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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 10-K



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended September 30, 2005



OR



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



For the transition period from
 to



Commission File No. 0-24589



BCSB BANKCORP, INC.

(Name of
Registrant as Specified in its Charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|United States                                                 |  | 52-2108333                         
|(State or Other Jurisdictionof Incorporation or Organization) |  | (I.R.S. EmployerIdentification No.)



|                                                   |  |           
|-------------------------------------------------- |  | ----------
|4111 E. Joppa Road, Suite 300, Baltimore, Maryland |  | 21236     
|(Address of Principal Executive Offices)           |  | (Zip Code)



Issuers
telephone number, including area code: (410) 256-5000



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



Securities registered pursuant to Section 12(g) of the Act:    Common stock, par value $.01 per share

(Title of Class)



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈No x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ̈No x



Indicate by check mark 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 if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ̈No 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



The aggregate market value of voting and common non-voting common equity held by non-affiliates was approximately $21,889,105 computed by reference to the
closing sale price for the registrants common stock on September 30, 2005 as reported on the Nasdaq National Market. For purposes of this calculation, it is assumed that directors, executive officers and beneficial owners of more than 5%
of the registrants outstanding voting stock are affiliates.



Number of
shares of Common Stock outstanding as of December 1, 2005: 5,912,177



DOCUMENTS INCORPORATED BY REFERENCE



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



| | 1. | Portions of the registrants Annual Report to Stockholders for the Fiscal Year ended September 30, 2005. (Parts II and III)
| | -- | ---------------------------------------------------------------------------------------------------------------------------



| | 2. | Portions of Proxy Statement for registrants 2006 Annual Meeting of Stockholders. (Part III)
| | -- | --------------------------------------------------------------------------------------------



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PART I



|Item 1. | Business
|------- | --------



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 September 30, 2005, the Company had total assets of $812.7 million, total deposits of
$597.7 million and stockholders equity of $42.0million.



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 seventeen banking offices serving the Baltimore metropolitan area the eighteenth branch is scheduled to open late December 2005. 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.



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 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.



2



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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.



Market Area



The Banks market area consists of the Baltimore metropolitan area. At September 30, 2005, management estimates
that more than 95% of deposits and 95% of all lending came from its market area.



The economy of the Banks market area is a diverse cross section of employment sectors, with a mix of services, manufacturing, wholesale/retail trade, federal and local government, health care facilities and
finance related employment This partially mitigates the risk associated with a decline in any particular economic sector. Once the backbone of the regional economy, the manufacturing industry is relatively stable following a long period of decline.
Demographic and economic growth trends, measured by changes in population, number of household, age distribution and median household income, provide key insight into the health of the Banks market area. Baltimore County has the largest
population at 754,292 followed by Baltimore City at 651,154, Anne Arundel County at 489,000, Howard County at 247,842 and Harford County at 218,000. Located adjacent to major transportation corridors and Washington, DC, the Baltimore metropolitan
area provides a diversified broad economic base. According to Baltimore County Department of Economic Development seventy-seven percent of Baltimore Countys employees work in the private sector with approximately 9% in manufacturing, 20% in
trade, transportation and utilities, 13.8% in professional business services, 13.8% in education and health services, and 8% in leisure and hospitality. Government provides 17.5% of Baltimore Countys jobs, with self-employed providing the
remaining employment.



Harford County continues to experience
strong economic growth while maintaining a strong government presence of approximately 11,484 employed in the Aberdeen Proving Grounds both in the military and in civilian capacity. The Maryland Department of Labor and Licensing Regulation estimates
54,727 work in Harford Countys private sector with 30% working in retail trade, 33% in service and 19% in construction and manufacturing. Going forward Harford county and the entire Baltimore metropolitan area will benefit from the proposed
recommendations by the U.S. Army for the realignment and closure of military bases which could add approximately 20,000 jobs in both military and related private sector employment.



Lending Activities



General. The Banks gross loan portfolio totaled $482.6 million at September 30, 2005, representing 59.4% of total assets at that date.
At September 30, 2005, $195.2 million, or 40.4% of the Banks gross loan portfolio, consisted of single-family, residential mortgage loans. Other loans secured by real estate include construction loans, single-family rental property and
commercial real estate loans, which amounted to $53.8 million, $26.9 million and $75.0 million, respectively, or 11.1%, 5.6% and 15.6%, respectively, of the Banks gross loan portfolio at September 30, 2005. The Bank also originates
consumer loans, consisting primarily of automobile loans and home equity lines of credit, which totaled $88.3 million and $17.9million, respectively, or18.3% and 3.7% respectively, of the Banks gross loan portfolio. Other lending activities
include commercial lines of credit, which totaled $16.5 million, or 3.4% of the Banks gross loan portfolio.



3



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Loan Portfolio Composition. The following table sets forth selected data relating to the
composition of the Banks loan portfolio by type of loan at the dates indicated. At September 30, 2005, the Bank had no concentrations of loans exceeding 10% of gross loans other than as disclosed below.



|                                        |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|--------------------------------------- |  | ---------------------- | ------- | - | ------ | - | ------ | ---- | ------- |  | ------ | ------ |  | ---- | ------- |  | ------ | - | - | - | ------- | ------ | ------ | - |  | - | ------- |  | ------ | -
|                                        |  | At September 30,       |        
|                                        |  | 2005                   |         |   | 2004   |   |        | 2003 |         |  | 2002   |        |  | 2001 |        
|                                        |  | Amount                 |         | % |        |   | Amount |      | %       |  |        | Amount |  | %    |         |  | Amount |   | % |   |         | Amount |        | % | 
|                                        |  | (Dollars in thousands) |        
|Real Estate Loans:                      |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Single-family residential (1)           |  | $                      | 195,203 |   | 40.44  | % |        | $    | 179,010 |  | 43.47  | %      |  | $    | 179,552 |  | 46.32  | % |   | $ | 221,062 |        | 53.09  | % |  | $ | 165,028 |  | 57.94  | %
|Single-family rental property loans     |  |                        | 26,914  |   | 5.58   |   |        |      | 19,257  |  | 4.68   |        |  |      | 14,348  |  | 3.70   |   |   |   | 8,306   |        | 2.00   |   |  |   | 7,581   |  | 2.66   |  
|Commercial                              |  |                        | 75,034  |   | 15.55  |   |        |      | 64,615  |  | 15.69  |        |  |      | 53,675  |  | 13.85  |   |   |   | 57,356  |        | 13.77  |   |  |   | 15,068  |  | 5.29   |  
|Construction (2)                        |  |                        | 53,755  |   | 11.14  |   |        |      | 23,225  |  | 5.64   |        |  |      | 16,411  |  | 4.23   |   |   |   | 11,734  |        | 2.82   |   |  |   | 8,709   |  | 3.06   |  
|Commercial lines of credit              |  |                        | 16,463  |   | 3.41   |   |        |      | 16,038  |  | 3.89   |        |  |      | 6,410   |  | 1.65   |   |   |   | 4,208   |        | 1.01   |   |  |   | 400     |  | .14    |  
|Commercial leases                       |  |                        | 3,300   |   | .68    |   |        |      | 1,300   |  | .32    |        |  |      | 820     |  | .21    |   |   |   | 1,170   |        | .28    |   |  |   | 1,308   |  | .46    |  
|Commercial loans secured                |  |                        | 1,869   |   | .39    |   |        |      | 800     |  | .20    |        |  |      | 133     |  | .03    |   |   |   | 1,595   |        | .38    |   |  |   | 2,588   |  | .91    |  
|Commercial loans unsecured              |  |                        | 538     |   | .11    |   |        |      | 545     |  | .13    |        |  |      | 678     |  | .17    |   |   |   |        |        |       |   |  |   |        |  |       |  
|Consumer Loans:                         |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Automobile                              |  |                        | 88,287  |   | 18.29  |   |        |      | 88,122  |  | 21.40  |        |  |      | 98,168  |  | 25.33  |   |   |   | 93,161  |        | 22.38  |   |  |   | 72,822  |  | 25.57  |  
|Home equity lines of credit             |  |                        | 17,901  |   | 3.71   |   |        |      | 15,629  |  | 3.79   |        |  |      | 13,943  |  | 3.60   |   |   |   | 13,864  |        | 3.33   |   |  |   | 8,935   |  | 3.13   |  
|Other                                   |  |                        | 3,377   |   | .70    |   |        |      | 3,265   |  | .79    |        |  |      | 3,474   |  | .90    |   |   |   | 3,897   |        | .94    |   |  |   | 2,395   |  | .84    |  
|                                        |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|                                        |  |                        | 482,641 |   | 100.00 | % |        |      | 411,806 |  | 100.00 | %      |  |      | 387,612 |  | 100.00 | % |   |   | 416,353 |        | 100.00 | % |  |   | 284,834 |  | 100.00 | %
|                                        |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Add:                                    |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Purchase accounting premium (net)       |  |                        | 665     |   |        |   |        |      | 950     |  |        |        |  |      | 1,320   |  |        |   |   |   | 1,990   |        |        |   |  |   |        |  |        |  
|Less:                                   |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Undisbursed portion of loans in process |  |                        | 16,874  |   |        |   |        |      | 13,764  |  |        |        |  |      | 7,753   |  |        |   |   |   | 4,902   |        |        |   |  |   | 4,434   |  |        |  
|Deferred loan origination fees          |  |                        | 272     |   |        |   |        |      | 267     |  |        |        |  |      | 429     |  |        |   |   |   | 661     |        |        |   |  |   | 143     |  |        |  
|Unearned interest                       |  |                        | 9,067   |   |        |   |        |      | 10,002  |  |        |        |  |      | 12,750  |  |        |   |   |   | 13,964  |        |        |   |  |   | 10,684  |  |        |  
|Allowance for loan losses               |  |                        | 2,746   |   |        |   |        |      | 2,587   |  |        |        |  |      | 2,698   |  |        |   |   |   | 2,199   |        |        |   |  |   | 1,563   |  |        |  
|                                        |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  
|Total                                   |  | $                      | 454,347 |   |        |   |        | $    | 386,136 |  |        |        |  | $    | 365,302 |  |        |   |   | $ | 396,617 |        |        |   |  | $ | 268,010 |  |        |  
|                                        |  |                        |         |   |        |   |        |      |         |  |        |        |  |      |         |  |        |   |   |   |         |        |        |   |  |   |         |  |        |  



|(1) | Includes fixed-rate second mortgage loans.
|--- | ------------------------------------------



|(2) | Includes acquisition and development loans.
|--- | -------------------------------------------



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Loan Maturity Schedules. The following table sets forth certain information at September 30,
2005 regarding the dollar amount of loans maturing in the Banks portfolio based on their contractual terms to maturity, including scheduled repayments of principal. Demand loans, loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. The table does not include any estimate of prepayments which significantly shorten the average life of mortgage loans and may cause the Banks repayment experience to differ from
that shown below.



|                              |  |                                            |        |                                             |   |                                   |  |       |         |  |   |        
|----------------------------- |  | ------------------------------------------ | ------ | ------------------------------------------- | - | --------------------------------- |  | ----- | ------- |  | - | -------
|                              |  | Due during theyear endingSeptember 30,2006 |        | Due 1 through5 years afterSeptember 30,2006 |   | Due 5 yearsafterSeptember 30,2006 |  | Total
|                              |  | (In thousands)                            
|Real Estate Loans             |  |                                            |        |                                             |   |                                   |  |       |         |  |   |        
|Single-family residential     |  | $                                          | 111    |                                             | $ | 14,565                            |  | $     | 180,527 |  | $ | 195,203
|Single-family rental property |  |                                            | 2      |                                             |   | 976                               |  |       | 25,936  |  |   | 26,914 
|Commercial                    |  |                                            | 2,525  |                                             |   | 8,914                             |  |       | 63,595  |  |   | 75,034 
|Construction                  |  |                                            | 6,568  |                                             |   | 23,913                            |  |       | 23,274  |  |   | 53,755 
|Commercial lines of credit    |  |                                            | 5,920  |                                             |   | 592                               |  |       | 9,951   |  |   | 16,463 
|Commercial leases             |  |                                            | 40     |                                             |   | 3,260                             |  |       |        |  |   | 3,300  
|Commercial loans secured      |  |                                            |       |                                             |   | 552                               |  |       | 1,317   |  |   | 1,869  
|Commercial loans unsecured    |  |                                            | 538    |                                             |   |                                  |  |       |        |  |   | 538    
|Consumer:                     |  |                                            |        |                                             |   |                                   |  |       |         |  |   |        
|Automobile                    |  |                                            | 1,332  |                                             |   | 86,919                            |  |       | 36      |  |   | 88,287 
|Home equity lines of credit   |  |                                            | 138    |                                             |   | 2,375                             |  |       | 15,388  |  |   | 17,901 
|Other                         |  |                                            | 724    |                                             |   | 1,124                             |  |       | 1,529   |  |   | 3,377  
|                              |  |                                            |        |                                             |   |                                   |  |       |         |  |   |        
|Total                         |  | $                                          | 17,898 |                                             | $ | 143,190                           |  | $     | 321,553 |  | $ | 482,641
|                              |  |                                            |        |                                             |   |                                   |  |       |         |  |   |        



The following table
sets forth at September 30, 2005, the dollar amount of all loans due within one year and one year or more after September 30, 2005 which have predetermined interest rates and have floating or adjustable interest rates.



|                              |  |                    |         |                             |   |        
|----------------------------- |  | ------------------ | ------- | --------------------------- | - | -------
|                              |  | Predetermined Rate |         | Floating orAdjustable Rates
|                              |  | (In thousands)    
|Real Estate loans:            |  |                    |         |                             |   |        
|Single-family residential     |  | $                  | 187,627 |                             | $ | 7,576  
|Single-family rental property |  |                    | 8,980   |                             |   | 17,934 
|Commercial                    |  |                    | 27,330  |                             |   | 47,704 
|Construction                  |  |                    | 38,833  |                             |   | 14,922 
|Commercial lines of credit    |  |                    |        |                             |   | 16,463 
|Commercial leases             |  |                    | 3,300   |                             |   |       
|Commercial loans secured      |  |                    | 1,869   |                             |   |       
|Commercial loans unsecured    |  |                    | 538     |                             |   |       
|Consumer:                     |  |                    |         |                             |   |        
|Automobiles                   |  |                    | 88,287  |                             |   |       
|Home equity lines of credit   |  |                    |        |                             |   | 17,901 
|Other                         |  |                    | 3,377   |                             |   |       
|                              |  |                    |         |                             |   |        
|Total                         |  | $                  | 360,141 |                             | $ | 122,500
|                              |  |                    |         |                             |   |        



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



5



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substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.



Originations, Purchases
and Sales of Loans. The Bank generally has authority to originate and purchase loans secured by real estate located throughout the United States. Consistent with its emphasis on being a community-oriented financial institution, the Bank
concentrates its lending activities in its market area.



