PATAPSCO BANCORP, INC.









         [LOGO]












                                                              2000 ANNUAL REPORT


<PAGE>

PATAPSCO BANCORP, INC.
--------------------------------------------------------------------------------

         Patapsco  Bancorp,  Inc. (the "Company") is the holding company for The
Patapsco Bank (the "Bank").  The Bank is a Maryland  commercial  bank  operating
through a single  office  located  in  Dundalk,  Maryland  and  serving  eastern
Baltimore  County.  The  principal  business of the Bank  consists of attracting
deposits from the general  public and investing  these deposits in loans secured
by  residential  and  commercial  real estate,  construction  loans,  commercial
business loans and consumer loans. The Bank derives 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.
Principally operating revenues, deposits and repayments of outstanding loans and
investment  securities and  mortgage-backed  securities  provide funds for these
activities.


MARKET INFORMATION

--------------------------------------------------------------------------------
         The  Company's  common stock trades under the symbol  "PATD" on the OTC
Bulletin  Board.  There  are  currently  327,390  shares  of  the  common  stock
outstanding  and  approximately  379  holders  of  record of the  common  stock.
Following  are the high and low  closing  sale  prices,  by fiscal  quarter,  as
reported on the  Bulletin  Board  during the periods  indicated,  as well as the
dividends paid during such quarters.
<TABLE>
<CAPTION>

                                                      High               Low            Dividends Per Share
                                                      ----               ---            -------------------
              <S>                                    <C>               <C>                   <C>
              Fiscal 2000:

                    First Quarter                    $      29.00      $    23.25            $  .14
                    Second Quarter                          27.50           25.25               .14
                    Third Quarter                           26.25           20.50               .14
                    Fourth Quarter                          23.50           20.00               .14
              Fiscal 1999:
                    First Quarter                    $      34.25      $    28.125           $  .12
                    Second Quarter                          30.00           26.50               .12
                    Third Quarter                           31.50           28.25               .12
                    Fourth Quarter                          30.125          28.75               .12

</TABLE>

         The  stated  high and low  closing  sale  prices  reflect  inter-dealer
prices,  without retail mark-up,  markdown or commission,  and may not represent
actual transactions.


TABLE OF CONTENTS
--------------------------------------------------------------------------------

Patapsco Bancorp, Inc........................................................(i)
Market Information...........................................................(i)
Letter to Stockholders........................................................1
Selected Consolidated Financial and Other Data................................3
Management's Discussion and Analysis of Financial Condition and
  Results of Operations.......................................................5
Consolidated Financial Statements............................................20
Corporate Information.........................................Inside Back Cover


                                      (i)
<PAGE>

                         [Patapsco Bancorp Letterhead]

Dear Shareholder:

     The  directors,  officers  and  staff of  Patapsco  Bancorp,  Inc.  and The
Patapsco Bank proudly present our fifth Annual Report to our shareholders.

     This report  reflects a year of  significant  achievement in the history of
your Company. It was a year in which our assets exceeded $100 million, our loans
exceeded $90 million and our deposits reached $75 million.  Most  significantly,
this was the first year our core earnings exceeded $790,000,  the best in our 90
year history.  During fiscal year 2000, we continued to diversify our assets, to
increase our loan loss reserves and control our expenses.  The Returns on Assets
and Equity  increased to .81% and 8.46%,  respectively,  sustaining a pattern of
improved fiscal performance.

     In September,  the Company's  Board of Directors  declared a $.14 per share
dividend  payable in October  2000.  This  represents  the  twelfth  consecutive
quarter in which the  Company  has paid a dividend  in addition to the return of
capital distribution in June 1997.

     Our  transformation  into  a  commercial  bank  continues.  This  was  most
dramatically  demonstrated by the continuing changes in our loan portfolios.  In
1996, 90% of our $53 million loan portfolio was in residential  mortgage  loans.
By the end of fiscal 2000,  our loan  portfolio had increased to $90 million but
the  percentage  of  lower  yielding  residential  mortgages  decreased  to 55%.
Consumer  loans and business  related loans have become our major sources of new
business. At year end our loans to deposits ratio stood at 121%.

     Despite  the  expansion  in the  number and types of loans,  asset  quality
remained  extremely high with  non-performing  loans at .33% of total loans.  In
addition, while the loan portfolios increased, the Company continued to maintain
the loan loss reserve at .81% of total loans and 242% of non-performing loans.

     We continued our expansion  into new areas of business with the creation of
Patapsco Financial Services.  Initially offering annuities,  it is our intention
to gradually  expand the product  offerings of this new venture into the sale of
other  alternative   investments  for  our  customers.   The  Bank's  other  new
subsidiary,  Prime Business Leasing, which invests in equipment leases continues
to perform well with over $6 million in business at year-end.
<PAGE>

     However,   the  most  significant   event  of  fiscal  year  2000  was  the
announcement  of our  intent to acquire  Northfield  Bancorp,  Inc.  This is the
parent  organization  of Northfield  Federal  Savings Bank. We believe that this
will be the right  acquisition  at the right time for our Company.  Northfield's
$53,000,000 in assets will allow our Company to grow 52%.  Northfield's  market,
in the  Parkville  area of  Baltimore  County,  is  adjacent  to our  market and
demographically  very similar to ours. Since Northfield is a thrift institution,
we intend over time to convert its mortgage assets to more profitable commercial
bank  assets,  much as we have done with our own  portfolios  since we converted
from a thrift charter.  Most  importantly,  we expect this acquisition to have a
positive impact on earnings.

     We still have other  goals to  accomplish.  We shall  continue  to focus on
products  and  services  which will allow us to compete in a highly  competitive
banking  environment.  We shall continue to expand our efforts relative to small
business loans, commercial real estate loans, construction loans, consumer loans
and leases.  We must attract more demand deposit  accounts and continue to build
our loan loss reserves as our portfolio  continues to grow and change. In short,
we must  continue to implement  our  strategic  plan to achieve a rate of growth
that  can be  sustained  over  time  consistent  with  prudent  safe  and  sound
practices.

     The  upcoming  year  will  also  present  varied  challenges.  The  banking
landscape  continues  to change as the big banks and de novo banks  compete with
community  banks  such  as ours  for  market  share.  The  economic  environment
continues to remain extremely competitive for deposit dollars and quality loans.
Nevertheless,  your Company intends to continue in its quest to become a leading
independent  provider of financial  services  throughout  the Baltimore  area by
delivering exceptional service to an expanding customer base in our tradition of
integrity, personalized service and community focus.

     In fiscal year 2000,  Chairman Tom O'Neill and newly elected  Director Bill
Waters enjoyed a successful first year in their respective positions. Similarly,
we hope that the Directors who will join our Board from Northfield,  Gary Bozel,
Tom Hoffman and Honorary  Director David  Rittenhouse will contribute to an even
more successful first year association.

     In conclusion, the directors,  officers and staff of Patapsco Bancorp, Inc.
and The Patapsco  Bank thank all of our  stockholders  and  customers  for their
confidence and support during the past year. We look forward to a prosperous new
year.


         /s/ Thomas P. O'Neill                   /s/ Joseph J. Bouffard

         Thomas P. O'Neill                       Joseph J. Bouffard
         Chairman of the                         President and
         Board of Directors                      Chief Executive

<PAGE>



SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------

SELECTED CONSOLIDATED FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
                                                                           AT JUNE 30,
                                                                 ---------------------------------
                                                                     2000               1999
                                                                   --------           ---------
                                                                         (IN THOUSANDS)
<S>                                                            <C>                  <C>
Total assets..................................................  $ 102,665           $  95,328
Loans receivable, net.........................................     91,002              77,777
Cash, federal funds sold and other interest
   bearing deposits...........................................      3,438               9,352
Investment securities.........................................        463                 214
Mortgage-backed securities....................................      4,456               4,879
Deposits......................................................     75,652              69,671
Borrowings....................................................     14,900              14,056
Stockholders' equity..........................................      9,579               9,218

</TABLE>

<TABLE>
<CAPTION>
SELECTED CONSOLIDATED INCOME DATA

                                                                        YEAR ENDED JUNE 30,
                                                                 ------------------------------
                                                                   2000                 1999
                                                                 --------             ---------
                                                                        (IN THOUSANDS)

<S>                                                              <C>                <C>
Interest income...............................................   $   7,908          $   7,240
Interest expense..............................................       3,656              3,306
                                                                 ---------          ---------
Net interest income before provision
   for loan losses............................................       4,252              3,934
Provision for loan losses.....................................         325                245
                                                                 ---------          ---------
Net interest income after provision
   for loan losses............................................       3,927              3,689
Noninterest income............................................         337                246
Noninterest expenses:
   Compensation and employee benefits.........................       1,861              1,797
   Insurance..................................................          55                 67
   Professional fees..........................................         129                 94
   Equipment expenses.........................................         170                115
   Net occupancy costs........................................          77                 81
   Advertising................................................          46                 45
   Data processing............................................         157                122
   Merger-related expenses....................................          --                 89
   Net loss on disposal of fixed assets.......................          --                 23
   Other......................................................         461                443
                                                                 ---------          ---------
      Total noninterest expenses..............................       2,956              2,876
Income before provision (benefit) for income taxes............       1,308              1,059
Income tax provision (benefit)................................         514                399
                                                                 ---------          ---------
Net income....................................................   $     794          $     660
                                                                 =========          =========
</TABLE>


                                       3
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS

                                                                            AT OR FOR THE
                                                                          YEAR ENDED JUNE 30,
                                                                   ------------------------------
                                                                       2000               1999
                                                                   ------------       -----------
<S>                                                                   <C>                  <C>
PERFORMANCE RATIOS:
   Return on average assets (net income divided by
      average total assets.......................................     0.81%                0.73%
   Return on average stockholders' equity (net income
      divided by average stockholders' equity)...................     8.46                 7.05
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)................................     3.99                 3.93
   Net interest margin (net interest income
      divided by average interest-earning assets)................     4.49                 4.46
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.......................   112.94               114.08
   Ratio of noninterest expense to average total assets..........     3.03                 3.17

ASSET QUALITY RATIOS:
   Nonperforming assets to total assets at
      end of period..............................................     0.37                 0.22
   Nonperforming (nonaccrual) loans to loans
      receivable, net at end of period...........................     0.33                 0.23
   Allowance for loan losses to total loans
      at end of period...........................................     0.81                 0.80
   Allowance for loan losses to nonperforming
      loans at end of period.....................................   241.92               347.19
   Net charge-offs to average loans outstanding..................     0.25                 0.21

CAPITAL RATIOS:
   Stockholders' equity to total assets at end of period.........     9.33                 9.67
   Average stockholders' equity to average assets................     9.63                10.33

</TABLE>


                                       4
<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

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

GENERAL

         The Company's  results of operations  depend  primarily on its level of
net  interest  income,  which  is the  difference  between  interest  earned  on
interest-earning  assets,  consisting primarily of loans, investment securities,
mortgage-backed  securities  and other  investments,  and the  interest  paid on
interest-bearing liabilities, consisting primarily of deposits and advances from
the  Federal  Home Loan  Bank of  Atlanta.  The net  interest  income  earned on
interest-earning   assets   ("net   interest   margin")   and   the   ratio   of
interest-earning  assets  to  interest-bearing  liabilities  have a  significant
impact on net interest income.  The Company's net interest margin is affected by
regulatory, economic and competitive factors that influence interest rates, loan
and deposit flows. The Company, like other financial institutions, is subject to
interest  rate risk to the degree  that its  interest-earning  assets  mature or
reprice at different times, or on a different basis,  than its  interest-bearing
liabilities.  To a lesser extent,  the Company's  results of operations are also
affected  by the  amount  of its  noninterest  income,  including  loan fees and
service charges, and levels of noninterest  expense,  which consists principally
of compensation and employee benefits,  insurance  premiums,  professional fees,
equipment  expense,  occupancy,  costs,  advertising,  data processing and other
operating expenses.

         The Company's  operating results are significantly  affected by general
economic and competitive conditions,  in particular,  changes in market interest
rates, government policies and actions taken by regulatory authorities.  Lending
activities are  influenced by the demand for and supply of housing,  competition
among  lenders,  the  level of  interest  rates and the  availability  of funds.
Deposit flows and costs of funds are  influenced  by prevailing  market rates of
interest,  primarily on competing investments,  account maturities and the level
of personal income and savings in the Company's market area.

FORWARD-LOOKING STATEMENTS

         When used in this  Annual  Report,  the words or phrases  "will  likely
result," "are  expected  to," "will  continue,"  "is  anticipated,"  "estimate,"
"project"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  statements  are  subject  to  certain  risks  and  uncertainties
including changes in economic  conditions in the Company's market area,  changes
in policies by regulatory  agencies,  fluctuations in interest rates, demand for
loans in the  Company's  market area,  and  competition  that could cause actual
results  to differ  materially  from  historical  earnings  and those  presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

         The  Company  does  not  undertake,   and  specifically  disclaims  any
obligation,  to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or  unanticipated
events.

PENDING ACQUISITION

         On May 16, 2000,  the Company  announced that it had agreed to purchase
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 will be 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


                                       5
<PAGE>

stock,  on a one for one basis.  Each share of  Patapsco  Bancorp's  outstanding
preferred  stock  will  earn  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 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.

 The merger is subject to the  approval of the Board of Governors of the Federal
Reserve  System,  the  Commissioner  of  Financial  Regulation  of the  Maryland
Department  of  Labor,  Licensing,  and  the  approval  of the  stockholders  of
Northfield  Bancorp.  If all approvals  are received,  the merger is expected to
close some time in the fourth quarter of calendar year 2000.


