##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

For the transition period from  to

Commission File Number: 0-24589



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BCSB BANKCORP, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|United States                                                  |  | 52-2108333                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236

(Address of Principal Executive Offices)

(410) 256-5000

(Issuers Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)



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Indicate by check ü whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated
filer  x

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈No  x

As of March 31, 2006, the issuer had 5,912,177 shares of Common Stock issued and outstanding.



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##### Table of Contents

CONTENTS



|                              |  |                                                                                                                        |  |     
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                        |  | PAGE
|PART I.
FINANCIAL INFORMATION |  |                                                                                                                       
|                              |  |                                                                                                                       
|Item 1.                       |  | Financial Statements                                                                                                   |  |     
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Financial Condition as of March 31, 2006 (unaudited) and September 30, 2005                 |  | 1   
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Operations for the Six and Three Months Ended March 31, 2006 and 2005 (unaudited)           |  | 2   
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Comprehensive Income for the Six and Three Months Ended March 31, 2006 and 2005 (unaudited) |  | 3   
|                              |  |                                                                                                                       
|                              |  | Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2006 and 2005 (unaudited)                     |  | 4   
|                              |  |                                                                                                                       
|                              |  | Notes to Consolidated Financial Statements                                                                             |  | 6   
|                              |  |                                                                                                                       
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 11  
|                              |  |                                                                                                                       
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                             |  | 25  
|                              |  |                                                                                                                       
|Item 4.                       |  | Controls and Procedures                                                                                                |  | 25  
|                              | 
|PART II.
OTHER INFORMATION    |  |                                                                                                                       
|                              |  |                                                                                                                       
|Item 1.                       |  | Legal Proceedings                                                                                                      |  | 26  
|                              |  |                                                                                                                       
|Item 1A.                      |  | Risk Factors                                                                                                           |  | 26  
|                              |  |                                                                                                                       
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  | 26  
|                              |  |                                                                                                                       
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                        |  | 26  
|                              |  |                                                                                                                       
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                    |  | 26  
|                              |  |                                                                                                                       
|Item 5.                       |  | Other Information                                                                                                      |  | 26  
|                              |  |                                                                                                                       
|Item 6.                       |  | Exhibits                                                                                                               |  | 27  
|                              | 
|SIGNATURES                    |  |                                                                                                                       



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                  |  |                        |         |   |                    |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                  |  | March 31, 2006         |         |   | September 30, 2005 |  
|                                                                                  |  | (unaudited)            |         |   |                    |  
|                                                                                  |  | (dollars in thousands) |        
|Assets                                                                            |  |                        |         |   |                    |   |         |  
|Cash and due from banks                                                           |  | $                      | 25,005  |   |                    | $ | 21,713  |  
|Interest-bearing deposits in other banks                                          |  |                        | 1,775   |   |                    |   | 1,578   |  
|Federal funds sold                                                                |  |                        | 2,488   |   |                    |   | 238     |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Cash and Cash Equivalents                                                         |  |                        | 29,268  |   |                    |   | 23,529  |  
|                                                                                  |  |                       
|Interest-bearing time deposits                                                    |  |                        | 100     |   |                    |   | 100     |  
|Investment securities, available for sale                                         |  |                        | 149,594 |   |                    |   | 151,386 |  
|Investment securities, held to maturity                                           |  |                        | 1,495   |   |                    |   | 1,995   |  
|Loans receivable, net                                                             |  |                        | 461,553 |   |                    |   | 454,347 |  
|Mortgage-backed securities, available for sale                                    |  |                        | 98,218  |   |                    |   | 112,120 |  
|Mortgage-backed securities, held to maturity                                      |  |                        | 23,999  |   |                    |   | 26,470  |  
|Premises and equipment, net                                                       |  |                        | 11,738  |   |                    |   | 10,782  |  
|Federal Home Loan Bank of Atlanta stock, at cost                                  |  |                        | 7,255   |   |                    |   | 8,060   |  
|Bank owned life insurance                                                         |  |                        | 12,937  |   |                    |   | 12,667  |  
|Goodwill                                                                          |  |                        | 2,566   |   |                    |   | 2,592   |  
|Accrued interest and other assets                                                 |  |                        | 9,956   |   |                    |   | 8,697   |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Total assets                                                                      |  | $                      | 808,679 |   |                    | $ | 812,745 |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Liabilities and Stockholders Equity                                              |  |                        |         |   |                    |   |         |  
|Liabilities                                                                       |  |                        |         |   |                    |   |         |  
|Deposits:                                                                         |  |                        |         |   |                    |   |         |  
|Non-interest bearing                                                              |  | $                      | 23,892  |   |                    | $ | 24,653  |  
|Interest-bearing                                                                  |  |                        | 588,189 |   |                    |   | 573,016 |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Total Deposits                                                                    |  |                        | 612,081 |   |                    |   | 597,669 |  
|                                                                                  |  |                       
|Short Term Advances from the Federal Home Loan Bank of Atlanta                    |  |                        | 68,560  |   |                    |   | 81,150  |  
|Long Term Advances from the Federal Home Loan Bank of Atlanta                     |  |                        | 57,500  |   |                    |   | 63,646  |  
|Junior Subordinated Debentures                                                    |  |                        | 23,197  |   |                    |   | 23,197  |  
|Other liabilities                                                                 |  |                        | 7,590   |   |                    |   | 5,043   |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Total liabilities                                                                 |  |                        | 768,928 |   |                    |   | 770,705 |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Commitments and contingencies                                                     |  |                        |         |   |                    |   |         |  
|Stockholders Equity                                                              |  |                        |         |   |                    |   |         |  
|Common stock (par value $.01  13,500,000 authorized,                             |  |                        |         |   |                    |   |         |  
|5,912,177 shares issued and outstanding at March 31, 2006 and September 30, 2005) |  |                        | 59      |   |                    |   | 59      |  
|Additional paid-in capital                                                        |  |                        | 21,291  |   |                    |   | 21,247  |  
|Obligation under Rabbi Trust                                                      |  |                        | 1,254   |   |                    |   | 1,238   |  
|Retained earnings (substantially restricted)                                      |  |                        | 24,429  |   |                    |   | 24,963  |  
|Accumulated other comprehensive loss (net of taxes)                               |  |                        | (5,760  | ) |                    |   | (3,878  | )
|                                                                                  |  |                        |         |   |                    |   |         |  
|                                                                                  |  |                        | 41,273  |   |                    |   | 43,629  |  
|Employee Stock Ownership Plan                                                     |  |                        | (319    | ) |                    |   | (410    | )
|Stock held by Rabbi Trust                                                         |  |                        | (1,203  | ) |                    |   | (1,179  | )
|                                                                                  |  |                        |         |   |                    |   |         |  
|Total stockholders equity                                                        |  |                        | 39,751  |   |                    |   | 42,040  |  
|                                                                                  |  |                        |         |   |                    |   |         |  
|Total liabilities and stockholders equity                                        |  | $                      | 808,679 |   |                    | $ | 812,745 |  
|                                                                                  |  |                        |         |   |                    |   |         |  

The accompanying notes to consolidated financial statements are an integral part
of these statements.



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|---------------------------------------------------------- |  | -------------------------------------------- | ------ | - | ----------------------------------- | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                                           |  | For the Six Months EndedMarch 31,            |        |   | For the Three Months EndedMarch 31, |  
|                                                           |  | 2006                                         |        |   | 2005                                |   |        | 2006 |  |   | 2005  |  
|                                                           |  | (Dollars in thousands except per share data) |       
|Interest Income                                            |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Interest and fees on loans                                 |  | $                                            | 13,736 |   |                                     | $ | 11,539 |      |  | $ | 6,991 |   |  | $ | 5,882 |  
|Interest on mortgage-backed securities                     |  |                                              | 2,595  |   |                                     |   | 3,239  |      |  |   | 1,279 |   |  |   | 1,602 |  
|Interest and dividends on investment securities            |  |                                              | 3,079  |   |                                     |   | 2,737  |      |  |   | 1,558 |   |  |   | 1,427 |  
|Other interest income                                      |  |                                              | 67     |   |                                     |   | 36     |      |  |   | 53    |   |  |   | 7     |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Total interest income                                      |  |                                              | 19,477 |   |                                     |   | 17,551 |      |  |   | 9,881 |   |  |   | 8,918 |  
|                                                           |  |                                              |        |  
|Interest Expense                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Interest on deposits                                       |  |                                              | 8,478  |   |                                     |   | 7,065  |      |  |   | 4,326 |   |  |   | 3,537 |  
|Interest on borrowings  short term                        |  |                                              | 1,509  |   |                                     |   | 530    |      |  |   | 610   |   |  |   | 288   |  
|Interest on borrowings  long term                         |  |                                              | 1,215  |   |                                     |   | 1,193  |      |  |   | 742   |   |  |   | 660   |  
|Other interest expense  debentures                        |  |                                              | 903    |   |                                     |   | 672    |      |  |   | 457   |   |  |   | 351   |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Total interest expense                                     |  |                                              | 12,105 |   |                                     |   | 9,460  |      |  |   | 6,135 |   |  |   | 4,836 |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Net interest income                                        |  |                                              | 7,372  |   |                                     |   | 8,091  |      |  |   | 3,746 |   |  |   | 4,082 |  
|(Reversal) Provision for losses on loans                   |  |                                              | (109   | ) |                                     |   | 120    |      |  |   |      |   |  |   |      |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Net interest income after provision for losses on loans    |  |                                              | 7,481  |   |                                     |   | 7,971  |      |  |   | 3,746 |   |  |   | 4,082 |  
|                                                           |  |                                              |        |  
|Other Income                                               |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Loss on repossessed assets                                 |  |                                              | (266   | ) |                                     |   | (248   | )    |  |   | (123  | ) |  |   | (113  | )
|Mortgage Banking Operations                                |  |                                              | 27     |   |                                     |   | 5      |      |  |   | 6     |   |  |   | 2     |  
|Fees on transaction accounts                               |  |                                              | 285    |   |                                     |   | 334    |      |  |   | 124   |   |  |   | 146   |  
|Loss on sale of investments and mortgage-backed securities |  |                                              |       |   |                                     |   | (11    | )    |  |   |      |   |  |   |      |  
|Income from bank owned life insurance                      |  |                                              | 236    |   |                                     |   | 221    |      |  |   | 119   |   |  |   | 108   |  
|Other income                                               |  |                                              | 242    |   |                                     |   | 212    |      |  |   | 133   |   |  |   | 72    |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Total other income, net                                    |  |                                              | 524    |   |                                     |   | 513    |      |  |   | 259   |   |  |   | 215   |  
|                                                           |  |                                              |        |  
|Non-Interest Expenses                                      |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Salaries and related expense                               |  |                                              | 4,261  |   |                                     |   | 4,673  |      |  |   | 2,127 |   |  |   | 2,347 |  
|Occupancy expense                                          |  |                                              | 1,070  |   |                                     |   | 862    |      |  |   | 518   |   |  |   | 462   |  
|Data processing expense                                    |  |                                              | 972    |   |                                     |   | 1,060  |      |  |   | 322   |   |  |   | 524   |  
|Property and equipment expense                             |  |                                              | 619    |   |                                     |   | 588    |      |  |   | 305   |   |  |   | 279   |  
|Professional Fees                                          |  |                                              | 212    |   |                                     |   | 114    |      |  |   | 123   |   |  |   | 63    |  
|Advertising                                                |  |                                              | 273    |   |                                     |   | 263    |      |  |   | 106   |   |  |   | 105   |  
|Telephone, postage and office supplies                     |  |                                              | 264    |   |                                     |   | 313    |      |  |   | 125   |   |  |   | 173   |  
|Other expenses                                             |  |                                              | 497    |   |                                     |   | 449    |      |  |   | 267   |   |  |   | 255   |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Total non-interest expenses                                |  |                                              | 8,168  |   |                                     |   | 8,322  |      |  |   | 3,893 |   |  |   | 4,208 |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|(Loss) Income before tax benefit                           |  |                                              | (163   | ) |                                     |   | 162    |      |  |   | 112   |   |  |   | 89    |  
|Income tax benefit                                         |  |                                              | (158   | ) |                                     |   | (20    | )    |  |   | (2    | ) |  |   | (7    | )
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Net income (loss)                                          |  | $                                            | (5     | ) |                                     | $ | 182    |      |  | $ | 114   |   |  | $ | 96    |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Per Share Data:                                            |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Basic and diluted earnings per share                       |  | $                                            | .00    |   |                                     | $ | .03    |      |  | $ | .02   |   |  | $ | .02   |  
|                                                           |  |                                              |        |   |                                     |   |        |      |  |   |       |   |  |   |       |  
|Dividends per share                                        |  | $                                            | .25    |   |                                     | $ | .25    |      |  | $ | .125  |   |  | $ | .125  |  

