportunity to increase its investments without endangering its liquidity position.

At
December 31, 2003, total average interest-bearing liabilities decreased $3.1 million or 0.74% to $411.0 million compared to $414.0 million at
December 31, 2002. Total interest expense decreased $3.7 million at December 31, 2003 to $9.6 million as compared to total interest expense of $13.3 million at
December 31, 2002. The decrease in the Bank's total average interest-bearing liabilities was caused by a decision by the Bank to allow some deposit run off. When coupled with an overall
decrease in the rates paid on interest-bearing liabilities this decision resulted in a lower aggregate cost of funds. The Bank's cost of funds over the last two years was 2.33% in 2003 and 3.20% in
2002.

19

---





CAPITAL ADEQUACY

The Bank is required to maintain minimum ratios of Tier I and total capital to total "risk weighted" assets and a minimum Tier I leverage ratio, as defined by the
banking regulators. At December 31, 2004, the Bank was required to have minimum Tier I and total capital ratios of 4.0% and 8.0%, respectively, and a minimum Tier I leverage ratio of 4.0%. The
Bank's actual Tier I and total capital ratios at December 31, 2004, were 11.44% and 12.34%, respectively, and the Bank's Tier I leverage ratio was 7.48%. These ratios exceed the requirements
for classification as a "well-capitalized" institution, the industry's highest capital category.

|                         |                                          | Actual |   | For capital
adequacy purposes |  | To be well-
capitalized under
prompt corrective
action provisions |  
|------------------------ | ---------------------------------------- | ------ | - | ----------------------------- |  | ----------------------------------------------------------------- | -
|
|
|As of December 31, 2004: |                                          |        |   |                               |  |                                                                   |  
|                         | Total capital (to risk-weighted assets)  |        |   |                               |  |                                                                   |  
|                         | Company                                  |        | $ | 54,364                        |  | 15.49                                                             | %
|                         | Bank                                     |        | $ | 43,095                        |  | 12.34                                                             | %
|                         | Tier I capital (to risk-weighted assets) |        |   |                               |  |                                                                   |  
|                         | Company                                  |        | $ | 51,207                        |  | 14.59                                                             | %
|                         | Bank                                     |        | $ | 39,938                        |  | 11.44                                                             | %
|                         | Tier I capital (to average assets)       |        |   |                               |  |                                                                   |  
|                         | Company                                  |        | $ | 51,207                        |  | 9.53                                                              | %
|                         | Bank                                     |        | $ | 39,938                        |  | 7.48                                                              | %

|                         |                                                    | Actual |   | For capital
adequacy purposes |  | To be well-
capitalized under
prompt corrective
action provisions |  
|------------------------ | -------------------------------------------------- | ------ | - | ----------------------------- |  | ----------------------------------------------------------------- | -
|
|
|As of December 31, 2003: |                                                    |        |   |                               |  |                                                                   |  
|                         | Total capital (to risk-weighted assets)            |        |   |                               |  |                                                                   |  
|                         | Company                                            |        | $ | 48,987                        |  | 16.22                                                             | %
|                         | Bank                                               |        | $ | 40,463                        |  | 13.47                                                             | %
|                         | Tier I capital (to risk-weighted assets) 20Company |        | $ | 45,918                        |  | 15.20                                                             | %
|                         | Bank                                               |        | $ | 37,394                        |  | 12.45                                                             | %
|                         | Tier I capital (to average assets)                 |        |   |                               |  |                                                                   |  
|                         | Company                                            |        | $ | 45,918                        |  | 9.72                                                              | %
|                         | Bank                                               |        | $ | 37,394                        |  | 7.94                                                              | %

FINANCIAL CONDITION

GENERAL

PSB's total assets increased to $533.1 million at December 31, 2004. This represents an increase of $62.7 million or 13.3% compared to assets
of $470.3 million at December 31, 2003. The increase is primarily attributable to the Bank's decision to increase deposits to fund increasing loan demand.

At
December 31, 2004, PSB's net loan portfolio, inclusive of loans held for sale, totaled $356.8 million as compared to $289.0 million for the year ended
December 31, 2003. This increase of

20

---



$67.8 million
or 23.4% is primarily the result of an increase in production of commercial, consumer and mortgage loans as a result of the growth in loan demand during 2004.

INVESTMENT ACTIVITIES

The Bank's investment portfolio is comprised of mortgage-backed securities and investment securities. The carrying value of the Bank's investment securities and
mortgaged-backed securities portfolio totaled $95.6 million at December 31, 2004, compared to $103.7 million at December 31, 2003. The Bank's
cash and cash equivalents, consisting of cash and due from banks, and interest-earning deposits with other financial institutions, totaled $54.7 million at December 31, 2004, compared to
$52.4 million at December 31, 2003. The majority of the Bank's mortgage-backed securities are issued or guaranteed by the United States Government or agencies thereof. At
December 31, 2004, mortgage-backed securities totaled $38.6 million compared to $49.7 million at December 31, 2003. The majority of this amount represents securities that
were issued or guaranteed by FNMA, FHLMC or the Government National Mortgage Association ("GNMA"). The Bank historically maintains high levels of interest-earning deposits as part of its strategy for
meeting liquidity requirements and improving interest rate sensitivity.

The
Bank is required under federal regulations to maintain a minimum amount of liquid assets that may be invested in specified short-term securities and certain other
investments. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Interest Rate Sensitivity." The Bank generally has maintained a
portfolio of liquid assets that exceeds regulatory requirements. Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management's judgment as
to the attractiveness of the yields available in relation to other opportunities and its expectation of the yield that will be available in the future, as well as management's projections as to the
short-term demand for funds to be used in the Bank's loan origination and other activities.

Pursuant
to SFAS No. 115, the Bank classifies its investment and mortgage-backed securities as held-to-maturity,
available-for-sale. Available-for-sale securities are carried at market value, while held-to-maturity securities are carried at
amortized cost. At December 31, 2004, $1.5 million of the Bank's investment securities and mortgaged-backed securities were classified held-to-maturity and
$94.1 million of the Bank's investment securities and mortgaged-backed securities were classified available-for-sale.

The
Bank's Board of Directors has adopted an investment policy that identifies acceptable types of investments for the Bank and establishes criteria to guide management in classifying
investments as prescribed by SFAS No. 115. The policy also authorizes the Bank's investment officer to make investments of up to $1 million. Under the investment policy, the Bank may
invest in certain AAA rated derivative securities. As of December 31, 2004, the Bank had no collateralized mortgage obligations. The Bank may not invest in high-risk collateralized
mortgage obligations ("CMO") and the Bank's investment officer must periodically analyze the risk of any CMO held by the Bank to determine that such securities are not within the high-risk
category.