The
following table sets forth certain information with respect to the Banks loan origination, purchase and sale activity for the periods indicated.



|                              |  |                          |         |      |   |         |  |   |        
|----------------------------- |  | ------------------------ | ------- | ---- | - | ------- |  | - | -------
|                              |  | Year Ended September 30,
|                              |  | 2005                     |         | 2004 |   | 2003   
|                              |  | (In thousands)          
|Loans originated:             |  |                          |         |      |   |         |  |   |        
|Real Estate Loans:            |  |                          |         |      |   |         |  |   |        
|Single-family residential     |  | $                        | 53,800  |      | $ | 41,406  |  | $ | 55,896 
|Single-family rental property |  |                          | 10,599  |      |   | 7,739   |  |   | 7,021  
|Commercial                    |  |                          | 39,095  |      |   | 27,866  |  |   | 21,021 
|Construction                  |  |                          | 18,652  |      |   | 6,196   |  |   | 2,209  
|Commercial lines of credit    |  |                          | 8,174   |      |   | 13,570  |  |   | 605    
|Commercial loans secured      |  |                          | 2,866   |      |   | 1,195   |  |   | 994    
|Commercial leases             |  |                          | 190     |      |   | 872     |  |   | 154    
|Consumer:                     |  |                          |         |      |   |         |  |   |        
|Automobile                    |  |                          | 47,659  |      |   | 40,154  |  |   | 60,789 
|Home equity lines of credit   |  |                          | 11,803  |      |   | 8,669   |  |   | 9,269  
|Other                         |  |                          | 1,089   |      |   | 927     |  |   | 1,290  
|                              |  |                          |         |      |   |         |  |   |        
|Total loans originated        |  | $                        | 193,927 |      | $ | 148,594 |  | $ | 159,248
|                              |  |                          |         |      |   |         |  |   |        
|Loans purchased:              |  |                          |         |      |   |         |  |   |        
|Real estate loans             |  | $                        | 0       |      | $ | 0       |  | $ | 0      
|                              |  |                          |         |      |   |         |  |   |        
|Total loans purchased         |  | $                        | 0       |      | $ | 0       |  | $ | 0      
|                              |  |                          |         |      |   |         |  |   |        
|Loans sold:                   |  |                          |         |      |   |         |  |   |        
|Whole loans                   |  | $                        | 0       |      | $ | 3,449   |  | $ | 11,995 
|                              |  |                          |         |      |   |         |  |   |        
|Total loans sold              |  | $                        | 0       |      | $ | 3,449   |  | $ | 11,995 
|                              |  |                          |         |      |   |         |  |   |        



The Banks loan
originations are derived from a number of sources, including referrals by realtors or automobile dealers, depositors and borrowers and advertising, as well as walk-in customers. The Banks solicitation programs consist of advertisements in
local media, in addition to occasional participation in various community organizations and events. Real estate loans are originated by the Banks loan personnel. Automobile loans may be originated on an indirect basis through a limited number
of approved dealers, and loan applications are accepted at the Banks offices.



Loan Underwriting Policies. The Banks lending activities are subject to the Banks written, non-discriminatory underwriting standards and to loan origination procedures prescribed by the Banks
Board of Directors and its management. Detailed loan applications are obtained to determine the borrowers ability to repay, and the more significant items on these applications are verified through the use of credit reports, financial
statements and confirmations. Real estate loans up to $1 million, as well as all requests for lines of credit up to $500,000, may be approved by the Banks Loan Committee, which consists of the Banks President, Executive Vice President of
Lending and Treasurer and meets weekly. All loans in excess of these amounts must be approved by the Board of Directors. Individual officers of the Bank have been granted authority by the Board of Directors to approve loans up to varying specified
dollar amounts, depending upon the type of loan. Automobile loans are approved by the Banks Vice President of consumer lending, Senior Loan Officer and consumer loan underwriters and reviewed by the Banks Senior Vice President who
supervises lending operations.



6



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Applications for single-family real estate loans generally are underwritten and closed in accordance with
the standards of the Federal Home Loan Mortgage Corporation, (FHLMC) and the Federal National Mortgage Association, (FNMA). Upon receipt of a loan application from a prospective borrower, a credit report and verifications are
ordered to verify specific information relating to the loan applicants employment, income and credit standing. If a proposed loan is to be secured by a deed of trust or a mortgage on real estate, an appraisal of the real estate is generally
undertaken by an appraiser approved by the Bank and licensed by the State of Maryland. In the case of single-family residential mortgage loans, except when the Bank becomes aware of a particular risk of environmental contamination, the Bank
generally does not obtain a formal environmental report on the real estate at the time a loan is made. A formal environmental report may be required in connection with commercial real estate loans, and the Bank obtains a Phase I environmental
study in connection with its underwriting of acquisition and development loans.



It is the Banks policy to record a lien on the real estate securing a loan and to obtain title insurance or an attorneys certification which ensures that the property is free of prior encumbrances and
other possible title defects. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by Federal Emergency Management Agency, pay flood insurance policy premiums.



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



The Bank is permitted to lend up to 97% of the lesser of the appraised value or the purchase price of the real property securing a mortgage loan. However, if the amount of a residential loan originated or refinanced exceeds 80% of the
appraised value, the Banks policy is to obtain private mortgage insurance at the borrowers expense on the principal amount of the loan. The Bank does provide a first time home buyers loan program in conjunction with the Federal Home Loan
Bank of Atlanta where 100% of the loan amount will be funded for qualified buyers. The Bank will make a single-family residential mortgage loan with up to a 97% loan-to-value ratio if the required private mortgage insurance is obtained. The Bank
generally limits the loan-to-value ratio on commercial real estate mortgage loans to 80%, although the loan-to-value ratio on commercial real estate loans in limited circumstances has been as high as 90%. The Bank limits the loan-to-value ratio on
single-family rental property loans to 80%. Home equity loans are made in amounts which, when added to any senior indebtedness, do not exceed 90% of the value of the property.



Under applicable law, with certain limited exceptions, loans and extensions of credit by a savings institution to a person
outstanding at one time shall not exceed 15% of the institutions unimpaired capital and surplus. Loans and extensions of credit fully secured by readily marketable collateral may comprise an additional 10% of unimpaired capital and surplus.
Under these limits, the Banks loans to one borrower were limited to $8.2 million at September 30, 2005. Applicable law additionally authorizes savings institutions to make loans to one borrower, for any purpose, in an amount not to exceed
$500,000 or in an amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided: (i) the purchase price of each single-family dwelling in the development does not exceed
$500,000; (ii) the savings institution is and continues to be in compliance with its fully phased-in regulatory capital requirements; (iii) the loans comply with applicable loan-to-value requirements; (iv) the aggregate amount of
loans made under this authority does not exceed 150% of unimpaired capital and surplus; and (v) the Director of OTS, by order, permits the savings institution to avail itself of this higher limit. At September 30, 2005, the Bank had no
lending relationships in excess of the loans-to-one-borrower limit. At September 30, 2005, the Banks largest loan customer was a $6.4 million relationship consisting of a medical office building and other residential and commercial
investment properties. At September 30, 2005, the loans were current and performing in accordance with their terms.



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



7



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Single-Family Residential Real Estate Lending. The Bank historically has been and continues to be
an originator of single-family, residential real estate loans in its market area. At September 30, 2005, single-family, residential mortgage loans, excluding single-family rental property loans and home equity loans, totaled $195.2 million, or
40.4% of the Banks gross loan portfolio.



The Bank
originates fixed-rate mortgage loans at competitive interest rates. At September 30, 2005, the Bank had $187.6 million of fixed-rate single-family mortgage loans, which amounted to 96.1% of the Banks single-family mortgage loans. The Bank
emphasizes the origination of fixed-rate single-family residential mortgage loans with maturities of 15 years or less by offering more competitive rates on these loans as compared to the rates it offers on fixed-rate mortgage loans with terms in
excess of 15 years.



The Bank also offers adjustable-rate,
single-family residential mortgage loans. As of September 30, 2005, $7.6 million, or 3.9% of the Banks single-family mortgage loans carried adjustable rates. After the initial term, the rate adjustments on the Banks adjustable-rate
loans are indexed to a rate which adjusts annually based upon changes in an index based on the weekly average yield on U.S. Treasury securities adjusted to a constant comparable maturity of one year, as made available by the Federal Reserve Board.
The interest rates on most of the Banks adjustable-rate mortgage loans are adjusted once a year, and the Bank offers loans that have an initial adjustment period of one, three or five years. The maximum adjustment is 2% per adjustment
period with a maximum aggregate adjustment of 6% over the life of the loan. The Bank offers adjustable-rate mortgage loans that provide for initial rates of interest below the rates that would prevail when the index used for repricing is applied,
i.e., teaser rates. All of the Banks adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate be sufficient to result in full amortization of the loan by the end of the loan term
and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, known as negative amortization.



The retention of adjustable-rate loans in the Banks portfolio helps reduce the Banks exposure to increases in prevailing market interest
rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of
default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Further, although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in interest rates, the extent
of this interest sensitivity is limited by the initial fixed-rate period before the first adjustment and the lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that yields on the Banks adjustable-rate loans
will fully adjust to compensate for increases in the Banks cost of funds. Finally, adjustable-rate loans increase the Banks exposure to decreases in prevailing market interest rates, although decreases in the Banks cost of funds
tend to offset this effect.



Single-family Rental Property
Loans. The Bank also offers single-family residential mortgage loans secured by properties that are not owner-occupied. As of September 30, 2005, single-family rental property loans totaled $26.9 million, or 5.6%, of the Banks gross
loan portfolio. Originations of single-family rental property loans were $10.6 million, $7.7 million and $7.0 million for the years ended September 30, 2005, 2004 and 2003, respectively. Single-family residential mortgage loans secured by
non-owner-occupied properties are made on a fixed-rate or an adjustable-rate basis and carry interest rates generally from .5% to 1.0% above the rates charged on comparable loans secured by owner-occupied properties. The maximum term on such loans
is 30 years.



Construction Lending. A substantial
portion of the Banks construction loans are originated for the construction of owner-occupied, single-family dwellings in the Banks primary market area. Residential construction loans are offered primarily to individuals building their
primary or secondary residence, as well as to selected local developers to build single-family dwellings. Generally, loans to owner/occupants for the construction of owner-occupied, single-family residential properties are originated in connection
with the permanent loan on the property and have a construction term of up to 12 months. Such loans are offered on a fixed-rate or adjustable-rate basis. Interest rates on residential construction loans made to the owner/occupant have interest rates
during the construction period equal to the same rate on the permanent loan selected by the customer. Interest rates on residential construction loans to builders are set at the prime rate plus a margin of between .0% and 1.5%. Interest rates on
commercial construction loans are based on the prime rate plus a negotiated margin of between .0% and 1.5% and adjust monthly, with construction terms generally not exceeding 18 months. Advances are made on a percentage of completion basis. At
September 30, 2005, $53.8 million, or 11.1%, of the Banks gross loan portfolio



8



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consisted of commercial construction loans, acquisition and development loans, and construction loans on single family residences.



Prior to making a commitment to fund a loan, the Bank requires both an
appraisal of the property by appraisers approved by the Board of Directors and a study of projected construction costs. The Bank also reviews and inspects each project at the commencement of construction and as needed prior to disbursements during
the term of the construction loan.



Consolidation in the
building industry and the increasing presence in the Banks market of large builders that are not locally based have limited the Banks ability to compete for some loans to builders because the Banks loans-to-one-borrower limitation
limits its ability to meet the volume requirements of the large builders. The Bank has however increased its construction activity with the smaller local builders. The Banks construction loans totaled $53.8 million, $23.2 million and $16.4
million at September 30, 2005, 2004, 2003, respectively, and construction loan originations were $12.4 million, $6.2 million and $2.2 million during the years ended September 30, 2005, 2004 and 2003, respectively.



On occasion, the Bank makes acquisition and development loans to local
developers to acquire and develop land for sale to builders who will construct single-family residences. Acquisition and development loans, which are considered by the Bank to be construction loans, are made at a rate that adjusts monthly, based on
the prime rate plus a negotiated margin, for terms of up to three years. Interest only is paid during the term of the loan, and the principal balance of the loan is paid down as developed lots are sold to builders. Generally, in connection with
acquisition and development loans, the Bank issues a letter of credit to secure the developers obligation to local governments to complete certain work. If the developer fails to complete the required work, the Bank would be required to fund
the cost of completing the work up to the amount of the letter of credit. Letters of credit generate fee income for the Bank but create additional risk. At September 30, 2005, the Bank had 11 such facilities outstanding totaling $701,000. All
acquisition and development loans were performing in accordance with their terms at such date.



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



Commercial
Real Estate Lending. The Banks commercial real estate loan portfolio includes loans to finance the acquisition of small office buildings, churches, medical condominiums, small shopping centers and small commercial and industrial buildings.
Such loans generally range in size from $100,000 to $5 million, with the largest having an outstanding principal balance of $4.0 million at September 30, 2005. At September 30, 2005, the Bank had $75.0 million of commercial real estate
loans, which amounted to 15.6% of the Banks gross loan portfolio. Commercial real estate loans are originated on a fixed-rate or adjustable-rate basis with terms of up to 25 years at a rate that is at least 1% above the rate charged by the
Bank on single-family residential mortgage loans having comparable terms and interest rate adjustment periods.



Commercial real estate lending entails significant additional risks as compared with single-family residential property lending. Commercial real estate
loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the real estate project, retail establishment or business.
These risks can be significantly impacted by supply and demand conditions in the market for office and retail space and, as such, may be subject to a greater



9



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extent to adverse conditions in the economy generally. To minimize these risks, the Bank generally limits itself to its market area or to borrowers with
which it has prior experience or who are otherwise known to the Bank. It is the Banks policy generally to obtain annual financial statements of the business of the borrower or the project for which commercial real estate loans are made. In
addition, in the case of commercial real estate loans made to a legal entity, the Bank seeks, whenever possible, to obtain personal guarantees and annual financial statements of the principals of the legal entity.



Commercial Lines of Credit. The Bank provides commercial lines of
credit to businesses within the Banks market area. These loans are secured by business assets, including real property, equipment, automobiles and consumer leases. Generally, all loans are further personally guaranteed by the owners of the
business. The commercial lines have adjustable interest rates tied to the prime rate and are offered at rates from prime plus 0% to prime plus 3 1/2%. As of September 30, 2005, the Bank had $16.5 million of such loans outstanding.



Consumer Lending. The consumer loans currently in the Banks
loan portfolio consist of automobile loans, home equity lines of credit and loans secured by savings deposits.



Automobile loans totaled $88.3 million, or 18.3%, of the Banks gross loan portfolio, at September 30, 2005. Automobile loans are secured by
both new and used cars and, depending on the creditworthiness of the borrower, may be made for up to 100% of the sticker price or purchase price, whichever is lower, or, with respect to used automobiles, the loan values as published by a
wholesale value listing utilized by the automobile industry. Automobile loans are made directly to the borrower-owner or indirectly, where the financing is arranged by the car dealer. Management of the Bank estimates that approximately 80% of
automobile loans are originated on an indirect basis through various dealerships located in its market area. Automobile loans originated on an indirect basis are considered to entail greater credit risk than automobile loans originated on a direct
basis. New and relatively new cars (less than two years old or 20,000 miles or less) are financed for a period generally of up to six years, while used cars are financed for a period generally of up to five years, or less, depending on the age of
the car. Collision insurance is required for all automobile loans. The Bank also maintains a blanket collision insurance policy that provides insurance for any borrower who allows his insurance to lapse.



The Bank originates second mortgage loans and home equity lines of credit. As
of September 30, 2005, home equity lines of credit totaled $17.9 million, or 3.7% of the Banks gross loan portfolio. Second mortgage loans are made at fixed rates and for terms of up to 15 years and totaled $ 13.5 million, or 2.8%,
of the Banks gross loans at September 30, 2005.



The
Banks home equity lines of credit currently have adjustable interest rates tied to the prime rate and can be offered anywhere from as low as the prime rate less .25% up to the prime rate. The interest rate may not adjust to a rate higher than
18%. The home equity lines of credit require monthly payments until the loan is paid in full, with a loan term not to exceed 30 years. The minimum monthly payment is 1.5% of the outstanding principal balance. Home equity lines of credit are secured
by subordinate liens against residential real property. The Bank requires that fire and extended coverage casualty insurance (and, if appropriate, flood insurance) be maintained in an amount at least sufficient to cover its loan.



The Bank makes savings account loans for up to 90% of the depositors
savings account balance. The interest rate is normally 2.0% above the rate paid on the related savings account, and the account must be pledged as collateral to secure the loan. Interest generally is billed on a quarterly basis. At
September 30, 2005, savings account loans accounts totaled $1.4 million, or .29%, of the Banks gross loan portfolio.



As part of the Banks loan strategy, the Bank has diversified its lending portfolio to afford the Bank the opportunity to earn higher yields and to
provide a fuller range of banking services. These products have generally been in the consumer area and include surgical loans, boat loans and loans for the purchase of recreational vehicles. Such loans totaled $2.0 million at September 30,
2005.



