<PAGE>





PATAPSCO BANCORP, INC.











         [LOGO]










                                                            2004 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
Electronic  Bulletin Board.  There are currently  1,386,615 shares of the common
stock  outstanding and  approximately 336 holders of record of the common stock.
Following  are the high and low  closing  sale  prices,  by fiscal  quarter,  as
reported on the OTC Electronic  Bulletin Board during the periods indicated,  as
well as the dividends paid during such quarters.  In the second quarters of both
fiscal 2003 and 2004, the Company paid 10% common stock dividends. Additionally,
on June 16, 2004,  the Company  announced a 3 for 1 stock split in the form of a
200% stock  dividend  with a record date of August 2 payable on August 30, 2004.
The prices quoted below, but not the dividends per share, have been adjusted for
those stock dividends.

<TABLE>
<CAPTION>

                                                         High             Low           Dividends Per Share
                                                         ----             ---           -------------------
<S>                                                  <C>               <C>                   <C>
              Fiscal 2003:
                    First Quarter                    $    8.18         $   7.77              $   .14
                    Second Quarter                        8.19             7.55                  .14
                    Third Quarter                         8.70             7.82                  .14
                    Fourth Quarter                        9.90             8.51                  .14

              Fiscal 2004:
                    First Quarter                    $   10.05         $   9.23              $   .14
                    Second Quarter                       13.33             9.83                  .16
                    Third Quarter                        13.50            12.02                  .16
                    Fourth Quarter                       13.47            12.03                  .16
</TABLE>


         The stated high and low closing sale prices reflect inter-dealer
prices, without retail markup, markdown or commission, and may not represent
actual transactions.
<TABLE>
<CAPTION>

TABLE OF CONTENTS
===================================================================================================================

<S>                                                                                                             <C>
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................................................................................23
Corporate Information.............................................................................Inside Back Cover

</TABLE>

                                       (i)


<PAGE>





Dear Shareholder:

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

         This report  reflects a year of significant  achievement in the history
of your Company.  It was a year in which our assets  exceeded $200 million,  our
loans  exceeded  $150  million  and our  deposits  reached  $160  million.  Most
significantly,  this was the first year our earnings exceeded $1,400,000 and was
the fifth  consecutive year of increasing  earnings,  as well as the best in the
Company's 94 year history.

         Despite the  expansion in the number and types of loans,  asset quality
remained  high with  non-performing  loans at .33% of total  loans,  and .24% of
total  assets,  as the  company  recovered  from a spike in non  performers  the
previous year. This allowed, and regulations required,  minimal additions to the
allowance for loan losses during year. Nevertheless,  the Company maintained the
allowance  for loan  losses at .61% of total  loans  and 188% of  non-performing
loans.

         Perhaps the most noteworthy occurrence was the acquisition of Parkville
Federal  Savings  Bank in the last  quarter of fiscal year 2004.  This  Maryland
based thrift represents the Company's second acquisition in the past 4 years and
effectively  increased  the  Company's  assets  by  $50,000,000.  Although  this
purchase  occurred too late in the fiscal year to have a  significant  effect on
the fiscal year's  earnings,  it is expected to have a positive impact in fiscal
year 2005 and beyond.

         A byproduct of the acquisition was a reduction in the Company's capital
ratios to slightly below historical levels. Even though the Company continues to
be well  capitalized  for  regulatory  purposes,  the Board and  management  are
committed to regaining the  traditional  7% capital  level.  For this reason the
upcoming  year  will be a  challenging  effort  to grow the  Company's  earnings
without significantly growing the Company's assets. Fortunately, the Company has
done this in the past and is very  experienced  in  reallocating  the  Company's
assets.

         This past year we  underwent  a data  processing  conversion  that will
allow the Bank to move forward with products and services that will enable us to
compete in a highly competitive banking environment. We also have implemented or
expanded  several fee income  initiatives  and thus bolster an area where we lag
our  peers.  We have  also  expanded  our staff in the  compliance  area to meet
evermore stringent requirement of the regulators.


<PAGE>


         We would be remiss if we did not mention our recent 3 for 1 stock split
which was paid on August 30 2004.  This was  designed to increase  the number of
shares  outstanding  and  attempt to bring  some much  needed  liquidity  to the
trading of the  Company's  shares.  The stock  split  along  with the  Company's
regular  dividend,  which  has  been  paid  for  28  consecutive  quarters,  are
recommendations  made by the  Company's  Investor's  Relations  Committee.  This
committee regularly reviews items of substance for the shareholders.

         We still have other goals to  accomplish.  We shall  continue to expand
our efforts  relative to small  business  loans,  commercial  real estate loans,
construction  loans,  consumer  loans and leases.  We must  attract  more demand
deposit  accounts  and  continue to build our  allowance  for loan losses as our
portfolio  continues to grow and change. In short, we must continue to implement
our strategic  plan to achieve a rate of growth that can be sustained  over time
consistent with prudent safe and sound practices.

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

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



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

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



<PAGE>

<TABLE>
<CAPTION>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

===================================================================================================================
PATAPSCO BANCORP, INC.


SELECTED CONSOLIDATED FINANCIAL CONDITION DATA
                                                                                    At June 30,
                                                                 --------------------------------------------------

                                                                     2004               2003               2002
                                                                   --------           -------            --------
                                                                                   (In thousands)

<S>                                                             <C>                 <C>                <C>
Total assets..................................................  $  210,616          $  157,805         $ 158,736
Loans receivable, net.........................................     151,413             113,252           118,350
Cash, federal funds sold and other interest
   bearing deposits...........................................      19,134              14,207            14,857
Investment securities.........................................      16,117               4,542             5,006
Mortgage-backed securities....................................      13,110              19,843            13,705
Deposits......................................................     168,132             119,655           119,593
Borrowings....................................................      22,900              20,174            22,616
Stockholders' equity..........................................      16,380              15,905            14,602

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

SELECTED CONSOLIDATED INCOME DATA
                                                                                 Year Ended June 30,
                                                                 --------------------------------------------------
                                                                   2004                 2003               2002
                                                                 --------             --------           --------
                                                                    (In thousands, except for per share amounts)

Interest income...............................................   $  10,519          $   10,764         $  11,445
Interest expense..............................................       3,726               3,992             5,580
                                                                 ---------            --------         ---------
Net interest income before provision
   for loan losses............................................       6,793               6,772             5,865
Provision for loan losses.....................................          42                 531               560
                                                                 ---------            --------         ---------
Net interest income after provision
   for loan losses............................................       6,751               6,241             5,305
Noninterest income............................................         579                 568               866
Noninterest expenses:
   Compensation and employee benefits.........................       2,971               2,718             2,609
   Insurance..................................................          83                  71                63
   Professional fees..........................................         245                 406               190
   Equipment expenses.........................................         196                 201               234
   Net occupancy costs........................................         233                 221               197
   Advertising................................................         141                 117               136
   Data processing............................................         234                 218               204
   Amortization of intangible asset...........................          14                  --                --
   Other......................................................         892                 724               683
                                                                 ---------            --------         ---------
      Total noninterest expenses..............................       5,009               4,676             4,316
                                                                 ---------            --------         ---------
Income before provision for income taxes......................       2,321               2,133             1,855
Income tax provision .........................................         852                 788               718
                                                                 ---------            --------         ---------
Net income....................................................   $   1,469            $  1,345         $   1,137
                                                                 =========            ========         =========

Net income per share of common stock
   Basic......................................................       $0.92               $0.84             $0.71
   Diluted....................................................       $0.77               $0.72             $0.62

</TABLE>

                                                                3

<PAGE>

<TABLE>
<CAPTION>

KEY OPERATING RATIOS

===================================================================================================================
PATAPSCO BANCORP, INC.


KEY OPERATING RATIOS

                                                                                       At June 30,
                                                                       --------------------------------------------

                                                                           2004             2003          2002
                                                                         --------         -------       --------
                                                                                      (In thousands)
<S>                                                                      <C>              <C>             <C>
PERFORMANCE RATIOS:
   Return on average assets (net income divided by
      average total assets)......................................          0.80%            0.86%           0.73%
   Return on average stockholders' equity (net income
      divided by average stockholders' equity(1).................          9.11             8.77            8.20
   Interest rate spread (combined weighted average
      interest rate earned less combined weighted
      average interest rate cost)................................          3.92             4.19            3.54
   Net interest margin (net interest income
      divided by average interest-earning assets)................          4.06             4.52            3.90
   Ratio of average interest-earning assets to
      average interest-bearing liabilities.......................        106.14           112.21          109.58
   Ratio of noninterest expense to average total assets..........          2.86             3.01            2.76

ASSET QUALITY RATIOS:
   Nonperforming assets to total assets at
      end of period..............................................          0.24             0.22            0.52
   Nonperforming (nonaccrual) loans to loans
      receivable, net at end of period...........................          0.33             0.29            0.58
   Allowance for loan losses to total loans
      at end of period...........................................          0.61             1.00            1.20
   Allowance for loan losses to nonperforming
      loans at end of period.....................................        188.01           348.32          206.48
   Net charge-offs to average loans outstanding..................          0.20             0.72            0.23

CAPITAL RATIOS:
   Stockholders' equity to total assets at end of period (1).....          7.75            10.08            9.22
   Average stockholders' equity to average assets (1)............          9.21             9.78            8.86
   Dividends declared per share to diluted net income per share..         27.71            23.24           26.92

---------------
(1) Stockholders' equity includes temporary equity.

</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 release publicly 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.

CRITICAL ACCOUNTING POLICIES

         The  Company's   consolidated  financial  statements  are  prepared  in
accordance with accounting principles generally accepted in the United States of
America  ("GAAP") and follow general  practices  within the industry in which it
operates. Application of these principles requires management to make estimates,
assumptions  and  judgments  that affect the amounts  reported in the  financial
statements and accompanying  notes.  These estimates,  assumptions and judgments
are based on information  available as of the date of the financial  statements;
accordingly, as this information changes, the financial statements could reflect
different estimates, assumptions and judgments. Certain policies inherently have
a greater  reliance on the use of  estimates,  assumptions  and judgments and as
such have a greater  possibility  of producing  results that could be materially
different than originally reported.  These estimates,  assumptions and judgments
are



                                       5


<PAGE>


necessary when financial  instruments  are required to be recorded at fair value
or when the  decline in the value of an asset  carried on the  balance  sheet at
historic  cost requires an  impairment  write-down or a valuation  reserve to be
established.

         The  allowance for loan losses is an estimate of the losses that may be
sustained  in the loan and  lease  portfolio.  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  is  based  on two  principles  of  accounting:  (1)
Statement of Financial  Accounting  Standards  ("SFAS")  No. 5  "ACCOUNTING  FOR
CONTINGENCIES,"  that  requires  losses to be accrued when their  occurrence  is
probable  and  estimable  and (2) SFAS No.  114  "ACCOUNTING  BY  CREDITORS  FOR
IMPAIRMENT OF A LOAN," that requires  losses be accrued when it is probable that
the lender will not collect all  principal  and  interest due under the original
term of the loan.

         Management  believes  that the  allowance  is  adequate.  However,  its
determination requires significant judgment and estimates of the probable losses
in the  loan and  lease  portfolio  can vary  significantly  from  amounts  that
actually occur.

         SFAS No. 148, "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,  no stock option based employee  compensation  cost is reflected in
net income, as all options granted under these plans had an exercise price equal
to the market value of the underlying common stock on the date of grant.





                                       6

<PAGE>

<TABLE>
<CAPTION>

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.


                                                                                 Year Ended June 30,
                                                ------------------------------------------------------------------------------------
                                                           2004                         2003                        2002
                                                ------------------------------------------------------------------------------------
                                                                     Average                    Average                      Average
                                                 Average             Yield/   Average           Yield/   Average             Yield/
                                                 Balance  Interest    Cost    Balance  Interest  Cost    Balance   Interest   Cost
                                                 -------  --------  -------   -------  -------- -------  -------   --------  ------
                                                                                 (Dollars in thousands)
<S>                                             <C>       <C>        <C>     <C>        <C>      <C>    <C>        <C>        <C>
Interest-earning assets:
   Loans receivable (1)........................ $ 121,770 $  9,042    7.43%  $ 115,382  $ 9,354   8.11% $ 123,569  $ 10,415    8.43%
   Investment securities (2)...................    11,758      396    3.37       6,321      294   4.65      4,368       252    5.43
   Mortgage-backed securities..................    21,510      940    4.37      17,745      954   5.38      5,323       361    6.78
   Short-term investments and other interest-
     earning assets............................    12,097      151    1.16      10,495      162   1.54     16,685       417    2.50
                                                --------- --------           ---------  -------         ---------  --------
      Total interest-earning assets............   167,135   10,519    6.29     149,943   10,764   7.18    149,945    11,445    7.62
Non-interest-earning assets....................    16,480                        5,382                      6,617
                                                ---------                    ---------                  ---------
      Total assets............................. $ 183,615                    $ 155,325                  $ 156,562
                                                =========                    =========                  =========
Interest-bearing liabilities:
   Deposits (3)................................ $ 128,736 $  2,524    1.96   $ 111,934  $ 2,867   2.56  $ 118,081     4,429    3.75
   Borrowings..................................    28,482    1,202    4.22      21,695    1,125   5.19     18,754     1,151    6.14
                                                --------- --------           ---------  -------         ---------  --------
      Total interest-bearing liabilities.......   157,218    3,726    2.37     133,629    3,992   2.99    136,835     5,580    4.08
                                                          --------    ----   ---------  -------   ----             --------
Non-interest-bearing liabilities...............    10,276                        6,499                      5,863
                                                ---------                    ---------                  ---------
      Total liabilities........................   167,494                      140,128                    142,698
Total equity...................................    16,121                       15,197                     13,864
                                                ---------                    ---------                  ---------
      Total liabilities and retained earnings.. $ 183,615                    $ 155,325                  $ 156,562
                                                =========                    =========                  =========
Net interest income............................           $  6,793                      $ 6,772                    $  5,865
                                                          ========                      =======                    ========
Interest rate margin..........................                        4.06%                       4.52%                        3.90%
                                                                      ====                        ====                         ====
Net interest spread............................                       3.92%                       4.19%                        3.54%
                                                                      ====                        ====                         ====
Ratio of average interest-earning assets to
   average interest-bearing liabilities........                     106.31%                     112.21%                      109.58%
                                                                    ======                      ======                       ======
----------------
(1)   Includes nonaccrual loans.
(2)   Includes investments required by law.
(3)   Includes interest-bearing escrow accounts.