                                       6
<PAGE>

AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

         The  following  table sets forth  certain  information  relating to the
Company's average  interest-earning assets and interest-bearing  liabilities and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  and at the date  indicated.  Dividing  income or expense by the average
daily balance of assets or  liabilities,  respectively,  derives such yields and
costs for the  periods  presented.  Average  balances  are  derived  from  daily
balances.

         The table also  presents  information  for the periods  indicated  with
respect to the institution's  net interest margin,  which is net interest income
divided by the average balance of interest earning assets.  This is an important
indicator of commercial bank profitability.  The net interest margin is affected
by yields on interest earning assets, the costs of interest bearing  liabilities
and the  relative  amounts  of  interest  earning  assets and  interest  bearing
liabilities.  Another  indicator of an institution's  net interest income is the
interest  rate spread or the  difference  between the average  yield on interest
earning assets and the average rate paid on interest bearing liabilities.
<TABLE>
<CAPTION>

                                                                          YEAR ENDED JUNE 30,
                                                 --------------------------------------------------------------
                                                             2000                           1999
                                                 ------------------------------- ------------------------------
                                                                        AVERAGE                        AVERAGE
                                                 AVERAGE                YIELD/   AVERAGE               YIELD/
                                                 BALANCE   INTEREST      COST    BALANCE   INTEREST     COST
                                                 -------   --------     ------   -------   --------    -------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                             <C>        <C>           <C>     <C>       <C>          <C>
Interest-earning assets:
   Loans receivable (1) .....................   $84,961    $ 7,305       8.60%   $78,779   $ 6,690      8.49%
   Investment securities ....................       460          7       1.59      3,272       201      6.13
   Mortgage-backed securities ...............     4,702        330       7.03        963        64      6.70
   Short-term investments and other interest-
      earning assets .......................      4,650        266       5.71      5,286       285      5.39
                                                -------    -------               -------   -------
      Total interest-earning assets .........    94,773      7,908       8.35     88,300     7,240      8.20
Non-interest-earning assets .................     2,788                            2,449
                                                -------                          -------
      Total assets ..........................   $97,561                          $90,749
                                                =======                          =======

Interest-bearing liabilities:
   Deposits (2) .............................   $69,057      2,794       4.05    $67,087     2,696      4.02
   Borrowings ...............................    14,856        863       5.81     10,315       610      5.91
                                                -------    -------               -------   -------
      Total interest-bearing liabilities ....    83,913      3,657       4.36     77,402     3,306      4.27
                                                           -------     ------              -------    ------
Non-interest-bearing liabilities ............     4,256                            3,975
                                                -------                          -------
      Total liabilities .....................    88,169                           81,377
Retained earnings ...........................     9,392                            9,372
                                                -------                          -------
      Total liabilities and retained earnings   $97,561                          $90,749
                                                =======                          =======

Net interest income .........................              $ 4,251                         $ 3,934
                                                           =======                         =======
Interest rate spread ........................                            3.99%                          3.93%
                                                                       ======                          ======
Net interest margin .........................                            4.49%                          4.46%
                                                                       ======                          ======
Ratio of average interest-earning assets to
   average interest-bearing liabilities .....                          112.94%                         114.08%
                                                                       ======                          ======
<FN>
___________
(1)      Includes nonaccrual loans.
(2)      Includes interest-bearing escrow accounts.
</FN>
</TABLE>

                                       7
<PAGE>

RATE/VOLUME ANALYSIS

         The following table sets forth certain information regarding changes in
interest income and interest  expense of the Company for the periods  indicated.
For each  category of  interest-earning  asset and  interest-bearing  liability,
information  is  provided  on changes  attributable  to:  (i)  changes in volume
(changes  in volume  multiplied  by prior  year's  rate);  (ii)  changes in rate
(changes in rate multiplied by prior year's volume).
<TABLE>
<CAPTION>

                                                              YEAR ENDED JUNE 30,
                                                      --------------------------------
                                                        2000       VS.          1999
                                                      ---------------------------------
                                                          INCREASE (DECREASE) DUE TO
                                                      ---------------------------------
                                                      VOLUME         RATE       TOTAL
                                                      ------         ----       -----
                                                                (In thousands)
<S>                                                   <C>          <C>             <C>
Interest income:
   Loans receivable.................................  $   530      $    86         $616
   Investment securities............................     (102)         (91)        (193)
   Mortgage-backed securities.......................      263            3          266
   Short-term investments and other
     interest-earning assets........................      (39)          19          (20)
                                                      --------     -------     ---------
       Total interest-earning assets................      652           11          669
                                                      -------      -------     --------

Interest expense:
   Deposits (1).....................................       80           18           98
   Borrowings.......................................      263          (10)         253
                                                      -------           ---    --------
       Total interest-bearing liabilities...........      343            8          351
                                                      -------          ---     --------

Change in net interest income.......................  $   265      $    53     $    318
                                                      =======      =======     ========
<FN>

(1)      Includes interest-bearing escrow accounts.
(2)      Combined Rate/volume variances, a third element of the calculation, are
         allocated  to the volume  and rate  variances  based on their  relative
         size.
</FN>
</TABLE>


COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND 1999

         General.  Total  assets  increased  by $7.3  million  or 7.7% to $102.7
million at June 30, 2000 from $95.3  million at June 30, 1999.  The increase was
primarily due the Company  utilizing cash,  deposit growth and borrowed money to
fund loan growth.

         Loans Receivable.  Total loans receivable increased by $13.2 million or
17.0% to $91.0  million at June 30,  2000 from $77.8  million at June 30,  1999.
Increases in commercial leases of $5.3 million,  commercial real estate loans of
$3.9 million, $3.0 million in commercial term loans, $1.4 million in residential
real estate and consumer loans of $900,000 were  partially  offset by a $800,000
decrease  in the  construction  loan  portfolio.  Since  the  conversion  of the
Company's  primary  subsidiary  from a mutual savings and loan  association to a
stock savings bank and later into a commercial  bank,  the Company has continued
to  diversify  its lending  away from the  traditional  single  family  mortgage
market.


                                       8
<PAGE>

         The  following   table  sets  forth   selected  data  relating  to  the
composition  of the  Company's  loan  portfolio  by type  of  loan at the  dates
indicated.  At June  30,  2000,  the  Company  had no  concentrations  of  loans
exceeding 10% of gross loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                                                 AT JUNE 30,
                                                            ------------------------------------------------------
                                                                         2000                        1999
                                                            -----------------------          ---------------------
                                                               AMOUNT           %            AMOUNT             %
                                                               ------         -----          ------           ----
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                         <C>               <C>           <C>             <C>
Real estate loans:
   Residential............................................  $   49,968        53.93%        $  48,549       61.70
   Commercial.............................................      11,838        12.78             7,870       10.00
   Construction (1).......................................       1,570         1.69             2,351        2.99
Consumer loans:
   Home improvement.......................................       9,267        10.00             8,770       11.14
   Home equity loans......................................       1,864         2.01             1,698        2.16
   Loans secured by deposits..............................         221         0.24               285        0.36
   Other consumer loans...................................         990         1.07               668        0.85
Commercial loans:
   Commercial loans.......................................       9,884        10.67             6,849        8.70
   Commercial leases......................................       7,053         7.61             1,655        2.10
                                                            ----------       -------        ---------     -------
                                                                92,656       100.00%           78,695      100.00%
                                                                             ======                        ======
Less:
   Deferred loan origination fees, net of costs...........          74                             73
   Unearned Interest consumer loans.......................         127                             54
   Unearned Interest commercial loans.....................         710                            160
   Allowance for loan losses..............................         743                            631
                                                            ----------                      ---------
      Total...............................................  $   91,002                      $  77,777
                                                            ==========                      =========
<FN>

(1)  Less loans in process.
</FN>
</TABLE>


         The  following  table sets forth certain  information  at June 30, 2000
regarding  the dollar  amount of loans  maturing or repricing  in the  Company's
portfolio.  Demand loans,  loans having no stated schedule of repayments and any
stated  maturity,  and  overdrafts  are  reported  as due in one  year or  less.
Adjustable-rate  and  floating-rate  loans are  included  in the period in which
interest  rates are next  scheduled  to adjust  rather than the periods in which
they mature,  and fixed-rate loans are included in the period in which the final
contractual  repayment  is due.  The table  does not  include  any  estimate  of
prepayments  that  significantly  shorten the average life of all mortgage loans
and may cause the  Company's  repayment  experience  to differ  from that  shown
below.
<TABLE>
<CAPTION>
                                                         DUE AFTER
                                     DUE DURING          1 THROUGH            DUE AFTER
                                   THE YEAR ENDING       5 YEARS AFTER      5 YEARS AFTER
                                    JUNE 30, 2001       JUNE 30, 2000       JUNE 30, 2000          TOTAL
                                   --------------       -------------       -------------       -----------
                                                                (IN THOUSANDS)
<S>                                  <C>                <C>                  <C>                <C>
Real estate loans:
   Residential...................    $ 11,573           $   3,902            $  34,493          $  49,968
   Commercial....................      10,137                  --                1,701             11,838
   Construction..................       1,570                  --                   --              1,570
Consumer loans...................       2,248               4,618                5,476             12,342
Commercial loans.................       6,615               7,595                2,728             16,938
                                     --------           ---------            ---------          ---------
Total............................    $ 32,143           $  16,115            $  44,398          $  92,656
                                     ========           =========            =========          =========
</TABLE>


                                       9
<PAGE>

         The  following  table sets forth at June 30, 2000 the dollar  amount of
all loans  which may  reprice or are due one year or more  after  June 30,  2000
which have predetermined interest rates and have floating or adjustable interest
rates.
<TABLE>
<CAPTION>

                                   Predetermined            Floating or
                                       Rates              Adjustable Rates      Total
                                   -------------          ----------------    -----------
                                                          (In thousands)
<S>                                   <C>                   <C>                <C>
Real estate loans:
   Residential....................    $ 34,499              $   3,895          $   38,394
   Commercial.....................       1,389                    312               1,701
Consumer..........................      10,095                      -              10,095
Commercial........................      10,323                      -              10,323
                                      --------              ---------          ----------
   Total..........................    $ 56,305              $   4,207          $   60,513
                                      ========              =========          ===========
</TABLE>


         Scheduled  contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Company the right to declare a loan  immediately due
and payable in the event,  among other things,  that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially  higher than rates on  existing  mortgage  loans and,  conversely,
decrease when current  mortgage loan market rates are  substantially  lower than
rates on existing mortgage loans.

         Investment Securities and Mortgage-Backed  Securities.  Mortgage-backed
securities  decreased  by $400,000 in the year ended June 30, 2000 due to normal
prepayments and amortization. Equity securities increased $20,000 in the year as
a result of the purchase by the Company of shares in Northfield Bancorp, Inc.

         The  following  table sets forth the  carrying  value of the  Company's
investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                                           AT JUNE 30,
                                                                              -----------------------------------
                                                                                 2000                     1999
                                                                              ----------               ----------
                                                                                     (DOLLARS IN THOUSANDS)
<S>                                                                           <C>                      <C>
Securities available for sale, at fair value:
   U.S. government and agency securities....................................  $     --                 $     --
   Equity securities........................................................       463                      214
   Mortgage-backed securities...............................................     4,456                    4,879
                                                                              --------                 --------
     Total securities available for sale....................................     4,919                    5,093
                                                                              --------                 --------

Investments required by law, at cost:
  FHLB of Atlanta stock.....................................................       845                      695
  FRB of Richmond stock.....................................................       106                      106
                                                                              --------                 --------
    Total investments required by law, at cost..............................       951                      801
                                                                              --------                 --------

    Total investments.......................................................  $  5,870                 $  5,894
                                                                              ========                 ========
</TABLE>

                                       10
<PAGE>

         The  following  table sets  forth the  scheduled  maturities,  carrying
values,  market values and average yields for the Company's investment portfolio
at June 30, 1999.
<TABLE>
<CAPTION>
                                      ONE YEAR OR LESS       ONE TO FIVE YEARS       FIVE TO TEN YEARS     MORE THAN TEN YEARS
                                     ------------------     -------------------     -------------------    -------------------
                                     CARRYING   AVERAGE     CARRYING    AVERAGE     CARRING     AVERAGE    CARRING     AVERAGE
                                       VALUE     YIELD        VALUE      YIELD        VALUE      YIELD       VALUE      YIELD
                                     ---------  -------     ---------   -------     ---------   -------    ---------   --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>        <C>          <C>         <C>         <C>       <C>       <C>
Securities available for sale:
   Mortgage-backed  securities...... $    --      --  %      $     --      -- %       $  --        --  %    $ 4,456   7.03%
   Investments required by law......      --      --               --      --            --        --           951   7.51
   Equity securities................     463      1.59             --      --            --        --            --     --
                                     -------                 --------                 -----                 -------
       Total........................ $   463      1.59       $     --      --         $  --        --       $ 5,407   7.11
                                     =======                 ========                 =====                 =======

<CAPTION>
                                        TOTAL INVESTMENT PORTFOLIO
                                     ---------------------------------
                                     CARRYING      MARKET     AVERAGE
                                       VALUE       VALUE       YIELD
                                     ---------     ------     --------
                                          (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>        <C>
Securities available for sale:
   Mortgage-backed  securities...... $4,456        $4,456      7.03%
   Investments required by law......     --           951      7.51
   Equity securities................    463           463      1.59
                                     ------        ------
       Total........................ $5,870        $5,870      6.69
                                     ======        ======
</TABLE>

                                       11
<PAGE>

         Deposits.  Deposits  increased by $6.0 million or 8.6% to $75.6 million
at June 30, 2000 from $69.6  million at June 30, 1999.  The increase in deposits
is  largely  attributable  to the  $5.5  million  increase  in  interest-bearing
deposits,  primarily  certificate  accounts.  Included  in this  amount are $1.0
million in retail brokered deposit accounts in denominations less than $100,000.
Noninterest  checking accounts  increased 14.4% to $3.3 million at June 30, 2000
from $2.9 million at June 30, 1999.