Consumer lending usually affords the Bank the
opportunity to earn yields higher than those obtainable on single-family residential lending. However, consumer loans entail greater risk than do residential mortgage loans, particularly in the case of loans which are unsecured or secured by rapidly
depreciable assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan



10



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balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection
efforts against the borrower. In addition, consumer loan collections are dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by events such as job loss, divorce, illness or personal
bankruptcy.



Loan Fees and Servicing. The Bank receives
fees in connection with late payments and for miscellaneous services related to its loans. The Bank also charges fees in connection with loan originations typically from 0 to 3 points (one point being equal to 1% of the loan amount) on residential
and commercial loan originations. The Bank services loans sold to FHLMC and FNMA. The Bank also services participation loans originated and sold by the Bank with servicing retained, and earns minimal income from this activity.



Nonperforming Loans and Other Problem Assets. It is managements
policy to continually monitor its loan portfolio to anticipate and address potential and actual delinquencies. When a borrower fails to make a payment on a loan, the Bank takes immediate steps to have the delinquency cured and the loan restored to
current status. Loans which are past due 15 days incur a late fee of 5% of principal and interest due. As a matter of policy, the Bank will send a late notice to the borrower after the loan has been past due 15 days and again after 30 days. If
payment is not promptly received, the borrower is contacted again, and efforts are made to formulate an affirmative plan to cure the delinquency. Generally, after any loan is delinquent 90 days or more, formal legal proceedings are commenced to
collect amounts owed. In the case of automobile loans, late notices are sent after loans are ten days delinquent, and the collateral is seized after a loan is delinquent 60 days. Repossessed cars subsequently are sold at auction.



Loans generally are placed on non-accrual status if the loan becomes past due
more than 90 days, except in instances where in managements judgment there is no doubt as to full collectibility of principal and interest, or management concludes that payment in full is not likely. Consumer loans are generally charged off,
or any expected loss is reserved for, after they become more than 120 days past due. All other loans are charged off when management concludes that they are uncollectible. See Note 3 of Notes to Financial Statements.



Real estate acquired by the Bank as a result of foreclosure is classified as
real estate acquired through foreclosure until such time as it is sold. When such property is acquired, it is initially recorded at the lower of cost or estimated fair value and subsequently at the lower of book value or fair value less estimated
costs to sell. Costs relating to holding such real estate are charged against income in the current period, while costs relating to improving such real estate are capitalized until a saleable condition is reached. Any required write-down of the loan
to its fair value less estimated selling costs upon foreclosure is charged against the allowance for loan losses. See Note 1 of Notes to Financial Statements.



11



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



|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|---------------------------------------------------------------- |  | ---------------------- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | ----- | - |  | - | --- | -
|                                                                 |  | At September 30,       |    
|                                                                 |  | 2005                   |     |   | 2004 |   |     | 2003 |  |   | 2002 |   |  | 2001 |      
|                                                                 |  | (Dollars in thousands) |    
|Loans accounted for on a non-accrual basis: (1)                  |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Real Estate:                                                     |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Single-family residential                                        |  | $                      | 647 |   |      | $ | 266 |      |  | $ | 59   |   |  | $    | 291   |   |  | $ | 239 |  
|Single-family rental property                                    |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial                                                       |  |                        | 91  |   |      |   | 606 |      |  |   | 166  |   |  |      |      |   |  |   |    |  
|Construction                                                     |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial lines of credit                                       |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial loans secured                                         |  |                        |    |   |      |   |    |      |  |   |     |   |  |      | 1,100 |   |  |   |    |  
|Consumer                                                         |  |                        |    |   |      |   |    |      |  |   | 75   |   |  |      |      |   |  |   |    |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Total                                                            |  | $                      | 738 |   |      | $ | 872 |      |  | $ | 300  |   |  | $    | 1,391 |   |  | $ | 239 |  
|Accruing loans which are contractually past due 90 days or more: |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Real Estate:                                                     |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Single-family residential                                        |  | $                      |    |   |      | $ |    |      |  | $ |     |   |  | $    |      |   |  | $ |    |  
|Single-family rental property                                    |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial                                                       |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Construction                                                     |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial lines of credit                                       |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Commercial loans secured                                         |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|Consumer                                                         |  |                        |    |   |      |   |    |      |  |   |     |   |  |      |      |   |  |   |    |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Total                                                            |  | $                      |    |   |      | $ |    |      |  | $ |     |   |  | $    |      |   |  | $ |    |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Total non-performance loans                                      |  | $                      | 738 |   |      | $ | 872 |      |  | $ | 300  |   |  | $    | 1,391 |   |  | $ | 239 |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Percentage of gross loans                                        |  |                        | .15 | % |      |   | .21 | %    |  |   | .08  | % |  |      | .33   | % |  |   | .09 | %
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Percentage of total assets                                       |  |                        | .09 | % |      |   | .11 | %    |  |   | .04  | % |  |      | .24   | % |  |   | .06 | %
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Other non-performing assets (2)                                  |  | $                      | 86  |   |      | $ | 33  |      |  | $ | 283  |   |  | $    | 229   |   |  | $ | 134 |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  
|Loans modified in troubled debt restructuring                    |  | $                      |    |   |      | $ |    |      |  | $ |     |   |  | $    |      |   |  | $ |    |  
|                                                                 |  |                        |     |   |      |   |     |      |  |   |      |   |  |      |       |   |  |   |     |  

---

|(1) | Non-accrual status denotes loans on which, in the opinion of management, the collection of additional interest is unlikely. Payments received on a non-accrual loan are either
applied to the outstanding principal balance or recorded as interest income, depending on managements assessment of the collectibility of the loan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Other nonperforming assets include the Banks inventory of repossessed cars.
|--- | ----------------------------------------------------------------------------



During the year ended September 30, 2005, gross interest income of $66,000, would have been recorded on loans accounted
for on a non-accrual basis if the loans had been current throughout the year. Interest on such loans included in income during the year ended September 30, 2005 amounted to $29,000.



At September 30, 2005, the Bank had no loans which were not classified as non-accrual, 90 days past due or restructured
but where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may result in disclosure as non-accrual, 90 days
past due or restructured.



At September 30, 2005,
non-accrual loans consisted of 5 single-family residential mortgage loans aggregating $647,000, and 2 commercial loans aggregating $91,000.



Real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value and
subsequently at the lower of book value or fair value less estimated costs to sell. Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a real estate parcel would yield in a current sale between a willing
buyer and a willing seller, as measured by market transactions. If a market does not exist, fair value of the item is estimated based on selling prices of similar items in active markets or, if there are no active markets for



12



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similar items, by discounting a forecast of expected cash flows at a rate commensurate with the risk involved. Fair value is generally determined through an
appraisal at the time of foreclosure. The Bank records a valuation allowance for estimated selling costs of the property immediately after foreclosure. Subsequent to foreclosure, real estate acquired through foreclosure is periodically evaluated by
management and an allowance for loss is established if the estimated fair value of the property, less estimated costs to sell, declines. At September 30, 2005, the Bank had no real estate owned. The Bank had $86,000 of other nonperforming
assets, which consisted of the Banks inventory of repossessed cars.



Federal regulations require savings institutions to classify their assets on the basis of quality on a regular basis. An asset meeting one of the classification definitions set forth below may be classified and still
be a performing loan. An asset is classified as substandard if it is determined to be inadequately protected by the current retained earnings and paying capacity of the obligor or of the collateral pledged, if any. An asset is classified as doubtful
if full collection is highly questionable or improbable. An asset is classified as loss if it is considered uncollectible, even if a partial recovery could be expected in the future. The regulations also provide for a special mention designation,
described as assets which do not currently expose a savings institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving managements close attention. Such assets
designated as special mention may include nonperforming loans consistent with the above definition. Assets classified as substandard or doubtful require a savings institution to establish general allowances for loan losses. If an asset or portion
thereof is classified loss, a savings institution must either establish a specific allowance for loss in the amount of the portion of the asset classified loss, or charge off such amount. Federal examiners may disagree with a savings
institutions classifications. If a savings institution does not agree with an examiners classification of an asset, it may appeal this determination to the OTS Regional Director. The Bank regularly reviews its assets to determine whether
any assets require classification or re-classification. At September 30, 2005, the Bank had $2.9 million in classified assets consisting of $1.5 million in assets classified as special mention, $850,000 in assets classified as substandard, no
assets classified as doubtful and no assets classified as loss. Special mention assets consisted of $743,000 single-family residential mortgage loans 60 to 89 days delinquent at September 30, 2005, and $26,000 consumer loans 60 to 89 days
delinquent at September 30, 2005 and substandard assets consisted of the $738,000 in non-accrual loans described above.



Allowance for Loan Losses.In originating loans, the Bank recognizes that credit losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan. It is managements
policy to maintain an adequate allowance for loan losses based on, among other things, the Banks and the industrys historical loan loss experience, evaluation of economic conditions, regular reviews of delinquencies and loan portfolio
quality and evolving standards imposed by federal bank examiners. The Bank increases its allowance for loan losses by charging provisions for loan losses against the Banks income.



Management will continue to actively monitor the Banks asset quality and allowance for loan losses. Management will
charge off loans and properties acquired in settlement of loans against the allowances for losses on such loans and such properties when appropriate and will provide specific loss allowances when necessary. Although management believes it uses the
best information available to make determinations with respect to the allowances for losses and believes such allowances are adequate, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in
the assumptions used in making the initial determinations.



The
Banks methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific assets as well as losses that have not been identified but are expected to have
occurred. Management conducts regular reviews of the Banks assets and evaluates the need to establish allowances on the basis of this review. Allowances are established by the Board of Directors on a monthly basis based on an assessment of
risk in the Banks assets taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, loan concentrations, the state of the real estate market, regulatory reviews conducted
in the regulatory examination process and economic conditions generally. Additional provisions for losses on loans are made in order to bring the allowance to a level deemed adequate. Specific reserves will be provided for individual assets, or
portions of assets, when ultimate collection is considered improbable by management based on the current payment status of the assets and the fair value of the security. At



13



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the date of foreclosure or other repossession, the Bank would transfer the property to real estate acquired in settlement of loans initially at the lower of
cost or estimated fair value and subsequently at the lower of book value or fair value less estimated selling costs. Any portion of the outstanding loan balance in excess of fair value less estimated selling costs would be charged off against the
allowance for loan losses. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate would be recorded.



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



|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|----------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | ----- | -
|                                                                        |  | At September 30,       |      
|                                                                        |  | 2005                   |       |   | 2004 |   |       | 2003 |  |   | 2002  |   |  | 2001 |      
|                                                                        |  | (Dollars in thousands) |      
|Balance at the beginning of the period                                  |  | $                      | 2,587 |   |      | $ | 2,698 |      |  | $ | 2,199 |   |  | $    | 1,563 |   |  | 1,403 |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Loans charged-off:                                                      |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Real estate mortgage                                                    |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Single-family residential                                               |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  | 20    |  
|Multi-family residential                                                |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Commercial                                                              |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Construction                                                            |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Commercial loans secured                                                |  |                        |      |   |      |   |      |      |  |   |      |   |  |      | 159   |   |  |      |  
|Consumer                                                                |  |                        | 392   |   |      |   | 1,021 |      |  |   | 1,239 |   |  |      | 530   |   |  | 324   |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Total charge-offs                                                       |  |                        | 392   |   |      |   | 1,021 |      |  |   | 1,239 |   |  |      | 689   |   |  | 344   |  
|Recoveries:                                                             |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Real estate mortgage:                                                   |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Single-family residential                                               |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Multi-family residential                                                |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Commercial                                                              |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Construction                                                            |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Commercial loans secured                                                |  |                        |      |   |      |   |      |      |  |   |      |   |  |      |      |   |  |      |  
|Consumer                                                                |  |                        | 383   |   |      |   | 423   |      |  |   | 379   |   |  |      | 429   |   |  | 172   |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Total recoveries                                                        |  |                        | 383   |   |      |   | 423   |      |  |   | 379   |   |  |      | 429   |   |  | 172   |  
|Net loans charged off                                                   |  |                        | (9    | ) |      |   | (598  | )    |  |   | (860  | ) |  |      | (260  | ) |  | (172  | )
|Provision for loan losses                                               |  |                        | 168   |   |      |   | 487   |      |  |   | 1,359 |   |  |      | 509   |   |  | 332   |  
|Allowance assumed in the provision                                      |  |                        |      |   |      |   |      |      |  |   |      |   |  |      | 387   |   |  |      |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Balance at the end of period                                            |  | $                      | 2,746 |   |      | $ | 2,587 |      |  | $ | 2,698 |   |  | $    | 2,199 |   |  | 1,563 |  
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  
|Ratio of net charge-offs to average loans outstanding during the period |  |                        | .01   | % |      |   | .16   | %    |  |   | .22   | % |  |      | .09   | % |  | .07   | %
|                                                                        |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |       |  



14



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



|                                |  |                        |       |                                        |        |   |        |      |                                        |  |        |        |  |                                        |       |  |        |   |                                        |   |       |        |        |                                        |  |   |       |  |        |  
|------------------------------- |  | ---------------------- | ----- | -------------------------------------- | ------ | - | ------ | ---- | -------------------------------------- |  | ------ | ------ |  | -------------------------------------- | ----- |  | ------ | - | -------------------------------------- | - | ----- | ------ | ------ | -------------------------------------- |  | - | ----- |  | ------ | -
|                                |  | At September 30,       |      
|                                |  | 2005                   |       |                                        | 2004   |   |        | 2003 |                                        |  | 2002   |        |  | 2001                                   |      
|                                |  | Amount                 |       | Percentof LoansinCategoryto TotalLoans |        |   | Amount |      | Percentof LoansinCategoryto TotalLoans |  |        | Amount |  | Percentof LoansinCategoryto TotalLoans |       |  | Amount |   | Percentof LoansinCategoryto TotalLoans |   |       | Amount |        | Percentof LoansinCategoryto TotalLoans | 
|                                |  | (Dollars in Thousands) |      
|Real estate loans:              |  |                        |       |                                        |        |   |        |      |                                        |  |        |        |  |                                        |       |  |        |   |                                        |   |       |        |        |                                        |  |   |       |  |        |  
|Single-family residential       |  | $                      | 548   |                                        | 40.44  | % |        | $    | 578                                    |  | 43.47  | %      |  | $                                      | 539   |  | 46.32  | % |                                        | $ | 760   |        | 53.09  | %                                      |  | $ | 587   |  | 57.94  | %
|Single-family rental property   |  |                        | 40    |                                        | 5.58   |   |        |      | 29                                     |  | 4.68   |        |  |                                        | 22    |  | 3.70   |   |                                        |   | 17    |        | 2.00   |                                        |  |   | 15    |  | 2.66   |  
|Commercial                      |  |                        | 707   |                                        | 15.55  |   |        |      | 455                                    |  | 15.69  |        |  |                                        | 396   |  | 13.85  |   |                                        |   | 314   |        | 13.77  |                                        |  |   | 151   |  | 5.29   |  
|Construction                    |  |                        | 14    |                                        | 11.14  |   |        |      | 16                                     |  | 5.64   |        |  |                                        | 107   |  | 4.23   |   |                                        |   | 70    |        | 2.82   |                                        |  |   | 40    |  | 3.06   |  
|Commercial lines of credit      |  |                        | 22    |                                        | 3.41   |   |        |      | 10                                     |  | 3.89   |        |  |                                        | 16    |  | 1.65   |   |                                        |   | 46    |        | 1.01   |                                        |  |   |      |  | .14    |  
|Commercial leases               |  |                        | 2     |                                        | .68    |   |        |      |                                       |  | .32    |        |  |                                        |      |  |       |   |                                        |   |      |        | .28    |                                        |  |   |      |  | .46    |  
|Commercial loans secured        |  |                        | 72    |                                        | .39    |   |        |      | 52                                     |  | .20    |        |  |                                        |      |  | .21    |   |                                        |   |      |        | .38    |                                        |  |   |      |  | .91    |  
|Commercial loans unsecured      |  |                        | 537   |                                        | .11    |   |        |      | 541                                    |  | .13    |        |  |                                        | 569   |  | .03    |   |                                        |   |      |        |       |                                        |  |   |      |  |       |  
|Consumer                        |  |                        | 804   |                                        | 22.70  |   |        |      | 906                                    |  | 25.98  |        |  |                                        | 1,049 |  | 29.83  |   |                                        |   | 992   |        | 26.65  |                                        |  |   | 770   |  | 29.54  |  
|                                |  |                        |       |                                        |        |   |        |      |                                        |  |        |        |  |                                        |       |  |        |   |                                        |   |       |        |        |                                        |  |   |       |  |        |  
|Total allowance for loan losses |  | $                      | 2,746 |                                        | 100.00 | % |        | $    | 2,587                                  |  | 100.00 | %      |  | $                                      | 2,698 |  | 100.00 | % |                                        | $ | 2,199 |        | 100.00 | %                                      |  | $ | 1,563 |  | 100.00 | %
|                                |  |                        |       |                                        |        |   |        |      |                                        |  |        |        |  |                                        |       |  |        |   |                                        |   |       |        |        |                                        |  |   |       |  |        |  



15



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Investment Activities



General. The Bank is permitted under federal law to make certain investments, including investments in securities issued by various federal
agencies and state and municipal governments, deposits at the FHLB of Atlanta, certificates of deposit in federally insured institutions, certain bankers acceptances and federal funds. It may also invest, subject to certain limitations, in
commercial paper rated in one of the two highest investment rating categories of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds. Federal regulations require the Bank to maintain an
investment in FHLB stock and a minimum amount of liquid assets which may be invested in cash and specified securities. From time to time, the OTS adjusts the percentage of liquid assets which savings banks are required to maintain. See  
Regulation  Depository Institution Regulation  Liquidity Requirements.



