Exhibit 13

BCSB BANKCORP, INC.

[LOGO]

2006 ANNUAL REPORT



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BCSB BANKCORP, INC.

BCSB Bankcorp, Inc. (the Company) serves as the holding company for its wholly owned subsidiary, Baltimore County Savings Bank, F.S.B. (the Bank). 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 has no significant activities other than its investment in the Bank. The Company is primarily engaged in the business of
directing, planning and coordinating the business activities of the Bank.

The Bank is a federal savings bank operating through eighteen
banking offices serving the Baltimore Metro area. 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, commercial real estate loans, and consumer loans. The Bank derives its income principally from
interest earned on loans and, to a lesser extent, interest earned on mortgage-backed securities and investment securities. Funds for these activities are provided principally by operating revenues, deposits and repayments of outstanding loans and
investment securities and mortgage-backed securities.

MARKET INFORMATION

The Companys common stock began trading under the symbol BCSB on the Nasdaq National Market System on July 9, 1998. There are
currently 5,913,743 shares of the common stock outstanding and approximately 941 holders of record of the common stock. Following are the high and low bid prices, by fiscal quarter, as reported on the Nasdaq National Market System during the periods
indicated, as well as dividends declared on the common stock during each quarter.



|               |  |      |       |     |   |                    |  |   |     
|-------------- |  | ---- | ----- | --- | - | ------------------ |  | - | ----
|Fiscal 2006    |  | High |       | Low |   | DividendsPer Share
|First Quarter  |  | $    | 14.08 |     | $ | 12.50              |  | $ | .125
|Second Quarter |  |      | 13.50 |     |   | 12.10              |  |   | .125
|Third Quarter  |  |      | 13.35 |     |   | 12.01              |  |   | .125
|Fourth Quarter |  |      | 13.00 |     |   | 10.55              |  |   | .125
|               |  |      |      
|Fiscal 2005    |  |      |       |     |   |                   
|First Quarter  |  | $    | 17.39 |     | $ | 15.80              |  | $ | .125
|Second Quarter |  |      | 17.99 |     |   | 14.47              |  |   | .125
|Third Quarter  |  |      | 14.89 |     |   | 12.60              |  |   | .125
|Fourth Quarter |  |      | 14.00 |     |   | 12.45              |  |   | .125

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

TABLE OF CONTENTS



|                                                                                      |  |                   |  
|------------------------------------------------------------------------------------- |  | ----------------- | -
|BCSB Bankcorp, Inc.                                                                   |  | (i                | )
|Market Information                                                                    |  | (i                | )
|Letter to Stockholders                                                                |  | 1                 |  
|Selected Consolidated Financial and Other Data                                        |  | 3                 |  
|Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 5                 |  
|Consolidated Financial Statements                                                     |  | F-1               |  
|Corporate Information                                                                 |  | Inside Back Cover |  



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LOGO

Dear Shareholder:

Fiscal Year 2006 was an extraordinarily difficult year.

The year began on a bad note when the Office of Thrift Supervision (the
OTS) issued a Supervisory Agreement effectively putting your company under heightened regulatory scrutiny for bank secrecy, management and certain lending compliance issues. Subsequently the Bank was the victim of a massive fraud
resulting from a check kiting scam that resulted in the loss of $10,800,000 ($6,900,000 after adjustment for taxes).

Overriding all of
these very substantive issues was the Banks inability to generate significant earnings, which ultimately resulted in the suspension of the Companys quarterly dividend in November of 2006. These events contributed to the Board of
Directors decision to accept the incumbent Presidents resignation.

The good news is that your Company remains well-capitalized
under all regulatory standards, asset quality remains solid, and the branch network remains intact and well-positioned to take advantage of a growing Baltimore marketplace. Further news is that the Board has retained the undersigned as the new
President and Chief Executive Officer. I am extremely excited by the future prospects of this Company.

In moving forward, a major order of
business will be to work with the Banks primary regulator in addressing the issues raised by the Supervisory Agreement. We are well into that process and it is a top priority to maintain full compliance with the Supervisory Agreement so as to
enable the OTS to lift it by fiscal year end.

Regarding the check kiting scheme, the Bank has filed civil actions against all of the known
perpetrators as well as a claim against the Banks insurance company. While it is much too soon to know the outcome of any of these efforts, we remain cautiously optimistic that there will be some recovery.

This brings us to the major challenge of improving the Banks earning performance. While all areas are open for improvement, the initial emphasis
will be on increasing the Banks net interest margin. This is relatively straightforward in that it means enhancing the Banks loan production with more good loans at higher yields. It



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also means we must take a hard look at our deposit structure and improving our cost of funds.

We will also be looking to improve our non-interest income by more effectively utilizing our branch network. This will entail the generation of fee
income from existing products as well as new products such as overdraft protection programs and the sale of non-insured deposit products such as annuities and mutual funds. Furthermore, under consideration will be fee income generated from the sale
of loans via a mortgage banking type of program.

In addition we will look closely at our expenses. Even though management took several
significant steps in reducing expenses this past year, this area will continue to be scrutinized in fiscal year 2007.

Most importantly, we
will endeavor to do a better job in serving our three stakeholders groups: our shareholders, our customers and our employees. Perhaps therein lies our greatest potential. Our shareholders have been very supportive and we hope to reward them with
increasing shareholder value. Our customers are very loyal and meeting their expectations will always be a priority. Last, but certainly not least, are our employees who are also shareholders and customers, and who remain dedicated to the success of
our Company.

In conclusion, the directors, officers and staff of BCSB Bankcorp, Inc. and Baltimore County Savings Bank thank all of our
stockholders and customers for their confidence and support during a difficult year. We look forward to a prosperous new year.

Very truly yours,

/s/ Joseph J. Bouffard

Joseph J. Bouffard

President & CEO



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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Selected Consolidated Financial Condition Data



|                               |  |                  |         |      |   |         |  |      |         |      |   |         |  |   |        
|------------------------------ |  | ---------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                               |  | At September 30,
|                               |  | 2006             |         | 2005 |   | 2004    |  | 2003 |         | 2002
|                               |  | (In Thousands)  
|Total assets                   |  | $                | 785,857 |      | $ | 812,745 |  | $    | 773,618 |      | $ | 668,198 |  | $ | 587,065
|Loans receivable, net          |  |                  | 463,776 |      |   | 454,347 |  |      | 386,136 |      |   | 365,055 |  |   | 396,617
|Investment securities:         |  |                  |         |      |   |         |  |      |         |      |   |         |  |   |        
|Available for sale             |  |                  | 143,068 |      |   | 151,386 |  |      | 158,948 |      |   | 121,290 |  |   | 45,083 
|Held to maturity               |  |                  | 4,496   |      |   | 1,995   |  |      | 2,497   |      |   | 2,500   |  |   | 4,496  
|Mortgage-backed securities     |  |                  |         |      |   |         |  |      |         |      |   |         |  |   |        
|Available for sale             |  |                  | 86,801  |      |   | 112,120 |  |      | 144,260 |      |   | 116,204 |  |   | 60,411 
|Held to maturity               |  |                  | 28,675  |      |   | 26,470  |  |      | 26,631  |      |   | 18,394  |  |   | 33,691 
|FHLB stock                     |  |                  | 6,972   |      |   | 8,060   |  |      | 6,105   |      |   | 3,305   |  |   | 3,940  
|Deposits                       |  |                  | 604,845 |      |   | 597,669 |  |      | 580,622 |      |   | 551,929 |  |   | 498,785
|FHLB advances                  |  |                  | 118,473 |      |   | 144,796 |  |      | 120,920 |      |   | 32,268  |  |   | 26,968 
|Trust Preferred Securities     |  |                  |        |      |   |        |  |      |        |      |   | 22,500  |  |   | 12,500 
|Junior Subordinated Debentures |  |                  | 23,197  |      |   | 23,197  |  |      | 23,197  |      |   |        |  |   |       
|Stockholders equity           |  |                  | 33,421  |      |   | 42,040  |  |      | 44,129  |      |   | 44,768  |  |   | 45,306 

Selected Consolidated Operations Data



|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|-------------------------------------------------------------- |  | --------------------------------- | ------- | - | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                               |  | For the Years Ended September 30,
|                                                               |  | 2006                              |         |   | 2005 |   | 2004   |  | 2003 |        | 2002
|                                                               |  | (In Thousands)                   
|Interest income                                                |  | $                                 | 39,995  |   |      | $ | 36,223 |  | $    | 32,234 |      | $ | 33,167 |  | $ | 28,480
|Interest expense                                               |  |                                   | 25,776  |   |      |   | 20,384 |  |      | 16,362 |      |   | 16,107 |  |   | 14,946
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income                                            |  |                                   | 14,219  |   |      |   | 15,839 |  |      | 15,872 |      |   | 17,060 |  |   | 13,534
|(Reversal) provision for loan losses                           |  |                                   | (109    | ) |      |   | 168    |  |      | 487    |      |   | 1,359  |  |   | 509   
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income after (reversal) provision for loan losses |  |                                   | 14,328  |   |      |   | 15,671 |  |      | 15,385 |      |   | 15,701 |  |   | 13,025
|Other income                                                   |  |                                   | 1,198   |   |      |   | 1,855  |  |      | 1,379  |      |   | 1,587  |  |   | 1,053 
|Non-interest expenses                                          |  |                                   | 26,968  |   |      |   | 16,814 |  |      | 15,735 |      |   | 15,336 |  |   | 11,363
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|(Loss) income before income taxes                              |  |                                   | (11,442 | ) |      |   | 712    |  |      | 1,029  |      |   | 1,952  |  |   | 2,715 
|Income (benefit) tax provision                                 |  |                                   | (4,049  | ) |      |   | 111    |  |      | 144    |      |   | 655    |  |   | 984   
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net (loss) income                                              |  | $                                 | (7,393  | ) |      | $ | 601    |  | $    | 885    |      | $ | 1,297  |  | $ | 1,731 
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net (loss) income per share of Common Stock:                   |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Basic                                                          |  | $                                 | (1.26   | ) |      | $ | .10    |  | $    | .15    |      | $ | .23    |  | $ | .31   
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Diluted                                                        |  | $                                 | (1.26   | ) |      | $ | .10    |  | $    | .15    |      | $ | .22    |  | $ | .30   
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       
|Cash dividend declared per share                               |  | $                                 | .50     |   |      | $ | .50    |  | $    | .50    |      | $ | .50    |  | $ | .50   
|                                                               |  |                                   |         |   |      |   |        |  |      |        |      |   |        |  |   |       



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Key Operating Ratios:



|                                                                                                                        |  |                                        |    |  |        |   |  |        |   |  |        |   |  |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | -- |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                                                                                                        |  | At or for the Year Ended September 30, |   
|                                                                                                                        |  | 2006                                   |    |  | 2005   |   |  | 2004   |   |  | 2003   |   |  | 2002   |  
|Performance Ratios:                                                                                                     |  |                                        |    |  |        |   |  |        |   |  |        |   |  |        |  
|Return on average assets (net (loss) income divided by average total assets)                                            |  | (.92                                   | )% |  | .08    | % |  | .12    | % |  | .21    | % |  | .37    | %
|Return on average equity (net (loss) income divided by average equity)                                                  |  | (19.86                                 | )  |  | 1.40   |   |  | 2.03   |   |  | 2.94   |   |  | 4.01   |  
|Interest rate spread (combined weighted average interest rate earned less combined weighted average interest rate cost) |  | 1.96                                   |    |  | 2.16   |   |  | 2.43   |   |  | 2.81   |   |  | 2.94   |  
|Net interest margin (net interest income divided by average interest-earning assets)                                    |  | 1.89                                   |    |  | 2.15   |   |  | 2.41   |   |  | 2.90   |   |  | 3.15   |  
|Ratio of average interest-earning assets to average interest-bearing liabilities                                        |  | 98.30                                  |    |  | 99.68  |   |  | 99.48  |   |  | 103.38 |   |  | 105.92 |  
|Ratio of non-interest expense to average total assets                                                                   |  | 3.35                                   |    |  | 2.12   |   |  | 2.20   |   |  | 2.46   |   |  | 2.46   |  
|Dividend payout ratio (dividend declared per share divided by net income per share)                                     |  | n/m                                    |    |  | 500.00 |   |  | 333.33 |   |  | 217.39 |   |  | 161.29 |  
|                                                                                                                        |  |                                        |    |  |       
|Asset Quality Ratios:                                                                                                   |  |                                        |    |  |        |   |  |        |   |  |        |   |  |        |  
|Nonperforming assets to total assets at end of period                                                                   |  | .32                                    |    |  | .09    |   |  | .11    |   |  | .09    |   |  | .28    |  
|Nonperforming loans to gross loans at end of period                                                                     |  | .51                                    |    |  | .15    |   |  | .21    |   |  | .08    |   |  | .33    |  
|Allowance for loan losses to gross loans at end of period                                                               |  | .56                                    |    |  | .57    |   |  | .63    |   |  | .70    |   |  | .55    |  
|Allowance for loan losses to nonperforming loans at end of period                                                       |  | 109.30                                 |    |  | 372.09 |   |  | 296.67 |   |  | 899.33 |   |  | 158.09 |  
|(Reversal) provision for loan losses to gross loans                                                                     |  | (.02                                   | )  |  | .03    |   |  | .12    |   |  | .12    |   |  | .12    |  
|Net charge-offs to average loans outstanding                                                                            |  |                                       |    |  |       |   |  | .16    |   |  | .22    |   |  | .09    |  
|                                                                                                                        |  |                                        |    |  |       
|Capital Ratios:                                                                                                         |  |                                        |    |  |        |   |  |        |   |  |        |   |  |        |  
|Equity to total assets at end of period                                                                                 |  | 4.25                                   |    |  | 5.17   |   |  | 5.70   |   |  | 6.70   |   |  | 7.72   |  
|Average equity to average assets                                                                                        |  | 4.63                                   |    |  | 5.42   |   |  | 6.08   |   |  | 7.09   |   |  | 8.61   |  