21

---



CARRYING AND FAIR VALUE OF INVESTMENT AND MORTGAGE-BACKED SECURITIES

The following table sets forth certain information regarding the carrying and market values of the Bank's investment securities and mortgage-backed securities in
the Bank's held-to-maturity and available-for-sale portfolio at December 31, 2004, 2003, and 2002.

|                                               |  | At December 21, 2004
|---------------------------------------------- |  | --------------------
|
|
|AMORTIZED VALUE                                |  |                     
|INVESTMENT SECURITIES AVAILABLE-FOR-SALE:      |  |                     
|Mutual funds                                   |  | $                   
|State and municipal obligations                |  |                     
|U.S. Government and agency securities          |  |                     
|Mortgage-backed securities:                    |  |                     
|FNMA Certificates                              |  |                     
|GNMA Certificates                              |  |                     
|FHLMC Certificates                             |  |                     
|                                               |  |                     
|Total investment securities available-for-sale |  |                     
|INVESTMENT SECURITIES HELD TO MATURITY:        |  |                     
|U.S. Government and agency securities          |  |                     
|Mortgage-backed securities:                    |  |                     
|FNMA Certificates                              |  |                     
|GNMA Certificates                              |  |                     
|FHLMC Certificates                             |  |                     
|                                               |  |                     
|Other mortgage backed investment               |  |                     
|                                               |  |                     
|Total investment securities held-to-maturity   |  |                     
|                                               |  |                     
|                                               |  | $                   
|                                               |  |                     

|                                               |  | At December 31, 2004
|---------------------------------------------- |  | --------------------
|
|
|FAIR VALUE                                     |  |                     
|INVESTMENT SECURITIES AVAILABLE-FOR-SALE:      |  |                     
|Mutual funds:                                  |  | $                   
|State and municipal obligations                |  |                     
|U.S. Government and agency securities          |  |                     
|Mortgage-backed securities:                    |  |                     
|FNMA Certificates                              |  |                     
|GNMA Certificates                              |  |                     
|FHLMC Certificates                             |  |                     
|                                               |  |                     
|Total investment securities available-for-sale |  | $                   
|INVESTMENT SECURITIES HELD TO MATURITY:        |  |                     
|U.S. Government and agency securities          |  |                     
|Mortgage-backed securities:                    |  |                     
|FNMA                                           |  |                     
|GNMA                                           |  |                     
|FHLMC Certificates                             |  |                     
|                                               |  |                     
|Other mortgage backed investment               |  |                     
|                                               |  |                     
|Total investment securities held-to-maturity   |  |                     
|                                               |  |                     
|                                               |  | $                   
|                                               |  |                     

22

---



The
amortized cost and fair value of PSB's investment securities at December 31, 2004, by contractual maturity, are shown below. Mortgage-backed securities are
presented as a separate line item because these securities amortize over their contractual life or a shorter time frame. Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

|                                       |  | Available for Sale |        | Held to Maturity
|-------------------------------------- |  | ------------------ | ------ | ----------------
|
|Due in one year or less                |  | $                  | 2,354  |                 
|Due after one year through five years  |  |                    | 44,992 |                 
|Due after five years through ten years |  |                    | 9,992  |                 
|Due after ten years                    |  |                    | 500    |                 
|Mortgage-backed securities             |  |                    | 36,937 |                 
|                                       |  |                    |        |                 
|                                       |  | $                  | 94,775 |                 
|                                       |  |                    |        |                 

INVESTMENT PORTFOLIO MATURITIES

The following table sets forth by scheduled maturities, carrying values, and weighted-average yields and weighted average lives for the Bank's investment
securities and mortgage-backed securities portfolios. Adjustable-rate, mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust (in
thousands except for yields).

|                           |                        | At December 31, 2004
|-------------------------- | ---------------------- | --------------------
|
|
|Held to maturity:          |                        |                     
|Mortgage-backed securities |                        |                     
|                           |                        |                     
|                           | Total held to maturity |                     
|                           |                        |                     
|Available for sale:        |                        |                     
|Investment securities      |                        |                     
|Mortgage-backed securities |                        |                     
|                           |                        |                     
|Total available for sale   |                        | $                   
|                           |                        |                     

|                           |  | At December 31, 2004
|-------------------------- |  | --------------------
|
|
|Held to maturity:          |  |                     
|Mortgage-backed securities |  |                     
|                           |  |                     
|Total held to maturity     |  |                     
|                           |  |                     
|Available for sale:        |  |                     
|Investment securities      |  |                     
|Mortgage-backed securities |  |                     
|                           |  |                     
|Total available for sale   |  | $                   
|                           |  |                     

23

---



LOAN PORTFOLIO

Loans increased to $356.1 million at December 31, 2004 from $240.5 million at December 31, 2003, an increase of $115.6 million
or 48.1%. Management has targeted growth of the commercial segment of the loan portfolio as a key to the Bank's continuing growth. Specifically, the Bank has focused its lending efforts within its
market area towards higher yielding commercial loans made to small and medium sized businesses.

Loans
secured by one-to four-family residential real estate increased to $140.5 million at December 31, 2004, from $65.4 million as of
December 31, 2003, an increase of $75.1 million or 115.0%. This significant increase is the result of the growth of our one-to four-family residential commercial
loans. These are loans made for the purchase of multi-family commercial units. Loans secured by multi-family residential real estate increased to $18.9 million at December 31, 2004, from
$14.1 million as of December 31, 2003, an increase of $4.8 million or 34.0%.

Consistent
with the Bank's focus on commercial lending, consumer loans decreased to $21.5 million at December 31, 2004 from $24.0 million as of December 31,
2003, a decrease of $2.5 million or 10.4%.

Growth
in the commercial real estate portfolio is expected to continue at a steady rate. Interest rate changes could have a moderating effect on activity in this sector in spite of other
favorable macro-economic factors. Just as with the residential mortgage portfolio, commercial real estate is very interest rate sensitive. To achieve growth in this portfolio, pricing must be
carefully formulated to both attract borrowers and create a reasonable return for the Bank. Construction lending continues to provide opportunities. Due to the higher levels of inherent risk in
construction lending, these credits are thoroughly evaluated. Opportunities are more evident in this portfolio. A defensive stance on long-term fixed rate pricing is necessary to protect
against margin compression.

Volume
for home equity loans continues to fluctuate. In the current changing rate environment, management will continue to monitor growth in this portion of the consumer loan portfolio.

To
help offset any payoff trend of current loans, management will be setting goals for new loan originations with branch managers, management will also become more aggressive in
cross-selling the consumer loan products, such as home equity loans, to the other subsidiaries of First Penn Bank such as TNMC. Finally, management will continue to develop loan referral business with
outside mortgage brokers.

At
December 31, 2004, the Bank's net loan portfolio totaled $353.0 million, representing 66.22% of total assets at that date, compared to $237.4 million representing
50.47% of total assets at December 31, 2003.

The
following table summarizes the loan portfolio of the Bank by loan category and amount at December 31 for the past five years, including data regarding the portion of the
Bank's loans that bear

24

---



fixed
and adjustable interest rates, respectively. The loan categories correspond to the Bank's general classifications (in thousands, except for percentage):

|                                |  | At December 31, |        
|------------------------------- |  | --------------- | -------
|
|
|Real Estate Loans:              |  |                 |        
|One-to four-family*             |  | $               | 140,459
|Construction loans              |  |                 | 21,854 
|Five or more family residential |  |                 | 18,888 
|Nonresidential                  |  |                 | 132,066
|Commercial loans                |  |                 | 21,439 
|Consumer loans                  |  |                 | 21,516 
|                                |  |                 |        
|                                |  | $               | 356,222
|                                |  |                 |        
|Less:                           |  |                 |        
|Unearned fees and discounts     |  | $               | 80     
|Undisbursed loan Proceeds       |  |                 |       
|Allowance for loan losses       |  |                 | 3,157  
|                                |  |                 |        
|Net loans                       |  | $               | 352,985
|                                |  |                 |        

Loan balances segregated in terms of sensitivity to changes in interest rates at December 31, 2004, are summarized below:

|(In thousands)              |       | Less Than One Year to Five Years |         | After Five Years
|--------------------------- | ----- | -------------------------------- | ------- | ----------------
|Predetermined interest rate |       | $                                | 116,804 |                 
|Floating interest rate      |       |                                  | 85,354  |                 
|                            |       |                                  |         |                 
|                            | Total |                                  | $       | 202,158         
|                            |       |                                  |         |                 

