PATAPSCO BANCORP, INC.









                                     [LOGO]







                                                              2001 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 three  offices  located in Dundalk,  Parkville  and Carney  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,  commercial  leases 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  332,950  shares  of  the  common  stock
outstanding  and  approximately  372  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 2001:
                    First Quarter                    $      22.25      $    20.31            $       .14
                    Second Quarter                          22.63           21.00                    .14
                    Third Quarter                           21.88           21.125                   .14
                    Fourth Quarter                          23.00           21.125                   .14

              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
</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, Inc. Letterhead]





Dear Shareholder:

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

     While generally we are focused on yearly and quarterly  results,  sometimes
it is  beneficial  to take a longer  perspective.  In the five years  since your
Company went public, many significant events have taken place.

     Five years ago, the Company's  principal  subsidiary  was Patapsco  Federal
Savings  and Loan  Association.  Assets  were just under $79  million and annual
earnings were just over  $100,000.  The return on equity (ROE) was 1.35% and the
return on assets (ROA) was .13%.  The capital ratio was 16% and the ratio of the
allowance  for loan  losses to loans was .42%.  Earnings  per share  (EPS)  were
$0.26.

     Today the  Company's  operating  subsidiary  is The  Patapsco  Bank, a full
service  commercial  bank.  For the fiscal  year ended June 30, 2001 assets were
$160 million and earnings exceeded $1,000,000. The ROE was 8.74% and the ROA was
 .72%. The capital ratio was 8.20% and the ratio of the allowance for loan losses
to loans was .88%. Fully diluted EPS was $2.65.

     More  significant  is the story  behind the  numbers.  Five years ago,  the
Company  was  primarily a  residential  first  mortgage  lender and what was not
invested in mortgages was invested in  securities.  The Company had one location
and employed less than 20 employees. Today the Company is diversified lender and
makes  residential  loans only on an  exception  basis.  While the Company has a
portfolio of securities,  it is maintained primarily for liquidity purposes.  We
now have four locations  including  three branch  offices.  In addition,  we now
employ the full time equivalent of 43 employees.  In addition, The Patapsco Bank
has two operating  subsidiaries  Patapsco  Financial Services and Prime Business
Leasing.

     Your Board of Directors has changed as well.  Retirement  and/or death have
removed some excellent Directors but we have been fortunate to replace them with
extremely qualified  individuals.  Management has changed as well and all of our
managers are seasoned banking professionals.

     Five years ago, those of you who bought in at the Company's  initial public
offering  now have a cost  basis in our  stock of $7.50.  The last  trade was at
$27.50. That represents a capital gain of 267%, exclusive of dividends. Speaking
of  dividends,  the  Company  has  paid a  quarterly  dividend  for the  past 16
quarters.

<PAGE>
     All of this is the result of your Company executing its strategic plan that
was  designed to take a small  savings and loan  association  and turn it into a
full service community/commercial bank. Moreover, we are not done!

     Last year saw us complete  our first  merger  when we  acquired  Northfield
Bancorp,  Inc. This transaction allowed us to grow our income and assets as well
as grow  demographically  into the  Parkville/Carney  communities  of  Baltimore
County,  Maryland.  Most importantly,  the transaction had an immediate positive
affect on earnings. Since Northfield was a thrift institution, we have begun the
process  of  converting  its  residential  mortgage  assets  to more  profitable
commercial  bank assets,  much as we have done with our own portfolios  since we
converted from a thrift charter.

     We still have other  goals to  accomplish.  We shall  continue  to focus on
products  and  services  that 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 will continue to attract more demand deposit  accounts and build
our loan loss reserves as our portfolio  continues to grow and change. In short,
we will  continue to implement  the  strategic  plan to achieve a rate of growth
that can be sustained over time consistent with safe and sound practices.

     The upcoming year will present varied  challenges.  As the overall  economy
teeters on a recession, the banking landscape continues to change. Big banks and
de novo banks compete with  established  community banks such as ours for market
share. The economic  environment  continues to remain extremely  competitive for
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.

     Your Company has enjoyed good progress  during the last year as well as the
last five years. We are determined to make the next year and the next five years
equally as fruitful and fulfilling in a prudent manner.

     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  another
prosperous new year.






         /s/ Thomas P. O'Neill                 /s/ Joseph J. Bouffard
         -----------------------------         ---------------------------------
         Thomas P. O'Neill                     Joseph J. Bouffard
         Chairman                              President and
         Board of Directors                    Chief Executive Officer

<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
================================================================================
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL CONDITION DATA

                                                                          At June 30,
                                                                 ------------------------------
                                                                     2001               2000
                                                                   --------           ---------
                                                                         (In thousands)
<S>                                                            <C>                  <C>
Total assets.................................................. $   164,170          $  102,665
Loans receivable, net.........................................     127,834              91,002
Cash, federal funds sold and other interest
   bearing deposits...........................................      11,161               3,438
Investment securities.........................................       2,188                 463
Mortgage-backed securities....................................       5,680               4,456
Deposits......................................................     123,993              75,652
Borrowings....................................................      23,662              14,900
Stockholders' equity..........................................      13,425               9,579

-------------------------------------------------------------------------------------------------------------------
<CAPTION>
SELECTED CONSOLIDATED INCOME DATA

                                                                     Year Ended June 30,
                                                                 ------------------------------
                                                                   2001                 2000
                                                                 --------             ---------
                                                                        (In thousands)
<S>                                                              <C>                <C>
Interest income...............................................   $  11,587           $  7,908
Interest expense..............................................       6,240              3,656
                                                                 ---------           --------
Net interest income before provision
   for loan losses............................................       5,347              4,252
Provision for loan losses.....................................         433                325
                                                                 ---------           --------
Net interest income after provision
   for loan losses............................................       4,914              3,927
Noninterest income............................................         576                337
Noninterest expenses:
Compensation and employee benefits............................       2,133              1,861
   Insurance..................................................          51                 55
   Professional fees..........................................         114                129
   Equipment expenses.........................................         167                170
   Net occupancy costs........................................         137                 77
   Advertising................................................         132                 46
   Data processing............................................         192                157
   Goodwill Amortization......................................          91                 --
   Other......................................................         619                461
                                                                 ---------           --------
      Total noninterest expenses..............................       3,636              2,956
Income before provision (benefit) for income taxes............       1,854              1,308
Income tax provision (benefit)................................         836                514
                                                                 ---------           --------
Net income....................................................   $   1,018           $    794
                                                                 =========           ========
</TABLE>

                                       3
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS
                                                                            At or for the
                                                                          Year Ended June 30,
                                                                   --------------------------------
                                                                       2001               2000
                                                                   ------------       -------------
<S>                                                                   <C>                  <C>
PERFORMANCE RATIOS:
   Return on average assets (net income divided by
      average total assets)......................................     0.72 %               0.81%
   Return on average stockholders' equity (net income
      divided by average stockholders' equity)...................     8.74                 8.46
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)................................     3.45                 3.99
   Net interest margin (net interest income
      divided by average interest-earning assets)................     3.90                 4.49
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.......................   109.78               112.94
   Ratio of noninterest expense to average total assets..........     2.57                 3.03

ASSET QUALITY RATIOS:
   Nonperforming assets to total assets at
      end of period..............................................     0.20                 0.37
   Nonperforming (nonaccrual) loans to loans
      receivable, net at end of period...........................     0.13                 0.33
   Allowance for loan losses to total loans
      at end of period...........................................     0.88                 0.81
   Allowance for loan losses to nonperforming
      loans at end of period.....................................   660.78               241.92
   Net charge-offs to average loans outstanding..................     0.16                 0.25

CAPITAL RATIOS:
   Stockholders' equity to total assets at end of period.........     8.20                 9.33
   Average stockholders' equity to average assets................     8.23                 9.63
</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 general  economic  conditions,  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.

RECENT ACQUISITION

     On November 13, 2000, the Company  completed its  acquisition of Northfield
Bancorp,  Inc.,  ("Northfield") 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  were
canceled and converted  into the right to receive  $12.50 in cash and .24 shares
of Patapsco  Bancorp's Series A Noncumulative  Convertible  Perpetual  Preferred
Stock. At any time after issuance, this preferred stock will be convertible into
shares of Patapsco  Bancorp common stock, on a one for one basis.  Each share of
Patapsco  Bancorp's  outstanding  preferred  stock earns dividends at the annual
rate of 7.5% of its  liquidation  preference of $25.00 per share.  Dividends are
noncumulative,  which  means
                                       5
<PAGE>

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 combination  was accounted for under the purchase method of accounting,  and
accordingly,  the net assets were recorded at their estimated fair values at the
date of acquisition, November 13, 2000. Fair value adjustments on the assets and
liabilities  purchased  are  being  amortized  over the  estimated  lives of the
related  assets  and  liabilities.  The  excess of the  purchase  price over the
estimated fair value of the underlying net assets of $1,958,072 was allocated to
goodwill and was being amortized over 15 years, using the straight-line  method.
On July 1, 2001,  the Company  adopted FAS 142,  Goodwill  and Other  Intangible
Assets and will no longer amortize goodwill on a monthly basis. Goodwill will be
tested for impairment on an annual basis.