         The  following  tables set forth the  average  balances  based on daily
balances  and  interest  rates for  various  types of  deposits  as of the dates
indicated.
<TABLE>
<CAPTION>
                                                               YEAR ENDED JUNE 30,
                                         ---------------------------------------------------------------
                                                  2000                                  1999
                                         -------------------------          ----------------------------

                                         AVERAGE          AVERAGE           AVERAGE           AVERAGE
                                         BALANCE            RATE            BALANCE             RATE
                                         -------          --------          -------           --------
                                                                (DOLLARS IN THOUSANDS)
<S>                                      <C>                <C>             <C>                <C>
Passbook, statement savings
   and Christmas Club.................   $ 17,508           2.77%           $ 20,035           2.84%
NOW checking..........................      4,242           1.49               3,837           1.63
Money market..........................      4,361           2.93               4,896           3.07
Certificates of deposit...............     39,851           5.12              37,682           5.08
Noninterest-bearing checking..........      3,599             --                2,933            --
                                         --------                           --------
     Total............................   $ 71,950                           $ 69,276
                                         ========                           ========

</TABLE>

         The following table indicates the amount of the Company's  certificates
of deposit of $100,000 or more by time  remaining  until maturity as of June 30,
2000. At such date, such deposits  represented 5.48% of total deposits and had a
weighted average rate of 5.82%.
                                                      Certificates
        Maturity Period                               of Deposits
        ---------------                               -----------
                                                     (In thousands)


        Three months or less.......................   $     746
        Over three through 12 months...............       1,951
        Over 12 months.............................       1,450
                                                      ---------
            Total..................................   $   4,147
                                                      =========

         Borrowings. The Company's borrowings increased by $1.0 million to $14.9
million at June 30, 2000 from June 30, 1999.  During the year,  the Company paid
down $8.0 million in  borrowings  from the Federal Home Loan Bank of Atlanta and
borrowed $9.0 million to fund loan demand.

         The following table sets forth certain information regarding short-term
borrowings by the Company at the dates and for the periods indicated:
<TABLE>
<CAPTION>

                                                                      At June 30,
                                                            ------------------------------
                                                               2000                1999
                                                            ----------          ----------
                                                                 (Dollars in thousands)
<S>                                                         <C>                 <C>
Amounts outstanding at end of period:
    FHLB advances......................................     $  14,900           $ 13,900
    Other borrowings...................................            --                 --
Weighted average rate paid on:
    FHLB advances......................................         5.92%               5.71%
    Other borrowings...................................            -- %               -- %

</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>

                                                                   Year Ended June 30,
                                                            ------------------------------
                                                               2000                1999
                                                            ---------           ----------
                                                                 (Dollars in thousands)
<S>                                                         <C>                 <C>
Maximum amount of borrowings outstanding at any month end:
    FHLB advances......................................     $  16,900           $ 13,900
    Other borrowings...................................            --                 --
</TABLE>
<TABLE>
<CAPTION>


                                                                   Year Ended June 30,
                                                            ------------------------------
                                                               2000                1999
                                                            ---------           ----------
                                                                 (Dollars in thousands)

<S>                                                         <C>                      <C>
Approximate average short-term borrowings outstanding
 with respect to:
   FHLB advances.......................................     $   --                    --
   Other borrowings....................................         --                    --
Approximate weighted average rate paid on: (1)
   FHLB advances.......................................         -- %                  --%
   Other borrowings....................................         -- %                  --%
<FN>
(1)      Weighted average rate paid is derived from dividing the actual interest
         expense by the average daily short-term borrowings outstanding.
</FN>
</TABLE>


COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999

         General.  The  Company's  net income  increased by $134,000 or 20.3% to
$794,000 in the year ended June 30, 2000  compared to $660,000 in the year ended
June 30, 1999.  The increase in net income was primarily due to increases in net
interest  and  noninterest   income   offsetting   higher  operating   expenses.
Additionally,  earnings for the year ended June 30, 1999 were adversely impacted
by the  recognition  of $89,000 in expenses  related to the  termination  of the
merger conversion  agreement with Belmar Savings and Loan Association.  Adjusted
for the merger  termination  expenses  noted above,  earnings for the year ended
June 30, 1999 would have been  $715,000.  Net income for the year ended June 30,
2000 increased $79,000 or 11% over the adjusted 1999 figures.

         Net Interest  Income.  The Company's net interest  income  increased by
$318,000  or 8.1% to $4.2  million  in the year  ended  June 30,  2000 from $3.9
million in the year ended June 30, 1999.

         The increase in net  interest  income is  attributable  to loan growth,
continued  diversification  to higher  yielding loan products such as commercial
real estate,  commercial  business,  commercial  leasing and consumer  loans. As
shown in the Rate/Volume Analysis above, the increase in volume, primarily loans
receivable,  was responsible for $265,000 of the increase in net interest income
and changes in rate,  primarily  the  increase  in loans,  was  responsible  for
$53,000 of the increase in net interest income.

         The Company's net interest margin increased to 4.49% for the year ended
June 30,  2000 from 4.46% for the year  ended June 30,  2000.  The  increase  in
yields on earning assets of 14 basis points was partially  offset by an increase
of 9 basis points in the cost of funds and the decrease in the ratio of interest
earning assets to interest bearing liabilities to 112.94% from 114.08%.

         Interest  Income.  The Company's  total  interest  income  increased by
$669,000,  or 9.2% to $7.9  million in the year  ended  June 30,  2000 from $7.2
million in the year ended June 30, 1999.  The increase in the volume of interest
earning  assets is responsible  for $652,000 of the increase in interest  income
and  increased  yields is  responsible  for $11,000 of the  increase in interest
income.

                                       13
<PAGE>

         Interest income on loans increased $616,000, or 9.2% during fiscal year
2000. The increase is attributable  to the $6.2 million  increase in the average
balance of loans  receivable  to $85.0 million in fiscal 2000 from $78.8 million
in fiscal  1999 and the 11 basis  point  increase  in average  yield to 8.60% in
fiscal 2000 from 8.49% in fiscal 1999.

         Interest income on investment securities decreased by $193,000 or 96.4%
to $7,000 in fiscal year 2000 as  compared to $201,000 in fiscal year 1999.  The
decrease  was  primarily  the result of a  decrease  in the  average  balance to
$500,000 during fiscal year 2000 from $3.3 million in fiscal year 1999.

         Interest income on  mortgage-backed  securities  increased  $266,000 or
409% to $331,000  in fiscal 2000 from  $65,000 in the fiscal year ended June 30,
1999.  The  average  balance in  mortgage-backed  securities  increased  to $4.7
million from $963,000  during fiscal year 2000 and the yield  increased to 7.03%
in the fiscal year ended June 30, 2000 from 6.70% in fiscal 1999.

         Interest income on short-term  investments  and other interest  earning
assets  decreased  $19,000 or 6.8% to $266,000 in the fiscal year ended June 30,
2000 from  $285,000  in the fiscal  year ended June 30,  1999.  The  decrease in
interest income is primarily the result of lower average balances.

         The  increase  in loan  interest  income and the  decrease  in interest
income on  other,  lower-yielding  investments  reflect  management's  concerted
effort to invest the Company's resources in higher yielding loans.

         Interest Expense.  The Company's interest expense increased by $351,000
or 10.6% to $3.6 million in fiscal year 2000 from $3.3 million during the fiscal
year ended June 30, 1999. As shown in the rate/volume  table above, the increase
in the volume of interest bearing liabilities outstanding,  primarily borrowings
was  responsible  for  $343,000  of the  increase  in  interest  expense and the
increase  in rates was  responsible  for  $8,000  of the  increase  in  interest
expense.

         Interest expense on deposits  increased $98,000 or 3.6% to $2.8 million
in fiscal year 2000 from $2.7 million in fiscal 1999.  Higher  average  balances
were  responsible for $80,000 of the increase and higher rates were  responsible
for $18,000 of the increase.

         Interest  expense on  borrowed  money  increased  $253,000 or 41.6 % to
$863,000  in the year ended June 30,  2000 from  $609,000 in the year ended June
30,  1999.  The  $263,000  increase  in interest  expense due to higher  average
balances was somewhat offset by a decrease in interest expense on borrowed money
of $10,000 due to lower interest rates.

         Provision for Loan losses. The allowance for loan losses is a valuation
reserve  established by management in an amount it deems adequate to provide for
losses in the loan portfolio. Provisions for loan losses are charged to earnings
in order to maintain the total  allowance for loan losses at a level  considered
adequate by management to provide for probable loan losses.  Management assesses
the  adequacy  of the  allowance  for loan  losses  based on a number of factors
including, among others: lending risks associated with new products and markets,
loss  allocations for specific  problem  credits,  the level of the allowance to
nonperforming loans, historical loss experience, economic conditions,  portfolio
trends and credit  concentrations  and  management's  judgment  with  respect to
current and expected  economic  conditions and their impact on the existing loan
portfolio.

         The  provision  for loan losses was  $325,000  in fiscal year 2000,  an
increase of $80,000 or 32.7% over the fiscal year 1999  provision  of  $245,000.
The Company has increased the allowance for loan losses as a percentage of total
loans  outstanding  to 0.81% at June 30,  2000 from 0.80% at June 30,  1999 as a
result of the greater  inherent risk in the loan portfolio  caused by the shifts
to higher yielding loans as discussed earlier.  The Company's allowance for loan
losses as a  percentage  of  nonperforming  loans was 241.9% at June 30, 2000 as
compared to 347.2% at June 30, 1999.

         Noninterest  Income. The Company's  noninterest income consists of loan
fees and  service  charges  and net  gains  and  losses  on sales of  investment
securities,   mortgage-backed   securities,   loans  and   repossessed   assets.
Noninterest


                                       14
<PAGE>
income increased by $91,000 or 37.0% to $337,000 in fiscal year 2000 as compared
to $246,000 in fiscal year 1999. The increase is  attributable  to a gain on the
sale of  repossessed  real estate of $53,000 and a $41,000  increase in fees and
service  charges on deposit  accounts  somewhat  offset by a $3,000  decrease in
other income.

         Noninterest  Expense. The Company's total noninterest expense increased
by $80,000,  or 2.8%,  to $3.0 million  during  fiscal 2000, as compared to $2.9
million in fiscal 1999. The Company  experienced a $63,000,  or 3.5% increase in
compensation and employee benefits expense during fiscal 2000 primarily a result
of higher  staffing  levels and normal  salary  increases,  a $55,000,  47.5% or
increase in equipment expenses due to higher maintenance and depreciation costs,
a $35,000 or 37.5% increase in professional fees and a $35,000 or 29.0% increase
in data  processing  expense.  These  increases  were  somewhat  offset by lower
insurance and occupancy expenses. Additionally, as previously noted, in the year
ended June 30, 1999, the company  recognized  $89,000 in expenses  incurred as a
result of the terminated  merger  agreement with Belmar Federal Savings and Loan
Association as well as a $23,000 loss on disposal of obsolete equipment. Without
these  two  items,  the  Company's  noninterest  expense  would  have  increased
$192,000, or 6.9% for the year ended June 30, 2000.

ASSET/LIABILITY MANAGEMENT

         The  Company's  net  income is  largely  dependent  on the  Bank's  net
interest income. Net interest income is susceptible to interest rate risk to the
degree that interest-bearing  liabilities mature or reprice on a different basis
than  interest-earning  assets.  When  interest-bearing  liabilities  mature  or
reprice  more  quickly  than  interest-earning  assets  in  a  given  period,  a
significant  increase in market  rates of interest  could  adversely  affect net
interest income.  Similarly, when interest-earning assets mature or reprice more
quickly than interest bearing  liabilities,  falling interest rates could result
in a decrease in net interest  income.  Net interest  income is also affected by
changes  in  the  portion  of   interest-earning   assets  that  are  funded  by
interest-bearing  liabilities  rather  than by other  sources of funds,  such as
noninterest bearing deposits and stockholders' equity.

         The Bank's interest rate  sensitivity,  as measured by the repricing of
its interest  sensitive assets and liabilities at June 30, 2000, is presented in
the following  table. The table was derived using  assumptions  which management
believes to be reasonable.

         The Company has  established an  Asset/Liability  Management  Committee
"ALCO"  that  currently  is  comprised  of  three  non-employee  directors,  the
President and the Chief  Financial  Officer.  This Committee  meets on a monthly
basis and reviews the  maturities of the Company's  assets and  liabilities  and
establishes  policies and strategies  designed to regulate the Company's flow of
funds and to coordinate the sources,  uses and pricing of such funds.  The first
priority in structuring  and pricing the Company's  assets and liabilities is to
maintain an  acceptable  net interest  margin while  reducing the net effects of
changes in interest rates.

         Management's principal strategy in managing the Company's interest rate
risk has been to  maintain  short- and  intermediate-term  assets in  portfolio,
including locally originated  adjustable-rate  mortgage loans. In addition,  the
Company has available  for sale  investment  securities,  carried at fair value,
totaling  $4.9  million  as of June 30,  2000.  The  Company  is  holding  these
investment securities as available for sale because it may sell these securities
prior to maturity  should it need to do so for  liquidity or asset and liability
management purposes.

         In addition to shortening the average  repricing  period of its assets,
the Company has sought to lengthen the average  maturity of its  liabilities  by
offering higher rates of interest on its longer-term  certificates and utilizing
long-term borrowings from the Federal Home Loan Bank of Atlanta.