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



Securities designated as held to maturity are those assets which the Bank has the ability and intent to hold to
maturity. Upon acquisition, securities are classified as to the Banks intent, and a sale would only be effected due to deteriorating investment quality. The held to maturity investment portfolio is not used for speculative purposes and is
carried at amortized cost. In the event the Bank sells securities from this portfolio for other than credit quality reasons, all securities within the investment portfolio with matching characteristics may be reclassified as assets available for
sale. Securities designated as available for sale are those assets which the Bank may not hold to maturity and thus are carried at market value with unrealized gains or losses, net of tax effect, recognized in retained earnings. At
September 30, 2005 the Banks securities portfolio consists of both available for sale and held to maturity securities.



Mortgage-Backed and Related Securities. Mortgage-backed securities represent a participation interest in a pool of single-family or multi-family
mortgages, the principal and interest payments on which are passed from the mortgage originators through intermediaries that pool and repackage the participation interest in the form of securities to investors such as the Bank. Such intermediaries
may include quasi-governmental agencies such as FHLMC, FNMA and GNMA which guarantee the payment of principal and interest to investors. Mortgage-backed securities generally increase the quality of the Banks assets by virtue of the guarantees
that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Bank.



Mortgage-related securities typically are issued with stated principal amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have similar maturities. The underlying pool of mortgages can be composed of either fixed-rate or adjustable-rate mortgage loans. Mortgage-backed securities generally are referred to as mortgage
participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the
certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages.



The actual maturity of a mortgage-backed security varies, depending on when the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely affecting its yield to maturity and the related market value of the mortgage-backed security. The yield is based upon the interest income and the amortization of the
premium or accretion of the discount related to



16



---

the mortgage-backed security. Premiums and discounts on mortgage-backed securities are amortized or accredited over the estimated term of the securities
using a level yield method. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of the mortgage-backed security, and these assumptions are reviewed periodically to
reflect the actual prepayment. The actual prepayments of the underlying mortgages depend on many factors, including the type of mortgage, the coupon rate, the age of the mortgages, the geographical location of the underlying real estate
collateralizing the mortgages and general levels of market interest rates. The difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates is an important determinant in the rate of prepayments.
During periods of falling mortgage interest rates, prepayments generally increase, and, conversely, during periods of rising mortgage interest rates, prepayments generally decrease. If the coupon rate of the underlying mortgage significantly exceeds
the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages. Prepayment experience is more difficult to estimate for adjustable-rate mortgage-backed
securities.



Mortgage-related securities, which include
collateralized mortgage obligations (CMOs), are typically issued by a special purpose entity, which may be organized in a variety of legal forms, such as a trust, a corporation or a partnership. The entity aggregates pools of
pass-through securities, which are used to collateralize the mortgage-related securities. Once combined, the cash flows can be divided into tranches or classes of individual securities, thereby creating more predictable
average lives for each security than the underlying pass-through pools. Accordingly, under this security structure, all principal paydowns from the various mortgage pools are allocated to a mortgage-related securities class or classes
structured to have priority until it has been paid off. These securities generally have fixed interest rates, and, as a result, changes in interest rates generally would affect the market value and possibly the prepayment rates of such securities.



Some mortgage-related securities instruments are like
traditional debt instruments due to their stated principal amounts and traditionally defined interest rate terms. Purchasers of certain other mortgage-related securities instruments are entitled to the excess, if any, of the issuers cash
flows. These mortgage-related securities instruments may include instruments designated as residual interest and are riskier in that they could result in the loss of a portion of the original investment. Cash flows from residual interests are very
sensitive to prepayments and, thus, contain a high degree of interest rate risk. The Bank does not purchase residual interests in mortgage-related securities.



The Banks mortgage-backed securities portfolio consists primarily of seasoned fixed-rate and adjustable rate mortgage-backed securities. The Bank
makes such investments in order to manage cash flow, diversify assets, obtain yield, to satisfy certain requirements for favorable tax treatment and to satisfy the qualified thrift lender test. See Regulation  Depository Institution
Regulation  Qualified Thrift Lender Test.



At
September 30, 2005, mortgage-backed securities with an amortized cost of $26.5 million were classified as held to maturity. At September 30, 2005, the Banks held to maturity mortgage-backed securities had a weighted average yield of
5.48%.



At September 30, 2005, mortgage-backed securities
with an amortized cost of $114.9 million were classified as available for sale. At September 30, 2005, the Banks available for sale mortgage-backed securities had a weighted average yield of 3.85%.



At September 30, 2005, the Bank did not have any CMOs, and the
Banks investment policy does not permit investments in individual issues of CMOs or Real Estate Mortgage Investment Conduits (REMICs).



17



---

The following table sets forth the carrying value of the Banks investments at the dates indicated.



|                                      |  |                        |         |      |   |         |  |   |        
|------------------------------------- |  | ---------------------- | ------- | ---- | - | ------- |  | - | -------
|                                      |  | At September 30,      
|                                      |  | 2005                   |         | 2004 |   | 2003   
|                                      |  | (Dollars in Thousands)
|Securities available for sale:        |  |                        |         |      |   |         |  |   |        
|U.S. government and agency securities |  | $                      | 116,443 |      | $ | 124,790 |  | $ | 90,021 
|Mortgage-backed securities            |  |                        | 112,120 |      |   | 144,260 |  |   | 116,204
|Equity investments in mutual funds    |  |                        | 34,943  |      |   | 34,158  |  |   | 31,268 
|                                      |  |                        |         |      |   |         |  |   |        
|Total Available for Sale              |  | $                      | 263,506 |      | $ | 303,208 |  | $ | 237,493
|                                      |  |                        |         |      |   |         |  |   |        
|Securities held to maturity:          |  |                        |         |      |   |         |  |   |        
|U.S. government and agency securities |  | $                      | 1,995   |      | $ | 2,497   |  | $ | 2,500  
|Mortgage-backed securities            |  |                        | 26,470  |      |   | 26,631  |  |   | 18,394 
|FHLB stock                            |  |                        | 8,060   |      |   | 6,105   |  |   | 3,305  
|                                      |  |                        |         |      |   |         |  |   |        
|Total Held to Maturity                |  | $                      | 36,525  |      | $ | 35,233  |  | $ | 24,199 
|Total                                 |  | $                      | 300,031 |      | $ | 338,441 |  | $ | 261,692
|                                      |  |                        |         |      |   |         |  |   |        



18



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The following table sets forth information in the scheduled maturities, amortized cost, market value and
average yields for the Banks investment portfolio at September 30, 200  .



|                                       |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  
|-------------------------------------- |  | ---------------------- | ------ | ------------ | ----------------- | - | ------------- | ----------------- | ------------ |  | ------------------- | ------------- |  | -------------------------- | ------ |  | ------------- | - | ------------ | - | ------- | ------------- | ---- | ----------- |  | ------------ | ------- |  | - | ------- |  | ---- | -
|                                       |  | One Year or Less       |        |              | One to Five Years |   |               | Five to Ten Years |              |  | More than Ten Years |               |  | Total Investment Portfolio |       
|                                       |  | CarryingValue          |        | AverageYield |                   |   | CarryingValue |                   | AverageYield |  |                     | CarryingValue |  | AverageYield               |        |  | CarryingValue |   | AverageYield |   |         | CarryingValue |      | MarketValue |  | AverageYield |        
|                                       |  | (Dollars in thousands) |       
|Securities available for sale:         |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  
|U.S. government and agency obligations |  | $                      | 4,501  |              | 2.06              | % |               | $                 | 81,223       |  | 3.18                | %             |  | $                          | 27,982 |  | 3.55          | % |              | $ | 4,991   |               | 4.31 | %           |  | $            | 118,697 |  | $ | 116,443 |  | 3.27 | %
|Mortgage-backed securities             |  |                        |       |              |                  |   |               |                   | 22,101       |  | 3.66                |               |  |                            | 16,928 |  | 3.96          |   |              |   | 75,848  |               | 3.96 |             |  |              | 114,877 |  |   | 112,120 |  | 3.85 |  
|Equity Investment in mutual funds      |  |                        | 36,238 |              | 4.22              |   |               |                   |             |  |                     |               |  |                            |       |  |               |   |              |   |        |               |      |             |  |              | 36,238  |  |   | 34,943  |  | 4.22 |  
|                                       |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  
|Total available for sale               |  | $                      | 40,739 |              |                   |   |               | $                 | 103,324      |  |                     |               |  | $                          | 44,910 |  |               |   |              | $ | 80,839  |               |      |             |  | $            | 269,812 |  | $ | 263,506 |  |      |  
|                                       |  |                        |        |              |                  
|                                       |  | One Year or Less       |        |              | One to Five Years |   |               | Five to Ten Years |              |  | More than Ten Years |               |  | Total Investment Portfolio |       
|                                       |  | CarryingValue          |        | AverageYield |                   |   | CarryingValue |                   | AverageYield |  |                     | CarryingValue |  | AverageYield               |        |  | CarryingValue |   | AverageYield |   |         | CarryingValue |      | MarketValue |  | AverageYield |        
|Securities held to maturity:           |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  
|U.S. government and agency obligations |  | $                      | 500    |              | 2.00              | % |               | $                 | 500          |  | 3.50                | %             |  | $                          | 995    |  | 3.52          | % |              | $ |        |               |     | %           |  | $            | 1,995   |  | $ | 1,982   |  | 3.13 | %
|Mortgage-backed securities             |  |                        | 17     |              | 4.96              |   |               |                   | 35           |  | 8.09                |               |  |                            | 657    |  | 6.27          |   |              |   | 25,761  |               | 5.46 |             |  |              | 26,470  |  |   | 26,259  |  | 5.48 |  
|FHLB stock                             |  |                        |       |              |                   |   |               |                   |             |  |                    |               |  |                            |       |  |               |   |              |   | 8,060   |               | 3.96 |             |  |              | 8,060   |  |   | 8,060   |  | 3.96 |  
|                                       |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  
|Total held to maturity                 |  | $                      | 517    |              |                   |   |               | $                 | 535          |  |                     |               |  | $                          | 1,652  |  |               |   |              | $ | 33,821  |               |      |             |  | $            | 36,525  |  | $ | 36,301  |  |      |  
|Total                                  |  | $                      | 41,256 |              |                   |   |               | $                 | 103,859      |  |                     |               |  | $                          | 46,562 |  |               |   |              | $ | 114,660 |               |      |             |  | $            | 306,337 |  | $ | 299,807 |  |      |  
|                                       |  |                        |        |              |                   |   |               |                   |              |  |                     |               |  |                            |        |  |               |   |              |   |         |               |      |             |  |              |         |  |   |         |  |      |  



19



---

Deposit Activity and Other Sources of Funds



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



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



The Bank attempts to compete for deposits with other institutions in its market area by offering competitively priced deposit instruments that are
tailored to the needs of its customers. Additionally, the Bank seeks to meet customers needs by providing convenient customer service to the community, efficient staff and convenient hours of service. Substantially all of the Banks
depositors are Maryland residents. To provide additional convenience, the Bank participates in the STAR Automated Teller Machine (ATM) network at locations throughout the mid-Atlantic and the South and the CIRRUS Automated Teller Machine
network at locations throughout the United States, through which customers can gain access to their accounts at any time. The Bank currently has ATM machines in all of its seventeen offices. The Bank also has a remote ATM at the Forest Hill Lanes in
Forest Hill, Maryland and remote ATMs at three area community colleges, Dundalk Community College, Catonsville Community College and Essex Community College. The Bank also has an Internet-based banking system to provide additional
customer convenience.



20



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Savings deposits in the Bank at September 30, 2004 were represented by the various types of savings
programs described below.



|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|------------- |  | --------------------------------- |  | ------------------------------- |  | ------------- | ------ | ----------------------- | - | --------------------------- |  | ------ | -
|Interest*Rate |  | Minimum Term                      |  | Category                        |  | MinimumAmount |        | Balances (in thousands) |   | Percentage of Total Savings | 
|%             |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  | Demand deposits:                |  |               |        |                         |   |                             |  |        |  
|.16           |  | None                              |  | NOW and Super NOW accounts      |  | $             | 250    |                         | $ | 63,497                      |  | 10.62  | %
|2.18          |  | None                              |  | Money Market                    |  |               | 250    |                         |   | 12,180                      |  | 2.04   |  
|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  | Total demand deposits           |  |               |        |                         |   | 75,677                      |  | 12.66  |  
|              |  |                                   |  | Passbook savings deposits:      |  |               |        |                         |   |                             |  |        |  
|.86           |  | None                              |  | Regular Passbook                |  |               | 25     |                         |   | 84,934                      |  | 14.21  |  
|1.21          |  | None                              |  | Money market passbook           |  |               | 10,000 |                         |   | 31,759                      |  | 5.32   |  
|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  | Total passbook savings deposits |  |               |        |                         | $ | 116,693                     |  | 19.53  | %
|              |  |                                   |  |                                 | 
|              |  |                                   |  | Certificates of Deposit         |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  |                                 | 
|1.72          |  | 3 months or less                  |  | Fixed-term, fixed rate          |  | $             | 1,000  |                         | $ | 7,845                       |  | 1.31   | %
|2.93          |  | 6 months                          |  | Fixed-term, fixed rate          |  |               | 1,000  |                         |   | 12,054                      |  | 2.02   |  
|2.76          |  | 12 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 52,187                      |  | 8.73   |  
|3.26          |  | 18 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 24,861                      |  | 4.16   |  
|3.02          |  | 24 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 49,540                      |  | 8.29   |  
|2.75          |  | 30 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 3,766                       |  | .63    |  
|3.16          |  | 36 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 12,746                      |  | 2.13   |  
|             |  | 42 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   |                            |  |       |  
|4.55          |  | 48 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 16,179                      |  | 2.71   |  
|4.18          |  | 60 months                         |  | Fixed-term, fixed rate          |  |               | 100    |                         |   | 96,156                      |  | 16.09  |  
|3.34          |  | $100,000 and over                 |  | Fixed-term, fixed rate          |  |               | N/A    |                         |   | 129,888                     |  | 21.73  |  
|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  | Total Certificates of deposit   |  |               |        |                         |   | 405,222                     |  | 67.80  |  
|              |  | Purchase accounting premiums, net |  |                                 |  |               |        | 18                      |   |                             | 
|              |  |                                   |  | Accrued interest payable        |  |               |        |                         |   | 59                          |  | .01    |  
|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  
|              |  |                                   |  | Total deposits                  |  |               |        |                         | $ | 597,669                     |  | 100.00 | %
|              |  |                                   |  |                                 |  |               |        |                         |   |                             |  |        |  