The accompanying notes to consolidated financial statements are an integral part of these statements.



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



|                                                                                       |  |                                     |        |   |      |   |        |  
|-------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                       |  | For the Six Months Ended March 31,  |       
|                                                                                       |  | 2006                                |        |   | 2005 |  
|                                                                                       |  | ( in thousands)                     |       
|Net (Loss) Income                                                                      |  | $                                   | (5     | ) |      | $ | 182    |  
|Other comprehensive income, net of tax:                                                |  |                                     |        |   |      |   |        |  
|Unrealized net holding losses on                                                       |  |                                     |        |   |      |   |        |  
|Available-for-sale portfolios, net of tax $(1,180) and $(1,509)                        |  |                                     | (1,882 | ) |      |   | (2,407 | )
|Reclassification adjustment for losses included in net income, net of tax $0, and $(4) |  |                                     |       |   |      |   | 7      |  
|                                                                                       |  |                                     |        |   |      |   |        |  
|Comprehensive Loss                                                                     |  | $                                   | (1,887 | ) |      | $ | (2,218 | )
|                                                                                       |  |                                     |        |   |      |   |        |  
|                                                                                       | 
|                                                                                       |  | For the Three Months EndedMarch 31, |       
|                                                                                       |  | 2006                                |        |   | 2005 |  
|                                                                                       |  | ( in thousands)                     |       
|Net Income                                                                             |  | $                                   | 114    |   |      | $ | 96     |  
|Other comprehensive income, net of tax:                                                |  |                                     |        |   |      |   |        |  
|Unrealized net holding gains on                                                        |  |                                     |        |   |      |   |        |  
|Available-for-sale portfolios, net of tax $(552), and $(1,312)                         |  |                                     | (881   | ) |      |   | (2,090 | )
|                                                                                       |  |                                     |        |   |      |   |        |  
|Comprehensive Loss                                                                     |  | $                                   | (767   | ) |      | $ | (1,994 | )
|                                                                                       |  |                                     |        |   |      |   |        |  

The accompanying notes to the consolidated financial statements are an integral part of these statements.

(Continued)



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                       |  |                               |        |   |      |   |         |  
|---------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------- | -
|                                                                       |  | For Six Months EndedMarch 31, |       
|                                                                       |  | 2006                          |        |   | 2005 |  
|                                                                       |  | (dollars in thousands)        |       
|Operating Activities                                                   |  |                               |        |   |      |   |         |  
|Net (loss) income                                                      |  | $                             | (5     | ) |      | $ | 182     |  
|Adjustments to reconcile net income (loss) to                          |  |                               |        |   |      |   |         |  
|Net Cash Provided by Operating Activities                              |  |                               |        |   |      |   |         |  
|Loss on sale of investments and mortgage-backed securities             |  |                               |       |   |      |   | 11      |  
|Amortization of deferred loan fees and cost, net                       |  |                               | (75    | ) |      |   | (57     | )
|(Reversal) Provision for losses on loans                               |  |                               | (109   | ) |      |   | 120     |  
|Non-cash compensation under Stock-based Benefit Plan                   |  |                               | 135    |   |      |   | 153     |  
|Amortization of purchase premiums and discounts, net                   |  |                               | 169    |   |      |   | 220     |  
|Provision for depreciation                                             |  |                               | 501    |   |      |   | 426     |  
|Loss on sale of repossessed assets                                     |  |                               | 266    |   |      |   | 248     |  
|Increase in cash surrender value of bank owned life insurance          |  |                               | (236   | ) |      |   | (221    | )
|Increase in accrued interest and other assets                          |  |                               | (80    | ) |      |   | (347    | )
|Increase (decrease) in other liabilities                               |  |                               | 2,150  |   |      |   | (451    | )
|Increase in obligation under Rabbi Trust                               |  |                               | 17     |   |      |   | 19      |  
|                                                                       |  |                               |        |   |      |   |         |  
|Net cash provided by operating activities                              |  |                               | 2,733  |   |      |   | 303     |  
|                                                                       |  |                              
|Cash Flows from Investing Activities                                   |  |                               |        |   |      |   |         |  
|Purchase of bank owned life insurance                                  |  |                               | (35    | ) |      |   | (253    | )
|Purchase of investment securities  available for sale                 |  |                               | (822   | ) |      |   | (10,723 | )
|Proceeds from maturities of investment securities  available for sale |  |                               | 1,000  |   |      |   | 1,500   |  
|Proceeds from sale of investment securities  available for sale       |  |                               |       |   |      |   | 12,653  |  
|Proceeds from maturities of investment securities  held to maturity   |  |                               | 500    |   |      |   |        |  
|Net increase in loans                                                  |  |                               | (7,657 | ) |      |   | (22,121 | )
|Purchase of mortgage-backed securities  available for sale            |  |                               |       |   |      |   | (10,484 | )
|Principal collected on mortgage-backed securities                      |  |                               | 14,793 |   |      |   | 17,737  |  
|Proceeds from sale of mortgage-backed securities- available for sale   |  |                               |       |   |      |   | 1,446   |  
|Purchase of mortgage-backed securities  held to maturity              |  |                               |       |   |      |   | (5,271  | )
|Proceeds from sales of repossessed assets                              |  |                               | 258    |   |      |   | 181     |  
|Investment in premises and equipment                                   |  |                               | (1,457 | ) |      |   | (1,749  | )
|Redemption (purchase) of Federal Home Loan Bank of Atlanta Stock, net  |  |                               | 805    |   |      |   | (1,498  | )
|                                                                       |  |                               |        |   |      |   |         |  
|Net cash provided (used) by investing activities                       |  |                               | 7,385  |   |      |   | (18,582 | )

(Continued)



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)



|                                                              |  |                                |          |   |      |   |          |  
|------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                              |  | For Six Months Ended March 31, |         
|                                                              |  | 2006                           |          |   | 2005 |  
|                                                              |  | (dollars in thousands)         |         
|Cash Flows from Financing Activities                          |  |                                |          |   |      |   |          |  
|Net increase in deposits                                      |  | $                              | 14,269   |   |      | $ | 5,856    |  
|Net increase in advances by borrowers for taxes and insurance |  |                                | 557      |   |      |   | 1,129    |  
|Proceeds from Federal Home Loan Bank of Atlanta advances      |  |                                | 142,950  |   |      |   | 150,750  |  
|Repayment of Federal Home Loan Bank of Atlanta advances       |  |                                | (161,600 | ) |      |   | (137,850 | )
|Acquisition of stock for Rabbi Trust                          |  |                                | (25      | ) |      |   | (10      | )
|Exercised Stock Options                                       |  |                                |         |   |      |   | 18       |  
|Dividends on stock                                            |  |                                | (530     | ) |      |   | (520     | )
|                                                              |  |                                |          |   |      |   |          |  
|Net cash (used) provided by financing activities              |  |                                | (4,379   | ) |      |   | 19,373   |  
|                                                              |  |                                |          |   |      |   |          |  
|Increase in cash equivalents                                  |  |                                | 5,739    |   |      |   | 1,094    |  
|Cash and cash equivalents at beginning of period              |  |                                | 23,529   |   |      |   | 17,815   |  
|                                                              |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                    |  | $                              | 29,268   |   |      | $ | 18,909   |  
|                                                              |  |                                |          |   |      |   |          |  
|Supplemental Disclosures of Cash Flows Information:           |  |                                |          |   |      |   |          |  
|Cash paid during the period for:                              |  |                                |          |   |      |   |          |  
|                                                              |  |                               
|Interest                                                      |  | $                              | 11,738   |   |      | $ | 9,414    |  
|                                                              |  |                                |          |   |      |   |          |  
|Income taxes                                                  |  | $                              |         |   |      | $ | 110      |  
|                                                              |  |                                |          |   |      |   |          |  

The accompanying notes to the consolidated financial statements are an integral part of these statements.



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Principles of Consolidation

BCSB Bankcorp, Inc. (the Company) owns 100% of Baltimore County Savings
Bank, F.S.B. and subsidiaries (the Bank), and also invests in federal funds sold, interest-bearing deposits in other banks and U.S. Agency bonds. The Bank owns 100% of Baltimore County Service Corporation and Ebenezer Road, Inc. The
accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis. All intercompany transactions have been eliminated in the consolidated financial statements. Ebenezer Road, Inc. sells
insurance products. Its operations are not material to the consolidated financial statements.

The Company owns 100% of
the common stock of BCSB Capital Trust I and BCSB Capital Trust II and in accordance with FASB Interpretation Number 46 these entities have not been consolidated in the accompanying consolidated financial statements.