                                       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,
                                                      ------------------------------------------------------------------------
                                                                   2001                                 2000
                                                      ------------------------------      ------------------------------------
                                                                             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) ...........................   $122,458    $ 10,676    8.72 %      $ 84,961   $  7,305           8.60%
   Investment securities ..........................      2,144         143    6.66             460          7           1.59
   Mortgage-backed securities .....................      5,663         378    6.68           4,702        330           7.03
   Short-term investments and other interest-
     earning assets ...............................      6,834         390    5.71           4,650        266           5.71
                                                      ---------   --------                --------   --------
      Total interest-earning assets ...............    137,099      11,587    8.45          94,773      7,908           8.35
Non-interest-earning assets .......................      4,357                               2,788
                                                      --------                            --------
      Total assets ................................   $141,456                            $ 97,561
                                                      ========                            ========

Interest-bearing liabilities:
   Deposits (2) ...................................   $100,244       4,740    4.73        $ 69,057      2,794           4.05
   Borrowings .....................................     24,638       1,500    6.09          14,856        863           5.81
                                                      ---------   --------                --------   --------
      Total interest-bearing liabilities ..........    124,882       6,240    5.00          83,913      3,657           4.36
                                                                  --------  ------                   --------         ------
Non-interest-bearing liabilities ..................      4,929                               4,256
                                                      --------                            --------
      Total liabilities ...........................    129,811                              88,169
Total Equity ......................................     11,645                               9,392
                                                      --------                            --------
      Total liabilities and retained earnings .....   $141,456                            $ 97,561
                                                      ========                            ========

Net interest income ...............................               $  5,347                           $  4,251
                                                                  ========                           ========
Interest rate spread ..............................                           3.45%                                     3.99%
                                                                            ======                                    ======
Net interest margin ...............................                           3.90%                                     4.49%
                                                                            ======                                    ======

Ratio of average interest-earning assets to average
   interest-bearing liabilities ...................                         109.78%                                   112.94%
                                                                            ======                                    ======
<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,
                                                      -----------------------------------
                                                           2001      vs.        2000
                                                      -----------------------------------
                                                              Increase (Decrease) Due to
                                                      -----------------------------------
                                                      Volume         Rate       Total
                                                      ------         ----       -----
                                                               (In thousands)
<S>                                                   <C>          <C>         <C>
Interest income:
   Loans receivable.................................  $ 3,268      $   103     $3,371
   Investment securities............................       72           63        135
   Mortgage-backed securities.......................       63          (15)        48
   Short-term investments and other
     interest-earning assets........................      125            0        125
                                                      -------      -------     ------
       Total interest-earning assets................    3,528          151      3,679
                                                      -------      -------     ------

Interest expense:
   Deposits (1).....................................    1,416          530      1,946
   Borrowings.......................................      593           44        637
                                                      -------      -------     ------
       Total interest-bearing liabilities...........    2,009          574      2,584
                                                      -------      -------     ------

Change in net interest income.......................  $ 1,519      $  (423)    $1,096
                                                      =======      ========    ======
<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, 2001 AND 2000

     General. Total assets increased by $61.5 million or 59.9% to $164.2 million
at June 30,  2001  from  $102.7  million  at June 30,  2000.  The  increase  was
primarily due the Company'  acquisition of Northfield  Bancorp in November 2000.
At the date of acquisition, Northfield's consolidated assets were $54.9 million.

     Loans Receivable.  Net loans receivable increased by $36.8 million or 40.5%
to $127.8  million at June 30,  2001 from $91.0  million at June 30,  2000.  The
purchase of Northfield  increased  the loan  portfolio in November 2000 by $43.9
million. Fixed-rate residential mortgages held for sale at June 30, 2001 totaled
$9.9 million.  These were sold in July of 2001.  Approximately  95% of the loans
acquired  were fixed rate  residential  loans  resulting in an increase of $25.5
million in this loan  category from the previous  year-end.  The Bank is not now
actively engaged in originating first mortgage loans.  Additionally,  commercial
leases have increased $5.2 million,  commercial business loans $3.1 million, and
consumer  loans  increased  $2.8 million.  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,
2001, the Company had no  concentrations  of loans  exceeding 10% of gross loans
other than as disclosed below.
<TABLE>
<CAPTION>
                                                                                 At June 30,
                                                            ------------------------------------------------------
                                                                      2001                            2000
                                                            ------------------------        ----------------------
                                                            Amount               %          Amount             %
                                                            ------             -----        ------           -----
                                                                              (Dollars in thousands)
<S>                                                         <C>               <C>           <C>             <C>
Real estate loans:
   Residential (1)........................................  $   75,497        57.39%        $  49,968       53.93%
   Commercial.............................................      13,542        10.29            11,838       12.78
   Construction (2).......................................       2,098         1.59             1,570        1.69
Consumer loans:
   Home improvement.......................................      11,427         8.69             9,267       10.00
   Home equity loans......................................       2,315         1.76             1,864        2.01
   Loans secured by deposits..............................         255         0.19               221        0.24
   Other consumer loans...................................       1,146         0.87               990        1.07
Commercial loans:
   Commercial loans.......................................      12,991         9.88             9,884       10.67
   Commercial leases......................................      12,287         9.34             7,053        7.61
                                                            ----------        ------        ---------      ------
                                                               131,558       100.00%           92,656      100.00%
                                                                             =======                       ======
Less:
   Deferred loan origination fees, net of costs...........          16                             74
   Unearned Interest consumer loans.......................         331                            127
   Unearned Interest commercial loans.....................       1,602                            710
   Purchase Accounting Discount, net......................         614                              -
   Allowance for loan losses..............................       1,161                            743
                                                            ----------                      ---------
      Total...............................................  $  127,834                      $  91,002
                                                            ==========                      =========
<FN>
__________
(1)    Does not include loans held for sale
(2)    Net of loans in process.
</FN>
</TABLE>

     The  following  table  sets  forth  certain  information  at June 30,  2001
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, 2002       June 30, 2001       June 30, 2001          Total
                                   --------------       -------------       -------------       -----------
                                                               (In thousands)
<S>                                  <C>                <C>                  <C>                <C>
Real estate loans:
   Residential...................    $ 12,050           $   2,403            $  61,044          $  75,497
   Commercial....................      11,314                 304                1,924             13,542
   Construction..................       2,098                   -                    0              2,098
Consumer loans...................       2,581               5,387                7,175             15,143
Commercial loans.................       9,415              12,655                3,208             25,278
                                     --------           ---------            ---------          ---------
Total............................    $ 37,458           $  20,749            $  73,351          $ 131,558
                                     ========           =========            =========          =========
</TABLE>

                                       9
<PAGE>

     The  following  table sets forth at June 30, 2001 the dollar  amount of all
loans  which may  reprice or are due one year or more after June 30,  2001 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....................    $ 60,850              $   2,597           $  63,447
   Commercial.....................       1,925                    303               2,228
Consumer..........................      12,562                      -              12,562
Commercial........................      15,863                      -              15,863
                                      --------              ---------           ---------
   Total..........................    $ 91,200              $   2,900           $  94,100
                                      ========              =========           =========
</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.  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.  Investment and U.S.
government agency securities increased to $1.99 million at June 30, 2001 from $0
at June 30, 2000.  Mortgage-backed  securities  increased by $1.2 million in the
year ended June 30, 2001. Both increases  reflect the securities  assumed in the
purchase of Northfield.  In November 2000, a $250,000  mortgage-backed  security
was sold for a gain of $1,000.  In December  2000,  $3.1  million of  investment
securities  were  sold  for a gain  of  $169,000.  Equity  securities  decreased
$264,000 in the year as a result of the  surrender  of the shares in  Northfield
Bancorp, Inc owned by the Company prior to the acquisition. Stock in the FHLB of
Atlanta  increased  as a result of the  acquisition  and  purchases  required to
support  the  higher  level of  borrowing  from the  Federal  Home  Loan Bank of
Atlanta.  Additional stock in the Federal Reserve Bank of Richmond was purchased
in order to comply with regulatory requirements.

     The  following  table  sets  forth  the  carrying  value  of the  Company's
investments at the dates indicated.
<TABLE>
<CAPTION>
                                                                                        At June 30,
                                                                              -----------------------------------
                                                                                 2001                     2000
                                                                              ----------               ----------
                                                                                    (Dollars in thousands)
<S>                                                                           <C>                      <C>
Securities available for sale, at fair value:
   U.S. government and agency securities....................................  $    735                 $     --
   Equity securities........................................................       199                      463
   Investment Securities....................................................     1,254                       --
   Mortgage-backed securities...............................................     5,680                    4,456
                                                                              --------                 --------
     Total securities available for sale....................................     7,868                    4,919
                                                                              --------                 --------

Investments required by law, at cost:
  FHLB of Atlanta stock.....................................................     1,595                      845
  FRB of Richmond stock.....................................................       308                      106
                                                                              --------                 --------
    Total investments required by law, at cost..............................     1,903                      951
                                                                              --------                 --------

    Total investments.......................................................  $  9,771                 $  5,870
                                                                              ========                 ========
</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, 2001.
<TABLE>
<CAPTION>

