SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ________________
                                   FORM 10-KSB
(Mark One)

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

For the fiscal year ended June 30, 2001
                                       OR

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

For the transition period from                to
                               --------------    ---------------

                           Commission File No. 0-28032

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

          MARYLAND                                             52-1951797
--------------------------------                          ----------------------
 (State or other jurisdiction                                (I.R.S. employer
of incorporation or organization)                           identification no.)

1301 MERRITT BOULEVARD, DUNDALK, MARYLAND                         21222-2194
-----------------------------------------                      -----------------
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (410) 285-1010

               Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act during the past 12 months (or 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  X   No
    ---     ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

For the fiscal year ended June 30,  2001,  the  registrant  had  $12,162,721  in
revenues.

As of September 17, 2001, the aggregate market value of voting common stock held
by  non-affiliates  was approximately  $6,305,278,  computed by reference to the
most recent  sales price on  September  17, 2001 as reported on the OTC Bulletin
Board. For purposes of this calculation, it is assumed that directors, executive
officers and beneficial  owners of more than 5% of the registrant's  outstanding
voting common stock are affiliates.

Number of shares of Common Stock outstanding as of September 17, 2001: 333,135.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following lists the documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:

     1.   Portions of the  registrant's  Annual Report to  Stockholders  for the
          Fiscal Year ended June 30, 2001. (Parts II and III)

     2.   Portions of Proxy  Statement for  registrant's  2001 Annual Meeting of
          Stockholders. (Part III)


<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

     Patapsco  Bancorp,   Inc.  Patapsco  Bancorp,   Inc.  (the  "Company")  was
incorporated  under the laws of the State of Maryland in November 1995. On April
1, 1996, Patapsco Federal Savings and Loan Association (the "Association"),  the
predecessor  of The Patapsco Bank ("the Bank"),  converted  from mutual to stock
form and  reorganized  into the holding  company  form of  ownership as a wholly
owned  subsidiary  of  the  Company  (the  "Stock  Conversion").  In  the  Stock
Conversion,  the Company issued and sold 362,553 shares of its common stock at a
price of $20.00 per share to the Bank's depositors, the Company's employee stock
ownership plan and the public, thereby recognizing net proceeds of $6.7 million.

     The Company has no  significant  assets  other than its  investment  in the
Bank.  The Company is primarily  engaged in the business of directing,  planning
and  coordinating  the  business  activities  of  the  Bank.  Accordingly,   the
information set forth in this report, including financial statements and related
data,  relates  primarily to the Bank. In the future,  the Company may become an
operating company or acquire or organize other operating subsidiaries, including
other financial institutions.  Currently,  the Company does not maintain offices
separate  from those of the Bank or employ any persons  other than its  officers
who are not separately compensated for such service.

     The Company's and the Bank's executive  offices are located at 1301 Merritt
Boulevard,  Dundalk,  Maryland  21222-2194,  and their main telephone  number is
(410) 285-1010.

     The Patapsco Bank. The Bank is a Maryland commercial bank operating through
three full service offices located in Dundalk, Parkville and Carney Maryland and
serving eastern Baltimore County. The Bank was originally chartered by the State
of Maryland in 1910 under the name Patapsco Building and Loan  Association.  The
Bank  adopted a federal  charter and received  federal  insurance of its deposit
accounts in 1957, at which time it adopted the name of Patapsco  Federal Savings
and Loan Association.  The Association converted to a commercial bank (the "Bank
Conversion")  on September  30,  1996,  at which time it changed its name to The
Patapsco Bank.

     The  principal  business of the Bank  historically  was the  investment  of
deposits from the general public in loans secured by first  mortgages on one- to
four-family  ("single-family")  residences in the Bank's  market area.  The Bank
derived its income  principally  from interest  earned on loans and, to a lesser
extent, interest earned on mortgage-backed  securities and investment securities
and noninterest income.  Funds for these activities were provided principally by
operating revenues,  deposits and repayments of outstanding loans and investment
securities and mortgage-backed securities.

     The Bank's Board of Directors  believe the Bank's  market area has not been
adequately  served by the existing  financial  institutions  and there is strong
local demand for commercial real estate,  commercial business , equipment leases
and consumer  loans.  As a result,  the Board of Directors  refocused the Bank's
strategy to limit the business of originating single-family residential mortgage
loans, and expanding into commercial real estate, commercial business,  consumer
lending,  construction  loans and small equipment  leases. At June 30, 2001, the
Bank had $13.0 million,  $2.1 million,  $13.5  million,  $15.1 million and $12.3
million in small business  loans,  construction  loans,  commercial  real estate
loans, home equity and other consumer loans, and equipment leases, respectively.


                                       2
<PAGE>
RECENT ACQUISITION

     On November 13, 2000, the Company  completed its  acquisition of Northfield
Bancorp,  Inc., the parent company of Northfield Federal Savings Bank. Under the
terms of the agreement of merger,  each share of Northfield Bancorp common stock
outstanding  at the effective time of the merger was canceled and converted into
the right to receive $12.50 in cash and .24 shares of Patapsco  Bancorp's Series
A  Noncumulative  Convertible  Perpetual  Preferred  Stock.  At any  time  after
issuance,  this  preferred  stock will be  convertible  into  shares of Patapsco
Bancorp common stock, on a one for one basis.  Each share of Patapsco  Bancorp's
outstanding  preferred  stock earns  dividends at the annual rate of 7.5% of its
liquidation preference of $25.00 per share.  Dividends are noncumulative,  which
means that if the Company's Board does not pay dividends for a quarterly period,
it is not  obligated  to pay a dividend  for that period at a later date.  After
five years from the date of issuance of the Patapsco  Bancorp  preferred  stock,
Patapsco  Bancorp may redeem  some or all of the  outstanding  Patapsco  Bancorp
preferred  stock at $25.00 per share plus any declared but unpaid  dividends for
the then current quarter.

MARKET AREA

     The Bank's market area for gathering deposits consists of eastern Baltimore
County,  Maryland,  while  the  Bank  makes  loans to  customers  in much of the
Mid-Atlantic area with strong emphasis on the Baltimore  metropolitan  area. The
economy of the Bank's market area has historically been based on industries such
as steel, shipyards and automobile assembly. Major employers in the area include
Bethlehem  Steel and General  Motors.  In recent  years,  the local  economy has
stabilized  from the layoffs and plant  closings by local  employers in previous
years. The economy in the Bank's market area continues to be dependent,  to some
extent, on a small number of major industrial employers. Recently, a significant
portion of eastern Baltimore County has been designated as an "Enterprise Zone."
As a result,  employers  relocating to this area are entitled to significant tax
and other economic incentives.

LENDING ACTIVITIES

     General. The Company's gross loan portfolio, excluding loans held for sale,
totaled $131.6 million at June 30, 2001,  representing  80.1% of total assets at
that date.  It is the Company's  policy to  concentrate  its lending  within its
market area. At June 30, 2001,  $75.5 million,  or 57.4% of the Company's  gross
loan portfolio,  consisted of residential mortgage loans. Other loans secured by
real  estate  include  construction  and  commercial  real estate  loans,  which
amounted to $15.6  million,  or 11.9 % of the Company's  gross loan portfolio at
June 30, 2001.  In addition,  the Company  originates  consumer and other loans,
including  home  equity  loans,  home  improvement  loans and loans  secured  by
deposits.  At June 30, 2001,  consumer and other loans totaled $15.1 million, or
11.5% of the  Company's  gross loan  portfolio.  The Company's  commercial  loan
portfolio, which consists of small business loans and commercial leases, totaled
$25.3 million, or 19.2% of the Company's gross loan portfolio.

     Originations,  Purchases  and Sales of Loans.  The  Company  generally  has
authority  to  originate  and  purchase  loans  throughout  the  United  States.
Consistent   with  its   emphasis  on  being  a   community-oriented   financial
institution,  the Company  concentrates  its lending  activities in its Maryland
market area with limited home  improvement  loan  origination  in the  Delaware,
Pennsylvania and Northern Virginia markets.

     The  Company's  loan  originations  are  derived  from a number of sources,
including referrals by depositors and borrowers and advertising, as well as loan
brokers. The Company's  solicitation programs consist of advertisements in local
media,   in  addition  to   occasional   participation   in  various   community
organizations and events. All of the Company's loan personnel are salaried,  and
the Company does not compensate  loan personnel on a commission  basis for loans
originated. With the exception of applications for home improvement loans, which
loans may be  originated  on an  indirect  basis  through  a  limited  number of
approved home improvement  contractors and loan brokers,  loan  applications are
accepted at the Company's office. In addition, the Company has one salaried loan
originator who may travel to meet prospective  borrowers and take  applications.
In all cases, the Company has final approval of the application.

                                       3
<PAGE>

     In  recent  years,   the  Company  has  purchased   whole  loans  and  loan
participation  interests.  During  the  year  ended  June 30,  2000 the  Company
purchased  $1.1  million in  participation  interests in the year ended June 30,
2001. In the future,  management  intends to consider limited purchases of whole
loans or participation interests in commercial and commercial real estate loans.

     Loan Underwriting Policies. The Company's lending activities are subject to
the Company's non-discriminatory  underwriting standards and to loan origination
procedures  prescribed  by the  Company's  Board of  Directors  and  management.
Detailed loan  applications are obtained to determine the borrower's  ability to
repay, and the more significant items on these applications are verified through
the  use of  credit  reports,  financial  statements  and  confirmations.  First
mortgage  loans in amounts  of up to  $252,700,  $350,000  and  $500,000  may be
approved  by the  Vice  President  - Real  Estate  Landing,  the  Officers  Loan
Committee  (consisting  of three  officers of the Bank),  and the Directors Loan
Committee (consisting of any two non-employee directors),  respectively. Certain
officers and committees have been granted authority by the Board of Directors to
approve commercial  business loans in varying amounts depending upon whether the
loan is secured or unsecured  and,  with respect to secured  loans,  whether the
collateral is liquid or illiquid.  Individual officers and certain committees of
the Company  have been  granted  authority  by the Board of Directors to approve
consumer loans up to varying  specified dollar amounts,  depending upon the type
of loan.

     Applications for single-family real estate loans are typically underwritten
and  closed in  accordance  with the  standards  of Federal  Home Loan  Mortgage
Corporation  ("FHLMC") and FNMA.  Generally,  upon receipt of a loan application
from a prospective  borrower,  a credit report and  verifications are ordered to
verify specific information relating to the loan applicant's employment,  income
and credit  standing.  If a proposed loan is to be secured by a mortgage on real
estate, an appraisal of the real estate is undertaken, pursuant to the Company's
Appraisal  Policy,  by an appraiser  approved by the Company and licensed by the
State of Maryland.  In the case of  single-family  residential  mortgage  loans,
except when the Company  becomes  aware of a  particular  risk of  environmental
contamination,  the  Company  generally  does not obtain a formal  environmental
report  on the real  estate at the time a loan is made.  A formal  environmental
report may be required in connection with nonresidential real estate loans.

     It is the Company's  policy to record a lien on the real estate  securing a
loan and to obtain title  insurance  which  insures that the property is free of
prior encumbrances and other possible title defects.  Borrowers must also obtain
hazard insurance  policies prior to closing and, when the property is in a flood
plain as designated  by the  Department  of Housing and Urban  Development,  pay
flood  insurance  policy  premiums.  Upon receipt of a loan  application  from a
prospective  borrower,  a credit report  generally is ordered to verify specific
information  relating  to the loan  applicant's  employment,  income  and credit
standing.

     With respect to single-family residential mortgage loans, the Company makes
a loan  commitment  of  between  30 and 60 days for each loan  approved.  If the
borrower  desires a longer  commitment,  the commitment may be extended for good
cause and upon  written  approval.  No fees are charged in  connection  with the
issuance of a commitment  letter;  however,  extension fees are usually charged.
The interest rate is guaranteed for the commitment term.