---

LOAN MATURITIES

The following table sets forth the maturity or period of re-pricing of the Bank's loan portfolio at December 31, 2004. Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Adjustable and floating-rate loans are included in the period in which interest
rates are next scheduled to adjust rather than the period in which they

25

---



contractually
mature, and fixed-rate loans are included in the period in which the final contractual repayment is due (in thousands).

|                          |  | Amounts at December 31, 2004
|------------------------- |  | ----------------------------
|
|Amounts due               |  |                             
|Non-accrual loans         |  | $                           
|Within one year           |  |                             
|                          |  |                             
|Total due within one year |  |                             
|After one year:           |  |                             
|1-3 years                 |  |                             
|3-5 years                 |  |                             
|Over 5 years              |  |                             
|                          |  |                             
|Total due after one year  |  |                             
|                          |  |                             
|Total amounts due         |  | $                           
|                          |  |                             

DELINQUENT LOANS

When a borrower fails to make a required payment on a loan, the Bank attempts to cure the deficiency by contacting the borrower and seeking payment. Contacts are
generally made on the 15th day after a payment is due. In most cases, deficiencies are cured promptly. If a delinquency extends beyond 60 days, the loan and payment history is carefully
reviewed, additional notices are sent to the borrower and efforts are made to collect the loan. While the Bank generally prefers to work with borrowers to resolve such problems, when the account
becomes 90 days delinquent, the Bank institutes foreclosure or other proceedings, as necessary, to minimize any potential loss.

NON-PERFORMING ASSETS

In 2004, the Bank's level of non-performing assets decreased $1.5 million or 27.29% to $4.1 million compared to an increase of $715,000
to $5.6 million at December 31, 2003 from $4.9 million at December 31, 2002. Non-accrual interest for 2004 and 2003 was $0 and $324,000, respectively.

As
a matter of policy, the accrual of loan interest is discontinued if management believes that, after considering economic and business conditions and collection efforts, the borrower's
financial condition is such that collection of interest becomes doubtful. This is normally done when a loan reaches 90 days delinquent. At this time, all accrued but unpaid interest is reversed
out of interest income. There are occasional exceptions if the loans are well secured and in the process of collection. The Bank did not have any material restructured loans within the meaning of SFAS
No. 114 in 2004.

26

---



The following table sets forth information regarding loans 90 or more days delinquent and still accruing interest, non-accrual loans, and real estate owned held by the Bank
at the dates indicated (Dollars in thousands):

|                                                                                 |  | At December 31, 2004 |      
|-------------------------------------------------------------------------------- |  | -------------------- | -----
|
|Loans past due 90 days or more as to interest or principal and accruing interest |  | $                    |     
|Nonaccrual loans                                                                 |  |                      | 3,633
|                                                                                 |  |                      |      
|Total nonperforming loans                                                        |  |                      | 3,633
|Real estate owned (REO)                                                          |  |                      | 422  
|                                                                                 |  |                      |      
|Total nonperforming assets                                                       |  | $                    | 4,055
|                                                                                 |  |                      |      
|Nonperforming loans to total loans                                               |  |                      | 1.02 
|Nonperforming assets to total assets                                             |  |                      | 0.76 
|Allowance for loan losses to total loans                                         |  |                      | 0.90 
|Allowance for loan losses to nonperforming loans                                 |  |                      | 86.90
|Allowance for loan losses to nonperforming assets                                |  |                      | 77.85
|Net charge-offs as a percentage of total loans                                   |  |                      | 0.04 

OTHER REAL ESTATE OWNED

Real estate acquired by the Bank as a result of foreclosure is classified as other real estate owned ("REO") until it is sold. The REO is initially recorded at
the lower of the related loan balance or fair value of the property at the date acquired. If the value of the property is less than the loan, less any related specific loan loss provision, the
difference is charged against the allowance for loan losses. Any
subsequent write-down of REO is charged against earnings. The Bank had $422,000 and $374,000 of property acquired as a result of foreclosure at December 31, 2004 and 2003.

CLASSIFIED ASSETS

As part of the Bank's loan review procedures which ultimately result in the establishment of the Bank's allowance for loan losses, the Bank identifies and
classifies its problem assets into three classifications: "substandard," "doubtful" and "loss." Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the Bank is not warranted. The Bank charges off that portion of an asset as soon as it is classified as a loss. Exclusive of the
Bank's $422,000 of REO, the Bank's classified assets at December 31, 2004, consisted of $2.4 million of loans classified as substandard, compared to $5.2 million classified as
substandard at December 31, 2003. Loans classified as doubtful were $0 for 2004 and 2003. Loans classified as loss were $40,000 in 2004 compared to $501,000 in 2003.

ALLOWANCE FOR LOAN LOSSES

PSB has an established process to determine the amount of the allowance for loan losses, which assesses the risks and losses inherent in its portfolio. This
process provides an allowance consisting of an allocated and an unallocated component. To determine the allocated component of the allowance, PSB combines estimates of the reserves needed for loans
evaluated on an individual basis with estimates of reserves needed for general pools of loans with similar risk characteristics.

27

---



The
methodology for determining the adequacy of the allowance for loan loss should consider both specific loan risk and general economic factors. The analysis includes all types of
loans, with the applied methodology commensurate to the risk assessment for the portfolio and present economic conditions. The risk rating of the loan portfolio is updated quarterly by management and
utilized for an overall assessment of the loan loss reserve adequacy, the results of which are being reported quarterly to the Board.

The
results of the assessment of the adequacy of the loan loss reserve, utilizing the risk ratings and economic factors, receives the close attention of management on an ongoing basis,
in accordance with regulatory standards, changes in lending policies, economic/business conditions, past due/classified loans, quality of loan review, concentration of credit, and examination input.
It is important to note that an effective internal loan review function is an essential element in satisfactorily implementing the Bank's methodology.

It
is the objective of the Bank's evaluation process to establish the following components of the allowance for loan losses. A specific allocation for certain identified loans, a general
allocation for pools of loans based on risk rating and a general allocation for inherent loan portfolio losses. Management performs current evaluations of its criticized and classified loan portfolios
and assigns specific reserves that reflects the current risk to the Bank. As a general rule, special mention assets will have a minimum reserve of 3%, substandard assets will have a minimum reserve of
15%, and doubtful assets will have a minimum reserve of 50%. Due to the fact that most of the Bank's problem loans are secured by real estate, management has allocated a majority of the allowance for
loan losses to these real estate collateralized loans. A general reserve allocation is applied for pools of loans based on risk rating for all loans not specifically reserved for as described
previously.