                                       One Year or Less    One to Five Years    Five to Ten Years
                                     -------------------- -------------------   -----------------
                                      Carrying   Average  Carrying    Average   Carrying  Average
                                       Value     Yield     Value      Yield      Value     Yield
                                      --------  -------   --------   -------    --------  -------
                                                        (Dollars in thousands)
<S>                                   <C>       <C>       <C>          <C>      <C>         <C>
Securities available for sale:
   Mortgage-backed  securities........$    -       - %    $    -       - %      $  102      6.08%
   Investment Securities..............     -                   -                   239      6.41
   Investments required by law........     -       -           -       -             -         -
   Equity securities..................   199     1.59                  -             -         -
                                      ------              ------                ------
       Total..........................$  199     1.59     $    -       -        $  341      6.31
                                      ======              ======                ======
<CAPTION>
                                          More than
                                           Ten Years        Total Investment Portfolio
                                       -------------------  --------------------------
                                       Carrying    Average  Carrying   Market  Average
                                         Value      Yield    Value     Value    Yield
                                       ---------   ------   --------   ------  -------
                                                        (Dollars in thousands)
<S>                                    <C>          <C>      <C>      <C>       <C>
Securities available for sale:
   Mortgage-backed  securities........ $ 5,578      6.84%    $5,680   $5,680    6.83%
   Investment Securities..............   1,695      6.91      1,989    1,989    6.84
   Investments required by law........   1,903      7.21      1,903    1,903    7.21
   Equity securities..................       -         -        199      199    1.59
                                       -------               ------   ------
       Total.......................... $ 9,176      6.93     $9,771   $9,771    6.80
                                       =======               ======   ======
</TABLE>


                                       11
<PAGE>

     Deposits. Deposits increased by $48.3 million or 63.9% to $123.9 million at
June 30, 2001 from $75.6  million at June 30, 2000.  The increase in deposits is
largely attributable to the $38.5 million in deposits assumed in the acquisition
of  Northfield.  Certificates  of Deposit  comprised  62.5% of the  deposits  of
Northfield.  Noninterest  checking  accounts  increased 32.6% to $4.4 million at
June 30, 2001 from $3.3 million at June 30, 2000.

     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,
                                         -------------------------------------------------------------
                                                   2001                               2000
                                         -------------------------          --------------------------
                                         Average          Average           Average           Average
                                         Balance            Rate            Balance             Rate
                                         -------          --------          -------           --------
                                                                (Dollars in thousands)
<S>                                      <C>                <C>             <C>                <C>
Passbook, statement savings
   and Christmas Club.................   $ 21,001           2.71%           $ 17,508           2.77%
NOW checking..........................      5,764           1.28               4,242           1.49
Money market..........................      8,391           3.34               4,361           2.93
Certificates of deposit...............     64,200           6.01              39,851           5.12
Noninterest-bearing checking..........      4,594             --               3,599             --
                                         --------                           --------
     Total............................   $103,950                           $ 69,561
                                         ========                           ========
</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,
2001. At such date, such deposits  represented 8.67% of total deposits and had a
weighted average rate of 6.07%.

                                                        Certificates
          Maturity Period                               of Deposits
          ---------------                               -----------
                                                       (In thousands)


          Three months or less.......................   $   1,799
          Over three through 12 months...............       6,503
          Over 12 months.............................       2,445
                                                        ---------
              Total..................................   $  10,747
                                                        =========

     Borrowings.  The  Company's  borrowings  increased by $8.8 million to $23.7
million  at June 30,  2001 from  $14.9  million at June 30,  2000.  The  Company
assumed $10.2 million in borrowings in the acquisition of Northfield. During the
year,  the  Company  paid down  $29.2  million in  borrowings  and  borrowed  an
additional  $27.9 million to fund loan demand and the  acquisition of Northfield
Bancorp, Inc.

     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,
                                                            ------------------------------
                                                               2001                2000
                                                            ----------          ----------
                                                               (Dollars in thousands)
<S>                                                         <C>                 <C>
Amounts outstanding at end of period:
    FHLB advances......................................     $  22,100           $ 14,900
    Other borrowings...................................         1,700                 --
    Purchase Accounting Discount.......................          (138)                --
Weighted average rate paid on:
    FHLB advances......................................          5.64%              5.92%
    Other borrowings...................................          6.25%               -- %
</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                                            ------------------------------
                                                               2001                2000
                                                            ---------           ----------
                                                                  (Dollars in thousands)
<S>                                                         <C>                 <C>
Maximum amount of borrowings outstanding at any month end:
    FHLB advances......................................     $  31,900           $ 16,900
    Other borrowings...................................         3,100                 --
</TABLE>
<TABLE>
<CAPTION>
                                                                   Year Ended  June 30,
                                                            ------------------------------
                                                               2001                2000
                                                            ----------          ----------
                                                                (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, 2001 AND 2000

     General.  The  Company's  net  income  increased  by  $223,000  or 28.1% to
$1,018,000  in the year ended June 30,  2001  compared  to  $794,000 in the year
ended June 30, 2000.  The increase in net income was  primarily due to increases
in net interest and noninterest  income offsetting higher operating expenses and
a higher provision for loan losses.  The Northfield  transaction,  by increasing
the  size  of the  Company  by  approximately  56%,  was a major  factor  in the
significant increase in net income.

     Net Interest  Income.  The Company's net interest income  increased by $1.1
million  or 25.8% to $5.3  million  in the year  ended  June 30,  2001 from $4.2
million in the year ended June 30, 2000.

     The increase in net interest  income is  primarily  attributable  to higher
balances of interest earning assets and interest bearing  liabilities.  As shown
in the  Rate/Volume  Analysis  above,  the increase in volume,  primarily  loans
receivable and deposits, was responsible for $1.5 million of the increase in net
interest  income and  changes in rate,  primarily  the  increase  in the cost of
deposits and  borrowings,  was responsible for decreasing net interest income by
$423,000.

     The  Company's  net interest  margin  decreased to 3.90% for the year ended
June 30,  2001 from 4.49% for the year  ended June 30,  2001.  The  increase  in
yields on earning  assets of 10 basis  points was  offset by an  increase  of 64
basis  points in the cost of funds  and the  decrease  in the ratio of  interest
earning assets to interest bearing liabilities to 109.78% from 112.94%.

     The  decrease  in the  net  interest  margin  is due  to  the  purchase  of
Northfield,  competitive  pressure  on loan  and  deposit  rates  and the  sharp
decrease in first mortgage  interest rates.  The assets of Northfield  consisted
primarily of first mortgage loans and securities, which yield lower returns than
the assets of the Patapsco Bank. The Bank is endeavoring to convert these assets
in to higher yielding  commercial  mortgage,  consumer,  and commercial business
loans.  Additionally,  the rates paid for deposits by  Northfield,  particularly
time deposits, were higher than those paid by the Patapsco Bank. These rates are
being lowered as the time deposits mature.  To date, this has been  accomplished
without any significant run-off of the deposits acquired.  Competition for loans
and  deposits  has  resulted  in lower  rates on loans and higher  rates paid on
deposits.  Also,  the recent fall in  mortgage  interest  rates has  resulted in
significant  prepayments

                                       13
<PAGE>
in the  bank's  residential  loan  portfolio.  It is not in the  Bank's  plan to
re-enter the residential  mortgage market. In fact, the Bank had $9.9 million in
residential  mortgages classified as held for sale at June 30, 2001. These loans
were sold in July 2001. Until the demand for commercial  mortgage,  consumer and
commercial business loans of acceptable quality increases, these funds are being
invested in overnight  instruments and being used to pay down borrowings as they
come due. It is anticipated  that the gain on the sale will more than offset the
lost interest income.  However, in the short to intermediate term, the sale will
result in lower yields on earning assets.  This is being offset,  to some extent
by maturing certificates of deposit repricing at significantly lower rates.

     Interest  Income.  The Company's  total interest  income  increased by $3.7
million or 46.5% to $11.6  million  in the year  ended  June 30,  2001 from $7.9
million in the year ended June 30, 2000.  The increase in the volume of interest
earning  assets is  responsible  for $3.5  million of the  increase  in interest
income and  increased  yields is  responsible  for  $151,000 of the  increase in
interest income.

     Interest  income on loans  increased  $3.4 million,  or 46.1% during fiscal
year 2001.  The increase is  attributable  to the $37.5 million  increase in the
average balance of loans  receivable to $122.5 million in fiscal 2001 from $85.0
million in fiscal 2000 and the 12 basis point increase in average yield to 8.72%
in  fiscal  2001 from  8.60% in  fiscal  2000.

     Interest income on investment  securities increased by $136,000 to $143,000
in fiscal year 2001 as compared to $7,000 in fiscal year 2000.  The increase was
primarily  the result of an  increase  in the  average  balance to $2.1  million
during  fiscal  year 2001 from $460  thousand  and an  increase in the rate from
1.59% to 6.66% in fiscal  year 2000.  The  balance  increase  resulted  from the
purchase of Northfield.

     Interest income on mortgage-backed securities increased $48,000 or 14.4% to
$378,000  in fiscal 2001 from  $330,000 in the fiscal year ended June 30,  2000.
The average balance in mortgage-backed securities increased to $5.6 million from
$4.7  million  during  fiscal year 2001 and the yield  decreased to 6.68% in the
fiscal year ended June 30, 2001 from 7.03% in fiscal 2000.  Both the increase in
balances and decrease in yield  resulted from the  acquisition  of  Northfield's
mortgage-backed security portfolio.

     Interest income on short-term investments and other interest earning assets
increased  $125,000  or 47.0% to $390,000 in the fiscal year ended June 30, 2001
from  $265,000 in the fiscal year ended June 30, 2000.  The increase in interest
income is the result of higher average balances.

     Interest Expense.  The Company's interest expense increased by $2.6 million
or 70.7% to $6.2 million in fiscal year 2001 from $3.6 million during the fiscal
year ended June 30, 2000. As shown in the rate/volume  table above, the increase
in the volume of interest  bearing  liabilities  outstanding was responsible for
$2.0 million of the  increase in interest  expense and the increase in rates was
responsible for $574,000 of the increase in interest expense.