         The  Company's  Board of Directors is  responsible  for  reviewing  the
Company's  asset  and  liability   management   policies.   The  Asset/Liability
Management  Committee  reports to the Board  monthly on  interest  rate risk and
trends, as well as liquidity and capital ratios and requirements.  The Company's
management  is  responsible  for  administering  the  policies  of the  Board of
Directors  with  respect  to  the  Company's   asset  and  liability  goals  and
strategies.


                                       15
<PAGE>
         The following table sets forth the amounts of  interest-earning  assets
and interest-bearing  liabilities outstanding at June 30, 2000 that are expected
to mature or reprice in each of the time periods shown.
<TABLE>
<CAPTION>

                                            Three      Over Three     Over One    Over Five    Over Ten     Over
                                           Months    Months Through   Through      Through      Through    Twenty
                                           or Less      One Year     Five Years   Ten Years   Twenty Years  Years    Total
                                           -------      --------     ----------   ---------   ------------  -----    -----
                                                                           (Dollars in thousands)
<S>                                        <C>          <C>          <C>          <C>          <C>        <C>        <C>
Rate sensitive assets:
   Loans receivable ....................   $  4,072     $ 12,873     $ 42,314     $ 22,539     $ 10,662   $    196   $ 92,656
   Mortgage-Backed & Inv. securities ...         49          204        1,698        1,239        1,311        418      4,919
   Short-term investments and other
       Interest-earning assets .........      2,137            0            0            0            0          0      2,137
                                           --------     --------     --------     --------     --------   --------   --------
        Total ..........................      6,258       13,077       44,012       23,778       11,973        614     99,712
                                           --------     --------     --------     --------     --------   --------   --------

Rate sensitive liabilities:
   Deposits ............................     11,924       19,978       28,697       15,053            0          0     75,652
   Borrowings ..........................        900        1,000       13,000            0            0          0     14,900
                                           --------     --------     --------     --------     --------   --------   --------
       Total ...........................     12,824       20,978       41,697       15,053            0          0     90,552
                                           --------     --------     --------     --------     --------   --------   --------

Interest sensitivity gap ...............   $ (6,566)    $  7,901)    $  2,315     $  8,725     $ 11,973   $    614   $  9,160
                                           ========     ========     ========     ========     ========   ========   ========
Cumulative interest sensitivity gap ....   $ (6,566)    $(14,467)    $(12,152)    $ (3,427)    $  8,546   $  9,160
                                           ========     ========     ========     ========     ========   ========
Ratio of cumulative gap to total assets       (6.39)%     (14.09)%     (11.83)%      (3.34)%       8.32%      8.92%
                                           ========     ========     ========     ========     ========   ========
</TABLE>

                                       16
<PAGE>

         The interest  rate-sensitivity  of the Company's assets and liabilities
illustrated in the table above could vary substantially if different assumptions
were used or actual  experience  differs from the assumptions  used. If passbook
and NOW  accounts  were  assumed  to mature in one year or less,  the  Company's
one-year negative gap would have increased.

         Certain  shortcomings are inherent in the method of analysis  presented
in the above table.  Although  certain assets and  liabilities  may have similar
maturities  or  periods of  repricing,  they may react in  different  degrees to
changes in market interest rates.  The interest rates on certain types of assets
and  liabilities  may fluctuate in advance of changes in market  interest rates,
while  interest  rates on other types of assets and  liabilities  may lag behind
changes  in market  interest  rates.  Certain  assets,  such as  adjustable-rate
mortgages, have features that restrict changes in interest rates on a short-term
basis  and over the life of the  asset.  In the  event of a change  in  interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in  calculating  the table.  The ability of many borrowers to
service their adjustable-rate debt may decrease in the event of an interest rate
increase.

         The  Company  utilizes  two  additional  measures  of risk.  These  are
quantitative measures of the percentage change in net interest income and equity
capital  resulting from a hypothetical  change of plus or minus 200 basis points
in market interest rates for maturities from one day to thirty years. As of June
30,  2000,  the Bank had the  following  estimated  sensitivity  profile for net
interest income and fair value of equity:
<TABLE>
<CAPTION>

                                                       + 200 basis points        -200 basis points     Policy Limit
                                                       ------------------        -----------------     ------------
<S>                                                             <C>                       <C>                <C>

         % Change in Net Interest Income                        1.0%                     -2.0%            +/-10.0%
         % Change in Fair Value of Equity                     -13.0%                      5.0%            +/-25.0%
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

         An important  component of the Company's  asset/liability  structure is
the level of liquidity  available to meet the needs of customers and  creditors.
Patapsco's   Asset/Liability   Management   Committee  has  established  general
guidelines for the  maintenance  of prudent  levels of liquidity.  The Committee
continually monitors the amount and source of available  liquidity,  the time to
acquire it and its cost.

         The  Company's  most liquid  assets are cash on hand,  interest-bearing
deposits and Federal funds sold, which are short-term, highly liquid investments
with original  maturities of less than three months that are readily convertible
to known  amounts of cash.  The  levels of these  assets  are  dependent  on the
Company's operating, financing and investing activities during any given period.
At June 30, 2000,  the Company's  cash on hand,  interest  bearing  deposits and
Federal funds sold totaled $3.4 million.

         The Company anticipates that it will have sufficient funds available to
meet its current loan  origination,  and unused  lines-of-credit  commitments of
approximately  $2.6  million and $2.1  million,  respectively.  Certificates  of
deposit  that are  scheduled  to mature  in less than one year at June 30,  2000
totaled $28.5 million. Historically, a high percentage of maturing deposits have
remained with the Company.

         The Company's  primary  sources of funds are deposits,  borrowings  and
proceeds from maturing investment securities and mortgage-backed  securities and
principal  and  interest  payments  on loans.  While  maturities  and  scheduled
amortization of mortgage-backed  securities and loans are predictable sources of
funds,  deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and other factors.


                                       17
<PAGE>

         At June 30, 2000,  the Bank  exceeded all  regulatory  minimum  capital
requirements.  The table  below  presents  certain  information  relating to the
Bank's regulatory compliance at June 30, 2000.
<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                                                 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>
 Total Capital (to Risk Weighted Assets)..   $   9,822        14.31%     $  5,490      8.0%    $  6,863     10.0%
 Tier 1 Capital (to Risk Weighted Assets).       9,079        13.23         2,745      4.0        4,118      6.0
 Tier 1 Capital (to Average Assets).......       9,079         8.89         4,083      4.0        5,104      5.0
</TABLE>


IMPACT OF INFLATION AND CHANGING PRICES

         The  Consolidated  Financial  Statements  and Notes  thereto  presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles,  which require the  measurement of financial  position and operating
results in terms of historical  dollars  without  considering  the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
most industrial companies,  nearly all the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's  performance  than do the  effects  of  general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or to the same
extent as the price of goods and services.

ACCOUNTING PRONOUNCEMENTS WITH FUTURE EFFECTIVE DATES

         SFAS  No.  133  "Accounting  for  Derivative  Instruments  and  Hedging
Activities" was issued in June 1998. This Statement  standardizes the accounting
for derivative  instruments including certain derivative instruments embedded in
other contracts,  by requiring that an entity recognize these items as assets or
liabilities  in the  statement  of  financial  position and measure them at fair
value. This Statement generally provides for matching the timing of gain or loss
recognition on the hedging  instrument  which the  recognition of the changes in
the fair value of the hedged asset or  liability  that are  attributable  to the
hedged risk or the earnings  effect of the hedged  forecasted  transaction.  The
Statement,  which is  effective  for all fiscal  quarters  of all  fiscal  years
beginning after June 15, 2000, will not affect the Company's  financial position
or its results of operations.


                                       18
<PAGE>

                     [Anderson Associates, LLP Letterhead]



INDEPENDENT AUDITORS' REPORT




The Stockholders and The Board of Directors
Patapsco Bancorp, Inc.
Dundalk, Maryland


     We have  audited the  consolidated  statements  of  financial  condition of
Patapsco  Bancorp,  Inc. and  Subsidiaries as of June 30, 2000 and 1999, and the
related  consolidated  statements of income,  stockholders equity and cash flows
for each of the two years in the two year  period  ended  June 30,  2000.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion of these  consolidated
financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Patapsco  Bancorp,  Inc. and  Subsidiaries as of June 30, 2000 and 1999, and the
consolidated  results of its  operations  and its cash flows for each of the two
years in the two year period ended June 30, 2000, in conformity  with  generally
accepted accounting principles.

                                           /s/ Anderson Associates LLP



August 11, 2000
                                       19



<PAGE>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

June 30, 2000 and 1999
<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                     2000                  1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
ASSETS

Cash:
      On hand and due from banks                                                 $  2,251,850           1,601,598
      Interest bearing deposits                                                       282,929           2,170,254
Federal funds sold                                                                    903,004           5,580,098
Investment securities at fair value (note 2)                                          462,842             213,761
Mortgage-backed securities at fair value (note 3)                                   4,456,047           4,879,359
Loans receivable, net (note 4)                                                     91,002,476          77,777,163
Investment required by law, at cost (note 9)                                          950,850             800,850
Property and equipment, net (note 5)                                                1,004,443           1,052,618
Deferred taxes (note 8)                                                               442,000             441,000
Accrued interest, prepaid expenses and other assets                                   908,470             811,660
---------------------------------------------------------------------------------------------------------------------
                                                                                 $102,664,911          95,328,361
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
             Interest bearing deposits                                           $ 72,357,957          66,792,156
             Noninterest bearing deposits                                           3,293,950           2,879,263
      Borrowings (note 7)                                                          14,900,000          13,900,000
      Accrued expenses and other liabilities                                        2,520,673           2,513,846
      Income taxes payable                                                             13,033              25,236
---------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                  93,085,613          86,110,501

Stockholders' equity (notes 9, 10 and 11):
      Common stock  $0.01 par value;  authorized  4,000,000  shares;
        issued and outstanding 327,390 shares at June 30, 2000 and
        344,426 shares at June 30, 1999                                                3,274                3,445
      Additional paid-in capital                                                   1,471,253            1,888,962
      Contra equity - Employee Stock Option Plan (ESOP)                             (254,045)            (325,100)
      Contra equity - Management Recognition Plan (MRP)                             (154,761)            (257,095)
      Retained earnings, substantially restricted                                  8,625,749            8,017,059
      Accumulated other comprehensive income, net of taxes                          (112,172)            (109,411)
---------------------------------------------------------------------------------------------------------------------
                                                                                   9,579,298            9,217,860
Commitments (notes 4, 10 and 11)
---------------------------------------------------------------------------------------------------------------------
                                                                                $102,664,911           95,328,361
=====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       20
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                     2000                  1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Interest income:
      Loans receivable                                                           $7,304,753              6,689,710
      Mortgage-backed securities                                                    330,535                 64,546
      Investment securities                                                           7,312                200,549
      Federal funds sold and other investments                                      265,579                284,860
---------------------------------------------------------------------------------------------------------------------
Total interest income                                                             7,908,179              7,239,665
---------------------------------------------------------------------------------------------------------------------
Interest expense:
      Deposits                                                                   2,783,007               2,691,024
      Interest on short term borrowing                                              10,708                   5,328
      Interest on long term debt                                                   862,639                 609,183
---------------------------------------------------------------------------------------------------------------------
Total interest expense                                                           3,656,354               3,305,535
---------------------------------------------------------------------------------------------------------------------

Net interest income                                                              4,251,825               3,934,130
Provision for losses on loans (note 4)                                             325,000                 245,000
---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans                          3,926,825               3,689,130
---------------------------------------------------------------------------------------------------------------------

Noninterest income:
      Fees and service charges                                                     270,744                 229,134
      Net gain on sales of other real estate owned                                  52,853                      --
      Other                                                                         13,756                  17,029
---------------------------------------------------------------------------------------------------------------------
Total noninterest income                                                           337,353                 246,163
---------------------------------------------------------------------------------------------------------------------

Noninterest expenses:
      Compensation and employee benefits                                         1,860,531               1,797,183
      Insurance                                                                     55,315                  67,285
      Professional fees                                                            129,187                  93,966
      Equipment expenses                                                           169,692                 115,026
      Net occupancy costs                                                           77,216                  81,615
      Advertising                                                                   45,955                  44,671
      Data processing                                                              156,892                 121,703
      Merger-related expenses                                                           --                  89,000
      Net loss on disposal of fixed assets                                              --                  22,606
      Other                                                                        460,930                 443,008
---------------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                                       2,955,718               2,876,063
---------------------------------------------------------------------------------------------------------------------

Income before income taxes                                                       1,308,460               1,059,230
Income tax provision (note 8)                                                      514,000                 399,000
---------------------------------------------------------------------------------------------------------------------
Net income                                                                      $  794,460                 660,230
---------------------------------------------------------------------------------------------------------------------

Net income per share of common stock (note 1):
      Basic                                                                     $     2.54                    2.03
      Diluted                                                                         2.40                    1.87
======================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       21
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
====================================================================================================================================


                                                                                      Additional
                                                                        Common         Paid-In            Contra-         Contra-
                                                                        Stock          Capital          Equity ESOP     Equity MRP
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>               <C>              <C>
Balance at June 30, 1998                                          $     3,626         2,330,681         (396,341)        (339,225)
  Comprehensive income
    Net income                                                              -                 -                -                -
     Adjustment to unrealized net holding losses on
        Available-for-sale portfolios, net (note 1)                         -                 -                -                -
     Comprehensive income                                                   -                 -                -                -
  Compensation under stock-based benefit plans                              -            81,480           71,241           82,130

  Cash dividends declared ($.48 per share)                                  -                 -                -                -