The
following table summarizes the changes in the Bank's allowance for loan losses for each of the past five years (Dollars in thousands):

|                                                |  | Year Ended December 31, |      
|----------------------------------------------- |  | ----------------------- | -----
|
|Balance at beginning of year                    |  | $                       | 3,069
|Acquisition of Jade's allowance for loan losses |  |                         |     
|Charge-offs:                                    |  |                         |      
|Real Estate: one-to four-family                 |  |                         | 17   
|Commercial                                      |  |                         |     
|Consumer                                        |  |                         | 345  
|                                                |  |                         |      
|Total charge-offs                               |  |                         | 362  
|Recoveries:                                     |  |                         |      
|Consumer                                        |  |                         | 215  
|                                                |  |                         |      
|Total recoveries                                |  |                         | 215  
|Net charge-offs (recoveries)                    |  |                         | 147  
|Provision charged to operations                 |  |                         | 235  
|                                                |  |                         |      
|Allowance, end of period                        |  | $                       | 3,157
|                                                |  |                         |      
|Allowance for loan losses to total loans        |  |                         | 0.90 
|Allowance for loan losses to nonaccrual loans   |  |                         | 86.90
|Net charge-offs as a percentage of total loans  |  |                         | 0.04 

The
following table sets forth an allocation for the allowance for loan losses by category. The specific allocations in any particular category may be reallocated in the future to
reflect then current

28

---



conditions.
Accordingly, management considers the entire allowance available to absorb losses in any category. (Dollars in thousands)

|                       |  | Year Ended December 31, |      
|---------------------- |  | ----------------------- | -----
|
|
|Real estate            |  | $                       | 947  
|Commercial real estate |  |                         | 1,775
|Consumer               |  |                         | 40   
|Unallocated            |  |                         | 395  
|                       |  |                         |      
|Totals                 |  | $                       | 3,157
|                       |  |                         |      

DEPOSITS

Deposits are the primary source of the Bank's funds for lending and other investment purposes. The Bank's current deposit products include statement savings
accounts, passbook savings accounts, NOW accounts, personal and commercial demand deposit accounts, money market accounts, and certificates of deposit accounts. Included among these deposit products
are Individual Retirement Account certificates and Keogh retirement certificates. In addition to deposits, the Bank derives funds from the amortization and prepayment of loans and mortgage-backed
securities, the maturity of investment securities and, if needed, advances from the FHLB.

The
Bank's deposits are obtained primarily from residents in its primary market area. The principal methods used by the Bank to attract deposit accounts include offering a wide variety
of services and accounts, no service charges for maintaining minimum balance accounts, competitive interest rates and convenient office hours. The Bank operates in a highly competitive banking
environment competing against large regional banks as well as other community banks. The Bank relies upon certificates of deposit as its primary funding source, but it has instituted a program that
emphasizes garnering more deposits through traditional marketing methods to attract new customers and savings deposits.

The
following tables present the average balances and rates paid on deposits for each of the years ended December 31, 2004, 2003 and 2002 (Dollars in thousands):

|                        |  | Year Ended December 31, |        
|----------------------- |  | ----------------------- | -------
|
|
|Demand deposits         |  | $                       | 37,827 
|Now checking accounts   |  |                         | 25,946 
|Money market accounts   |  |                         | 67,759 
|Savings accounts        |  |                         | 90,592 
|Certificates of deposit |  |                         | 240,968
|                        |  |                         |        
|Total deposits          |  | $                       | 463,092
|                        |  |                         |        

29

---



As
of December 31, 2004, the Bank had total certificates of deposit of approximately $275.2 million. The following table summarizes the composition of these deposits
(Dollars in thousands):

|                                                |  | Amount |         | Percentage of total certificates of deposits |      
|----------------------------------------------- |  | ------ | ------- | -------------------------------------------- | -----
|Certificates of deposit in excess of $100,000   |  | $      | 56,202  |                                              | 20.41
|Other certificates of deposit (including IRA's) |  |        | 219,045 |                                              | 79.59
|                                                |  |        |         |                                              |      
|                                                |  | $      | 275,247 |                                              |      
|                                                |  |        |         |                                              |      

The
Bank's certificates of deposit in excess of $100,000, which totaled $56.2. million at December 31, 2004, mature as follows: $15.2 million within three months,
$13.8 million between three and six months; $16.4 million between six and twelve months and $10.8 million after twelve months.

The
ability of the Bank to attract and maintain deposits and the Bank's cost of funds on these deposit accounts have been, and will continue to be, significantly affected by economic and
competitive conditions.

BORROWINGS

The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional FHLBs subject to supervision and regulation by the Federal Housing
Finance Board. The FHLBs provide a central credit facility primarily for member institutions. The Bank, as a member of the FHLB of Pittsburgh, is required to hold shares of common stock in that FHLB
in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts, and similar obligations at the beginning of each year, or 5% of
its advances (borrowings) from the FHLB of Pittsburgh, whichever is greater. The Bank had a $1.0 million investment in the stock of the FHLB at December 31, 2004, which was in compliance
with this requirement. At December 31, 2004 and 2003, the Bank had no outstanding borrowings from the FHLB of Pittsburgh. The Bank has a line of credit available in the amount of $231,000,000
as of December 31, 2004.

Additionally,
the Bank had securities sold under repurchase agreements are as follows:

Year Ended December 31,2004

2003

2002(Dollars in thousands,
except percentages)Balance at year-end

$
1,105

$
1,099

$
1,075Average during the year


1,109


1,092


13,375Maximum month-end balance


1,111


1,099


13,577Weighted average rate during the year


1.92
%

2.47
%

2.42
%Rate at December 31


2.14
%

1.88
%

2.52
%


RECENT ACCOUNTING PRONOUNCEMENTS

The Bank adopted Emerging Issues Task Force (EITF) 03-1,The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative
disclosures for investment securities accounted for under SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities, that
are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. In March 2004, the EITF issued a Consensus on Issue
03-1 requiring that the provisions of EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to investments accounted for under

30

---



SFAS
No. 115 and 124. EITF 03-1 establishes a three-step approach for determining whether an investment is considered impaired, whether that impairment is
other-than-temporary, and the measurement of an impairment loss. In September 2004, the FASB issued a proposed Staff Position, EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF
03-1(EITF 03-1-a). EITF
03-1-a would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for
other-than-temporary impairment under paragraph 16 of EITF 03-1. In September 2004, the FASB issued a Staff Position, EITF Issue
03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1 (EITF 03-1-1). FSP EITF Issue
No. 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1,The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, delays the effective date of certain provisions of EITF Issue
03-1, including steps two and three of the Issue's three-step approach for determining whether an investment is other-than-temporarily impaired.
However, step one of that approach must still be initially applied for impairment evaluations in reporting periods beginning after June 15, 2004. The delay of the effective date for paragraphs
10-20 of EITF Issue 03-1 will be superseded with the final issuance of proposed FSP EITF Issue 03-1-a,Implementation Guidance
for the Application of Paragraph 16 of EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments."The disclosures under EITF 03-1 are required for financial statements for years ending after
December 15, 2003 and are included in these financial statements.

On
March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, "Application of Accounting Principles to Loan Commitments" ("SAB 105"). SAB 105 clarifies existing
accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments ("IRLC"), subject to SFAS No. 149 and Derivative Implementation Group Issue
C13, "Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133." Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally
developed intangible assets in the
initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The Company has adopted the provisions of SAB 105 which
did not have a material effect on either the Company's consolidated financial position or consolidated results of operations.

In
December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" (SFAS 123R). This statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values. The provisions of this statement are effective for interim or annual periods beginning after June 15, 2005. The
Company is currently evaluating the provisions of this revision to determine the impact on its consolidated financial statements. It is, however, expected to have a negative effect on consolidated net
income.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the market risk of PSB's financial instruments, see "Interest Rate Sensitivity" in the MD&A. PSB's principal market risk exposure is to
interest rate changes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The audited financial statement of PSB Bancorp, Inc. as of December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003, and
2002, including the report of Grant Thornton LLP as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004 which are included as
Exhibit 99.1 to this Annual Report on Form 10-K, are incorporated herein by reference.