</TABLE>



                                                                  7


<PAGE>

<TABLE>
<CAPTION>

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 assets and interest-bearing  liabilities,  information is
provided on changes  attributable  to: (i) changes in volume  (changes in volume  multiplied by the prior year's  rate);  and (ii)
changes in rate (changes in rate multiplied by the prior year's volume).

                                                     Year Ended June 30,                           Year Ended June 30,
                                         -------------------------------------------    -----------------------------------------
                                              2004           vs.          2003               2003           vs.          2002
                                         -------------------------------------------    -----------------------------------------
                                                Increase (Decrease) Due to                      Increase (Decrease) Due to
                                         -------------------------------------------    -----------------------------------------
                                                Volume       Rate     Total                    Volume      Rate      Total
                                                ------       ----     -----                    ------      ----      -----
                                                      (In thousands)                                   (In thousands)
<S>                                           <C>        <C>         <C>                      <C>       <C>        <C>
Interest income:
   Loans receivable........................   $  607     $   (919)   $  (312)                 $ (673)   $  (388)   $ (1,061)
   Investment securities...................      150          (48)       102                      70        (27)         43
   Mortgage-backed securities..............      184         (198)       (14)                    651        (58)        593
   Short-term investments and other
     interest-earning assets...............       35          (56)       (21)                   (126)      (129)       (255)
                                              ------     ---------   ---------                -------   --------   ---------
       Total interest-earning assets.......      976       (1,221)      (245)                    (78)      (602)       (680)
                                              ------     ---------   --------                 -------   --------   ---------

Interest expense:
   Deposits (1)............................      624         (967)      (343)                   (220)    (1,341)     (1,561)
   Borrowings..............................      190         (113)        77                     167       (193)        (26)
                                              ------     ---------   -------                  ------    --------   ---------
       Total interest-bearing liabilities..      814       (1,080)      (266)                    (53)    (1,534)     (1,587)
                                              ------     ---------   --------                 -------   --------   ---------

Change in net interest income..............   $  162     $   (141)   $    21                  $  (25)   $   932    $    907
                                              ======     =========   =======                  =======   =======    ========
------------------
(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.

</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2004 AND 2003

         GENERAL.  Total assets  increased  by $52.8  million or 33.5% to $210.6
million at June 30, 2004 from $157.8  million at June 30, 2003. The increase was
primarily due to the acquisition of Parkville Federal Savings Bank ("Parkville")
on April 1, 2004.  At the date of  acquisition,  Parkville's  total  assets were
$48.6 million.

         LOANS RECEIVABLE.  Net loans receivable  increased by $38.2 million, or
33.7%,  to $151.4 million at June 30, 2004 from $113.3 million at June 30, 2003.
The Parkville  acquisition  increased net loans by $33.8 million.  Approximately
98% of the loans acquired were fixed rate  residential  mortgage loans resulting
in an  increase of $29.6  million or 60.9% in this  category  from the  previous
year-end.  Commercial real estate and construction  loans have increased by $4.1
million or 22.0%,  and commercial  business loans have increased by $4.3 million
or 24.8% from the previous year-end.  Net commercial leases,  (commercial leases
less unearned interest  commercial  leases) decreased  slightly to $14.7 million
from $14.9 million in the year ended June 30, 2004 and consumer home improvement
loans  decreased by $1.1 million or 12.0% in the year ended June 30, 2004.  This
is the second  consecutive  year of decreases in this loan  category and results
from the mortgage refinancing wave over the last few years.




                                       8

<PAGE>

<TABLE>
<CAPTION>

         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,  2004,  the Company had no  concentrations  of loans  exceeding  10% of gross loans other than as
disclosed below:

                                                                                  At June 30,
                                                 ---------------------------------------------------------------------------------
                                                      2004          2003             2002              2001               2000
                                                 ------------   ------------     ------------      ------------       ------------
                                                 Amount   %     Amount    %       Amount   %       Amount    %        Amount    %
                                                 ------ -----   ------  ----      ------  ---      ------   ---       ------   ---
                                                                             (Dollars in thousands)
<S>                                            <C>      <C>     <C>      <C>      <C>      <C>      <C>      <C>     <C>     <C>
Real estate loans:
   Residential (1)............................ $ 78,303  49.27% $ 48,664  40.76%  $ 59,609  47.89%  $ 75,497  57.39% $49,968  53.93%
   Commercial.................................   16,545  10.41    14,622  12.25     15,487  12.44     13,542  10.29   11,838  12.78
   Construction (2)...........................    6,510   4.10     4,266   3.57      3,332   2.68      2,098   1.59    1,570   1.69
Consumer loans:
   Home improvement...........................    8,063   5.07     9,161   7.67      9,562   7.68     11,427   8.69    9,267  10.00
   Home equity loans..........................    4,244   2.54     3,709   3.11      3,096   2.49      2,315   1.76    1,864   2.01
   Other consumer loans.......................    2,170   1.49     2,194   1.84      1,576   1.27      1,401   1.06    1,211   1.31
Commercial loans:
   Commercial loans...........................   21,919  13.79    17,564  14.70     14,159  11.38     12,991   9.87    9,884  10.67
   Commercial leases..........................   21,182  13.33    19,225  16.10     17,643  14.18     12,287   9.34    7,053   7.61
                                               -------- ------  -------- ------     ------  -----   --------  ----- -------- ------
                                                158,936 100.00%  119,405 100.00%   124,464 100.00%   131,558 100.00%  92,655 100.00%
                                                        ======           ======            ======            ======          ======
Less:
   Deferred loan origination fees, net of
    costs.....................................       94               96                66                16               74
   Unearned interest consumer loans...........      465              408               289               331              127
   Unearned interest commercial loans.........    6,473            4,356             3,976             1,602              710
   Purchase accounting discount (premium),
    net.......................................     (445)             154               345               614                0
   Allowance for loan losses..................      936            1,139             1,438             1,161              743
                                               --------         --------          --------          --------         --------
      Total................................... $151,413         $113,252          $118,350          $127,834         $ 91,001
                                               ========         ========          ========          ========         ========
----------------
(1)  Does not include loans held for sale.
(2)  Net of loans in process.
</TABLE>



                                                                       9

<PAGE>

<TABLE>
<CAPTION>

         The following  table sets forth certain  information at June 30, 2004 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.

                                                         Due after
                                      Due during         1 through            Due after
                                   the year ending      5 years after       5 years after
                                    June 30, 2005       June 30, 2005       June 30, 2005          Total
                                   --------------       -------------       -------------       ------------
                                                                (In thousands)
<S>                                  <C>                <C>                  <C>                <C>
Real estate loans:
   Residential...................    $  5,221           $  14,147            $  58,935          $  78,303
   Commercial....................       2,288               5,783                8,474             16,545
   Construction..................       6,510                   -                    -              6,510
Consumer loans...................       4,498               4,664                5,315             14,477
Commercial leases................       2,055              19,041                   86             21,182
Commercial loans.................       4,757               9,873                7,289             21,919
                                     --------           ---------            ---------          ---------
        Total....................    $ 25,329           $  53,508            $  80,099          $ 158,936
                                     ========           =========            =========          =========

</TABLE>

<TABLE>
<CAPTION>

         The  following  table sets forth at June 30, 2004 the dollar amount of all loans which
may reprice or are due one year or more after June 30, 2004 which have  predetermined  interest
rates and have floating or adjustable interest rates.

                                      Predetermined            Floating or
                                          Rates             Adjustable Rates           Total
                                     ---------------        ----------------        ----------
                                                             (In thousands)
<S>                                    <C>                   <C>                   <C>
Real estate loans:
   Residential....................     $ 60,924              $  12,157             $  73,081
   Commercial.....................       10,874                  3,385                14,259
   Construction...................            -                      -                     -
Consumer..........................        9,979                      -                 9,979
Commercial Leases.................       19,127                      -                19,127
Commercial........................        3,775                 13,386                17,161
                                       --------              ---------             ---------
   Total..........................     $104,679              $  28,928             $ 133,607
                                       ========              =========             =========
</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.



                                       10

<PAGE>
<TABLE>
<CAPTION>

         INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES. U.S. government agency securities increased by $11.6
million or 618% to $13.5 million at June 30, 2004 from $1.9 million at June 30, 2003. The Company  invested  excess
liquidity in these  securities  with maturities  concentrated  one to five years in the future.  Additionally,  the
Parkville  acquisition brought $4 million of these securities into the portfolio.  Corporate bonds remained flat at
$2.6  million.  Mortgage-backed  securities  decreased  by $6.7  million in the year ended June 30, 2004 as the $10
million purchase in the first quarter of the fiscal year was offset by the $7 million sale in the third quarter and
repayments.

         The following table sets forth the carrying value of the Company's investments at the dates indicated.


                                                                                            At June 30,
                                                                              ------------------------------------
                                                                                 2004           2003       2002
                                                                              ----------     ---------   ---------
                                                                                        (Dollars in thousands)
<S>                                                                           <C>            <C>           <C>
Securities available for sale, at fair value:
   U.S. government and agency securities....................................  $ 13,490       $ 1,878       $ 2,244
   Equity securities........................................................        55            41           259
   Corporate securities.....................................................     2,572         2,623         2,503
   Mortgage-backed securities...............................................    13,110        19,843        13,705
                                                                              --------       -------        ------
     Total securities available for sale....................................    29,227        24,385        18,711
                                                                              --------       -------        ------

Investments required by law, at cost:
  FHLB of Atlanta stock.....................................................     1,381         1,010         1,595
  FRB of Richmond stock.....................................................       379           308           308
                                                                              --------       -------        ------
    Total investments required by law, at cost..............................     1,760         1,318         1,903
                                                                              --------       -------        ------
    Total investments.......................................................  $ 30,987       $25,703       $20,614
                                                                              ========       =======       =======
</TABLE>




                                                      11

<PAGE>

<TABLE>
<CAPTION>

         The following table sets forth the scheduled maturities, carrying amounts, fair values and average yields for the Company's
investment portfolio at June 30, 2004.

(Dollars in thousands)
                              One Year or Less  One to Five Years  Five to Ten Years  More than Ten Years Total Investment Portfolio
                              ----------------  -----------------  -----------------  ------------------- --------------------------
                              Carrying  Average Carrying  Average  Carrying  Average  Carrying   Average   Carrying   Fair   Average
                               Amount   Yield    Amount    Yield    Amount    Yield    Amount    Yield      Amount    Value   Yield
                              -------- -------  --------  -------  --------  -------  ---------  ------    ---------  -----   ------
                                                                 (Dollars in thousands)
<S>                            <C>      <C>     <C>        <C>     <C>                <C>         <C>      <C>       <C>       <C>
Securities available for sale:
   Mortgage-backed
    securities................ $    1   8.50%   $ 4,256    4.42 %  $     -       - %  $ 8,853     4.97 %   $ 13,110  $13,110   4.79%
   U.S. Government & agency...  3,351   2.99      8,922    2.75        488    4.88        729     4.25       13,490   13,490   2.96
   Corporate securities.......    508   5.60      1,108    4.98          -       -        956     5.10        2,572    2,572   5.15
   Investments required by
    law.......................      -      -          -       -          -       -      1,760     3.73        1,760    1,760   3.73
   Equity securities..........     55   1.83          -       -          -       -          -        -           55       55   1.83
                               ------           -------             ------            -------              --------  -------
       Total...............    $3,915   3.31%   $14,286    3.42%    $  488    4.88%   $12,298     4.76%    $ 30,987  $30,987   3.96%
                               ======   ====    =======             ======            =======              ========  =======
</TABLE>



                                                                        12


<PAGE>

<TABLE>
<CAPTION>

         DEPOSITS.  Total  deposits  increased by $48.4  million or 40.5%,  to $168.1  million at June 30, 2004 from
$119.7 million at June 30, 2003. The Parkville  acquisition  brought $41.6 million if interest  bearing deposits and
$3.4 million of non-interest bearing deposits to the Company.

                                                                         At June 30,
                                        ---------------------------------------------------------------------------
                                                2004                        2003                       2002
                                        ----------------------       -------------------      ---------------------
                                        Balance      % Total         Balance     % Total      Balance       %Total
                                        -------      -------         -------     -------      -------       ------
                                                                    (Dollars in thousands)
<S>                                     <C>          <C>           <C>            <C>        <C>            <C>
Savings accounts......................    31,718      18.86%         $25,006       20.90%     $24,693        20.65%
NOW checking..........................    12,440       7.40            7,533        6.30        7,255         6.07
Money market..........................    33,067      19.67           14,129       11.81       14,480        12.11
Certificates of deposit...............    79,918      47.53           66,108       55.24       67,254        56.23
                                          ------      -----           ------       -----      -------        -----
  Subtotal interest-bearing deposits..   157,143      93.46          112,776       94.25      113,682        95.06
Noninterest checking..................    10,989       6.54            6,879        5.75        5,911         4.94
                                          ------      -----          -------       -----        -----        -----
  Total deposits....................    $168,132     100.00%       $ 119,655      100.00%    $119,593       100.00%
                                        ========     ======        =========      ======     ========       =======
</TABLE>

<TABLE>
<CAPTION>

         The following table sets forth the average  balances based on daily balances and interest rates for various
types of deposits as of the dates indicated.