  Purchase of common stock                                               (181)         (523,199)               -                -
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                                                3,445         1,888,962         (325,100)        (257,095)
  Comprehensive income
    Net income                                                              -                 -                -                -
     Adjustment to unrealized net holding losses on
        Available-for-sale portfolios, net (note 1)                         -                 -                -                -
     Comprehensive income                                                   -                 -                -                -
  Compensation under stock-based benefit plans                              -            52,360           71,055          102,334
  Cash dividends declared ($.56 per share)                                  -                 -                -                -
  Options exercised                                                        16            31,867                -                -
  Purchase of common stock                                               (187)         (501,936)               -                -
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000                                          $     3,274         1,471,253         (254,045)        (154,761)
====================================================================================================================================
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                                    Accumulated
                                                                                       Other
                                                                                   Comprehensive         Total
                                                                    Retained        Income, Net      Stockholders'
                                                                    Earnings          of Taxes           Equity
--------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <C>            <C>
Balance at June 30, 1998                                           7,525,501           (1,402)        9,122,840
  Comprehensive income
    Net income                                                       660,230                -                 -
     Adjustment to unrealized net holding losses on
        Available-for-sale portfolios, net (note 1)                        -         (108,009)                -

     Comprehensive income                                                  -                -           552,221
  Compensation under stock-based benefit plans                             -                -           234,851
  Cash dividends declared ($.48 per share)                          (168,672)               -          (168,672)
  Purchase of common stock                                                 -                -          (523,380)
--------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                                           8,017,059         (109,411)        9,217,860
  Comprehensive income
    Net income                                                       794,460                -                 -
     Adjustment to unrealized net holding losses on
        Available-for-sale portfolios, net (note 1)                        -           (2,761)                -
     Comprehensive income                                                  -                -           791,699
  Compensation under stock-based benefit plans                             -                -           225,749
  Cash dividends declared ($.56 per share)                          (185,770)               -          (185,770)
  Options exercised                                                        -                -            31,883
  Purchase of common stock                                                 -                -          (502,123)
--------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000                                           8,625,749         (112,172)        9,579,298
====================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                       22
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                     2000                  1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Cash flows from operating activities:
     Net income                                                                 $    794,460               660,230
     Adjustments to reconcile net income to net
          cash provided by operating activities:
               Depreciation                                                          139,529                119,384
               Provision for losses on loans                                         325,000                245,000
               Non-cash compensation under stock-based benefit plans                 225,749                234,851
               Amortization of premiums and discounts, net                             4,244                 10,406
               Deferred loan origination fees, net of costs                           28,380                 16,266
               Gain on sale of other real estate owned                               (52,853)                     -
               Loss on disposal of fixed assets                                            -                 22,606
               Decrease in income taxes payable                                      (12,203)              (316,563)
               Change in deferred taxes                                              (28,000)               (37,000)
               Increase in accrued interest on investments,
                prepaid expenses and other assets                                    (55,778)               (76,084)
               Increase in accrued expenses and other liabilities                      6,827                134,909
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                          1,375,355              1,014,005
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Purchase of investment securities                                              (187,708)              (133,406)
     Maturities of investment securities                                                   -              5,000,000
     Purchase of mortgage-backed security                                                  -             (5,063,556)
     Principal repayments on mortgage-backed securities                              353,198                 36,377
     Loan principal disbursements, net of repayments                             (13,736,669)            (1,830,344)
     Purchase of loans                                                                     -               (337,345)
     Proceeds from sale of real estate owned                                         198,535                      -
     Purchase of investment required by law                                         (150,000)              (125,200)
     Purchases of property and equipment                                             (91,355)               (98,987)
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                           $(13,613,999)            (2,552,461)
---------------------------------------------------------------------------------------------------------------------
                                                                                                 (Continued)
</TABLE>



See accompanying notes to consolidated financial statements.


                                       23
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

Years ended June 30, 2000 and 1999


<TABLE>
<CAPTION>

=====================================================================================================================
                                                                                     2000                  1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Cash flows from financing activities:
    Net increase (decrease) in deposits                                        $ 5,980,487                (655,962)
    Purchase of common stock                                                      (502,123)               (523,380)
    Stock options exercised                                                         31,883                       -
    Additional borrowings                                                        9,000,000               6,000,000
    Repayments of borrowings                                                    (8,000,000)             (2,300,000)
    Dividends paid                                                                (185,770)               (168,672)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        6,324,477               2,351,986
---------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                            (5,914,167)                813,530
Cash and cash equivalents at beginning of year                                   9,351,950               8,538,420
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                       $ 3,437,783               9,351,950
=====================================================================================================================
Supplemental information:
     Interest paid on savings deposits and borrowed funds                      $ 3,649,829               3,273,716
     Income taxes paid                                                             506,000                 672,200
     Transfer from loans to real estate owned                                      177,214                      --
=====================================================================================================================

</TABLE>


See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     DESCRIPTION OF BUSINESS

     Patapsco Bancorp, Inc. (the Company) is the holding company of The Patapsco
     Bank (Patapsco).  Patapsco owns 100% of Prime Business Leasing, Inc. (Prime
     Leasing) and Patapsco Financial  Services,  Inc.  (Financial).  The primary
     business of Patapsco is to attract  deposits from  individual and corporate
     customers  and to originate  residential  and  commercial  mortgage  loans,
     commercial  loans and consumer  loans.  Patapsco is subject to  competition
     from other financial and mortgage  institutions in attracting and retaining
     deposits and in making  loans.  Patapsco is subject to the  regulations  of
     certain  agencies  of  the  federal   government  and  undergoes   periodic
     examination by those agencies. The primary business of Prime Leasing is the
     origination  and servicing of commercial  leases.  The primary  business of
     Financial is the sale of consumer investments.

     BASIS OF PRESENTATION

     The consolidated  financial  statements include the accounts of the Company
     and its wholly-owned  subsidiaries,  Patapsco, Prime Leasing and Financial.
     All significant intercompany accounts and transactions have been eliminated
     in consolidation.

     In preparing the consolidated financial statements,  management is required
     to make  estimates  and  assumptions  that affect the  reported  amounts of
     assets  and  liabilities  as of the  date of the  statements  of  financial
     condition  and income and  expenses  for the  periods  then  ended.  Actual
     results could differ significantly from those estimates. Material estimates
     that are  particularly  susceptible to significant  change in the near-term
     relate to the determination of the allowance for loan losses. In connection
     with this  determination,  management  obtains  independent  appraisals for
     significant properties and prepares fair value analyses as appropriate.

     Management  believes that the allowance for loan losses is adequate.  While
     management uses and considers available  information in making the required
     estimates,  additional  provisions  for  losses may be  necessary  based on
     changes in economic conditions,  particularly in Baltimore and the State of
     Maryland. In addition,  various regulatory agencies, as an integral part of
     their examination  process,  periodically  review Patapsco's  allowance for
     loan losses.  Such agencies may require Patapsco to recognize  additions to
     the allowance based on their judgments about information  available to them
     at the time of their examination.

     CASH AND CASH EQUIVALENTS

     Cash equivalents include short-term investments,  which consists of Federal
     funds sold. Cash equivalents and other liquidity and short term investments
     are carried at cost, which approximates market value.



                                       25
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  CONTINUED

     INVESTMENT AND MORTGAGE-BACKED SECURITIES

     Debt  securities  that the Company has the  positive  intent and ability to
     hold to  maturity  are  classified  as  held-to-maturity  and  recorded  at
     amortized   cost.   Debt  and   equity   securities   not   classified   as
     held-to-maturity  and equity  securities  with  readily  determinable  fair
     values are classified as trading  securities if bought and held principally
     for the purpose of selling them in the near term.  Trading  securities  are
     reported  at fair  value,  with  unrealized  gains and losses  included  in
     earnings.  Investments  not classified as  held-to-maturity  or trading are
     considered   available-for-sale  and  are  reported  at  fair  value,  with
     unrealized  holding gains and losses excluded from earnings and reported as
     a separate component of stockholders' equity, net of tax effects.

     If  a  decline  in  value  of  an   individual   security   classified   as
     held-to-maturity  or   available-for-sale   is  judged  to  be  other  than
     temporary, the cost basis of that security is reduced to its fair value and
     the  amount of the  write-down  is  included  in  earnings.  Fair  value is
     determined  based on bid prices  published in financial  newspapers  or bid
     quotations  received  from  securities  dealers.  For purposes of computing
     realized  gains or losses on the sales of  investments,  cost is determined
     using  the  specific  identification  method.  Premiums  and  discounts  on
     investment  and  mortgage-backed  securities are amortized over the term of
     the security using methods that approximate the interest method.

     PROPERTY AND EQUIPMENT

     Property and  equipment  are stated at cost less  accumulated  depreciation
     computed by use of straight-line and accelerated methods over the estimated
     useful  lives  of  the  related  assets.   Additions  and  betterments  are
     capitalized  and  costs  of  repairs  and  maintenance  are  expensed  when
     incurred.  The related costs and  accumulated  depreciation  are eliminated
     from the accounts when an asset is sold or retired and the  resultant  gain
     or loss is credited or charged to income.

     LOAN FEES

     Loan  origination  fees are  deferred  and  amortized  to  income  over the
     contractual  lives of the related loans using the interest method.  Certain
     incremental  direct loan origination costs are deferred and recognized over
     the  contractual  lives of the related loans using the interest method as a
     reduction of the loan yield.  Deferred  fees and costs are  combined  where
     applicable and the net amount is amortized.


                                                                     (Continued)


                                       26
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  CONTINUED

     PROVISION FOR LOSSES ON LOANS

     Provisions for losses on loans  receivable are charged to income,  based on
     management's  judgment with respect to the risks inherent in the portfolio.
     Such  judgment  considers  a number of factors  including  historical  loss
     experience,  the present and prospective  financial condition of borrowers,
     the estimated value of underlying  collateral,  geographic  concentrations,
     current and prospective  economic  conditions,  delinquency  experience and
     status of  nonperforming  assets.  Additionally,  accrual  of  interest  on
     potential  problem  loans is excluded  from income when,  in the opinion of
     management,  the full  collection of principal or interest is in doubt,  or
     payment of principal  or interest  has become 90 days past due,  unless the
     obligation  is well  secured  and in the  process of  collection.  Interest
     collected on nonaccrual loans is generally recorded in income in the period
     received.

     In  accordance  with the  provisions  of Statement of Financial  Accounting
     Standards No. 114,  Accounting  for Creditors for  Impairment of a Loan, as
     amended by Statement 118,  Accounting by Creditors for Impairment of a Loan
     -  Income  Recognition  and  Disclosures   (collectively   referred  to  as
     "Statement 114"),  Patapsco determines and recognizes impairment of certain
     loans.  A  loan  is  determined  to be  impaired  when,  based  on  current
     information  and events,  it is probable  that  Patapsco  will be unable to
     collect all  amounts due  according  to the  contractual  terms of the loan
     agreement.  A loan is not considered  impaired  during a period of delay in
     payment if Patapsco expects to collect all amounts due,  including past-due
     interest.  Patapsco  generally  considers  a period of delay in  payment to
     include  delinquency  up to and  including 90 days.  Statement 114 requires
     that impaired loans be measured at the present value of its expected future
     cash flows  discounted  at the loan's  effective  interest  rate, or at the
     loan's  observable  market price or the fair value of the collateral if the
     loan is collateral dependent.

     Statement 114 is generally  applicable for all loans except large groups or
     smaller-balance  homogeneous  loans  that are  evaluated  collectively  for
     impairment,  including  residential  first and  second  mortgage  loans and
     consumer   installment  loans.   Impaired  loans  are  therefore  generally
     comprised of  commercial  mortgage,  real estate  development,  and certain
     restructured  residential loans. In addition,  impaired loans are generally
     loans which  management  has placed in  nonaccrual  status  since loans are
     placed in  nonaccrual  status on the  earlier  of the date that  management
     determines that the collection of principal  and/or interest is in doubt or
     the date that principal or interest is 90 days or more past-due.

     Patapsco  recognized interest income for impaired loans consistent with its
     method for nonaccrual loans.  Specifically,  interest payments received are
     recognized  as  interest  income  or,  if the  ultimate  collectibility  of
     principal is in doubt, are applied to principal.


                                                                     (Continued)

                                       27
<PAGE>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  CONTINUED

     REAL ESTATE ACQUIRED THROUGH FORECLOSURE

     Real estate acquired through foreclosure 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.  Costs relating to holding such
     real estate are charged against income in the current  period,  while costs
     relating  to  improving  such real estate are  capitalized  until a salable
     condition is reached.

     SALES OF MORTGAGE LOANS

     Loans  originated  for sale are carried at the lower of  aggregate  cost or
     market value.  Market value is  determined  based on  outstanding  investor
     commitments  or,  in the  absence  of such  commitments,  based on  current
     investor yield requirements.  Gains and losses on loan sales are determined
     using the specific identification method.

     INCOME TAXES

     Deferred  income  taxes  are  recognized,   with  certain  exceptions,  for
     temporary  differences between the financial reporting basis and income tax
     basis of assets and  liabilities  based on enacted tax rates expected to be
     in effect when such  amounts are  realized or settled.  Deferred tax assets
     (including tax loss carry  forwards) are recognized only to the extent that
     it is more likely  than not that such  amounts  will be  realized  based on
     consideration of available evidence,  including tax planning strategies and
     other factors.

     The  effects  of changes  in tax laws or rates on  deferred  tax assets and
     liabilities are recognized in the period that includes the enactment date.

     NET INCOME PER SHARE OF COMMON STOCK

     Basic per share amounts are based on the weighted  average shares of common
     stock  outstanding.  Diluted  earnings  per share  assume  the  conversion,
     exercise or issuance of all  potential  common  stock  instruments  such as
     options,  warrants  and  convertible  securities,  unless  the effect is to
     reduce a loss or increase  earnings per share. No adjustments  were made to
     net income (numerator) for all periods presented.