31

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this Annual Report on Form 10-K, our Chief Executive Officer and our Chief Financial Officer
evaluated the effectiveness of PSB's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that PSB's current disclosure controls and procedures are adequate and effective to ensure that
information required to be disclosed in the reports PSB files under the Exchange Act is recorded, processed, summarized and reported on a timely basis.. There were no significant changes to PSB's
internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

ITEM 9B. Other Information

None

32

---





PART III

ITEM 10.    Directors and Executive Officers of the Registrant

The following table sets forth information, as of December 31, 2004, with respect to the current directors of PSB.

Class I directors (Term expiring 2005).

|Name/Position                                                     |  | Age |  | Year First Elected
Director |  | Principal Occupation
During Past Five Years                                            
|----------------------------------------------------------------- |  | --- |  | --------------------------- |  | ---------------------------------------------------------------------------------------
|Anthony DiSandro, Director, President and Chief Executive Officer |  | 57  |  | 1997                        |  | President, Chief Executive Officer of PSB Bancorp, Inc.                                
|Rosanne Pauciello, Director and Corporate Secretary               |  | 60  |  | 1997                        |  | Corporate Secretary of PSB Bancorp, Inc; Pennsylvania State Senate Office Administrator

Class II directors (Term expiring 2006).

|Name/Position               |  | Age |  | Year First Elected
Director |  | Principal Occupation
During Past Five Years                                     
|--------------------------- |  | --- |  | --------------------------- |  | --------------------------------------------------------------------------------
|James W. Eastwood, Director |  | 59  |  | 1997                        |  | President of Granary Associates, Inc. (architectural design and consulting firm)
|Stephen Marcus, Director    |  | 72  |  | 2000                        |  | Chairman, Emerging Growth Equities, Inc.                                        
|Dennis P. Wesley, Director  |  | 52  |  | 2003                        |  | Manager, Business Processes, PECO Energy                                        

Class III directors (Term expiring 2007).

|Name/Position                          |  | Age |  | Year First Elected
Director |  | Principal Occupation
During Past Five Years                                                                                       
|-------------------------------------- |  | --- |  | --------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Vincent J. Fumo, Chairman of the Board |  | 61  |  | 1997                        |  | Chairman of the Board of PSB Bancorp, Inc. and Pennsylvania State Senator                                                         
|James F. Kenney, Director              |  | 46  |  | 2003                        |  | Councilman-at-Large for the City of Philadelphia, Pennsylvania; Director of Business Development, Vitetta Architects and Engineers

33

---



Executive Officers Who Are Not Directors

|Name/Position                                                    |  | Age |  | During Past Five Years
Principal Occupation                                               
|---------------------------------------------------------------- |  | --- |  | ------------------------------------------------------------------------------------------
|Frank V. Borrelli, Chief Operating Officer of PSB Bancorp, Inc.  |  | 61  |  | Founder and CEO of B Systems Development Corp. Chief Operating Officer of PSB Bancorp, Inc
|Gary Polimeno, Vice President and Treasurer of PSB Bancorp, Inc. |  | 52  |  | Vice President and Treasurer of PSB Bancorp, Inc.                                         
|Kevin Gallagher, Senior Vice-President of Lending Operations     |  | 48  |  | Senior Vice-President of Lending Operations of First Penn Bank                            

AUDIT COMMITTEE FINANCIAL EXPERT

PSB's board of directors has determined that Dennis Wesley, an independent director and member of the audit committee, qualifies as an audit committee financial
expert.

AUDIT COMMITTEE

The Audit Committee is comprised of directors Eastwood (Chair), Marcus, and Wesley, each of whom in the judgment of the Board is "independent" as that term is
defined in Rule 4200(a)(15) of the National Association of Securities Dealers listing standards. The Audit Committee is responsible for the appointment, compensation, oversight, and termination
of PSB's independent auditors. The Audit Committee is required to pre-approve audit and certain non-audit services performed by the independent auditors. The Audit Committee is
charged by the Board with providing oversight with respect to the integrity of PSB's financial statements, PSB's compliance with applicable legal and regulatory requirements and the performance of
PSB's internal audit function. The Audit Committee also is responsible for, among other things, reporting to PSB's Board on the results of the annual audit and reviewing the financial statements and
related financial and non-financial disclosures included in PSB's annual report on Form 10-K
and quarterly reports on Form 10-Q. The Audit Committee is expected to evaluate the independent auditors' independence from PSB and PSB's management, including approving consulting
and other legally permitted, non-audit services provided by PSB's auditors and the potential impact of the services on the auditors' independence. The Audit Committee meets periodically
with PSB's independent auditors and PSB's internal auditors outside of the presence of PSB's management and possesses the authority to retain professionals to assist it in meeting its responsibilities
without consulting with management. The Audit Committee also is expected to (i) review and discuss with management PSB's earnings releases, including the use of pro forma information,
(ii) address with management and the independent auditors the effect of accounting initiatives and off-balance sheet transactions, and (iii) receive and retain complaints and
concerns relating to accounting and auditing matters.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based upon a review of the information provided to PSB for the twelve month period ended December 31, 2004, no director, officer, or beneficial owner of
more than ten percent of Common Stock, has failed to file a required Form 3, 4, or 5.

CODE OF ETHICS

The board of directors of PSB has adopted a Code of Ethics applicable to the chief executive officer and principal accounting officer. A copy of PSB's Code of
Ethics is available on the Company's website under Investor Relations atwww.firstpennbank.comand any shareholder may obtain a printed

34

---



copy
of these documents by writing to Investor Relations, PSB Bancorp, Inc., 1835 Market Street, Philadelphia, Pennsylvania 19103 or by calling Investor Relations at
(215) 979-7963.

ITEM 11.    EXECUTIVE COMPENSATION

The following table sets forth for the years ended December 31, 2004, 2003, and 2002 certain information as to the total compensation paid by PSB to
executive officers who received salary and bonuses in excess of $100,000 during such fiscal year.

|                                            |  |           |  |    |                 |  |    | Long Term
Compensation |  |  
|------------------------------------------- |  | --------- |  | -- | --------------- |  | -- | ---------------------- |  | -
|
|
|Vincent J. Fumo                             |  | 2004      |  | $  | 240,000         |  | $  | 450,000                |  | $
|Chairman of the Board                       |  | 2003
2002 |  | $$ | 223,000
223,000 |  | $$ | 0
175,000              |  |  
|Anthony DiSandro                            |  | 2004      |  | $  | 265,000         |  | $  | 375,000                |  | $
|President and Chief
Executive Officer       |  | 2003
2002 |  | $$ | 247,000
247,000 |  | $$ | 0
175,000              |  |  
|Gary Polimeno                               |  | 2004      |  | $  | 120,428         |  | $  | 30,000                 |  |  
|Vice President and
Treasurer                |  | 2003
2002 |  | $$ | 116,920
116,920 |  | $$ | 30,000
40,000          |  |  
|Frank Borelli,                              |  | 2004      |  | $  | 190,000         |  | $  | 78,853                 |  |  
|Chief Operating Officer*                    |  | 2003
2002 |  | $$ | 0
0             |  | $$ | 0
0                    |  |  
|Kevin Gallagher,                            |  | 2004      |  | $  | 135,000         |  | $  | 20,000                 |  |  
|Senior Vice-President of Lending Operations |  | 2003
2002 |  | $$ | 135,000
135,000 |  | $$ | 15,000
20,000          |  |  

---

35

---



The following table provides certain information with respect to the number of options granted to the named executive officers for the year ended
December 31, 2004.