     It is the policy of the Company that  appraisals  be obtained in connection
with all loans for the purchase of real estate or to refinance real estate loans
where the existing mortgage is held by a party other than the Company. It is the
Company's policy that all appraisals be performed by appraisers  approved by the
Company's Board of Directors and licensed by the State of Maryland.

     Under applicable law, with certain limited exceptions, loans and extensions
of credit by a commercial bank to a person outstanding,  including  commitments,
at one time shall not exceed 15% of the bank's  unimpaired  capital and surplus.
Under these  limits,  the  Company's  loans to one borrower were limited to $2.0
million at June 30, 2001. At that date, the Company had no lending relationships
in excess of the  loans-to-one-borrower  limit.  At June 30, 2001, the Company's
largest  lending  relationship  was a $1.2  million  commercial  loan secured by
commercial  real estate,  which  includes a 55%  guarantee by the United  States
Small  Business  Administration,  which was current and performing in accordance
with its terms at June 30, 2001.

                                       4
<PAGE>

     Interest rates charged by the Company on loans are affected  principally by
competitive factors, the demand for such loans and the supply of funds available
for lending purposes.  These factors are, in turn,  affected by general economic
conditions,  monetary policies of the federal government,  including the Federal
Reserve Board, legislative tax policies and government budgetary matters.

     Residential  Real  Estate  Lending.  The Company  historically  has been an
originator of residential real estate loans in its market area. Residential real
estate loans consist of both  single-family  and  multi-family  residential real
estate loans. At June 30, 2001, residential mortgage loans, excluding loans held
fore sale, home improvement  loans, and home equity loans totaled $75.5 million,
or 57.4% of the Company's gross loan portfolio. Of such loans, $4.1 million were
secured by nonowner-occupied investment properties.

     The  Company  is not  presently  in the market to  originate  single-family
residential  mortgages.  At June  30,  2001,  $62.8  million,  or  70.4%  of the
Company's residential and commercial real estate loan portfolio was comprised of
fixed-rate   mortgage  loans  and  $26.4  million  or  29.6%  of  the  Company's
residential   and  commercial  real  estate  loan  portfolio  was  comprised  of
adjustable rate mortgage loans.

     The Company's multi-family residential loan portfolio consists primarily of
loans secured by small apartment  buildings.  Such loans generally range in size
from  $100,000 to $500,000.  At June 30,  2001,  the Company had $2.4 million of
multi-family  residential  real  estate  loans,  which  amounted  to 1.8% of the
Company's loan portfolio at such date. Multi-family real estate loans either are
originated  on an  adjustable-rate  basis  with  terms  of up to 25 years or are
amortized  over a maximum of 25 years  with a three or five year note  maturity,
and are underwritten with loan-to-value ratios of up to 80% of the lesser of the
appraised value or the purchase price of the property. Because of the inherently
greater risk involved in this type of lending,  the Company generally limits its
multi-family  real estate  lending to  borrowers  within its market area or with
which it has had prior  experience.  The  Company  seeks to expand  multi-family
residential real estate lending.

     Multi-family  residential  real estate lending entails  additional risks as
compared  with   single-family   residential   property  lending.   Multi-family
residential  real estate loans typically  involve larger loan balances to single
borrowers or groups of related  borrowers.  The payment experience on such loans
typically is dependent on the successful  operation of the real estate  project.
These risks can be significantly impacted by supply and demand conditions in the
market for residential  space,  and, as such, may be subject to a greater extent
to adverse  conditions in the economy  generally.  To minimize these risks,  the
Company generally limits itself to its market area or to borrowers with which it
has prior experience or who are otherwise known to the Company.  It has been the
Company's  policy to obtain annual  financial  statements of the business of the
borrower or the project for which multi-family residential real estate loans are
made.

     Construction  Lending.  The Bank also  offers  residential  and  commercial
construction  loans and land  acquisition  and  development  loans.  Residential
construction  loans are offered to  individuals  who are having their primary or
secondary   residence   built  as  well  as  to  local   builders  to  construct
single-family dwellings.  Residential construction advances are made on stage of
completion basis.  Generally,  loans to owner/occupants  for the construction of
residential properties are originated in conjunction with the permanent mortgage
on the property.  The term of the construction  loans is normally from six to 18
months and have a variable  interest  rate which is  normally up to 2% above the
prime interest rate.  Upon completion of  construction,  the permanent loan rate
will be set at the  interest  rate  offered by the Bank on that loan product not
sooner than 60 days prior to completion.  Interest rates on residential loans to
builders are set at the prime  interest rate plus a margin of .5% to 2.0% as may
be adjusted from time to time.  Interest rates on commercial  construction loans
and land  acquisition and  development  loans are based on the prime rate plus a
negotiated  margin of between  .5% and 2.0% and adjust  from time to time,  with
construction  terms  generally not  exceeding 18 months.  Advances are made on a
percentage of completion basis. At June 30, 2001, $2.1 million,  or 1.6%, of the
Company's loan portfolio consisted of construction loans.

     Prior to making a  commitment  to fund a loan,  the Bank  requires  both an
appraisal of the property by appraisers approved by the Board of Directors and a
study of the  feasibility  of the  proposed  project.  The Bank also

                                       5
<PAGE>

reviews and inspects each project at the  commencement of construction and prior
to payment of draw requests during the term of the  construction  loan. The Bank
generally charges a construction fee between 1% and 2%.

     Construction  financing  generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a  construction  loan is  dependent  largely upon the accuracy of the
initial  estimate of the  property's  value at  completion  of  construction  or
development and the estimated cost (including interest) of construction.  During
the  construction  phase,  a number of factors  could  result in delays and cost
overruns.  If the estimate of construction costs proves to be inaccurate and the
borrower  is unable to meet the Bank's  requirements  of  putting up  additional
funds to cover extra costs or change orders,  then the Bank will demand that the
loan be paid  off and,  if  necessary,  institute  foreclosure  proceedings,  or
refinance the loan. If the estimate of value proves to be  inaccurate,  the Bank
may be  confronted,  at or prior to the  maturity of the loan,  with  collateral
having a value  which is  insufficient  to assure full  repayment.  The Bank has
sought to  minimize  this risk by  limiting  construction  lending to  qualified
borrowers (i.e.,  borrowers who satisfy all credit  requirements and whose loans
satisfy  all  other  underwriting  standards  which  would  apply to the  Bank's
permanent mortgage loan financing for the subject property) in the Bank's market
area. On loans to builders, the Bank works only with selected builders with whom
it has experience and carefully monitors the creditworthiness of the builders.

     Commercial Real Estate Lending.  The Company's  commercial real estate loan
portfolio  consists  of  loans  to  finance  the  acquisition  of  small  office
buildings,  shopping centers and commercial and industrial buildings. Such loans
generally range in size from $100,000 to $900,000. At June 30, 2001, the Company
had $13.5 million of commercial  real estate loans,  which  amounted to 10.3% of
the Company's  gross loan portfolio at such date.  Commercial  real estate loans
are originated on an  adjustable-rate  basis with terms of up to 25 years or are
amortized over a maximum of 25 years with a maturity  generally of three to five
years, and are underwritten with loan-to-value ratios of up to 80% of the lesser
of the appraised  value or the purchase  price of the  property.  Because of the
inherently greater risk involved in this type of lending,  the Company generally
limits its commercial real estate lending to borrowers within its market area or
with which it has had prior  experience.  The Company seeks to expand commercial
real estate lending.

     Commercial  real estate lending entails  additional  risks as compared with
single-family  residential  property  lending.   Commercial  real  estate  loans
typically  involve larger loan balances to single borrowers or groups of related
borrowers.  The payment  experience on such loans  typically is dependent on the
successful  operation  of the  real  estate  project,  retail  establishment  or
business.  These  risks  can be  significantly  impacted  by supply  and  demand
conditions in the market for office, retail and residential space, and, as such,
may be  subject  to a  greater  extent  to  adverse  conditions  in the  economy
generally.  To minimize these risks, the Company  generally limits itself to its
market  area or to  borrowers  with  which it has  prior  experience  or who are
otherwise  known to the  Company.  It has been the  Company's  policy  to obtain
annual  financial  statements of the business of the borrower or the project for
which  commercial  real  estate  loans are  made.  In  addition,  in the case of
commercial  mortgage loans made to a partnership  or a corporation,  the Company
seeks,  whenever  possible,  to obtain personal  guarantees and annual financial
statements of the principals of the partnership or corporation.

     Consumer  Lending.  The  consumer  loans  currently in the  Company's  loan
portfolio consist of home improvement loans, home equity loans, loans secured by
savings  deposits and overdraft  protection for checking  accounts.  At June 30,
2001,  consumer and other loans totaled $15.1 million, or 11.5% of the Company's
gross loan portfolio.

     In July 1995, the Company instituted a home improvement loan program.  Such
loans are made to finance a variety of other home improvement projects,  such as
replacement  windows,  siding and room  additions.  The  Company's  policy is to
originate home  improvement  loans throughout  Maryland,  except for the western
portion of the state, and northern  Virginia,  Delaware and Pennsylvania.  While
the Company  originates some home improvement  loans on a direct basis,  most of
the home  improvement  loans in the  Company's  portfolio  are  originated on an
indirect  basis through the Company's  relationships  with selected  independent
contractors.  The Company's  underwriting policies apply to all home improvement
loans whether or not directly originated by the Company.  Home improvement loans
generally  have terms  ranging  from  three to 15 years and have fixed  interest
rates.  Home


                                       6
<PAGE>

improvement  loans are made on both secured and unsecured  bases.  However,  the
majority of home improvement  loans with a principal loan amount over $10,000 or
which  have a term  longer  than 84  months  are made on a  secured  basis  with
loan-to-value  ratios  up to 80%  or  90%,  depending  on the  type  of  project
financed. At June 30, 2001, home improvement loans amounted to $11.4 million, or
8.7% of the  Company's  loan  portfolio,  with $2.2  million of such loans being
secured by real estate.

     Consumer  lending affords the Company the opportunity to earn yields higher
than those  obtainable  with other types of  lending.  However,  consumer  loans
entail greater risk than do other loans, particularly in the case of loans which
are unsecured or secured by rapidly depreciable assets.  Repossessed  collateral
for a defaulted consumer loan may not provide an adequate source of repayment of
the  outstanding  loan balance as a result of the greater  likelihood of damage,
loss or  depreciation.  The remaining  deficiency often does not warrant further
substantial collection efforts against the borrower. In addition,  consumer loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more  likely  to be  adversely  affected  by  events  such as job loss,
divorce, illness or personal bankruptcy.

     Commercial  Lending.  The Bank's  commercial  loans  consist of  commercial
business loans and the financing of lease transactions, which may not be secured
by real estate.

     During fiscal 1996 the Company began a commercial lending program.  At June
30, 2001 the Company's  commercial  loans totaled $13.0 million,  or 9.9% of the
Company's loan portfolio.  This  commercial  lending program employs many of the
alternative  financing and guarantee  programs  available through the U.S. Small
Business Administration and other state and local economic development agencies.