                                                                     (Continued)


                                       28
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  CONTINUED
<TABLE>
<CAPTION>

                                                     YEAR ENDED
                                      ------------------------------------------
                                         JUNE 30, 2000         JUNE 30, 1999
                                       BASIC     DILUTED     BASIC      DILUTED
--------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>         <C>
Net income                            $794,460   794,460    660,230     660,230
Weighted average shares outstanding    313,176   313,176    325,300     325,300

Diluted securities:
    MRP shares                              --     8,398         --      11,319
    Options                                 --     8,877         --      15,554
--------------------------------------------------------------------------------
Adjusted weighted average shares       313,176   330,451      325,300   352,173
--------------------------------------------------------------------------------
Per share amount                      $   2.54      2.40         2.03      1.87
================================================================================
</TABLE>


     STOCK-BASED COMPENSATION

     In October 1995, the FASB issued  Statement of Financial  Standards No. 123
     (Statement 123),  Accounting for Stock-Based  Compensation.  Statement 123,
     which is effective  for fiscal  years  beginning  after  December 15, 1995,
     establishes  financial  accounting and reporting  standards for stock-based
     employee  compensation plans and for transactions in which an entity issues
     its equity  instruments  to acquire goods and services  from  nonemployees.
     Statement  123 allows  companies  to account for  stock-based  compensation
     either  under the new  provisions  of SFAS 123 or under the  provisions  of
     Accounting  Principles Board Opinion No. 25 (APB 25),  Accounting for Stock
     Issued to Employees,  but requires pro forma disclosure in the footnotes to
     the financial statements as if the measurement  provisions of Statement 123
     had been adopted.  The Company has continued to account for its stock-based
     compensation in accordance with APB 25.  Information  required by Statement
     123 regarding the Company's  stock-based  compensation plans is provided in
     note 11.

     EMPLOYEE STOCK OWNERSHIP PLAN

     Patapsco recognizes the cost of the ESOP in accordance with AICPA Statement
     of Position 93-6 Employers'  Accounting for Employee Stock Ownership Plans.
     As shares are  released  from  collateral,  Patapsco  reports  compensation
     expense  equal to the  current  market  price of the  shares and the shares
     become  outstanding  for  earnings  per share  computations.  Dividends  on
     allocated  shares  are  recorded  as  a  reduction  of  retained  earnings;
     dividends on unallocat- ed shares are recorded as a reduction of debt.


                                                                     (Continued)
                                       29
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(1)  CONTINUED

     MERGER AGREEMENT

     On May  16,  2000,  the  Company  entered  into  a  merger  agreement  with
     Northfield  Bancorp,  Inc.   ("Northfield")  whereby  the  stockholders  of
     Northfield will receive $12.50 and .24 shares of Patapsco  Bancorp's Series
     A  Noncumulative  Convertible  Perpetual  Preferred Stock for each share of
     Northfield  common  stock.  The  Company  already  owns  20,244  shares  of
     Northfield. The total additional cash in the transaction is $5,690,000. The
     merger will be accounted for as a purchase. Accordingly, the purchase price
     will be allocated to the underlying assets and liabilities based upon their
     estimated  fair  values at the date of the  acquisition.  This  transaction
     requires  regulatory  approval and Northfield  stockholders  approval.  The
     applications for regulatory approvals were filed July 11, 2000.

     On May 22, 1998 the Bancorp entered into a merger conversion agreement with
     Belmar Federal Savings and Loan Association. The transaction was terminated
     in June 1999. All expenses associated with the merger have been included in
     the year ended June 1999 and amounted to $89,000.

     RECLASSIFICATION AND RESTATEMENT

     Certain  prior  year's  amounts  have been  reclassified  to conform to the
     current year's presentation.


(2)  INVESTMENT SECURITIES

     Investment securities, classified as available-for-sale,  are summarized as
     follows as of June 30:
<TABLE>
<CAPTION>

                                                   2000
                    -----------------------------------------------------------
                    Amortized   Unrealized    Unrealized    Fair       Carrying
                      cost         Gains        Losses      value       value
--------------------------------------------------------------------------------
<S>                 <C>           <C>           <C>        <C>         <C>
Equity securities   $434,118      28,724          --       462,842     462,842
================================================================================

                                                   1999
                    -----------------------------------------------------------
Equity securities   $246,410        --          32,649     213,761     213,761
--------------------------------------------------------------------------------

================================================================================
</TABLE>

   There was no accrued interest receivable balance at June 30, 2000 and 1999.

   There was no  redemption  of  investment  securities  in 2000.  Proceeds from
   redemption of investment securities were $5,000,000 in 1999.


                                       30
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999

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

(3)  MORTGAGE-BACKED SECURITIES

     Mortgage-backed   securities,   classified   as   available-for-sale,   are
     summarized as follows as of June 30, 2000:
<TABLE>
<CAPTION>

                                          ------------------------------------------------------------------------------
                                             AMORTIZED       UNREALIZED        UNREALIZED        FAIR         CARRYING
                                                COST           GAINS            LOSSES           VALUE          VALUE
   ------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>             <C>            <C>           <C>
   Government National Mortgage
     Association (GNMA)                      $4,667,521           --             211,474        4,456,047     4,456,047
   ========================================================================================================================
</TABLE>

     Accrued interest receivable at June 30, 2000 was $26,891.

     There were no sales in 2000 or 1999.

(4)  LOANS RECEIVABLE

     Loans receivable and accrued interest  receivable thereon are summarized as
     follows as of June 30:
<TABLE>
<CAPTION>
                                                        2000          1999
--------------------------------------------------------------------------------
<S>                                                 <C>            <C>
Real estate secured by first mortgage:
     Residential                                    $49,968,895    48,548,487
     Commercial                                      11,837,877     7,870,045
     Construction, net of loans in process            1,569,778     2,351,161
--------------------------------------------------------------------------------
                                                     63,376,550    58,769,693

Home improvement loans                                9,266,512     8,769,816
Commercial loans                                      9,884,746     6,849,368
Home equity loans                                     1,863,815     1,698,066
Commercial leases                                     7,053,244     1,655,094
Loans secured by deposits                               221,324       284,813
Consumer loans                                          989,869       668,307
--------------------------------------------------------------------------------
                                                     92,656,060    78,695,157
Less:
     Deferred loan origination fees, net of costs        74,013        73,090
     Unearned interest consumer loans                   127,233        53,929
     Unearned interest commercial leases                709,529       159,736
     Allowance for loan losses                          742,809       631,239
--------------------------------------------------------------------------------
Loans receivable, net                               $91,002,476    77,777,163
================================================================================
</TABLE>


Accrued interest  receivable on loans was $497,376 and $480,785 at June 30, 2000
and 1999, respectively.

A  substantial  portion of the Company's  loans  receivable  are mortgage  loans
secured by  residential  real estate  properties.  Loans are extended only after
evaluation  by  management of  customers'  creditworthiness  and other  relevant
factors on a case-by-case basis. On first

                                                                 (Continued)

                                       31
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(4)  CONTINUED

     mortgage  loans,  the Company does not lend more than 95% of the  appraised
     value of an owner occupied  residential property and in instances where the
     Company  lends  more  than 80% of the  appraised  value,  private  mortgage
     insurance is required.  For investor  loans on  residential  property  (not
     owner  occupied)  the Company does not lend more than 70% of the  appraised
     value.

     The Company also originates  leases with its commercial  customers.  Leases
     are  extended   only  after   evaluation   by   management   of  customers'
     creditworthiness and other relevant factors on a case-by-case basis. Direct
     costs for the  origination  of leases for the years ended June 30, 2000 and
     1999 were $9,947 and $1,100 respectively.

     The Company's  residential  lending  operations are focused in the State of
     Maryland,  primarily the Baltimore  Metropolitan  area.  While  residential
     lending is  generally  considered  to involve less risk than other forms of
     lending,  payment  experience on these loans is dependent to some extent on
     economic and market conditions in the Company's primary lending area.

     Impairment of loans having  recorded  investments  of $15,800 and $9,300 at
     June 30, 2000 and 1999, respectively has been recognized in conformity with
     SFAS No. 114. The average recorded investment in impaired loans during 2000
     and 1999,  respectively was $14,900 and $9,200.  There was an allowance for
     losses  related  to those  loans of $6,300  and $ -0- at June 30,  2000 and
     1999, respectively. The amount of interest that would have been recorded on
     impaired  loans  at June 30,  2000 and  1999,  respectively  had the  loans
     performed in accordance with their terms was approximately $1,800 and $500,
     respectively.  The actual  interest  income  recorded on these loans during
     2000 and 1999 was $3,268 and $ -0- , respectively.

     Nonaccrual  loans amounted to  approximately  $303,000 and $173,000 at June
     30, 2000 and 1999,  respectively.  The amount of interest income that would
     have been recorded on loans in nonaccrual  status at June 30, 2000 and 1999
     had such loans performed in accordance with their terms, was  approximately
     $11,000 and $17,200,  respectively.  The actual interest income recorded on
     these  loans  during  2000  and 1999 was  approximately  $8,621  and $ -0-,
     respectively.

     The Company,  through its normal asset review process,  classifies  certain
     loans  which  management  believes  involve  a  degree  of risk  warranting
     additional   attention.   These   classifications   are  special   mention,
     substandard,  doubtful and loss. At June 30, 2000 loans classified  special
     mention and substandard  totaled  approximately  $196,176 and $303,275.  No
     loans were classified doubtful or loss at June 30, 2000.


                                       32
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(4)  CONTINUED

     The activity in the  allowance for loan losses is summarized as follows for
     the years ended June 30:
<TABLE>
<CAPTION>

                                               2000                 1999
--------------------------------------------------------------------------------
<S>                                         <C>                    <C>
Balance at beginning of year                $ 631,239              553,513
Provision for losses on loans                 325,000              245,000
Charge-offs                                  (253,811)            (173,888)
Recoveries                                     40,381                6,614
--------------------------------------------------------------------------------
Balance at end of year                      $ 742,809              631,239
================================================================================
</TABLE>

     Commitments to extend credit are agreements to lend to customers,  provided
     that  terms and  conditions  of the  commitment  are met.  Commitments  are
     generally  funded from loan  principal  repayments,  excess  liquidity  and
     savings deposits. Since certain of the commitments may expire without being
     drawn  upon,  the total  commitment  amounts do not  necessarily  represent
     future cash requirements.

     Substantially all of the Company's outstanding commitments at June 30, 2000
     and  1999 are for  loans,  which  would  be  secured  by  various  forms of
     collateral with values in excess of the commitment  amounts.  The Company's
     exposure   to  credit  loss  under   these   contracts   in  the  event  of
     non-performance  by the other parties,  assuming that the collateral proves
     to be of no value, is represented by the commitment amounts.

     Outstanding  commitments to extend credit, which generally expire within 60
     days, are as follows at June 30, 2000:
<TABLE>
<CAPTION>

                                                     FIXED RATE    FLOATING RATE
--------------------------------------------------------------------------------
<S>                                                  <C>              <C>
Residential mortgage loans                           $  171,000       435,000
Commercial business and lease loans                   1,623,304     2,000,000
Undisbursed lines of credit                           2,176,049        40,000
================================================================================
</TABLE>

     As of June 30, 2000 and 1999,  Patapsco was servicing loans for the benefit
     of others, approximately $1,419,845 and $2,193,646, respectively.


                                       33
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(5)  PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows at June 30:
<TABLE>
<CAPTION>
                                                                     ESTIMATED
                                              2000        1999      USEFUL LIVES
--------------------------------------------------------------------------------
<S>                                       <C>              <C>      <C>
Land                                      $   92,684       92,684           --
Building and improvements                    998,730      988,807   40 years
Furniture, fixtures and equipment          1,247,433    1,166,002   5 - 10 years
-----------------------------------------------------------------   ------------
Total, at cost                             2,338,847    2,247,493

Less accumulated depreciation              1,334,404    1,194,875
-----------------------------------------------------------------
Property and equipment, net               $1,004,443    1,052,618
=================================================================
</TABLE>


     The Company has no obligations under long-term operating leases.

(6)  DEPOSITS

     The aggregate amount of short-term jumbo certificates,  each with a minimum
     denomination of $100,000,  was  approximately  $4,147,000 and $3,379,000 in
     2000 and 1999, respectively.

     At June 30, 2000, the scheduled maturities of certificates are as follows:

Under 12 months                                                      $28,360,521
12 months to 24 months                                                11,600,291
24 months to 36 months                                                 1,458,239
36 months to 48 months                                                   299,180
48 months to 60 months                                                 2,277,066
--------------------------------------------------------------------------------
                                                                     $43,995,297
================================================================================


                                       34
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(7)  BORROWINGS

     At  June  30,  2000  and  1999,  the  Company  had  an  agreement  under  a
     blanket-floating  lien with the Federal Home Loan Bank of Atlanta providing
     the Company a line of credit of $20 million.