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

General

The Company was formed in June 1998 by the Bank to become the holding company for the Bank following the Banks reorganization
into the mutual holding company form of organization (the Reorganization). As part of the Reorganization, the Company became a majority-owned subsidiary of the MHC. The Reorganization was consummated on July 8, 1998.

The Companys net income is dependent primarily on its net interest income, which is the difference between interest income earned on its interest
earning assets and interest paid on interest-bearing liabilities. Net interest income is determined by (i) the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (interest rate
spread) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Companys interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Companys net income also is affected by the level of other income, which primarily consists of fees and charges, and levels of non-interest expenses such as salaries and related expenses.

The operations of the Company are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and
regulatory policies of governmental agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are
influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the levels of personal income and savings in the Companys market area.

Strategic Overview

With the addition of a new President and Chief Executive Officer, the
Companys Board of Directors has identified a long-term strategy to improve earnings. The strategy has three initiatives:



| |  |  | Transformation of the Balance Sheet - The Company will seek to transform the Companys balance sheet by emphasizing assets and liabilities that allow the Company to
increase its net interest margin while reducing exposure to risk from interest rate fluctuations. The Company will seek to increase gradually its investment in high quality, commercial real estate loans and commercial business loans, which will be
funded through the gradual sale of and redeployment of payments on mortgage-backed securities, while maintaining or even decreasing asset size. Commercial real estate loans and commercial business loans generally have higher yields than
single-family mortgage loans and mortgage-backed securities and tend to have shorter terms to maturity or adjustable interest rates.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase Non-interest Income - The Board of Directors has directed management to identify opportunities within the organization to generate increased non-interest income. The
Company will seek to capitalize on its existing branch network by developing additional products and/or services to offer its existing customers, although no specific new products or services have been selected at this time.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued Expense Control - In recent years, management has achieved success in reducing the Companys non-interest expenses such as losses on repossessed automobiles
and decreases in personnel cost. The Board of Directors will continue to make it a management priority to identify cost savings opportunities throughout all phases of the Companys operations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While these initiatives represent the strategy the Board of Directors will pursue, this strategy may not increase the Companys income for a long
period of time, if at all. The success of the Companys strategy is subject to many factors, including all the factors listed below under Forward-Looking Statements and the risk factors listed in Item 1A. Risk Factors in
the Companys Annual Report on Form 10-K for the year ended September 30, 2006.



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In addition, it should be noted that commercial real estate loans generally expose a lender to greater
risk of non-payment and loss than single-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the
estimate of the propertys value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family residential
mortgage loans. Commercial business loans expose a lender to additional risks since they typically are made on the basis of the borrowers ability to make repayments from the cash flow of the borrowers business and are secured by non-real
estate collateral that may depreciate over time.

Supervisory Agreement

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

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



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



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



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



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

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

The Bank has fully adopted and
implemented the various plans, policies and procedures required by the Supervisory Agreement. A failure to comply with the Supervisory Agreement could result in the initiation of a formal enforcement action by the OTS, including the imposition of
civil monetary penalties. While the Supervisory Agreement is expected to result in additional regulatory compliance expense for the Company, the amount of such expense is not anticipated to have a material financial impact on the Company. The Bank
has filed its business plan with the OTS and under the terms of the agreement may not make deviations from the plan without prior OTS approval.

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



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Significant Event

On June 29, 2006, the Company announced that it had been victimized by a check kiting scheme perpetrated by one of its commercial deposit customers. The Company sustained an after tax loss during the year ended
September 30, 2006 of $6.9 million. The Company has a federal net operating carry forward loss of $11.7 million which expires in 2026. The Company is aggressively pursuing collection of the check kiting loss from the customer, and there is also
the possible recovery from insurance policies. The customer has filed for bankruptcy, and the recovery process is expected to require an extended period of time to resolve. Notwithstanding this loss, the Bank will continue to satisfy all regulatory
capital requirements and will be well capitalized under applicable government regulations.

Critical Accounting Policies and Estimates

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

Management believes the allowance for loan losses is a critical accounting policy that requires the most significant estimates and assumptions used in
the preparation of the consolidated financial statements. The allowance for loan losses is based on managements evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management
believes the allowance for loan losses is a significant estimated loss and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business
and economic conditions and managements estimation of losses. The use of different estimates or assumptions could produce different provisions for loan losses. Refer to the discussion of Allowance for Loan Losses in Note 1 to the Consolidated
Financial Statements for a detailed description of managements estimation process and methodology related to the allowance for loan losses.

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

The Company accounts for income taxes under the asset/liability method. Deferred tax
assets are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period indicated by the enactment date. A valuation allowance is established for deferred tax assets when, in the judgment of management, it is more likely than not that such
deferred tax assets will not become realizable. The judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond the Companys control. It is at least reasonably possible that
managements judgment about the need for a valuation allowance for deferred tax assets could change in the near term.



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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.

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.

Asset/Liability Management

The Company strives to achieve consistent net interest income and reduce its exposure to adverse changes in interest rates by attempting to match the terms to re-pricing of its interest-sensitive assets and liabilities. Factors beyond the
Banks control, such as market interest rates and competition, may also have an impact on the Banks interest income and interest expense.

In the absence of any other factors, the overall yield or return associated with the Banks earning assets generally will increase from existing levels when interest rates rise over an extended period of time,
and conversely interest income will decrease when interest rates decrease. In general, interest expense will increase when interest rates rise over an extended period of time, and conversely interest expense will decrease when interest rates
decrease. By managing the increases and decreases in its interest income and interest expense which are brought about by changes in market interest rates, the Bank can significantly influence its net interest income.

The senior officers of the Bank meet on a regular basis to monitor the Banks interest rate risk position and to set prices on loans and deposits to
manage interest rate risk within the parameters set by the Board of Directors. The President of the Bank reports to the Board of Directors on a regular basis on interest rate risk and trends, as well as liquidity and capital ratios and requirements.
The Board of Directors reviews the maturities of the Banks assets and liabilities and establishes policies and strategies designed to regulate the Banks flow of funds and to coordinate the sources, uses and pricing of such funds. The
first priority in structuring and pricing the Banks assets and liabilities is to maintain an acceptable interest rate spread while reducing the net effects of changes in interest rates. The Banks management is responsible for
administering the policies and determinations of the Board of Directors with respect to the Banks asset and liability goals and strategies.

The Banks principal strategy in managing interest rate risk has been to emphasize the acquisition of short- and intermediate-term assets, including locally originated short term (15-years or less) fixed-rate mortgage loans and
consumer loans. In addition, in managing its portfolio of investment securities and mortgage-backed securities, the Bank in recent quarters has purchased investment securities so as to reduce the Banks exposure to fluctuations in interest
rates by purchasing adjustable rate mortgage backed securities and step-up agency notes. To further manage interest rate risk, the Bank may sell long term fixed rate loans into the secondary market, while retaining the servicing of said loans. In
addition to shortening the average repricing period of its assets, the Bank has sought to lengthen the average maturity of its liabilities by adopting a tiered pricing program for its certificates of deposit, which provides higher rates of interest
on its longer term certificates in order to encourage depositors to invest in certificates with longer maturities.



8



---

Market Risk

Management measures the Banks interest rate risk by computing estimated changes in the net portfolio value (NPV) of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV represents the market value of portfolio equity and is the difference between incoming and outgoing discounted cash flows from assets and liabilities, with adjustments made for off-balance sheet items. These
computations estimate the effect on the Banks NPV of sudden and sustained increases and decreases in market interest rates. The Banks Board of Directors has adopted an interest rate risk policy which establishes maximum decreases in the
Banks estimated NPV in the event of 1%, 2% and 3% increases in market interest rates, and in the event of a 1%, decrease in market interest rates. The following table presents the Banks projected change in NPV for the various rate shock
levels at September 30, 2006. All changes meet the Banks policy requirements.



9



---

|                |          |                        |              |                          |              |         |               |      |  |            |   |  |        
|--------------- | -------- | ---------------------- | ------------ | ------------------------ | ------------ | ------- | ------------- | ---- |  | ---------- | - |  | -------
|Change in Rates |          | Net Portfolio Value    |              | NPV as % of PV of Assets
|                | $ Amount |                        | $ Change (1) |                          | % Change (2) |         | NPV Ratio (3) |      |  | Change (4)
|                |          | (Dollars in Thousands) |              |                          |              |         |               |      | 
|+300 bp         |          | $                      | 44,489       |                          | $            | -24,678 |               | -36% |  | 5.87       | % |  | -278 bp
|+200 bp         |          |                        | 53,298       |                          |              | -15,869 |               | -23  |  | 6.91       |   |  | -175 bp
|+100 bp         |          |                        | 61,829       |                          |              | -7,337  |               | -11  |  | 7.87       |   |  | -79 bp 
|0 bp            |          |                        | 69,829       |                          |              |         |               |      |  | 8.66       |   |  |        
|-100 bp         |          |                        | 74,849       |                          |              | 5,682   |               | 8    |  | 9.24       |   |  | 58 bp  
|-200 bp         |          |                        | 80,520       |                          |              | 11,353  |               | 16   |  | 9.81       |   |  | 116 bp 

---

|(1) | Represents the excess (deficiency) of the estimated NPV assuming the indicated change in interest rates minus the estimated NPV assuming no change in interest rates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Calculated as the amount of change in the estimated NPV divided by the estimated NPV assuming no change in interest rates.
|--- | --------------------------------------------------------------------------------------------------------------------------



|(3) | Calculated as the estimated NPV divided by average total assets.
|--- | ----------------------------------------------------------------



|(4) | Calculated as the excess (deficiency) of the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***Risk Measures: 200 bp rate shock***



|                                              |  |                  |   |  |        |  
|--------------------------------------------- |  | ---------------- | - |  | ------ | -
|                                              |  | At September 30, |  
|                                              |  | 2006             |   |  | 2005   |  
|Pre-Stock NPV Ratio: NPV as % of PV of Assets |  | 8.66             | % |  | 8.87   | %
|Exposure Measure: Post Shock NPV Ratio        |  | 6.91             |   |  | 5.97   |  
|Sensitivity Measure: Change in NPV Ratio      |  | 175 bp           |   |  | 290 bp |  

The above table indicates that at September 30, 2006, in the event of sudden and sustained
increases in prevailing market interest rates, the Banks NPV would be expected to decrease, and that in the event of a sudden and sustained decrease in prevailing market interest rates, the Banks NPV would be expected to increase, by a
much smaller amount than if there were an increase in interest rates. The Banks Board of Directors reviews the Banks NPV position quarterly, and, if estimated changes in NPV are not within the targets established by the Board, the Board
may direct management to adjust its asset and liability mix to bring interest rate risk within Board approved targets. At September 30, 2006, the Banks estimated changes in NPV were within the targets established by the Board of
Directors.