     The Bank  originates  commercial  business  loans to small and medium sized
businesses  in its market  area.  The Bank's  commercial  business  loans may be
structured as term loans or as lines of credit. The Bank's commercial  borrowers
are  generally  small  businesses  engaged  in  manufacturing,  distribution  or
retailing,  or  professionals  in  healthcare,  accounting  and law.  Commercial
business loans are generally  made to finance the purchase of inventory,  new or
used commercial  business assets or for short-term  working capital.  Such loans
generally are secured by business assets and, if possible,  cross-collateralized
by a real estate lien,  although commercial business loans are sometimes granted
on an unsecured basis. Such loans are generally made for terms of seven years or
less, depending on the purpose of the loan and the collateral. Interest rates on
commercial  business  loans and lines of credit are either fixed for the term of
the loan or  adjusted  periodically  with the  prime  rate as stated in the Wall
                                                                            ----
Street Journal plus a negotiated margin.  Generally,  commercial  business loans
--------------
are made in amounts ranging between $10,000 and $1.3 million.

     The Bank  underwrites  its  commercial  business  loans on the basis of the
borrower's  cash flow and ability to service the debt from earnings  rather than
on the basis of  underlying  collateral  value,  and the Bank seeks to structure
such loans to have more than one source of  repayment.  The borrower is required
to provide the Bank with  sufficient  information  to allow the Bank to make its
lending determination.  In most instances, this information consists of at least
two years of financial statements,  a statement of projected cash flows, current
financial  information  on any guarantor and any  additional  information on the
collateral. For loans with maturities exceeding one year, the Bank requires that
borrowers and guarantors provide updated financial information at least annually
throughout the term of the loan.

     Commercial  business term loans are generally  made to finance the purchase
of assets and have maturities of five years or less.  Commercial  business lines
of credit are typically  made for the purpose of providing  working  capital and
are usually  approved  with a term of 12 months and are reviewed at that time to
determine if extension is  warranted.  The Bank also offers  standby  letters of
credit for its  commercial  borrowers.  The terms of  standby  letters of credit
generally do not exceed one year but may contain a renewal option.

     Commercial  business  loans are often  larger and may involve  greater risk
than other types of lending.  Because payments on such loans are often dependent
on successful operation of the business involved, repayment of such loans may be
subject to a greater extent to adverse conditions in the economy. The Bank seeks
to minimize

                                       7
<PAGE>

these risks through its underwriting guidelines,  which require that the loan be
supported by adequate cash flow of the borrower,  profitability of the business,
collateral  and personal  guarantees  of the  individuals  in the  business.  In
addition,  the Bank  limits  this  type of  lending  to its  market  area and to
borrowers with which it has prior  experience or who are otherwise well known to
the Bank.

     The Company  offers  loans to finance  lease  transactions,  secured by the
lease and the  underlying  equipment,  to small  businesses.  In  extending  the
financing in a commercial lease transaction,  the Company reviews the borrower's
financial  statements,  credit  reports,  tax returns  and other  documentation.
Generally,  commercial lease financing is made in amounts ranging between $3,000
and $120,000 with terms of up to five years and carry fixed interest  rates.  At
June 30, 2001, commercial lease finance transaction loans totaled $12.3 million,
or 9.3% of the Company's loan portfolio.

     Loan Fees and Servicing.  The Company receives fees in connection with late
payments and for  miscellaneous  services related to its loans. The Company also
charges fees in connection with loan originations  typically up to 3 points (one
point  being equal to 1% of the loan  amount) on real estate loan  originations.
The  Company  generally  does not service  loans for others,  except for 30 year
fixed-rate  residential  mortgage loans  originated and sold by the Company with
servicing retained, and earns minimal income from this activity. The Company has
sold participating  interests on residential and commercial real estate loans to
other local financial  institutions.  At June 30, 2001 the Company was servicing
loans for others totaling approximately $1.3 million.

     Nonperforming  Loans and Other Problem Assets. It is management's policy to
continually  monitor its loan portfolio to anticipate and address  potential and
actual  delinquencies.  When a borrower  fails to make a payment on a loan,  the
Company  takes  immediate  steps  to have  the  delinquency  cured  and the loan
restored to current status.  Loans which are delinquent between ten and 15 days,
depending on the type of loan, typically incur a late fee of 5% of principal and
interest due. As a matter of policy, the Company will contact the borrower after
the date the late  payment  is due.  If payment is not  promptly  received,  the
borrower is contacted  again,  and efforts are made to formulate an  affirmative
plan to cure the delinquency. Generally, after any loan is delinquent 90 days or
more, formal legal proceedings are commenced to collect amounts owed.

     Loans  generally are placed on  nonaccrual  status if the loan becomes past
due more than 90 days, except in instances where in management's  judgment there
is no doubt as to full collectibility of principal and interest.  Consumer loans
are  generally  charged off after they  become  more than 90 days past due.  All
other  loans  are  charged  off  when   management   concludes   that  they  are
uncollectible. See Note 4 of Notes to Consolidated Financial Statements.

     Real  estate  acquired  by  the  Company  as a  result  of  foreclosure  is
classified  as real  estate  owned  until  such  time as it is sold.  When  such
property is acquired, it is initially recorded at the lower of cost or estimated
fair  value and  subsequently  at the  lower of book  value or fair  value  less
estimated  costs to  sell.  Fair  value  is  defined  as the  amount  in cash or
cash-equivalent  value of other  consideration  that a real estate  parcel would
yield in a  current  sale  between a willing  buyer  and a  willing  seller,  as
measured by market  transactions.  If a market does not exist, fair value of the
item is estimated based on selling prices of similar items in active markets or,
if there are no active markets for similar  items,  by discounting a forecast of
expected cash flows at a rate commensurate with the risk involved. Fair value is
generally  determined  through  an  appraisal  at the time of  foreclosure.  Any
required  write-down of the loan to its fair value upon  foreclosure  is charged
against  the  allowance  for loan  losses.  See Note 4 of Notes to  Consolidated
Financial Statements.


                                       8
<PAGE>

     The following  table sets forth  information  with respect to the Company's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                         At June 30,
                                                                 ----------------------------
                                                                    2001               2000
                                                                 ----------         ---------
                                                                         (In thousands)
<S>                                                              <C>                <C>
Loans accounted for on a non-accrual basis: (1)
    Real estate:
       Residential.............................................  $      --          $     279
       Commercial..............................................         --                 --
       Construction............................................         --                 --
    Consumer...................................................         --                 14
    Commercial.................................................        176                 10
                                                                 ---------          ---------
       Total...................................................  $     176          $     303
                                                                 =========          =========

Accruing loans which are contractually past due
   90 days or more.............................................  $      --          $      --
                                                                 ---------          ---------
       Total...................................................  $      --          $      --
                                                                 ---------          ---------

       Total nonperforming loans...............................  $     176          $     303
                                                                 =========          =========

Percentage of total loans......................................  .    0.14%              0.33%
                                                                 =========          =========
Other non-performing assets (2)................................  $     146          $      72
                                                                 =========          =========
<FN>
-------------
(1)  Non-accrual  status  denotes loans on which,  in the opinion of management,
     the collection of additional  interest is unlikely.  Payments received on a
     nonaccrual loan are either applied to the outstanding  principal balance or
     recorded  as  interest   income,   depending  on  management's   assessment
     collectibility  of the loan.
(2)  Other  nonperforming  assets  represents  property  acquired by the Company
     through foreclosure or repossession.  This property is carried at the lower
     of its fair market  value less  estimated  selling  costs or the  principal
     balance of the related loan, whichever is lower.
</FN>
</TABLE>

     During the year ended June 30, 2001, gross interest income of $15,000 would
have been recorded on loans accounted for on a nonaccrual basis if the loans had
been current throughout the respective periods.  Interest on such loans included
in income during that period amounted to $4,500.

     At June 30, 2001,  nonaccrual  loans  consisted of one commercial  business
loan  with an 80% SBA  guarantee  totaling  $76,000  and  one  commercial  lease
transaction  totaling  $100,000.  At that  date,  the  Company  had no loans not
classified  as  non-accrual,  90  days  past  due or  restructured  where  known
information  about possible  credit problems of borrowers  caused  management to
have serious  concerns as to the ability of the borrowers to comply with present
loan repayment terms and may result in disclosure as  non-accrual,  90 days past
due or restructured.

     At June 30, 2001,  the Company had $146,000 in  repossessed  assets,  which
consisted of one residential  property  located in the Dundalk area of Baltimore
County,  Maryland,  one  residential  residential  property  located  in Harford
County, Maryland and some repossessed office furniture.

     Allowance for Loan Losses.  In originating  loans,  the Company  recognizes
that credit losses will be experienced and that the risk of loss will vary with,
among other things,  the type of loan being made,  the  creditworthiness  of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. It is  management's
policy to maintain an adequate  allowance for loan losses. The Company increases
its  allowance for loan losses by charging  provisions  for possible loan losses
against the Company's income.

     Provisions  for loan losses are  charged to earnings to maintain  the total
allowance  for loan  losses at a level  considered  adequate  by  management  to
provide for probable loan losses.  The provision for loan losses was $432,500 in
fiscal  year 2001,  an  increase  of $107,500 or 33.1% over the fiscal year 2000
provision of $325,000.  The Company's allowance for loan losses has increased as
a  percentage  of total loans  outstanding  to 0.88%

                                       9
<PAGE>

at June 30, 2001 from 0.81%t June 30, 2000.  The  Company's  allowance  for loan
losses as a percentage  of  nonperforming  loans was 660.78% at June 30, 2001 as
compared to 241.92% at June 30, 2000.

     Management  will continue to actively  monitor the Company's  asset quality
and  allowance  for loan losses.  Management  will charge off loans  against the
allowances  for losses  appropriate.  Consumer loans are  charged-off  once they
become  90 days past  due.  Other  problem  loans  are  evaluated  individually.
Although  management  believes it uses the best  information  available  to make
determinations  with  respect to the  allowances  for losses and  believes  such
allowances  are  adequate,  future  adjustments  may be  necessary  if  economic
conditions differ  substantially from the economic conditions in the assumptions
used in making the initial determinations.

     The  allowance  for loan losses  consists of an allocated  component and an
unallocated component. The components of the allowance for loan losses represent
an  estimation  done  pursuant  to  either  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 5, "Accounting for  Contingencies," or ("SFAS") No. 114,
"Accounting  by  Creditors  for  Impairment  of a  Loan."  The  adequacy  of the
allowance for loan losses is determined  through a continuous review of the loan
and lease portfolio and considers factors such as prior loss experience, type of
collateral,  industry standards, past due loans in the Company's loan portfolio,
current  economic  conditions and other factors  unique to particular  loans and
leases. The Company's management periodically monitors and adjusts its allowance
for loan losses based upon its analysis of the loan portfolio.

     Management  anticipates that the Company's  provisions for loan losses will
increase  in the future as it  implements  the Board of  Directors'  strategy of
expanding  commercial  real estate,  commercial  business and consumer  lending,
which  loans  generally  entail  greater  risks than  single-family  residential
mortgage loans.

     Banking  regulatory  agencies  have  adopted a policy  statement  regarding
maintenance of an adequate  allowance for loan and lease losses and an effective
loan review system.  This policy includes an arithmetic formula for checking the
reasonableness of an institution's  allowance for loan loss estimate compared to
the average loss experience of the industry as a whole. Examiners will review an
institution's  allowance  for loan losses and compare it against the sum of: (i)
50% of the portfolio that is classified doubtful; (ii) 15% of the portfolio that
is classified as  substandard;  and (iii) for the portions of the portfolio that
have not been classified  (including those loans designated as special mention),
estimated  credit  losses  over the  upcoming  12  months  given  the  facts and
circumstances  as of the evaluation  date.  This amount is considered  neither a
"floor"  nor a "safe  harbor"  of the  level of  allowance  for loan  losses  an
institution should maintain, but examiners will view a shortfall relative to the
amount  as  an  indication  that  they  should  review  management's  policy  on
allocating these  allowances to determine  whether it is reasonable based on all
relevant factors.