Note 2 - Basis for Financial Statement Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q. Accordingly, they do not include all of the
disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, (none of which were other than normal recurring accruals) necessary
for a fair presentation of the financial position and results of operations for the periods presented have been included. The financial statements of the Company are presented on a consolidated basis with those of the Bank. The results for the six
months ended March 31, 2006 are not necessarily indicative of the results of operations that may be expected for the year ending September 30, 2006. The consolidated financial statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference in the Companys Annual Report on Form 10-K for the year ended September 30, 2005.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United Sates of America requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to significant change in the near-term related to the determination of the allowance for loan losses (the Allowance), other-than-temporary impairment of investment
securities and deferred tax assets.

Note 3 - Cash Flow Presentation

For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository institutions, investments in federal funds, and certificates of deposit with original maturities of
90 days or less.



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4 - Earnings Per Share

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, unless the effect is to reduce a loss or increase earnings per share. No adjustments were made to net income (numerator) for all periods presented. The basic and diluted weighted average shares outstanding for the six and three months ended
March 31, 2006 and 2005 is as follows:



|                                                                 |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|---------------------------------------------------------------- |  | ------------------------------------ | --- | ---- | ------ | ----- | --------- | - | ------ |  | ------ | --- | --------- | ----- |  | - | ---
|                                                                 |  | For the Six Months Ended March 31,  
|                                                                 |  | 2006                                 |     | 2005
|                                                                 |  | (in thousands except per share data)
|                                                                 |  | Income (Loss)                        |     |      | Shares |       | Per Share |   | Income |  | Shares |     | Per Share
|Basic EPS                                                        |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|(Loss) Income available to shareholders                          |  | $                                    | (5  | )    |        | 5,849 |           | $ | .00    |  | $      | 182 |           | 5,921 |  | $ | .03
|                                                                 |  |                                      |     |      |        |      
|Diluted EPS                                                      |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                        |  |                                      |    |      |        |      |           |   |       |  |        |    |           | 48    |  |   |   
|                                                                 |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|(Loss) Income available to shareholders plus assumed conversions |  | $                                    | (5  | )    |        | 5,849 |           | $ | .00    |  | $      | 182 |           | 5,969 |  | $ | .03
|                                                                 |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|                                                                 | 
|                                                                 |  | For the Three Months March 31,      
|                                                                 |  | 2006                                 |     | 2005
|                                                                 |  | (in thousands except per share data)
|                                                                 |  | Income                               |     |      | Shares |       | Per Share |   | Income |  | Shares |     | Per Share
|Basic EPS                                                        |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders                                 |  | $                                    | 114 |      |        | 5,851 |           | $ | .02    |  | $      | 96  |           | 5,815 |  | $ | .02
|                                                                 |  |                                      |     |      |        |      
|Diluted EPS                                                      |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                        |  |                                      |    |      |        | 23    |           |   |       |  |        |    |           | 48    |  |   |   
|                                                                 |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders plus assumed conversions        |  | $                                    | 114 |      |        | 5,874 |           | $ | .02    |  | $      | 96  |           | 5,863 |  | $ | .02
|                                                                 |  |                                      |     |      |        |       |           |   |        |  |        |     |           |       |  |   |    



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 5 - Regulatory Capital

The following table sets forth the Banks capital position at March 31, 2006.



|                   |  |                                    |        |            |                              |   |                |                                                                  |            |  |      |                |  |            |        |  |       |  
|------------------ |  | ---------------------------------- | ------ | ---------- | ---------------------------- | - | -------------- | ---------------------------------------------------------------- | ---------- |  | ---- | -------------- |  | ---------- | ------ |  | ----- | -
|                   |  | Actual                             |        |            | For CapitalAdequacy Purposes |   |                | To Be Well Capitalized Under Prompt
Corrective Action Provisions |           
|                   |  | ActualAmount                       |        | % ofAssets |                              |   | RequiredAmount |                                                                  | % ofAssets |  |      | RequiredAmount |  | % ofAssets |       
|                   |  | (Unaudited) (dollars in thousands) |       
|Tangible (1)       |  | $                                  | 55,740 |            | 6.96                         | % |                | $                                                                | 12,006     |  | 1.50 | %              |  | $          | N/A    |  | N/A   | %
|Tier I capital (2) |  |                                    | 55,740 |            | 12.61                        |   |                |                                                                  | N/A        |  | N/A  |                |  |            | 26,524 |  | 6.00  |  
|Core (1)           |  |                                    | 55,740 |            | 6.96                         |   |                |                                                                  | 32,015     |  | 4.00 |                |  |            | 40,019 |  | 5.00  |  
|Risk-weighted (2)  |  |                                    | 58,009 |            | 13.12                        |   |                |                                                                  | 35,365     |  | 8.00 |                |  |            | 44,206 |  | 10.00 |  

---

|(1) | To adjust total assets
|--- | ----------------------

|(2) | To risk-weighted assets
|--- | -----------------------

Note 6 -
Stock Option Plan

As of March 31, 2006 and 2005 the Company had four stock-based employee compensation plans, which are more fully described in
the 2005 Annual Report. Prior to fiscal 2006, the Company applied the intrinsic value method as outlined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and
related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense was recognized if the exercise price of the Companys employee stock options equaled
the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost was recognized in the accompanying consolidated statements of earnings prior to fiscal year 2006 on stock options granted to employees, since all
options granted under the Companys share incentive programs had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective October 1, 2005 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment (SFAS No. 123(R)). This statement
replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes APB No. 25. SFAS No. 123(R) requires that all stock-based compensation be recognized as an expense in the
financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis.
Therefore, prior period financial statements have not been restated. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had
been included in pro-forma disclosures in prior periods. SFAS No. 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. The adoption of this new
standard resulted in $16,000 of compensation expense to be recorded during the six months ended March 31, 2006 and $8,000 for the three months ended March 31, 2006.

The Company has a Stock Option Plan (the Plan) whereby 228,660 shares of common stock have been reserved for issuance under the Plan. Options granted under the Plan may be Incentive Stock Options within
the meaning of Section 422 of the Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four annual installments at the market price of common stock at the date of grant. The Options must be
exercised within ten years from the date of grant.



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents the activity related to options under all plans for the six months ended
March 31, 2006.

At March 31, 2006 there were 37,500 shares with an exercise price of $8.00 and a weighted average contractual life of 3.3 years
and 71,750 shares with an exercise price of $11.375 and a weighted average contractual life of 6.3 years. The total exercisable shares of 90,124 have a weighted average contractual life of 5.3 years.



|                               |  |         |  |                                 |       |                                                      |     |                                 |    
|------------------------------ |  | ------- |  | ------------------------------- | ----- | ---------------------------------------------------- | --- | ------------------------------- | ---
|                               |  | Shares  |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual
Term in Years |     | Aggregate Intrinsic Value (000)
|Outstanding at October 1, 2005 |  | 109,250 |  | $                               | 10.22 |                                                      |     |                                 |    
|Options exercised              |  |        |  |                                 |      |                                                      |     |                                 |    
|Granted                        |  |        |  |                                 |      |                                                      |     |                                 |    
|                               |  |         |  |                                 |       |                                                      |     |                                 |    
|Outstanding at March 31, 2006  |  | 109,250 |  | $                               | 10.22 |                                                      | 8.3 |                                 | 304
|                               |  |         |  |                                
|Exercisable at March 31, 2006  |  | 90,124  |  | $                               | 9.97  |                                                      | 8.3 |                                 | 273
|                               |  |         |  |                                 |       |                                                      |     |                                 |    

No options were granted during the six months ended March 31, 2006 and 2005. The total intrinsic value
(amount by which the fair value of the underlying stock exceeds the exercise price of an option on exercise date) of options exercised during the six months ended March 31, 2006 and 2005 was $0 and $9,000 respectively.

Cash received from option exercises for the six months ended March 31, 2006 and 2005 was $0 and $8,000, respectively.

The Company reissues treasury shares to satisfy option exercises.

Prior to
the Companys adoption of SFAS No. 123(R), SFAS No. 123 required that the Company provide pro forma information regarding net earnings and net earnings per common share as if compensation cost for the Companys stock-based awards
had been determined in accordance with the fair value method prescribed therein. The Company had previously adopted the disclosure portion of SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure,
requiring quarterly SFAS No. 123 pro forma disclosure. The pro forma charge for compensation cost related to stock-based awards granted was recognized over the service period. For stock options, the service period represents the period of time
between the date of grant and the date each option becomes exercisable without consideration of acceleration provisions (e.g., retirement, change of control, etc.). Compensation cost is recorded for the value of shares of common stock granted to
employees and directors under the Banks Management Recognition Plan.



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table illustrates the effect on net earnings per common share as if the fair value method had been applied to all
outstanding awards for the three months ended March 31, 2005:



|                                                                      |  |                                         |      |   |                                           |   |     |  
|--------------------------------------------------------------------- |  | --------------------------------------- | ---- | - | ----------------------------------------- | - | --- | -
|                                                                      |  | For the Six Months ended March 31, 2005 |      |   | For the Three Months ended March 31, 2005 |  
|Net Income, as reported                                               |  | $                                       | 182  |   |                                           | $ | 96  |  
|Add: Stock-based Compensation                                         |  |                                         |      |   |                                           |   |     |  
|Included in the determination of net income as reported, net of tax   |  |                                         | 137  |   |                                           |   | 75  |  
|Deduct: Total stock-based compensation                                |  |                                         |      |   |                                           |   |     |  
|Expense determined under fair value method for all awards, net of tax |  |                                         | (153 | ) |                                           |   | (84 | )
|                                                                      |  |                                         |      |   |                                           |   |     |  
|Pro forma net income                                                  |  | $                                       | 166  |   |                                           |   | 87  |  
|                                                                      |  |                                         |      |   |                                           |   |     |  
|Earnings per share:                                                   |  |                                         |      |   |                                           |   |     |  
|                                                                      |  |                                        
|Basic-as reported                                                     |  | $                                       | .03  |   |                                           | $ | .02 |  
|                                                                      |  |                                         |      |   |                                           |   |     |  
|Basic-pro forma                                                       |  | $                                       | .03  |   |                                           | $ | .02 |  
|                                                                      |  |                                         |      |   |                                           |   |     |  
|Diluted-as reported                                                   |  | $                                       | .03  |   |                                           | $ | .02 |  
|                                                                      |  |                                         |      |   |                                           |   |     |  
|Diluted-pro forma                                                     |  | $                                       | .03  |   |                                           | $ | .02 |  
|                                                                      |  |                                         |      |   |                                           |   |     |  

Note 7 - Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions (SFAS 153). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for
Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This standard was effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did not have an impact on the Companys financial statements.