     Interest  expense  on  deposits  increased  $1.9  million  or 70.0% to $4.7
million in fiscal year 2001 from $2.8  million in fiscal  2000.  Higher  average
balances were responsible for $1.4 million of the increase and higher rates were
responsible for $530,000 of the increase.

     Interest  expense on borrowed  money  increased  $637,000 or 73.8 % to $1.5
million in the year ended June 30, 2001 from $862,000 in the year ended June 30,
2000.  Higher average balances were responsible for $593,000 of the increase and
higher rates paid on borrowed money was responsible for $44,000 of the increase.

     Provision  for Loan  losses.  Provisions  for loan  losses  are  charged to
earnings to maintain the total  allowance for loan losses at a level  considered
adequate by management  to provide for probable  loan losses.  The allowance for
loan losses consists of an allocated component and an unallocated component. The
components  of the  allowance  for loan  losses  represent  an  estimation  done
pursuant to either Statement of Financial  Accounting  Standards ("SFAS") No. 5,
"Accounting for  Contingencies,"  or ("SFAS") No. 114,  "Accounting by Creditors
for  Impairment  of a Loan." The  adequacy of the  allowance  for loan losses is
determined  through a  continuous  review of the loan and  lease  portfolio  and
considers  factors such as prior loss experience,  type of collateral,  industry
standards,  past due loans in the Company's

                                       14
<PAGE>
loan  portfolio,  current  economic  conditions  and  other  factors  unique  to
particular loans and leases. The Company's management  periodically monitors and
adjusts  its  allowance  for loan  losses  based upon its  analysis  of the loan
portfolio.

     The provision for loan losses was $432,500 in fiscal year 2001, an increase
of  $107,500  or 33.1% over the fiscal  year 2000  provision  of  $325,000.  The
Company's allowance for loan losses has increased as a percentage of total loans
outstanding  to 0.88% at June 30, 2001 from 0.81%t June 30, 2000.  The Company's
allowance for loan losses as a percentage of nonperforming  loans was 660.78% at
June 30, 2001 as compared to 241.92% at June 30, 2000.

     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.  Total  noninterest
income  increased  by  $238,000  or 70.7% to  $576,000  in  fiscal  year 2001 as
compared  to  $337,000  in fiscal  year 2000.  Gains on sale of  investments  of
$171,000  were  recognized  in the year ended June 30, 2001 as compared to $0 in
the year ended June 30, 2000.  This  represents  71.7% of the total  increase in
noninterest  income for the year.  These  gains  resulted  from the sale of $2.9
million in corporate and municipal  securities  and $249,000 in  mortgage-backed
securities.  These  securities  were  sold to  provide  liquidity,  to fund loan
originations and to reduce the Bank's credit and interest rate risk attributable
to the long-term corporate  securities that entered the portfolio as a result of
the Northfield acquisition.  Fees and service charges increased $72,000 or 26.4%
due  to  higher  deposit  and  transaction  volumes.  Other  noninterest  income
increased  $29,000 or 213% to 43,000  from  $13,700  primarily  as a result of a
$19,700 increase in the cash value of life insurance policies held by the bank.

     Noninterest  Expense.  The Company's total noninterest expense increased by
$681,000,  or 23.0%,  to $3.6 million  during  fiscal 2001,  as compared to $2.9
million in fiscal 2000. The Company experienced a $273,000, or 14.6% increase in
compensation  and employee  benefits  expense  during fiscal 2001, a $158,000 or
34.3% increase in other  operating  expenses,  $91,000 in goodwill  amortization
expense  resulting  from the  Northfield  acquisition,  a  $86,000  increase  in
advertising  expense,  a  $60,000  increase  in  occupancy  costs  and a $35,000
increase in data processing costs,  somewhat offset by decreases in professional
fees,  insurance  and  equipment  expenses.  The increase in salary and benefits
primarily a result of higher  staffing levels and normal salary  increases.  The
increase  in  other  operating  expenses  is  due  to  higher  item  processing,
stationary  and printing and, real estate owned  expenses.  Advertising  expense
increased as a result of the  Company's  first  concerted  advertising  campaign
since going public. Much of the campaign was geared towards introducing the Bank
to the new trade areas entered into as a result of the  Northfield  acquisition.
Advertising  expenses are expected to continue at higher than historical  levels
as the Bank attempts to  differentiate  itself from the  competition.  Occupancy
expenses increased as a result of the Northfield  acquisition and the assumption
of two leases and an owned  office.  The data  processing  expenses  increase is
primarily due to the of higher  volumes of loan and deposit  accounts  resulting
from the acquisition of Northfield.

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, 2001, 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, the
Senior Vice-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


                                       15
<PAGE>

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   commercial  real  estate  and
commercial  business  loans.  In addition,  the Company has  available  for sale
investment and mortgage-backed securities,  carried at fair value, totaling $7.8
million as of June 30, 2001. 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.


                                       16
<PAGE>

     The following table sets forth the amounts of  interest-earning  assets and
interest-bearing  liabilities  outstanding at June 30, 2001 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 ....................   $ 29,200    $ 10,190     $ 20,419     $ 14,734     $ 27,484     $ 39,446    $141,473
   Mortgage-Backed  securities .........        186         842            0           95            0        4,486       5,609
   Investment securities ...............        198           0            0          217        1,477          133       2,025
   Short-term investments and other
       Interest-earning assets .........     10,777          94          290         --           --           --        11,161
                                           --------    --------     --------     --------     --------     --------    --------
        Total ..........................     40,361      11,126       20,709       15,046       28,961       44,065     160,268
                                           --------    --------     --------     --------     --------     --------    --------

Rate sensitive liabilities:
   Deposits ............................     15,195      48,779       39,799       15,846            4         --       119,623
   Borrowings ..........................      5,200       2,900        7,600        7,962         --           --        23,662
                                           --------    --------     --------     --------     --------     --------    --------
Total ..................................     20,395      51,679       47,399       23,808            4         --       143,285
                                           --------    --------     --------     --------     --------     --------    --------

Interest sensitivity gap ...............   $ 19,966    $(40,553)    $(26,690)    $ (8,762)    $ 28,957     $ 44,065    $ 16,983
                                           ========    ========     ========     ========     ========     ========    ========
Cumulative interest sensitivity gap ....   $ 19,966    $(20,587)    $(47,277)    $(56,039)    $(27,082)    $ 16,983
                                                       ========     ========     ========     ========     ========
Ratio of cumulative gap to
  total assets..........................      19.50%     (20.11)%     (46.17)%     (54.73)%     (26.45)%     16.59%
                                           ========    ========     ========     ========     ========    ========
</TABLE>

                                       17
<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,  2001,  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                      2.0%                   -4.0%        plus or minus 10.0%
         % Change in Fair Value of Equity                   -17.0%                  -22.0%        plus or minus 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, 2001,  the Company's  cash on hand,  interest  bearing  deposits and
Federal funds sold totaled $11.2 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  $2.3  million and $2.7  million,  respectively.  Certificates  of
deposit  that are  scheduled  to mature  in less than one year at June 30,  2001
totaled $59.1 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.

     Patapsco  Bancorp,  Inc., the holding  company for the Patapsco Bank has an
annual cash requirement of approximately  $480,000 for the payment of common and
preferred  dividends  and  interest  on a loan whose  proceeds  were used in the
acquisition of Northfield.  The only source of funds for the holding  company is
dividends  from the Bank.  The Bank cannot pay dividends to the holding  company
without  prior  permission  from the  Federal  Reserve  Bank of  Richmond.  When
reviewing  requests to pay this type of  dividend,  the Federal  Reserve Bank of
Richmond considers,

                                       18
<PAGE>

among other  factors,  the current  capital levels and earnings of the Bank. The
Bank has not  experienced,  nor does it anticipate  any  difficulty in receiving
such permission.

     At June  30,  2001,  the  Bank  exceeded  all  regulatory  minimum  capital
requirements.  The table  below  presents  certain  information  relating to the
Bank's regulatory compliance at June 30, 2001.
<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)..    $12,594         13.32 %    $7,567        8.0%    $9,458       10.00%
 Tier 1 Capital (to Risk Weighted Assets).     11,433         12.09       3,783        4.0      5,675        6.00
 Tier 1 Capital (to Average Assets).......     11,433          7.15       6,394        4.0      7,992        5.00
</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

     In June 2001, the Financial  Accounting Standards Board approved Statements
of Financial Accounting  Standards No. 141 "Business  Combinations" ("SFAS 141")
and No. 142  "Goodwill  and Other  Intangible  Assets"  ("SFAS  142")  which are
effective July 1, 2001 and January 1, 2002, respectively,  for the Company. SFAS
141 required  that the purchase  method of  accounting  be used for all business
combinations  initiated  after June 30, 2001.  Under SFAS 142,  amortization  of
goodwill,  including  goodwill  recorded  in past  business  combinations,  will
discontinue upon adoption of this standard.  All goodwill and intangible  assets
will  be  tested  for  impairment  in  accordance  with  the  provisions  of the
Statement.  The Company intends to adopt the provisions of SFAS 142 in the first
quarter of fiscal 2002. Management believes that they will not have to recognize
an  impairment  upon  completion  of their test and  goodwill  will no longer be
amortized.  Goodwill  amortization  for fiscal  2002  would have been  $137,136,
however, as a result of the implementation of SFAS 142 it will be none unless an
unforeseen impairment occurs.