                                       10
<PAGE>

     The following  table sets forth an analysis of the Company's  allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                        Year Ended June 30,
                                                                 ----------------------------
                                                                   2001               2000
                                                                 ---------          --------
                                                                    (Dollars in thousands)

<S>                                                              <C>                <C>
Balance at beginning of period.................................  $     743          $     631
Assumed in acquisition.........................................        183
Loans charged off:
   Residential real estate mortgage............................         --                 --
   Commercial Loan/Lease.......................................         56                 29
   Consumer....................................................        192                225
                                                                 ---------          ---------
      Total charge-offs........................................        248                254
Recoveries:
   Single-family residential mortgage..........................         11                  1
   Commercial Loan/Lease.......................................          2                 18
   Consumer....................................................         37                 21
                                                                 ---------          ---------
      Total recoveries.........................................         50                 41
                                                                 ---------          ---------
Net loans charged off..........................................        198                213
Provision for loan losses......................................        433                325
                                                                 ---------          ---------
Balance at end of period.......................................  $   1,161          $     743
                                                                 =========          =========
Ratio of net charge-offs to average
   loans outstanding during the period.........................        .16%               .25%
                                                                 =========          =========
</TABLE>

     The  following  table  allocates  the  allowance  for loan  losses  by loan
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                         At June 30,
                                                     ---------------------------------------------------------
                                                                2001                         2000
                                                     ---------------------------   ---------------------------
                                                                Percent of Loans              Percent of Loans
                                                               in Each Category               in Each Category
                                                     Amount     to Total Loans     Amount     to Total Loans
                                                     ------     --------------     ------    -----------------
                                                                             (Dollars in thousands)
<S>                                                  <C>              <C>         <C>              <C>
Real estate mortgage:
   Residential.....................................  $   119          10.24 %     $   125          54.35%
   Commercial......................................      107           9.25           103          12.87
   Construction....................................       39           3.40            24           1.71
Consumer and other.................................      195          16.81           159          13.42
Commercial.........................................      154          13.24           199          17.65
Commercial Leases..................................      209          18.01            --              --
Unallocated........................................      338          29.05           133           0.00
                                                     -------         -------      -------         ------
     Total allowance for loan losses...............  $ 1,161         100.00%      $   743         100.00%
                                                     =======         ======       =======         ======
</TABLE>

                                       11
<PAGE>
INVESTMENT ACTIVITIES

     General.  The Company makes  investments in order to maintain the levels of
liquid assets required by regulatory authorities and manage cash flow, diversify
its assets,  obtain yield and to satisfy certain  requirements for favorable tax
treatment.  The  investment  activities  of the  Company  consist  primarily  of
investments  in  mortgage-backed  securities  and other  investment  securities,
consisting  primarily of securities issued or guaranteed by the U.S.  government
or agencies thereof.  Typical  investments  include  federally  sponsored agency
mortgage  pass-through  and  federally  sponsored  agency  and  mortgage-related
securities and investment grade corporate  securities.  Investment and aggregate
investment limitations and credit quality parameters of each class of investment
are prescribed in the Company's investment policy. The Company performs analyses
on  mortgage-related  securities  prior to purchase  and on an ongoing  basis to
determine  the impact on earnings and market value under  various  interest rate
and  prepayment  conditions.  Under the  Company's  current  investment  policy,
securities   purchases  must  be  approved  by  the  Company's   Asset/Liability
Management  Committee.  The Company's  Asset/Liability  Management Committee has
limited  authority  to  sell  investment   securities  and  purchase  comparable
investment  securities  with  similar  characteristics.  The Board of  Directors
reviews all securities transactions on a monthly basis.

     Under applicable  accounting  rules,  investment  securities  classified as
held-to-maturity  are  recorded  at  amortized  cost  and  those  classified  as
available-for-sale  are reported at fair value, with unrealized gains and losses
excluded  from  earnings and reported as a separate  component of  stockholders'
equity.  At  June  30,  2001,  the  Company's  entire  portfolio  of  investment
securities  was  classified as available for sale and had an aggregate  carrying
value of $9.8 million and an  unrealized  net gain after tax of  $132,000.  As a
result,  management  of the  Company  currently  does  not  anticipate  that the
presence  of  unrealized  losses  in  the  Company's   portfolio  of  investment
securities and  mortgage-backed  securities is likely to have a material adverse
effect on the Company's financial condition, results of operations or liquidity.

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits  are the  primary  source  of the  Company's  funds  for
lending,  investment activities and general operational purposes. In addition to
deposits, the Company derives funds from loan principal and interest repayments,
maturities of investment securities and mortgage-backed  securities and interest
payments  thereon.  Although loan  repayments are a relatively  stable source of
funds,  deposit  inflows and outflows are  significantly  influenced  by general
interest  rates  and  money  market  conditions.  Borrowings  may be  used  on a
short-term  basis to compensate for reductions in the  availability of funds, or
on a longer term basis for  general  operational  purposes.  The Bank may borrow
from the FHLB of Atlanta and the Bankers Bank in Atlanta, GA.

     Deposits.  The Company attracts deposits principally from within its market
area by offering a variety of deposit instruments,  including checking accounts,
Christmas Club accounts,  money market accounts,  statement and passbook savings
accounts,  Individual  Retirement  Accounts,  and  certificates of deposit which
range in maturity from seven days to five years. Deposit terms vary according to
the  minimum  balance  required,  the  length of time the funds  must  remain on
deposit and the interest rate.  Maturities,  terms,  service fees and withdrawal
penalties for its deposit  accounts are established by the Company on a periodic
basis.  The Company  reviews its deposit mix and pricing on a weekly  basis.  In
determining the  characteristics of its deposit accounts,  the Company considers
the rates offered by competing institutions, lending and liquidity requirements,
growth goals and federal regulations. Management believes it prices its deposits
comparably to rates offered by its competitors. At the present time, the Company
is not accepting brokered deposits.

     The Company attempts to compete for deposits with other institutions in its
market  area by  offering  competitively  priced  deposit  instruments  that are
tailored to the needs of its customers.  Additionally, the Company seeks to meet
customers'  needs by providing  convenient  customer  service to the  community,
efficient  staff  and  convenient  hours of  service.  Substantially  all of the
Company's depositors are Maryland residents.  To provide additional convenience,
the  Company  participates  in the HONOR  Automatic  Teller  Machine  network at
locations throughout the United States,  through which customers can gain access
to their accounts at any time.

                                       12
<PAGE>

     Borrowings.  While  savings  deposits  historically  have been the  primary
source of funds for the Company's  lending,  investments  and general  operating
activities,  the Bank in recent years has used advances from the FHLB of Atlanta
to  supplement  its  supply of  lendable  funds and to meet  deposit  withdrawal
requirements.  The FHLB of Atlanta functions as a central reserve bank providing
credit for member financial  institutions.  As a member of the FHLB System,  the
Bank is required to own stock in the FHLB of Atlanta and is  authorized to apply
for advances. Advances are pursuant to several different programs, each of which
has its own  interest  rate and  range  of  maturities.  The Bank has a  Blanket
Agreement  for advances  with the FHLB under which the Bank may borrow up to 25%
of assets subject to normal collateral and underwriting  requirements.  Advances
from the FHLB of Atlanta are secured by the Bank's  stock in the FHLB of Atlanta
and other eligible assets. At June 30, 2001, the Company had outstanding Federal
Home Loan Bank of Atlanta  advances  of $22.1  million  with an average  rate of
5.64%. Additionally,  the Company has a $3,000,000 line of credit, of which $1.7
million was  outstanding  at June 30, 2001.  Proceeds from this credit  facility
were used in the financing of the Northfield purchase.

SUBSIDIARY ACTIVITIES

     The Bank has three  subsidiaries,  PFSL Holding  Corp.  ("PFSL"),  which it
formed in November 1995 to hold certain real estate owned at that time and which
is currently is inactive, Prime Business Leasing that was formed in October 1998
and Patapsco Financial  Services,  Inc., which was formed in March 2000 in order
to sell alternative investment products to the Company's customers.

COMPETITION

     The Company faces strong  competition  both in originating  real estate and
consumer  loans and in  attracting  deposits.  The  Company  competes  for loans
principally  on the basis of interest  rates,  the types of loans it originates,
the  deposit  products  it offers and the  quality of  services  it  provides to
borrowers.  The Company also competes by offering products which are tailored to
the local community.  Its competition in originating  loans comes primarily from
other commercial banks, savings institutions and mortgage bankers, credit unions
and finance companies.

     Management  considers its market area for gathering  deposits to be eastern
Baltimore  County in Maryland.  The Company  originates loans throughout much of
the Mid-Atlantic  area. The Company attracts its deposits through its offices in
Dundalk, Parkville and Carney primarily from the local community.  Consequently,
competition for deposits is principally  from other  commercial  banks,  savings
institutions,  credit unions,  mutual funds and brokers in the local  community.
The Company competes for deposits and loans by offering what it believes to be a
variety of deposit accounts at competitive rates,  convenient  business hours, a
commitment to outstanding customer service and a well-trained staff.

EMPLOYEES

     As of June 30,  2001,  the Company had 43 full-time  equivalent  employees,
none of whom were represented by a collective bargaining  agreement.  Management
considers the Company's relationships with its employees to be good.

DEPOSITORY INSTITUTION REGULATION

     General.  The Bank is a Maryland  commercial bank and its deposit  accounts
are  insured  by the  SAIF.  The Bank also is a member  of the  Federal  Reserve
System.  The Bank is subject to  supervision,  examination and regulation by the
State of Maryland Commissioner of Financial Regulation  ("Commissioner") and the
Federal  Reserve  Board and to Maryland  and federal  statutory  and  regulatory
provisions   governing   such   matters  as  capital   standards,   mergers  and
establishment  of branch offices,  and it is subject to the FDIC's  authority to
conduct  special  examinations.  The Bank is required to file  reports  with the
Commissioner  and the  Federal  Reserve  Board  concerning  its  activities  and
financial  condition  and is required to obtain  regulatory  approvals  prior to
entering into certain transactions,  including mergers with, or acquisitions of,
other depository institutions.

                                       13
<PAGE>
     As a  federally  insured  depository  institution,  the Bank is  subject to
various  regulations   promulgated  by  the  Federal  Reserve  Board,  including
Regulation B (Equal Credit  Opportunity),  Regulation D (Reserve  Requirements),
Regulations  E  (Electronic  Fund  Transfers),  Regulation Z (Truth in Lending),
Regulation CC (Availability of Funds and Collection of Checks) and Regulation DD
(Truth in Savings).

     The system of regulation and supervision applicable to the Bank establishes
a  comprehensive  framework  for the  operations  of the  Bank  and is  intended
primarily for the protection of the FDIC and the depositors of the Bank. Changes
in the regulatory  framework  could have a material effect on the Bank and their
respective  operations that in turn, could have a material adverse effect on the
Company.

     Financial  Modernization  Legislation.  On  November  12,  1999,  President
Clinton  signed  legislation  which  could  have a  far-reaching  impact  on the
financial services  industry.  The  Gramm-Leach-Bliley  ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding  companies  and national  banks to engage in a variety of new  financial
activities.  Among the new  activities  that will be  permitted  to bank holding
companies are  securities  and  insurance  brokerage,  securities  underwriting,
insurance  underwriting  and merchant  banking.  The Federal  Reserve Board,  in
consultation  with  the  Secretary  of  the  Treasury,  may  approve  additional
financial activities.  The G-L-B Act, however,  prohibits future acquisitions of
existing  unitary savings and loan holding  companies by firms which are engaged
in  commercial  activities  and limits  the  permissible  activities  of unitary
holding companies formed after May 4, 1999.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations  within six  months of  enactment.  The  privacy  provisions  became
effective in November 2000, with full compliance required by July 1, 2001.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations at this time.