                                                                         At June 30,
                                        -------------------------------------------------------------------------
                                                2004                        2003                      2002
                                        ----------------------       -------------------      -------------------
                                         Average       Average       Average     Average      Average     Average
                                         Balance        Rate         Balance      Rate        Balance      Rate
                                         -------      --------       -------    --------      -------    --------
                                                                 (Dollars in thousands)

<S>                                     <C>             <C>         <C>           <C>        <C>           <C>
Savings Accounts......................  $ 26,874        0.56%       $ 24,336      1.01%      $ 23,272      1.68%
NOW checking..........................     8,884        0.32           7,431      0.61          6,847      1.06
Money market..........................    18,701        1.05          14,004      1.52         12,693      2.18
Certificates of deposit...............    73,626        3.01          65,533      3.61         74,459      4.95
Noninterest-bearing checking..........     9,497          --           6,606        --          5,045        --
                                        --------                    --------                 --------
     Total............................  $137,582                    $117,910                 $122,316
                                        ========                    ========                 ========
</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,
2004. At such date, such deposits represented 6.90% of total deposits and had a
weighted average rate of 4.08%.

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


               Three months or less.......................   $    810
               Over three through 12 months...............      3,745
               Over 12 months.............................      7,041
                                                                -----
                   Total..................................   $ 11,596
                                                             ========

         BORROWINGS. The Company's borrowings increased by $2.7 million to $22.9
million at June 30, 2004 from $20.2 million at June 30, 2003.  During the fiscal
year ended June 30, 2004,  the Bank borrowed $10.0 million from the Federal Home
Loan  Bank  of  Atlanta  and  used  the  proceeds  to  purchase  mortgage-backed
securities and paid off $9.3 million in borrowings as they matured.  The Company
also borrowed  $2.0 million from the Bankers Bank of Atlanta,  GA to assist with
the acquisition of Parkville.


                                       13


<PAGE>

<TABLE>
<CAPTION>

        The following table sets forth certain information regarding borrowings
by the Company at the dates and for the periods indicated.

                                                                2004               2003               2002
                                                            -------------       ----------       -----------
<S>                                                           <C>                <C>                <C>
Amounts outstanding at end of period:
    FHLB advances......................................       $ 20,900           $ 20,200           $21,700
    Other borrowings...................................          2,000                 --             1,000
    Purchase accounting discount.......................             --                (26)              (84)

Weighted average rate paid on:
    FHLB advances......................................           4.23%              4.82%             6.22%
    Other borrowings...................................           3.36%                --%             4.97%

Maximum amount of borrowings outstanding at any month end:
    FHLB advances......................................       $ 30,200           $ 22,700           $22,100
    Other borrowings...................................          2,000              1,000             1,700

Approximate average borrowings outstanding with respect to:
   FHLB advances.......................................       $ 27,985           $ 21,264           $17,385
   Other borrowings....................................            497                431             1,369

</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 2004 AND 2003

         GENERAL.  The Company's net income  increased by $124,000,  or 9.2%, to
$1.4  million in the year ended June 30, 2004  compared  to $1.3  million in the
year ended June 30,  2003.  The  increase in net income was  primarily  due to a
lower provision for loan losses offsetting higher operating expenses.

         NET INTEREST  INCOME.  The Company's net interest  income  increased by
$21,000,  or 0.3%,  to $6.8  million in the year  ended June 30,  2004 from $6.8
million in the year ended June 30, 2003.

         The increase in net interest income is primarily  attributable to lower
deposit  interest  expense  offsetting lower interest income and higher interest
expense on borrowed  money.  Lower rates paid on deposits  offset higher average
deposit  balances.  As shown in the rate/volume  analysis above, the decrease in
deposit  rates was  responsible  for a $967,000  decrease in  interest  expense.
Higher  balances  contributed  to an  increase  of deposit  interest  expense of
$624,000.  This offset the  $245,000  decrease  in interest  income due to lower
rates earned on assets offsetting higher balances of earning assets.

         The Company's net interest margin decreased to 4.06% for the year ended
June 30,  2004 from 4.52% for the year  ended June 30,  2003.  The  decrease  in
yields on  earning  assets of 89 basis  points  was only  partially  offset by a
decrease of 62 basis points in the cost of funds.

         INTEREST  INCOME.  The Company's  total  interest  income  decreased by
$245,000,  or 2.3%,  to $10.5 million in the year ended June 30, 2004 from $10.7
million in the year ended June 30, 2003.  The  decrease in the yields  earned on
interest earning assets reduced interest income by $1.2 million.  Higher volumes
of interest-earning assets increased interest income by $976,000.

         Interest  income on loans  decreased  $312,000 , or 3.3% during  fiscal
year 2004.  Lower rates  earned on loans was  responsible  for  decreasing  loan
interest  income by $919,000  and offset the  positive  $607,000  impact on loan
interest income from higher average balances.


                                       14


<PAGE>


         Interest  income on  investment  securities  increased  by  $102,000 to
$396,000 in fiscal  year 2004 as  compared to $294,000 in fiscal year 2003.  The
increase was the result of an increase in average balances offsetting a decrease
in the average yields.

         Interest income on mortgage-backed  securities decreased by $14,000, or
1.4%,  to $940,000,  in fiscal 2004 from  $954,000 in the fiscal year ended June
30, 2003. This decrease was the result of lower rates earned on these securities
offsetting higher average balances.

         Interest income on short-term  investments  and other interest  earning
assets  decreased  $21,000,  or 13.0%, to $141,000 in the fiscal year ended June
30,  2004 from  $162,000  in the fiscal  year ended June 30,  2003.  Lower rates
earned on these investments offset higher average balances.

         INTEREST EXPENSE. The Company's interest expense decreased by $266,000,
or 6.7%,  to $3.7  million in fiscal year 2004 from $4.0 million in fiscal 2003.
As shown in the rate/volume  table above, the decrease in rates paid on deposits
and  borrowings  offset  higher  average  balances  outstanding  of deposits and
borrowings.

         Interest  expense on  deposits  decreased  $343,000  or 12.0%,  to $2.5
million  in fiscal  year 2004 from $2.9  million in fiscal  2003.  The impact of
lower rates paid on deposits offset the higher average balances of deposits.

         Interest  expense on  borrowings  increased  $77,000,  or 6.8%, to $1.2
million in the year ended June 30, 2004 from $1.1 million in the year ended June
30,  2003.  The impact of higher  volumes  of  borrowings  outstanding  was only
partially offset by the lower average rate on the borrowings.

         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 method utilized
for  the  determination  of  the  allowance  is  described  in  Note  1  of  the
Consolidated Financial Statements.

         The  provision  for loan  losses  was  $42,000 in fiscal  year 2004,  a
decrease of $489,000, or 92.1%, from the fiscal year 2003 provision of $531,000.
Net  charge-offs  for the  year  decreased  70% to  $245,000,  with  significant
decreases  in  commercial  loan  and  commercial   equipment  leases  offsetting
increases in consumer and real estate  charge-offs.  The Company's allowance for
loan losses as a  percentage  of total loans  outstanding  decreased to 0.61% at
June 30,  2004 from 1.00% at June 30,  2003.  The  decrease  in this  percentage
resulted from the increase in loans outstanding primarily due to the purchase of
Parkville.  As mentioned  above,  98% of the loans  acquired were first mortgage
residential  loans that are much less risky than  commercial and commercial real
estate  loans.  The  Company's  allowance  for loan  losses as a  percentage  of
nonperforming  loans was 187.9% at June 30,  2004 as  compared to 348.3% at June
30, 2003.




                                       15


<PAGE>

<TABLE>
<CAPTION>

         The following table shows the activity in the allowance for loan losses in the periods indicated:


                                                                                    Year Ended June 30,
                                                                 ----------------------------------------------------------
                                                                    2004        2003       2002       2001          2000
                                                                 ---------   ---------- ---------  ----------    ----------
                                                                                   (Dollars in thousands)

<S>                                                              <C>        <C>         <C>        <C>            <C>
Balance at beginning of period.................................  $  1,139   $  1,438    $  1,161   $    743       $   631
Assumed in acquisition.........................................        --         --          --        183            --
Loans charged off:
   Real estate mortgage........................................        40         --          --         --            --
   Commercial loan.............................................        16        499          28         --             5
   Commercial lease............................................       178        320         129         56             6
   Consumer....................................................       212        145         200        192           225
                                                                 --------   --------    --------   --------       -------
      Total charge-offs........................................       446        964         357        248           236
Recoveries:
   Real estate mortgage........................................        --         --          12         11             1
   Commercial loan.............................................        51         37          10         --            --
   Commercial lease............................................        95         55          16          2            --
   Consumer....................................................        55         42          36         37            22
                                                                 --------   --------    --------   --------       -------
      Total recoveries.........................................       201        134          74         50            23
                                                                 --------   --------    --------   --------       -------
Net loans charged off..........................................       245        830         283        198           213
Provision for loan losses......................................        42        531         560        433           325
                                                                 --------   --------    --------   --------       -------
Balance at end of period.......................................  $    936   $  1,139    $  1,438   $  1,161       $   743
                                                                 ========   ========    ========   ========       =======
Ratio of net charge-offs to average
   loans outstanding during the period.........................      0.20%      0.72%       0.23%      0.16%         0.25%
                                                                     ====       ====        ====       ====          ====
Ratio of allowance to non-performing loans.....................    187.95%    348.32%     206.48%    660.43%       241.92%
                                                                   ======     ======      ======     ======        ======
</TABLE>

<TABLE>
<CAPTION>

         The following table allocates the allowance for loan losses by loan category at the dates indicated.  The allocation of the
allowance to each category is not  necessarily  indicative of future losses and does not restrict the use of the allowance to absorb
losses in any category.

                            As of June 30, 2004  As of June 30, 2003  As of June 30, 2002  As of June 30, 2001  As of June 30, 2000
                            -------------------  -------------------  -------------------  -------------------  -------------------

                                       % of              % of                % of                    % of                   % of
                                     Loans to           Loans to            Loans to                Loans to              Loans to
                                      Total              Total               Total                   Total                  Total
                            Amount    Loans     Amount   Loans    Amount     Loans      Amount       Loans      Amount      Loans
                            ------    -----     ------   -----    ------     -----      -----        -----      ------      -----
<S>                         <C>       <C>       <C>      <C>     <C>         <C>      <C>           <C>         <C>         <C>
Real estate mortgage:
  Residential.............  $  78      49.3%    $  118    40.8%  $  123       47.9%   $  168          57.4%     $ 152        54.3%
  Commercial..............     70      10.4         95    12.2      283       12.4       151          10.3        125        12.9
  Construction............     65       4.1        163     3.6       55        2.7        55           1.6         29         1.7
Consumer and other........     95       9.1        153    12.6      251       11.4       275          11.5        194        13.4
Commercial Business.......    429      13.8        275    14.7      305       11.4       217           9.9        243        17.7
Commercial Lease..........    200      13.3        335    16.1      335       14.2       295           9.3         --          --
                            -----    ------     ------   -----   ------     ------    ------        ------      -----       -----
  Total allowance for
   loan losses............  $ 936     100.0%    $1,139   100.0%  $1,438      100.0%   $1,161         100.0%     $ 743       100.0%
                            =====    ======     ======  ======   ======     ======    ======        ======      =====       =====

</TABLE>


                                                                 16


<PAGE>


<TABLE>
<CAPTION>


         The following table sets forth information with respect to the Company's nonperforming assets at the dates indicated.

                                                                                  At June 30,
                                                             -------------------------------------------------------
                                                               2004       2003       2002        2001       2000
                                                               ----       ----       ----        ----       ----
                                                                                  (In thousands)
<S>                                                           <C>       <C>         <C>        <C>         <C>
Loans accounted for on a non-accrual basis: (1)
  Real estate:
    Residential............................................   $  --     $  90       $ 285      $  --       $ 279
    Commercial.............................................      --        --          --         --          --
    Construction...........................................      --        --          --         --          --
  Consumer.................................................      12        44          --         --          14
  Commercial Loan/Lease....................................     486       193         411        176          10
                                                              -----     -----       -----      -----       -----
    Total..................................................   $ 498     $ 327       $ 696      $ 176       $ 303
                                                              =====     =====       =====      =====       =====

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

    Total non-performing loans.............................   $ 498     $ 327       $ 696      $ 176       $ 303
                                                              =====     =====       =====      =====       =====

Percentage of total loans..................................    0.33%     0.29%       0.58%      0.14%       0.33%
                                                              =====     =====       =====      =====       =====
Other non-performing assets (2)............................   $  --     $  19       $ 128      $ 146       $  72
                                                              =====     =====       =====      =====       =====
-------------
(1)  Non accrual status denotes loans on which, in the opinion of management, the collection of additional interest
     is unlikely. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or
     recorded as interest income, depending on management's assessment of the collectability of the loan.
(2)  Other nonperforming assets represents property and equipment acquired by the Company through foreclosure or
     repossession. This property is carried at the lower of its fair market value less estimated selling costs or
     the principal balance of the related loan, whichever is lower.
</TABLE>

         At  June  30,  2004,  consumer   non-accrual  loans  consisted  of  one
residential  real estate second  mortgage  loan with a balance of $12,000.  This
property  has been  sold and the  proceeds  are in the  hands of the  bankruptcy
trustee.  The Company expects to be made whole.  Non-accrual  loans also include
two  commercial  loans totaling  $441,000.  One of these loans with a balance of
$241,000 is 75%  guaranteed  by the Small  Business  Administration.  The second
non-accrual  commercial loan is secured by business assets,  accounts receivable
and a second mortgage on the principal's primary residence.  Additionally, there
are three commercial lease transactions totaling $45,000 on non-accrual status.