NPV is calculated by the Office of Thrift Supervision (OTS) by using information provided by the Bank. The calculation is based
on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by Bloomberg quotations and surveys performed during the quarter ended September 30, 2006, with adjustments made to
reflect the shift in the Treasury yield curve between the survey date and the quarter-end date.

Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions the Bank may undertake in response to changes in interest rates.

Certain shortcomings are inherent in the
method of analysis presented in the computation of NPV. Actual values may differ from those projections set forth in the table, should market conditions vary from assumptions used in the preparation of the table. Additionally, certain assets, such
as adjustable-rate loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In addition, the proportion of adjustable-rate loans in the Banks portfolio could decrease in future periods
if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the
tables. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the event of an interest rate increase.



10



---

Average Balance, Interest and Average Yields and Rates

The following table sets forth certain information relating to the Company's average balance sheet and reflects the average yield on assets and cost of
liabilities for the periods indicated and the average yields earned and rates paid. Such yield and cost are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the years ended
September 30, 2006, September 30, 2005 and September 30, 2004. Total average assets are computed using month-end balances.

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



|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ------- | -------- | ---- | ----------------- |  | ----- | -------------- |  | -------- | ------- | ----------------- | - | ------ | -------------- | ----- | -------- |  | ----------------- | ------- |  | - | ------ |  | ----- | -
|                                                                                 |  | Year Ended September 30, |        
|                                                                                 |  | 2006                     |         |          | 2005 |                   |  | 2004  |               
|                                                                                 |  | AverageBalance           |         | Interest |      | AverageYield/Cost |  |       | AverageBalance |  | Interest |         | AverageYield/Cost |   |        | AverageBalance |       | Interest |  | AverageYield/Cost |        
|                                                                                 |  | (Dollars in Thousands)   |        
|Interest-earning assets:                                                         |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Loans receivable (1)                                                             |  | $                        | 462,799 |          | $    | 28,352            |  | 6.13  | %              |  | $        | 412,093 |                   | $ | 24,286 |                | 5.89  | %        |  | $                 | 364,260 |  | $ | 22,056 |  | 6.06  | %
|Mortgage backed securities                                                       |  |                          | 124,458 |          |      | 5,095             |  | 4.09  |                |  |          | 161,415 |                   |   | 6,231  |                | 3.86  |          |  |                   | 142,337 |  |   | 5,548  |  | 3.90  |  
|Investment securities and FHLB stock                                             |  |                          | 160,365 |          |      | 6,342             |  | 3.95  |                |  |          | 162,138 |                   |   | 5,637  |                | 3.48  |          |  |                   | 143,689 |  |   | 4,552  |  | 3.17  |  
|Other interest-earning assets                                                    |  |                          | 3,372   |          |      | 206               |  | 6.11  |                |  |          | 2,578   |                   |   | 69     |                | 2.68  |          |  |                   | 7,471   |  |   | 78     |  | 1.04  |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total interest earning assets                                                    |  |                          | 750,994 |          |      | 39,995            |  | 5.33  |                |  |          | 738,224 |                   |   | 36,223 |                | 4.91  |          |  |                   | 657,757 |  |   | 32,234 |  | 4.90  |  
|Bank Owned Life Insurance                                                        |  |                          | 12,913  |          |      |                   |  |       |                |  |          | 12,242  |                   |   |        |                |       |          |  |                   | 11,912  |  |   |        |  |       |  
|Non-interest-earning assets                                                      |  |                          | 40,006  |          |      |                   |  |       |                |  |          | 40,869  |                   |   |        |                |       |          |  |                   | 46,094  |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total assets                                                                     |  | $                        | 803,913 |          |      |                   |  |       |                |  | $        | 791,335 |                   |   |        |                |       |          |  | $                 | 715,763 |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Interest-bearing liabilities:                                                    |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Deposits                                                                         |  | $                        | 607,952 |          | $    | 18,379            |  | 3.02  | %              |  | $        | 589,849 |                   | $ | 14,711 |                | 2.49  | %        |  | $                 | 571,105 |  | $ | 13,553 |  | 2.37  | %
|FHLB advances short-term                                                         |  |                          | 63,457  |          |      | 2,484             |  | 3.91  |                |  |          | 53,632  |                   |   | 1,471  |                | 2.74  |          |  |                   | 23,141  |  |   | 323    |  | 1.40  |  
|FHLB advances long-term                                                          |  |                          | 67,529  |          |      | 2,992             |  | 4.43  |                |  |          | 72,056  |                   |   | 2,738  |                | 3.80  |          |  |                   | 43,000  |  |   | 1,400  |  | 3.26  |  
|Junior Subordinated Debentures                                                   |  |                          | 23,197  |          |      | 1,921             |  | 8.28  |                |  |          | 23,197  |                   |   | 1,464  |                | 6.31  |          |  |                   | 22,500  |  |   | 1,086  |  | 4.83  |  
|Other liabilities                                                                |  |                          | 1,824   |          |      |                  |  |      |                |  |          | 1,864   |                   |   |       |                |      |          |  |                   | 1,449   |  |   |       |  |      |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total interest-bearing liabilities                                               |  |                          | 763,959 |          |      | 25,776            |  | 3.37  |                |  |          | 740,598 |                   |   | 20,384 |                | 2.75  |          |  |                   | 661,195 |  |   | 16,362 |  | 2.47  |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Non-interest-bearing liabilities                                                 |  |                          | 2,723   |          |      |                   |  |       |                |  |          | 7,856   |                   |   |        |                |       |          |  |                   | 11,050  |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total liabilities                                                                |  |                          | 766,682 |          |      |                   |  |       |                |  |          | 748,454 |                   |   |        |                |       |          |  |                   | 672,245 |  |   |        |  |       |  
|Stockholders equity                                                             |  |                          | 37,231  |          |      |                   |  |       |                |  |          | 42,881  |                   |   |        |                |       |          |  |                   | 43,518  |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total liabilities and stockholders equity                                       |  | $                        | 803,913 |          |      |                   |  |       |                |  | $        | 791,335 |                   |   |        |                |       |          |  | $                 | 715,763 |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Net interest income                                                              |  |                          |         |          | $    | 14,219            |  |       |                |  |          |         |                   | $ | 15,839 |                |       |          |  |                   |         |  | $ | 15,872 |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Interest rate spread                                                             |  |                          |         |          |      |                   |  | 1.96  | %              |  |          |         |                   |   |        |                | 2.16  | %        |  |                   |         |  |   |        |  | 2.43  | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Net interest margin (2)                                                          |  |                          |         |          |      |                   |  | 1.89  | %              |  |          |         |                   |   |        |                | 2.15  | %        |  |                   |         |  |   |        |  | 2.41  | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                          |         |          |      |                   |  | 98.30 | %              |  |          |         |                   |   |        |                | 99.68 | %        |  |                   |         |  |   |        |  | 99.48 | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  

---

|(1) | Includes nonaccrual loans.
|--- | --------------------------



|(2) | Represents net interest income divided by the average balance of interest-earning assets.
|--- | -----------------------------------------------------------------------------------------



11



---

Rate/Volume Analysis

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



|                                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|------------------------------------ |  | -------------------------- | ------ | - | ------------ | - | ------ | ----------- |  | - | ----- | - |  | ------ | ------ | - | ---- | - | ----- | ----------- |  | - | ------ | - |  | - | ---- | - |  | - | ----- | -
|                                     |  | Year Ended September 30,   |       
|                                     |  | 2006 v. 2005               |        |   | 2005 v. 2004 |  
|                                     |  | Increase (Decrease) Due to |       
|                                     |  | Volume                     |        |   | Rate         |   |        | Rate/Volume |  |   | Total |   |  | Volume |        |   | Rate |   |       | Rate/Volume |  |   | Total  |  
|                                     |  | (In Thousands)             |       
|Interest income:                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|Loans receivable                     |  | $                          | 2,955  |   |              | $ | 989    |             |  | $ | 122   |   |  | $      | 4,066  |   |      | $ | 2,930 |             |  | $ | (619   | ) |  | $ | (81  | ) |  | $ | 2,230 |  
|Mortgage-backed securities           |  |                            | (1,422 | ) |              |   | 371    |             |  |   | (85   | ) |  |        | (1,136 | ) |      |   | 748   |             |  |   | (57    | ) |  |   | (8   | ) |  |   | 683   |  
|Investment securities and FHLB stock |  |                            | (62    | ) |              |   | 775    |             |  |   | (8    | ) |  |        | 705    |   |      |   | 583   |             |  |   | 445    |   |  |   | 57   |   |  |   | 1,085 |  
|Other interest-earning assets        |  |                            | 21     |   |              |   | 89     |             |  |   | 27    |   |  |        | 137    |   |      |   | (52   | )           |  |   | 123    |   |  |   | (80  | ) |  |   | (9    | )
|                                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|Total interest-earning assets        |  |                            | 1,492  |   |              |   | 2,224  |             |  |   | 56    |   |  |        | 3,772  |   |      |   | 4,209 |             |  |   | (108   | ) |  |   | (112 | ) |  |   | 3,989 |  
|Interest expense:                    |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|Deposits                             |  |                            | 451    |   |              |   | 3,121  |             |  |   | 96    |   |  |        | 3,668  |   |      |   | 444   |             |  |   | 691    |   |  |   | 23   |   |  |   | 1,158 |  
|FHLB advances short-term             |  |                            | 267    |   |              |   | 632    |             |  |   | 114   |   |  |        | 1,013  |   |      |   | 426   |             |  |   | 310    |   |  |   | 412  |   |  |   | 1,148 |  
|FHLB advances long-term              |  |                            | (144   | ) |              |   | 420    |             |  |   | (22   | ) |  |        | 254    |   |      |   | 946   |             |  |   | 234    |   |  |   | 158  |   |  |   | 1,338 |  
|Subordinate Debentures               |  |                            |       |   |              |   | 457    |             |  |   |      |   |  |        | 457    |   |      |   | 34    |             |  |   | 334    |   |  |   | 10   |   |  |   | 378   |  
|Other liabilities                    |  |                            |       |   |              |   |       |             |  |   |      |   |  |        |       |   |      |   |      |             |  |   |       |   |  |   |     |   |  |   |      |  
|                                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|Total interest-bearing liabilities   |  |                            | 574    |   |              |   | 4,630  |             |  |   | 188   |   |  |        | 5,392  |   |      |   | 1,850 |             |  |   | 1,569  |   |  |   | 603  |   |  |   | 4,022 |  
|                                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  
|Change in net interest income        |  | $                          | 918    |   |              | $ | (2,406 | )           |  | $ | (132  | ) |  | $      | (1,620 | ) |      | $ | 2,359 |             |  | $ | (1,677 | ) |  | $ | (715 | ) |  | $ | (33   | )
|                                     |  |                            |        |   |              |   |        |             |  |   |       |   |  |        |        |   |      |   |       |             |  |   |        |   |  |   |      |   |  |   |       |  

Comparison of Financial Condition at September 30, 2006 and 2005

During the twelve months ended September 30, 2006, the Company's assets decreased by $26.9 million, or 3.31% from $812.7 million at
September 30, 2005 to $785.8 million at September 30, 2006. The Companys interest bearing deposits in other banks increased by $1.3 million or 80.9%, from $1.6 million at September 30, 2005 to $2.9 million at September 30,
2006. The Companys investment portfolio available for sale decreased $8.3 million or 5.5%, from $151.4 million at September 30, 2005 to $143.1 million at September 30, 2006. The Companys investment portfolio held to maturity
increased by $2.5 million, or 125.4% from $2.0 million at September 30, 2005 to $4.5 million at September 30, 2006. Loans receivable, net increased by $9.5 million, or 2.1%, from $454.3 million at September 30, 2005 to $463.8 million
at September 30, 2006. The Company's mortgage-backed securities available for sale decreased by $25.3 million, or 22.6%, from $112.1 million at September 30, 2005 to $86.8 million at September 30, 2006. The Companys
mortgage-backed securities held to maturity increased by $2.2 million or 8.3% from $26.5 million at September 30, 2005 to $28.7 million at September 30, 2006. In an effort to protect against risk from rising rates the Company has placed
emphasis on short term loans such as variable rate commercial loans, home equity loans and short term mortgages. The Company increased commercial real estate loans by $35.5 million, or 40.7% from $75.0 million at September 30, 2005 to $110.0
million at September 30, 2006. Construction loans decreased by $14.8 million, or 27.5% from $53.8 million to $39.0 million due to decreased demand from individual builders. The Bank updates its three year business plan every year as part of its
budget process. The current plan calls for minimal growth until interest margins return to an amount sufficient to allow growth. An increase in deposits will be offset by decreases in levels of borrowings. New loans will be made to offset payments
received on existing loans and securities. If payments received on loans exceed demand, than comparable securities may be purchased or borrowing further reduced.