     Capital Requirements.  The Bank is subject to Federal Reserve Board capital
requirements as well as statutory  capital  requirements  imposed under Maryland
law.  Federal  Reserve Board  regulations  establish  two capital  standards for
state-chartered  banks that are members of the Federal  Reserve  System  ("state
member banks"): a leverage requirement and a risk-based capital requirement.  In
addition,  the Federal Reserve may on a case-by-case

                                       14
<PAGE>
basis,  establish  individual minimum capital  requirements for a bank that vary
from the  requirements  that would  otherwise  apply under Federal Reserve Board
regulations.  A bank that fails to satisfy the capital requirements  established
under  the  Federal  Reserve  Board's   regulations  will  be  subject  to  such
administrative   action  or  sanctions  as  the  Federal   Reserve  Board  deems
appropriate.

     The leverage ratio adopted by the Federal  Reserve Board requires a minimum
ratio of "Tier 1  capital"  to  adjusted  total  assets  of 3% for  banks  rated
composite 1 under the CAMELS rating system for banks.  Banks not rated composite
1 under the CAMELS  rating  system for banks are  required to maintain a minimum
ratio of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the
level and  nature of risks of their  operations.  For  purposes  of the  Federal
Reserve  Board's  leverage  requirement,  Tier 1 capital  consists  primarily of
common  stockholders'  equity,  certain perpetual preferred stock (which must be
noncumulative  with  respect to banks),  and  minority  interests  in the equity
accounts of consolidated  subsidiaries;  less most intangible assets,  primarily
goodwill.

     The risk-based  capital  requirements  established  by the Federal  Reserve
Board's regulations require state member banks to maintain "total capital" equal
to at least 8% of total  risk-weighted  assets.  For purposes of the  risk-based
capital  requirement,  "total capital" means Tier 1 capital (as described above)
plus "Tier 2 capital" (as described  below),  provided that the amount of Tier 2
capital may not exceed the amount of Tier 1 capital, less certain assets. Tier 2
capital  elements  include,  subject to certain  limitations,  the allowance for
losses on loans and leases,  perpetual preferred stock that does not qualify for
Tier 1 and long-term  preferred  stock with an original  maturity of at least 20
years from issuance,  hybrid capital  instruments,  including perpetual debt and
mandatory  convertible  securities,  and subordinated debt and intermediate-term
preferred stock and up to 45% of unrealized  gains on equity  securities.  Total
risk-weighted  assets generally are determined under the Federal Reserve Board's
regulations, which establish four risk categories, with risk weights of 0%, 20%,
50% and 100%. These computations result in the total risk-weighted  assets. Most
loans are assigned to the 100% risk  category,  except for first  mortgage loans
fully  secured  by  residential  property  and,  under  certain   circumstances,
residential  construction  loans,  both  of  which  carry  a  50%  rating.  Most
investment securities are assigned to the 20% category,  except for municipal or
state revenue bonds, which have a 50% risk-weight,  and direct obligations of or
obligations guaranteed by the United States Treasury or United States Government
agencies,  which have a 0% risk-weight.  In converting  off-balance sheet items,
direct credit  substitutes,  including general guarantees and standby letters of
credit  backing  financial  obligations,  are  given a 100%  conversion  factor.
Transaction-related  contingencies  such as bid bonds,  other standby letters of
credit  and  undrawn  commitments,  including  commercial  credit  lines with an
initial  maturity  of  more  than  one  year,  have  a  50%  conversion  factor.
Short-term,  self-liquidating  trade  contingencies  are  converted  at 20%, and
short-term commitments have a 0% factor.

     The Federal  Reserve  Board has proposed to revise its  risk-based  capital
requirements to ensure that such requirements provide for explicit consideration
of interest rate risk.  Under the proposed rule, a state member bank's  interest
rate risk exposure would be quantified  using either the measurement  system set
forth in the proposal or the bank's  internal model for measuring such exposure,
if such model is determined to be adequate by the bank's examiner. If the dollar
amount of a bank's  interest  rate  risk  exposure,  as  measured  under  either
measurement  system,  exceeds 1% of the bank's total  assets,  the bank would be
required under the proposed rule to hold additional  capital equal to the dollar
amount of the excess.  Management of the Bank has not determined what effect, if
any, the Federal  Reserve  Board's  proposed  interest rate risk component would
have on the Bank's capital if adopted as proposed.

     In  addition,  the Bank is subject to the  statutory  capital  requirements
imposed by the State of Maryland.  Under Maryland  statutory law, if the surplus
of a  Maryland  commercial  bank at any time is less  than  100% of its  capital
stock,  then,  until the surplus is 100% of the capital  stock,  the  commercial
bank:  (i)  must  transfer  to its  surplus  annually  at  least  10% of its net
earnings;  and (ii) may not declare or pay any cash dividends that exceed 90% of
its net earnings.


                                       15
<PAGE>
     The table below provides  information with respect to the Bank's compliance
with its regulatory capital requirements at the dates indicated.
<TABLE>
<CAPTION>
                                                                                                 Regulatory
                                                                                                Requirement
                                                                            Regulatory            To Be Well
                                                                            Requirements       Capitalized Under
                                                                            For Capital        Prompt Corrective
                                                      Actual              Adequacy Purposes    Action Provisions
                                                 ------------------      ------------------    ------------------
                                                 Amount       Ratio      Amount       Ratio    Amount       Ratio
                                                 ------       -----      ------       -----    ------       -----
                                                                      (Dollars in thousands)
<S>                                              <C>           <C>       <C>            <C>    <C>           <C>
As of June 30, 2001:
   Total Capital (to Risk Weighted Assets).....  $  12,594     13.32 %   $   7,567      8.00%  $   9,458     10.00%
   Tier 1 Capital (to Risk Weighted Assets)....     11,433     12.09         3,783      4.00       5,675     6.00
   Tier 1 Capital (to Average Assets).........      11,433      7.15         6,394      4.00       7,992     5.00

As of June 30, 2001:
   Total Capital (to Risk Weighted Assets).....  $   9,822     14.31%    $   5,490      8.00%  $   6,863     10.00%
   Tier 1 Capital (to Risk Weighted Assets)....      9,079     13.23         2,745      4.00       4,118     6.00
   Tier 1 Capital (to Average Assets).........       9,079      8.89         4,083      4.00       5,104     5.00
</TABLE>

     Prompt Corrective  Regulatory  Action.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution  into capital  compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
did not  submit an  acceptable  capital  restoration  plan,  may be  subject  to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution.  Any company controlling the institution could also
be required to divest the  institution or the  institution  could be required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls  below a "critical  capital  level,"  the  institution  will be subject to
conservatorship  or receivership  within 90 days unless periodic  determinations
are made that  forbearance  from such action  would  better  protect the deposit
insurance fund. Unless  appropriate  findings and certifications are made by the
appropriate  federal bank  regulatory  agencies,  a critically  undercapitalized
institution   must  be  placed  in   receivership   if  it  remains   critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.

     Federal banking regulators have adopted regulations implementing the prompt
corrective action  provisions of FDICIA.  Under these  regulations,  the federal
banking  regulators will generally  measure a depository  institution's  capital
adequacy on the basis of the institution's  total risk-based  capital ratio (the
ratio of its total capital to risk-weighted  assets),  Tier 1 risk-based capital
ratio (the ratio of its core capital to risk-weighted assets) and leverage


                                       16
<PAGE>
ratio  (the ratio of its core  capital  to  adjusted  total  assets).  Under the
regulations, an institution that is not subject to an order or written directive
by its primary  federal  regulator to meet or maintain a specific  capital level
will be deemed "well capitalized" if it also has: (i) a total risk-based capital
ratio  of 10% or  greater;  (ii) a Tier 1  risk-based  capital  ratio of 6.0% or
greater;  and  (iii)  a  leverage  ratio  of  5.0% or  greater.  An  "adequately
capitalized"  depository  institution is an  institution  that does not meet the
definition of well capitalized and has: (i) a total risk-based  capital ratio of
8.0% or greater;  (ii) a Tier 1 risk-based capital ratio of 4.0% or greater; and
(iii) a leverage  ratio of 4.0% or greater (or 3.0% or greater if the depository
institution has a composite 1 CAMELS rating). An "undercapitalized  institution"
is a depository  institution that has (i) a total risk-based  capital ratio less
than 8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii)
a leverage ratio of less than 4.0% (or less than 3.0% if the  institution  has a
composite 1 CAMELS rating).  A "significantly  undercapitalized"  institution is
defined as a depository  institution  that has: (i) a total  risk-based  capital
ratio of less than 6.0%; or (ii) a Tier 1 risk-based  capital ratio of less than
3.0%;   or  (iii)  a   leverage   ratio  of  less  than  3.0%.   A   "critically
undercapitalized"  institution is defined as a depository institution that has a
ratio of "tangible equity" to total assets of less than 2.0%. Tangible equity is
defined as core capital plus cumulative  perpetual  preferred stock (and related
surplus) less all  intangibles  other than qualifying  supervisory  goodwill and
certain mortgage  servicing rights.  The appropriate  federal banking agency may
reclassify a well capitalized  depository  institution as adequately capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  under-capitalized) if it determines, after notice and
an opportunity  for a hearing,  that the  institution is in an unsafe or unsound
condition  or  that  the   institution   has   received  and  not   corrected  a
less-than-satisfactory  rating for any CAMELS rating category. At June 30, 2001,
the Bank was classified as "well capitalized" under Federal Reserve regulations.

     Safety and Soundness  Guidelines.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  federal  banking  agency was required to  establish  safety and  soundness
standards for institutions  under its authority.  The federal banking  agencies,
including  the Federal  Reserve  Board,  have  released  Interagency  Guidelines
Establishing  Standards  for  Safety  and  Soundness.   The  guidelines  require
depository  institutions to maintain internal  controls and information  systems
and internal audit systems that are appropriate  for the size,  nature and scope
of the  institution's  business.  The guidelines  also  establish  certain basic
standards  for loan  documentation,  credit  underwriting,  interest  rate  risk
exposure,  and asset growth.  The  guidelines  further  provide that  depository
institutions  should maintain safeguards to prevent the payment of compensation,
fees and benefits  that are  excessive or that could lead to material  financial
loss,  and should take into  account  factors  such as  comparable  compensation
practices at  comparable  institutions.  In addition,  a depository  institution
should maintain systems,  commensurate with its size and the nature and scope of
its operations,  to identify  problem assets and prevent  deterioration in those
assets as well as to evaluate and monitor  earnings and ensure that earnings are
sufficient to maintain adequate capital and reserves. If the appropriate federal
banking  agency  determines  that a depository  institution is not in compliance
with the safety and  soundness  guidelines,  it may require the  institution  to
submit  an  acceptable  plan  to  achieve  compliance  with  the  guidelines.  A
depository  institution must submit an acceptable compliance plan to its primary
federal  regulator  within  30 days of  receipt  of a  request  for such a plan.
Failure to submit or implement a compliance  plan may subject the institution to
regulatory sanctions.  Management believes that the Bank meets substantially all
the standards adopted in the interagency guidelines.

     Federal  Home Loan Bank  System.  The FHLB  System  consists of 12 district
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB").  The FHLBs  provide a central  credit  facility  primarily  for member
institutions.  As a member  of the FHLB of  Atlanta,  the  Bank is  required  to
acquire and hold shares of capital  stock in the FHLB of Atlanta in an amount at
least equal to 1% of the aggregate  unpaid principal of its home mortgage loans,
home purchase contracts,  and similar obligations at the beginning of each year,
or 1/20 of its  advances  (borrowings)  from the FHLB of Atlanta,  whichever  is
greater.  The Bank was in compliance  with this  requirement  with investment in
FHLB of  Atlanta  stock at June 30,  2001 of $1.6  million.  The FHLB of Atlanta
serves as a reserve  or  central  bank for its  member  institutions  within its
assigned district. It is funded primarily from proceeds derived from the sale of
consolidated  obligations of the FHLB System.  It offers  advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors  of the FHLB of Atlanta.  Long-term  advances may only be made for the
purpose of providing funds for residential  housing finance

                                       17
<PAGE>

and small  businesses  and small  farms and small  agri-businesses.  At June 30,
2001,  the Bank had  $22.1  million  in  advances  outstanding  from the FHLB of
Atlanta.