         Except as discussed  below,  the Company had no loans not classified as
nonaccrual,  90 days past due or  restructured  where  known  information  about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan  repayment  terms
and may result in disclosure as nonaccrual, 90 days past due or restructured.

         At June 30, 2004,  the Company had an  additional  $146,000 loan to the
same borrower whose $200,000  commercial  loan is on  non-accrual.  The loan not
reported as non-accrual is current and is being paid as agreed. This loan is 75%
guaranteed by the Small Business Administration.  The Company is working closely
with the borrower and a plan is being worked out to bring the  non-accrual  loan
current.  The Company  also has a line of credit with a balance of $100,000 to a
borrower whose $241,000 loan is listed above as a commercial  non-accrual  loan.
This  line  of  credit  is  secured  with  liquid  collateral  in the  Company's
possession with a value of approximately  $150,000. In the event of liquidation,
the excess collateral on this loan will be applied to the un-guaranteed  portion
of the SBA term loan.

         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 $11,000 or 1.9% to $579,000 in fiscal year 2004
as compared to $568,000 in fiscal year 2003. Fees and service charges on deposit
accounts were flat.  Increased other income was partially  offset by lower gains



                                       17


<PAGE>



on the sale of  available  for-sale  securities.  This  increase in other income
primarily  results from  earnings on $1.6  million in Bank Owned Life  Insurance
("BOLI"), which was purchased in October, 2003.

         NONINTEREST  EXPENSE. The Company's total noninterest expense increased
by $333,000 or 7.1%,  to $5.0 million  during  fiscal 2004,  as compared to $4.7
million in fiscal 2003. Approximately $250,000 of the increase is the additional
expenses  assumed  in  the  Parkville  acquisition.  Additional  savings  in the
Parkville  operation,  primarily in data  processing  expenses  will begin to be
recognized in the Company's second quarter.  The Company experienced a $253,000,
or 9.3% increase in  compensation  and employee  benefits  expense during fiscal
2004, a $169,000,  or 23.3%,  increase in other operating expenses,  $24,000, or
20.4%  increase  in  advertising  expense a $16,000,  or 7.3%  increase  in data
processing  expense.  These  increased  expenses were partially  offset by lower
professional  fees.  Professional fees were lower than the prior year due to the
substantial expenditures in the year ended June 30, 2003 related to problem loan
work outs.

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, other liabilities and stockholders' equity.

         The Company has  established an  Asset/Liability  Management  Committee
("ALCO")  that  currently  is  comprised  of four  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  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 $29.2
million as of June 30, 2004. 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.



                                       18

<PAGE>

<TABLE>
<CAPTION>


         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.

         The Bank's interest rate sensitivity, as measured by the repricing of its interest sensitive assets and liabilities at June
30, 2004, is presented in the following table. The table was derived using assumptions which management believes to be reasonable.

         The following table sets forth the amounts of interest-earning assets and interest-bearing  liabilities outstanding at June
30, 2004 that are expected to mature or reprice in each of the time periods shown.


                                            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..................... $  33,313     $ 39,475      $  61,763     $ 15,369     $  7,535    $ 1,481    $158,936
   Mortgage-backed  securities..........       677        1,727          5,966        3,276        1,393         71      13,110
   Investment securities................        53        4,796         10,774          494           --         --      16,117
   Short-term investments and other
     interest-earning assets ...........    13,714          294            633           --           --         --      14,641
                                         ---------     --------      ---------     --------     --------    -------    --------
        Total...........................    47,757       46,292         79,136       19,139        8,928      1,552     202,804
                                         ---------     --------      ---------     --------     --------    -------    --------

Rate sensitive liabilities:
   Deposits ............................    24,982       41,973         74,221       13,641        1,911        415     157,143
   Borrowings...........................     3,500        3,000         11,300        5,100           --         --      22,900
                                         ---------     --------      ---------     --------     --------    -------    --------
        Total...........................    28,482       44,973         85,521       18,741        1,911        415     180,043
                                         ---------     --------      ---------     --------     --------    -------    --------

Interest sensitivity gap................ $  19,275     $  1,319       $ (6,385)    $    398     $  7,017    $ 1,137
                                         =========     ========       =========    ========     ========    =======
Cumulative interest sensitivity gap..... $  19,275     $ 20,594       $ 14,209     $ 14,607     $ 21,624    $22,761
                                         =========     ========       ========     ========     ========    =======
Ratio of cumulative gap to total assets.      9.50%       10.15%          7.01%        7.20%       10.66%     11.22%
                                         =========     ========       ========     ========     ========    =======
----------------------
         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 positive gap would be negative.

</TABLE>



                                                                 19
<PAGE>



         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,  2004,  the Bank had the  following  estimated  sensitivity  profile for net
interest income and fair value of equity:

<TABLE>
<CAPTION>
                                       + 200 basis points   -100 basis points     Policy Limit
                                       ------------------   -----------------     ------------

<S>                                             <C>                <C>                 <C>
     % Change in Net Interest Income            10.8%             -3.4%             +/-10.0 %
     % Change in Fair Value of Equity          -26.8%              4.9%             +/-25.0 %

</TABLE>

         The forecasted change in fair value in equity and the forecasted change
in net  interest  income  under an  immediate  and  permanent  +200 basis  point
increase in interest rates are both slightly outside of policy limits. This is a
result of the April 2004 purchase of Parkville. The Company is working to reduce
this interest rate risk.

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.
The  Company'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, 2004,  the  Company's  cash on hand,  interest-bearing  deposits and
Federal funds sold totaled $19.1 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  $3.3  million and $7.1  million,  respectively.  Certificates  of
deposit  that are  scheduled  to mature  in less than one year at June 30,  2004
totaled $43.0 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.

         The Company,  as the holding  company for the Bank,  has an annual cash
requirement  of  approximately  $559,000  for the  payment  of common  stock and
preferred  stock  dividends and debt service on a loan. The only source of funds
for the holding company is dividends from the Bank. The amount of dividends that
can be paid to the Company from the Bank is limited by the earnings of the Bank.

         At June 30, 2004, the Company  exceeded all regulatory  minimum capital
requirements.  The table  below  presents  certain  information  relating to the
Company's regulatory compliance at June 30, 2004.


                                       20

<PAGE>

<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>
 Total Capital (to Risk Weighted Assets).....   $13,761        10.91 %   $ 10,091          8.00%     N/A
 Tier 1 Capital (to Risk Weighted Assets)....    12,825        10.17%       5,056          4.00%     N/A
 Tier 1 Capital (to Average Assets)..........    12,825         6.13%       8,369          4.00%     N/A
</TABLE>

<TABLE>
<CAPTION>
         At June 30, 2004, the Bank exceeded all regulatory minimum capital requirements. The table below presents certain
information relating to the Company's regulatory compliance at June 30, 2004.

                                                                                                     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)....   $15,138         12.08 %    $10,026          8.00%  $ 12,533     10.00%
 Tier 1 Capital (to Risk Weighted Assets)...    14,202         11.33%       5,013          4.00%     7,520      6.00%
 Tier 1 Capital (to Average Assets).........    14,202          6.82%       8,325          4.00%    10,407      5.00%
</TABLE>

CONTINGENCIES AND OFF-BALANCE SHEET ITEMS

         The Company is party to financial  instruments with  off-balance  sheet
risk including  commitments to extend credit under both new facilities and under
existing lines of credit.  Commitments to fund loans  typically  expire after 60
days,  commercial  lines of credit are subject to annual reviews and home equity
lines of credit are generally for a term of 20 years. These instruments contain,
to varying  degrees,  credit  and  interest  rate risk in excess of the  amounts
recognized in the consolidated balance sheets.

         Off-balance   sheet  financial   instruments   whose  contract  amounts
represent credit and interest rate risk are summarized as follows:
<TABLE>
<CAPTION>

                                                         June 30, 2004             June 30, 2003
                                                         -------------             -------------
                                                                      (In thousands)

<S>                                                          <C>                       <C>
Commitments to originate new loans....................       $3,354                    $1,566
Undisbursed lines of credit...........................        7,061                     4,720
Financial standby letters of credit...................          964                       958
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

         The Consolidated  Financial  Statements and Notes thereto  presented in
this Annual Report have been prepared in accordance with  accounting  principles
generally  accepted  in  The  United  States  of  America,   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.


                                       21


<PAGE>

<TABLE>
<CAPTION>

CONTRACTUAL OBLIGATIONS

         The following table sets forth the company's contractual obligations as of June 30, 2004

                                            Less than 1 year  1 to 3 years      4 to 5 years     Over 5  years
                                            ----------------  ------------      ------------     -------------
                                                                                    ( In thousands)

<S>                                             <C>             <C>               <C>               <C>
Time Deposits.............................      $42,995         $21,704           $ 9,212           $ 6,007
Long-term borrowings......................        4,500           5,600             5,700             7,100
Lease obligations.........................           58              36                36                 -
                                                -------              --                --                --
Total Contractual Cash Obligations........      $47,553         $27,340           $14,948           $13,107
                                                =======         =======           =======           =======
</TABLE>




                                                             22


<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To 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, 2004 and 2003, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. 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 the standards of the Public
Company Accounting Oversight Board (United States) and auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall 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 financial position of Patapsco
Bancorp, Inc. and subsidiaries as of June 30, 2004 and 2003, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.



                                        /s/ Beard Miller Company LLP



Baltimore, Maryland
August 26, 2004





                                       23
<PAGE>
<TABLE>
<CAPTION>

PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition

June 30, 2004 and 2003
========================================================================================================================
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)                                         2004                  2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                  <C>
ASSETS
Cash:
      On hand and due from banks                                                   $     6,253          $    2,193
      Interest bearing deposits                                                          8,426               5,489
Federal funds sold                                                                       4,455               6,525
Investment securities available for sale                                                16,117               4,542
Mortgage-backed securities available for sale                                           13,110              19,843
Loans receivable, net                                                                  151,413             113,252
Investment required by law, at cost                                                      1,760               1,318
Property and equipment, net                                                              1,615                 998
Goodwill and other intangible assets                                                     3,457               1,870
Accrued interest and other assets                                                        4,010               1,775
------------------------------------------------------------------------------------------------------------------------
                                                                                   $   210,616          $  157,805
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
      Noninterest bearing deposits                                                 $    10,989          $    6,879
      Interest bearing deposits                                                        157,143             112,776
      Accrued expenses and other liabilities                                             3,204               2,071
       Long-Term Debt                                                                   22,900              20,174
------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                      194,236             141,900

Temporary equity - ESOP shares subject to put option                                     1,404                 777

Stockholders' equity
       Preferred stock-Series A Noncumulative Convertible Perpetual $0.01 par
         value; authorized 1,000,000 shares with a liquidation preference of $25
         per share; 98,090 and 99,734 shares outstanding
         at June 30, 2004 and June 30, 2003, respectively                                    1                   1
       Additional paid-in-capital                                                        2,454               2,495
      Common stock $0.01 par value; authorized 4,000,000 shares; issued and
        outstanding 1,386,615 shares at June 30, 2004 and
        412,634 shares at June 30, 2003                                                     14                   4
      Additional paid-in capital                                                         4,098               3,082
      Employee Stock Option Plan (ESOP)                                                      -                 (56)
      Deferred compensation - Rabbi Trust                                                  (78)                (78)
       Obligation under Rabbi Trust                                                        250                 250
      Retained earnings, substantially restricted                                        8,592               9,070
      Accumulated other comprehensive income (loss), net of taxes                         (355)                360
------------------------------------------------------------------------------------------------------------------------
Total stockholders' Equity - Permanent                                                  14,976              15,128
------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity - including Temporary Equity                                 16,380              15,905
------------------------------------------------------------------------------------------------------------------------
                                                                                   $   210,616          $  157,805
========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>



                                                        24

<PAGE>

<TABLE>
<CAPTION>



PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended June 30, 2004 and 2003
========================================================================================================================
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)                                            2004                       2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                      <C>
Interest income:
      Loans receivable                                                            $  9,042                 $  9,354
      Mortgage-backed securities                                                       940                      954
      Investment securities                                                            396                      294
      Federal funds sold and other investments                                         141                      162
------------------------------------------------------------------------------------------------------------------------
Total interest income                                                               10,519                   10,764
------------------------------------------------------------------------------------------------------------------------

Interest expense:
      Deposits                                                                       2,524                    2,867
      Interest on long term debt                                                     1,202                    1,125
------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                               3,726                    3,992
------------------------------------------------------------------------------------------------------------------------

Net interest income                                                                  6,793                    6,772
Provision for losses on loans                                                           42                      531
------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans                              6,751                    6,241
------------------------------------------------------------------------------------------------------------------------

Noninterest income:
     Fees and service charges                                                          384                      384
     Net loss on sales of foreclosed real estate                                         -                       (3)
     Gain on sale of investment and mortgage-backed
      securities                                                                        99                      138
      Gain on sale of loans held-for-sale                                               13                       14
      Other                                                                             83                       35
------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                                               579                      568
------------------------------------------------------------------------------------------------------------------------

Noninterest expenses:
      Compensation and employee benefits                                             2,971                    2,718
      Insurance                                                                         83                       71
      Professional fees                                                                245                      406
      Equipment expenses                                                               196                      201
      Net occupancy costs                                                              233                      221
      Advertising                                                                      141                      117
      Data processing                                                                  234                      218
      Amortization of Core Deposit Intangible                                           14                        -
      Other                                                                            892                      724
------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                                           5,009                    4,676
------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                                           2,321                    2,133
Income tax provision                                                                   852                      788
------------------------------------------------------------------------------------------------------------------------
Net income                                                                         $ 1,469                 $  1,345
------------------------------------------------------------------------------------------------------------------------

Net income per share of common stock
      Basic                                                                     $     0.92               $     0.84
      Diluted                                                                   $     0.77               $     0.72
========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>