---

|* | Represents weighted average interest rate
|- | -----------------------------------------



21



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The following table sets forth the change in dollar amount of deposits in the various types of accounts
offered by the Bank between the dates indicated.



|                                         |  |                             |         |             |        |   |                    |   |        |                             |  |              |         |  |                    |   |  |                             |        |              |  |   |         |  |        |  
|---------------------------------------- |  | --------------------------- | ------- | ----------- | ------ | - | ------------------ | - | ------ | --------------------------- |  | ------------ | ------- |  | ------------------ | - |  | --------------------------- | ------ | ------------ |  | - | ------- |  | ------ | -
|                                         |  | Balance atSeptember 30,2005 |         | % ofDeposit |        |   | Increase(Decrease) |   |        | Balance atSeptember 30,2004 |  | % ofDeposits |         |  | Increase(Decrease) |   |  | Balance atSeptember 30,2003 |        | % ofDeposits | 
|                                         |  | (Dollars in thousands)      |        
|NOW                                      |  | $                           | 63,497  |             | 10.62  | % |                    | $ | 7,628  |                             |  | $            | 55,869  |  | 9.63               | % |  | $                           | 5,312  |              |  | $ | 50,557  |  | 9.15   | %
|Money market deposit                     |  |                             | 12,180  |             | 2.04   |   |                    |   | (3,176 | )                           |  |              | 15,356  |  | 2.64               |   |  |                             | (184   | )            |  |   | 15,540  |  | 2.82   |  
|Passbook savings deposits                |  |                             | 116,693 |             | 19.53  |   |                    |   | (686   | )                           |  |              | 117,379 |  | 20.22              |   |  |                             | 7,143  |              |  |   | 110,236 |  | 19.97  |  
|Certificate of deposit                   |  |                             | 275,334 |             | 46.07  |   |                    |   | 2,065  |                             |  |              | 273,269 |  | 47.07              |   |  |                             | 591    |              |  |   | 272,678 |  | 49.42  |  
|Certificate of deposit $100,000 and over |  |                             | 129,888 |             | 21.73  |   |                    |   | 11,263 |                             |  |              | 118,625 |  | 20.41              |   |  |                             | 16,107 |              |  |   | 102,518 |  | 18.57  |  
|Purchase accounting premiums, net        |  |                             | 18      |             |       |   |                    |   | (62    | )                           |  |              | 80      |  | .02                |   |  |                             | (261   | )            |  |   | 341     |  | .06    |  
|Accrued interests payable                |  |                             | 59      |             | .01    |   |                    |   | 15     |                             |  |              | 44      |  | .01                |   |  |                             | (15    | )            |  |   | 59      |  | .01    |  
|                                         |  |                             |         |             |        |   |                    |   |        |                             |  |              |         |  |                    |   |  |                             |        |              |  |   |         |  |        |  
|                                         |  | $                           | 597,669 |             | 100.00 | % |                    | $ | 17,047 |                             |  | $            | 580,622 |  | 100.00             | % |  | $                           | 28,693 |              |  | $ | 551,929 |  | 100.00 | %
|                                         |  |                             |         |             |        |   |                    |   |        |                             |  |              |         |  |                    |   |  |                             |        |              |  |   |         |  |        |  



22



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The following tables set forth the average balances and average interest rates based on month-end
balances for various types of deposits as of the dates indicated.



|                                     |  |                          |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  
|------------------------------------ |  | ------------------------ | ------- | ----------- | ---- | - | -------------- | ---- | ----------- |  | ---- | -------------- |  | ----------- | ------- |  | ---- | -
|                                     |  | Year Ended September 30, |        
|                                     |  | 2005                     |         |             | 2004 |   |                | 2003 |            
|                                     |  | AverageBalance           |         | AverageRate |      |   | AverageBalance |      | AverageRate |  |      | AverageBalance |  | AverageRate |        
|                                     |  | (Dollars in thousands)   |        
|NOW                                  |  | $                        | 38,509  |             | .32  | % |                | $    | 35,878      |  | .53  | %              |  | $           | 43,579  |  | .61  | %
|Money Market deposits                |  |                          | 13,938  |             | .95  |   |                |      | 15,702      |  | .82  |                |  |             | 15.628  |  | 1.03 |  
|Passbook savings deposits            |  |                          | 118,817 |             | .93  |   |                |      | 115,155     |  | .90  |                |  |             | 100,160 |  | 2.13 |  
|Non-interest bearing demand deposits |  |                          | 23,213  |             |     |   |                |      | 19,662      |  |     |                |  |             | 16,305  |  |     |  
|Certificate of deposit               |  |                          | 395,372 |             | 3.38 |   |                |      | 384,708     |  | 3.17 |                |  |             | 354,349 |  | 3.29 |  
|                                     |  |                          |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  
|Total                                |  | $                        | 589,849 |             | 2.49 | % |                | $    | 571,105     |  | 2.37 | %              |  | $           | 530,021 |  | 2.68 | %
|                                     |  |                          |         |             |      |   |                |      |             |  |      |                |  |             |         |  |      |  



The following table
sets forth the time deposits in the Bank classified by rates at the dates indicated.



|             |  |                        |         |      |   |         |  |   |        
|------------ |  | ---------------------- | ------- | ---- | - | ------- |  | - | -------
|             |  | At September 30,      
|             |  | 2005                   |         | 2004 |   | 2003   
|             |  | (Dollars in Thousands)
|0.26  2.00% |  | $                      | 19,290  |      | $ | 97,949  |  | $ | 84,309 
|2.01  4.00  |  |                        | 237,946 |      |   | 186,991 |  |   | 172,828
|4.01  6.00  |  |                        | 138,052 |      |   | 62,612  |  |   | 70,523 
|6.01  7.25  |  |                        | 9,934   |      |   | 44,342  |  |   | 47,536 
|             |  |                        |         |      |   |         |  |   |        
|             |  | $                      | 405,222 |      | $ | 391,894 |  | $ | 375,196
|             |  |                        |         |      |   |         |  |   |        



The following table
sets forth the amount and maturities of time deposits at September 30, 2004.



|             |  |                   |         |             |   |             |  |               |        |       |   |        |  |   |        
|------------ |  | ----------------- | ------- | ----------- | - | ----------- |  | ------------- | ------ | ----- | - | ------ |  | - | -------
|Rate         |  | Less ThanOne Year |         | 1  2 Years |   | 2  3 Years |  | After 3 Years |        | Total
|             |  | (In thousands)   
|0.26  2.00% |  | $                 | 19,039  |             | $ | 232         |  | $             |       |       | $ | 19     |  | $ | 19,290 
|2.01  4.00  |  |                   | 137,648 |             |   | 53,646      |  |               | 21,036 |       |   | 25,616 |  |   | 237,946
|4.01  6.00  |  |                   | 6,776   |             |   | 26,252      |  |               | 33,910 |       |   | 71,114 |  |   | 138,052
|6.01  7.25  |  |                   | 9,878   |             |   | 52          |  |               | 4      |       |   |       |  |   | 9,934  
|             |  |                   |         |             |   |             |  |               |        |       |   |        |  |   |        
|             |  |                   | 173,341 |             |   | 80,182      |  |               | 54,950 |       |   | 96,749 |  |   | 405,222
|             |  |                   |         |             |   |             |  |               |        |       |   |        |  |   |        



23



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The following table indicates the amount of the Banks certificates of deposit of $100,000 or more
by time remaining until maturity as of September 30, 2005. At such date, such deposits represented 22% of total deposits and had a weighted average rate of 3.34%.



|                              |  |                         |        
|----------------------------- |  | ----------------------- | -------
|Maturity Period               |  | Certificates of Deposit
|                              |  | (In thousands)         
|Three months or less          |  | $                       | 12,614 
|Over three through six months |  |                         | 23,852 
|Over six through 12 months    |  |                         | 5,594  
|Over 12 months                |  |                         | 87,828 
|                              |  |                         |        
|Total                         |  | $                       | 129,888
|                              |  |                         |        



The following table
sets forth the savings activities of the Bank for the periods indicated.



|                                    |  |                  |          |   |      |   |          |      |  |   |          |  
|----------------------------------- |  | ---------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                    |  | At September 30, |         
|                                    |  | 2005             |          |   | 2004 |   |          | 2003 | 
|                                    |  | (In Thousands)   |         
|Deposits                            |  | $                | 771,529  |   |      | $ | 579,338  |      |  | $ | 998,644  |  
|Withdrawals                         |  |                  | (769,193 | ) |      |   | (564,198 | )    |  |   | (959,547 | )
|                                    |  |                  |          |   |      |   |          |      |  |   |          |  
|Net increase before interest credit |  |                  | 2,336    |   |      |   | 15,140   |      |  |   | 39,097   |  
|Interest credited                   |  |                  | 14,711   |   |      |   | 13,553   |      |  |   | 14,223   |  
|                                    |  |                  |          |   |      |   |          |      |  |   |          |  
|Net increase in savings deposits    |  | $                | 17,047   |   |      | $ | 28,693   |      |  | $ | 53,320   |  
|                                    |  |                  |          |   |      |   |          |      |  |   |          |  



In the unlikely event
the Bank is liquidated, depositors will be entitled to full payment of their deposit accounts prior to any payment being made to the sole stockholder of the Bank.



Borrowings. Savings deposits historically have been the primary source of funds for the Banks lending,
investments and general operating activities. The Bank is authorized, however, to use advances from the FHLB of Atlanta to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Atlanta functions as a
central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member of the FHLB System, the Bank is required to own stock in the FHLB of Atlanta and is authorized to apply for advances.
Advances are pursuant to several different programs, each of which has its own interest rate and range of maturities. The Bank has a Blanket Agreement for advances with the FHLB under which the Bank may borrow up to 80% of assets subject to normal
collateral and underwriting requirements. Advances from the FHLB of Atlanta are secured by the Banks stock in the FHLB of Atlanta and other eligible assets. At September 30, 2005, the Bank had $144.8 million in outstanding FHLB advances.



On June 27, 2002, the Company established a Delaware
business trust subsidiary (the Business Trust), which issued and sold to private investors 12,500 securities with a liquidation amount of $1,000 per security, for a total of $12.5 million of preferred securities. The Company funded the
Business Trust with $387,000 in exchange for 100% of the Business Trusts common securities. The Business Trust used the proceeds from these transactions to purchase $12,887,000 of floating rate junior subordinated debentures from the Company.
The Company makes periodic interest payments on the debentures to the Business Trust, and the Business Trust in turn makes interest payments on the trust preferred securities to the private investors.



The trust preferred securities issued by the Business Trust and the junior
subordinated debentures held by the Business Trust are due June 30, 2032. The rate is 3.65% per annum over the three-month LIBOR rate and resets quarterly. The rate at September 30, 2005 was 7.25%. The junior subordinated debentures
are the sole assets of the Business Trust. The subordinated debt securities, unsecured, rank junior and are subordinate in right of payment of all senior debt of the Company, and the Company has guaranteed repayment on the trust preferred securities
issued by the Business Trust. The Company used the proceeds from these transactions to increase the capital of the Bank. The $12.5 million proceeds from the subordinated debt securities are includable as part of Tier 1 regulatory capital for the
Bank. In 2005, the Company had an annual expense of $1.5 million related to the trust preferred securities.



24



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Payments to be made by the Business Trust on the trust preferred securities are dependent on payments
that the Company has undertaken to make, particularly the payment to be made by the Company on the debentures. Distributions on the trust preferred securities are payable quarterly at a rate of 3.65% per annum over the three-month LIBOR rate.
The distributions are funded by interest payments received on the debentures and are subject to deferral for up to five years under certain conditions. Distributions are included in interest expense. The Company may redeem the debentures, in whole
or in part, at par at any time after June 30, 2007, or under certain conditions in whole but not in part, at any time at a redemption price equal to 103% of the principal amount plus any accrued unpaid interest.



On September 29, 2003, the Company established a second Delaware
statutory trust subsidiary (the Statutory Trust), which issued and sold to private investors 10,000 securities with a liquidation amount of $1,000 per security, for a total of $10.0 million of preferred securities. The Company funded the
Statutory Trust with $310,000 in exchange for 100% of the Statutory Trusts common securities. The Statutory Trust used the proceeds from these transactions to purchase $10,310,000 of floating rate junior subordinated debentures from the
Company. The Company makes periodic interest payments on the debentures to the Statutory Trust, and the Statutory Trust in turn makes interest payments on the trust preferred securities to the private investors.



The trust preferred securities and junior subordinated debentures are due
October 7, 2033. The rate is 3.00% per annum over the three-month LIBOR rate and resets quarterly. The rate at September 30, 2005 was 6.60%. The junior subordinated debentures are the sole assets of the Statutory Trust. The
subordinated debt securities, unsecured, rank junior and are subordinate in right of payment of all senior debt of the Company, and the Company has guaranteed repayment on the trust preferred securities issued by the Statutory Trust. The Company
used the proceeds from these transactions to increase the capital of the Bank. The $10.3 million proceeds from the subordinated debt securities are includable as part of Tier 1 regulatory capital for the Bank.



Payments to be made by the Statutory Trust on the trust preferred securities
are dependent on payments that the Company has undertaken to make, particularly the payment to be made by the Company on the debentures. Distributions on the trust preferred securities are payable quarterly at a rate of 3.00% per annum over the
three-month LIBOR rate. The distributions are funded by interest payments received on the debentures and are subject to deferral for up to five years under certain conditions. Distributions are included in interest expense. The Company may redeem
the debentures, in whole or in part, at par at any time after October 7, 2008, or under certain conditions in whole but not in part, at any time at a redemption price equal to 103% of the principal amount plus any accrued unpaid interest.



Subsidiary Activities



As a federally chartered savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries, with an additional investment of 1% of assets where such investment serves primarily community, inner-city and community development purposes. Under such limitations, as of September 30, 2005,
the Bank was authorized to invest up to approximately $24.4 million in the stock of or loans to subsidiaries, including the additional 1% investment for community inner-city and community development purposes. Institutions meeting their applicable
minimum regulatory capital requirements may invest up to 50% of their regulatory capital in conforming first mortgage loans to subsidiaries in which they own 10% or more of the capital stock.



The Bank has one subsidiary service corporation, Ebenezer Road, Inc.
(Ebenezer Road). Ebenezer Road is an insurance agency that sells primarily vendors single interest insurance on automobile loans, as well as annuity products. The fees from the activities of its subsidiaries were immaterial during
the year ended September 30, 2005. During the year ended September 2005, Baltimore County Service Corporation was dissolved. It conducted no business for the last three years.



25



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Competition



The Bank faces strong competition both in originating real estate and consumer loans and in attracting deposits. The Bank competes for real estate and
other loans principally on the basis of interest rates, the types of loans it originates, the deposit products it offers and the quality of services it provides to borrowers. The Bank also competes by offering products which are tailored to the
local community. Its competition in originating real estate loans comes primarily from other savings institutions, commercial banks and mortgage bankers. Commercial banks, credit unions and finance companies provide vigorous competition in consumer
lending. Competition may increase as a result of the continuing reduction of restrictions on the interstate operations of financial institutions.



The Bank attracts its deposits through its offices primarily from the local community. Consequently, competition for deposits is principally from other
savings institutions, commercial banks, credit unions and brokers in the local community. The Bank competes for deposits and loans by offering what it believes to be a variety of deposit accounts at competitive rates, convenient business hours, a
commitment to outstanding customer service and a well-trained staff. The Bank believes it has developed strong relationships with local realtors and the community in general.



Management considers its market area for gathering deposits and making loans to be the Baltimore metropolitan area in
Maryland. The Bank estimates that it competes with numerous banks and savings and loan associations for deposits and loans. Based on data provided by a private marketing firm, the Bank estimates that at September 30, 2005, it had approximately
3.1% of deposits held by all banks and savings institutions in the Baltimore Metropolitan Area.