     Federal  Reserve  System.  Pursuant to regulations  of the Federal  Reserve
Board, a financial  institution must maintain average daily reserves equal to 3%
on transaction accounts of up to $42.8 million, plus 10% on the remainder.  This
percentage  is subject to  adjustment  by the  Federal  Reserve  Board.  Because
required  reserves  must  be  maintained  in the  form  of  vault  cash  or in a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the  effect of the
reserve   requirement   is  to   reduce   the   amount   of  the   institution's
interest-earning  assets.  As of  June  30,  2001,  the  Bank  met  its  reserve
requirements.

     The Bank is a member of the Federal Reserve System and subscribed for stock
in the Federal  Reserve  Bank of Richmond in an amount equal to 6% of the Bank's
paid-up capital and surplus.  The Bank is subject to the reserve requirements to
which the Bank is presently subject under Federal Reserve Board regulations.

     The monetary  policies and  regulations of the Federal Reserve Board have a
significant  effect on the operating  results of commercial  banks.  The Federal
Reserve  Board's  policies  affect the  levels of bank  loans,  investments  and
deposits  through  its  open  market  operation  in  United  States   government
securities,  its  regulation  of the interest rate on borrowings of member banks
from  Federal   Reserve  Banks  and  its  imposition  of   non-earning   reserve
requirements  on all depository  institutions,  such as the Bank,  that maintain
transaction accounts or non-personal time deposits.

     Deposit  Insurance.  The Bank's  savings  deposits are insured by the SAIF,
which is  administered  by the FDIC.  The Bank is required  to pay  assessments,
based on a percentage of its insured deposits,  to the FDIC for insurance of its
deposits by the FDIC through the Savings Association Insurance Fund of the FDIC.
The  FDIC  is  required  to  set  semi-annual   assessments   for   SAIF-insured
institutions  at a level  necessary to maintain the designated  reserve ratio of
the SAIF at 1.25% of estimated  insured  deposits,  or at a higher percentage of
estimated  insured  deposits  that the FDIC  determines to be justified for that
year by circumstances indicating a significant risk of substantial future losses
to the SAIF.

     Under the  FDIC's  risk-based  deposit  insurance  assessment  system,  the
assessment rate for an insured depository  institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators  for the date closest to the last day of the seventh
month preceding the semi-annual assessment period,  institutions are assigned to
one of three  capital  groups -- well  capitalized,  adequately  capitalized  or
undercapitalized  -- using the same  percentage  criteria  as under  the  prompt
corrective action  regulations.  See " -- Prompt Corrective  Regulatory Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority,  and such other  information as the FDIC determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.  Subgroup A consists of financially sound institutions with only
a few minor  weaknesses.  Subgroup B consists of institutions  that  demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the  institution  and  increased  risk of loss to the  deposit  insurance  fund.
Subgroup C consists of institutions that pose a substantial  probability of loss
to the deposit insurance fund unless effective corrective action is taken.

     Regular  semi-annual  SAIF assessment rates set by the FDIC range from 0 to
27 basis points.  Until December 31, 1999,  however,  SAIF-insured  institutions
were required to pay assessments to the FDIC at the rate of 6.44 basis points to
help fund interest payments on certain bonds issued by the Financing Corporation
("FICO"),  an agency of the federal government  established to finance takeovers
of insolvent  thrifts.  During this period,  BIF members were assessed for these
obligations at the rate of 1.3 basis points.  After December 31, 1999,  both BIF
and SAIF members will be assessed at the same rate for FICO payments.

     FDIC  regulations  provide that any insured  depository  institution with a
ratio of Tier 1  capital  to total  assets  of less than 2% will be deemed to be
operating in an unsafe or unsound condition,  which would constitute grounds for
the  initiation  of  termination  of deposit  insurance  proceedings.  The FDIC,
however,  would  not  initiate

                                       18
<PAGE>
termination of insurance  proceedings if the depository  institution has entered
into and is in compliance with a written  agreement with its primary  regulator,
and the FDIC is a party to the agreement, to increase its Tier 1 capital to such
level as the FDIC  deems  appropriate.  Tier 1 capital  is defined as the sum of
common stockholders' equity,  noncumulative perpetual preferred stock (including
any related surplus) and minority interests in consolidated subsidiaries,  minus
all  intangible  assets  other than  mortgage  servicing  rights and  qualifying
supervisory   goodwill  eligible  for  inclusion  in  core  capital  under  FDIC
regulations and minus  identified  losses and investments in certain  securities
subsidiaries.  Insured  depository  institutions with Tier 1 capital equal to or
greater  than 2% of total assets may also be deemed to be operating in an unsafe
or unsound condition  notwithstanding such capital level. The regulation further
provides  that in  considering  applications  that  must be  submitted  to it by
savings  banks,  the FDIC will take into account  whether the savings bank meets
the Tier 1 capital  requirement for state non-member banks of 4% of total assets
for all but the most highly-rated state non-member banks.

     Dividend  Restrictions.  The Bank's ability to pay dividends is governed by
the  Maryland  General  Corporation  Law,  Maryland  law  relating to  financial
institutions,  and the  regulations  of the  Federal  Reserve  Board.  Under the
Maryland  General  Corporation  Law,  dividends may not be paid if, after giving
effect  to the  dividend:  (i)  the  corporation  would  not be  able to pay the
indebtedness  of the corporation as the  indebtedness  becomes due in the normal
course of business;  or (ii) the  corporation's  total assets would be less than
the sum of the corporation's  total liabilities plus, unless the charter permits
otherwise,  the amount needed,  if the  corporation  were to be dissolved at the
time of  distribution,  to satisfy the  preferential  rights upon dissolution of
stockholders  whose  preferential  rights are  superior to those  receiving  the
dividend. Under Maryland law relating to financial institutions,  if the surplus
of a commercial  bank at any time is less than 100% of its capital stock,  then,
until the surplus is 100% of the capital stock,  the  commercial  bank: (i) must
transfer to its surplus annually at least 10% of its net earnings;  and (ii) may
not declare or pay any cash dividends that exceed 90% of its net earnings.

     The Bank's  payment of  dividends  is also  subject to the Federal  Reserve
Board's  Regulation  H, which  provides  that a state  member bank may not pay a
dividend if the total of all dividends declared by the bank in any calendar year
exceeds the total of its net profits for the year combined with its retained net
profits for the preceding  two calendar  years,  less any required  transfers to
surplus or to a fund for the retirement of preferred stock,  unless the bank has
received the prior  approval of the Federal  Reserve  Board.  Additionally,  the
Federal  Reserve Board has the authority to prohibit the payment of dividends by
a Maryland  commercial  bank when it determines such payment to be an unsafe and
unsound banking practice.  Finally, the Bank is not able to pay dividends on its
capital  stock if its  capital  would  thereby  be reduced  below the  remaining
balance of the liquidation account established in connection with its conversion
in April 1996 from mutual to stock form.

     In addition,  the Bank may not pay  dividends  on its capital  stock if its
regulatory  capital  would thereby be reduced below the amount then required for
the liquidation account established for the benefit of certain depositors of the
Association at the time of the Association's  conversion to stock form. See Note
10 of the Notes to Consolidated  Financial Statements contained in the Company's
Annual Report to Stockholders attached hereto as Exhibit 13.

     Uniform Lending Standards.  Under Federal Reserve Board regulations,  state
member banks must adopt and maintain written policies that establish appropriate
limits and  standards  for  extensions  of credit  that are  secured by liens or
interests  in real  estate or are made for the  purpose of  financing  permanent
improvements  to real estate.  These  policies  must  establish  loan  portfolio
diversification   standards,    prudent   underwriting   standards,    including
loan-to-value  limits,  that  are  clear  and  measurable,  loan  administration
procedures  and  documentation,  approval and reporting  requirements.  The real
estate lending policies of state member banks must reflect  consideration of the
Interagency  Guidelines  for Real  Estate  Lending  Policies  (the  "Interagency
Guidelines") that have been adopted by the federal banking agencies.

     The  Interagency  Guidelines,  among  other  things,  call upon  depository
institutions to establish  internal  loan-to-value  limits for real estate loans
that are not in  excess  of the  following  supervisory  limits:  (i) for  loans
secured by raw land, the supervisory  loan-to-value limit is 65% of the value of
the collateral;  (ii) for land development loans (i.e., loans for the purpose of
improving  unimproved  property  prior  to  the  erection  of  structures),  the
supervisory

                                       19
<PAGE>

limit is 75%; (iii) for loans for the construction of commercial, multifamily or
other nonresidential  property, the supervisory limit is 80%; (iv) for loans for
the construction of one-to-four family properties, the supervisory limit is 85%;
and (v) for loans secured by other improved property (e.g., farmland,  completed
commercial    property   and   other    income-producing    property   including
non-owner-occupied,  one-to-four family property), the limit is 85%. Although no
supervisory   loan-to-value  limit  has  been  established  for  owner-occupied,
one-to-four family and home equity loans, the Interagency  Guidelines state that
for any such loan with a  loan-to-value  ratio  that  equals or  exceeds  90% at
origination, an institution should require appropriate credit enhancement in the
form of either mortgage insurance or readily marketable collateral.

     The Interagency  Guidelines  state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value  ratios in excess of the
supervisory  loan-to-value limits, based on the support provided by other credit
factors.   The  aggregate   amount  of  loans  in  excess  of  the   supervisory
loan-to-value limits,  however,  should not exceed 100% of total capital and the
total of such loans secured by commercial,  agricultural,  multifamily and other
non-one-to-four  family  residential  properties  should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans  including  loans insured or guaranteed by the U.S.  government and its
agencies or by  financially  capable  state,  local or municipal  governments or
agencies, loans backed by the full faith and credit of a state government, loans
that are to be sold promptly after origination without recourse to a financially
responsible  party, loans that are renewed,  refinanced or restructured  without
the advancement of new funds, loans that are renewed, refinanced or restructured
in connection with a workout,  loans to facilitate sales of real estate acquired
by the  institution  in the  ordinary  course of  collecting  a debt  previously
contracted and loans where the real estate is not the primary collateral.

     Management  will  periodically  evaluate  its  lending  policies  to assure
conformity  to the  Interagency  Guidelines  and  does not  anticipate  that the
Interagency Guidelines will have a material effect on its lending activities.

     Limits  on Loans to One  Borrower.  The Bank has  chosen to be  subject  to
federal law with respect to limits on loans to one  borrower.  Generally,  under
federal law, the maximum amount that a commercial  bank may loan to one borrower
at one time may not  exceed 15% of the  unimpaired  capital  and  surplus of the
commercial  bank.  The Bank's  lending limit to one borrower as of June 30, 2001
was $2.1 million.