     At June 30, the scheduled maturities of borrowings are as follows:
<TABLE>
<CAPTION>
                                     2000                          1999
--------------------------------------------------------------------------------
                                             Weighted                    Weighted
                             Balance       Average Rate      Balance   Average Rate
--------------------------------------------------------------------------------
<S>                      <C>                    <C>        <C>            <C>
Under 12 months          $    1,900,000         6.43            --         --
12 months to 24 months        1,000,000         6.55         900,000      5.47
24 months to 36 months        7,000,000         6.33       1,000,000      6.55
36 months to 48 months        5,000,000         5.01       7,000,000      6.27
48 months to 60 months               --           --       5,000,000      5.01
--------------------------------------------------------------------------------
                         $   14,900,000         5.92      13,900,000      5.71
================================================================================
</TABLE>

(8)  INCOME TAXES

     The  provision  for income taxes is composed of the following for the years
     ended June 30:
<TABLE>
<CAPTION>

                                                    2000                 1999
--------------------------------------------------------------------------------
<S>                                              <C>                    <C>
Current:
       Federal                                   $ 447,000              367,000
       State                                        95,000               69,000
--------------------------------------------------------------------------------
                                                   542,000              436,000
--------------------------------------------------------------------------------
Deferred:
       Federal                                     (23,000)             (30,000)
       State                                        (5,000)              (7,000)
--------------------------------------------------------------------------------
                                                   (28,000)             (37,000)
--------------------------------------------------------------------------------
                                                 $ 514,000              399,000
================================================================================
</TABLE>


                                                                     (Continued)

                                       35
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(8)  Continued

The net deferred tax assets consist of the following at June 30:
<TABLE>
<CAPTION>

                                                        2000             1999
--------------------------------------------------------------------------------
<S>                                                   <C>               <C>
Allowance for losses on loans                         $ 294,000         244,000
Unrealized holding gains                                 71,000          69,000
Deferred compensation                                   200,000         248,000
Deferred loan fees                                       37,000          37,000
Other, net                                               17,000           8,000
                                                      --------------------------
      Total deferred tax assets                         619,000         606,000

Tax bad debt reserve                                    (26,000)        (39,000)
Federal Home Loan Bank stock dividends                 (101,000)       (101,000)
Accumulated depreciation                                (50,000)        (25,000)
                                                      --------------------------
      Total deferred tax liabilities                   (177,000)       (165,000)
--------------------------------------------------------------------------------
Net deferred tax assets                               $ 442,000         441,000
================================================================================
</TABLE>

     A  reconciliation  of the income tax provision  and the amount  computed by
     multiplying  income before income taxes by the statutory Federal income tax
     rate of 34% is as follows for the years ended June 30:
<TABLE>
<CAPTION>

                                                             2000        1999
--------------------------------------------------------------------------------
<S>                                                         <C>         <C>
Tax at statutory rate                                       $445,000    360,000
State income taxes, net of Federal income tax benefit         59,000     41,000
Other                                                         10,000     (2,000)
--------------------------------------------------------------------------------
Income tax provision                                        $514,000    399,000
================================================================================

</TABLE>

     The Company has qualified under  provisions of the Federal Internal Revenue
     Code which  permit it to deduct from  taxable  income a  provision  for bad
     debts based on actual bad debt expe- rience.  Therefore,  the provision for
     bad debts  deducted from taxable income for Federal income tax purposes was
     based on the experience method.

     The Company's Federal income tax returns have been audited through June 30,
     1995.

(9)  REGULATORY MATTERS

     The  Federal  Deposit  Insurance  Corporation  (FDIC)  insures  deposits of
     account holders up to $100,000.  Patapsco pays an annual premium to provide
     for this insurance. Patapsco is also a member of the Federal Home Loan Bank
     System and is  required  to  maintain  an invest-  ment in the stock of the
     Federal  Home  Loan  Bank of  Atlanta  equal to at  least 1% of the  unpaid
     principal  balances  of its  residential  mortgage  loans,  3% of its total
     assets or 5% of its outstanding advances to Patapsco, whichever is greater.
     Purchases and sales of stock are made directly with Patapsco at par value.

                                                                     (Continued)

                                       36
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(9)  CONTINUED

     Pursuant to regulations  of the Federal  Reserve  Board,  all  FDIC-insured
     depository  institutions must maintain average daily reserves against their
     transaction  accounts.  No reserves  are required to be  maintained  on the
     first $4.7 million of  transaction  accounts,  reserves equal to 3% must be
     maintained on the next $47.8 million of transaction accounts, and a reserve
     of 10% plus $1,434,000 must be maintained against all remaining transaction
     accounts.  These reserve  requirements  are subject to  adjustments  by the
     Federal Reserve Board.  Because required reserves must be maintained in the
     form of vault cash or in a noninterest 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. At June 30, 2000, the Bank met its
     reserve requirements.

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

     Quantitative  measures established by regulation to ensure capital adequacy
     require  Patapsco to maintain minimum amounts and ratios (as defined in the
     regulations  and as set forth in the table below,  as defined) of total and
     Tier I capital (as defined) to  risk-weighted  assets (as defined),  and of
     Tier I capital to average assets (as defined).  Management believes,  as of
     June 30, 2000,  that Patapsco meets all capital  adequacy  requirements  to
     which it is subject.

     As of June 30, 2000, the most recent  notification from banking  regulators
     categorized Patapsco as well capitalized under the regulatory framework for
     prompt  corrective  action.  To be  categorized  as adequately  capitalized
     Patapsco must maintain  minimum total  risk-based,  Tier I risk-based,  and
     Tier I leverage  ratios as set forth in table.  There are no  conditions or
     events since that  notification  that management  believes have changed the
     institution's category.


                                                                     (Continued)


                                       37
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(9)  CONTINUED

Patapsco's actual capital amounts and ratios are also presented in the table (in
thousands).
<TABLE>
<CAPTION>
                                                                                                    TO BE WELL
                                                                                                 CAPITALIZED UNDER
                                                                               FOR CAPITAL        PROMPT CORRECTIVE
                                                       ACTUAL               ADEQUACY PURPOSES    ACTION PROVISIONS
                                                --------------------       ------------------   --------------------
                                                AMOUNT         RATIO       AMOUNT      RATIO    AMOUNT      RATIO
------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>        <C>           <C>     <C>          <C>
   As of June 30, 2000:
       Total Capital (to Risk
          Weighted Assets)                     $ 9,822         14.31%      $ 5,490      8.00%   $ 6,863     10.00%
       Tier I Capital (to Risk
          Weighted Assets)                       9,079         13.23%        2,745      4.00%     4,118      6.00%
       Tier I Capital (to Average
          Assets)                                9,079          8.89%        4,083      4.00%     5,104      5.00%
   As of June 30, 1999:
       Total Capital (to Risk
          Weighted Assets)                     $ 9,120         15.35%      $ 4,752      8.00%   $ 5,941     10.00%
       Tier I Capital (to Risk
          Weighted Assets)                       8,489         14.29%        2,376      4.00%     3,564      6.00%
       Tier I Capital (to Average
          Assets)                                8,489          9.35%        3,630      4.00%     4,537      5.00%
==================================================================================================================
</TABLE>

(10) STOCKHOLDERS' EQUITY AND RELATED MATTERS

     On  September  14,  1995,  the  Board  of  Directors  approved  a  plan  of
     reorganization from a mutual savings association to a capital stock savings
     bank and the concurrent  formation of a holding company. The conversion was
     accomplished  through  amendment of Patapsco's  charter and the sale of the
     Company's  common  stock in an amount equal to the  consolidated  pro forma
     market  value of the  Company  and  Patapsco  after  giving  effect  to the
     conversion.  A  subscription  offering  of the  shares of common  stock was
     offered  initially to employee  benefit  plans of the Company,  depositors,
     borrowers,  directors, officers and employees of the Company and to certain
     other eligible subscribers.  In connection with the Conversion, the Company
     publicly  issued  362,553  shares of its common  stock,  par value $.01 per
     share (the  "Common  Stock"),  for gross  proceeds  of  $7,251,060  and net
     proceeds of $6,745,810,  of which $3,372,905 was contributed to Patapsco in
     exchange for all of its outstanding common stock.


                                                                     (Continued)

                                       38
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(10) CONTINUED

     Federal regulations require that, upon conversion from mutual to stock form
     of ownership,  a  "liquidation  account" be  established  by  restricting a
     portion of net worth for the benefit of eligible  savings  account  holders
     who maintain their savings accounts with Patapsco after conversion.  In the
     event of  complete  liquidation  (and  only in such  event),  each  savings
     account  holder who  continues  to maintain  his savings  account  shall be
     entitled  to receive a  distribution  from the  liquidation  account  after
     payment to all  creditors,  but before any  liquidation  distribution  with
     respect to capital stock. This account will be proportionately  reduced for
     any subsequent  reduction in the eligible  holders'  savings  accounts.  At
     conversion the liquidation account totaled approximately $6,088,000.

     In  addition to the  foregoing,  certain bad debt  reserves  deducted  from
     income for federal  income tax purposes and included in retained  income of
     Patapsco,  are not  available  for the payment of cash  dividends  or other
     distributions to stockholders  without payment of taxes at the then-current
     tax rate by  Patapsco,  on the amount  removed  from the  reserves for such
     distributions.

(11) BENEFIT PLANS

     EMPLOYEE STOCK OWNERSHIP PLAN

     Patapsco has  established an Employee  Stock  Ownership Plan (ESOP) for its
     employees.  On  April  1,  1996  the ESOP  acquired  29,004  shares  of the
     Company's  common  stock in  connection  with  Patapsco's  conversion  to a
     capital stock form of organization. The ESOP purchased an additional 12,861
     shares  as a result  of the  return  of  capital  distribution  paid by the
     Company  in June  1997.  The ESOP  holds  the  common  stock in a trust for
     allocation  among  participating  employees,  in trust or  allocated to the
     participants' accounts and an annual contribution from Patapsco to the ESOP
     and earnings thereon.

     All  employees of Patapsco who attain the age of 21 and complete six months
     of service  with  Patapsco  will be  eligible to  participate  in the ESOP.
     Participants will become 100% vested in their accounts after three years of
     service with Patapsco or, if earlier, upon death, disability or attainments
     of normal  retirement  age.  Participants  receive  credit for service with
     Patapsco prior to the establishment of the ESOP.

     For the years ended June 30, 2000 and 1999 compensation  expense recognized
     related to the ESOP and  Patapsco's  contribution  to the ESOP was $123,872
     and $134,237, respectively.

          The ESOP shares were as follows as of June 30:
<TABLE>
<CAPTION>

                                                          2000             1999

--------------------------------------------------------------------------------
<S>                                                      <C>              <C>
Shares released and allocated                            23,396           18,268
Unearned shares                                          18,469           23,597
--------------------------------------------------------------------------------
                                                         41,865           41,865
================================================================================
Fair value of unearned shares                          $410,935          697,055
================================================================================
</TABLE>
                                                                     (Continued)

                                       39
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(11) CONTINUED

     DIRECTORS RETIREMENT PLAN

     Effective September 28, 1995, Patapsco adopted a deferred compensation plan
     covering all non-employee directors.  The plan provides benefits based upon
     certain vesting requirements. Compensation expense recognized in connection
     with the Plan  during the year ended June 30, 2000 and 1999 was $13,200 and
     $21,959, respectively.

     STOCK OPTIONS

     The Company's  1996 Stock Options and Incentive Plan (Plan) was approved by
     the  stockholders  at the 1996 annual  meeting.  The Plan  provides for the
     granting of options to acquire common stock to directors and key employees.
     Option prices are equal or greater than the estimated  fair market value of
     the common  stock at the date of the grant.  In  October  1996 the  Company
     granted options to purchase 34,474 shares at $27.50 per share.  Such shares
     and fair value have been  adjusted to 43,093 shares at $18.91 per share for
     the  effect of the return of capital  distribution  paid by the  Company in
     June 1997.  The Plan  provides for  one-fifth of the options  granted to be
     exercisable on each of the first five  anniversaries  of the date of grant.
     Additional  shares were granted to an officer and director in May 2000. The
     option  price is  $20.50  per  share and  vests as  described  above.  If a
     participant in the Plan terminates employment for reasons other than death,
     disability,  retirement at age 65 or change in control,  he or she forfeits
     all rights to unvested shares.

     The following  table  summarizes the status of and changes in the Company's
     stock option plan during the past two years, as retroactively  adjusted for
     the Company's return of capital.
<TABLE>
<CAPTION>

                                                   WEIGHTED                  WEIGHTED
                                                   AVERAGE                    AVERAGE
                                                   EXERCISE     OPTIONS      EXERCISE
                                       OPTIONS      PRICE      EXERCISABLE    PRICE
------------------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>          <C>
Outstanding at end of 1998              43,093      $   18.91    6,895        18.91
Granted                                   --
Exercised                                 --
-----------------------------------------------------------------------------------
Outstanding at end of 1999              43,093      $   18.91   15,514        18.91
Granted                                  4,754          20.50       --
Exercised                               (1,686)
Cancelled                               (2,529)
-----------------------------------------------------------------------------------
Outstanding at end of 2000              43,632          19.08   21,604        18.91
===================================================================================
</TABLE>

     SFAS No. 123,  "Accounting  for  Stock-Based  Compensation",  requires  the
     Company  to  make  certain  disclosures  as if the  fair  value  method  of
     accounting  had been  applied to the  Company's  stock  option  grants made
     subsequent to 1994. Accordingly, the Company estimated the grant

                                       40
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(11) CONTINUED

     date  fair  value  of  each  option   awarded  in  fiscal  2000  using  the
     Black-Scholes Option-Pricing model with the following relevant assumptions:
     dividend  yield of 2.80%,  risk-free  interest  rate of 6.75% and  expected
     lives of 10 years. The assumption for expected  volatility was 24.39%.  Had
     2000  compensation  cost been  determined  including  the  weighted-average
     estimate of fair value of each option  granted of $5.20,  the Company's net
     income would be reduced to proforma amount of $779,286.  Proforma earnings,
     basic and diluted, per share would have been $2.49 and $2.36, respectively,
     in fiscal 2000.