Note 8- 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 has $737,000 of standby letters of credit as of March 31, 2006. 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 March 31,
2006 for guarantees under standby letters of credit issued is not considered to be material.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

General

BCSB Bankcorp, Inc.BCSB Bankcorp, Inc. (the Company) serves as the holding company for its wholly owned
subsidiaries, Baltimore County Savings Bank, F.S.B. (the Bank), BCSB Bankcorp Capital Trust I and BCSB Bankcorp Capital Trust II. Baltimore County Savings Bank, M.H.C. (the MHC), a federal mutual holding company, owns 63.5%
of the Companys outstanding common stock. The Companys assets consist of its investment in the Bank and its portfolio of investment securities. The Company is primarily engaged in the business of directing, planning and coordinating the
business activities of the Bank.

The Companys most significant asset is its investment in the Bank. Accordingly, the information set
forth in this report, including financial statements and related data, relates primarily to the Bank. In the future, the Company may become an operating company or acquire or organize other operating subsidiaries, including other financial
institutions. Currently, the Company does not maintain offices separate from those of the Bank or employ any persons other than officers of the Bank who are not separately compensated for such service. At March 31, 2006, the Company had total
consolidated assets of $808.7 million, total deposits of $612.1 million and stockholders equity of $39.8million.

The Companys
and the Banks executive offices are located at 4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236, and its main telephone number is (410) 256-5000.

Baltimore County Savings Bank, F.S.B.The Bank is a federally chartered stock savings bank operating through eighteen banking offices serving the Baltimore metropolitan area. The Bank was chartered by the State
of Maryland in 1955 under the name Baltimore County Building and Loan Association. The Bank received federal insurance of its deposit accounts in 1985 and received a federal charter in 1987, at which time it adopted its present name of Baltimore
County Savings Bank, F.S.B.

The Banks principal business consists of attracting deposits from the general public and investing these
funds in loans secured by first mortgages on owner-occupied, single-family residences in the Banks market area, and, to a lesser extent, other real estate loans, consisting of construction loans, single-family rental property loans and
commercial real estate loans, and consumer loans, particularly automobile 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 fees and charges. Funds for these activities are provided principally by operating revenues, deposits and repayments of outstanding loans and investment securities and mortgage-backed securities.

Supervisory Agreement

On December 8,
2005, the Bank entered into a Supervisory Agreement with the Office of Thrift Supervision (OTS).

Pursuant to the terms of
Supervisory Agreement, the Bank agreed as follows:



| | (1) | To review and revise as necessary the Banks written policy for compliance with the Bank Secrecy Act (the BSA) laws and regulations (the BSA Compliance
Program). In amending the BSA Compliance Program, the Board of Directors must: (i) review and revise as necessary the Banks written methodology for assigning risk levels; (ii) strengthen the Banks customer identification
program; (iii) review and revise as necessary the Banks written internal controls, due diligence processes and oversight and monitoring procedures; (iv) strengthen the Banks currency transaction reporting procedures;
(v) review and revise as necessary the Banks specific review procedures to ensure the accurate completion and timely filing of all currency transaction reports; and (vi) complete all other actions discussed in the Banks 2005
examination. The Board also must review the Banks BSA Compliance Program on an annual basis to assess its adequacy and compliance with applicable BSA laws and regulations and, within 60 days, review and revise the Banks policies and
procedures for conducting annual independent testing of the Banks BSA Compliance Program.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (2) | To review and amend as necessary the Banks Flood Disaster Protection Act Policy and procedures to ensure that appropriate flood insurance, if required, is obtained and
maintained for all properties securing a loan from the Bank.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | To review and revise as necessary the Banks written indirect automobile loan underwriting policies and procedures.
| | --- | -------------------------------------------------------------------------------------------------------------------



| | (4) | Within 60 days, to prepare, adopt and submit for review and approval by the OTS a comprehensive three year business plan that considers the Banks existing operations, business
strategies, current market conditions, local demographics, earnings, available resources and existing capital levels.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Supervisory Agreement will remain in effect until terminated, modified, or suspended in writing by the OTS.

The Bank has fully adopted and
implemented the various plans, policies and procedures required by the Supervisory Agreement. A failure to comply with the Supervisory Agreement could result in the initiation of a formal enforcement action by the OTS, including the imposition of
civil monetary penalties. While the Supervisory Agreement is expected to result in additional regulatory compliance expense for the Company, the amount of such expense is not anticipated to have a material financial impact on the Company.

The foregoing information does not purport to be a complete summary of the Supervisory Agreement and is qualified in its entirety by
reference to the Supervisory Agreement filed as Exhibit 99 to the Companys Current Report on Form 8-K filed on December 14, 2005.

Critical
Accounting Policies

Managements discussion and analysis of the Companys financial condition is based on the consolidated
financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the allowance for loan losses.

Management believes the allowance for loan losses is a critical accounting policy that requires the most significant estimates and
assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is based on managements evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan
portfolio. Management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan
portfolio, business and economic conditions and managements estimation of losses. The use of different estimates or assumptions could produce different provisions for loan losses. Refer to the discussion of Allowance for Loan Losses in Note 3
to the Consolidated Financial Statements in the annual report for a detailed description of managements estimation process and methodology related to the allowance for loan losses.

Securities are evaluated periodically to determine whether a decline in their value is other than temporary. The term other than temporary is
not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the
carrying value of the investment. Management reviews criteria such as the magnitude and duration of the decline, as well as the reasons for the decline, to predict whether the loss in value is other than temporary. Once decline in value is
determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

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, competition and information



12



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##### Table of Contents

provided by third-party vendors that could cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above
could affect the Companys financial performance and could cause the Companys actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which 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.

Comparison of Financial Condition at March 31, 2006 and September 30, 2005

During the six
months ended March 31, 2006, the Companys assets decreased by $4.0 million, or .5% from $812.7 million at September 30, 2005 to $808.7 million at March 31, 2006. The Companys interest bearing deposits in other banks
increased $197,000, or 12.5% from $1.6 million at September 30, 2005 to $1.8 million at March 31, 2006. The Companys investment portfolio available for sale decreased $1.8 million or 1.2%, from $151.4 million at September 30,
2005 to $149.6 million at March 31, 2006. The Companys investment portfolio held to maturity decreased $500,000 from $2.0 million at September 30, 2005 to $1.5 million at March 31, 2006. Net loans receivable, increased $7.2
million, or 1.6%, from $454.3 million at September 30, 2005 to $461.5 million at March 31, 2006. The Banks lending strategy has shifted such that residential, commercial real estate lending, commercial business lending and short term
home equity lending have become a key focus. These loans have shorter terms and adjustable rates which are more responsive to market changes. The Bank has ceased its indirect auto lending program and will focus its efforts on residential and
commercial real estate lending in the future. Commercial lending has increased $5.1 million from $98.4 million at September 30, 2005 to $103.5 million at March 31, 2006. The indirect loan portfolio is expected to decline over time as the
loans are repaid. The Companys mortgage-backed securities available for sale decreased by $13.9 million, or 12.4%, from $112.1 million at September 30, 2005 to $98.2 million at March 31, 2006. The Companys mortgage-backed
securities held to maturity decreased $2.5 million or 9.4% from $26.5 million at September 30, 2005 to $24.0 million at March 31, 2006. All of the preceding was accomplished in an effort to reduce interest rate risk in the balance sheet by
restructuring the balance sheet into shorter term adjustable rate commercial real estate loans. The cash surrender value on the Bank Owned Life Insurance increased $270,000, or 2.1% from $12.7 million at September 30, 2005 to $12.9 million at
March 31, 2006. Due to the decrease in the interest margin, the Banks current budget calls for minimal growth, until interest margins return to a level sufficient to allow growth. The Bank is seeking to increase core deposits in an effort
to reduce borrowings. Any increase in deposits will be offset by decreases in levels of borrowings. New loans may be made to offset payments received on existing loans and securities. If payments received on loans exceed demand, then comparative
securities may be purchased or borrowings further reduced. Premises and equipment increased $956,000, or 8.9% from $10.8 million at September 30, 2005 to $11.8 million at March 31, 2006. This increase was primarily due to building the new
Owings Mills office.

Deposits increased by $14.4 million, or 2.4%, from $597.7 million at September 30, 2005 to $612.1 million at
March 31, 2006. The increase in deposits was achieved through normal marketing efforts. The growth in deposits helped to fund loan demand and to reduce borrowings. In the past the Company used both short-term and long-term borrowings to fund
growth of interest earnings assets in excess of deposit growth. Short-term advances from the Federal Home Loan Bank of Atlanta decreased by $12.6 million, or 15.5% from $81.2 million at September 30, 2005 to $68.6 million at March 31,
2006. Long-term advances from the Federal Home Loan Bank of Atlanta decreased by $6.1 million, or 9.7% from $63.6 million at September 30, 2005 to $57.5 million at March 31, 2006.

Stockholders equity decreased by $2.2 million, or 5.4% from $42.0 million at September 30, 2005 to $39.8 million at March 31, 2006, which
was primarily attributable to the increase in accumulated other comprehensive loss of $1.9 million from, a negative $3.9 million at September 30, 2005 to a negative $5.8 million at March 31, 2006. These unrealized losses are considered
temporary as they reflect market values on March 31, 2006 and are subject to change daily as interest rates fluctuate. This decrease is due to the effect rising interest rates have on the available for sale securities recorded at fair market
value.



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##### Table of Contents

Comparison of Operating Results for the Six Months Ended March 31, 2006 and 2005

Net Income. Net income decreased from income of $182,000 for the six months ended March 31, 2005 to a net loss of $(5,000) for the six months
ended March 31, 2006. The decrease was primarily due to a decrease in net interest income of $719,000 from $8.1 million for the six months ended March 31, 2005 to $7.4 million for the six months ended March 31, 2006. The decrease in
net income was partially offset by decreases in non-interest expenses and the provision for loan losses and an increase in income tax benefits.

Net Interest Income. Net interest income decreased by $719,000 or 8.9% from $8.1 million for the six months ended March 31, 2005 compared to $7.4 million for the six months ended March 31, 2006. The decrease in net interest
income primarily was the result of increases in the average rate on interest bearing liabilities and an increase in the average balance of interest bearing liabilities. Due to rising interest rates and deposits re-pricing faster than loans, the
interest rate spread decreased 19 basis points from 2.21% for the six months ended March 31, 2005 to 2.02% for the six months ended March 31, 2006. The Companys ratio of average interest-earning assets to average interest-bearing
liabilities decreased from 100.51% for the six months ended March 31, 2005 to 98.17% for the six months ended March 31, 2006. The primary reason for the decrease in this ratio is that funds are being invested in other income producing
assets such as Bank Owned Life Insurance and Federal Home Loan Bank of Atlanta stock. The Companys interest spread has decreased due to the rising rates paid on borrowed funds and deposits not completely offset by rising rates for new loans.
Improvements in interest spread should occur if long-term interest rates rise and the Company has the resources from either re-pricing assets or new funds received to re-pay the borrowed funds.