     Transactions with Related Parties. Transactions between a state member bank
and any  affiliate  are governed by Sections 23A and 23B of the Federal  Reserve
Act.  An  affiliate  of a state  member  bank is any  company  or  entity  which
controls,  is  controlled  by or is under  common  control with the state member
bank. In a holding company context, the parent holding company of a state member
bank and any companies  which are controlled by such parent holding  company are
affiliates of the state member bank.  Generally,  Sections 23A and 23B (i) limit
the extent to which an  institution or its  subsidiaries  may engage in "covered
transactions"  with  any  one  affiliate  to an  amount  equal  to 10%  of  such
institution's  capital stock and surplus,  and contain an aggregate limit on all
such  transactions with all affiliates to an amount equal to 20% of such capital
stock  and  surplus  and (ii)  require  that all such  transactions  be on terms
substantially  the  same,  or at  least  as  favorable,  to the  institution  or
subsidiary as those provided to a non-affiliate.  The term "covered transaction"
includes the making of loans,  purchase of assets,  issuance of a guarantee  and
similar other types of transactions.  In addition to the restrictions imposed by
Sections  23A and 23B,  no state  member bank may (i) loan or  otherwise  extend
credit  to an  affiliate,  except  for  any  affiliate  which  engages  only  in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks,  bonds,  debentures,  notes or similar  obligations of any
affiliate,  except for  affiliates  which are  subsidiaries  of the state member
bank.

     State  member  banks also are  subject  to the  restrictions  contained  in
Section 22(h) of the Federal Reserve Act and the Federal Reserve's  Regulation O
thereunder on loans to executive officers, directors and principal stockholders.
Under Section  22(h),  loans to a director,  executive  officer and to a greater
than 10% stockholder of a state member bank and certain affiliated  interests of
such persons, may not exceed,  together with all other outstanding loans to such
person and affiliated interests, the institution's  loans-to-one-borrower  limit
(generally equal to 15% of the institution's unimpaired capital and surplus) and
all loans to such persons may not exceed the

                                       20
<PAGE>

institution's  unimpaired  capital and  unimpaired  surplus.  Section 22(h) also
prohibits  loans,  above amounts  prescribed by the appropriate  federal banking
agency, to directors,  executive officers and greater than 10% stockholders of a
state member bank, and their respective affiliates, unless such loan is approved
in advance by a majority of the board of directors of the  institution  with any
"interested"  director not participating in the voting.  Regulation O prescribes
the loan amount (which includes all other  outstanding  loans to such person) as
to which such prior board of director  approval is required as being the greater
of $25,000 or 5% of capital and surplus (up to $500,000). Further, Section 22(h)
requires that loans to directors,  executive officers and principal stockholders
be made on terms substantially the same as offered in comparable transactions to
other persons.  Section 22(h) also generally prohibits a depository  institution
from paying the overdrafts of any of its executive officers or directors.

     State member banks also are subject to the requirements and restrictions of
Section 22(g) of the Federal Reserve Act on loans to executive  officers and the
restrictions of 12 U.S.C. ss. 1972 on certain tying  arrangements and extensions
of credit by  correspondent  banks.  Section  22(g) of the  Federal  Reserve Act
requires loans to executive  officers of depository  institutions not be made on
terms more favorable than those afforded to other borrowers,  requires  approval
by the board of directors of a depository institution for extension of credit to
executive  officers of the institution,  and imposes reporting  requirements for
and  additional  restrictions  on the type,  amount and terms of credits to such
officers.  Section 1972 (i) prohibits a depository  institution  from  extending
credit to or offering any other services, or fixing or varying the consideration
for such  extension  of credit or service,  on the  condition  that the customer
obtain some additional service from the institution or certain of its affiliates
or not obtain  services of a competitor of the  institution,  subject to certain
exceptions,  and (ii)  prohibits  extensions  of credit to  executive  officers,
directors,  and greater than 10% stockholders of a depository institution by any
other  institution  which  has a  correspondent  banking  relationship  with the
institution,  unless such extension of credit is on substantially the same terms
as those prevailing at the time for comparable  transactions  with other persons
and does not involve  more than the normal risk of  repayment  or present  other
unfavorable features.

     Additionally,  Maryland  statutory  law  imposes  restrictions  on  certain
transactions  with affiliates of Maryland  commercial  banks.  Generally,  under
Maryland  law, a  director,  officer or employee  of a  commercial  bank may not
borrow,  directly or  indirectly,  any money from the bank,  unless the loan has
been  approved  by a  resolution  adopted at and  recorded in the minutes of the
board of directors of the bank, or the executive  committee of the bank, if that
committee  is  authorized  to make  loans.  If such a loan  is  approved  by the
executive  committee,  the  loan  approval  must be  reported  to the  board  of
directors at its next meeting.  Certain  commercial  loans made to  non-employee
directors  of a  bank  and  certain  consumer  loans  made  to  non-officer  and
non-director employees of the bank are exempt from the statute's coverage.

REGULATION OF THE COMPANY

     General.  The  Company,  as the sole  shareholder  of the  Bank,  is a bank
holding company and is registered as such with the Federal  Reserve Board.  Bank
holding companies are subject to comprehensive regulation by the Federal Reserve
Board under the Bank Holding  Company Act of 1956, as amended (the "BHCA"),  and
the  regulations of the Federal Reserve Board.  As a bank holding  company,  the
Company is required to file with the Federal  Reserve  Board annual  reports and
such  additional  information as the Federal  Reserve Board may require,  and is
subject to regular  examinations  by the  Federal  Reserve  Board.  The  Federal
Reserve  Board  also has  extensive  enforcement  authority  over  bank  holding
companies,  including,  among other  things,  the ability to assess  civil money
penalties,  to issue  cease and desist or removal  orders and to require  that a
holding  company  divest  subsidiaries  (including  its bank  subsidiaries).  In
general,  enforcement  actions  may be  initiated  for  violations  of  law  and
regulations and unsafe or unsound practices.

     Under the BHCA, a bank holding  company must obtain  Federal  Reserve Board
approval before: (i) acquiring, directly or indirectly,  ownership or control of
any  voting  shares of  another  bank or bank  holding  company  if,  after such
acquisition,  it would own or  control  more than 5% of such  shares  (unless it
already owns or controls the majority of such  shares);  (ii)  acquiring  all or
substantially  all of the assets of another  bank or bank  holding  company;  or
(iii) merging or consolidating with another bank holding company.

                                       21
<PAGE>

     The BHCA also prohibits a bank holding  company,  with certain  exceptions,
from  acquiring  direct or indirect  ownership or control of more than 5% of the
voting  shares of any company  which is not a bank or bank holding  company,  or
from engaging  directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing  services for its subsidiaries.  The
principal  exceptions to these prohibitions  involve certain non-bank activities
which,  by statute or by Federal  Reserve Board  regulation or order,  have been
identified as activities  closely related to the business of banking or managing
or controlling  banks.  The list of activities  permitted by the Federal Reserve
Board includes,  among other things,  operating a savings institution,  mortgage
company,  finance company, credit card company or factoring company;  performing
certain data processing  operations;  providing certain investment and financial
advice;  underwriting  and acting as an  insurance  agent for  certain  types of
credit-related  insurance;  leasing  property  on a  full-payout,  non-operating
basis; selling money orders,  travelers' checks and United States Savings Bonds;
real  estate and  personal  property  appraising;  providing  tax  planning  and
preparation services; and, subject to certain limitations,  providing securities
brokerage services for customers.

     Acquisitions  of Bank  Holding  Companies  and Banks.  Under the BHCA,  any
company  must obtain  approval of the Federal  Reserve  Board prior to acquiring
control of the Company or the Bank. For purposes of the BHCA, control is defined
as ownership of more than 25% of any class of voting  securities  of the Company
or the Bank, the ability to control the election of a majority of the directors,
or the exercise of a controlling  influence  over  management or policies of the
Company or the Bank.

     Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal  Reserve Board before (1)  acquiring  direct or indirect
ownership or control of any voting  shares of any bank or bank  holding  company
if,  after  such  acquisition,  the  bank  holding  company  would  directly  or
indirectly  own or control more than 5% of such  shares;  (2)  acquiring  all or
substantially all of the assets of another bank or bank holding company;  or (3)
merging  or  consolidating  with  another  bank  holding  company.  Satisfactory
financial  condition,   particularly  with  regard  to  capital  adequacy,   and
satisfactory  Community  Reinvestment Act ratings generally are prerequisites to
obtaining federal regulatory approval to make acquisitions.

     The Change in Bank Control Act and the related  regulations  of the Federal
Reserve  Board  require  any person or persons  acting in  concert  (except  for
companies required to make application under the BHCA), to file a written notice
with the Federal Reserve Board before such person or persons may acquire control
of the Company or the Bank.  The Change in Bank  Control Act defines  control as
the power, directly or indirectly,  to vote 25% or more of any voting securities
or to direct the management or policies of a bank holding  company or an insured
bank.

     Under  Maryland law,  acquisitions  of 25% or more of the voting stock of a
commercial bank or a bank holding company and other acquisitions of voting stock
of such  entities  which affect the power to direct or to cause the direction of
the management or policy of a commercial  bank or a bank holding company must be
approved in advance by the  Commissioner.  Any person  proposing to make such an
acquisition  must file an  application  with the  Commissioner  at least 60 days
before the acquisition becomes effective.  The Commissioner may deny approval of
any such  acquisition if the  Commissioner  determines  that the  acquisition is
anticompetitive  or threatens the safety or soundness of a banking  institution.
Any voting stock  acquired  without the approval  required under the statute may
not be voted for a period of five years.  This  restriction is not applicable to
certain acquisitions by bank holding companies of the stock of Maryland banks or
Maryland bank holding companies which are governed by Maryland's holding company
statute.

     Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and its
Application  in  Maryland.  The  Riegle-Neal  Interstate  Banking and  Branching
Efficiency  Act of  1994  (the  "Act")  was  enacted  to  ease  restrictions  on
interstate  banking.  Effective  September 29, 1995,  the Act allows the Federal
Reserve  Board to  approve  an  application  of an  adequately  capitalized  and
adequately managed bank holding company to acquire control of, or acquire all or
substantially  all of the assets of, a bank  located in a state  other than such
holding  company's  home state,  without  regard to whether the  transaction  is
prohibited by the laws of any state.  The Federal  Reserve Board may not approve
the  acquisition  of a bank that has not been in existence  for the minimum time
period (not  exceeding  five years)  specified by the  statutory law of the host
state.  The Act also  prohibits  the Federal  Reserve

                                       22
<PAGE>

Board  from  approving  an  application  if the  applicant  (and its  depository
institution  affiliates)  controls or would control more than 10% of the insured
deposits  in the  United  States or 30% or more of the  deposits  in the  target
bank's home state or in any state in which the target  bank  maintains a branch.
The Act does not affect the authority of states to limit the percentage of total
insured  deposits in the state which may be held or controlled by a bank or bank
holding  company to the extent such  limitation  does not  discriminate  against
out-of-state banks or bank holding  companies.  Individual states may also waive
the 30% state-wide concentration limit contained in the Act.

     Additionally,  the Act authorizes the federal  banking  agencies to approve
interstate  merger  transactions  without regard to whether such  transaction is
prohibited  by the law of any  state,  unless the home state of one of the banks
opts out of the Act by adopting a law after the date of enactment of the Act and
prior to June 1,  1997  that  applies  equally  to all  out-of-state  banks  and
expressly prohibits merger transactions  involving out-of-state banks. The State
of Maryland has enacted legislation that authorizes interstate mergers involving
Maryland  banks.  The Maryland  statute also  authorizes  out-of-state  banks to
establish branch offices in Maryland by means of merger,  branch  acquisition or
de novo  branching,  provided  that the  home  state  of the  out-of-state  bank
provides  reciprocal  interstate  branching  authority  to Maryland  banks.  The
Maryland  statute permits an out-of-state  bank to branch into Maryland  without
regard to the laws of such bank's home state.