                                       19
<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, 2001 and 2000, 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,  2001.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on 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  believe  that our  audits
provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Patapsco  Bancorp,  Inc. and  Subsidiaries as of June 30, 2001 and 2000, 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, 2001, in conformity  with  generally
accepted accounting principles.



                                             /s/ Anderson Associates, LLP



  August 27, 2001
  Baltimore, Maryland



                                       20
<PAGE>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Financial Condition

June 30, 2001 and 2000
========================================================================================================================
                                                                                         2001                  2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                          <C>
ASSETS
Cash:
      On hand and due from banks                                                $    2,710,768               2,251,850
      Interest bearing deposits                                                      2,630,770                 282,929
Federal funds sold                                                                   5,819,093                 903,004
Investment securities at fair value (note 2)                                         2,188,212                 462,842
Mortgage-backed securities at fair value (note 3)                                    5,679,605               4,456,047
Loans Held for Sale (note 1)                                                         9,914,139                      --
Loans receivable, net (note 4)                                                     127,833,640              91,002,476
Investment required by law, at cost (note 9)                                         1,903,350                 950,850
Property and equipment, net (note 5)                                                 1,193,425               1,004,443
Goodwill                                                                             1,869,691                      --
Income taxes receivable                                                                153,942                      --
Deferred taxes (note 8)                                                                838,061                 442,000
Accrued interest, prepaid expenses and other assets                                  1,435,587                 908,470
------------------------------------------------------------------------------------------------------------------------
                                                                                  $164,170,283             102,664,911
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
      Interest bearing deposits (note 6)                                          $119,622,698              72,357,957
      Noninterest bearing deposits                                                   4,369,526               3,293,950
      Borrowings (note 7)                                                           23,661,772              14,900,000
      Accrued expenses and other liabilities                                         2,979,204               2,520,673
      Income taxes payable (note 8)                                                    112,263                  13,033
------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                  150,745,463              93,085,613

Stockholders' equity (notes 9, 10 and 11):
       Preferred stock-Series A Noncumulative Convertible Perpetual $0.01 par
         value; authorized 1,000,000 shares with a liquidation
         preference of $25 per share; 106,073 outstanding                                1,061                      --
       Additional paid-in-capital                                                    2,650,733                      --
      Common stock $0.01 par value; authorized 4,000,000 shares; issued and
        outstanding 332,950 shares at June 30, 2001 and 327,390 shares at June
        30, 2000                                                                         3,330                   3,274
      Additional paid-in capital                                                     1,629,937               1,471,253
      Contra equity - Employee Stock Option Plan (ESOP)                               (185,695)               (254,045)
      Contra equity - Management Recognition Plan (MRP)                                (60,610)               (154,761)
      Deferred compensation - Rabbi Trust                                              (77,544)                     --
      Retained earnings, substantially restricted                                     9,331,919              8,625,749
      Accumulated other comprehensive income, net of taxes                              131,689               (112,172)
------------------------------------------------------------------------------------------------------------------------
Commitments (notes 4, 5, 10 and 11)                                                  13,424,820              9,579,298
------------------------------------------------------------------------------------------------------------------------
                                                                                   $164,170,283            102,664,911
========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>


                                       21
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Income
Years Ended June 30, 2001 and 2000

=============================================================================================================
                                                                         2001                  2000
-------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                     <C>
Interest income:
      Loans receivable (note 4 )                                     $10,675,371             7,304,753
      Mortgage-backed securities                                         378,275               330,535
      Investment securities                                              142,879                 7,312
      Federal funds sold and other investments                           390,427               265,579
-------------------------------------------------------------------------------------------------------------
Total interest income                                                 11,586,952             7,908,179
-------------------------------------------------------------------------------------------------------------

Interest expense:
      Deposits                                                         4,733,067             2,783,007
      Interest on short term borrowing                                     7,067                10,708
      Interest on long term debt                                       1,499,662               862,639
-------------------------------------------------------------------------------------------------------------
Total interest expense                                                 6,239,796             3,656,354
-------------------------------------------------------------------------------------------------------------

Net interest income                                                    5,347,156             4,251,825
Provision for losses on loans (note 4)                                   432,500               325,000
-------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans                4,914,656             3,926,825
--------------------------------------------------------------------------------------------------------------

Noninterest income:
      Fees and service charges                                            342,324              270,744
      Net gain on sales of other real estate owned                         19,556               52,853
      Gain on sale of investment and mortgage-backed
        securities (notes 2 and 3)                                        170,830                   --
      Other                                                                43,059               13,756
-------------------------------------------------------------------------------------------------------------
Total noninterest income                                                  575,769              337,353
-------------------------------------------------------------------------------------------------------------

Noninterest expenses:
      Compensation and employee benefits                                2,133,066            1,860,531
      Insurance                                                            51,267               55,315
      Professional fees                                                   114,448              129,187
      Equipment expenses                                                  166,534              169,692
      Net occupancy costs                                                 136,996               77,216
      Advertising                                                         132,250               45,955
      Data processing                                                     191,499              156,892
      Goodwill Amortization                                                91,424                   --
      Other                                                               619,042              460,930
-------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                              3,636,526            2,955,718
-------------------------------------------------------------------------------------------------------------

Income before income taxes                                              1,853,899            1,308,460
Income tax provision (note 8)                                             836,269              514,000
-------------------------------------------------------------------------------------------------------------
Net income                                                             $1,017,630              794,460
-------------------------------------------------------------------------------------------------------------
Net income per share of common stock (note 1):
      Basic                                                            $     2.89                 2.54
      Diluted                                                                2.65                 2.40
=============================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       22
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2001 and 2000

==================================================================================================================

                                                                  Additional
                                                                    Paid-In       Common    Additional   Contra-
                                                      Preferred      Capital       Stock     Paid-In    Equity
                                                         Stock     Preferred                 Capital     ESOP
------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>              <C>     <C>         <C>
Balance at June 30, 1999                              $     -           -           3,445   1,888,962   (325,100)

 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
  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)

 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              -           -            -         37,561     68,350
  Cash dividends declared ($.56 per share)                  -           -            -          -           -
  Options exercised                                         -           -              34      63,712       -
  Purchase of common stock                                  -           -             (10)    (21,639)      -
  Rabbi Trust Shares from Acquisition                       -           -            -          -           -
  Issuance of Preferred Stock                             1,093   2,729,783          -          -           -
  Conversion of Preferred to Common                         (32)    (79,050)           32      79,050       -
------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001                                  1,061   2,650,733         3,330   1,629,937   (185,695)
==================================================================================================================
<CAPTION>

========================================================================================================================
                                                                                               Accumulated
                                                                                                Other
                                                       Contra-     Stock                     Comprehensive      Total
                                                       Equity      Held by       Retained      Income, Net  Stockholders'
                                                       MRP      Rabbi Trust      Earnings      of Taxes        Equity
-------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>            <C>            <C>           <C>
Balance at June 30, 1999                              (257,095)         -       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         102,334          -            -            -            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                              (154,761)         -       8,625,749      (112,172)     9,579,298

 Comprehensive income
    Net income                                            -             -       1,017,630          -             -
     Adjustment to unrealized net holding losses on
        available-for-sale portfolios, net (note 1)       -             -            -          243,860          -
     Comprehensive income                                 -             -            -            -          1,261,490
  Compensation under stock-based benefit plans         94,151           -            -            -            200,062
  Cash dividends declared ($.56 per share)                -             -       (311,460)         -           (311,460)
  Options exercised                                       -             -            -            -             63,746
  Purchase of common stock                                -             -            -            -            (21,649)
  Rabbi Trust Shares from Acquisition                     -         (77,544)         -            -            (77,544)
  Issuance of Preferred Stock                             -             -            -            -           2,730,876
  Conversion of Preferred to Common                       -             -            -            -               -
-------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001                               (60,610)     (77,544)    9,331,919       131,688      13,424,819
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       23
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows

Years ended June 30, 2001 and 2000

========================================================================================================================
                                                                                    2001                       2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                           <C>
Cash flows from operating activities:
     Net income                                                                $ 1,017,630                   794,460
     Adjustments to reconcile net income to net
          cash provided by operating activities:
               Goodwill amortization                                                91,424                        --
               Depreciation                                                        153,866                   139,529
               Provision for losses on loans                                       432,500                   325,000
               Non-cash compensation under stock-based benefit plans               200,062                   225,749
               Amortization of premiums and discounts, net                        (199,947)                    4,244
               Deferred loan origination fees, net of costs                          1,389                    28,380
               Gain on sale of investment securities                              (169,475)                       --
               Gain on sale of mortgage-backed securities                           (1,355)                       --
               Gain on sale of real estate owned                                   (19,556)                  (52,853)
               Increase (decrease) in income taxes payable                          99,230                   (12,203)
               Change in deferred taxes                                            (19,943)                  (28,000)
               Increase in accrued interest on investments,
                prepaid expenses and other assets                                 (151,525)                  (55,778)
               (Decrease) increase in accrued expenses and other liabilities      (420,990)                    6,827
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                         1,013,310                 1,375,355
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Cash consideration Northfield acquisition, net                              (2,831,106)                       --
     Purchase of investment securities                                               (6,811)                 (187,708)
     Proceeds from sale of investment securities                                  3,117,986                        --
     Proceeds from sale of mortgage-backed securities                               250,715                        --
     Principal repayments on mortgage-backed securities                           1,349,931                   353,198
     Principal repayments on loans held for sale                                    105,801                        --
     Loan principal disbursements, net of repayments                             (3,803,482)              (13,736,669)
     Proceeds from sale of real estate owned                                        330,357                   198,535
     Purchase of investment required by law                                        (442,500)                 (150,000)
     Purchases of property and equipment                                           (175,356)                  (91,355)
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                           $(2,104,465)              (13,613,999)
------------------------------------------------------------------------------------------------------------------------

                                                                                                 (Continued)
</TABLE>
See accompanying notes to consolidated financial statements.