     MANAGEMENT RECOGNITION AND STOCK AWARD PLAN

     Effective   October  11,  1996,   the  Company   established  a  Management
     Recognition Plan (MRP) to retain personnel of experience and ability in key
     positions of responsibility.  Members of the Board of Directors and certain
     executive  officers were awarded a total of 14,502  shares of stock,  which
     are held in a separate  trust that manages the MRP. The Company  funded the
     MRP in 1997 by purchasing 14,502 shares of common stock in the open market.
     Shares awarded to participants in the MRP vest at a rate of 20% per year on
     each  anniversary of the effective  date of the MRP.  During the year ended
     June 30,  1998,  the Company  approved a Stock Award Plan ("SAP") to one of
     its  officers.  The Plan  provides for 1,247 shares to be vested at 25% per
     year beginning in October 1998. If a participant  terminates employment for
     reasons other than death, disability, change in control or retirement he or
     she  forfeits  all  rights  to  unvested  shares.  As  of  June  30,  2000,
     approximately 8,400 shares are unvested.  For the years ended June 30, 2000
     and 1999,  compensation  expense related to the MRP and SAP was $80,932 and
     $92,049, respectively.

     401(K) RETIREMENT SAVINGS PLAN

     The Company has a 401(k) Retirement Savings Plan.  Employees may contribute
     a  percentage  of their  salary  up to a  maximum  of 5%.  The  Company  is
     obligated to contribute 50% of the employee's  contribution,  not to exceed
     6% of the employee's  annual  salary.  All employees who have completed one
     month of service  with the  Company  and are 21 years old are  eligible  to
     participate.  The  Company's  contribution  to this  plan was  $30,000  and
     $27,800 for the years ended June 30, 2000 and 1999, respectively.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards No. 107, Disclosures about Fair
     Value of Financial  Instruments (SFAS 107) requires the Company to disclose
     estimated  fair  values for  certain on- and  off-balance  sheet  financial
     instruments.  Fair value estimates,  methods, and assumptions are set forth
     below the Company's financial instruments as of June 30, 2000 and 1999.



                                                                    (Continued)

                                       41
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(12) CONTINUED

     The carrying  value and estimated  fair value of financial  instruments  is
     summarized as follows at June 30:
<TABLE>
<CAPTION>

                                                    2000                         1999
                                          -------------------------    ------------------------
                                            CARRYING                     CARRYING
                                              VALUE     FAIR VALUE         VALUE     FAIR VALUE
-----------------------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>           <C>
Assets:
   Cash and interest-bearing deposits     $ 2,534,779     2,535,000     3,771,852     3,772,000
   Federal funds sold                         903,004       903,000     5,580,098     5,580,000
   Investment securities                      462,842       463,000       213,761       214,000
   Mortgage-backed securities               4,456,047     4,456,000     4,879,359     4,879,000
   Loans receivable, net                   91,002,476    88,085,500    77,777,164    79,468,000
Liabilities:

   Deposits                                75,651,907    75,651,919    69,671,419    69,780,000

   Borrowings                              14,900,000    14,900,000    13,900,000    13,900,000

   Advance payments by borrowers for
      taxes, insurance and ground rents     1,214,666     1,215,000     1,210,651     1,211,000

Off balance sheet instruments:

   Commitments to extend credit                    --            --            --            --
===============================================================================================
</TABLE>

     CASH ON HAND AND IN BANKS

     The carrying amount for cash on hand and in banks  approximates  fair value
     due to the short maturity of these instruments.

     SHORT-TERM INVESTMENTS

     The carrying  amount for short-term  investments  which consists of Federal
     funds sold,  approximates fair value due to the overnight maturity of these
     instruments.

     INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

     The fair value of investment  securities and mortgage-backed  securities is
     based on bid  prices  received  from an  external  pricing  service  or bid
     quotations received from securities dealers.

     LOANS

     Loans   were   segmented   into   portfolios    with   similar    financial
     characteristics.  Loans were also  segmented  by type such as  residential,
     multifamily  and  nonresidential,  construction  and land,  second mortgage
     loans,  commercial,  and consumer. Each loan category was further segmented
     by fixed and adjustable rate interest terms.

                                                                    (Continued)


                                       42
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(12) CONTINUED

     The  fair  value  of  fixed  rate  loans  was   calculated  by  discounting
     anticipated  cash flows based on  weighted  average  contractual  maturity,
     weighted average coupon and current loan origination rate.  Adjustable rate
     loans  were  determined  to be at fair value due to their  adjustable  rate
     nature.

     ACCRUED INTEREST RECEIVABLE

     The carrying amount of accrued  interest  receivable  approximates its fair
     value.

     SAVINGS ACCOUNTS

     Under SFAS 107, the fair value of deposits with no stated maturity, such as
     noninterest bearing deposits,  interest bearing NOW accounts,  money market
     and statement savings accounts,  is equal to the carrying amounts. The fair
     value of  certificates  of  deposit  was based on the  discounted  value of
     contractual  cash flows.  The discount rate for certificates of deposit was
     estimated  using  the  rate  currently  offered  for  deposits  of  similar
     remaining maturities.

     BORROWED FUNDS

     Borrowed  funds,  which are  advances  from the  Federal  Home Loan Bank of
     Atlanta, are considered to be at fair value.

     ACCRUED INTEREST PAYABLE

     The  carrying  amount of accrued  interest  payable  approximates  its fair
     value.

     ADVANCE PAYMENTS BY BORROWERS FOR TAXES, INSURANCE AND GROUND RENTS

     The carrying amount of advance  payments by borrowers for taxes,  insurance
     and ground rents approximates its fair value.

     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     The Company is a party to financial instruments with off-balance sheet risk
     in the normal course of business,  including  mortgage loan commitments and
     undisbursed lines of credit on commercial business loans. These instruments
     involve,  to various degrees,  elements of credit and interest rate risk in
     excess of the amount recognized in the consolidated statements of financial
     condition.

     The Company's exposure to credit loss in the event of nonperformance by the
     other party to the  financial  instrument  is  represented  by the contract
     amount of the financial instrument.


                                                                    (Continued)

                                       43
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(12) CONTINUED

     The  Company  uses the same  credit  policies  in  making  commitments  for
     off-balance-sheet  financial  instruments  as it does for  on-balance-sheet
     financial instruments. The fair values of such commitments are immaterial.

     The  disclosure  of fair value  amounts does not include the fair values of
     any  intangibles,   including  core  deposit   intangibles.   Core  deposit
     intangibles  represent the value attributable to total deposits based on an
     expected duration of customer relationships.

     LIMITATIONS

     Fair  value  estimates  are made at a  specific  point  in  time,  based on
     relevant market  information and information  about financial  instruments.
     These  estimates  do not reflect any premium or discount  that could result
     from  offering  for sale at one time the  Company's  entire  holdings  of a
     particular financial instrument. Because no market exists for a significant
     portion of the Company's  financial  instruments,  fair value estimates are
     based on judgments  regarding  future  expected  loss  experience,  current
     economic conditions,  risk characteristics of various financial instruments
     and other  factors.  These  estimates are  subjective in nature and involve
     uncertainties  and matters of significant  judgment and therefore cannot be
     determined  with  precision.  Changes in  assumptions  could  significantly
     affect estimates.



                                       44
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(13) CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

     Summarized  financial  information for the Company are as follows as of and
     for the years ended June 30:
<TABLE>
<CAPTION>


STATEMENTS OF FINANCIAL CONDITION           2000          1999
--------------------------------------------------------------------------------
<S>                                      <C>             <C>
Cash                                     $  152,491      245,699
Investment securities                       462,842      195,227
Equity in net assets of the bank          8,951,667    8,449,011
Note receivable - bank                      254,045      325,100
Other assets                                 12,000       46,225
--------------------------------------------------------------------------------
                                         $9,833,045    9,261,262
================================================================================
Accrued expenses and other liabilities   $  253,747       43,402
Stockholders' equity                      9,579,298    9,217,860
--------------------------------------------------------------------------------
                                         $9,833,045    9,261,262
================================================================================

STATEMENTS OF INCOME                        2000         1999
--------------------------------------------------------------------------------
Income:
     Loans receivable                    $   26,008       33,689
     Cash deposits                            1,786          814
     Investments                              7,312        1,715
--------------------------------------------------------------------------------
Net income before equity in net income
   of subsidiary and income taxes            35,106       36,218
Net income of subsidiary                    759,354      624,012
--------------------------------------------------------------------------------
Income before income tax provision          794,460      660,230
Income tax provision                             --           --
--------------------------------------------------------------------------------
Net income                               $  794,460      660,230
================================================================================

</TABLE>


                                                                    (Continued)

                                       45
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
--------------------------------------------------------------------------------

(13)  Continued

<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS                                              2000          1999
------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Operating activities:
     Net income                                                     $ 794,460      660,230
     Adjustments  to  reconcile  net income to net cash  provided
        by  operating activities:

             Equity in net income of subsidiary                      (759,354)    (624,012)
             Other, net                                               (60,011)     (44,769)
------------------------------------------------------------------------------------------
Net cash provided by operating activities                             (24,905)      (8,551)
------------------------------------------------------------------------------------------
Investing activities:
     Purchase of equity security                                     (180,100)    (133,423)
     Dividends received                                               696,752      750,000
     Loan repayment                                                    71,055       71,241
------------------------------------------------------------------------------------------
Net cash used in investing activities                                 587,707      687,818
------------------------------------------------------------------------------------------
Financing activities:
     Options exercised                                                 31,883           --
     Purchase of common stock                                        (502,123)    (523,380)
     Cash dividend paid                                              (185,770)    (168,672)
------------------------------------------------------------------------------------------
Net cash used in financing activities                                (656,010)    (692,052)
------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents                           (93,208)     (12,785)
Cash and equivalents, beginning of year                               245,699      258,484
------------------------------------------------------------------------------------------
Cash and equivalents, end of year                                   $ 152,491      245,699
==========================================================================================
</TABLE>


(14) ACCOUNTING PRONOUNCEMENTS WITH FUTURE EFFECTIVE DATES

     SFAS  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
     Activities"  was issued in June,  1998.  This  Statement  standardizes  the
     accounting  for  derivative   instruments   including  certain   derivative
     instruments  embedded  in other  contracts,  by  requiring  that an  entity
     recognize  these  items  as  assets  or  liabilities  in the  statement  of
     financial position and measure them at fair value. This Statement generally
     provides for matching the timing of gain or loss recognition on the hedging
     instrument  with the  recognition  of the  changes in the fair value of the
     hedged asset or liability that are  attributable  to the hedged risk or the
     earnings effect of the hedged forecasted transaction.  The Statement, which
     is effective for all fiscal  quarters of all fiscal years  beginning  after
     June 15,  2000,  will not affect the  Company's  financial  position or its
     results of operations.


                                       46
<PAGE>



                               BOARD OF DIRECTORS



<TABLE>
<CAPTION>

<S>                                         <C>                                            <C>
THOMAS P. O'NEILL                           NICOLE N. GLAESER                              DR. THEODORE C. PATTERSON
Chairman of the Board                       Budget   Director  for  Baltimore   County     Retired Physician
Managing Director of American               Police Department                              Secretary of the Company
Express Tax and Business Services
                                            DOUGLAS H. LUDWIG                              WILLIAM R. WATERS
JOSEPH J. BOUFFARD                          Retired Principal of the Baltimore             Owner Scott Pontiac
President and Chief  Executive  Officer     County Public School System                    Owner Bel Air Medicine, Inc.
of the Company and the Bank

                               ADVISORY DIRECTORS

JOSEPH N. MCGOWAN                                                                               ROBERT LATING
Retired Chairman of the Board                                                                   Retired real estate investor


                               EXECUTIVE OFFICERS



JOSEPH J. BOUFFARD                          DEBRA L. PENCZEK                               FRANK J. DUCHACEK, JR.
President and Chief Executive Officer       Vice President - Operations;                   Senior-Vice President - Commercial
                                            Assistant Secretary                            Lending


MICHAEL J. DEE                              JOHN W. MCCLEAN                                ALAN HERBST
Vice-President - Treasurer                  Vice President - Real Estate Lending           Assistant-Vice  President  -  Consumer
Chief Financial Officer                                                                    Lending


                                 OFFICE LOCATION

                             1301 Merritt Boulevard
                          Dundalk, Maryland 21222-2194
                      Website: http:\\www.patapscobank.com
                            Telephone: (410) 285-1010


                              CORPORATE INFORMATION


INDEPENDENT CERTIFIED ACCOUNTANTS           SPECIAL COUNSEL                                ANNUAL REPORT ON FORM 10-KSB
Anderson Associates, LLP                    Stradley,   Ronan,  Housley  Kantarian  &
7621 Fitch Lane                             Bronstein, P.C.                                A  COPY  OF  THE  COMPANY'S   ANNUAL
Baltimore, Maryland 21236                   1220 19th Street, N.W., Suite 700              REPORT  ON  FORM   10-KSB   FOR  THE
                                            Washington, D.C.  20036                        FISCAL  YEAR ENDED JUNE 30,  2000 AS
GENERAL COUNSEL                                                                            FILED   WITH  THE   SECURITIES   AND
NOLAN PLUMHOFF & Williams                   ANNUAL MEETING                                 EXCHANGE    COMMISSION,    WILL   BE
Suite 700, Nottingham Centre                The 2000 Annual  Meeting of  Stockholders      FURNISHED    WITHOUT    CHARGE    TO
502 Washington Avenue                       will be held on October  26, 2000 at 4:00      STOCKHOLDERS  AS OF THE RECORD  DATE
Towson, MD  21204-4528                      p.m. at the office of The  Patapsco  Bank      FOR THE  2000  ANNUAL  MEETING  UPON
                                            located   at  1301   Merritt   Boulevard,      WRITTEN   REQUEST   TO:    CORPORATE
Transfer Agent and Registrar                Dundalk, Maryland 21222.                       SECRETARY,  PATAPSCO BANCORP,  INC.,
Registrar and Transfer Co.                                                                 1301  MERRITT  BOULEVARD,   DUNDALK,
10 Commerce Drive                                                                          MARYLAND  21222-2194
Cranford, New Jersey 07016-3572
1 (800) 368-5948
</TABLE>