Interest Income. Interest income increased by $1.9 million, or 11.0% from $17.6 million for the six months ended March 31, 2005 to $19.5
million for the six months ended March 31, 2006. Interest and fees on loans increased by $2.2 million, or 19.0%, from $11.5 million for the six months ended March 31, 2005 to $13.7 million for the six months ended March 31, 2006. This
was primarily due to a increase in the average balance of loans receivable of $65.4 million from $392.9 million at March 31, 2005 to $458.3 at March 31, 2006, and an increase in the average yield earned on loans receivable of 12 basis
points from 5.87% at March 31, 2005 to 5.99% at March 31, 2006. The increase in the average balance of loans was primarily attributable to the Bank having competitive rates and current economic conditions and managements strategy to
focus lending on variable rate commercial real estate loans and short term home equity loans. The increase in the average yield was attributable to the prevailing market rates in the economy. Interest on mortgage-backed securities decreased by
$644,000 or 19.9% from $3.2 million for the six months ended March 31, 2005 to $2.6 million for the six months ended March 31, 2006. This decrease was primarily due to the decrease in the average balance of mortgage-backed securities from
$168.7 million at March 31, 2005 to $129.7 million at March 31, 2006. The decrease in the average balance more than offset an increase in the average rate from 3.8% at March 31, 2005 to 4.0% at March 31, 2006. Interest and
dividends on investment securities increased by $342,000, or 12.5% from $2.7 million for the six months ended March 31, 2005 to $3.1 million for the six months ended March 31, 2006. This was primarily due to an increase in the average
yield on investments of 47 basis points from 3.38% for the six months ended March 31, 2005 to 3.85% for the six months ended March 31, 2006 due to step up provisions on some investment securities. However, this was partially offset by a
decrease in the average balance of investments of $2.1 million, from $162.1 million for the six months ended March 31, 2005 to $160.1 million for the six months ended March 31, 2006.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and other interest expense increased from
$9.5 million for the six months ended March 31, 2005 to $12.1 million for the six months ended March 31, 2006 a change of $2.6 million or 28.0%. Interest on deposits increased $1.4 million from $7.1 million at March 31, 2005 to $8.5
million at March 31, 2006 due to an increase in the average yield on deposits of 40 basis points from 2.41% for the six months ended March 31, 2005 to 2.81% for the six months ended March 31, 2006. Also contributing to the increase in
interest expense was an increase in the average balance of deposits of $17.6 million, or 3.0% from $585.4 million at March 31, 2005 to $603.0 million at March 31, 2006. The Company was able to increase its deposits through normal marketing
efforts. Interest on short-term borrowings increased by $979,000 or 184.7% for the six months ended March 31, 2006. Interest on long-term borrowings increased by $22,000 or 1.8% for the six months ended March 31, 2006. The overall increase
in interests on borrowings was primarily due to an increase in the average rate paid on short term borrowings which increased by 158 basis points from 2.23% for the six months ended March 31, 2005 to 3.81% for the six months ended
March 31, 2006. The average rate on long term borrowings also increased by 64 basis points from 3.62% for the six months ended March 31, 2005 to 4.26% for the six months ended March 31, 2006. An increase in the average balance of
advances from the Federal Home Loan Bank of Atlanta of $22.9 during the six months ended March 31, 2006 also contributed to the increase in interest on borrowings. Also contributing to interest



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expense was interest on the Trust Preferred Securities/Junior Subordinated Debentures which increased by $231,000 from
$672,000 for the six months ended March 31, 2005 to $903,000 for the six months ended March 31, 2006. This increase was due to the increase in the average yield paid on the Junior Subordinated Debentures from 5.79%, during 2005 to 7.79%
during 2006. The rates on the Junior Subordinate Debentures are based on LIBOR and adjust quarterly.

Average Balance Sheet. The
following table sets forth certain information relating to the Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and
costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the six month periods ended March 31, 2006 and 2005. Total average assets are computed using month-end balances.

The table also presents information for the periods indicated with respect to the differences between the average yield earned on
interest-earning assets and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net interest
margin, which is net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|------------------------------------------------------------------ |  | ---------------------------------- | ------- | - | -------- | - | ----------- |  | ---- | -------------- |  | - | -------- | - | ----------- | - | ------ |  | ---- | -
|                                                                   |  | For the Six Months Ended March 31, |        
|                                                                   |  | 2006                               |         |   | 2005     |  
|                                                                   |  | AverageBalance                     |         |   | Interest |   | AverageRate |  |      | AverageBalance |  |   | Interest |   | AverageRate |  
|                                                                   |  | (Dollars in thousands)             |        
|Interest-earning assets:                                           |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Loans receivable, net                                              |  | $                                  | 458,264 |   |          | $ | 13,736      |  | 5.99 | %              |  | $ | 392,856  |   |             | $ | 11,539 |  | 5.87 | %
|Mortgage-backed securities                                         |  |                                    | 129,667 |   |          |   | 2,595       |  | 4.00 |                |  |   | 168,667  |   |             |   | 3,239  |  | 3.84 |  
|Investment securities                                              |  |                                    | 160,053 |   |          |   | 3,079       |  | 3.85 |                |  |   | 162,139  |   |             |   | 2,737  |  | 3.38 |  
|Other interest earning assets                                      |  |                                    | 2,095   |   |          |   | 67          |  | 6.40 |                |  |   | 3,446    |   |             |   | 36     |  | 2.09 |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Total Interest-earning assets                                      |  |                                    | 750,079 |   |          |   | 19,477      |  | 5.19 |                |  |   | 727,108  |   |             |   | 17,551 |  | 4.83 |  
|Bank Owned Life Insurance                                          |  |                                    | 12,781  |   |          |   |             |  |      |                |  |   | 12,350   |   |             |   |        |  |      |  
|Noninterest-earning assets                                         |  |                                    | 46,363  |   |          |   |             |  |      |                |  |   | 38,135   |   |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Total assets                                                       |  | $                                  | 809,223 |   |          |   |             |  |      |                |  | $ | 777,593  |   |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Interest-bearing liabilities:                                      |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Deposits                                                           |  | $                                  | 602,992 |   |          | $ | 8,478       |  | 2.81 | %              |  | $ | 585,407  |   |             | $ | 7,065  |  | 2.41 | %
|Short-term FHLB Advances                                           |  |                                    | 79,173  |   |          |   | 1,509       |  | 3.81 |                |  |   | 47,436   |   |             |   | 530    |  | 2.23 |  
|Long-term FHLB Advances                                            |  |                                    | 57,059  |   |          |   | 1,215       |  | 4.26 |                |  |   | 65,946   |   |             |   | 1,193  |  | 3.62 |  
|Junior Subordinated Debentures                                     |  |                                    | 23,197  |   |          |   | 903         |  | 7.79 |                |  |   | 23,197   |   |             |   | 671    |  | 5.79 |  
|Other liabilities                                                  |  |                                    | 1,668   |   |          |   |            |  | .00  |                |  |   | 1,468    |   |             |   | 1      |  | .14  |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Total interest-bearing liabilities                                 |  |                                    | 764,089 |   |          |   | 12,105      |  | 3.17 |                |  |   | 723,454  |   |             |   | 9,460  |  | 2.62 |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Noninterest-bearing liabilities                                    |  |                                    | 4,693   |   |          |   |             |  |      |                |  |   | 10,757   |   |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Total liabilities                                                  |  |                                    | 768,782 |   |          |   |             |  |      |                |  |   | 734,211  |   |             |   |        |  |      |  
|Stockholders Equity                                               |  |                                    | 40,441  |   |          |   |             |  |      |                |  |   | 43,382   |   |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Total liabilities and stockholders equity                         |  | $                                  | 809,223 |   |          |   |             |  |      |                |  | $ | 777,593  |   |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Net interest income                                                |  |                                    |         |   |          | $ | 7,372       |  |      |                |  |   |          |   |             | $ | 8,091  |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Interest rate spread                                               |  |                                    |         |   |          |   |             |  | 2.02 | %              |  |   |          |   |             |   |        |  | 2.21 | %
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Net interest margin                                                |  |                                    |         |   |          |   |             |  | 1.97 | %              |  |   |          |   |             |   |        |  | 2.23 | %
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  
|Ratio average interest earning assets/interest-bearing liabilities |  |                                    | 98.17   | % |          |   |             |  |      |                |  |   | 100.51   | % |             |   |        |  |      |  
|                                                                   |  |                                    |         |   |          |   |             |  |      |                |  |   |          |   |             |   |        |  |      |  



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Rate/Volume Analysis.The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume
multiplied by old rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|------------------------------------ |  | ---------------------------------------------------- | ----- | - | ---- | - | ------ | ----------- |  | - | ----- | - |  | - | ----- | -
|                                     |  | For Six Months Ended March 31,                       |      
|                                     |  | 2006                    
vs.                    2005 |      
|                                     |  | Increase (Decrease) Due to                           |      
|                                     |  | Volume                                               |       |   | Rate |   |        | Rate/Volume |  |   | Total |  
|                                     |  | (In Thousands)                                       |      
|Interest income:                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|Loans receivable, net                |  | $                                                    | 1,922 |   |      | $ | 236    |             |  | $ | 39    |   |  | $ | 2,197 |  
|Mortgage-backed securities           |  |                                                      | (748  | ) |      |   | 135    |             |  |   | (31   | ) |  |   | (644  | )
|Investment securities and FHLB Stock |  |                                                      | (35   | ) |      |   | 382    |             |  |   | (5    | ) |  |   | 342   |  
|Other interest-earning assets        |  |                                                      | (14   | ) |      |   | 74     |             |  |   | (29   | ) |  |   | 31    |  
|                                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|Total interest-earning assets        |  |                                                      | 1,125 |   |      |   | 827    |             |  |   | (26   | ) |  |   | 1,926 |  
|                                     |  |                                                      |       |  
|Interest expense:                    |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|Deposits                             |  |                                                      | 212   |   |      |   | 1,166  |             |  |   | 35    |   |  |   | 1,413 |  
|Short-term FHLB advances             |  |                                                      | 355   |   |      |   | 374    |             |  |   | 250   |   |  |   | 979   |  
|Long-term FHLB advances              |  |                                                      | (161  | ) |      |   | 211    |             |  |   | (28   | ) |  |   | 22    |  
|Junior Subordinated Debentures       |  |                                                      | 0     |   |      |   | 232    |             |  |   | 0     |   |  |   | 232   |  
|Other liabilities                    |  |                                                      | 0     |   |      |   | (1     | )           |  |   | 0     |   |  |   | (1    | )
|                                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities   |  |                                                      | 406   |   |      |   | 1,982  |             |  |   | 257   |   |  |   | 2,645 |  
|                                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  
|Change in net interest income        |  | $                                                    | 719   |   |      | $ | (1,155 | )           |  | $ | (283  | ) |  | $ | (719  | )
|                                     |  |                                                      |       |   |      |   |        |             |  |   |       |   |  |   |       |  

Provision for Loan Losses. The Company charges or reverses provisions for loan losses which
affects earnings to maintain the total allowance for loan losses at a level management considers adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision or reversal, management
considers a number of factors such as existing loan levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. The Company reversed previously recorded provisions for losses on loans
by $109,000 for the six months ended March 31, 2006, as compared to establishing a provision for losses on loans of $120,000 was established for the six months ended March 31, 2005. During the six months ended March 31, 2006, the Bank
received a recovery in the amount of $120,000 on a loan that had been previously charged off. Exclusive of that recovery managements analysis of the adequacy of the allowance for loan losses indicated the need for a provision during the six
months ended March 31, 2006 in the amount of $11,000. As a result, the recovery net of the current provision resulted in a negative provision in the amount of $109,000. Loan chargeoffs for the six months ended March 31, 2006 were $117,000
as compared to $206,000 for the six months ended March 31, 2005 a decrease of $89,000. The decrease in loan chargeoffs was due to prevailing low loan delinquency and a decrease in actual losses in the Banks consumer loan portfolio. Loan
recoveries were $162,000 for the six months ended March 31, 2006 compared to $217,000 for the six months ended March 31, 2005. Non performing loans at March 31, 2006 were $281,000 as compared to $1.5 million at March 31, 2005.
The total loss allowance allocated to loans is $2.7 million at March 31, 2006. In establishing such provisions, management considered an analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.