                                       24
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows, Continued

Years ended June 30, 2001 and 2000


========================================================================================================================
                                                                                    2001                       2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                           <C>
Cash flows from financing activities:
    Net increase (decrease) in deposits                                        $ 9,999,366                5,980,487
    Purchase of common stock                                                       (21,649)                (502,123)
    Stock options exercised                                                         63,746                   31,883
    Additional borrowings                                                       27,900,000                9,000,000
    Repayments of borrowings                                                   (29,200,000)              (8,000,000)
    Dividends paid                                                                (311,460)                (185,770)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        8,430,003                6,324,477
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                             7,338,848               (5,914,167)
Cash and cash equivalents at beginning of year                                   3,437,783                9,351,950
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                       $10,776,631                3,437,783
========================================================================================================================

The Following is a Summary of Cash and Cash Equivalents:
     Cash on hand and due from banks                                           $ 2,710,768                2,251,850
     Interest bearing deposits in other banks                                    2,630,770                  282,929
     Federal funds sold                                                          5,819,093                  903,004
------------------------------------------------------------------------------------------------------------------------
                                                                                11,160,631                3,437,783
         Less - Certificates of deposit maturing in 90 days or more
                      included in interest bearing deposits in other banks        (384,000)                      --
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents reflected on the Statement of Cash Flows             $10,776,631                3,437,783
========================================================================================================================

Supplemental information:
     Interest paid on savings deposits and borrowed funds                      $ 6,239,796                3,649,829
     Income taxes paid                                                             836,269                  506,000
     Transfer from loans to real estate owned                                      384,899                  177,214
     Preferred stock issued for acquired company                                 2,730,876                       --
     Preferred stock converted to common stock                                      79,082                       --
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

                                       25
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(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 cash,  federal  funds sold and interest  bearing
     deposits in other bank with an original  maturity of 90 days or less.  Cash
     equivalents and other  liquidity and short term  investments are carried at
     cost, which approximates market value.


                                                                     (Continued)

                                       26
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(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 the interest method.

     LOANS HELD FOR SALE

     Loans held 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.

     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.

                                                                     (Continued)

                                       27
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(1)  CONTINUED

     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.

     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.

                                                                     (Continued)

                                       28
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(1)  CONTINUED

     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.

     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.

     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)

                                       29
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(1)  CONTINUED
<TABLE>
<CAPTION>
                                                     -----------------------------------------------------------------------
                                                                                     YEAR ENDED
                                                     -----------------------------------------------------------------------
                                                              JUNE 30, 2001                            JUNE 30, 2000
                                                        BASIC              DILUTED               BASIC           DILUTED
----------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>                    <C>             <C>
Net income                                           $1,017,630          1,017,630              794,460         794,460
Preferred Stock Dividends                               126,925                  -                    -               -
Net Income Available to Common                          890,705          1,017,630              794,460         794,460
Weighted average shares outstanding                     308,058            308,058              313,176         313,176
Diluted securities:
    Preferred Stock                                           -             71,475                    -               -
    MRP shares                                                -                 92                    -           8,398
    Options                                                   -              3,808                    -           8,877
----------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares                         308,058           383,433              313,176         330,451
----------------------------------------------------------------------------------------------------------------------------

Per share amount                                      $     2.89              2.65                 2.54            2.40
----------------------------------------------------------------------------------------------------------------------------
</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)

                                       30
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(1)  CONTINUED

     MERGER AGREEMENT

     On November 13, 2000, the Company acquired  Northfield  Bancorp,  Inc., the
     holding  company  for  Northfield  Federal  Savings  Bank  (Northfield),  a
     federally   chartered  savings  bank.  Holders  of  outstanding  shares  of
     Northfield  Bancorp  received $12.50 in cash and .24 shares of newly issued
     Patapsco Bancorp's Series A Noncumulative  Convertible  Perpetual Preferred
     Stock.

     The  combination was accounted for under the purchase method of accounting,
     and  accordingly,  the net assets  were  recorded at their  estimated  fair
     values at the date of acquisition,  November 13, 2000. The Company recorded
     discounts of $1,343,912 on assets and $172,247 on liabilities  and premiums
     of $6,131 on assets and $230,543 on liabilities.  Fair value adjustments on
     the assets and liabilities purchased are being amortized over the estimated
     lives  of the  related  assets  and  liabilities.  The  net  effect  of the
     amortization  and  accretion of premiums and discounts on net income before
     taxes for fiscal 2001 was $343,121.  The excess of the purchase  price over
     the estimated  fair value of the  underlying  net assets of $1,958,072  was
     allocated  to  goodwill  and is being  amortized  over 15 years,  using the
     straight-line method.

     The  following  unaudited  pro  forma  condensed   consolidated   financial
     information reflects the results of operations of the Company for the years
     ended June 30,  2001 and 2000 as if the  transaction  had  occurred  at the
     beginning  of each  period  presented.  These  pro  forma  results  are not
     necessarily  indicative of what the Company's  results of operations  would
     have been had the acquisition actually taken place at the beginning of each
     period presented.
<TABLE>
<CAPTION>
                                               -----------------------------------------------------
                                                                 YEAR ENDED
                                               -----------------------------------------------------

                                                     JUNE 30, 2001              JUNE 30, 2000
----------------------------------------------------------------------------------------------------
<S>                                                    <C>                        <C>
  Net interest income                                  $5,540,460                 $5,452,048
  Net income                                            1,032,896                    776,711
  Diluted net income per share                              $2.56                      $1.76
====================================================================================================
</TABLE>

     RECLASSIFICATION AND RESTATEMENT

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


                                       31
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(2)  INVESTMENT SECURITIES

     Investment securities, classified as available-for-sale,  are summarized as
     follows as of June 30:
<TABLE>
<CAPTION>
                                                                                2001
                                          -------------------------------------------------------------------
                                           AMORTIZED        UNREALIZED       UNREALIZED            FAIR
                                               COST             GAINS            LOSSES            VALUE
  -----------------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>              <C>               <C>
  Equity securities                       $   217,062               -           17,867            199,195
  Corporation Bonds                         1,146,753          106,928               -          1,253,681
  Federal Home Loan Mortgage
  Corporation Bonds                           680,414           54,920               -            735,334
  -----------------------------------------------------------------------------------------------------------
                                          $2,044,229           161,848          17,867         2,188,210
                                          ===================================================================

                                                                             2000
                                          -------------------------------------------------------------------
  Equity securities                       $  434,118             28,724            -               462,842
=============================================================================================================
</TABLE>

     The equity investments have no stated maturity. The scheduled maturities of
     investments available for sale at June 30, 2001 are as follows:
<TABLE>
<CAPTION>
                                                                                      2001
                                                                       AMORTIZED                   FAIR
                                                                         COST                      VALUE
   ----------------------------------------------------------------------------------------------------------
     <S>                                                            <C>                          <C>
     Due after five years through ten years                         $   217,304                    239,051

     Due after ten years                                              1,609,863                  1,749,965
                                                        -----------------------------------------------------
                                                                    $ 1,827,167                  1,989,016
=============================================================================================================
</TABLE>

     Accrued interest receivable balances at June 30, 2001 and 2000 were $31,895
     and $0, respectively.

     In fiscal year 2001, the Company  received  proceeds of $3,117,985 from the
     sale of  corporate  and  municipal  securities  resulting in gross gains of
     $169,475.

     There were no sales or redemptions of investment securities in 2000.


                                       32
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(3)  MORTGAGE-BACKED SECURITIES

     Mortgage-backed   securities,   classified   as   available-for-sale,   are
     summarized as follows as of June 30:
<TABLE>
<CAPTION>
                                                                       2001
                                             --------------------------------------------------------------
                                              AMORTIZED      UNREALIZED      UNREALIZED         FAIR
                                                 COST        GAINS           LOSSES             VALUE
   --------------------------------------------------------------------------------------------------------
<S>                                          <C>                 <C>          <C>             <C>
   Government National Mortgage
     Association (GNMA)                      $5,303,412          56,012             -         5,359,424
   Federal National Mortgage
     Association (FNMA)                         305,610          14,571             -           320,181
                                             --------------------------------------------------------------
                                             $5,609,022          70,583             -         5,679,605
   ========================================================================================================
                                                                             2000
                                          -----------------------------------------------------------------
   Government National Mortgage
     Association (GNMA)                      $4,667,521            -          211,474         4,456,047
   ========================================================================================================
</TABLE>

     Accrued interest  receivable at June 30, 2001 and June 30, 2000 was $32,293
     and $26,891, respectively.

     In fiscal year 2001,  the Company  received  proceeds of $250,715  from the
     sale of one FNMA security resulting in a gross gain of $1,355.

     There were no sales of mortgage backed securities in 2000.