Option/SAR Grants in Last Fiscal Year

|                                                       |  | Individual Grants |  |      |   |   |       | Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term
|------------------------------------------------------ |  | ----------------- |  | ---- | - | - | ----- | ----------------------------------------------------------------------------------------------
|
|
|
|Vincent J. Fumo
Chairman of the Board                  |  | 500,000           |  | 62.5 | % | $ | 10.00 |                                                                                               
|Anthony DiSandro
President and Chief Executive Officer |  | 300,000           |  | 37.5 | % | $ | 10.00 |                                                                                               

The following table provides certain information with respect to the number of shares of Common Stock represented by outstanding options and the
number of options exercised by the named executive officers for the year ended December 31, 2004.

Aggregated Option/SAR Exercises in Last Fiscal Year  and FY-End Option/SAR Values

|Name                                                   |  | Shares Acquired on
Exercise |  | Value Realized |         | Number of
Securities
Underlying
Unexercised
Options/SARs |         | Value of
Unexercised
In-the-Money
Options/SARs at
Fy-End
|------------------------------------------------------ |  | --------------------------- |  | -------------- | ------- | -------------------------------------------------------- | ------- | --------------------------------------------------------
|Vincent J. Fumo
Chairman of the Board                  |  | 137,500                     |  | $              | 614,223 |                                                          | 485,720 |                                                         
|Anthony DiSandro
President and Chief Executive Officer |  | 163,219                     |  | $              | 616,533 |                                                          | 260,000 |                                                         

COMPENSATION OF OFFICERS THROUGH DEFINED BENEFIT PLANS

First Penn Bank (the "Bank") has maintained a non-contributory defined benefit retirement plan ("Retirement Plan"). The Retirement Plan was "frozen"
as of September 30, 1994 and benefits no longer accrue thereunder. Under the terms of the Retirement Plan, all employees age 21 or older who had worked at the Bank for a period of one year and
had been credited with 1,000 or more hours of employment with the Bank during the year were eligible to accrue benefits under the Retirement Plan. The Bank would annually contribute an amount to the
Retirement Plan necessary to satisfy the actuarially determined minimum funding requirements in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Employee
contributions were not permitted under the Retirement Plan. The Retirement Plan is fully funded, under the Internal Revenue Code of 1986, as amended (the "Code"). Because the Retirement Plan is fully
funded, the Bank will generally not be required to make any additional contributions unless asset depreciation occurs. Participants will continue to vest in accordance with the provisions of the
Retirement Plan. No new employees will be eligible for participation. The Plan, however, remains subject to all other requirements of the Code.

36

---





The following table indicates the annual retirement benefit that would be payable under the Retirement Plan upon retirement at age 65 in calendar year 2004, expressed in the form of a
single life annuity for the final average salary and benefit service classifications specified below.

Years of Service and Benefits Payable at Retirement

Final
Average
Compensation

15

20

25

30

35

40$
50,000

$
13,804

$
18,405

$
23,006

$
27,608

$
27,608

$
27,608$
75,000

$
21,950

$
29,267

$
36,583

$
43,900

$
43,900

$
43,900$
100,000

$
30,096

$
40,128

$
50,160

$
60,192

$
60,192

$
60,192$
125,000

$
38,242

$
50,990

$
63,827

$
65,827

$
65,827

$
65,827$
150,000
*
$
46,388

$
61,851

$
65,827

$
65,827

$
65,827

$
65,827


As
of December 31, 2004, Mr. Fumo, Mr. DiSandro, and Mr. Polimeno had 28, 26, and 30 years of credited service (i.e. benefit service), respectively.

Director Compensation

For the year ended December 31, 2004, with the exception of Messrs. Kenney and Wesley, both of whom were paid $1,459 per board meeting attended (due
to additional committee responsibilities), the other directors of PSB were paid $1,250 per board meeting attended. The directors of PSB were paid no additional remuneration for committee meetings. For
the year ended December 31, 2004, the directors of the Bank were paid $1,667 per board meeting attended; there was no additional remuneration paid for committee meetings. Each director of PSB,
except Messrs. Fumo and DiSandro, received a $10,000 bonus payment for the year ended December 31, 2004. Each director of the Bank who was not also a director of PSB received a $10,000
bonus payment for the year ended December 31, 2004. Directors of
the Bank's subsidiaries and affiliates, PSA Service Corp. and Transnational Mortgage Corp., were paid $150 and $250, respectively, per board meeting attended.

Employment Agreements

PSB and the Bank have entered into employment agreements (the "Employment Agreements") with Vincent J. Fumo, Chairman and Chief Executive Officer of PSB, Anthony
DiSandro, President of PSB, and Frank Borelli, Chief Operating Officer of the Bank. Under the terms of his Employment Agreement, Mr. Fumo serves as Chairman of PSB and the Bank at a base salary
of $240,000. Under the terms of his Employment Agreement, Mr. DiSandro serves as President and Chief Executive Officer of PSB and the Bank at a base salary of $265,000 and Mr. Borelli
serves as the Chief Operating Officer of the Bank at a base salary of $190,000. Each Employment Agreement provides for an initial term of three years, which will thereafter be automatically renewed
for an additional year on each anniversary date unless terminated pursuant to its terms by the respective parties.

Each
Employment Agreement provides for the payment of certain severance benefits in the event of the executive's resignation for specified reasons or as a result of his termination by
PSB or the Bank without "Cause" (as defined in each Employment Agreement). The executive would be entitled to severance payments if: (1) he terminates employment following any breach of the
Employment

37

---



Agreement
by the Bank or PSB, loss of title, office or significant authority, reduction in annual compensation or benefits, or relocation of the executive's principal place of employment by more than
a specified number of miles from PSB or the Bank, or (2) if the Bank or PSB terminates his employment, other than for Cause.

If
either Mr. Fumo or Mr. DiSandro becomes entitled to receive severance payments under his Employment Agreement, he would receive, over a period of 36 months, a
cash payment equal to three times his average annual compensation during the five-year period preceding termination of employment. Payments would be made in equal monthly installments. In
addition to the severance payments, the executive would be entitled to continue to receive life, medical, dental and other insurance coverages (or a dollar amount equal to the cost of obtaining each
such coverage) for a period of up to 36 months from the date of termination. Payments under the Employment Agreements are limited, however, to the extent that they would not be permitted under
the Federal Deposit Insurance Act. If Mr. Borelli becomes entitled to severance payments under his Employment Agreement, he would receive payments equal to his base salary for the remaining
term of the agreement and would be entitled to continue to receive life, medical, dental and other insurance coverages for the for the remaining term of his Employment Agreement.

Supplemental Retirement Plan

PSB maintains a nonqualified Supplemental Retirement Plan for the benefit of certain executive officers and directors. The Supplemental Retirement Plan ("SRP")
has been adopted by the Company to provide supplemental retirement benefits to Messrs. Fumo and DiSandro. The SRP provides a defined benefit payable in 240 monthly installments of an
amount based on a percentage of the executive's highest base salary and bonus during the year of retirement or the four years prior to retirement. The participants under the SRP are
Messrs. Fumo and DiSandro. The SRP provides that payments begin after termination of employment and attainment of age 65. The SRP provides for an early start for payment of the installments in
the event of disability and that upon death prior to retirement, payment will be made in a lump sum as of the date the participant would have attained age 65. Benefits under the SRP are increased and
are subject to acceleration upon a change in control.

Compensation Committee Interlocks and Insider Participation

Three independent directors, James W. Eastwood, Stephen Marcus, and Dennis Wesley, comprise the membership of the compensation committee of the board of
directors:

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management

Equity Compensation Plans.