     Dividends.  The Federal Reserve Board has issued a policy  statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve  Board's view that a bank holding company should pay cash dividends only
to the extent that the  company's  net income for the past year is sufficient to
cover both the cash dividends and a rate of earning retention that is consistent
with the company's capital needs, asset quality and overall financial condition.
The Federal  Reserve Board also indicated that it would be  inappropriate  for a
company   experiencing  serious  financial  problems  to  borrow  funds  to  pay
dividends.  Furthermore,  under the prompt corrective action regulations adopted
by the Federal  Reserve Board pursuant to FDICIA,  the Federal Reserve Board may
prohibit a bank  holding  company  from  paying  any  dividends  if the  holding
company's bank subsidiary is classified as  "undercapitalized."  See "Depository
Institution Regulation -- Prompt Corrective Regulatory Action."

     Bank holding companies are required to give the Federal Reserve Board prior
written  notice  of  any  purchase  or  redemption  of  its  outstanding  equity
securities  if the gross  consideration  for the  purchase or  redemption,  when
combined with the net  consideration  paid for all such purchases or redemptions
during  the  preceding  12  months,  is  equal  to 10%  or  more  of  the  their
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines  that the proposal would  constitute an unsafe or
unsound  practice or would violate any law,  regulation,  Federal  Reserve Board
order,  or any  condition  imposed by, or written  agreement  with,  the Federal
Reserve Board.

     Capital  Requirements.  The Federal Reserve Board has  established  capital
requirements,  similar  to the  capital  requirements  for  state  member  banks
described above,  for bank holding  companies with  consolidated  assets of $150
million  or more.  Since the  Company's  consolidated  assets are less than $150
million, the Federal Reserve Board's holding company capital requirements do not
apply to the Company.  However, assuming the application of such requirements to
the Company,  the  Company's  levels of  consolidated  regulatory  capital would
exceed the Federal Reserve Board's minimum requirements.

TAXATION

     The Company and the Bank, together with the Bank's subsidiary, to date have
not filed a  consolidated  federal  income tax  return.  The  Company has had no
material tax liability through June 30, 2001.

     The federal tax bad debt reserve  method  available to thrift  institutions
was repealed in 1996 for tax years beginning  after 1995. As a result,  the Bank
was required to change to a reserve method based on actual experience to compute
its bad debt  deduction.  In addition,  the Bank was required to recapture  into
income the portion of its bad debt reserve  that exceeds its base year  reserves
of approximately $200,000.

                                       23
<PAGE>

     Earnings  appropriated  to the Bank's bad debt reserve and claimed as a tax
deduction  are  not  available  for  the  payment  of  cash   dividends  or  for
distribution to  stockholders  (including  distributions  made on dissolution or
liquidation),  unless the Bank includes the amount in taxable income, along with
the amount deemed necessary to pay the resulting federal income tax.

     The Bank's  federal  income tax returns have been audited  through June 30,
1995. The Company's tax returns have never been audited.

     State  Income  Taxation.  The State of  Maryland  imposes  an income tax of
approximately 7% on income measured  substantially the same as federally taxable
income, except that U.S. Government interest is not fully taxable.

     For  additional  information  regarding  taxation,  see  Note 8 of Notes to
Consolidated Financial Statements.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

     The  following  table  sets  forth  the  location  and  certain  additional
information regarding the Bank's offices at June 30, 2001.
<TABLE>
<CAPTION>
                                                                         Book Value at
                                          Year           Owned or           June 30,           Approximate
                                         Opened           Leased             2001            Square Footage
                                         ------          --------        -------------       --------------
                                                                     (Dollars in thousands)
<S>                                       <C>             <C>                 <C>                 <C>
Headquarters and Branch Office
1301 Merritt Boulevard                    1970             Owned              $615                9,600
Dundalk, Maryland 21222-2194

Branch Office
8705 Harford Road
Baltimore, MD                             1923             Owned              108                  750

Branch Office
1844 E. Joppa Road
Baltimore, MD                             1983            Leased              15                  3,150

Administrative Center
8005 Harford Road
Baltimore, MD                             1998            Leased              26                  2,915

</TABLE>


     The book value of the Bank's  investment in premises and equipment  totaled
$1,193,425  million  at June 30,  2001.  See  Note 5 of  Notes  to  Consolidated
Financial Statements.

ITEM 3. LEGAL PROCEEDINGS.
-------------------------

     From  time to  time,  the  Bank is a party  to  various  legal  proceedings
incident to its business.  At June 30, 2001, there were no legal  proceedings to
which the Company or the Bank was a party, or to which any of their property was
subject,  which were  expected by management to result in a material loss to the
Company or the Bank.  There are no pending  regulatory  proceedings to which the
Company,  the  Bank  or its  subsidiary  is a party  or to  which  any of  their
properties is subject which are currently expected to result in a material loss.


                                       24
<PAGE>

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

         Not applicable.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

     The information contained under the sections captioned "Market Information"
in the Company's  Annual Report to  Stockholders  for the Fiscal Year Ended June
30, 2001 (the "Annual Report") filed as Exhibit 13 hereto is incorporated herein
by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and  Plan  of  Operation"  on  pages  5  through  19 in  the  Annual  Report  is
incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The  Consolidated  Financial  Statements,  Notes to Consolidated  Financial
Statements and Independent  Auditors' Report contained on pages 20 through 47 in
the Annual  Report,  which are listed  under  Item 13 herein,  are  incorporated
herein by reference.

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

         Not applicable.

                                    PART III

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

     For information concerning the Board of Directors and executive officers of
the Company,  the information  contained under the section captioned "Proposal I
-- Election of  Directors"  in the  Company's  Proxy  Statement is  incorporated
herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under the  sections  captioned  "Proposal I --
Election of Directors -- Executive  Compensation," " -- Director  Compensation,"
and " -- Employment Agreements" in the Proxy Statement is incorporated herein by
reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

          (a)  Security Ownership of Certain Beneficial Owners

               Information  required  by this  item is  incorporated  herein  by
               reference  to  the  section  captioned  "Voting   Securities  and
               Principal Holders thereof" in the Proxy Statement.

          (b)  Security Ownership of Management

               Information  required  by this  item is  incorporated  herein  by
               reference  to  the  sections  captioned  "Security  Ownership  of
               Management" in the Proxy Statement.

                                       25
<PAGE>

          (c)  Changes in Control

               Management of the Company knows of no arrangements, including any
               pledge by any person of securities of the Company,  the operation
               of which may at a  subsequent  date result in a change in control
               of the registrant.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section  captioned  "Proposal I -- Election of Directors --  Transactions
with Management" in the Proxy Statement.

ITEM 13.  EXHIBITS LIST AND REPORTS ON FORM 8-K.
-----------------------------------------------

          (A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
               ----------------------------------------------

          (1)  Financial  Statements.   The  following   consolidated  financial
statements are incorporated by reference from Item 7 hereof (see Exhibit 13):

                  Independent Auditors' Report
                  Consolidated Statement of Financial Condition as of June 30,
                  2001 and 2000
                  Consolidated Statements of Income for the Years Ended June 30,
                  2001 and 2000
                  Consolidated Statements of Stockholders' Equity for the Years
                  Ended June 30, 2001 and 2000
                  Consolidated Statements of Cash Flows for the Years Ended
                  June 30, 2001 and 2000
                  Notes to Consolidated Financial Statements

          (2)  Exhibits.  The  following is a list of exhibits  filed as part of
this Annual Report on Form 10-KSB and is also the Exhibit Index.

          No.     Description
          ---     -----------

*****    3.1      Articles of Incorporation of Patapsco Bancorp, Inc. and
                  Articles Supplementary
*        3.2      Bylaws of Patapsco Bancorp, Inc.
**       4        Form of Common Stock Certificate of Patapsco Bancorp, Inc.
***     10.1      Patapsco Bancorp, Inc. 1996 Stock Option and Incentive Plan
***     10.2      Patapsco Bancorp, Inc. Management Recognition Plan
*       10.3(a)   Employment  Agreement  between  Patapsco  Federal Savings and
                  Loan  Association  and  Joseph J. Bouffard
*       10.3(b)   Employment Agreement between Patapsco Bancorp, Inc. and Joseph
                  J. Bouffard
*       10.4(a)   Severance  Agreements  between  Patapsco  Federal Savings and
                  Loan  Association and Debra Penczek and John McClean
*       10.4(b)   Severance Agreements between Patapsco Bancorp, Inc. and Debra
                  Penczek and John McClean
*       10.5      Patapsco Federal Savings and Loan Association Retirement Plan
                  for Non-Employee Directors
*       10.6      Patapsco Federal Savings and Loan Association Incentive
                  Compensation Plan
*       10.7      Deferred  Compensation  Agreements between Patapsco Federal
                  Savings and Loan Association and each of Directors McGowan and
                  Patterson
*       10.8(a)   Severance Agreement between Patapsco Federal Savings and Loan
                  Association and Frank J. Duchacek
*       10.8(b)   Severance Agreement between Patapsco Bancorp, Inc. and Frank
                  J. Duchacek, Jr.
****    10.9      The Patapsco Bank Retirement Plan for Non-Employee Directors
*****   10.10     Patapsco Bancorp, Inc. 2000 Stock Option and Incentive Plan
*****   10.11     Severance  Agreements  between Patapsco  Bancorp,  Inc. and
                  Michael J. Dee and Frank J. Duchacek, Jr.

                                       26
<PAGE>

        13        2001 Annual Report to Stockholders
        21        Subsidiaries of the Registrant
        23        Consent of Anderson Associates, LLP
----------------
*    Incorporated herein by reference from the Company's  Registration Statement
     on Form SB-2 (File No. 33-99734).
**   Incorporated herein by reference from the Company's  Registration Statement
     on Form 8-A (File No. 0-28032).
***  Incorporated  herein by reference from the Company's  Annual Report on Form
     10-KSB for the year ended June 30, 1996 (File No. 0-28032)
**** Incorporated  herein by reference from the Company's  Annual Report on Form
     10-KSB for the year ended June 30, 1999 (File No. 0-28032).
*****Incorporated  herein by reference from the Company's  Annual Report on Form
     10-KSB for the year ended June 30, 2000 (File No. 0-28032).


          (B) REPORTS ON FORM 8-K.
              -------------------

              No current reports on Form 8-K have been filed during the last
              quarter of the fiscal year covered by this report.


                                       27
<PAGE>

                                   SIGNATURES

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

                                       PATAPSCO BANCORP, INC.

September 19, 2001
                                       By: /s/ Joseph J. Bouffard
                                           -------------------------------------
                                           Joseph J. Bouffard
                                           President and Chief Executive Officer

     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.


/s/ Joseph J. Bouffard                                        September 19, 2001
----------------------------------------------
Joseph J. Bouffard
President, Chief Executive Officer
  and Director
(Principal Executive Officer)

/s/ Michael J. Dee                                            September 19, 2001
----------------------------------------------
Michael J. Dee
Vice-President and Treasurer
(Principal Financial and Accounting Officer)

/s/ Thomas P. O'Neill                                         September 19, 2001
-----------------------------------------------
Thomas P. O'Neill
Chairman of the Board

/s/ Theodore C. Patterson                                     September 19, 2001
-----------------------------------------------
Theodore C. Patterson
Director and Secretary

/s/ Douglas H. Ludwig                                         September 19, 2001
-----------------------------------------------
Douglas H. Ludwig
Director

/s/Nicole N. Glaeser                                          September 19, 2001
-----------------------------------------------
Nicole N. Glaeser
Director

/s/ William R. Waters                                         September 19, 2001
-----------------------------------------------
William R. Waters
Director

/s/ Gary R. Bozel                                             September 19, 2001
-----------------------------------------------
Gary R. Bozel
Director

/s/ J. Thomas Hoffman                                         September 19, 2001
-----------------------------------------------
J. Thomas Hoffman
Director