Deposits increased by $7.1 million, or 1.2%, from $597.7 million at September 30, 2005 to $604.8 million at September 30, 2006. The increase in deposits was achieved through normal marketing efforts. The
growth in deposits helped to fund loan demand. Advances from Federal Home Loan Bank of Atlanta decreased by $26.3 million, or 18.2% from $144.8 million at September 30, 2005 to $118.5 million at September 30, 2006. Advances will be used
when necessary to fund loan demand if deposit growth does not meet this demand.

Stockholders equity decreased by $8.6 million or
20.5%, from $42.0 million at September 30, 2005 to $33.4 million at September 30, 2006. This decrease was primarily due to the loss of $6.9 million net of taxes due to the check-kiting fraud perpetrated against the bank. See  The
Comparison of Other Operating Results for the Years Ended September 30, 2006 and 2005 Non-Interest Expenses. Also contributing to the decrease in equity was the increase in accumulated other



12



---

comprehensive income of $476,000 from a loss of $3.9 million at September 30, 2005 to a loss of $4.4 million at September 30, 2006. These
unrealized losses are considered temporary as they reflect market values as of September 30, 2006 and are subject to change daily as interest rates fluctuate. This decrease is due to the adjustment for the available for sale securities recorded
at market value in a rising rate environment and has no impact on the Banks regulatory capital.

Comparison of Financial Condition at
September 30, 2005 and 2004

During the twelve months ended September 30, 2005, the Companys assets increased by $39.1
million, or 5.06% from $773.6 million at September 30, 2004 to $812.7 million at September 30, 2005. The Companys interest bearing deposits in other banks decreased by $1.0 million or 38.8%, from $2.6 million at September 30,
2004 to $1.6 million at September 30, 2005. The Companys investment portfolio available for sale decreased $7.5 million or 4.7%, from $158.9 million at September 30, 2004 to $151.4 million at September 30, 2005. The
Companys investment portfolio held to maturity decreased by $500,000, or 20.1% from $2.5 million at September 30, 2004 to $2.0 million at September 30, 2005. Loans receivable, net increased by $68.2 million, or 17.7%, from $386.1
million at September 30, 2004 to $454.3 million at September 30, 2005. The Company's mortgage-backed securities available for sale decreased by $32.2 million, or 22.3%, from $144.3 million at September 30, 2004 to $112.1 million at
September 30, 2005. The Companys mortgage-backed securities held to maturity decreased by $161,000 or .60% from $26.6 million at September 30, 2004 to $26.5 million at September 30, 2005. In an effort to take advantage of the
rising rate environment the Company has placed emphasis on short term loans such as variable rate commercial loans, automobile loans, home equity loans and short term mortgages. The Company increased commercial real estate loans by $10.4 million, or
16.1% from $64.6 million at September 30, 2004 to $75.0 million at September 30, 2005. The Bank updates its three year business plan every year as part of its budget process. The current plan calls for minimal growth until interest margins
return to an amount sufficient to allow growth. An increase in deposits will be offset by decreases in levels of borrowings. New loans will be made to offset payments received on existing loans and securities. If payments received on loans exceed
demand, than comparative securities may be purchased or borrowing further reduced.

Deposits increased by $17.1 million, or 2.9%, from
$580.6 million at September 30, 2004 to $597.7 million at September 30, 2005. The increase in deposits was achieved through normal marketing efforts. The growth in deposits helped to fund loan demand. Advances from Federal Home Loan Bank
of Atlanta increased by $23.9 million, or 19.7% from $120.9 million at September 30, 2004 to $144.8 million at September 30, 2005. The advances from the Federal Home Loan Bank of Atlanta were used to fund loans.

Stockholders equity decreased by $2.1 million or 4.7%, from $44.1 million at September 30, 2004 to $42.0 million at September 30, 2005,
which was partially attributable to the decrease in accumulated other comprehensive income of $2.1 million from a loss of $1.8 million at September 30, 2004 to a loss of $3.9 million at September 30, 2005. These unrealized losses are
considered temporary as they reflect market values as of September 30, 2005 and are subject to change daily as interest rates fluctuate. This decrease is due to the adjustment for the available for sale securities recorded at market value in a
rising rate environment and has no impact on the Banks regulatory capital.

Comparison of Operating Results for the Years Ended September 30,
2006 and 2005

Net Income:Net income decreased from income of $601,000 for the year ended September 30, 2005 to a net loss
of $7.4 million for the year ended September 30, 2006. The decrease was primarily due to an increase in non-interest expenses of $10.2 million, or 60.4% from $16.8 million for the year ended September 30, 2005 to $27.0 million for the year
ended September 30, 2006. Non-Interest expenses for the year ended September 30, 2006 includes a $10.8 million loss on dishonored checks as a result of the check-kiting scheme perpetrated on the Bank.

Net Interest Income:Net interest income decreased by $1.6 million or 10.2% from $15.9 million for the year ended September 30, 2005 to $14.2
million for the year ended September 30, 2006. The decrease in net interest income primarily was the result of increases in the average rate on interest bearing liabilities and an increase in the average balance of interest bearing liabilities.
Due to rising interest rates and deposits re-pricing faster than loans, the interest rate spread decreased 20 basis points from 2.16% for the year ended September 30, 2005 to 1.96% for the year ended September 30, 2006. The Companys
ratio of average interest-earning assets to average interest-bearing liabilities decreased from 99.68% for the year ended September 30, 2005 to 98.30% for the year ended September 30, 2006. The primary reason for the decrease in this ratio
is that funds are being invested in other income producing assets such as Bank Owned Life Insurance. The Companys interest rate spread has decreased due to the rising rates paid on borrowed funds and deposits not being completely offset by
rising rates for new loans. Improvements in interest spread should occur if long-term interest rates rise and the Company has



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the resources from either re-pricing assets or new funds received to re-pay the borrowed funds. If short term rates fall, the interest rate spread should
increase as borrowed funds tied to LIBOR re-price at lower rates.

Interest Income. Interest income increased by $3.8 million, or
10.4% from $36.2 million for the year ended September 30, 2005 to $40.0 million for the year ended September 30, 2006. Interest and fees on loans increased by $4.1 million, or 16.7%, from $24.3 million for the year ended September 30,
2005 to $28.4 million for the year ended September 30, 2006. This was primarily due to an increase in the average balance of loans receivable of $50.7 million from $412.1 million at September 30, 2005 to $462.8 at September 30, 2006,
and an increase in the average yield earned on loans receivable of 24 basis points from 5.89% at September 30, 2005 to 6.13% at September 30, 2006. The increase in the average balance of loans was primarily attributable to the Bank having
competitive rates and current economic conditions and managements strategy to focus lending on variable rate commercial real estate loans and short term home equity loans. The increase in the average yield was attributable to the prevailing
market rates in the economy. Interest on mortgage-backed securities decreased by $1.1 million or 18.2% from $6.2 million for the year ended September 30, 2005 to $5.1 million for the year ended September 30, 2006. This decrease was
primarily due to the decrease in the average balance of mortgage-backed securities from $161.4 million at September 30, 2005 to $124.5 million at September 30, 2006. The decrease in the average balance more than offset an increase in the
average rate from 3.9% at September 30, 2005 to 4.1% at September 30, 2006. Interest and dividends on investment securities increased by $705,000, or 12.5% from $5.6 million for the year ended September 30, 2005 to $6.3 million for
the year ended September 30, 2006. This was primarily due to an increase in the average yield on investments of 47 basis points from 3.48% for the year ended September 30, 2005 to 3.95% for the year ended September 30, 2006 due to
step up provisions on some investment securities. However, this was partially offset by a decrease in the average balance of investments of $1.7 million, from $162.1 million for the year ended September 30, 2005 to $160.4 million for the year
ended September 30, 2006.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed
money and other interest expense increased from $20.4 million for the year ended September 30, 2005 to $25.8 million for the year ended September 30, 2006 a change of $5.4 million or 26.5%. Interest on deposits increased $3.7 million from
$14.7 million at September 30, 2005 to $18.4 million at September 30, 2006 due to an increase in the average cost of deposits of 53 basis points from 2.49% for the year ended September 30, 2005 to 3.02% for the year ended
September 30, 2006. Also contributing to the increase in interest expense was an increase in the average balance of deposits of $18.1 million, or 3.1% from $589.8 million at September 30, 2005 to $607.9 million at September 30, 2006.
The Company was able to increase its deposits through normal marketing efforts. Interest on short-term borrowings increased by $1.0 million or 68.9% for the year ended September 30, 2006. Interest on long-term borrowings increased by $254,000
or 9.3% for the year ended September 30, 2006. The overall increase in interests on borrowings was primarily due to an increase in the average rate paid on short term borrowings which increased by 117 basis points from 2.7% for the year ended
September 30, 2005 to 3.9% for the year ended September 30, 2006. The average rate on long term borrowings also increased by 63 basis points from 3.8% for the year ended September 30, 2005 to 4.4% for the year ended September 30,
2006. An increase in the average balance of advances from the Federal Home Loan Bank of Atlanta of $5.3 million during the year ended September 30, 2006 also contributed to the increase in interest on borrowings. Also contributing to interest
expense was interest on the Junior Subordinated Debentures which increased by $457,000 from $1.5 million for the year ended September 30, 2005 to $1.9 million for the year ended September 30, 2006. This increase was due to the increase in
the average rate paid on the Junior Subordinated Debentures from 6.3%, during 2005 to 8.3% during 2006. The rates on the Junior Subordinate Debentures are based on LIBOR and adjust quarterly.

Provision for Loan Losses.The Companys significant accounting policies are set forth in Note 1 of Notes to Consolidated Financial
Statements. Of these significant accounting policies, the Company considers its policy regarding the allowance for loan losses to be its most critical accounting policy and estimate, because it requires managements most subjective and complex
judgments. In addition, changes in economic conditions can have a significant impact on the allowance for loan losses and therefore the provision for loan losses and results of operations. The Company has developed appropriate policies and
procedures for assessing the adequacy of the allowance for loan losses, recognizing that this process requires a number of assumptions and estimates with respect to its loan portfolio. The Companys assessments may be impacted in future periods
by changes in economic conditions, the impact of regulatory examinations, and the discovery of information with respect to borrowers that is not known to management at the time of the issuance of the consolidated financial statements.

The Company charges or reverses provisions for loan losses which affects earnings to maintain the total allowance for loan losses at a level management
considers adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision or reversal, management considers a number of factors such as existing loan levels, prior loss experience, current
economic conditions and the probability of these conditions affecting existing loans. The Company reversed previously recorded provisions for losses on loans by $109,000 for the year ended September 30, 2006, as compared to establishing a
provision for losses on loans of $168,000 for the year ended September 30, 2005. During the year



14



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ended September 30, 2006, the Bank received a recovery in the amount of $120,000 on a loan that had been previously charged off. Exclusive of that
recovery managements analysis of the adequacy of the allowance for loan losses indicated the need for a provision during the year ended September 30, 2006 in the amount of $11,000. As a result, the recovery net of the current provision
resulted in a negative provision in the amount of $109,000. Loan chargeoffs for the year ended September 30, 2006 were $275,000 as compared to $392,000 for the year ended September 30, 2005 a decrease of $117,000. The decrease in loan
chargeoffs was due to prevailing low loan delinquency and a decrease in actual losses in the Banks consumer loan portfolio as the automobile loan portfolio decreases due to the discontinuation of indirect auto lending. Loan recoveries were
$317,000 for the year ended September 30, 2006 compared to $383,000 for the year ended September 30, 2005. Non performing loans at September 30, 2006 were $2.5 million as compared to $738,000 at September 30, 2005. The total loss
allowance allocated to loans is $2.7 million at September 30, 2006. In establishing such provisions, management considered an analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.