Other Income.Other income increased by $11,000, or 2.1% from $513,000 for the six months ended March 31, 2005 to
$524,000 for the six months ended March 31, 2006. The increase in other income for the six months ended March 31, 2006 was partially offset by a decrease in fees on transaction accounts of $49,000 from $334,000 for the six months ended
March 31, 2005 to $285,000 for the six months ended March 31, 2006, as we eliminated fees on certain products in an effort to compete in the market and increase our transaction accounts which are our lowest cost source of funding. Income
from Bank Owned Life Insurance (BOLI ) increased $15,000 for the six months ended March 31, 2006 from $221,000 for the six months ended March 31, 2005, to $236,000 for the six months ended March 31, 2005. This increase was due to an
adjustment in the rate of dividends earned on the BOLI investment.



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##### Table of Contents

Non-interest Expenses.Total non-interest expenses decreased by $154,000, or 1.9%, from $8.3
million for the six months ended March 31, 2005 to $8.2 million for the six months ended March 31, 2006. The decrease in non-interest expenses was primarily due to the decrease in salaries and related expenses of $412,000 from $4.7 million
for the six months ended March 31, 2005 to $4.3 million for the six months ended March 31, 2006 as the Bank continued with its cost cutting strategies. Certain positions were eliminated allowing for the hiring of staff in the three new
offices with a minimum increase in the overall workforce. Employee benefits were adjusted to be less costly while still offering competitive benefits. In December 2005, the Bank ceased its indirect automobile lending operations due to the current
interest rate environment. The loan rates necessary to compete in this market made for marginal profitability. This allowed for less staffing in this area. Data processing cost decreased by $88,000 from $1.1 million for the six months ended
March 31, 2005 to $972,000 for the six months ended March 31, 2006. This decrease was due to the savings generated from the conversion of data processors. Occupancy expense increased by $208,000, from $862,000 for the six months ended
March 31, 2005 to $1.1 million for the six months ended March 31, 2006. This was mainly due to the opening of three offices and normal increases in rent and electricity. Advertising expense also increased by $10,000 or 3.8%, from $263,000
for the six months ended March 31, 2005 to $273,000 for the six months ended March 31, 2006. This increase was due to additional advertising during the period.

Income Taxes. The Companys income tax (benefit) was $(158,000) and $(20,000) for the six months ended March 31, 2006 and 2005, respectively. The Companys effective tax rate decreased for the
six months ended March 31, 2006 as compared to the same quarter in the prior year as the Company increased its earnings of non-taxable income from investments and $236,000 non-taxable income from the Bank Owned Life Insurance during the six
months ended March 31, 2006.

Comparison of Operating Results for the Three Months Ended March 31, 2006 and 2005

Net Income. Net income increased by $18,000, or 18.8% from $96,000 for the three months ended March 31, 2005 to $114,000 for the three months
ended March 31, 2006. The increase in net income was primarily attributable to a decrease in non-interest expenses of $315,000, or 7.5% from $4.2 million for the three months ended March 31, 2005 to $3.9 million for the three months ended
March 31, 2006. This was partially offset by a decrease in net interest income of $336,000 from $4.1 million for the three months ended March 31, 2005 to $3.7 million for the three months ended March 31, 2006.

Net Interest Income. Net interest income decreased by $336,000 or 8.2% from $4.1 million for the three months ended March 31, 2005 compared
to $3.7 million for the three months ended March 31, 2006. The decrease in net interest income primarily was the result of increases in the average rate on interest bearing liabilities and an increase in the average balance of interest bearing
liabilities. Due to rising interest rates and deposits re-pricing faster than loans, the interest rate spread decreased 15 basis points from 2.22% for the three months ended March 31, 2005 to 2.07% for the three months ended March 31,
2006. The Companys ratio of average interest-earning assets to average interest-bearing liabilities decreased from 100.9% for the three months ended March 31, 2005 to 97.9% for the three months ended March 31, 2006. The primary
reason for the decrease in this ratio is the Bank is investing in other income producing assets such as Federal Home Loan of Atlanta stock and Bank owned life insurance. The Companys interest spread has decreased due to the rising interest
rates paid on borrowed funds and deposits not completely offset by rising rates for new loans. Improvements in spread should occur if long-term interest rates rise and the Company has the resources from either re-pricing assets or new funds received
to re-pay the borrowed funds.

Interest Income. Interest income increased by $963,000, or 10.8% from $8.9 million for the three
months ended March 31, 2005 to $9.9 million for the three months ended March 31, 2006. Interest and fees on loans increased by $1.1 million, or 18.9%, from $5.9 million for the three months ended March 31, 2005 to $7.0 million for the
three months ended March 31, 2006. This was primarily due to a increase in the average balance of loans receivable of $60.9 million from $398.3 million at March 31, 2005 to $459.2 at March 31, 2006, and an increase in the average
yield earned on loans receivable of 18 basis points from 5.91% at March 31, 2005 to 6.09% at March 31, 2006. The increase in the average balance of loans was primarily attributable to the Bank having competitive rates and current economic
conditions and managements strategy to focus lending on variable rate commercial real estate loans and short term home equity loans. The increase in the average yield was attributable to the prevailing market rates in the economy. Interest on
mortgage-backed securities decreased by $323,000 or 20.1% from $1.6 million for the three months ended March 31, 2005 to $1.3 million for the three months ended March 31, 2006. This decrease was primarily due to the decrease in the average
balance of mortgage-backed securities from $165.7 million at March 31, 2005 to $125.5 million at March 31, 2006. The decrease in the average balance more than offset an increase in the average rate from 3.9% at March 31, 2005 to 4.1%
at March 31, 2006. Interest and dividends on investment securities increased by $131,000, or 9.2% from $1.4



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##### Table of Contents

million for the three months ended March 31, 2005 to $1.6 million for the three months ended March 31, 2006.
This was primarily due to an increase in the average yield on investments of 37 basis points from 3.53% for the three months ended March 31, 2005 to 3.90% for the three months ended March 31, 2006 due to step up provisions on some
investment securities. However, this was partially offset by a decrease in the average balance of investments of $2.2 million, from $161.9 million for the three months ended March 31, 2005 to $159.7 million for the three months ended
March 31, 2006.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and
other interest expense increased from $4.8 million for the three months ended March 31, 2005 to $6.1 million for the three months ended March 31, 2006 a change of $1.3 million or 26.8%. Interest on deposits increased $789,000 from $3.5
million at March 31, 2005 to $4.3 million at March 31, 2006 due to an increase in the average yield on deposits of 44 basis points from 2.42% for the three months ended March 31, 2005 to 2.86% for the three months ended March 31,
2006. Also contributing to the increase in interest expense was an increase in the average balance of deposits of $20.7 million, or 3.5% from $584.0 million at March 31, 2005 to $604.7 million at March 31, 2006. The Company was able to
increase its deposits through normal marketing efforts, and the opening of three new offices. Interest on short-term borrowings increased by $322,000 or 111.8% for the three months ended March 31, 2006. Interest on long-term borrowings
increased by $82,000 or 12.4% for the three months ended March 31, 2006. The overall increase in interest on borrowings was primarily due to an increase in rates paid on short term borrowings. The average rate increased 194 basis points from
2.31 for the three months ended March 31, 2005 to 4.25% for the three months ended March 31, 2005 and an increase of $19.9 million in the average balances of advances from the Federal Home Loan Bank of Atlanta during the three months ended
March 31, 2006. Also contributing to interest expense was interest on the Trust Preferred Securities/Junior Subordinated Debentures which increased by $106,000 from $351,000 for the three months ended March 31, 2005 to $457,000 for the
three months ended March 31, 2006. This increase was due to the increase in the average yield paid on the Junior Subordinated Debentures from 6.04%, during 2005 to 7.88% during 2006. The rates on the Junior Subordinate Debentures are based on
LIBOR and adjust quarterly.



18



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##### Table of Contents

Average Balance Sheet. The following table sets forth certain information relating to the
Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the three month periods ended March 31, 2006 and 2005. Total average assets are computed using month-end balances.