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

(4)  LOANS RECEIVABLE

     Loans receivable and accrued interest  receivable thereon are summarized as
     follows as of June 30:
<TABLE>
<CAPTION>
                                                                              2001                   2000
   ---------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                      <C>
   Real estate secured by first mortgage:
        Residential                                                        $75,495,976              49,968,895
        Commercial                                                          13,541,630              11,837,877
        Construction, net of loans in process                                2,097,996               1,569,778
   ---------------------------------------------------------------------------------------------------------------
                                                                            91,135,602              63,376,550

   Home improvement loans                                                   11,427,469               9,266,512
   Commercial loans                                                         12,991,549               9,884,746
   Home equity loans                                                         2,315,451               1,863,815
   Commercial leases                                                        12,287,292               7,053,244
   Loans secured by deposits                                                   255,247                 221,324
   Consumer loans                                                            1,145,294                 989,869
   ---------------------------------------------------------------------------------------------------------------
                                                                           131,557,904              92,656,060
</TABLE>

                                                                     (Continued)

                                       33
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(4)  CONTINUED
<TABLE>
<CAPTION>
                                                                                 2001                  2000
<S>                                                                        <C>                         <C>
   Less:
        Deferred loan origination fees, net of costs                       $       16,961               74,013
        Unearned interest consumer loans                                          330,995              127,233
        Unearned interest commercial leases                                     1,601,808              709,529
        Purchase accounting discount, net                                         613,888                    -
        Allowance for loan losses                                               1,160,612              742,809
   ---------------------------------------------------------------------------------------------------------------
   Loans receivable, net                                                   $  127,833,640           91,002,476
   ===============================================================================================================
</TABLE>

     Accrued interest  receivable on loans was $804,100 and $497,400 at June 30,
     2001 and 2000, 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 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, 2001 and
     2000 were $28,000 and $9,900, 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 $181,500 and $24,200 at
     June 30, 2001 and 2000, respectively has been recognized in conformity with
     SFAS No. 114. The average recorded investment in impaired loans during 2001
     and 2000,  respectively  was $348,300 and $230,300.  There was an allowance
     for losses  related to those  loans of $ -0- and $ -0- at June 30, 2001 and
     2000, respectively. The amount of interest that would have been recorded on
     impaired  loans  at June 30,  2001 and  2000,  respectively  had the  loans
     performed in accordance with their terms was approximately $822 and $6,900,
     respectively.  The actual  interest  income  recorded on these loans during
     2001 and 2000 was $8,900 and $4,200, respectively.


                                                                     (Continued)

                                       34
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(4)  CONTINUED

     Nonaccrual  loans not subject to SFAS No. 114 amounted to  approximately  $
     -0- and  $279,000  at June 30, 2001 and 2000,  respectively.  The amount of
     interest income that would have been recorded on loans in nonaccrual status
     at June 30, 2001 and 2000 had such loans performed in accordance with their
     terms,  was  approximately  $ -0- and  $17,800,  respectively.  The  actual
     interest   income  recorded  on  these  loans  during  2001  and  2000  was
     approximately $ -0- and $7,600, 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, 2001 loans classified  special
     mention,  substandard and doubtful totaled approximately $899,300,  $95,200
     and $100,000. No loans were classified loss at June 30, 2001.

     The activity in the  allowance for loan losses is summarized as follows for
     the years ended June 30:
<TABLE>
<CAPTION>
                                                                                    2001                2000
   ---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>
   Balance at beginning of year                                                 $   742,809            $631,239
   Provision for losses on loans                                                    432,500             325,000
   Allowance assumed in acquisition                                                 182,811                   -
   ---------------------------------------------------------------------------------------------------------------------
   Charge-offs                                                                     (248,460)           (253,811)
   Recoveries                                                                        50,952              40,381
   ---------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                                       $ 1,160,612            $742,809
   =====================================================================================================================
</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, 2001
     and  2000 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.


                                                                     (Continued)

                                       35
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(4)  CONTINUED

     Outstanding  commitments to extend credit, which generally expire within 60
     days, are as follows:
<TABLE>
<CAPTION>
                                                                                               2001
                                                                                FIXED RATE              FLOATING RATE
   ----------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                      <C>
   Commercial business and lease loans                                         $2,054,667                  200,000
   Undisbursed lines of credit                                                          -                2,651,046
   ======================================================================================================================

                                                                                                2000
   ----------------------------------------------------------------------------------------------------------------------
   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, 2001 and 2000,  Patapsco was servicing loans for the benefit
     of others, approximately $1,301,413 and $1,419,845, respectively.

(5)  PROPERTY AND EQUIPMENT

     Property and equipment are summarized as follows at June 30:
<TABLE>
<CAPTION>
                                                                                                              ESTIMATED
                                                                     2001                 2000               USEFUL LIVES
   --------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                         <C>                <C>
   Land                                                      $   153,404                 92,684                     -
   Building and improvements                                   1,054,045                998,730                 40 years
   Leasehold improvements                                        105,109                     -
   Furniture, fixtures and equipment                           1,635,544              1,247,433               3 - 10 years
   --------------------------------------------------------------------------------------------------------------------------
   Total, at cost                                              2,948,102              2,338,847

   Less accumulated depreciation                               1,754,677              1,334,404
   -------------------------------------------------------------------------------------------------------------------------
   Property and equipment, net                               $ 1,193,425              1,004,443
===============================================================================================
</TABLE>

     As a result  of the  acquisition  of  Northfield  Bancorp,  Inc.,  the Bank
     assumed   long-term   lease   agreements   for  a  branch   office  and  an
     administrative  office.  At June 30, 2001, the minimal  rental  commitments
     under noncancellable operating leases are as follows:

   Year Ended June 30,
   -------------------
          2002                         $  58,222
          2003                            42,000
          2004                            7,0000
                                        --------
                                        $107,222
                                        ========


                                       36
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(6)  DEPOSITS

     The  aggregate   amount  of  jumbo   certificates,   each  with  a  minimum
     denomination of $100,000,  was approximately  $10,747,000 and $4,147,000 in
     2001 and 2000, respectively.

     At June 30, 2001, the scheduled maturities of certificates are as follows:

   Under 12 months                                       $59,117,100
   12 months to 24 months                                  8,363,100
   24 months to 36 months                                  4,230,100
   36 months to 60 months                                  6,709,400
   Greater than  60 months                                   613,500
   -----------------------------------------------------------------
                                                         $79,033,200
   =================================================================

(7)  BORROWINGS

     At  June  30,  2001  and  2000,  the  Company  has  an  agreement  under  a
     blanket-floating  lien with the Federal Home Loan Bank of Atlanta providing
     the Company a line of credit of $41.0 and $20.0 million, respectively and a
     revolving  line of credit of with The Bankers  Bank of Atlanta,  Georgia of
     $3.0 million and $ -0-, respectively. At June 30, 2001, the Bank also has a
     Federal Funds  accommodation  with the Bankers Bank of $2.8 million at June
     30, 2001 and $ -0- at June 30, 2000. The Company is required to maintain as
     collateral  for its FHLB  advances  qualified  mortgage  loans in an amount
     equal to 175% of the  outstanding  advances.  The  Company  has pledged the
     stock of The Patapsco  Bank as collateral  for  borrowing  from The Bankers
     Bank.

     At June 30, the scheduled maturities of borrowings are as follows:
<TABLE>
<CAPTION>

                                                2001                                    2000
---------------------------------------------------------------------------------------------------------------------
                                                           WEIGHTED                                       WEIGHTED
                                           BALANCE       AVERAGE RATE                    BALANCE       AVERAGE RATE
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                     <C>                          <C>                 <C>
Under 12 months                      $  6,400,000            5.77                         1,900,000           6.43
12 months to 24 months                  4,500,000            5.55                         1,000,000           6.55
24 months to 36 months                  1,000,000            6.57                         7,000,000           6.33
36 months to 48 months                      -                 -                           5,000,000           5.01
48 months to 120 months                11,900,000            5.62                             -                 -
---------------------------------------------------------------------------------------------------------------------
                                      $23,800,000            5.69                        14,900,000           5.92
=====================================================================================================================
</TABLE>

                                       37
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(8)  INCOME TAXES

     The  provision  for income taxes is composed of the following for the years
     ended June 30:
<TABLE>
<CAPTION>
                                                                                     2001                   2000
   --------------------------------------------------------------------------------------------------------------------------
   <S>                                                                             <C>                     <C>
   Current:
          Federal                                                                  $  696,441              447,000
          State                                                                       159,771               95,000
   --------------------------------------------------------------------------------------------------------------------------
                                                                                      856,212              542,000
   --------------------------------------------------------------------------------------------------------------------------
   Deferred:
          Federal                                                                     (16,329)             (23,000)
          State                                                                        (3,614)              (5,000)
   --------------------------------------------------------------------------------------------------------------------------
                                                                                      (19,943)             (28,000)
   --------------------------------------------------------------------------------------------------------------------------
                                                                                   $  836,269              514,000
   ==========================================================================================================================

The net deferred tax assets consist of the following at June 30:
                                                                                     2001                   2000
   --------------------------------------------------------------------------------------------------------------------------

   Allowance for losses on loans                                                   $  448,229              294,000
   Unrealized holding gains                                                                --               71,000
   Deferred compensation                                                              341,727              200,000
   Deferred loan fees                                                                      --               37,000
   Purchase accounting adjustment                                                     334,918                   --
   Other, net                                                                          11,679               17,000
                                                                                ---------------------------------------------
         Total deferred tax assets                                                  1,136,553              619,000

   Unrealized holding losses                                                          (82,864)                  --
   Tax bad debt reserve                                                               (12,954)             (26,000)
   Federal Home Loan Bank stock dividends                                            (133,311)            (101,000)
   Accumulated depreciation                                                           (69,363)             (50,000)
                                                                                ---------------------------------------------
         Total deferred tax liabilities                                              (298,492)            (177,000)
   --------------------------------------------------------------------------------------------------------------------------
   Net deferred tax assets                                                         $  838,061              442,000
   ==========================================================================================================================
</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>
                                                                                       2001                  2000
   -------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                     <C>
   Tax at statutory rate                                                            $  630,325              445,000
   State income taxes, net of Federal income tax benefit                               115,095               59,000
   Other                                                                                90,849               10,000
   -------------------------------------------------------------------------------------------------------------------
   Income tax provision                                                             $  836,269              514,000
   ===================================================================================================================
</TABLE>


                                                                     (Continued)


                                       38
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(8)  CONTINUED

     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 experience. 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  investment  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.