Employees



As of
September 30, 2005, the Company had 173 full-time and 24 part-time employees, none of whom were represented by a collective bargaining agreement. Management considers the Banks relationships with its employees to be good.



Depository Institution Regulation



General. The Bank is a federally chartered savings institution, is a
member of the FHLB of Atlanta and its deposits are insured by the Federal Deposit Insurance Corporation (FDIC) through the Savings Association Insurance Fund (SAIF). As a federal savings institution, the Bank is subject to
regulation and supervision by the Office of Thrift Supervision (OTS) and the FDIC and to OTS regulations governing such matters as capital standards, mergers, establishment of branch offices, subsidiary investments and activities and
general investment authority. The OTS periodically examines the Bank for compliance with various regulatory requirements and for safe and sound operations. The FDIC also has the authority to conduct special examinations of the Bank because its
deposits are insured by the SAIF. The Bank must file reports with the OTS describing its activities and financial condition and must obtain the approval of the OTS prior to entering into certain transactions, such as mergers with or acquisitions of
other depository institutions. Certain of the laws and regulations governing the Bank and Company are described below. However, the description does purport to be a complete discussion of the legal and regulatory requirements to which the Bank and
Company are subject and is qualified in its entirety by reference to the actual laws and regulations.



Regulatory Capital Requirements. Under the OTSs regulatory capital requirements, savings associations must maintain tangible
capital equal to 1.5% of adjusted total assets, core capital equal to at least 4.0% (or 3.0%, if the institution is rated composite 1 CAMELS under the OTS examination rating system) of adjusted total assets and total capital
(a combination of core and supplementary capital) equal to 8.0% of risk-weighted assets. In addition, the OTS has adopted regulations which impose certain restrictions on savings associations that have a total risk-based
capital ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0%, if the institution is rated composite 1 CAMELS under the OTS
examination rating system). For purposes of these regulations, Tier 1 capital has the same definitions as core capital. See Prompt Corrective Regulatory Action.



Core capital is defined as common stockholders equity (including retained earnings), noncumulative perpetual preferred
stock and related surplus, minority interests in the equity accounts of fully consolidated



26



---

subsidiaries, certain nonwithdrawable accounts and pledged deposits and qualifying supervisory goodwill. Core capital is generally reduced by the
amount of the savings institutions intangible assets for which no market exists. Limited exceptions to the deduction of intangible assets are provided for purchased mortgage servicing rights, purchased credit card relationships and qualifying
supervisory goodwill. Tangible capital is given the same definition as core capital but does not include an exception for qualifying supervisory goodwill and is reduced by the amount of all the savings associations intangible assets with only
a limited exception for purchased mortgage servicing rights. Both core and tangible capital are further reduced by an amount equal to a savings institutions debt and equity investments in subsidiaries engaged in activities not permissible to
national banks (other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies). Investments in and extensions of credit to such
subsidiaries are required to be fully netted against tangible and core capital. At September 30, 2005, the Bank had no such investments.



Adjusted total assets are a savings associations total assets as determined under generally accepted accounting principles increased by certain
goodwill amounts and by a prorated portion of the assets of unconsolidated includable subsidiaries in which the savings association holds a minority interest. Adjusted total assets are reduced by the amount of assets that have been deducted from
capital, the portion of savings associations investments in unconsolidated includable subsidiaries, and, for purpose of the core capital requirement, qualifying supervisory goodwill. At September 30, 2005, the Banks adjusted total
assets for the purposes of the core and tangible capital requirements were approximately $8.4 million.



In determining compliance with the risk-based capital requirement, a savings association is allowed to include both core capital and supplementary capital
in its total capital provided the amount of supplementary capital included does not exceed the savings associations core capital. Supplementary capital is defined to include certain preferred stock issues, nonwithdrawable accounts and pledged
deposits that do not qualify as core capital, certain approved subordinated debt, certain other capital instruments, a portion of the savings associations general loss allowances and up to 45% of unrealized gains on equity securities. Total
core and supplementary capital are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and all equity investments. As of September 30, 2005, the Bank had no investments for
which OTS regulations require a deduction from total capital.



The risk-based capital requirement is measured against risk-weighted assets which equal the sum of each asset and the credit-equivalent amount of each off-balance sheet item after being multiplied by an assigned risk weight. Under the OTS
risk-weighting system, one-to-four family first mortgages not more than 90 days past due with loan-to-value ratios under 80% and average annual occupancy rates of at least 80% and certain qualifying loans for the construction of one-to-four-family
residences pre-sold to home purchasers are assigned a risk weight of 50%. Consumer and residential construction loans are assigned a risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal and interest by the FNMA
or FHLMC are assigned a 20% risk weight. Cash and U.S. Government securities backed by the full faith and credit of the U.S. Government (such as mortgage-backed securities issued by GNMA) are given a 0% risk weight.



For information with respect to the Banks compliance with its
regulatory capital requirements at September 30, 2005 see Note 14 of Notes to Consolidated Financial Statements.



The risk-based capital requirements of the OTS also require that savings institutions with more than a normal level of interest rate risk to
maintain additional total capital. A savings institutions interest rate risk is measured in terms of the sensitivity of its net portfolio value to changes in interest rates. The interest rate risk rule did not have a material
effect on the Banks risk-based capital at September 30, 2005.



In addition to requiring generally applicable capital standards for savings institutions, the OTS is authorized to establish the minimum level of capital for a savings institution at such amount or at such ratio of
capital-to-assets as the OTS determines to be necessary or appropriate for such institution in light of the particular circumstances of the institution. Such circumstances would include a high degree of exposure to interest rate risk, concentration
of credit risk and certain risks arising from non-traditional activity. The OTS may treat the failure of any savings institution to maintain capital at or above such level as an unsafe or unsound practice and may issue a directive requiring any
savings institution which fails to maintain capital at or above the minimum level required by the OTS to submit and adhere to a plan for increasing capital.



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Qualified Thrift Lender Test. A savings institution that does not meet the Qualified Thrift Lender
(QTL) test must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for both a national bank and a savings institution; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain
any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. In addition, any company that controls a savings institution that fails to qualify as
a QTL will be required to register as, and to be deemed, a bank holding company subject to all of the provisions of the Bank Holding Company Act of 1956 (the BHCA) and other statutes applicable to bank holding companies. Upon the
expiration of three years from the date the institution ceases to be a QTL, it must cease any activity and not retain any investment not permissible for a national bank and a savings institution and immediately repay any outstanding FHLB advances
(subject to safety and soundness considerations).



To meet the
QTL test, an institution must either qualify as a domestic building and loan association under the Internal Revenue Code or its Qualified Thrift Investments must total at least 65% of portfolio assets. Under OTS
regulations, portfolio assets are defined as total assets less intangibles, property used by a savings institution in its business and liquidity investments in an amount not exceeding 20% of assets. Qualified Thrift Investments consist of
(i) loans, equity positions or securities related to domestic, residential real estate or manufactured housing, (ii) 50% of the dollar amount of residential mortgage loans subject to sale under certain conditions, (iii) education
loans, small business loans and credit card loans, and (iv) stock in an FHLB. In addition, subject to a 20% of portfolio assets limit, savings institutions are able to treat as Qualified Thrift Investments consumer loans, 200% of their
investments in loans to finance starter homes and loans for construction, development or improvement of housing and community service facilities or for financing small businesses in credit-needy areas. In order to maintain
QTL status, the savings institution must maintain a weekly average percentage of Qualified Thrift Investments to portfolio assets equal to 65% on a monthly average basis in nine out of 12 months. A savings institution that fails to maintain QTL
status will be permitted to requalify once, and if it fails the QTL test a second time, it will become immediately subject to all penalties as if all time limits on such penalties had expired.



At September 30, 2005, the percentage of the Banks portfolio
assets invested in Qualified Thrift Investments was in excess of the percentage required to qualify the Bank under the QTL test.



Dividend Limitations. Under the OTS prompt corrective action regulations, the Bank would be prohibited from making any capital distributions if,
after making the distribution, it would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a Tier 1 leverage ratio of less than 4.0%. See Prompt
Corrective Regulatory Action. Under OTS regulations, the Bank is not permitted to pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for
the benefit of certain depositors of the Bank at the time of its conversion to stock form.



Savings institutions must submit notice to the OTS prior to making a capital distribution if (a) they would not be well-capitalized after the distribution, (b) the distribution would result in the retirement
of any of the institutions common or preferred stock or debt counted as its regulatory capital, or (c) the institution is a subsidiary of a holding company. A savings institution must make application to the OTS to pay a capital
distribution if (w) the institution would not be adequately capitalized following the distribution, (x) the institutions total distributions for the calendar year exceeds the institutions net income for the calendar year to
date plus its net income (less distributions) for the preceding two years, the savings association is not eligible for expedited treatment under OTS regulations (generally, examination and Community Reinvestment Act ratings in one of the
two top categories), or (y) the distribution would otherwise violate applicable law or regulation or an agreement with or condition imposed by the OTS.



In addition to the foregoing, earnings of the Bank appropriated to bad debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to the Company without payment of taxes at the then current tax rate by the Bank on the amount of earnings removed from the reserves for such distributions. See Taxation. The Company
intends to make full use of this favorable tax treatment afforded to the Bank and the Company and does not contemplate use of any earnings of the Bank in a manner which would limit either institutions bad debt deduction or create federal tax
liabilities.



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Deposit Insurance. FDICIA required the FDIC to establish a risk-based assessment system for
insured depository institution that takes into account the risks attributable to different categories and concentrations of assets and liabilities. Under the rule, the FDIC assigns an association to one of three capital categories consisting of
(i) well capitalized, (ii) adequately capitalized, or (iii) undercapitalized, and one of three supervisory subcategories. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to
the FDIC by the institutions primary federal regulator and information which the FDIC determines to be relevant to the institutions financial condition and the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institutions state supervisor). An institutions assessment rate depends on the capital category and supervisory category to which it is assigned. There are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different assessment rates are applied. Assessment rates currently range from zero basis points for an institution in the highest category (i.e., well-capitalized and healthy)
to 27 basis points of assessable deposits for an institution in the lowest category (i.e., undercapitalized and of substantial supervisory concern.) In addition to the assessment for deposit insurance, all FDIC-insured savings institutions
and commercial banks are required to make payments on bonds issued in the 1980s by the Financing Corporation to capitalize the predecessor to the SAIF. During fiscal 2005, such payments approximated 1.34 basis points.



Federal Home Loan Bank System. The Bank is a member of the FHLB
System, which consists of 12 district Federal Home Loan Banks subject to supervision and regulation by the Federal Housing Finance Board (FHFB). The Federal Home Loan Banks provide a central credit facility primarily for member
institutions. As a member of the FHLB of Atlanta, the Bank is required to acquire and hold shares of capital stock in the FHLB of Atlanta. The Bank was in compliance with this requirement with investment in FHLB of Atlanta stock at
September 30, 2005 of $8.1 million. The FHLB of Atlanta serves as a reserve or central bank for its member institutions within its assigned district. It is funded primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It offers advances to members in accordance with policies and procedures established by the FHFB and the Board of Directors of the FHLB of Atlanta. Long-term advances may only be made for the purpose of providing funds for residential
housing finance. At September 30, 2005, the Bank had $144.8 million in advances outstanding from the FHLB of Atlanta.



Federal Reserve System. Pursuant to regulations of the Federal Reserve Board, all FDIC-insured depository institutions were required to maintain
average daily reserves equal to 3% on transaction accounts from $7.0 million up to $47.6 million, plus 10% on the amount over $47.6 million. These reserve requirements are subject to adjustment by the Federal Reserve Board and were recently adjusted
to 3% on transaction accounts from $7.8 million to $48.3 million, plus 10% on the amount over $48.3 million. Because required reserves must be maintained in the form of vault cash or in a non-interest bearing account at a Federal Reserve Bank, the
effect of the reserve requirement is to reduce the amount of the institutions interest-earning assets. As of September 30, 2005, the Bank met its reserve requirements.



Prompt Corrective Regulatory Action.Under FDICIA, the federal banking regulators are required to take prompt
corrective action if an insured depository institution fails to satisfy certain minimum capital requirements, including a leverage limit, a risk-based capital requirement, and any other measure deemed appropriate by the federal banking regulators
for measuring the capital adequacy of an insured depository institution. All institutions, regardless of their capital levels, are restricted from making any capital distribution or paying any management fees if the institution would thereafter fail
to satisfy the minimum levels for any of its capital requirements. An institution that fails to meet the minimum level for any relevant capital measure (an undercapitalized institution) may be: (i) subject to increased monitoring by
the appropriate federal banking regulator; (ii) required to submit an acceptable capital restoration plan within 45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior regulatory approval for acquisitions,
branching and new lines of businesses. The capital restoration plan must include a guarantee by the institutions holding company that the institution will comply with the plan until it has been adequately capitalized on average for four
consecutive quarters, under which the holding company would be liable up to the lesser of 5% of the institutions total assets or the amount necessary to bring the institution into capital compliance as of the date it failed to comply with its
capital restoration plan. A significantly undercapitalized institution, as well as any undercapitalized institution that does not submit an acceptable capital restoration plan, may be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates, limitations on interest rates paid on deposits, asset growth and other activities, possible replacement of directors and officers, and restrictions on capital distributions by any
bank holding company controlling the institution. Any company controlling the institution may also be required to divest the institution or



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the institution could be required to divest subsidiaries. The senior executive officers of a significantly undercapitalized institution may not receive
bonuses or increases in compensation without prior approval and the institution is prohibited from making payments of principal or interest on its subordinated debt. In their discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that such actions are necessary to carry out the purposes of the prompt corrective provisions. If an institutions ratio of tangible capital to total assets falls below
the critical capital level established by the appropriate federal banking regulator, the institution will be subject to conservatorship or receivership within specified time periods.



Under the implementing regulations, the federal banking regulators, including
the OTS, generally measure an institutions capital adequacy on the basis of its total risk-based capital ratio (the ratio of its total capital to risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its core capital to adjusted total assets). The following table shows the capital ratios required for the various prompt corrective action categories. The OTS may reclassify a well capitalized
savings institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with the supervisory actions applicable to institutions in the next lower capital category (but may not reclassify a
significantly undercapitalized institution as critically undercapitalized) if the OTS determines, after notice and an opportunity for a hearing, that the savings institution is in an unsafe or unsound condition or that the institution has received
and not corrected a less-than-satisfactory rating for any CAMELS rating category.



|                                |  |                  |  |                       |  |                  |  |                              
|------------------------------- |  | ---------------- |  | --------------------- |  | ---------------- |  | -----------------------------
|                                |  | Well Capitalized |  | AdequatelyCapitalized |  | Undercapitalized |  | SignificantlyUndercapitalized
|                                |  |                  |  |                      
|Total risk-based capital ratio  |  | 10.0% or more    |  | 8.0% or more          |  | Less than 8.0%   |  | Less than 6.0%               
|Tier I risk-based capital ratio |  | 6.0% or more     |  | 4.0% or more          |  | Less than 4.0%   |  | Less than 3.0%               
|Leverage ratio                  |  | 5.0% or more     |  | 4.0% or more          |  | Less than 4.0%   |  | Less than 3.0%               

---

|* | 3.0% if institution has composite 1 CAMELS rating.
|- | --------------------------------------------------



A critically undercapitalized savings institution is defined as an institution that has a ratio of tangible equity to total assets of less than
2.0%. Tangible equity is defined as core capital plus cumulative perpetual preferred stock (and related surplus) less all intangibles other than qualifying supervisory goodwill and certain purchased mortgage servicing rights.