                                                        25

<PAGE>

<TABLE>
<CAPTION>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2004 and 2003
====================================================================================================================================
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

                                                                                  Temp.                    Accumulated
                                                                                  Equity                      Other
                                              Additional                          ESOP                    Comprehensive
                                               Paid-In           Additional       Shares                     Income       Total
                                   Preferred   Capital    Common  Paid-In         Subject  Rabbi  Retained   (Loss),   Stockholders'
                                     Stock    Preferred   Stock   Capital   ESOP  to Put   Trust  Earnings  Net of Taxes  Equity
------------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>        <C>       <C>     <C>       <C>     <C>     <C>     <C>       <C>         <C>
Balance at July 1, 2002             $    1     $ 2,506   $   4   $  2,020  $ (120) $  672  $ 172   $ 9,207   $   139     $ 14,601

 Comprehensive income:
 Net income                              -           -       -          -       -       -      -     1,345         -        1,345
 Adjustment to unrealized net
   holding gains on available-
   for-sale portfolios, net of
   taxes of $176                         -           -       -          -       -       -      -         -       308          308
 Reclassification adjustments for
   gains included in net income,
   net of taxes of $51                   -           -       -          -       -       -      -         -       (87)         (87)
                                                                                                                         ---------
 Comprehensive income                    -           -       -          -       -       -      -         -         -        1,566
                                                                                                                         --------
 Compensation under stock-based
   benefit plans                         -           -        -        69      64       -      -         -         -          133
Preferred stock dividends
   ($1.875 per share)                    -           -        -         -       -       -      -      (186)        -         (186)
 Cash dividends declared
   ($.56 per share)                      -           -        -         -       -       -      -      (225)        -         (225)
 10% Common Stock Dividend               -           -        -     1,071       -       -      -    (1,071)        -            -
 Options exercised                       -           -        -        16       -       -      -         -         -           16
 Transfer to temporary equity            -           -        -      (105)      -     105      -         -         -            -
 Conversion of Preferred to Common       -         (11)       -        11       -       -      -         -         -            -
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003                 1       2,495        4     3,082     (56)    777    172     9,070       360       15,905
 Comprehensive income:
    Net income                           -           -        -         -       -       -      -     1,469         -        1,469
  Adjustment to unrealized net
    holding gains available-for-sale
    portfolios, net of taxes of $412     -           -        -         -       -       -      -         -      (654)        (654)
 Reclassification adjustments for
    gains included in net income,
    net of taxes of $38                  -           -        -         -       -       -      -         -       (61)         (61)
                                                                                                                         ---------
 Comprehensive income                                                                                                         754
                                                                                                                         --------
 Compensation under stock-based
   benefit plans                         -           -        -         -      56       -      -         -         -           56
Preferred stock dividends
   ($1.875 per share)                    -           -        -         -       -       -      -      (184)        -         (184)
 Cash dividends declared
   ($0.62 per share)                     -           -        -         -       -       -      -      (285)        -         (285)
 10% Common Stock Dividend               -           -        1     1,468       -       -      -    (1,469)        -            -
 Declare 3 for 1 stock split
   in the form of a 200% stock
   dividend                              -           -        9         -       -       -      -        (9)        -            -
 Options exercised and related
   tax benefit                           -           -        -       134       -       -      -         -         -          134
 Transfer to temporary equity            -           -        -      (627)      -     627      -         -         -            -
 Conversion of Preferred to Common       -         (41)       -        41       -       -      -         -         -            -
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004                 1       2,454       14     4,098       -   1,404    172     8,592      (355)      16,380
====================================================================================================================================
See accompanying notes to consolidated financial statements.

</TABLE>



                                                               26


<PAGE>

<TABLE>
<CAPTION>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

Years ended June 30, 2004 and 2003
========================================================================================================================
(IN THOUSANDS)                                                                         2004                     2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                  <C>
Cash flows from operating activities:
     Net income                                                                        $ 1,469             $  1,345
     Adjustments to reconcile net income to net
          cash provided by operating activities:
               Depreciation                                                                199                  183
               Provision for losses on loans                                                42                  531
               Non-cash compensation under stock-based benefit plans                        56                  133
                Income tax benefit from exercise of stock options                           45                    -
               Amortization of core deposit intangible                                      14                    -
               Amortization of premiums and discounts, net                                  90                  (75)
               Income from bank-owned life insurance                                       (46)                   -
               Deferred loan origination fees, net of costs                               (246)                 170
               Proceeds from sale of loans-held-for-sale                                 1,558                1,439
               Origination of loans held for sale                                       (1,545)              (1,425)
               Gain on sale of investment and mortgage backed securities                   (99)                (138)
               Gain on sale of loans held-for-sale                                         (13)                 (14)
               Loss on sale of foreclosed real estate                                       --                    3
               (Increase)decrease in accrued interest and other assets                     541                  (55)
                Increase in accrued expenses and other liabilities                         678                  378
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                              $ 2,743             $  2,475
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Net cash received in acquisition of Parkville                                       3,974                   --
     Purchase of investment securities                                                  (9,009)              (2,718)
     Proceeds from sale/redemption of investment securities                              1,250                3,322
     Purchase of mortgage-backed-securities                                            (10,200)             (12,362)
     Proceeds from sale of mortgage-backed securities                                    6,972                   --
     Principal repayments on mortgage-backed securities                                  9,038                6,539
     Proceeds from maturing time deposit investments                                       195                   --
     Loan principal disbursements, net of repayments                                    (6,237)               4,557
     Proceeds from sale of foreclosed real estate                                           --                  125
     Purchase of Bank owned life insurance                                              (1,600)                  --
     (Increase) decrease in investment required by law                                    (107)                 585
     Purchases of property and equipment                                                  (422)                (125)
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                 $ (6,146)            $    (77)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(Continued)







See accompanying notes to consolidated financial statements.







                                                        27
<PAGE>

<TABLE>
<CAPTION>


PATAPSCO BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued

Years ended June 30, 2004 and 2003
========================================================================================================================
(IN THOUSANDS)                                                                      2004                    2003
------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                    <C>
Cash flows from financing activities:
    Net increase in deposits                                                     $    4,894             $      81
     Net increase (decrease) by borrowers for taxes and insurance                       609                  (234)
    Stock options exercised                                                              89                    16
    Proceeds from long-term borrowings                                               12,000                 3,000
    Repayments of long-term borrowings                                               (9,300)               (5,500)
    Dividends paid                                                                     (469)                 (411)
------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities                                   7,823                (3,048)
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                  4,420                  (650)
Cash and cash equivalents at beginning of year                                       13,724                14,374
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                         $   18,144             $  13,724
========================================================================================================================

The Following is a Summary of Cash and Cash Equivalents:
     Cash on hand and due from banks                                             $    6,253             $   2,193
     Interest bearing deposits in other banks                                         8,426                 5,489
     Federal funds sold                                                               4,455                 6,525
------------------------------------------------------------------------------------------------------------------------
                                                                                 $   19,134             $  14,207
         Less - Certificates of deposit maturing in 90 days or more
                      included in interest bearing deposits in other banks             (990)                 (483)
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents reflected on the Statement of Cash Flows               $   18,144             $  13,724
========================================================================================================================


Supplemental cash flow information:

     Interest paid                                                               $    3,501             $   4,020
     Income taxes paid                                                                  320                   760


The Patapsco Bank purchased all of the common stock of Parkville Federal Savings
Bank for $4.2 million. In conjunction with the acquisition, the assets acquired
and liabilities assumed were as follows:
  Fair Value of Assets acquired                                                  $   49,208             $      --
  Fair Value of liabilities assumed                                                 (46,101)                   --
  Cash paid for Parkville Federal Savings Bank stock                                 (4,192)                   --
                                                                                 -----------            ---------
  Cash paid & liabilities assumed in excess of assets acquired                   $   (1,085)            $      --
========================================================================================================================

</TABLE>






See accompanying notes to consolidated financial statements.



                                                        28




<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


(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,  primarily in the Greater  Baltimore
     Metropolitan area.  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 investment products.

     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 banks with an original  maturity of 90 days or less. Cash
     and cash equivalents are carried at cost, which approximates fair value.

     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.  All of
     the Company's investments are classified as available-for -sale.

     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


                                       29

<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


     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 fair
     value. Fair 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.

     LOANS RECEIVABLE

     Loans receivable that management has the intent and ability to hold for the
     foreseeable  future  or  until  maturity  or  payoff  are  stated  at their
     outstanding  unpaid principal  balances.  Interest income is accrued on the
     unpaid principal balance.

     The accrual of  interest is  generally  discontinued  when the  contractual
     payment of principal or interest has become 90 days past due or  management
     has serious doubts about further  collectibility  of principal or interest,
     even though the loan is currently performing.  A loan may remain on accrual
     status if it is in the process of  collection  and is either  guaranteed or
     well secured.  When a loan is placed on nonaccrual status,  unpaid interest
     credited to income in the  current  year is  reversed  and unpaid  interest
     accrued in prior years is charged  against the  allowance  for loan losses.
     Interest  received on nonaccrual  loans generally is either applied against
     principal  or  reported  as  interest  income,  according  to  management's
     judgment  as to the  collectibility  of  principal.  Generally,  loans  are
     restored to accrual  status when the  obligation  is brought  current,  has
     performed in accordance with the contractual  terms for a reasonable period
     of time and the ultimate  collectibility of the total contractual principal
     and interest is no longer in doubt.

     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.

     ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses  ("allowance")  represents an amount, that in
     the judgment of management,  will be adequate to absorb  probable losses on
     outstanding loans and leases that may become  uncollectible.  The allowance
     represents an estimate made based upon two  principles of  accounting:  (1)
     Statement of Financial  Accounting  Standards ("SFAS") No.5 "Accounting for
     Contingencies", that requires losses to be accrued when their occurrence is
     probable and estimable,  and (2) SFAS No. 114  "Accounting by Creditors for
     Impairment of a Loan",  that requires losses be accrued when it is probable
     that the lender will not collect all  principal  and interest due under the
     original  term of the loan.  The adequacy of the  allowance  is  determined
     through careful  evaluation of the loan portfolio.  This  determination  is
     inherently  subjective  and  requires  significant   estimates,   including
     estimated  losses on pools of  homogeneous  loans based on historical  loss
     experience and  consideration of the current economic  environment that may
     be subject to change.  Loans and leases  deemed  uncollectible  are charged
     against the allowance and recoveries of previously  charged-off amounts are
     credited  to it.  The  level  of the  allowance  is  adjusted  through  the
     provision for loan losses that is recorded as a current period expense.

     The methodology for assessing the appropriateness of the allowance includes
     a specific allowance, a formula allowance and a nonspecific allowance.  The
     specific  allowance is for risk rated credits on an individual  basis.  The
     formula  allowance  reflects  historical  losses  by credit  category.  The
     nonspecific  allowance  captures  losses whose impact on the portfolio have
     occurred but have yet to be recognized in either the specific  allowance or
     the formula  allowance.  The factors used in  determining  the  nonspecific
     allowance include trends in  delinquencies,  trends in volumes and terms of
     loans,  the size of  loans  relative  to the  allowance,  concentration  of
     credits,  the  quality  of  the  risk  identification   system  and  credit
     administration and local and national economic trends.



                                       30


<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


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

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

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

     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.

     FORECLOSED REAL ESTATE AND OTHER REPOSSESSED ASSETS

     Foreclosure  real estate (FRE) and other  repossessed  assets are initially
     recorded at the estimated fair value,  net of estimated  selling costs, and
     subsequently  at the lower of book value or fair value less estimated costs
     to sell. Costs relating to holding such property are charged against income
     in the current  period,  while costs relating to improving such real estate
     are capitalized until a salable  condition is reached.  The Company did not
     have FRE as of June 30, 2004 and 2003. Other repossessed assets,  which are
     included in other assets  totaled $0 and $19,000 at June 30, 2004 and 2003,
     respectively.

     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
     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



                                       31


<PAGE>

   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


     adjustments were made to net income  (numerator) for all periods presented.
     Shares  outstanding and per share numbers have been restated to reflect the
     10% common stock  dividends  issued in December of 2003 and 2002 as well as
     the 3 for 1 stock  split in the form of a 200% stock  dividend  declared on
     June 16, 2004.
<TABLE>
<CAPTION>

                                                     -----------------------------------------------------------------------
(in thousands, except per share data)                                                 Year ended
                                                     -----------------------------------------------------------------------
                                                              June 30, 2004                          June 30, 2003
                                                        Basic              Diluted             Basic            Diluted
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>               <C>               <C>
Net income                                             $  1,469          $   1,469         $   1,345         $    1,345
Preferred Stock Dividends                              $    184                  -               186                  -
----------------------------------------------------------------------------------------------------------------------------
Net Income Available to Common Stock                   $  1,285          $   1,469         $   1,157         $    1,345
Weighted average shares outstanding                       1,401              1,401             1,378              1,378

Diluted securities:
    Preferred Stock                                         N/A                393               N/A                399
    Options                                                 N/A                108               N/A                 84
----------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares                          1,401              1,902             1,378              1,861
----------------------------------------------------------------------------------------------------------------------------
Per share amount                                          $0.92              $0.77             $0.84              $0.72
============================================================================================================================
</TABLE>

     STOCK-BASED COMPENSATION

     Statement  123 allows  companies  to account for  stock-based  compensation
     either under the new provisions of Statement 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.