The following chart presents summary information with respect to all of PSB's and First Penn Bank's equity compensation plans in effect as of the date of this
proxy statement.

38

---



Equity Compensation Plan Information

|Plan Category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |      | Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a))
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 949,739                                                                                     |  | $                                                                           | 9.92 |                                                                                                                                           
|Equity compensation plans not approved by security holders |  | 11,428                                                                                      |  | $                                                                           | 4.75 |                                                                                                                                           
|Total                                                      |  | 961,167                                                                                     |  | $                                                                           | 6.45 |                                                                                                                                           

The
1999 Director Stock Option Plan included in this chart is the only equity compensation plan adopted without shareholder approval.

Security Ownership of Management/Certain Beneficial Owners

The following table sets forth certain information furnished to PSB as of March 19, 2004 with respect to the beneficial ownership of common stock by:
(i) each shareholder known to PSB to be the beneficial owner of five percent (5%) or more of the outstanding shares of common stock; (ii) each director of PSB; (iii) the executive
officers named in the Summary Compensation Table on page 33 herein; and (iv) all current executive officers and directors as a group. Except as indicated in the

39

---



footnotes
to the table, the persons and entities named have sole voting and investment power with respect to all shares of common stock of which they are the respective beneficial owners.

|Name of Beneficial Owner                                                                  |  | Amount and Nature of Beneficial Ownership |     | Percent of Outstanding Shares of Common Stock |  
|----------------------------------------------------------------------------------------- |  | ----------------------------------------- | --- | --------------------------------------------- | -
|5% Shareholders                                                                           |  |                                           |     |                                               |  
|PSB Bancorp, Inc.
Employee Stock Ownership Plan
1835 Market Street
Philadelphia, PA 19103 |  | 452,216                                   |     | 9.26                                          | %
|American Bank Incorporated
4029 West Tilghman Street,
Allentown, Pennsylvania 18104       |  | 319,793                                   |     | 6.5                                           | %
|Directors                                                                                 |  |                                           |     |                                               |  
|Anthony DiSandro                                                                          |  | 432,837                                   | (1) | 8.4                                           | %
|James W. Eastwood                                                                         |  | 55,940                                    |     | 1.1                                           | %
|Vincent J. Fumo                                                                           |  | 958,302                                   | (3) | 17.8                                          | %
|James F. Kenney                                                                           |  | 30,492                                    |     | *                                             |  
|Stephen Marcus                                                                            |  | 109,657                                   | (2) | 2.22                                          | %
|Rosanne Pauciello                                                                         |  | 40,902                                    | (2) | *                                             |  
|Dennis P. Wesley                                                                          |  | 40,000                                    | (2) | *                                             |  
|Named Executive Officers                                                                  |  |                                           |     |                                               |  
|Frank V. Borrelli                                                                         |  | 0                                         |     | *                                             |  
|Gary Polimeno                                                                             |  | 49,200                                    |     | 1.0                                           | %
|Kevin Gallagher                                                                           |  | 1,918                                     |     | *                                             |  
|All executive officers and directors as a group (10 persons)                              |  | 1,717,330                                 |     | 29.7                                          | %

---

40

---





ITEM 13.    Certain Relationships and Related Transactions

Transactions with Management & Others.

Certain directors and executive officers of PSB, and associates of such persons (including corporations of which such persons are officers or 10% beneficial
owners), were customers of and had transactions
with PSB and its subsidiaries in the ordinary course of business during 2004. All loans made to such persons were made in the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other
unfavorable features. It is expected that any other transactions with directors and officers and their associates in the future will be conducted on the same basis.

ITEM 14.    Principal Accounting Fees & Services

Independent Public Accountants

The firm of Grant Thornton LLP performed certain accounting services for PSB, including the audit of the annual financial statements and the reviews of the
unaudited financial statements included in PSB's quarterly reports for the years ended December 31, 2004 and 2003.

The
following tables set forth the aggregate fees billed to PSB for the fiscal years ended December 31, 2004 and 2003 by PSB's principal accounting firm Grant Thornton LLP.



|Audit Fees         |  | $ | 128,655
|------------------ |  | - | -------
|Audit-Related Fees |  | $ | 23,655 
|Tax Fees           |  | $ | 37,230 
|All other fees     |  | $ | 45,339 
|                   |  |  
|Total              |  | $ | 234,879



|Audit Fees         |  | $ | 111,165
|------------------ |  | - | -------
|Audit-Related Fees |  |   | 31,862 
|Tax Fees           |  |   | 48,671 
|All other fees     |  |   | 53,280 
|                   |  |  
|Total              |  | $ | 244,978

Audit
fees included the audit of the Company's annual financial statements, reviews of the Company's quarterly financial statements and comfort letters, statutory and regulatory audits,
consents and other services related to Securities and Exchange Commission ("SEC") matters.

Audit-related
fees principally included audits of employee benefit plans and certain internal audit services, which were allowable by law at the time the services were provided.

41

---



Tax
fees included tax compliance services rendered based upon facts already in existence or transactions that have already occurred to document, compute, and obtain government approval
for amounts to be included in tax filings and consisted of federal, state and local income tax return assistance and assistance with tax audits and appeals.

The
Audit Committee may, from time to time, grant pre-approval to those permissible non-audit services classified as "all other services" that it believes are
routine and recurring services, and would not impair the independence of the auditor. The Audit Committee has not currently pre-approved any such services.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditors

The Audit Committee pre-approves all audit and non-prohibited, non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and other services. The Audit Committee has adopted a policy for the pre-approval of services provided by the
independent auditors. The Audit Committee may delegate pre-approval authority to one or more of its members. This member must report any decisions to the Audit Committee at the next
scheduled meeting. There were no waivers by the Audit Committee of the pre-approval requirement for permissible non-audit services in 2004.

42

---





PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The consolidated financial statements listed below are from Exhibit 99.1 to the Registrant's 2004 Form 10-K.

PSB
Bancorp, Inc. and Subsidiaries Consolidated Balance Sheet Consolidated Statement of Income, Consolidated Statement of Cash Flow, and Notes to Consolidated Statements Reports
of Independent Registered Public Accounting Firm.

The
following reports on Form 8-K were filed in the last quarter of 2004:

None.

(a)   EXHIBITS:
The exhibits listed below are filed herewith or incorporated by reference to other filings.

|EXHIBIT
NO. |  | DOCUMENT                                                                                                                                                                                                                                                
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Reorganization, dated as of March 19, 1999, between PSB Bancorp, Inc. and First Bank of Philadelphia (incorporated herein by reference to Exhibit 2.1 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25,
1999) 
|2.2         |  | Agreement and Plan of Reorganization, dated as of November 2, 2000, between PSB Bancorp, Inc., PSB Merger Sub, Inc. and Jade Financial Corp. (incorporated herein by reference to Registration Statement of PSB Bancorp, Inc. filed on January 16,
2001)
|3.1         |  | Articles of Incorporation of PSB Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                          
|3.2         |  | Bylaws of PSB Bancorp, Inc. (incorporated herein by reference to Exhibit 3.2 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                                             
|10.1*       |  | First Penn Bank's Retirement Plan (incorporated herein by reference to Exhibit 10.1 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                                      
|10.2*       |  | First Penn Bank's Cash or Deferred Profit Sharing Plan (incorporated herein by reference to Exhibit 10.2 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                 
|10.3*       |  | First Penn Bank's Profit Sharing Plan (incorporated herein by reference to Exhibit 10.3 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                                   
|10.4*       |  | Employment Agreement with Vincent J. Fumo (incorporated herein by reference to Exhibit 7.1 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                                
|10.5*       |  | Employment Agreement with Anthony DiSandro (incorporated herein by reference to Exhibit 7.2 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                               
|10.6*       |  | First Penn Bank's Employee Stock Ownership Plan (incorporated herein by reference to Exhibit 10.4 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed on October 9, 1997)                                                                     
|10.7        |  | Lease Agreement between Eleven Colonial Penn Plaza Associates and First Penn Bank, dated as of October 10, 1995 (incorporated herein by reference to Exhibit 10.7 of Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed May 5, 1998)                  
|10.8        |  | Lease Agreement between Eleven Colonial Penn Plaza Associates and First Penn Bank, dated as of October 12, 1995 (incorporated herein by reference to Exhibit 10.8 of Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed on May 5, 1998)               
|            |  |                                                                                                                                                                                                                                                         