The table also presents information for the periods indicated with respect to the differences between the average yield earned on interest-earning assets
and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net interest margin, which is
its net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|------------------------------------------------------------------ |  | ------------------------------------ | ------- | - | -------- | - | ----------- |  | ---- | -------------- |  | - | -------- | - | ----------- | - | ----- |  | ---- | -
|                                                                   |  | For the Three Months Ended March 31, |        
|                                                                   |  | 2006                                 |         |   | 2005     |  
|                                                                   |  | AverageBalance                       |         |   | Interest |   | AverageRate |  |      | AverageBalance |  |   | Interest |   | AverageRate |  
|                                                                   |  | (Dollars in thousands)               |        
|Interest-earning assets:                                           |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Loans receivable, net                                              |  | $                                    | 459,242 |   |          | $ | 6,991       |  | 6.09 | %              |  | $ | 398,273  |   |             | $ | 5,882 |  | 5.91 | %
|Mortgage-backed securities                                         |  |                                      | 125,508 |   |          |   | 1,279       |  | 4.08 |                |  |   | 165,721  |   |             |   | 1,602 |  | 3.87 |  
|Investment securities                                              |  |                                      | 159,745 |   |          |   | 1,558       |  | 3.90 |                |  |   | 161,915  |   |             |   | 1,427 |  | 3.53 |  
|Other interest earning assets                                      |  |                                      | 2,873   |   |          |   | 53          |  | 7.38 |                |  |   | 2,999    |   |             |   | 7     |  | .93  |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Total Interest-earning assets                                      |  |                                      | 747,368 |   |          |   | 9,881       |  | 5.29 |                |  |   | 728,908  |   |             |   | 8,918 |  | 4.89 |  
|Bank Owned Life Insurance                                          |  |                                      | 12,849  |   |          |   |             |  |      |                |  |   | 11,953   |   |             |   |       |  |      |  
|Noninterest-earning assets                                         |  |                                      | 47,058  |   |          |   |             |  |      |                |  |   | 39,873   |   |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Total assets                                                       |  | $                                    | 807,275 |   |          |   |             |  |      |                |  | $ | 780,734  |   |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Interest-bearing liabilities:                                      |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Deposits                                                           |  | $                                    | 604,658 |   |          | $ | 4,326       |  | 2.86 | %              |  | $ | 584,005  |   |             | $ | 3,537 |  | 2.42 | %
|Short-term FHLB Advances                                           |  |                                      | 57,403  |   |          |   | 610         |  | 4.25 |                |  |   | 49,783   |   |             |   | 288   |  | 2.31 |  
|Long-term FHLB Advances                                            |  |                                      | 76,167  |   |          |   | 742         |  | 3.89 |                |  |   | 63,892   |   |             |   | 660   |  | 4.13 |  
|Junior Subordinated Debentures                                     |  |                                      | 23,197  |   |          |   | 457         |  | 7.88 |                |  |   | 23,197   |   |             |   | 350   |  | 6.04 |  
|Other liabilities                                                  |  |                                      | 1,668   |   |          |   |            |  | .00  |                |  |   | 1,619    |   |             |   | 1     |  | .25  |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Total interest-bearing liabilities                                 |  |                                      | 763,093 |   |          |   | 6,135       |  | 3.22 |                |  |   | 722,496  |   |             |   | 4,836 |  | 2.68 |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Noninterest-bearing liabilities                                    |  |                                      | 4,027   |   |          |   |             |  |      |                |  |   | 15,624   |   |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Total liabilities                                                  |  |                                      | 767,120 |   |          |   |             |  |      |                |  |   | 738,120  |   |             |   |       |  |      |  
|Stockholders Equity                                               |  |                                      | 40,155  |   |          |   |             |  |      |                |  |   | 42,614   |   |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Total liabilities and stockholders equity                         |  | $                                    | 807,275 |   |          |   |             |  |      |                |  | $ | 780,734  |   |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Net interest income                                                |  |                                      |         |   |          | $ | 3,746       |  |      |                |  |   |          |   |             | $ | 4,082 |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Interest rate spread                                               |  |                                      |         |   |          |   |             |  | 2.07 | %              |  |   |          |   |             |   |       |  | 2.22 | %
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Net interest margin                                                |  |                                      |         |   |          |   |             |  | 2.00 | %              |  |   |          |   |             |   |       |  | 2.24 | %
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  
|Ratio average interest earning assets/interest bearing liabilities |  |                                      | 97.94   | % |          |   |             |  |      |                |  |   | 100.89   | % |             |   |       |  |      |  
|                                                                   |  |                                      |         |   |          |   |             |  |      |                |  |   |          |   |             |   |       |  |      |  



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##### Table of Contents

Rate/Volume Analysis. The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume
multiplied by old rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|---------------------------------- |  | -------------------------------- | ---- | - | ---- | - | ---- | ----------- |  | - | ----- | - |  | - | ----- | -
|                                   |  | For Three Months Ended March 31, |     
|                                   |  | 2006 vs. 2005                    |     
|                                   |  | Increase (Decrease) Due to       |     
|                                   |  | Volume                           |      |   | Rate |   |      | Rate/Volume |  |   | Total |  
|                                   |  | (In Thousands)                   |     
|Interest income:                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|Loans receivable, net              |  | $                                | 949  |   |      | $ | 136  |             |  | $ | 24    |   |  | $ | 1,109 |  
|Mortgage-backed securities         |  |                                  | (386 | ) |      |   | 83   |             |  |   | (20   | ) |  |   | (323  | )
|Investment securities              |  |                                  | (19  | ) |      |   | 152  |             |  |   | (2    | ) |  |   | 131   |  
|Other interest-earning assets      |  |                                  |     |   |      |   | 48   |             |  |   | (2    | ) |  |   | 46    |  
|                                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|Total interest-earning assets      |  |                                  | 544  |   |      |   | 419  |             |  |   | 0     |   |  |   | 963   |  
|                                   |  |                                  |      |  
|Interest expense:                  |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|Deposits                           |  |                                  | 125  |   |      |   | 641  |             |  |   | 23    |   |  |   | 789   |  
|Short-term FHLB advances           |  |                                  | 44   |   |      |   | 239  |             |  |   | 39    |   |  |   | 322   |  
|Long-term FHLB advances            |  |                                  | 126  |   |      |   | (38  | )           |  |   | (6    | ) |  |   | 82    |  
|Junior Subordinated Debentures     |  |                                  |     |   |      |   | 107  |             |  |   |      |   |  |   | 107   |  
|Other liabilities                  |  |                                  |     |   |      |   | (1   | )           |  |   |      |   |  |   | (1    | )
|                                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities |  |                                  | 295  |   |      |   | 948  |             |  |   | 56    |   |  |   | 1,299 |  
|                                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  
|Change in net interest income      |  | $                                | 249  |   |      | $ | (529 | )           |  | $ | (56   | ) |  | $ | (336  | )
|                                   |  |                                  |      |   |      |   |      |             |  |   |       |   |  |   |       |  



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##### Table of Contents

Provision for Loan Losses. The Company charges or reverses provisions for loan losses which
affects earnings to maintain the total allowance for loan losses at a level management considers adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision or reversal, management
considers a number of factors such as existing loan levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. The Company did not establish any additional provisions for losses on
loans for the three months ended March 31, 2006. Loan chargeoffs for the three months ended March 31, 2006 were $84,000 as compared to $142,000 for the three months ended March 31, 2005 a decrease of $58,000. The decrease in loan
chargeoffs was due to prevailing low loan delinquency and a decrease in actual losses in the banks consumer loan portfolio. Loan recoveries were $143,000 for the three months ended March 31, 2006 compared to $183,000 for the three months
ended March 31, 2005. Non performing loans at March 31, 2006 were $281,000 as compared to $1.5 million at March 31, 2005. The total loss allowance allocated to loans is $2.7 million at March 31, 2006. In establishing such
provisions, management considered an analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.

Other Income.Other income increased by $44,000, or 20.5% from $215,000 for the three months ended March 31, 2005 to $259,000 for the three months ended March 31, 2006. The increase in other income for the three
months ended March 31, 2006 was partially attributable to an increase in miscellaneous income of $61,000, from $72,000 for the three months ended March 31, 2005 to $133,000 for the three months ended March 31, 2006. The major
component of miscellaneous income is commissions from customer services. This increase was partially offset by a decrease in fees on transaction accounts of $22,000, or 15.1% from $146,000 for the three months ended March 31, 2005 to $124,000
for the three months ended March 31, 2006 as we eliminated fees on certain products in an effort to compete in the market and increase our transaction accounts which are our lowest cost source of funding. Income from Bank Owned Life Insurance
(BOLI) increased $11,000 for the three months ended March 31, 2006 from $108,000 for the three months ended March 31, 2005, to $119,000 for the three months ended March 31, 2005. This increase was due to an adjustment in the rate of
dividends earned on the BOLI investment.

Non-interest Expenses.Total non-interest expenses decreased by $315,000, or 7.5%, from
$4.2 million for the three months ended March 31, 2005 to $3.9 million for the three months ended March 31, 2006. The decrease in non-interest expenses was primarily due to the decrease in salaries and related expenses of $220,000 from
$2.3 for the three months ended March 31, 2005 to $2.1 million for the three months ended March 31, 2006 as the Bank continued with its cost cutting strategies. Employee benefits were adjusted to be less costly while still offering
competitive benefits. In December 2005, the Bank ceased its indirect automobile lending operations due to the current interest rate environment. The loan rates necessary to compete in this market made for marginal profitability. This allowed for
less staffing in this area. Data processing cost decreased by $202,000 from $524,000 for the three months ended March 31, 2005 to $322,000 for the three months ended March 31, 2006. This decrease was due to the savings generated from the
previously announced change in data processors. Occupancy expense increased by $56,000, from $462,000 for the three months ended March 31, 2005 to $518,000 for the three months ended March 31, 2006. This was mainly due to the opening of
three offices and normal increases in rent and electricity.

Income Taxes. The Companys income tax (benefit) was $(2,000) and
$(7,000) for the three months ended March 31, 2006 and 2005, respectively. The Companys effective tax rate decreased for the three months ended March 31, 2006 as compared to the same quarter in the prior year.



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##### Table of Contents

Commitments, Contingencies and Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk including commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

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



|                                                                                                |  |                |        |                    |   |       
|----------------------------------------------------------------------------------------------- |  | -------------- | ------ | ------------------ | - | ------
|                                                                                                |  | March 31, 2006 |        | September 30, 2005
|                                                                                                |  | (In thousands)
|Commitments to originate new loans                                                              |  | $              | 21,008 |                    | $ | 16,071
|Unfunded commitments to extend credit under existing equity line and commercial lines of credit |  |                | 28,084 |                    |   | 27,023
|Commercial letters of credit                                                                    |  |                | 737    |                    |   | 701   

Commitments to originate new loans or to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract. Loan commitments generally expire within 30 to 45 days. Most equity line commitments for the unfunded portion of equity lines are for a term of 20 years, and commercial
lines of credit are generally renewable on an annual basis. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the borrower.



22



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##### Table of Contents

Asset Quality

At March 31, 2006, the Company had approximately $283,000 in non-performing assets (nonaccrual loans, repossessed assets and foreclosed real estate) or .03% of total assets. At September 30, 2005, non-performing assets were
$824,000 or .10% of total assets. The Banks net recoveries for the six months ended March 31, 2006 were $(45,000). The Banks allowance for loan losses was $2.7 million at March 31, 2006 and at September 30, 2005.