     Statement 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,   no  stock  option  based   employee
     compensation  cost is reflected in net income, as all options granted under
     these  plans  had an  exercise  price  equal  to the  market  value  of the
     underlying  common  stock  on  the  date  of  grant.  The  following  table
     illustrates  the effect on net income and earnings per share if the company
     had applied the fair value recognition provisions of Statement 123.
<TABLE>
<CAPTION>
                                                                                        Year Ended June 30,
                                                                                   2004                  2003
                                                                                   ----                  ----

<S>                                                                               <C>                   <C>
Net Income as reported                                                            $ 1,469               $ 1,345
Amounts recognized as expense in financial statements                                  56                   133
Deduct: Total stock option based employee
compensation expense determined under
fair value based method for all awards, net of
related tax effects                                                                   (83)                 (168)
                                                                                  --------              --------
Proforma Net Income                                                               $ 1,442               $ 1,310

Earnings per share:
         Basic - as reported                                                        $0.92                 $0.84
         Basic - pro forma                                                          $0.90                 $0.82

         Diluted - as reported                                                      $0.77                 $0.72
         Diluted - pro forma                                                        $0.76                 $0.71
</TABLE>


                                                       32


<PAGE>



   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


     The Company granted no options in the years ended June 30, 2004 or June 30,
     2003.

     EMPLOYEE STOCK OWNERSHIP PLAN

     Patapsco recognizes the cost of the Employee Stock Ownership Plan (ESOP) in
     accordance with AICPA Statement of Position No. 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  unallocated  shares  are
     recorded as a reduction of debt.

     COMPREHENSIVE INCOME

     Accounting principles generally require that recognized revenue,  expenses,
     gains and losses be  included in net income.  Although  certain  changes in
     assets and  liabilities,  such as unrealized  gains and losses on available
     for sale  securities,  are  reported as a separate  component of the equity
     section of the statement of financial condition, such items, along with net
     income are components of comprehensive income.

     GOODWILL AND INTANGIBLE ASSETS

     Effective  July 1, 2002,  the Company  adopted SFAS No. 142,  "Goodwill and
     Other Intangible Assets." SFAS No. 142 revised the accounting for purchased
     intangible  assets  and, in general,  requires  that  goodwill no longer be
     amortized,  but rather that it be tested for  impairment on an annual basis
     at the reporting unit level, which is either at the same level or one level
     below an operating  segment.  Other acquired  intangible assets with finite
     lives, such as purchased  customer  accounts,  are required to be amortized
     over their estimated lives. Prior to July 1, 2002, substantially all of the
     Company's  goodwill was amortized  using the  straight-line  method over 15
     years. Other intangible assets are amortized using the straight-line method
     over estimated useful lives of 10 years. The Company periodically  assesses
     whether  events or  changes in  circumstances  indicate  that the  carrying
     amounts of goodwill and other intangible assets may be impaired.

     In accordance with the provisions of SFAS No. 142, the Company continues to
     amortize other intangible assets over the estimated  remaining life of each
     respective  asset.  Amortizable  intangible  assets  were  composed  of the
     following:
<TABLE>
<CAPTION>

                                                                                                        June 30, 2004
                                                                                              ==============================
                                                                                                 Gross
                                                                                                Carrying       Accumulated
                                                                                                 Amount        Amortization
                                                                                              ------------  ----------------
                                                                                                   (Dollars in Thousands)

<S>                                                                                                  <C>              <C>
                   Amortizable intangible assets,
                        acquisition of deposit accounts                                              $516             $14
                                                                                               ============     ============

                   Aggregate amortization expense:
                        For the year ended June 30, 2004                                              $14
                   Estimated amortization expense:
                        For the year ending June 30, 2005                                             $52
                        For the year ending June 30, 2006                                              52
                        For the year ending June 30, 2007                                              52
                        For the year ending June 30, 2008                                              52
                        For the year ending June 30, 2009                                              52

</TABLE>

                                               33


<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


     The changes in the carrying  amount of goodwill for the year ended June 30,
2004 are as follows (in thousands):


             Balance as of July 1, 2003                               $1,870
                 Goodwill acquired during the year                     1,085
                                                                  ------------

             Balance as of June 30, 2004                              $2,955
                                                                  ============

ADVERTISING COSTS

The Company expenses advertising costs as they are incurred.

SEGMENT REPORTING

The Company acts as an independent  community  financial services provider,  and
offers  traditional  banking  and  related  financial  services  to  individual,
business  and  government  customers.  Through its branch and  automated  teller
machine  networks,  the  Bank  offers  a full  array of  commercial  and  retail
financial services,  including taking of time, savings and demand deposits;  the
making of commercial,  consumer and mortgage  loans;  and the providing of other
financial services.

Management does not separately allocate expenses,  including the cost of funding
loan  demand,  between  the  commercial,  retail,  trust  and  mortgage  banking
operations of the Bank. As such, discrete financial information is not available
and segment reporting would not be meaningful.

ACQUISITION

On April 1, 2004,  The Patapsco Bank  acquired  Parkville  Federal  Savings Bank
(Parkville),  a federally  chartered savings bank. Holders of outstanding shares
of  Parkville  received  $62.51 per share in cash for each common  share  owned.
Total consideration paid was $4.2 million.

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, April 1, 2004. The Company recorded premiums of $674,000 on
assets and $364,000 on liabilities and discounts of $144,000 on assets and $0 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 2004 was $20,000.  A core deposit  intangible
of $516,000 was recognized and is being amortized over ten years.  The excess of
the purchase price over the estimated fair value of the underlying net assets of
$1.1 million was allocated to goodwill.

The following unaudited pro forma condensed  consolidated  financial information
reflects the results of  operations  of the Company for the years ended June 30,
2004 and 2003 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.


                                     -------------------------------------------
                                                      YEAR ENDED
                                     -------------------------------------------

(IN THOUSANDS, EXCEPT PER SHARE DATA)      JUNE 30, 2004      JUNE 30, 2003
--------------------------------------------------------------------------------
  Net interest income                          $7,930            $8,332
  Net income                                    1,609             1,590
  Diluted net income per share                  $0.85             $0.85



                                       34

<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


     GUARANTEES

     The Company  does not issue any  guarantees  that would  require  liability
     recognition  or  disclosure,  other  than its  standby  letters  of credit.
     Standby letters of credit written are conditional commitments issued by the
     Company  to  guarantee  the  performance  of a customer  to a third  party.
     Generally,  all letters of credit, when issued have expiration dates within
     one  year.  The  credit  risk  involved  in  issuing  letters  of credit is
     essentially  the  same  as  those  that  are  involved  in  extending  loan
     facilities to customers.  The Company,  generally,  holds collateral and/or
     personal guarantees supporting these commitments.  The Company had $964,000
     of standby letters of credit as of June 30, 2004.  Management believes that
     the  proceeds   obtained  through  a  liquidation  of  collateral  and  the
     enforcement of guarantees would be sufficient to cover the potential amount
     of future payment required under the corresponding guarantees.  The current
     amount of the  liability as of June 30, 2004 for  guarantees  under standby
     letters of credit issued is not material.

(2)  INVESTMENT SECURITIES AVAILABLE FOR SALE

     Investment securities,  classified as available for sale, are summarized as
     follows as of June 30:

<TABLE>
<CAPTION>
                                                                          2004
                                             -------------------------------------------------------------
                                                AMORTIZED        UNREALIZED       UNREALIZED       FAIR
     (IN THOUSANDS)                               COST             GAINS            LOSSES         VALUE
     -----------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>              <C>           <C>
     Equity securities                         $     55           $   -            $   -         $     55
     Corporate Bonds                              2,600              28               56            2,572
     U.S. Government and Agency                  13,647               3              160           13,490
     -----------------------------------------------------------------------------------------------------
                                               $ 16,302           $  31            $ 216         $ 16,117
     =====================================================================================================

                                             -------------------------------------------------------------
                                                                          2003
                                             -------------------------------------------------------------
     Equity securities                         $     48           $   -            $   7         $     41
     Corporate Bonds                              2,600              26                3            2,623
     U.S. Government and Agency                   1,854              23                -            1,878
     -----------------------------------------------------------------------------------------------------
                                               $  4,502           $  49            $  10         $  4,542
     =====================================================================================================
</TABLE>

     The equity investments have no stated maturity. The scheduled maturities of
     other investments available for sale at June 30, 2004 are as follows:

<TABLE>
<CAPTION>

                                                                                      2004
                                                                       AMORTIZED                 FAIR
   (IN THOUSANDS)                                                         COST                   VALUE
  -------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                     <C>
     Due in one to five years                                         $13,497                 $13,392
     Due after five through ten years                                   1,000                     984
     Due after ten years                                                1,750                   1,686
                                                        -------------------------------------------------
                                                                      $16,247                 $16,062
  =======================================================================================================
</TABLE>

     There were no sales of corporate,  government,  agency or equity securities
     in fiscal 2004.

     In fiscal year 2003, the Company  received  proceeds of $2,321,000 from the
     sale of corporate, government and agency and equity securities resulting in
     gross gains of $138,000.


                                       35


<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


(3) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>

    Mortgage-backed securities, classified as available for sale, are summarized as follows as of June 30:

                                                                          2004
                                        -------------------------------------------------------------
                                            AMORTIZED        UNREALIZED       UNREALIZED       FAIR
 (IN THOUSANDS)                               COST             GAINS            LOSSES         VALUE
 -----------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>            <C>
 Government National Mortgage
   Association (GNMA)                       $    392         $    19          $    -         $    411
 Federal National Mortgage
   Association (FNMA)                         12,118              41             425           11,734
 Federal Home Loan Mortgage
   Corporation (FHLMC)                           992               -              27              965
                                           -----------------------------------------------------------
                                            $ 13,502         $    60          $   452        $ 13,110
======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                          2003
                                        -------------------------------------------------------------
                                            AMORTIZED        UNREALIZED       UNREALIZED       FAIR
 (IN THOUSANDS)                               COST             GAINS            LOSSES         VALUE
 -----------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>              <C>           <C>
Government National Mortgage
  Association (GNMA)                       $   1,846         $    111         $    -        $   1,957
Federal National Mortgage
  Association (FNMA)                           9,355              243              5            9,593
Federal Home Loan Mortgage
  Corporation (FHLMC)                          8,095              198              -            8,293
                                           -----------------------------------------------------------
                                           $  19,296         $    552         $    5        $  19,843
======================================================================================================
</TABLE>
     In fiscal year 2004, the Company  received  proceeds of $6,972,000 from the
     sale of  mortgage-backed  securities  resulting  in gains of  $110,000  and
     losses of $11,000.

     There were no sales of mortgage-backed securities in fiscal year 2003.

     The  following  table shows the  Company's  investments'  gross  unrealized
     losses and fair value, aggregated by investment category and length of time
     that  individual  securities  have  been in a  continuous  unrealized  loss
     position, at June 30, 2004.
<TABLE>
<CAPTION>
                                LESS THAN 12 MONTHS            12 MONTHS OR MORE                     TOTAL
                            -------------------------     ----------------------------     --------------------------
                              FAIR        UNREALIZED        FAIR         UNREALIZED          FAIR         UNREALIZED
                              VALUE         LOSSES          VALUE          LOSSES            VALUE          LOSSES
                            ---------    ------------    ----------     --------------     ---------     ------------
                                                             (IN THOUSANDS)
<S>                          <C>             <C>         <C>              <C>               <C>              <C>
U.S. Government agencies     $11,890         $160        $    --          $    --           $11,890          $160
Corporate Securities           1,444           56             --               --             1,444            56
Mortgage-backed securities    10,229          452             --               --            10,229           452
Equity securities               --             --             --               --              --              --
                            ---------    ------------    ----------     --------------     ---------     ------------

Total Temporarily Impaired
Securities                   $23,563         $668        $    --          $    --           $23,563          $668
                            =========    ============    ===========     ==============    ==========    ============

</TABLE>

   At June 30,  2004,  the  Company  had 21  securities  in an  unrealized  loss
   position.   Unrealized   losses  detailed  above  relate  primarily  to  U.S.
   Government agency debt and  mortgage-backed  securities.  The decline in fair
   value is due only to interest rate  fluctuations.  The Company has the intent
   and ability to hold such investments until maturity or market price recovery.
   None of the individual unrealized losses are significant.



                                       36


<PAGE>



   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003




(4)  LOANS RECEIVABLE

     Loans receivable are summarized as follows as of June 30:
<TABLE>
<CAPTION>

     (IN THOUSANDS)                                                                  2004                   2003
    ------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
     Real estate secured by first mortgage:
          Residential                                                             $ 78,303             $   48,664
          Commercial                                                                16,545                 14,622
          Construction, net of loans in process                                      6,510                  4,266
    ------------------------------------------------------------------------------------------------------------------
         Total Real Estate                                                         101,358                 67,552

     Home improvement loans                                                          8,063                  9,161
     Home equity loans                                                               4,040                  3,709
     Other Consumer loans                                                            2,374                  2,194
     Commercial loans                                                               21,919                 17,564
     Commercial Leases                                                              21,182                 19,225
    ------------------------------------------------------------------------------------------------------------------
                                                                                   158,936                119,405
     Less:
            Deferred loan origination fees, net of costs                                94                     96
            Unearned interest consumer loans                                           465                    408
            Unearned interest commercial leases                                      6,473                  4,356
            Purchase accounting (premium) discount, net                               (455)                   154
            Allowance for loan losses                                                  936                  1,139
    ------------------------------------------------------------------------------------------------------------------
       Loans receivable, net                                                      $151,413               $113,252
    ==================================================================================================================
</TABLE>

     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
     generally  does  not  lend  more  than 75% of the  appraised  value.  Lease
     financing  receivables  represent  finance  leases  with  no  residuals  on
     equipment  used in the  operation  of the  customer's  business.  Terms are
     typically from 3 to 5 years.

     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.

     The purchase  accounting  premium/discount  results from the November  2000
     acquisition of Northfield  Bancorp and its subsidiary,  Northfield  Federal
     Savings Bank and the April 2004  acquisition of Parkville  Federal  Savings
     Bank.  The purchase  premium/discount  was determined by comparing the fair
     values of the loans  purchased to their carrying values on the books of the
     acquired entity, before consideration of uncollectibility. Fair values were
     determined  through  the  use  of  a  discounted  cash-flow  analysis.  The
     premium/discount  is being  amortized  against  interest  income  using the
     level-yield method.