43

---



|10.9*  |  | First Penn Bank's Stock Option Plan (incorporated herein by reference to Exhibit 10.9 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25, 1999)           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10* |  | First Penn Bank's Management Recognition Plan (incorporated herein by reference to Exhibit 10.10 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25, 1999)
|10.11* |  | PSB Bancorp, Inc. 2001 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.13 of PSB's Annual Report on Form 10-K filed on April 1, 2002)                  
|10.12* |  | Employment Agreement for Frank Borrelli (filed herewith)                                                                                                                    
|10.13  |  | Supplemental Employee Retirement Plan  Mr. Fumo (incorporated by reference to Exhibit 10.1 of PSB's Quarterly Report on Form 10-Q filed on November 15, 2004               
|10.14  |  | Supplemental Employee Retirement Plan  Mr. DiSandro (incorporated by reference to Exhibit 10.1 of PSB's Quarterly Report on Form 10-Q filed on November 15, 2004           
|21     |  | Schedule of Subsidiaries (filed herewith)                                                                                                                                   
|31.1   |  | Certification of Report by Chief Executive Officer. (filed herewith)                                                                                                        
|31.2   |  | Certification of Report by Chief Financial Officer. (filed herewith)                                                                                                        
|32     |  | Certification of Report by Chief Executive Officer and Chief Financial Officer. (filed herewith)                                                                            
|99.1   |  | 2003 Financial Statements (filed herewith)                                                                                                                                  

---

44

---







SIGNATURES

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

|March 31, 2005 |  | PSB BANCORP, INC.
|-------------- |  | -----------------
|               |  | By               

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

|Signature                             |  | Title                                                                |  | Date          
|------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|                                      |  |                                                                      |  |               
|/s/VINCENT J. FUMOVincent J. Fumo     |  | Chairman, Director                                                   |  | March 31, 2005
|/s/ANTHONY DISANDROAnthony DiSandro   |  | President, Chief Executive Officer, Director                         |  | March 31, 2005
|/s/JOHN CARROZZAJohn Carrozza         |  | Chief Financial Officer (Principal Accounting and Financial Officer) |  | March 31, 2005
|/s/JAMES W. EASTWOODJames W. Eastwood |  | Director                                                             |  | March 31, 2005
|/s/ROSANNE PAUCIELLORosanne Pauciello |  | Corporate Secretary and Director                                     |  | March 31, 2005
|/s/STEPHEN MARCUSStephen Marcus       |  | Director                                                             |  | March 31, 2005
|/s/DENNIS WESLEYDennis Wesley         |  | Director                                                             |  | March 31, 2005
|/s/JAMES KENNEYJames Kenney           |  | Director                                                             |  | March 31, 2005

45

---





EXHIBIT INDEX

|EXHIBIT NO. |  | DOCUMENT                                                                                                                                                                                                                                                
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Reorganization, dated as of March 19, 1999, between PSB Bancorp, Inc. and First Bank of Philadelphia (incorporated herein by reference to Exhibit 2.1 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25,
1999) 
|2.2         |  | Agreement and Plan of Reorganization, dated as of November 2, 2000, between PSB Bancorp, Inc., PSB Merger Sub, Inc. and Jade Financial Corp. (incorporated herein by reference to Registration Statement of PSB Bancorp, Inc.
filed on January 16, 2001)
|3.1         |  | Articles of Incorporation of PSB Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                          
|3.2         |  | Bylaws of PSB Bancorp, Inc. (incorporated herein by reference to Exhibit 3.2 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                                             
|10.1*       |  | First Penn Bank's Retirement Plan (incorporated herein by reference to Exhibit 10.1 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                                      
|10.2*       |  | First Penn Bank's Cash or Deferred Profit Sharing Plan (incorporated herein by reference to Exhibit 10.2 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed October 9, 1997)                                                                 
|10.3*       |  | First Penn Bank's Profit Sharing Plan (incorporated herein by reference to Exhibit 10.3 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                                   
|10.4*       |  | Employment Agreement with Vincent J. Fumo (incorporated herein by reference to Exhibit 7.1 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                                
|10.5*       |  | Employment Agreement with Anthony DiSandro (incorporated herein by reference to Exhibit 7.2 of the SB-2 Registration Statement of PSB Bancorp, Inc filed October 9, 1997)                                                                               
|10.6*       |  | First Penn Bank's Employee Stock Ownership Plan (incorporated herein by reference to Exhibit 10.4 of the SB-2 Registration Statement of PSB Bancorp, Inc. filed on October 9, 1997)                                                                     
|10.7        |  | Lease Agreement between Eleven Colonial Penn Plaza Associates and First Penn Bank, dated as of October 10, 1995 (incorporated herein by reference to Exhibit 10.7 of Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed May
5, 1998)                  
|10.8        |  | Lease Agreement between Eleven Colonial Penn Plaza Associates and First Penn Bank, dated as of October 12, 1995 (incorporated herein by reference to Exhibit 10.8 of Form S-1, Amendment No. 3 of PSB Bancorp, Inc. filed on
May 5, 1998)               
|10.9*       |  | First Penn Bank's Stock Option Plan (incorporated herein by reference to Exhibit 10.9 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25, 1999)                                                                                       
|10.10*      |  | First Penn Bank's Management Recognition Plan (incorporated herein by reference to Exhibit 10.10 of the S-4 Registration Statement of PSB Bancorp, Inc. filed June 25, 1999)                                                                            
|10.11*      |  | PSB Bancorp, Inc. 2001 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.13 of PSB's Annual Report on Form 10-K filed on April 1, 2002)                                                                                              
|10.12*      |  | Employment Agreement for Frank Borrelli (filed herewith)                                                                                                                                                                                                
|10.13       |  | Supplemental Employee Retirement Plan  Mr. Fumo (incorporated by reference to Exhibit 10.1 of PSB's Quarterly Report on Form 10-Q filed on November 15, 2004                                                                                           
|10.14       |  | Supplemental Employee Retirement Plan  Mr. DiSandro (incorporated by reference to Exhibit 10.1 of PSB's Quarterly Report on Form 10-Q filed on November 15, 2004                                                                                       
|21          |  | Schedule of Subsidiaries (filed herewith)                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                         

46

---



|23.1 |  | Consent of Grant Thornton LLP                                                                   
|---- |  | ------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Report by Chief Executive Officer. (filed herewith)                            
|31.2 |  | Certification of Report by Chief Financial Officer. (filed herewith)                            
|32   |  | Certification of Report by Chief Executive Officer and Chief Financial Officer. (filed herewith)
|99.1 |  | 2003 Financial Statements (filed herewith)                                                      

---

47

---



QuickLinks