Other Income.Other income decreased by $657,000, or 35.4% from $1.8 million for the year ended September 30, 2005 to $1.2 million for
the year ended September 30, 2006. The decrease in other income for the year ended September 30, 2006 was primarily due to the decrease in gain on sale of investments and mortgaged backed securities of $879,000 from $884,000 for the year
ended September 30, 2005 to $5,000 for the year ended September 30, 2006. The $884,000 gain on sale of investments for the year ended September 30, 2005 was primarily due to the acquisition of Intrieve, the Banks data processing
provider, by Harland for cash. The Bank owned shares of Intrieve. This was partially offset by a decrease in losses on repossessed assets of $234,000 from $561,000 for the year ended September 30, 2005 to $327,000 for the year ended
September 30, 2006. Also contributing to the decrease in other income was a decrease in fees on transaction accounts of $125,000 from $686,000 for the year ended September 30, 2005 to $561,000 for the year ended September 30, 2006 as
we eliminated fees on certain products in an effort to compete in the market and increase our transaction accounts which are our lowest cost source of funding. Income from Bank Owned Life Insurance (BOLI ) increased $20,000 for the year ended
September 30, 2006 from $454,000 for the year ended September 30, 2005, to $474,000 for the year ended September 30, 2006. This increase was due to an adjustment in the rate of dividends earned on the BOLI investment.



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Non-interest Expenses.Total non-interest expenses increased by $10.2 million, or 60.4%, from
$16.8 million for the year ended September 30, 2005 to $27.0 million for the year ended September 30, 2006. The increase in non-interest expenses was primarily due to the occurrence of a $10.8 million loss on dishonored checks during the
year ended September 30, 2006. This loss was from a check kiting fraud perpetrated on the Bank. The Company is aggressively pursuing collection of the check kiting loss from the customer, and there is also the possible recovery from insurance
policies. The customer has filed for bankruptcy, and the recovery process is expected to require an extended period of time to resolve. Notwithstanding this loss, the Bank continues to satisfy all regulatory capital requirements and is well
capitalized under applicable government regulations. This loss was partially offset by a decrease in salaries and related expenses of $477,000 from $9.2 million for the year ended September 30, 2005 to $8.7 million for the year ended
September 30, 2006 as the Bank continued with its cost cutting strategies. Certain positions were eliminated allowing for the hiring of staff in the three new offices with a minimum increase in the overall workforce. Employee benefits were
adjusted to be less costly while still offering competitive benefits. In December 2005, the Bank ceased its indirect automobile lending operations due to the current interest rate environment. The loan rates necessary to compete in this market made
for marginal profitability. This allowed for less staffing in this area. Data processing cost decreased by $515,000 from $2.2 million for the year ended September 30, 2005 to $1.7 million for the year ended September 30, 2006. This
decrease was due to the savings generated from the conversion of data processors. In November 2005 the Company entered into a long-term contract with Fiserv to be its data service provider . The Company anticipates net savings over the life of the
contract of approximately $2.8 million. The actual number could be more or less depending on the activity and the number of accounts serviced. Occupancy expense increased by $180,000, from $2.0 million for the year ended September 30, 2005 to
$2.1 million for the year ended September 30, 2006. This was mainly due to the opening of three offices and normal increases in rent and electricity. Advertising expense decreased by $30,000 or 4.7%, from $642,000 for the year ended
September 30, 2005 to $612,000 for the year ended September 30, 2006. This decrease was due to a reduction in advertising during the period.

Income Taxes. The Companys income tax (benefit) expense was $(4.0) million and $111,000 for the year ended September 30, 2006 and 2005, respectively. The Companys effective tax rate decreased
for the year ended September 30, 2006 as compared to the same quarter in the prior year due to the tax benefit from the loss on dishonored checks.

Comparison of Operating Results for the Years Ended September 30, 2005 and 2004

Net Income.Net income
decreased by $284,000, from $885,000 for the year ended September 30, 2004 to $601,000 for the year ended September 30, 2005. The decrease was due primarily to an increase in non-interest expenses of $1.0 million. This was partially offset
by an increase in other income and decreases in the provision for loan losses and income taxes.

Net Interest Income.Net interest
income decreased by $33,000 or 0.2% from $15.9 million for the year ended September 30, 2004 to $15.8 million for the year ended September 30, 2005. The decrease in net interest income primarily was the result of increases in the average
rate on interest bearing liabilities and an increase in the average balance of interest bearing liabilities. Due to rising interest rates and deposits re-pricing faster than loans, the interest rate spread decreased 27 basis points from 2.43% for
the year ended September 30, 2004 to 2.16% for the year ended September 30, 2005. The Companys ratio of average interest-earning assets to average interest-bearing liabilities increased from 99.48% for the year ended
September 30, 2004 to 99.68% for the year ended September 30, 2005. The Companys spread has decreased due to the rising rates paid on borrowed funds and deposits not completely offset by rising rates for new loans.

Interest Income. Interest income increased by $4.0 million, or 12.4% from $32.2 million for the year ended September 30, 2004 to $36.2
million for the year ended September 30, 2005. Interest and fees on loans increased by $2.2 million, or 10.1%, from $22.1 million for the year ended September 30, 2004 to $24.3 million for the year ended September 30, 2005. This was
primarily due to an increase in the average balance of loans receivable of $47.8 million from 364.3 million at September 30, 2004 to $412.1 at September 30, 2005, despite a decrease in the average yield earned on loans receivable of
17 basis points from 6.06% at September 30, 2004 to 5.89% at September 30, 2005. The increase in the average balance of loans was primarily attributable to the Bank having competitive rates and current economic conditions and
managements strategy to focus lending on variable rate commercial loans and short term home equity loans. The decrease in the average yield was attributable to the prevailing market rates in the economy. Interest on mortgage-backed securities
increased by $683,000 or 12.3% from $5.5 million for the year ended September 30, 2004 to $6.2 million for the year ended September 30, 2005. This increase was primarily due to the increase in the average balance of mortgage-backed
securities from $142.3 million at September 30, 2004 to $161.4 million at September 30, 2005. The actual balance of mortgage-backed securities decreased, however the average balance increased due to high balances at the beginning of the
period. The increase in the average balance more than offset a decrease in the average rate from 3.9% at September 30, 2004 to 3.86% at September 30, 2005. Interest and dividends on investment securities increased by $1.0 million or 21.7%
from $4.6 million for



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the year ended September 30, 2004 to $5.6 million for the year ended September 30, 2005. This was primarily due to an increase in the average
balance of investments of $18.4 million, or 12.8% from $143.7 million for the year ended September 30, 2004 to $162.1 million for the year ended September 30, 2005. There was also an increase in the average yield on investments from 3.17%
for the year ended September 30, 2004 to 3.48% for the year ended September 30, 2005 due to step up provisions on some investment securities.

Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and other interest expense increased from $16.4 million for the year ended September 30, 2004 to $20.4
million for the year ended September 30, 2005 a change of $4.0 million or 24.6%. Interest on deposits increased $1.1 million from $13.6 million at September 30, 2004 to $14.7 million at September 30, 2005 due to a increase in the
average yield on deposits of 12 basis points from 2.37% for the year ended September 30, 2004 to 2.49% for the year ended September 30, 2005. Also contributing to the increase in interest expense was an increase in the average balance of
deposits of $18.7 million, or 3.3% from $571.1 million at September 30, 2004 to $589.8 million at September 30, 2005. The Company was able to increase its deposits through normal marketing efforts. Interest on short-term borrowings
increased by $1.1 million or 355.4% for the year ended September 30, 2005. Interest on long-term borrowings increased by $1.3 million or 95.6% for the year ended September 30, 2005. This increase was primarily due to an increase of $59.5
million in the average balances of advances from the Federal Home Loan Bank of Atlanta during the year ended September 30, 2005. Also contributing to interest expense was interest on the Trust Preferred Securities/Junior Subordinated Debentures
which increased by $378,000 from $1.1 million for the year ended September 30, 2004 to $1.5 million for the year ended September 30, 2005. This increase was due to the increase in the average yield paid on the Junior Subordinated
Debentures from 4.83%, during 2004 to 6.31% during 2005.

The Company charges provisions for loan losses to earnings to maintain the total
allowance for loan losses at a level management considers adequate to provide for probable loan losses existing within the loan portfolio as of the balance sheet date. In determining the provision, management considers prior loss experience, current
economic conditions and the probability of these conditions affecting future loan performance. The Company made a provision for losses of $168,000 for the year ended September 30, 2005, as compared to $487,000 for the year ended
September 30, 2004, representing a decrease of $319,000. This decrease was partially attributable to the decrease in historical chargeoffs, and loan delinquencies. Loan chargeoffs for the year ended September 30, 2005 were $392,000 as
compared to $1.0 million for the year ended September 30, 2004, a decrease of $629,000. Loan recoveries were $383,000 for the year ended September 30, 2005 compared to $423,000 for the year ended September 30, 2004. Non performing
loans at September 30, 2005 were $738,000 as compared to $872,000 at September 30, 2004. The total loss allowance allocated to loans is $2.7 million. In establishing such provisions, management considered an analysis of the risk inherent
in the loan portfolio.

Other Income.Other income increased by $476,000, or 34.5% from $1.4 million for the year ended
September 30, 2004 to $1.9 million for the year ended September 30, 2005. This increase in other income for the year ended September 30, 2005 was primarily attributable to a one time gain of $884,000 on investments due to the
acquisition of Intrieve, the Banks data processing provider by Harland for cash. This was partially offset by an increase in the loss on repossessed assets of $306,000 or 120.0% from $255,000 for the year ended September 30, 2004 to
$561,000 for the year ended September 30, 2005.

Non-interest Expenses. Total non-interest expenses increased by $1.1 million,
or 6.9%, from $15.7 million for the year ended September 30, 2004 to $16.8 million for the year ended September 30, 2005. The increase in non-interest expenses was primarily due to the increase in data processing fees of $635,000, from
$1.6 million for the year ended September 30, 2004 to $2.2 million for the year ended September 30, 2005. This increase was due to the one- time penalty to terminate Intrieves existing electronic banking contract which did not expire
at the same time as the other two data processing contract. Data processing cost are expected to decrease in the future due to savings realized due to the data processing conversion to Fiserve. Salaries and related expenses also increased by
$340,000, or 3.9%. Occupancy expense also increased by $140,000, from $1.8 million for the year ended September 30, 2004 to $2.0 million for the year ended September 30, 2005. This was mainly due to the opening of two offices and normal
increases in rent and electricity. These increases were partially offset by a decrease in advertising expense. Advertising expense decreased by $228,000 or 26.2%, from $870,000 for the year ended September 30, 2004 to $642,000 for the year
ended September 30, 2005. This decrease was due to a change in the advertising mix during the period. The Bank initiated several cost cutting strategies in 2005. Certain positions were eliminated during the year allowing for the hiring of staff
in the two offices opened and one planned for 2005 with a minimum increase in the workforce. Employee benefits were adjusted to be less costly while still offering complete benefits. In December 2005, the Bank ceased its indirect lending operations
due to the current interest rate environment. The loan rates necessary to compete in this market made for marginal profitability. This allowed for less staffing in this area.

Income Taxes. The Companys income tax expense was $111,000 and $144,000 for the year ended September 30, 2005 and 2004, respectively.
The Companys effective tax rates were 15.6% and 14.0% for the year ended September 30,



17



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2005 and 2004, respectively. The increase in the effective tax rate was primarily attributable to the Banks earning taxable income from the gain on
sale of investments.

Liquidity and Capital Resources

The Company has no business other than that of the Bank and investing the net stock issuance proceeds retained by it. The Bank is subject to certain regulatory limitations with respect to the payment of dividends to
the Company.

At September 30, 2006, the Bank exceeded all regulatory minimum capital requirements. For information regarding the
Banks retained earnings as reported in its financial statements at September 30, 2006 to its tangible, core and risk-based capital levels and a comparison of regulatory requirements, see Note 14 of Notes to Consolidated Financial
Statements.

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

The primary investing activities of the Company are the origination of
loans and the purchase of investment securities and mortgage-backed securities. During the years ended September 30, 2006, 2005, and 2004, the Bank had $149.1 million, $193.9 million and $148.6 million respectively, of loan originations. During
the years ended September 30, 2006, 2005 and 2004, the Company purchased investment securities in the amounts of $4.7 million, $11.5 million, and $78.9 million respectively, and mortgage-backed securities in the amounts of $6.7 million, $15.9
million, and $77.8 million respectively. The primary financing activity of the Company is the attraction of savings deposits.