     Impairment of loans having recorded investments of $486,000 and $193,000 at
     June 30, 2004 and 2003  respectively has been recognized in conformity with
     SFAS No. 114. The average recorded investment in impaired loans during 2004
     and 2003 respectively was $367,000 and $960,000. There was an allowance for
     losses related to those loans of $319,000 and $261,000 at June 30, 2004 and
     2003, respectively. The amount of interest that would have been recorded on
     non-accrual  loans at June 30,  2004 and 2003,  respectively  had the loans
     performed  in  accordance  with their terms was  approximately  $46,000 and
     $119,000,  respectively. The actual interest income recorded on these loans
     during 2004 and 2003 was $47,000 and $56,000,  respectively. The Company is
     not obligated to lend any additional monies to the aforementioned  impaired
     and non-accrual loans. All impaired loans were on non-accrual status.


                                       37

<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003


    Loans on which the accrual of  interest  has been  discontinued  amounted to
    $498,000 and $327,000 at June 30, 2004 and 2003,  respectively.  The company
    had no loan balances past due 90 days or more accruing interest.

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

     (IN THOUSANDS)                                                                   2004                    2003
     ------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>
     Balance at beginning of year                                                 $  1,139               $   1,438
     Provision for losses on loans                                                      42                     531
     Charge-offs                                                                      (446)                   (964)
     Recoveries                                                                        201                     134
     ------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                                       $    936                $  1,139
     ==================================================================================================================
</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, 2004
    and  2003  are for  loans,  which  would  be  secured  by  various  forms of
    collateral  with values in excess of the commitment  amounts.  The Company's
    exposure   to  credit   loss  under   these   contracts   in  the  event  of
    non-performance by the other parties, assuming that the collateral proves to
    be of no value, is represented by the commitment amounts.

    Outstanding commitments to extend credit are as follows:
<TABLE>
<CAPTION>

                                                                                                   2004
                                                                              --------------------------------------------
      (IN THOUSANDS)                                                               FIXED RATE             FLOATING RATE

<S>                                                                                <C>                       <C>
      Commercial business and lease loans                                          $  1,296                  $  2,009
      Home Equity Loans                                                                                            49
      Undisbursed lines of credit                                                       -                       7,061
     =====================================================================================================================
                                                                                                   2003
                                                                              --------------------------------------------
      Commercial business and lease loans                                          $  1,216                  $    350
      Home Equity Loans                                                                 -                          -
      Undisbursed lines of credit                                                       -                       4,720
     =====================================================================================================================
</TABLE>

    Standby letters of credit are conditional  commitments issued by Patapsco to
    guarantee the  performance  of a customer to a third party.  The credit risk
    involved  in  issuing  letters  of  credit is  essentially  the same as that
    involved  in  extending  loan   facilities  to  customers.   Patapsco  holds
    collateral  supporting  those  commitments  for which  collateral  is deemed
    necessary.

    As of June 30, 2004 and June 30, 2003,  Patapsco had outstanding  letters of
    credit of $964,000 and $958,000, respectively.

    As of June 30, 2004 and 2003,  Patapsco was servicing  loans for the benefit
    of others,  approximately  $5,672,000 and  $3,222,000,  respectively.  These
    balances  represent  commercial  and commercial  real estate  participations
    sold.

                                       38



<PAGE>

     PATAPSCO  BANCORP,  INC. AND SUBSIDIARIES
     Notes to Consolidated Financial Statements
     June 30, 2004 and 2003


(5)  PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
     Property and equipment are summarized as follows at June 30:
                                                                                                            ESTIMATED
       (IN THOUSANDS)                                                    2004                2003          USEFUL LIVES
      ----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>                 <C>
       Land                                                         $    249            $     173                -
       Building and improvements                                       1,403                1,129               40 years
       Leasehold improvements                                            146                  117           3 - 10 years
       Furniture, fixtures and equipment                               2,145                1,745           3 - 10 years
      ----------------------------------------------------------------------------------------------    --------------------
       Total, at cost                                                  3,943                3,164

      ----------------------------------------------------------------------------------------------
       Less accumulated depreciation                                   2,328                2,166
      ----------------------------------------------------------------------------------------------
       Property and equipment, net                                  $  1,615             $    998
      ==============================================================================================
</TABLE>

     Rent  expense  was $63,000 and $60,000 in the years ended June 30, 2004 and
     June 30, 2003, respectively.

     At June 30,  2004,  the minimal  rental  commitments  under  noncancellable
     operating leases are as follows:

        Year ended June 30,

                        2005                              $58,000
                        2006                               36,000
                        2007                               36,000

(6)  DEPOSITS

     The  aggregate   amount  of  jumbo   certificates,   each  with  a  minimum
     denomination of $100,000,  was approximately  $11,596,000 and $7,584,000 in
     2004 and 2003, respectively.

     At June 30, 2004, the scheduled maturities of certificates are as follows:

     (IN THOUSANDS)

           2005                                          $ 42,995
           2006                                            14,176
           2007                                             7,528
           2008                                             3,796
           2009                                             5,416
           Thereafter                                       6,007
   -----------------------------------------------------------------------------
                                                         $ 79,918
   =============================================================================

(7)  BORROWINGS

     At  June  30,  2004  and  2003,  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 $40.9 and $39.3 million,  respectively.  At
     June 30, 2004, and 2003 the Bank has a Federal Funds accommodation with the
     Bankers Bank of Atlanta, GA of $5.1 million and $4.9 million, respectively.
     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.  In April 2004, the Company  borrowed $2 million from the Bankers
     Bank of Atlanta,  GA. The proceeds were primarily  invested in the Patapsco
     Bank  as  additional  paid-in-capital  at the  time of the  acquisition  of
     Parkville.  At June 30, 2004, all borrowings  except this $2 million are at
     fixed rates.


                                       39


<PAGE>


   PATAPSCO BANCORP, INC. AND SUBSIDIARIES
   Notes to Consolidated Financial Statements
   June 30, 2004 and 2003

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

                                                2004                                             2003
-------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)                                             Weighted                                         Weighted
                                     Balance             Average Rate                 Balance             Average Rate
-------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                     <C>                    <C>                       <C>
Under 12 months                     $ 4,500                 3.41%                  $ 4,000                   4.45%
12 months to 24months                 3,350                 4.24                     3,000                   4.42
24 months to 36 months                2,250                 2.15                     2,100                   5.74
36 months to 48 months                1,700                 2.71                     -                         -
48 months to 60 months                4,000                 4.71                     -                         -
60 months to 120 months               7,100                 5.06                    11,100                   4.89
Purchase discount                       -                    -                         (26)                    -
-------------------------------------------------------------------------------------------------------------------------
                                    $22,900                 4.09%                  $20,174                   4.82%
=========================================================================================================================
</TABLE>

(8)  INCOME TAXES
<TABLE>
<CAPTION>

     The  provision  for income taxes is composed of the following for the years ended June 30:

     (IN THOUSANDS)                                                                         2004                 2003
    ----------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>           <C>
     Current:
            Federal                                                                           $564          $    486
            State                                                                              113                99
    ----------------------------------------------------------------------------------------------------------------------
                                                                                               677               585
    ----------------------------------------------------------------------------------------------------------------------
     Deferred:
            Federal                                                                            143               165
            State                                                                               32                38
    ----------------------------------------------------------------------------------------------------------------------
                                                                                               175               203
    ----------------------------------------------------------------------------------------------------------------------
                                                                                              $852          $    788
    ======================================================================================================================
</TABLE>

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

                                                                                            2004                 2003
     ----------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                <C>
      Unrealized losses on securities available for sale                                       $223               $ -
      Allowance for losses on loans                                                             362                440
      Deferred compensation                                                                     267                267
      Purchase accounting adjustment                                                             26                 73
      Other                                                                                       6                  8
                                                                                    -------------------- --------------------
            Total deferred tax assets                                                           884                788

      Unrealized gains on securities available for sale                                           -               (227)
      Federal Home Loan Bank stock dividends                                                   (164)              (133)
      Depreciation                                                                             (107)               (53)
      Other                                                                                    (132)               (19)
                                                                                    -------------------- --------------------
            Total deferred tax liabilities                                                     (403)              (432)
     ------------------------------------------------------------------------------------------------------------------------
      Net deferred tax assets                                                                  $481               $356
     ========================================================================================================================
</TABLE>


                                               40



<PAGE>


    PATAPSCO BANCORP, INC. AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    June 30, 2004 and 2003

    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>
                                                                                            2004                   2003
   ------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                  <C>
     Tax at statutory rate                                                                    $789                 $725
     State income taxes, net of Federal income tax benefit                                      97                   91
     Other                                                                                     (34)                 (28)
   ------------------------------------------------------------------------------------------------------------------------
     Income tax provision                                                                     $852                 $788
   ========================================================================================================================
</TABLE>
    The Company has  qualified  under  provisions  of the 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.

(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  (FHLBA)  equal to at least  4.50% of the  outstanding
    borrowings  from the FHLBA plus the  lesser of 0.20% of total  assets or $25
    million.  The investment in the FHLBA stock is reported in the balance sheet
    as the  investment  required by law.  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,  2004 the Bank met its
    reserve requirements.

    The  Company  and  Patapsco  are  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 the Company'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.
    The Company and  Patapsco's  capital  amounts  and  classification  are also
    subject to qualitative  judgments by the regulators about  components,  risk
    weightings,  and other factors.  In addition,  the Bank and the Company must
    maintain  minimum capital and other  requirements of regulatory  authorities
    when declaring or paying  dividends.  The Bank and the Company have complied
    with such capital requirements.

    Quantitative  measures  established by regulation to ensure capital adequacy
    require the Company and 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,  2004,  that the  Company and  Patapsco  meets all
    capital adequacy requirements to which it is subject.

    As of June 30, 2004, 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  set forth in table.  There are no  conditions  or events
    since  that   notification   that  management   believes  have  changed  the
    institution's category.

                                       41


<PAGE>

    PATAPSCO BANCORP, INC. AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    June 30, 2004 and 2003

<TABLE>
<CAPTION>
Patapsco Bancorp's actual capital amounts and ratios are presented in the table:

                                                                                                        TO BE WELL
                                                                                                     CAPITALIZED UNDER
                                                                           FOR CAPITAL               PROMPT CORRECTIVE
                                                   ACTUAL               ADEQUACY PURPOSES            ACTION PROVISIONS
                                        -------------------------------------------------------------------------------------
   (IN THOUSANDS)                          AMOUNT          RATIO         AMOUNT        RATIO           AMOUNT        RATIO
   --------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>           <C>             <C>             <C>
   As of June 30, 2004:
       Total Capital (to Risk
          Weighted Assets)                 $13,761         10.91%        $10,091         8.00%           N/A
       Tier I Capital (to Risk
          Weighted Assets)                  12,825         10.17%          5,046         4.00%           N/A
       Tier I Capital (to Average
          Assets)                           12,825          6.13%          8,369         4.00%           N/A
   As of June 30, 2003:
       Total Capital (to Risk
          Weighted Assets)                 $14,416         14.58%         $7,912         8.00%           N/A
       Tier I Capital (to Risk
          Weighted Assets)                  13,277         13.43%          3,956         4.00%           N/A
       Tier I Capital (to Average
          Assets)                           13,277          8.56%          6,205         4.00%           N/A
   ============================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
The Patapsco Bank's actual capital amounts and ratios are presented below:

                                                                                                        TO BE WELL
                                                                                                     CAPITALIZED UNDER
                                                                           FOR CAPITAL               PROMPT CORRECTIVE
                                                   ACTUAL               ADEQUACY PURPOSES            ACTION PROVISIONS
                                        -------------------------------------------------------------------------------------
   (IN THOUSANDS)                          AMOUNT          RATIO         AMOUNT        RATIO           AMOUNT        RATIO
   --------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>           <C>             <C>           <C>            <C>
   As of June 30, 2004:
       Total Capital (to Risk
          Weighted Assets)                 $15,138         12.08%        $10,026         8.00%         $12,533        10.00%
       Tier I Capital (to Risk
          Weighted Assets)                  14,202         11.33%          5,013         4.00%           7,520         6.00%
       Tier I Capital (to Average
          Assets)                           14,202          6.82%          8,325         4.00%          10,407         5.00%
   As of June 30, 2003:
       Total Capital (to Risk
          Weighted Assets)                 $13,673         13.86%         $7,891         8.00%          $9,864        10.00%
       Tier I Capital (to Risk
          Weighted Assets)                  12,534         12.71%          3,945         4.00%           5,918         6.00%
       Tier I Capital (to Average
          Assets)                           12,534          8.07%          6,211         4.00%           7,764         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.



                                       42

<PAGE>


     PATAPSCO BANCORP, INC. AND SUBSIDIARIES
     Notes to Consolidated Financial Statements
     June 30, 2004 and 2003


     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.  In
     addition  to the  foregoing,  certain bad debt  reserves  of  approximately
     $2,561,000  deducted  from  income  for  federal  income tax  purposes  and
     included  in retained  earnings  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 $998,000.

     In November  2000, as part of the  acquisition of Northfield  Bancorp,  the
     Company  issued  109,235  shares  of  Series A  Noncumulative,  Convertible
     Perpetual  Preferred  Stock.  Each  share  of  the  preferred  stock  earns
     dividends at the rate of 7.5% of the  liquidation  preference of $25.00 per
     share, payable when declared by the Board of Directors. If Patapsco Bancorp
     fails to pay dividends to holders of Patapsco Bancorp Preferred stock for a
     given  quarter,  then  during that  quarter,  no  dividends  may be paid on
     Patapsco Bancorp Common Stock.