     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, 2001, 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, 2001,  that Patapsco meets all capital  adequacy  requirements  to
     which it is subject.

                                                                     (Continued)


                                       39
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(9)  Continued

     As of June 30, 2001, 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.

     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, 2001:
       Total Capital (to Risk
          Weighted Assets)                 $12,594         13.32%        $7,567      8.00%          $9,458        10.00%
       Tier I Capital (to Risk
          Weighted Assets)                  11,433         12.09%         3,783      4.00%           5,675         6.00%
       Tier I Capital (to Average
          Assets)                           11,433          7.15%         6,394      4.00%           7,992         5.00%
   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%
   =========================================================================================================================
</TABLE>

(10) STOCKHOLDERS' EQUITY AND RELATED MATTERS

     In 1995,  the Bank  converted  from a federally  chartered  mutual  savings
     association  to a capital  stock  savings  bank.  Simultaneously,  the Bank
     consummated the formation of a holding company,  Patapsco Bancorp, Inc., of
     which  the  Bank is a  wholly-owned  subsidiary.  In  connection  with  the
     Conversion, the Company publicly issued 362,553 shares of its common stock.

     Federal  regulations  required 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.


                                                                     (Continued)

                                       40
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(10) CONTINUED

     In addition to the  foregoing,  certain bad debt reserves of  approximately
     $2,300,000  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.  The unrecorded  deferred  income tax
     liability on the above amount was approximately $897,000.

(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 ESOP  shares  contain a "Put  Option"  which  requires  the  Company to
     repurchase  the  share  at  the  then  fair  market  value  subject  to the
     availability of retained earnings. The "Put Option" may be exercised within
     60 days of  distribution  of the shares and then again within 60 days after
     the fair market value determination date of the next plan year. The current
     fair market value of shares that have been allocated contain a "Put Option"
     of $620,311.

     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, 2001 and 2000 compensation  expense recognized
     related to the ESOP and Patapsco's contribution to the ESOP was $88,997 and
     $123,872, respectively.

     The ESOP shares were as follows as of June 30:
<TABLE>
<CAPTION>
                                                                                               2001                   2000
   -------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                 <C>
   Shares released and allocated                                                           28,329              23,396
   Unearned shares                                                                         13,536              18,469
   -------------------------------------------------------------------------------------------------------------------------
                                                                                           41,865              41,865
   =========================================================================================================================
   Fair value of unearned shares                                                        $ 298,469             410,935
   =========================================================================================================================
</TABLE>


                                                                     (Continued)

                                       41
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(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, 2001 and 2000 was $(1,368) and
     $13,200, 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  $20.00  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 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
Granted                                             -
Exercised                                      (3,370)
Cancelled                                      (5,057)
-----------------------------------------------------------------------------------------------------------------------
Outstanding at end of 2001                     35,205                  19.06          31,402               18.94
=======================================================================================================================
</TABLE>

                                                                     (Continued)

                                       42
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(11) CONTINUED

     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 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 2001 and 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 $887,670 and $779,286, respectively.
     Proforma  earnings,  basic,  per share  would have been $2.88 and $2.49 and
     diluted, per share would have been $2.65 and $2.36, respectively, in fiscal
     2001 and 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,  2001,
     approximately 4,199 shares are unvested.  For the years ended June 30, 2001
     and 2000,  compensation  expense  related to the MRP and SAP was $9,300 and
     $80,900, 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 15%.  The  Company  is
     obligated to contribute 3% of each  employee's  salary,  whether or not the
     employee  contributes their own money. All employees who have completed six
     months of service  with the  Company  and are 21 years old are  eligible to
     participate.  The  Company's  contribution  to this  plan was  $35,000  and
     $30,000 for the years ended June 30, 2001 and 2000, 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, 2001 and 2000.

                                                                     (Continued)

                                       43
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(12) CONTINUED

     The carrying  value and estimated  fair value of financial  instruments  is
     summarized as follows at June 30:
<TABLE>
<CAPTION>
                                                                       2001                                    2000
                                                       ----------------------------------       ----------------------------------
                                                           CARRYING                                CARRYING
                                                             VALUE          FAIR VALUE               VALUE        FAIR VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                   <C>                   <C>             <C>
Assets:
   Cash and interest-bearing deposits                  $  5,341,538          5,342,000             2,534,779       2,535,000
   Federal funds sold                                     5,819,093          5,819,000               903,004         903,000
   Investment securities                                  2,188,212          2,188,000               462,842         463,000
   Mortgage-backed securities                             5,679,605          5,680,000             4,456,047       4,456,000
   Loans receivable, net                                127,833,640        134,571,000            91,002,476      88,085,500
   Loans held for sale                                    9,914,139         10,094,000                 -               -
Liabilities:
   Deposits                                             123,992,224        124,597,000            75,651,907      75,651,919
   Borrowings                                            23,661,772         23,560,000            14,900,000      14,900,000
   Advance payments by borrowers for
      taxes, insurance and ground rents                   1,547,438          1,547,000             1,214,666       1,215,000
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.


                                                                     (Continued)

                                       44
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(12) CONTINUED

     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.

     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.



                                                                     (Continued)

                                       45
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(12) CONTINUED

     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.

     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.

(13) RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial  Accounting Standards Board approved Statements
     of Financial  Accounting  Standards No. 141 "Business  Combinations" ("SFAS
     141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which
     are  effective  July 1, 2001 and  January  1, 2002,  respectively,  for the
     Company.  SFAS 141 requires that the purchase  method of accounting be used
     for all business  combinations  initiated  after June 30, 2001.  Under SFAS
     142, amortization of goodwill, including goodwill recorded in past business
     combinations, will discontinue upon adoption of this standard. All goodwill
     and intangible assets will be tested for

                                                                     (Continued)

                                       46
<PAGE>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
------------------------------------------------------------------------------

(13) CONTINUED

     impairment in accordance with the provisions of the Statement.  The Company
     intends to adopt the  provisions of SFAS 142 in the first quarter of fiscal
     2002.  Management  believes  that  they  will  not  have  to  recognize  an
     impairment  upon  completion  of their test and goodwill  will no longer be
     amortized.  Goodwill amortization for fiscal 2002 would have been $137,136,
     however,  as a  result  of the  implementation  of SFAS 142 it will be none
     unless an unforeseen impairment occurs.


                                       47
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                                            BOARD OF DIRECTORS

<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 Bel Air Pontiac
President and Chief  Executive  Officer     County Public School System                  Owner Bel Air Medicine, Inc.
of the Company and the Bank
                                            GARY R. BOZEL
J. THOMAS HOFFMAN                           Managing Principal
Self employed financial consultant          Gary R. Bozel & Associates, P.A.

                                             ADVISORY DIRECTORS

JOSEPH N. MCGOWAN                            ROBERT LATING                                  DAVID G. RITTENHOUSE
Retired Chairman of the Board                Retired real estate investor                   Chief Executive
Officer                                                                                     Rittenhouse Fuel Company
                                             EXECUTIVE OFFICERS

JOSEPH J. BOUFFARD                          FRANK J. DUCHACEK, JR.                         MICHAEL J. DEE
President and Chief Executive Officer       Senior-Vice President - Branch & Deposit       Vice-President - Treasurer
                                            Administration                                 Chief Financial Officer

JOHN W. MCCLEAN                              ALAN HERBST                                    LAURENCE S. MITCHELL
Vice President - Real Estate Lending         Vice President - Consumer Lending              Vice-President - Commercial Lending

BRIAN G. CONNELLY
Vice-President - Commercial Leasing

                                                         OFFICE LOCATIONS

                1301 Merritt Boulevard                  1844 E. Joppa Road                        8705 Harford Road
             Dundalk, Maryland 21222-2194               Baltimore, Maryland                      Baltimore, Maryland
         Website: http:\\www.patapscobank.com             (410) 665-5190                           (410) 665-5600
               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,  2001 AS
GENERAL COUNSEL                                                                            FILED   WITH  THE   SECURITIES   AND
Nolan Plumhoff & Williams                   ANNUAL MEETING                                 EXCHANGE    COMMISSION,    WILL   BE
Suite 700, Nottingham Centre                The 2001 Annual  Meeting of  Stockholders      FURNISHED    WITHOUT    CHARGE    TO
502 Washington Avenue                       will be held on October  25, 2001 at 4:00      STOCKHOLDERS  AS OF THE RECORD  DATE
Towson, MD  21204-4528                      p.m. at the office of The  Patapsco  Bank      FOR THE  2001  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

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