The following table presents an analysis of the Companys non-performing assets:



|                                                                         |  |                  |     |   |                       |   |     |  
|------------------------------------------------------------------------ |  | ---------------- | --- | - | --------------------- | - | --- | -
|                                                                         |  | At March 31,2006 |     |   | At September 30, 2005 |  
|                                                                         |  | (In thousands)   |    
|Nonperforming loans:                                                     |  |                  |     |   |                       |   |     |  
|Nonaccrual loans:                                                        |  |                  |     |   |                       |   |     |  
|Single Family residential                                                |  | $                | 150 |   |                       | $ | 647 |  
|Multi-family residential                                                 |  |                  |    |   |                       |   |    |  
|Commercial Real Estate                                                   |  |                  | 61  |   |                       |   | 21  |  
|Construction                                                             |  |                  |    |   |                       |   |    |  
|Commercial Loans                                                         |  |                  |    |   |                       |   |    |  
|Land                                                                     |  |                  | 70  |   |                       |   | 70  |  
|Consumer Loans                                                           |  |                  |    |   |                       |   |    |  
|                                                                         |  |                  |     |   |                       |   |     |  
|Total Nonaccrual loans                                                   |  |                  | 281 |   |                       |   | 738 |  
|Loans 90 days past due and accruing                                      |  |                  |    |   |                       |   |    |  
|Restructured loans                                                       |  |                  |    |   |                       |   |    |  
|                                                                         |  |                  |     |   |                       |   |     |  
|Total nonperforming loans                                                |  |                  | 281 |   |                       |   | 738 |  
|Other non-performing assets                                              |  |                  | 2   |   |                       |   | 86  |  
|                                                                         |  |                  |     |   |                       |   |     |  
|Total nonperforming assets                                               |  | $                | 283 |   |                       | $ | 824 |  
|                                                                         |  |                  |     |   |                       |   |     |  
|Nonperforming loans to loans receivable, net                             |  |                  | .06 | % |                       |   | .16 | %
|Nonperforming assets as a percentage of loans and foreclosed real estate |  |                  | .06 | % |                       |   | .18 | %
|Nonperforming assets to total assets                                     |  |                  | .03 | % |                       |   | .10 | %



23



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##### Table of Contents

The following table sets forth an analysis of the Companys allowance for loan losses for the periods indicated.



|                                                                                     |  |                                   |       |    |      |   |       |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | ----- | -- | ---- | - | ----- | -
|                                                                                     |  | For the Six Months Ended
March 30 |      
|                                                                                     |  | 2006                              |       |    | 2005 |  
|                                                                                     |  | (Dollars in thousands)            |      
|Balance at beginning of period                                                       |  | $                                 | 2,747 |    |      | $ | 2,587 |  
|                                                                                     |  |                                  
|Loans charged-off:                                                                   |  |                                   |       |    |      |   |       |  
|Real estate mortgages:                                                               |  |                                   |       |    |      |   |       |  
|Single-family residential                                                            |  |                                   |      |    |      |   |      |  
|Multi-family residential                                                             |  |                                   |      |    |      |   |      |  
|Commercial                                                                           |  |                                   |      |    |      |   |      |  
|Construction                                                                         |  |                                   |      |    |      |   |      |  
|Commercial Loans                                                                     |  |                                   |      |    |      |   |      |  
|Consumer                                                                             |  |                                   | (117  | )  |      |   | (206  | )
|                                                                                     |  |                                   |       |    |      |   |       |  
|Total charge-offs                                                                    |  |                                   | (117  | )  |      |   | (206  | )
|                                                                                     |  |                                  
|Recoveries:                                                                          |  |                                   |       |    |      |   |       |  
|Real estate mortgage:                                                                |  |                                   |       |    |      |   |       |  
|Single-family residential                                                            |  |                                   |      |    |      |   |      |  
|Multi-family residential                                                             |  |                                   |      |    |      |   |      |  
|Commercial                                                                           |  |                                   |      |    |      |   |      |  
|Construction                                                                         |  |                                   |      |    |      |   |      |  
|Commercial loans secured                                                             |  |                                   |      |    |      |   |      |  
|Consumer                                                                             |  |                                   | 162   |    |      |   | 217   |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Total recoveries                                                                     |  |                                   | 162   |    |      |   | 217   |  
|Net loans recovered (charged-off)                                                    |  |                                   | 45    |    |      |   | (11   | )
|(Reversal) Provision for loan losses                                                 |  |                                   | (109  | )  |      |   | 120   |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Balance at end of period                                                             |  | $                                 | 2,683 |    |      | $ | 2,718 |  
|                                                                                     |  |                                   |       |    |      |   |       |  
|Ratio of net (recoveries) charge-offs to average loans outstanding during the period |  |                                   | (.01  | )% |      |   | .01   | %
|                                                                                     |  |                                   |       |    |      |   |       |  

Regulations require that the Company classify its assets on a regular basis. There are three
classifications for problem assets: substandard, doubtful and loss. The Company regularly reviews its assets to determine whether any assets require classification or re-classification. At March 31, 2006, the Company had $701,000 in classified
assets, consisting of $699,000 in substandard and loss loans, $0 in foreclosed real estate and $ 2,000 in other repossessed assets. At September 30, 2005, the Company had $1.4 million in substandard and loss loans, consisting of $1.4 million in
loans, $0 in foreclosed real estate and $86,000 in other repossessed assets.

In addition to regulatory classifications, the Company also
classifies as special mention assets that are currently performing in accordance with their contractual terms but may become classified or non-performing assets in the future. At March 31, 2006, the Company has identified
approximately $1.1 million in assets classified as special mention.

Liquidity and Capital Resources

At March 31, 2006, the Bank exceeded all regulatory minimum capital requirements. For information comparing the Banks tangible, core and
risk-based capital levels to the regulatory requirements, see Note 5 of Notes to Consolidated Financial Statements.

The Companys
primary sources of funds are deposits 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 a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition and other factors.

The primary investing activities of the Company are the origination of loans and the purchase of investment securities and mortgage-backed securities.
During the six months ended March 31, 2006 and 2005, the Company had



24



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##### Table of Contents

$62.3 million and $80.5 million, respectively, of gross loan originations. During the six months ended March 31,
2006 and 2005, the Company purchased investment securities in the amounts of $822,000 and $10.7 million, respectively, and mortgage-backed securities in the amounts of $0 and $15.8 million, respectively. The primary financing activity of the Company
is the attraction of savings deposits.

The Company has other sources of liquidity if there is a need for funds. The Bank has the ability
to obtain additional advances from the FHLB of Atlanta in the amount of $74.5 million as of March 31, 2006. In addition, securities in the available for sale portfolio provide liquidity and the Company has the immediately liquid resources of
cash and cash due from banks, federal funds sold and securities purchased under resale agreements if needed.

The Bank is required to
maintain adequate levels of liquid assets as defined by OTS regulations. The Banks average daily liquidity ratio for the month of March was approximately 48.1%. Management seeks to maintain a relatively high level of liquidity in order to
retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide for lower rates of return, the Banks relatively high liquidity will, to a certain extent, result in lower rates of return on
assets.

The Companys most liquid assets are cash, interest-bearing deposits in other banks 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 March 31, 2006, cash, interest-bearing deposits in other banks and federal funds sold were $25.0 million, $1.8 million and $2.4 million, respectively.

The Company anticipates that it will have sufficient funds available to meet its current commitments. Certificates of deposit which are scheduled to
mature in less than one year at March 31, 2006 totaled $211.4 million. Based on past experience, management believes that a significant portion of such deposits will remain with the Bank. The Bank plans on paying competitive rates to retain
certificate deposits. Should the Bank experience significant deposit run off the Bank anticipates that it will have sufficient liquidity to meet its needs as outlined above. The Bank is a party to financial instruments with off-balance-sheet risk
made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby letters of credit, lines of credit and commitments to fund mortgage loans and involve to varying degrees elements of credit
risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments express the extent of involvement the Company has in this class of financial instruments and represents the Companys
exposure to credit loss from nonperformance by the other party.

The Company generally requires collateral or other security to support
financial instruments with off-balance-sheet credit risk. At March 31, 2006, the Company had commitments under standby letters of credit and lines of credit and commitments to originate mortgage loans of $737,000, $28.1 million and $21.0
million respectively.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the possible chance of
loss from unfavorable changes in market prices and rates. These changes may result in a reduction of current and future period net interest income, which is the favorable spread earned from the excess of interest income on interest-earning assets
over interest expense on interest-bearing liabilities.

The Company considers interest rate risk to be its most significant market risk,
which could potentially have the greatest impact on operating earnings. The structure of the Companys loan and deposit portfolios is such that a significant change in interest rates may adversely impact net market values and net interest
income.

The Company monitors whether material changes in market risk have occurred since September 30, 2005. The Company does not
believe that any material changes in market risk exposures occurred since September 30, 2005.

Item 4. Controls and Procedures

As of the end of the period covered by this report, management of
the Company carried out an evaluation, under the supervision and with the participation of the Companys principal executive officer and principal financial officer, of the effectiveness of the Companys disclosure controls and procedures.
Based on this evaluation, the Companys principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be disclosed by the
Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported,



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within the time periods specified in the Securities and Exchange Commissions rules and forms. It should be noted
that the design of the Companys disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and
procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, but the Companys principal executive and financial officers have concluded that the Companys disclosure controls and
procedures are, in fact, effective at a reasonable assurance level.

There have been no changes in the Companys internal control over
financial reporting identified in connection with the evaluation required by paragraph (d) of Securities and Exchange Commission Rule 13a-15 that has materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security-Holders

The Companys Annual Meeting of
Stockholders was held on February 8, 2006. 5,648,977 shares representing 95.55% of the total outstanding shares of the Companys common stock were represented at the Annual Meeting in person or by proxy.

Stockholders voted in favor of the election of two nominees for director. The voting results for each nominee were as follows:



|                       |  |                            |  |               
|---------------------- |  | -------------------------- |  | --------------
|Nominee                |  | Votes in Favor of Election |  | Votes Withheld
|Gary C. Loraditch      |  | 5,623,679                  |  | 25,298        
|William J. Kappauf Jr. |  | 5,622,850                  |  | 26,127        

There were 0 broker nonvotes on the matter.

In addition, stockholders voted in favor of the ratification of the appointment of Stegman & Company, as independent registered public
accountants of the Company for the fiscal year ending September 30, 2006. 5,626,374 votes were cast in favor of the proposal to ratify the appointment of auditors, 9,711 votes were cast against the proposal, and 12,892 votes abstained. There
were 0 broker non-votes on the matter.

Item 5. Other Information

None.



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Item 6. Exhibits

The following exhibits are filed herewith:



|              |  |                                                        
|------------- |  | -------------------------------------------------------
|ExhibitNumber |  | Title                                                  
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer
|              | 
|32            |  | Section 1350 Certifications                            



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SIGNATURES

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



|                   |  |                                             
|------------------ |  | --------------------------------------------
|                   |  | BCSB BANKCORP, INC.                         
|                   | 
|Date: May 12, 2006 |  | /s/ Gary C. Loraditch                       
|                   |  | Gary C. Loraditch                           
|                   |  | President                                   
|                   |  | (Principal Executive Officer)               
|                   | 
|Date: May 12, 2006 |  | /s/ Bonnie M. Klein                         
|                   |  | Bonnie M. Klein                             
|                   |  | Senior Vice President and Treasurer         
|                   |  | (Principal Financial and Accounting Officer)