Safety and Soundness Standards. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the CDRI Act), each Federal banking agency was required to establish safety and soundness standards for institutions under its authority. On July 10, 1995, the Federal
banking agencies, including the OTS, released Interagency Guidelines Establishing Standards for Safety and Soundness and published a final rule establishing deadlines for submission and review of safety and soundness compliance plans. The guidelines
require savings institutions to maintain internal controls and information systems and internal audit systems that are appropriate for the size, nature and scope of the institutions business. The guidelines also establish certain basic
standards for loan documentation, credit underwriting, interest rate risk exposure, and asset growth. The guidelines further provide that savings institutions should maintain safeguards to prevent the payment of compensation, fees and benefits that
are excessive or that could lead to material financial loss, and should take into account factors such as comparable compensation practices at comparable institutions. If the OTS determines that a savings institution is not in compliance with the
safety and soundness guidelines, it may require the institution to submit an acceptable plan to achieve compliance with the guidelines. A savings institution must submit an acceptable compliance plan to the OTS within 30 days of receipt of a request
for such a plan. Failure to submit or implement a compliance plan may subject the institution to regulatory sanctions. Under the guidelines, a savings institution should maintain systems, commensurate with its size and the nature and scope of its
operations, to identify problem assets and prevent deterioration in those assets as well as to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves. Management believes that these regulatory
standards do not materially affect the Banks operations.



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Lending Limits. Savings institutions generally are subject to the lending limits applicable to
national banks. With certain limited exceptions, the amount that a savings institution or a national bank may lend to any borrower outstanding at one time may not exceed 15% of the unimpaired capital and surplus of the institution. Loans and
extensions of credit fully secured by readily marketable collateral may comprise an additional 10% of unimpaired capital and surplus. Savings institutions are additionally authorized to make loans to one borrower, for any purpose: (i) in an
amount not to exceed $500,000, or (ii) by order of the Director of OTS, in an amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and surplus to develop residential housing, provided: (a) the purchase price of each
single-family dwelling in the development does not exceed $500,000; (b) the savings institution is and continues to be in compliance with its regulatory capital requirements; (c) the loans comply with applicable loan-to-value requirements,
and; (d) the aggregate amount of loans made under this authority does not exceed 150% of unimpaired capital and surplus, or (iii) loans to finance the sale of real property acquired in satisfaction of debts previously contracted in good
faith, not to exceed 50% of unimpaired capital and surplus of the institution.



At September 30, 2005, the Banks general lending limit was $8.2 million.



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



The Interagency Guidelines, among other things, call upon depository institutions to establish internal loan-to-value limits for real estate loans that
are not in excess of the following supervisory limits: (i) for loans secured by raw land, the supervisory loan-to-value limit is 65% of the value of the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the supervisory limit is 75%; (iii) for loans for the construction of commercial, multifamily or other nonresidential property, the supervisory limit is 80%; (iv) for
loans for the construction of one-to-four family properties, the supervisory limit is 85%; and (v) for loans secured by other improved property (e.g., farmland, completed commercial property and other income-producing property including
nonowner-occupied, one-to four-family property), the limit is 85%. Although no supervisory loan-to-value limit has been established for owner-occupied, one-to four-family and home equity loans, the Interagency Guidelines state that for any such loan
with a loan-to-value ratio that equals or exceeds 90% at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.



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



Management believes that the Banks
current lending policies conform to the Interagency Guidelines.



Transactions with Related Parties. Generally, transactions between a savings bank or its subsidiaries and its affiliates must be on terms as favorable to the Bank as transactions with non-affiliates. In addition, certain of these
transactions are restricted to a percentage of the Banks capital and are subject to specified collateral requirements. Affiliates of the Bank include the Company, the MHC, BCSB Bancorp Capital Trust I, BCSB Capital Trust II and any company
which is under common control with the Bank.



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The Banks authority to extend credit to executive officers, directors, trustees and 10%
shareholders, as well as entities under such persons control are currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated by the Federal Reserve Board. Among other things, these regulations generally
require such loans to be made on terms substantially similar to those offered to unaffiliated individuals, place limits on the amount of loans the Bank may make to such persons based, in part, on the Banks capital position, and require certain
board of directors approval procedures to be followed.



Enforcement. The OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and
desist order to removal of officers and/or directors in institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day
in especially egregious cases. The FDIC has the authority to recommend to the Director of the OTS that enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.



Regulation of the Company



The Company is a savings and loan holding company within the meaning of Section 10 of the Home Owners Loan Act and, as such, the Company is
subject to OTS regulation, examination and supervision.



According to federal law and Office of Thrift Supervision regulations, a mutual holding company, such as the MHC, may generally engage in the following activities: (1) investing in the stock of a bank; (2) acquiring a mutual
association through the merger of such association into a bank subsidiary of such holding company or an interim bank subsidiary of such holding company; (3) merging with or acquiring another holding company, one of whose subsidiaries is a bank;
and (4) any activity approved by the Federal Reserve Board for a bank holding company or financial holding company or previously approved by Office of Thrift Supervision for multiple savings and loan holding companies.



The Company is permitted to, among other things: (i) invest in the stock
of a savings institution; (ii) acquire a mutual institution through the merger of such institution into a savings institution subsidiary of such mutual holding company or an interim savings institution of such mutual holding company;
(iii) merge with or acquire another mutual holding company, one of whose subsidiaries is a savings institution; (iv) acquire non-controlling amounts of the stock of savings institutions and savings institution holding companies, subject to
certain restrictions; (v) invest in a corporation the capital stock of which is available for purchase by a savings institution under Federal law or under the law of any state where the subsidiary savings institution or institutions have their
home offices; (vi) furnish or perform management services for a savings institution subsidiary of such company; (vi) hold, manage, or liquidate assets owned or acquired from a savings institution subsidiary of such company;
(viii) hold or manage properties used or occupied by a savings institution subsidiary of such company; and (ix) acting as a trustee under deed or trust.



The Home Owners Loan Act prohibits a savings and loan holding company, such as the Company from, directly or
indirectly, (1) acquiring control (as defined) of a savings institution (or holding company thereof) without prior OTS approval, (2) acquiring more than 5% of the voting shares of a savings institution (or holding company thereof) which is
not a subsidiary, subject to certain exceptions, without prior OTS approval, or (3) acquiring through merger, consolidation or purchase of assets, another savings institution (or holding company thereof) or acquiring all or substbantially all
of the assets, another savings institution (or holding company thereof) without prior OTS approval, or (4) acquiring control of an uninsured institution. A savings and loan holding company may not acquire as a separate subsidiary a savings
institution which has its principal offices outside of the state where the principal offices of its subsidiary institution is located, except (i) in the case of certain emergency acquisitions approved by the FDIC, (ii) if the holding
company controlled (as defined) such savings institution as of March 5, 1987, (iii) when the laws of the state in which the savings institution to be acquired is located specifically authorize such an acquisition. No director or officer of
a savings and loan holding company or person owning or controlling more than 25% of such holding companys voting shares may, except with the prior approval of the OTS, acquire control of any savings institution which is not a subsidiary of
such holding company.



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Acquisition of Control.Under the federal Change in Bank Control Act, a notice must be submitted
to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire control of a savings and loan holding company or savings association. An acquisition of control can occur
upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision
has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control
would then be subject to regulation as a savings and loan holding company.



Taxation



General. The Company and the
Bank, together with the Banks subsidiaries, file a consolidated federal income tax return based on a fiscal year ending September 30. Consolidated returns have the effect of deferring gain or loss on intercompany transactions and allowing
companies included within the consolidated return to offset income against losses under certain circumstances.



Federal Income Taxation. Thrift institutions are subject to the provisions of the Internal Revenue Code of 1986, as amended (the Code)
in the same general manner as other corporations. However, institutions such as the Bank which met certain definitional tests and other conditions prescribed by the Code benefited from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. For purposes of the bad debt reserve deduction, loans were separated into qualifying real property loans, which generally are loans secured by interests in certain real
property, and nonqualifying loans, which are all other loans. The bad debt reserve deduction with respect to nonqualifying loans was based on actual loss experience, however, the amount of the bad debt reserve deduction with respect to qualifying
real property loans could be based upon actual loss experience (the experience method) or a percentage of taxable income determined without regard to such deduction (the percentage of taxable income method).



Earnings appropriated to an institutions bad debt reserve and claimed
as a tax deduction were not available for the payment of cash dividends or for distribution to shareholders (including distributions made on dissolution or liquidation), unless such amount was included in taxable income, along with the amount deemed
necessary to pay the resulting federal income tax.



Beginning
with the first taxable year beginning after December 31, 1995, savings institutions, such as the Bank, are treated the same as commercial banks. Associations with $500 million or more in assets will only be able to take a tax deduction when a
loan is actually charged off. Associations with less than $500 million in assets will still be permitted to make deductible bad debt additions to reserves, but only using the experience method.



The Banks tax returns were last audited for the year ended
September 30, 1994.



Under provisions of the Revenue
Reconciliation Act of 1993 (RRA), enacted on August 10, 1993, the maximum federal corporate income tax rate was increased from 34% to 35% for taxable income over $10.0 million, with a 3% surtax imposed on taxable income over $15.0
million. Also under provisions of RRA, a separate depreciation calculation requirement has been eliminated in the determination of adjusted current earnings for purposes of determining alternative minimum taxable income, rules relating to payment of
estimated corporate income taxes were revised, and certain acquired intangible assets such as goodwill and customer-based intangibles were allowed a 15-year amortization period. Beginning with tax years ending on or after January 1, 1993, RRA
also provides that securities dealers must use mark-to-market accounting and generally reflect changes in value during the year or upon sale as taxable gains or losses. The IRS has indicated that financial institutions which originate and sell loans
will be subject to the rule.



State Income Taxation. The
state of Maryland imposes an income tax of approximately 7% on income measured substantially the same as federally taxable income. The state of Maryland currently assesses a personal property tax for December 2000 and forward.



For additional information regarding taxation, see Note 15 of Notes to
Financial Statements.



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|Item 1A. | Risk Factors
|-------- | ------------



Certain interest rate movements may hurt earnings and asset value.



Interest rates have recently been at historically low levels. However, since June 30, 2004, the U.S. Federal Reserve has increased its target for the
federal funds rate from 1.00% to 4.25%. While these short-term market interest rates (which are used as a guide to price the Banks deposits) have increased, longer-term market interest rates (which are used as a guide to price the Banks
longer-term loans) have not. This flattening of the market yield curve has had a negative impact on the Banks interest rate spread and net interest margin to date, and if short-term interest rates continue to rise, and if rates on
the Banks deposits and borrowings continue to reprice upwards faster than the rates on the Banks long-term loans and investments, the Bank would experience further compression of its interest rate spread and net interest margin, which
would have a negative effect on the Banks profitability.



Changes in interest rates also affect the value of the Banks interest-earning assets, and in particular the Banks securities portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest
rates. Unrealized gains and losses on securities available for sale are reported as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an
adverse effect on stockholders equity.



Strong competition within the
Banks market area could hurt profits and slow growth.



The Bank faces intense competition both in making loans and attracting deposits. This competition has made it more difficult for the Bank to make new loans and at times has forced the Bank to offer higher deposit rates. Price competition
for loans and deposits might result in the Bank earning less on loans and paying more on deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. Competition also makes it more difficult
to hire and retain experienced employees. Some of the institutions with which the Bank competes have substantially greater resources and lending limits than the Bank has and may offer services that the Bank does not provide. Management expects
competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. The Banks profitability depends upon its continued ability to
compete successfully in its market area.



The MHCs
majority control of the Companys common stock enables it to exercise voting control over most matters put to a vote of stockholders and will prevent stockholders from forcing a sale or a second-step conversion transaction which stockholders
may find advantageous.



The MHC owns a majority of the
Companys common stock and, through its board of directors, is able to exercise voting control over most matters put to a vote of stockholders. The same directors and officers who manage the Company and the Bank also manage the MHC. As a
federally chartered mutual holding company, the board of directors of the MHC must ensure that the interest of depositors of the Bank are represented and considered in matters put to a vote of stockholders of the Company. Therefore, the votes cast
by the MHC may not be in stockholders personal best interests. For example, the MHC may exercise its voting control to defeat a stockholder nominee for election to the Companys board of directors. In addition, stockholders will not be
able to force a merger or second-step conversion transaction without the consent of the MHC. Some stockholders may desire a sale or merger transaction, since stockholders typically receive a premium for their shares, or a second-step conversion
transaction, since fully converted institutions tend to trade at higher multiples than mutual holding companies.



The Company, Bank and MHC operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.



The Bank is subject to extensive regulation, supervision and examination by
the Office of Thrift Supervision, its primary federal regulator, and by the Federal Deposit Insurance Corporation, as insurer of our deposits. The MHC, the Company and the Bank are all subject to regulation and supervision by the Office of Thrift
Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather
than for holders of the Companys common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of the Banks
assets and determination of the level of allowance for loan losses. Any change in such



34



---

regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on operations.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------



Not applicable.



|Item 2. | Properties
|------- | ----------



The following table sets forth the location and certain additional information regarding the Banks offices at September 30, 2005.



|                       |  |            |  |                |  |                                |  |                                |           |                          |        |                              |   |        
|---------------------- |  | ---------- |  | -------------- |  | ------------------------------ |  | ------------------------------ | --------- | ------------------------ | ------ | ---------------------------- | - | -------
|                       |  | YearOpened |  | Owned orLeased |  | Expiration Date(If Leased) (1) |  | Book Value atSeptember 30,2005 |           | ApproximateSquareFootage |        | Deposits atSeptember 30,2005
|                       |  |            |  |                |  |                                |  |                                |           |                          |        | (Deposits inThousands)      
|Main Office:           |  |            |  |                |  |                                |  |                                |           |                          |        |                              |   |        
|Perry Hall             |  | 1955       |  | Leased (2)     |  | November 2018                  |  | $                              | 226,254   |                          | 8,000  |                              | $ | 142,468
|                       |  |            |  |                |  |                               
|Branch Offices:        |  |            |  |                |  |                                |  |                                |           |                          |        |                              |   |        
|Bel Air                |  | 1975       |  | Leased         |  | June 2008                      |  |                                |           |                          | 2,000  |                              |   | 51,596 
|Dundalk (3)            |  | 1976       |  | Leased         |  | June 2006                      |  |                                |           |                          | 1,700  |                              |   | 50,421 
|Timonium               |  | 1978       |  | Leased         |  | July 2013                      |  |                                |           |                          | 1,250  |                              |   | 68,869 
|Catonsville            |  | 2003       |  | Leased         |  | April 2011                     |  |                                |           |                          | 3,550  |                              |   | 53,619 
|Abingdon               |  | 1999       |  | Leased (2)     |  | October 2008                   |  |                                | 423,261   |                          | 1,800  |                              |   | 15,954 
|Forest Hill            |  | 1999       |  | Leased (2)     |  | July 2019                      |  |                                | 368,027   |                          | 1,800  |                              |   | 24,638 
|Essex                  |  | 1999       |  | Leased         |  | November 2007                  |  |                                |           |                          | 3,200  |                              |   | 17,514 
|Hickory                |  | 2000       |  | Leased (2)     |  | January 2020                   |  |                                | 423,851   |                          | 1,800  |                              |   | 12,059 
|White Marsh            |  | 2000       |  | Leased (2)     |  | January 2015                   |  |                                | 481,713   |                          | 1,800  |                              |   | 30,207 
|Carney                 |  | 2001       |  | Leased         |  | July 2011                      |  |                                |           |                          | 2,100  |                              |   | 27,895 
|Lutherville (4)        |  | 2002       |  | Owned          |  |                                |  |                                | 672,111   |                          | 7,440  |                              |   | 30,160 
|Golden Ring (4)        |  | 2002       |  | Leased         |  | May 2011                       |  |                                |           |                          |        |                              |   | 28,773 
|Hamilton (4)           |  | 2002       |  | Owned          |  |                                |  |                                | 139,348   |                          | 1,500  |                              |   | 11,245 
|Ellicott City (4)      |  | 2002       |  | Leased         |  | August 2020                    |  |                                |           |                          |        |                              |   | 27,300 
|Honeygo                |  | 2005       |  | Leased (2)     |  | December 2025                  |  |                                | 723,094   |                          | 1,800  |                              |   | 3,377  
|Sparks                 |  | 2005       |  | Leased (2)     |  | December 2025                  |  |                                | 671,811   |                          | 1,800  |                              |   | 1,574  
|Owings Mills           |  | 2005       |  | Leased (2)     |  | September 2026                 |  |                                |           |                          | 1,800  |                              |   |        
|                       |  |            |  |                |  |                               
|Administrative Office: |  |            |  |                |  |                                |  |                                |           |                          |        |                              |   |        
|4111 E. Joppa Road     |  | 1994       |  | Owned          |  |                                |  |                                | 1,168,904 |                          | 18,000 |                              |   |        
|Warehouse              |  | 1998       |  | Leased         |  | January 2006                   |  |                                |           |                          | 4,800  |                              |   |        
|4117 E. Joppa Road     |  | 2003       |  | Owned          |  |                                |  |                                | 563,318   |                          | 2,616  |                              |   |        

---

|(1) | All leases have at least one five-year option, except for Catonsville, Ellicott City and Golden Ring locations.
|--- | ---------------------------------------------------------------------------------------------------------------



|(2) | Building is owned, but the land is leased.
|--- | ------------------------------------------



|(3) | The Bank also is leasing a kiosk and drive-in ATM facility at this location.
|--- | ----------------------------------------------------------------------------



|(4) | Branch acquired in WHG Brancshares acquisition.
|--- | -----------------------------------------------



The book value of the Banks investment in premises and equipment totaled $10.8 million at September 30, 2005. See Note 5 of Notes to Financial
Statements.