The Company
has other sources of liquidity if there is a need for funds. The Bank has the ability to obtain advances from the FHLB of Atlanta. In addition, the Company maintains a portion of its investments in interest-bearing deposits at other financial
institutions that will be available, if needed.

The Banks average daily liquidity ratio for the month of September 2006 was
approximately 37.82%. Management seeks to maintain a relatively high level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide for lower rates of return, the
Banks relatively high liquidity will, to a certain extent, result in lower rates of return on assets.

The Companys most liquid
assets are cash, interest-bearing deposits in other banks and federal funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are readily convertible to known amounts of cash. The levels of
these assets are dependent on the Companys operating, financing and investing activities during any given period. At September 30, 2006, cash, interest-bearing deposits in other banks and federal funds sold totaled $8.4 million, $2.9
million and $462,000, respectively.

The Company anticipates that it will have sufficient funds available to meet its current commitments.
Certificates of deposit which are scheduled to mature in less than one year at September 30, 2006 totaled $228.4 million. Based on past experience, management believes that a significant portion of such deposits will remain with the Bank. The
Bank is a party to financial instruments with off-balance-sheet risk made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby letters of credit, lines of credit and commitments to
fund mortgage loans and involve to varying degrees elements of credit risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments express the extent of involvement the Bank has in this
class of financial instruments and represents the Banks exposure to credit loss from nonperformance by the other party. The Bank generally requires collateral or other security to support financial instruments with off-balance-sheet credit
risk. At September 30, 2006, the Bank had commitments under standby letters of credit, lines of credit and commitments to originate mortgage loans of $754,000, $30.5 million and $7.2 million, respectively. See Note 3 of Notes to Consolidated
Financial Statements.

The Company announced a stock repurchase program on February 14, 2002. The company repurchased 420 shares at an
aggregate cost of $6,000, 371 shares at an aggregate cost of $5,200 and 184 shares at an aggregate cost of $2,100 during the years ended September 30, 2004, 2005 and 2006 respectively.

In June, 2003, the Company issued $12,887,000 of junior subordinated debentures (the debentures) to BCSB Bankcorp Capital Trust I (the Trust), a Delaware
business trust, in which the Company owns all of the common equity. The debentures carry a rate of 3.65% over the three month LIBOR rate, and resets quarterly, the rate was 9.16% and 7.25% at September 30, 2006 and 2005 respectively.



18



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The debentures are the sole asset of BCSB Bankcorp Capital Trust I. BCSB Bankcorp Capital Trust I issued
$12,500,000 of mandatory redeemable preferred securities to investors. The Companys obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of BCSB Bankcorp Capital
Trust I obligations under the preferred securities. The Preferred securities are redeemable by the Company on or 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 interest.

In September, 2004, the Company issued $10,310,000 of junior subordinated debentures (the
debentures) to BCSB Bankcorp Capital Trust II (the Trust), a Delaware business trust, in which the Company owns all of the common equity. The debentures carry a rate of 3.00% over the three month LIBOR rate, and resets quarterly, the rate was 8.51%
and 6.60% at September 30, 2006 and 2005 respectively. The debentures are the sole asset of BCSB Bankcorp Capital Trust II. BCSB Bankcorp Capital Trust II issued $10,000,000 of mandatory redeemable preferred securities to investors. The
Companys obligation under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of BCSB Bankcorp Capital Trust II obligations under the Preferred securities. The Preferred securities
are redeemable by the Company on or 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 interest.

Pursuant to these Trust Preferred securities, the Company makes quarterly payments of principal and interest, which totaled $525,000 during the quarter
ended September 30, 2006.

At September 30, 2006, the Company had cash and other liquid assets totaling $5.2 million at the
holding company level. However, in light of losses incurred at the Bank level during the year ended September 30, 2006, under the Companys tax allocation agreement with the Bank, the Company will be required to return to the Bank
approximately $1.6 million in excess contributions the Bank made to the Company to pay its share of the Companys consolidated federal income tax obligations. Assuming that (i) this amount is returned to the Bank, (ii) interests rates
remain stable and (iii) there are no other changes in the Companys ongoing holding company level expenses, management estimates that, absent cash dividends from the Bank, the Company would deplete its liquid assets by March 2009. The
Company would deplete its liquid assets even sooner should LIBOR increase, thereby increasing the interest rate on the Companys trust preferred securities obligations. In order to conserve liquid assets at the holding company level, at its
November 29, 2006 meeting, the Board of Directors voted to suspend the Companys cash dividend payments to its stockholders and agreed with the OTS not to make further dividend payments without prior OTS approval. Nevertheless, if the Bank
is unable to generate earnings to support future dividend payments to the Company, or if the Bank is otherwise limited in its ability to pay dividends to the Company, in amounts sufficient to meet the Companys debt service obligations, and the
Company is unable to raise capital, the Company could at some point in the future default on its trust preferred securities obligations. In such event, the holders of the trust preferred securities could require immediate redemption of such
securities, which could cause the Company to suffer a significant decline in capital.

Quarterly dividends were declared on
November 23, 2005, February 22, May 24, and September 6, 2006 of 12.5¢ each. In keeping with Federal regulations, Baltimore County Savings Bank, M.H.C. (the MHC) applied for, and elected to waive
receipt of, dividends from the Company as to its shares, which amounted to 3,754,960 shares as of December 1, 2006, or 63.5% of all outstanding shares of the Companys common stock. December 2006 the Company announced that it has
determined to suspend its dividend program and has agreed with its primary regulator, the Office of Thrift Supervision, that it will not issue a dividend to its stockholders going forward without the regulators consent as the Company seeks to
implement its business plan to improve earnings, capital position and liquidity.



19



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Commitments, Contingencies and Off-balance Sheet Arrangements

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

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



|                                                                                                |  |                        |        |      |   |       
|----------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------
|                                                                                                |  | September 30,         
|                                                                                                |  | 2006                   |        | 2005
|                                                                                                |  | (Dollars in Thousands)
|Commitments to originate new loans                                                              |  | $                      | 7,205  |      | $ | 16,071
|Unfunded commitments to extend credit under existing equity line and commercial lines of credit |  |                        | 30,485 |      |   | 27,023
|Commercial letters of credit                                                                    |  |                        | 754    |      |   | 701   

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

Contractual Obligations

The following table sets forth the Companys contractual obligations as of September 30, 2006.



|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        
|---------------------------------- |  | ---------------------- | ------- | ---------- | - | ---------- |  | ------------ | ------- | ----- | - | ------ |  | - | -------
|                                   |  | Payments due by period
|                                   |  | (Dollars in Thousands)
|                                   |  | Less than 1year        |         | 1 3 Years |   | 4 5 Years |  | Over 5 Years |         | Total
|Time Deposits                      |  | $                      | 228,357 |            | $ | 147,475    |  | $            | 56,586  |       | $ |       |  | $ | 432,418
|Long-term borrowings               |  |                        | 25,000  |            |   | 44,000     |  |              | 49,000  |       |   |       |  |   | 118,000
|Junior Subordinated Debenture      |  |                        |        |            |   |           |  |              |        |       |   | 23,197 |  |   | 23,197 
|Lease Obligations                  |  |                        | 1,201   |            |   | 1,915      |  |              | 1,686   |       |   | 7,556  |  |   | 12,358 
|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        
|Total Contractual Cash Obligations |  | $                      | 254,558 |            | $ | 193,390    |  | $            | 107,272 |       | $ | 30,753 |  | $ | 585,973
|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        



20



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Impact of Inflation and Changing Prices

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

Off-Balance Sheet Arrangements

As of the date of
this Annual Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, change in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that are material to investors, except for the guarantees made by the Company with respect to the trust preferred securities issued by each of the Business Trust and the
Statutory Trust, which are discussed in the Liquidity and Capital Resources subsection of this Annual Report and in footnote 9 to the audited financial statements. The term off-balance sheet arrangement generally means
any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable
interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. Additionally, the Bank does have commitments to originate
loans in the ordinary course of business, as disclosed herein.

Impact of New Accounting Standards

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 154, Accounting Changes and Error Corrections, which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by
an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period financial statements of changes in accounting principle,
unless it is impractical to determine either the period-specific or cumulative effects of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of this standard did not
have a material effect on financial condition, results of operations, or liquidity.

In February 2006, The FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140. This statement amends Statements No. 133 and 140 by: permitting fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require bifurcation; clarifying which interest-only strips and principal-only strips are not subject to the requirements of Statement No. 133; establishing a requirement to
evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifying that concentrations of credit
risk in the form of subordination are not embedded derivatives; and amending Statement No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. The statement is effective for fiscal years beginning after September 15, 2006. The adoption of this standard is not anticipated to have a material impact on the financial condition,
results of operations or liquidity.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assetsan amendment of FASB Statement No. 140. This statement amends Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. It requires an entity to recognize a
servicing asset or servicing liability each time an obligation is undertaken to service a financial asset by entering into a servicing contract in certain situations and requires all separately recognized servicing assets and liabilities to be
initially measured at fair value, if practicable. The statement permits the choice between the amortization method and the fair value measurement method for the subsequent measurement of the servicing assets or liabilities
and allows for a one-time reclassification of available-for-sale securities to trading securities at initial adoption. The statement also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair
value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. The statement is effective for fiscal years beginning after



21



---

September 30, 2006. The adoption of this standard is not anticipated to have a material impact on our financial condition, results of operations or
liquidity.

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement 109, which provides guidance on the measurement, recognition, and disclosure of tax positions taken or expected to be taken in a tax return. The interpretation also provides guidance on
derecognition, classification, interest and penalties, and disclosure. FIN 48 prescribes that a tax position should only be recognized if it is more-likely-than-not that the position will be sustained upon examination by the appropriate taxing
authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The cumulative effect of applying FIN 48 is to be reported as an
adjustment to the beginning balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently assessing the impact, if any, that the adoption may have on its
financial statements.

In September 2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-4, Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 requires the recognition of a liability and related compensation costs for endorsement split-dollar life insurance
policies that provide a benefit to an employee that extends to postretirement periods as defined in SFAS No. 106,  Employers Accounting for Postretirement Benefits Other Than Pensions. The EITF reached a consensus that Bank
Owned Life Insurance policies purchased for this purpose do not effectively settle the entitys obligation to the employee in this regard and thus the entity must record compensation cost and a related liability. Entities should recognize the
effects of applying this Issue through either, (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the balance sheet as of the beginning of the year
of adoption, or (b) a change in accounting principle through retrospective application to all prior periods. Management is currently evaluating the impact of adopting this Issue on the Companys financial statements. This Issue is
effective for fiscal years beginning after December 15, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. While the Statement applies under other accounting
pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit
price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels. Lastly, SFAS No. 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. The Statement is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. Management does not expect the adoption of this Statement to have a material impact on the Companys consolidated financial statements.

In September 2006, the Securities and Exchange Commission (the SEC) released Staff Accounting Bulletin No. 108 (SAB 108),
which provides detail in the quantification and correction of financial statement misstatements. SAB 108 specifies that companies should apply a combination of the rollover and iron curtain methodologies when making
determinations of materiality. The rollover method quantifies a misstatement based on the amount of the error originating in the current year income statement. The iron curtain approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year, regardless of the year(s) of origination. SAB 108 instructs companies to quantify the misstatement under both methodologies and if either method results in the determination
of a material error, then the company must adjust its financial statements to correct the error. SAB 108 also reminds preparers that a change from an accounting principle that is not generally accepted to a principle that is generally accepted is a
correction of an error. The Bulletin is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. Management does not expect the adoption of this Bulletin to have a material impact on the
Companys consolidated financial statements.



22



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

BCSB Bankcorp, Inc.

Baltimore, Maryland

We have audited the consolidated
statements of financial condition of BCSB Bankcorp, Inc. and Subsidiaries as of September 30, 2006 and 2005 and the related consolidated statements of operations, stockholders equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements of BCSB
Bankcorp, Inc. and Subsidiaries for the year ended September 30, 2004 were audited by other auditors whose report dated November 30, 2004, expressed an unqualified opinion on those statements.