     When issued, the preferred stock was convertible into common stock at a one
     to one basis.  Due to three 10% stock  dividends  and a three for one stock
     split in the form of a 200%  stock  dividend  paid to  common  shareholders
     since the issuance of the preferred shares, the current conversion ratio is
     1 to 3.993.  One share of preferred stock is convertible  into 3.993 shares
     of common stock. Since issuance,  11,145 preferred shares have converted to
     common shares.

(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  113,891  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 28,721
     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.  The above  shares have been  adjusted for all stock
     dividends and splits.

     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 104,288 shares that have been allocated contain a "Put
     Option" of  $1,404,000.  This  amount is included  in  temporary  equity in
     accordance with SEC Accounting Series Release No. 268.

     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, 2004 and 2003 compensation  expense recognized
     related to the ESOP and Patapsco's contribution to the ESOP was $56,000 and
     $133,000, respectively.


                                       43


<PAGE>


    PATAPSCO BANCORP, INC. AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    June 30, 2004 and 2003


     The ESOP shares were as follows as of June 30:
<TABLE>
<CAPTION>
                                                                                               2004                  2003
      ------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                  <C>
       Shares released and allocated                                                          142,612              122,555
       Unearned shares                                                                             --               20,057
      ------------------------------------------------------------------------------------------------------------------------
                                                                                              142,612              142,612
      ========================================================================================================================
       Fair value of unearned shares                                                        $      --            $ 188,000
      ========================================================================================================================
</TABLE>
   Share numbers have been adjusted for stock dividends and stock splits.

     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, 2004 and 2003 was $26,000 and
     $35,000, respectively.

     The  Director's  Retirement  Plan also  consists  of a Rabbi  Trust that is
     invested  in the  Company's  stock.  The  directors  were  credited  with a
     specific number of shares of the Company's  stock,  and will be paid out by
     delivering only Company stock to the participants. The Company discontinued
     deferrals  into  this Plan  during  fiscal  2002.  The  obligation  and the
     deferred compensation related to this Plan are shown as separate components
     of the equity section in accordance with EITF 97-14.

     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 137,862 shares at $4.60 per share.

     The  Company's  2000 Stock  Option and  Incentive  Plan was approved by the
     stockholders at the 2000 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.  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.  Under this plan,  in August  2001 the
     Company granted options to purchase 99,975 shares at $6.29 per share.

     The following  table  summarizes the status of and changes in the Company's
     stock option plan during the past two years.
<TABLE>
<CAPTION>
                                                                    WEIGHTED                              WEIGHTED
                                                                    AVERAGE                               AVERAGE
                                                                    EXERCISE           OPTIONS            EXERCISE
                                                OPTIONS              PRICE           EXERCISABLE           PRICE
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                   <C>              <C>                <C>
Outstanding, June 30, 2002                      226,170               $ 5.38           116,945            $ 4.66
Granted                                              --                   --                --                --
Exercised                                        (3,194)                5.16
Cancelled                                        (4,435)                6.35
----------------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2003                      218,540                 5.37           135,769              5.38
Granted                                              --                   --
Exercised                                       (19,421)                4.60
Cancelled                                        (1,221)                7.06
----------------------------------------------------------------------------------------------------------------------
Outstanding, June 30, 2004                      197,898               $ 5.40           140,116            $ 5.40
======================================================================================================================
</TABLE>

                                                       44


<PAGE>


    PATAPSCO BANCORP, INC. AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    June 30, 2004 and 2003


     The following table summarizes  information about stock options outstanding
     at June 30, 2004:
<TABLE>
<CAPTION>
               EXERCISE                        NUMBER               REMAINING              NUMBER
                 PRICE                       OUTSTANDING         CONTRACTUAL LIFE        EXERCISABLE
           -----------------          -----------------------  ---------------------   ----------------
           <S>                                  <C>                 <C>                    <C>
                     $4.60                       87,420             2.28 years              87,420
                      4.86                       18,981             5.84 years              15,185
                      6.29                       91,497             7.09 years              37,511
                                               ---------                                  ---------
                                                197,898             4.85 years             140,116
                                               =========                                  =========
</TABLE>

     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  $55,000  and
     $55,000 for the years ended June 30, 2004 and 2003, 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 for the Company's financial instruments as of June 30, 2004 and 2003.

     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.

     The carrying  amount and estimated  fair value of financial  instruments is
     summarized as follows at June 30:
<TABLE>
<CAPTION>
                                                                     2004                                     2003
                                                       ---------------------------------       ---------------------------------
                                                          CARRYING                                CARRYING
(IN THOUSANDS)                                             AMOUNT          FAIR VALUE              AMOUNT          FAIR VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>                  <C>              <C>
Assets:
   Cash and interest-bearing deposits                   $  14,679           $  14,679            $   7,682        $    7,682
   Federal funds sold                                       4,455               4,455                6,525             6,525
   Investment securities available for sale                16,117              16,117                4,542             4,542
   Mortgage-backed securities available for sale           13,110              13,110               19,843            19,843
   Loans receivable, net                                  151,413             153,416              113,252           118,947
   Investment required by law                               1,760               1,760                1,318             1,318
   Accrued interest receivable                                682                 682                  618               681
Liabilities:
   Deposits                                               168,132             162,193              119,655           120,599
   Advance payments by borrowers for
      taxes, insurance and ground rents                     1,531               1,531                  937               937

   Long-term debt                                          22,900              22,158               20,174            21,163
   Accrued interest payable                                   302                 302                   77                77
Off balance sheet instruments:
   Commitments to extend credit                              --                  --                    --                 -
================================================================================================================================

</TABLE>
                                               45

<PAGE>


    PATAPSCO BANCORP, INC. AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    June 30, 2004 and 2003


    CASH AND DUE FROM BANKS,  INTEREST  BEARINGS DEPOSITS WITH BANKS AND FEDERAL
    FUNDS SOLD

    The statement of financial  condition carrying amounts for cash and due from
    banks,   interest  bearing  deposits  with  banks  and  federal  funds  sold
    approximate the estimated fair values of such assets.

    INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

    The fair value of investment  securities and  mortgage-backed  securities is
    based on market values provided from external sources.

    LOANS RECEIVABLE

    Loans  receivable  were segmented  into  portfolios  with similar  financial
    characteristics.  Loans were also segmented by type such as residential  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 loans was calculated by discounting anticipated cash flows
    based on weighted average contractual maturity,  weighted average coupon and
    current loan origination rate.

    ACCRUED INTEREST RECEIVABLE

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

    INVESTMENT REQUIRED BY LAW

    The carrying  amount of  investment  required by law  approximates  its fair
    value.

    DEPOSITS

    Under SFAS 107, the fair value of deposits with no stated maturity,  such as
    noninterest  bearing  deposits,  interest bearing NOW accounts 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.

    LONG-TERM DEBT

    The  fair  value of  long-term  debt was  based on the  discounted  value of
    contractual cash flows.

    ACCRUED INTEREST PAYABLE

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

    ADVANCE PAYMENTS BY BORROWERS FOR TAXES, INSURANCE AND GROUND RENTS

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

    OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND STANDBY LETTERS OF CREDIT

    The Company is a party to financial  instruments with off-balance sheet risk
    in the normal  course of  business,  including  mortgage  loan  commitments,
    undisbursed lines of credit on commercial business loans and standby letters
    of credit. 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 fair values of such
    commitments are immaterial.


                                       46


<PAGE>


     PATAPSCO BANCORP, INC. AND SUBSIDIARIES
     Notes to Consolidated Financial Statements
     June 30, 2004 and 2003


     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.

(13) CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
     Summarized  financial  information for the Company are as follows as of and for the years ended June 30:

     (IN THOUSANDS)
    ----------------------------------------------------------------------------------------------------------------
     STATEMENTS OF FINANCIAL CONDITION                                                2004                 2003
    ----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
     Cash                                                                         $   1,034             $    525
     Investment securities                                                               55                   41
     Equity in net assets of the bank                                                17,647               15,015
     Note receivable - bank                                                              --                   56
     Accounts receivable - Bank                                                          --                  564
     Other assets                                                                       121                  120
    ----------------------------------------------------------------------------------------------------------------
     Total Assets                                                                 $  18,857             $ 16,321
    ================================================================================================================


     Accrued expenses and other liabilities                                       $     477             $    416
     Long-Term Debt                                                                   2,000                   --
                                                                                  ----------------------------------
     Stockholders' equity                                                            16,380               15,905
    ----------------------------------------------------------------------------------------------------------------
     Total Liabilities & Stockholders Equity                                      $  18,857             $ 16,321
    ================================================================================================================

     (IN THOUSANDS)
     STATEMENTS OF INCOME                                                             2004                  2003
    ----------------------------------------------------------------------------------------------------------------
          Total Revenue                                                           $      7              $     94
    ----------------------------------------------------------------------------------------------------------------
          Interest Expense                                                              17                    18
    ----------------------------------------------------------------------------------------------------------------
          Noninterest Expense                                                           34                    40
    ----------------------------------------------------------------------------------------------------------------
     Income before equity in net income
        of subsidiary and income taxes                                                 (44)                   36
     Net income of subsidiary                                                        1,496                 1,320
    ----------------------------------------------------------------------------------------------------------------
     Income before income tax provision                                              1,452                 1,356
     Income tax provision (benefit)                                                    (17)                   11
    ----------------------------------------------------------------------------------------------------------------
     Net income                                                                   $  1,469              $  1,345
    ================================================================================================================

</TABLE>




                                                                47


<PAGE>



     PATAPSCO BANCORP, INC. AND SUBSIDIARIES
     Notes to Consolidated Financial Statements
     June 30, 2004 and 2003

<TABLE>
<CAPTION>

     (IN THOUSANDS)
     STATEMENTS OF CASH FLOWS                                                             2004               2003
    --------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>              <C>
     Operating activities:
          Net income                                                                     $  1,469         $  1,345
          Adjustments to reconcile net income to net cash provided by operating
             activities:
                  Equity in net income of subsidiary                                       (1,496)          (1,320)
                  Gain on sale of equity investments                                           --              (85)
                  (Increase) decrease in accounts receivable - Bank                           564             (564)
                  Decrease (increase) in other assets                                          (1)              29
                  Increase in accrued expenses and other liabilities                           61               26
    --------------------------------------------------------------------------------------------------------------------
     Net cash used in activities                                                         $    597         $   (569)
    --------------------------------------------------------------------------------------------------------------------
     Investing activities:
          Proceeds from sale of equity securities                                              --              267
          Purchase of equity securities                                                       (14)              (7)
          Additional investment in subsidiary                                              (1,795)              (2)
          Dividends received from subsidiary                                                   --            1,690
          Repayment of note receivable                                                         56               64
    --------------------------------------------------------------------------------------------------------------------
     Net cash (used in) provided by investing activities                                 $ (1,753)        $  2,012
    --------------------------------------------------------------------------------------------------------------------
     Financing activities:
    --------------------------------------------------------------------------------------------------------------------
          Net increase(decrease) in borrowings                                              2,000           (1,000)
          Options exercised                                                                   134               16
          Cash dividend paid                                                                 (469)            (411)
    --------------------------------------------------------------------------------------------------------------------
     Net cash provided by (used in) financing activities                                 $  1,665         $ (1,395)
    --------------------------------------------------------------------------------------------------------------------

    --------------------------------------------------------------------------------------------------------------------
     Increase in cash and cash equivalents                                                    509               49
     Cash and cash equivalents, beginning of year                                             525              476
    --------------------------------------------------------------------------------------------------------------------
     Cash and cash equivalents, end of year                                              $  1,034         $    525
    ====================================================================================================================
</TABLE>


                                                        48




<PAGE>


<TABLE>
<CAPTION>

                                               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           Retired Automobile Dealer
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.


                                               EXECUTIVE OFFICERS

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

JOHN W. MCCLEAN                            ALAN H. HERBST                               LAURENCE S. MITCHELL
Senior Vice President - Loan               Vice President - Consumer Lending            Senior Vice President - Lending
Administration

BRIAN G. CONNELLY                          FRANCIS C. BROCCOLINO
Vice President - Commercial Leasing        Vice President - Real Estate Lending

                                               HONORARY DIRECTOR

                                              JOSEPH N. MCGOWAN

                                            CORPORATE INFORMATION

INDEPENDENT REGISTERED PUBLIC              SPECIAL COUNSEL                              ANNUAL REPORT ON FORM 10-KSB
ACCOUNTING FIRM                            Muldoon Murphy Faucette & Aguggia LLP        A COPY OF THE  COMPANY'S  ANNUAL REPORT
Beard Miller Company LLP                   5101 Wisconsin Avenue, NW                    ON  FORM  10-KSB  FOR THE  FISCAL  YEAR
7621 Fitch Lane                            Washington, DC  20016                        ENDED  JUNE 30,  2004 AS FILED WITH THE
Baltimore, Maryland 21236                                                               SECURITIES  AND  EXCHANGE   COMMISSION,
                                           ANNUAL MEETING                               WILL BE  FURNISHED  WITHOUT  CHARGE  TO
GENERAL COUNSEL                            The 2004  Annual  Meeting of  Stockholders   STOCKHOLDERS  AS OF THE RECORD DATE FOR
Nolan Plumhoff & Williams                  will be held on October  28,  2004 at 4:00   THE 2004 ANNUAL  MEETING  UPON  WRITTEN
Suite 700, Nottingham Centre               p.m.  at the office of The  Patapsco  Bank   REQUEST   TO:   CORPORATE    SECRETARY,
502 Washington Avenue                      located   at   1301   Merritt   Boulevard,   PATAPSCO  BANCORP,  INC.,  1301 MERRITT
Towson, Maryland 21204-4528                Dundalk, Maryland 21222.                     BOULEVARD, DUNDALK, MARYLAND 21222-2194.

TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
1-(800) 368-5948

</TABLE>