35



---

|Item 3. | Legal Proceedings.
|------- | ------------------



From time to time, the MHC, the Company and/or the Bank is a party to various legal proceedings incident to its business. Except as set forth below, at
September 30, 2005, there were no legal proceedings to which the MHC, the Company or the Bank was a party, or to which any of their property was subject, which were expected by management to result in a material loss to the MHC, the Company or
the Bank. There are no pending regulatory proceedings to which the MHC, the Company, the Bank and their subsidiaries is a party or to which any of their properties is subject which are currently expected to result in a material loss, however the
Bank is under a supervisory agreement with the OTS. For discussion of the supervisory agreement see the Companys annual report to stockholders filed as Exhibit 13 hereto.



The Bank obtained judgments on June 5, 2002 in the amount of $1,500,000 against Key Leasing & Rental, Inc. and
related parties before the Circuit Court of Baltimore County, and filed similar claims against the same Defendants in pending bankruptcy cases in the U.S. Bankruptcy Court for the District of Maryland (Baltimore) on October 21, 2002 in the case
of the individual defendants and on November 1, 2002 in the case of Key Leasing & Rental, Inc. The judgments and bankruptcy filing seek to secure the Banks interest in automobile leases pledged as collateral to Baltimore County
Savings Bank and to recover any deficiency balances remaining after the disposal of the collateral. The Bank has foreclosed upon the collateral pursuant to a consent agreement reached between the Bank and the US Bankruptcy Trustee on
November 22, 2002 and projected a loss of $31,000 in the most recent filing with the Bankruptcy court.



The Bank obtained judgments on September 17, 2003 in the amount of $705,785.88 against ATG Sales, LLC T/A Auto Gallery and Robert P and Karen R. King
before the Circuit Court of Baltimore County, and filed a similar claim against Robert P. King in a pending bankruptcy case in the United States Bankruptcy Court for the District of Maryland (Baltimore) on September 3, 2004. The judgments seek
to secure the Banks interest in connection with a delinquent commercial loan and over advance liability of the defendants. The Bank has foreclosed upon certain collateral and entered into a forbearance and repayment agreement with the
Defendant.



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



Not applicable.



PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------



The information contained under the sections captioned Market
Information in the Companys Annual Report to Stockholders for the Fiscal Year Ended September 30, 2005 (the Annual Report) filed as Exhibit 13 hereto is incorporated herein by reference.



36



---

The following table sets forth information regarding the Companys repurchases of its common stock
during the quarter ended September 30, 2005.



|                            |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|--------------------------- |  | ----------------------------- |  | -------------------------- | ----- | ------------------------------------------------------------------------- | - | ------------------------------------------------------------------------- | -
|Period                      |  | TotalNumber ofSharesPurchased |  | AveragePrice PaidPer Share |       | Total Numberof SharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms |   | MaximumNumber of Sharesthat May Yet BePurchased Underthe Plans orPrograms
|July 2005                   |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|Beginning date: July 1      |  | 371                           |  | $                          | 14.00 |                                                                           |  |                                                                           | 
|Ending date: July 31        |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|                            |  |                               |  |                           
|August 2005                 |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|Beginning date: August 1    |  |                              |  |                            |      |                                                                           |  |                                                                           | 
|Ending date: August 31      |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|                            |  |                               |  |                           
|September 2005              |  |                               |  |                            |       |                                                                           |   |                                                                           |  
|Beginning date: September 1 |  |                              |  |                            |      |                                                                           |  |                                                                           | 
|Ending date: September 30   |  |                               |  |                            |       |                                                                           |   |                                                                           |  

---

|(1) | Shares were repurchased by the Company upon the vesting of restricted stock awards to satisfy income tax withholding obligations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Selected Financial Data
|------- | -----------------------



The information contained under the section captioned Selected Financial Data on page 2 in the Annual Report is incorporated herein by
reference.



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



The information contained in the section captioned Managements
Discussion and Analysis of Financial Condition and Results of Operations on pages 4 through 18 in the Annual Report is incorporated herein by reference.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------



The information contained under the section captioned Market Risk on page 6 in the Annual Report is incorporated herein by reference.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



The Consolidated Financial Statements, Notes to Consolidated Financial Statements, Report of Registered Public Accounting Firms and Selected Consolidated
Financial Data in the Annual Report, which are listed under Item 15 herein, are incorporated herein by reference.



The report of Beard Miller Company with respect to the consolidated statements of financial condition of the Company and its subsidiaries as of
September 30, 2004, and the related consolidated statements of operations, shareholders equity, and cash flows for each of the years in the two-year period ended September 30, 2004 follows.



37



---

[BEARD MILLER COMPANY LLD LETTERHEAD]



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Stockholders and Board of Directors

BCSB Bankcorp, Inc.

Baltimore, Maryland



We have audited the consolidated statement of financial condition of BCSB
Bankcorp, Inc. and Subsidiaries as of September 30, 2004 and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the two year period ended September 30, 2004. These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BCSB Bankcorp,
Inc. and Subsidiaries as of September 30, 2004, and the consolidated results of their operations and their cash flows for each of the years in the two year period ended September 30, 2004, in conformity with accounting principles generally
accepted in the United States of America.



|                            
|----------------------------
|/s/ Beard Miller Company LLP
|November 30, 2004           
|Baltimore, Maryland         



|Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



Not applicable.



|Item 9A. | 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, within the time periods specified in the Securities and Exchange Commissions rules and forms.



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



38



---

that occurred during the Companys last fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------



None.



PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



The information contained under the sections captioned Proposal I  Election of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Companys definitive proxy statement for the Companys 2006 Annual Meeting of Stockholders (the Proxy Statement) is incorporated herein by reference.



The Company and its subsidiaries have adopted a code of ethics which applies
to all of their directors, officers and employees and thus applies to the Companys principal executive officer, principal financial officer and principal accounting officer. The code of ethics is filed as Exhibit 14 to this Annual Report
on Form 10-K.



|Item 11. | Executive Compensation
|-------- | ----------------------



The information contained under the sections captioned Proposal I  Election of Directors  Executive Compensation,  
Director Compensation,  Compensation Committee Report on Executive Compensation, Compensation Committee Interlocks and Insider Participation, and  Comparative Stock Performance Graph in the
Proxy Statement is incorporated herein by reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



|            |  |                                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) and (b) |  | Security Ownership of Certain Beneficial Owners and Security Ownership of Management.                                                                                                                                
|            | 
|            |  | Information required by this item is incorporated herein by reference to the section captioned Voting Securities and Security Ownership in the Proxy Statement.                                                    
|            | 
|(c)         |  | Changes in Control.                                                                                                                                                                                                  
|            | 
|            |  | Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in
control of the registrant.
|            | 
|(d)         |  | Equity Compensation Plans.                                                                                                                                                                                           



The following table
sets forth certain information with respect to the Companys equity compensation plans as of September 30, 2004.



|                                                           |  |                                                                                           |  |                                                                             |       |                                                                                                                                             |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                           |  | Number of securities to beissued upon exercise ofoutstanding options,
warrants and rights |  | Weighted-average exercise price of outstanding options, warrants and rights |       | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected
in column (a))
|                                                           |  | (a)                                                                                       |  | (b)                                                                         |       | (c)                                                                                                                                        
|Equity compensation plans approved by security holders     |  | 109,250                                                                                   |  | $                                                                           | 10.22 |                                                                                                                                             | 119,410
|Equity compensation plans not approved by security holders |  |                                                                                          |  |                                                                             |      |                                                                                                                                             |       
|Total                                                      |  | 109,250                                                                                   |  | $                                                                           | 10.22 |                                                                                                                                             | 119,410



39



---

|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



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



PART IV



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



The information contained under the section captioned Audit and Other Fees Paid to Independent Accountant in the Proxy Statement is hereby
incorporated by reference.



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



(a) List of Documents Filed as Part of this Report



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



|                                                                                                      |  |    
|----------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                                               |  | F-1
|Consolidated Statement of Financial Condition as of September 30, 2005 and 2004                       |  | F-2
|Consolidated Statements of Operations for the Years Ended September 30, 2005, 2004 and 2003           |  | F-3
|Consolidated Statements of Stockholders Equity for the Years Ended September 30, 2005, 2004 and 2003 |  | F-4
|Consolidated Statements of Cash Flows for the Years Ended September 30, 2005, 2004 and 2003           |  | F-5
|Notes to Consolidated Financial Statements                                                            |  | F-7



40



---

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



|       |  |      |  |                                                                                                                                                                
|------ |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | No.  |  | Description                                                                                                                                                    
|*      |  | 3.1  |  | Charter of BCSB Bankcorp, Inc.                                                                                                                                 
|       |  |     
|*      |  | 3.2  |  | Bylaws of BCSB Bankcorp, Inc.                                                                                                                                  
|       |  |     
|**     |  | 4.1  |  | Form of Common Stock Certificate of BCSB Bankcorp, Inc.                                                                                                        
|       |  |     
|*****  |  | 4.2  |  | Indenture between BCSB Bancorp, Inc. and Wells Fargo, N.A. dated June 30, 2002                                                                                 
|       |  |     
|*****  |  | 4.3  |  | Form of Floating Rate Junior Subordinated Deferrable Interest Debenture (Exhibit A to Exhibit 4.2)                                                             
|       |  |     
|*****  |  | 4.4  |  | Indenture between BCSB Bancorp, Inc. and Wells Fargo, N.A. dated September 30, 2003                                                                            
|       |  |     
|*****  |  | 4.5  |  | Form of Junior Subordinated Debt Securities (Exhibit A to Exhibit 4.4)                                                                                         
|       |  |     
|***    |  | 10.1 |  | BCSB Bankcorp, Inc. 1999 Stock Option Plan                                                                                                                     
|       |  |     
|***    |  | 10.2 |  | BCSB Bankcorp, Inc. Management Recognition Plan and Trust Agreement                                                                                            
|       |  |     
|*      |  | 10.3 |  | Amended and Restated Form of Change-in-Control Severance Agreements between Baltimore County Savings Bank, F.S.B. and Gary C. Loraditch and William M. Loughran
|       |  |     
|****   |  | 10.4 |  | Baltimore County Savings Bank, F.S.B. Deferred Compensation Plan, as amended                                                                                   
|       |  |     
|*      |  | 10.5 |  | Baltimore County Savings Bank, F.S.B. Incentive Compensation Plan                                                                                              
|       |  |     
|****   |  | 10.6 |  | Form of Change-of-Control Severance Agreements between Baltimore County Savings Bank, F.S.B. and David M. Meadows and Bonnie M. Klein                          
|       |  |     
|****   |  | 10.7 |  | Baltimore County Savings Bank, F.S.B. Cash Deferred Compensation Plan                                                                                          
|       |  |     
|*****  |  | 10.8 |  | Trust Preferred Securities Guarantee Agreement by and between BCSB Bancorp, Inc. and Wells Fargo dated June 30, 2002                                           
|       |  |     
|*****  |  | 10.9 |  | Guarantee Agreement by and between BCSB Bancorp, Inc. and Wells Fargo, N.A. dated September 30, 2004                                                           
|       |  |     
|       |  | 13   |  | 2005 Annual Report to Stockholders                                                                                                                             
|       |  |     
|*****  |  | 14   |  | Code of Ethics                                                                                                                                                 
|       |  |     
|       |  | 21   |  | Subsidiaries of the Registrant                                                                                                                                 
|       |  |     
|       |  | 23.1 |  | Consent of Stegman & Company                                                                                                                                   
|       |  |     
|       |  | 23.2 |  | Consent of Beard Miller Company, LLP                                                                                                                           
|       |  |     
|       |  | 31.1 |  | Rule 13a-14(a) Certification of President                                                                                                                      
|       |  |     
|       |  | 31.2 |  | Rule 13a-14(a) Certification of Vice President and Treasurer                                                                                                   
|       |  |     
|       |  | 32   |  | Section 1350 Certifications                                                                                                                                    
|       |  |     
|****** |  | 99.1 |  | Supervisory Agreement                                                                                                                                          

---

|       |  |                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------
|*      |  | Incorporated herein by reference from the Companys Registration Statement on Form SB-2 (File No. 333-44831).          
|       | 
|**     |  | Incorporated herein by reference from the Companys Registration Statement on Form 8-A.                                
|       | 
|***    |  | Incorporated herein by reference from the Companys Annual Report on Form 10-KSB for the year ended September 30, 1999.
|       | 
|****   |  | Incorporated herein by reference from the Companys Annual Report on Form 10-K for the year ended September 30, 2002.  
|       | 
|*****  |  | Incorporated herein by reference from the Companys Annual Report on Form 10-K for the year ended September 30, 2003.  
|       | 
|****** |  | Incorporated herein by reference from the Companys Form 8-K filed on December 14, 2005.                               



(c) Financial
Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are
required or because the required information is included in the consolidated financial statements and related notes thereto.



41



---



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities
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.
|                  |  |  | 
|December 21, 2005 |  |  |  | By:                 |  | /s/    GRAY C. LORADITCH
|                  |  |  |  |                     |  |                          |  | Gary C. Loraditch
|                  |  |  |  |                     |  |                          |  | President        



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                                                                                        |  |                  
|----------------------------------------------------------------------------------------------------------------------- |  | -----------------
|                                                                                                                        | 
|/s/    GARY C.
LORADITCHGary C.
Loraditch President, Chief Executive Officer and Director (Principal Executive Officer) |  | December 21, 2005
|                                                                                                                        | 
|/s/    BONNIE M. KLEINBonnie M. Klein Vice President and Treasurer (Principal Financial and Accounting Officer)         |  | December 21, 2005
|                                                                                                                        | 
|/s/    HENRY V. KAHLHenry V. Kahl Chairman of the Board                                                                 |  | December 21, 2005
|                                                                                                                        | 
|/s/    H. ADRIAN COXH. Adrian Cox Vice Chairman of the Board                                                            |  | December 21, 2005
|                                                                                                                        | 
|/s/    WILLIAM J. KAPPAUF,
JR.William J. Kappauf,
Jr. Director                                                          |  | December 21, 2005
|                                                                                                                        | 
|/s/    WILLIAM M.
LOUGHRANWilliam M.
Loughran Vice President and Director                                               |  | December 21, 2005
|                                                                                                                        | 
|/s/    JOHN J. PANZER,
JR.John J. Panzer, Jr.
Director                                                                  |  | December 21, 2005
|                                                                                                                        | 
|/s/    P. LOUIS ROHE,
JR.P. Louis Rohe, Jr.
Director                                                                    |  | December 21, 2005
|                                                                                                                        | 
|/s/    MICHAEL J.
KLEINMichael J. Klein
Director                                                                        |  | December 21, 2005