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 audit 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, 2006 and 2005 and the consolidated results of their operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

LOGO

Baltimore, Maryland

November 30, 2006

Suite 100, 405 East Joppa Road Baltimore, Maryland 21286  410-823-8000  1-800-686-3883 
Fax: 410-296-4815  www.stegman.com

LOGO



F-1



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BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                          |  | September 30,                               |        
|                                                                                                                                                          |  | 2006                                        |         |   | 2005 |  
|                                                                                                                                                          |  | (dollars in thousandsexcept per share data) |        
|Assets                                                                                                                                                    |  |                                             |         |   |      |   |         |  
|Cash                                                                                                                                                      |  | $                                           | 8,421   |   |      | $ | 21,713  |  
|Interest bearing deposits in other banks                                                                                                                  |  |                                             | 2,854   |   |      |   | 1,578   |  
|Federal funds sold                                                                                                                                        |  |                                             | 462     |   |      |   | 238     |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Cash and Cash Equivalents                                                                                                                                 |  |                                             | 11,737  |   |      |   | 23,529  |  
|Interest bearing time deposits                                                                                                                            |  |                                             | 100     |   |      |   | 100     |  
|Investment securities, available for sale                                                                                                                 |  |                                             | 143,068 |   |      |   | 151,386 |  
|Investment securities, held to maturity (fair value approximates $4,489, and $1,982)                                                                      |  |                                             | 4,496   |   |      |   | 1,995   |  
|Loans receivable, net of allowances of ($2,679), and ($2,746)                                                                                             |  |                                             | 463,776 |   |      |   | 454,347 |  
|Mortgage-backed securities, available for sale                                                                                                            |  |                                             | 86,801  |   |      |   | 112,120 |  
|Mortgage-backed securities, held to maturity (fair value approximates $28,356 and $26,259)                                                                |  |                                             | 28,675  |   |      |   | 26,470  |  
|Foreclosed real estate                                                                                                                                    |  |                                             | 94      |   |      |   |        |  
|Premises and equipment, net                                                                                                                               |  |                                             | 11,225  |   |      |   | 10,782  |  
|Federal Home Loan Bank of Atlanta stock, at cost                                                                                                          |  |                                             | 6,972   |   |      |   | 8,060   |  
|Bank Owned Life Insurance                                                                                                                                 |  |                                             | 13,218  |   |      |   | 12,667  |  
|Goodwill and other intangible assets                                                                                                                      |  |                                             | 2,536   |   |      |   | 2,592   |  
|Accrued interest and other assets                                                                                                                         |  |                                             | 13,159  |   |      |   | 8,697   |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Total assets                                                                                                                                              |  | $                                           | 785,857 |   |      | $ | 812,745 |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Liabilities and Stockholders Equity                                                                                                                      |  |                                             |         |   |      |   |         |  
|Liabilities                                                                                                                                               |  |                                             |         |   |      |   |         |  
|Deposits:                                                                                                                                                 |  |                                             |         |   |      |   |         |  
|Non-Interest bearing                                                                                                                                      |  | $                                           | 23,406  |   |      | $ | 24,653  |  
|Interest-bearing                                                                                                                                          |  |                                             | 581,439 |   |      |   | 573,016 |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Total deposits                                                                                                                                            |  |                                             | 604,845 |   |      |   | 597,669 |  
|Federal Home Loan Bank of Atlanta advances short-term                                                                                                     |  |                                             | 40,000  |   |      |   | 81,150  |  
|Federal Home Loan Bank of Atlanta advances long-term                                                                                                      |  |                                             | 78,473  |   |      |   | 63,646  |  
|Junior Subordinated Debentures                                                                                                                            |  |                                             | 23,197  |   |      |   | 23,197  |  
|Other liabilities                                                                                                                                         |  |                                             | 5,921   |   |      |   | 5,043   |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Total liabilities                                                                                                                                         |  |                                             | 752,436 |   |      |   | 770,705 |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Commitments and contingencies (Notes 3, 5, 7, 8, 9, 10, 11, 12 and 13)                                                                                    |  |                                             |         |   |      |   |         |  
|Stockholders Equity                                                                                                                                      |  |                                             |         |   |      |   |         |  
|Common stock (par value $.01  13,500,000 authorized, 5,913,743 and 5,912,177 shares issued and outstanding at September 30, 2006
and 2005, respectively) |  |                                             | 59      |   |      |   | 59      |  
|Additional paid-in capital                                                                                                                                |  |                                             | 21,390  |   |      |   | 21,247  |  
|Obligation under Rabbi Trust                                                                                                                              |  |                                             | 1,246   |   |      |   | 1,238   |  
|Retained earnings                                                                                                                                         |  |                                             | 16,511  |   |      |   | 24,963  |  
|Accumulated other comprehensive (loss)                                                                                                                    |  |                                             | (4,354  | ) |      |   | (3,878  | )
|Employee Stock Ownership Plan                                                                                                                             |  |                                             | (227    | ) |      |   | (410    | )
|Stock held by Rabbi Trust                                                                                                                                 |  |                                             | (1,204  | ) |      |   | (1,179  | )
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                |  |                                             | 33,421  |   |      |   | 42,040  |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                |  | $                                           | 785,857 |   |      | $ | 812,745 |  
|                                                                                                                                                          |  |                                             |         |   |      |   |         |  

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



F-2



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------ |  | -------------------------------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                   |  | For Years Ended September 30,                |        
|                                                                   |  | 2006                                         |         |   | 2005 |   |        | 2004 | 
|                                                                   |  | (dollars in thousands except per share data) |        
|Interest and fees on loans                                         |  | $                                            | 28,352  |   |      | $ | 24,286 |      |  | $ | 22,056 |  
|Interest on mortgage-backed securities                             |  |                                              | 5,095   |   |      |   | 6,231  |      |  |   | 5,548  |  
|Interest and dividends on investment securities                    |  |                                              | 6,342   |   |      |   | 5,637  |      |  |   | 4,552  |  
|Other interest income                                              |  |                                              | 206     |   |      |   | 69     |      |  |   | 78     |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Total interest income                                              |  |                                              | 39,995  |   |      |   | 36,223 |      |  |   | 32,234 |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|                                                                   |  |                                              |        
|Interest on deposits                                               |  |                                              | 18,379  |   |      |   | 14,711 |      |  |   | 13,553 |  
|Interest on borrowings  short term                                |  |                                              | 2,484   |   |      |   | 1,471  |      |  |   | 323    |  
|Interest on borrowings  long term                                 |  |                                              | 2,992   |   |      |   | 2,738  |      |  |   | 1,400  |  
|Other interest expense                                             |  |                                              | 1,921   |   |      |   | 1,464  |      |  |   | 1,086  |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Total interest expense                                             |  |                                              | 25,776  |   |      |   | 20,384 |      |  |   | 16,362 |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Net interest income                                                |  |                                              | 14,219  |   |      |   | 15,839 |      |  |   | 15,872 |  
|(Reversal) provision for losses on loans                           |  |                                              | (109    | ) |      |   | 168    |      |  |   | 487    |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Net interest income after (reversal) provision for losses on loans |  |                                              | 14,328  |   |      |   | 15,671 |      |  |   | 15,385 |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|                                                                   |  |                                              |        
|Other Income                                                       |  |                                              |         |   |      |   |        |      |  |   |        |  
|Loss on repossessed assets                                         |  |                                              | (327    | ) |      |   | (561   | )    |  |   | (255   | )
|Mortgage Banking Operations                                        |  |                                              | 33      |   |      |   | 1      |      |  |   | (45    | )
|Fees on transaction accounts                                       |  |                                              | 561     |   |      |   | 686    |      |  |   | 759    |  
|Gain from sale of investments and mortgage backed securities       |  |                                              | 5       |   |      |   | 884    |      |  |   | 22     |  
|Income from Bank Owned Life Insurance                              |  |                                              | 474     |   |      |   | 454    |      |  |   | 487    |  
|Miscellaneous income                                               |  |                                              | 452     |   |      |   | 391    |      |  |   | 411    |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Total other income                                                 |  |                                              | 1,198   |   |      |   | 1,855  |      |  |   | 1,379  |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|                                                                   |  |                                              |        
|Non-Interest Expenses                                              |  |                                              |         |   |      |   |        |      |  |   |        |  
|Salaries and related expense                                       |  |                                              | 8,673   |   |      |   | 9,150  |      |  |   | 8,810  |  
|Occupancy expense                                                  |  |                                              | 2,141   |   |      |   | 1,961  |      |  |   | 1,821  |  
|Data processing expense                                            |  |                                              | 1,680   |   |      |   | 2,195  |      |  |   | 1,560  |  
|Property and equipment expense                                     |  |                                              | 1,301   |   |      |   | 1,151  |      |  |   | 1,115  |  
|Advertising                                                        |  |                                              | 612     |   |      |   | 642    |      |  |   | 870    |  
|Telephone, postage and office supplies                             |  |                                              | 437     |   |      |   | 579    |      |  |   | 580    |  
|Loss on dishonored checks                                          |  |                                              | 10,752  |   |      |   |       |      |  |   |       |  
|Other expenses                                                     |  |                                              | 1,372   |   |      |   | 1,136  |      |  |   | 979    |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Total non-interest expenses                                        |  |                                              | 26,968  |   |      |   | 16,814 |      |  |   | 15,735 |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|                                                                   |  |                                              |        
|(Loss) income before tax (benefit) provision                       |  |                                              | (11,442 | ) |      |   | 712    |      |  |   | 1,029  |  
|Income tax provision                                               |  |                                              | (4,049  | ) |      |   | 111    |      |  |   | 144    |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Net (loss) income                                                  |  | $                                            | (7,393  | ) |      | $ | 601    |      |  | $ | 885    |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|                                                                   |  |                                              |        
|Net (loss) income Per Share of Common Stock :                      |  |                                              |         |   |      |   |        |      |  |   |        |  
|Basic                                                              |  | $                                            | (1.26   | ) |      | $ | 0.10   |      |  | $ | 0.15   |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  
|Diluted                                                            |  | $                                            | (1.26   | ) |      | $ | 0.10   |      |  | $ | 0.15   |  
|                                                                   |  |                                              |         |   |      |   |        |      |  |   |        |  

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



F-3



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BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|                                                                                                                    |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | -- | ------------------------ | - | ------ | -------------------------- |  | - | ---------------- | - |  | ------------------------------------------ | ------ | - | ---------------------------- | - | ------ | ----------------------- |  | - | ------------------------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                                    |  | CommonStock                                  |    | AdditionalPaid-InCapital |   |        | ObligationUnderRabbi Trust |  |   | RetainedEarnings |   |  | AccumulatedOtherComprehensiveIncome (loss) |        |   | Employee StockOwnership Plan |   |        | Stock HeldByRabbi Trust |  |   | TotalStockholdersEquity |  
|                                                                                                                    |  | (dollars in thousands except per share data) |   
|Balance  September 30, 2003                                                                                        |  | $                                            | 59 |                          | $ | 20,652 |                            |  | $ | 1,243            |   |  | $                                          | 25,557 |   |                              | $ | (770   | )                       |  | $ | (776                     | ) |  | $ | (1,197 | ) |  | $ | 44,768 |  
|Compensation under stock based benefit plans                                                                        |  |                                              |   |                          |   | 206    |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   | 183                      |   |  |   |       |   |  |   | 389    |  
|Exercised options                                                                                                   |  |                                              |   |                          |   | 117    |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | 117    |  
|Rabbi Trust Liability                                                                                               |  |                                              |   |                          |   |       |                            |  |   | (4               | ) |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (4     | )
|Distribution of stock for Rabbi Trust                                                                               |  |                                              |    |                          |   |        |                            |  |   | (17              | ) |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   | 17     |   |  |   |       |  
|Treasury stock purchased (420 shares)                                                                               |  |                                              |   |                          |   | (6     | )                          |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (6     | )
|Cash dividends declared ($.50 per share)                                                                            |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            | (1,035 | ) |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (1,035 | )
|Comprehensive income                                                                                                |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Net income for the year ended September 30, 2004                                                                    |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            | 885    |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   |       |  
|Net change in unrealized gains on investment securities and mortgage backed securities, net of tax of $612          |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   | (970   | )                       |  |   |                         |   |  |   |       |   |  |   |       |  
|Reclassification adjustments for gains included in net income on available for sale securities, net of tax of $7    |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   | (15    | )                       |  |   |                         |   |  |   |       |   |  |   |       |  
|Comprehensive loss                                                                                                  |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (100   | )
|                                                                                                                    |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance  September 30, 2004                                                                                        |  |                                              | 59 |                          |   | 20,969 |                            |  |   | 1,222            |   |  |                                            | 25,407 |   |                              |   | (1,755 | )                       |  |   | (593                     | ) |  |   | (1,180 | ) |  |   | 44,129 |  
|Compensation under stock based benefit plans                                                                        |  |                                              |   |                          |   | 168    |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   | 183                      |   |  |   |       |   |  |   | 351    |  
|Exercised options                                                                                                   |  |                                              |   |                          |   | 115    |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | 115    |  
|Rabbi Trust Liability                                                                                               |  |                                              |   |                          |   |       |                            |  |   | 44               |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   | (27    | ) |  |   | 17     |  
|Treasury stock purchased (371 shares)                                                                               |  |                                              |   |                          |   | (5     | )                          |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (5     | )
|Distribution of stock for Rabbi Trust                                                                               |  |                                              |   |                          |   |       |                            |  |   | (28              | ) |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   | 28     |   |  |   |       |  
|Cash dividends declared ($.50 per share)                                                                            |  |                                              |   |                          |   |       |                            |  |   |                  |   |  |                                            | (1,045 | ) |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   | (1,045 | )
|Comprehensive Loss                                                                                                  |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Net income for the year ended September 30, 2005                                                                    |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            | 601    |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   |       |  
|Net change in unrealized gains (loss) on investment securities and mortgage backed securities, net of tax of $1,325 |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   | (2,131 | )                       |  |   |                         |   |  |   |       |   |  |   |       |  
|Reclassification adjustment for loss included in net income on available for sale securities, net of tax of $5      |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   | 8      |                         |  |   |                         |   |  |   |       |   |  |   |       |  
|Comprehensive loss                                                                                                  |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (1,522 | )
|                                                                                                                    |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance- September 30, 2005                                                                                         |  |                                              | 59 |                          |   | 21,247 |                            |  |   | 1,238            |   |  |                                            | 24,963 |   |                              |   | (3,878 | )                       |  |   | (410                     | ) |  |   | (1,179 | ) |  |   | 42,040 |  
|Compensation under stock based benefit plans                                                                        |  |                                              |   |                          |   | 130    |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   | 183                      |   |  |   |       |   |  |   | 313    |  
|Exercised options                                                                                                   |  |                                              |   |                          |   | 15     |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | 15     |  
|Rabbi Trust Liability                                                                                               |  |                                              |   |                          |   |       |                            |  |   | 37               |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |        |   |  |   | 37     |  
|Treasury stock purchased (184 shares)                                                                               |  |                                              |   |                          |   | (2     | )                          |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (2     | )
|Acquisition of stock for Rabbi Trust                                                                                |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   | (54    | ) |  |   | (54    | )
|Distribution of stock for Rabbi Trust                                                                               |  |                                              |   |                          |   |       |                            |  |   | (29              | ) |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   | 29     |   |  |   |       |  
|Cash dividends declared ($.50 per share)                                                                            |  |                                              |   |                          |   |       |                            |  |   |                  |   |  |                                            | (1,059 | ) |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   | (1,059 | )
|Comprehensive Loss                                                                                                  |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Net loss for the year ended September 30, 2006                                                                      |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            | (7,393 | ) |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   |       |  
|Net change in unrealized gains (loss) on investment securities and mortgage backed securities, net of tax of $1,393 |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   | (476   | )                       |  |   |                         |   |  |   |       |   |  |   |       |  
|Comprehensive loss                                                                                                  |  |                                              |   |                          |   |       |                            |  |   |                 |   |  |                                            |       |   |                              |   |       |                         |  |   |                         |   |  |   |       |   |  |   | (7,869 | )
|                                                                                                                    |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  
|Balance  September 30, 2006                                                                                        |  | $                                            | 59 |                          | $ | 21,390 |                            |  | $ | 1,246            |   |  | $                                          | 16,511 |   |                              | $ | (4,354 | )                       |  | $ | (227                     | ) |  | $ | (1,204 | ) |  | $ | 33,421 |  
|                                                                                                                    |  |                                              |    |                          |   |        |                            |  |   |                  |   |  |                                            |        |   |                              |   |        |                         |  |   |                          |   |  |   |        |   |  |   |        |  

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



F-4



---

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                               |  |                               |         |   |      |   |         |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                               |  | For Years Ended September 30, |        
|                                                                                               |  | 2006                          |         |   | 2005 |   |         | 2004 | 
|                                                                                               |  | (dollars in thousands)        |        
|Operating Activities                                                                           |  |                               |         |   |      |   |         |      |  |   |          |  
|Net (loss) income                                                                              |  | $                             | (7,393  | ) |      | $ | 601     |      |  | $ | 885      |  
|Adjustments to Reconcile Net (Loss) Income to Net Cash (Used) Provided by Operating Activities |  |                               |         |   |      |   |         |      |  |   |          |  
|Gain on sale of investments and mortgage backed securities                                     |  |                               | (5      | ) |      |   | (884    | )    |  |   | (22      | )
|Loans originated for sale                                                                      |  |                               |        |   |      |   |        |      |  |   | (3,201   | )
|Proceeds from loans sold                                                                       |  |                               |        |   |      |   |        |      |  |   | 3,491    |  
|Gain on loans sold                                                                             |  |                               |        |   |      |   |        |      |  |   | (42      | )
|Amortization of deferred loan fees, net                                                        |  |                               | (173    | ) |      |   | (157    | )    |  |   | (232     | )
|(Reversal) provision for losses on loans                                                       |  |                               | (109    | ) |      |   | 168     |      |  |   | 487      |  
|Non-cash compensation under Stock-based Benefit Plan                                           |  |                               | 313     |   |      |   | 351     |      |  |   | 389      |  
|Amortization of premiums and discounts, net                                                    |  |                               | 319     |   |      |   | 122     |      |  |   | 331      |  
|Provision for depreciation                                                                     |  |                               | 1,052   |   |      |   | 890     |      |  |   | 898      |  
|Loss on disposal of premises and equipment                                                     |  |                               |        |   |      |   |        |      |  |   | 11       |  
|Loss on sale of repossessed assets                                                             |  |                               | 327     |   |      |   | 561     |      |  |   | 255      |  
|Income from Bank Owned Life Insurance                                                          |  |                               | (474    | ) |      |   | (452    | )    |  |   | (487     | )
|Increase in accrued interest and other assets                                                  |  |                               | (4,153  | ) |      |   | (52     | )    |  |   | (50      | )
|Increase (decrease) in other liabilities                                                       |  |                               | 1,652   |   |      |   | (444    | )    |  |   | 1,904    |  
|Increase (decrease) in obligation under Rabbi Trust                                            |  |                               | 38      |   |      |   | 44      |      |  |   | (4       | )
|                                                                                               |  |                               |         |   |      |   |         |      |  |   |          |  
|Net cash (used) provided by operating activities                                               |  |                               | (8,606  | ) |      |   | 748     |      |  |   | 4,613    |  
|                                                                                               |  |                               |         |   |      |   |         |      |  |   |          |  
|Cash Flows from Investing Activities                                                           |  |                               |         |   |      |   |         |      |  |   |          |  
|Purchase of Bank Owned Life Insurance                                                          |  |                               | (78     | ) |      |   | (303    | )    |  |   | (11,425  | )
|Purchase of investment securities  available for sale                                         |  |                               | (1,707  | ) |      |   | (11,491 | )    |  |   | (76,442  | )
|Proceeds from maturities of investment securities  available for sale                         |  |                               | 4,500   |   |      |   | 2,000   |      |  |   | 21,130   |  
|Proceeds from sale of investment securities  available for sale                               |  |                               | 5,405   |   |      |   | 15,536  |      |  |   | 16,976   |  
|Purchases of investment securities  held to maturity                                          |  |                               | (3,000  | ) |      |   |        |      |  |   | (2,498   | )
|Proceeds from maturities of investment securities  held to maturity                           |  |                               | 500     |   |      |   | 500     |      |  |   | 2,500    |  
|Net increase in loans                                                                          |  |                               | (10,090 | ) |      |   | (69,217 | )    |  |   | (22,322  | )
|Purchase of mortgage backed securities  available for sale                                    |  |                               |        |   |      |   | (10,616 | )    |  |   | (59,968  | )
|Principal collected on mortgage backed securities                                              |  |                               | 28,918  |   |      |   | 38,508  |      |  |   | 32,964   |  
|Proceeds from sale of mortgage backed securities- available for sale                           |  |                               |        |   |      |   | 8,351   |      |  |   | 2,704    |  
|Purchase of mortgage backed securities  held to maturity                                      |  |                               | (6,704  | ) |      |   | (5,271  | )    |  |   | (13,273  | )
|Proceeds from sale of premises and equipment                                                   |  |                               |        |   |      |   |        |      |  |   | 15       |  
|Proceeds from sales of repossessed assets                                                      |  |                               | 307     |   |      |   | 422     |      |  |   | 362      |  
|Investment in premises and equipment                                                           |  |                               | (1,495  | ) |      |   | (2,432  | )    |  |   | (937     | )
|Redemption (purchase) of Federal Home Loan Bank of Atlanta stock                               |  |                               | 1,088   |   |      |   | (1,955  | )    |  |   | (2,800   | )
|Decrease in accounts payable Trade Date Securities                                             |  |                               |        |   |      |   |        |      |  |   | (13,998  | )
|                                                                                               |  |                               |         |   |      |   |         |      |  |   |          |  
|Net cash provided (used) by investing activities                                               |  |                               | 17,644  |   |      |   | (35,968 | )    |  |   | (127,012 | )
|                                                                                               |  |                               |         |   |      |   |         |      |  |   |          |  



F-5



---

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------ |  | ----------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                         |  | For Years Ended September 30, |         
|                                                                         |  | 2006                          |          |   | 2005 |   |          | 2004 | 
|                                                                         |  | (dollars in thousands)        |         
|Cash Flows from Financing Activities                                     |  |                               |          |   |      |   |          |      |  |   |          |  
|Net increase in deposits                                                 |  | $                             | 6,997    |   |      | $ | 17,094   |      |  | $ | 28,969   |  
|Net (decrease) increase in advances by borrowers for taxes and Insurance |  |                               | (577     | ) |      |   | 752      |      |  |   | 111      |  
|Proceeds from Federal Home Loan Bank of Atlanta advances                 |  |                               | 232,125  |   |      |   | 383,600  |      |  |   | 210,127  |  
|Repayment of Federal Home Loan Bank of Atlanta advances                  |  |                               | (258,275 | ) |      |   | (359,550 | )    |  |   | (121,277 | )
|Acquisition of stock for Rabbi Trust                                     |  |                               | (54      | ) |      |   | (27      | )    |  |   |         |  
|Treasury stock purchased                                                 |  |                               | (2       | ) |      |   | (5       | )    |  |   | (6       | )
|Exercised stock options                                                  |  |                               | 15       |   |      |   | 115      |      |  |   | 117      |  
|Dividends paid                                                           |  |                               | (1,059   | ) |      |   | (1,045   | )    |  |   | (1,035   | )
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|Net cash (used) provided by financing activities                         |  |                               | (20,830  | ) |      |   | 40,934   |      |  |   | 117,006  |  
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|                                                                         |  |                               |         
|(Decrease) increase in cash equivalents                                  |  |                               | (11,792  | ) |      |   | 5,714    |      |  |   | (5,393   | )
|Cash and cash equivalents at beginning of period                         |  |                               | 23,529   |   |      |   | 17,815   |      |  |   | 23,208   |  
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                               |  | $                             | 11,737   |   |      | $ | 23,529   |      |  | $ | 17,815   |  
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|                                                                         |  |                               |         
|Supplemental Disclosure of Cash Flows Information:                       |  |                               |          |   |      |   |          |      |  |   |          |  
|Cash paid during the period for:                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|Interest                                                                 |  | $                             | 25,371   |   |      | $ | 20,258   |      |  | $ | 16,101   |  
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  
|Income taxes                                                             |  | $                             |         |   |      | $ | 510      |      |  | $ | 220      |  
|                                                                         |  |                               |          |   |      |   |          |      |  |   |          |  

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



F-6



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation - BCSB Bankcorp, Inc. (the Company) owns 100% of the voting stock of Baltimore County Savings Bank, F.S.B. (the Bank). The Bank owns 100% of Ebenezer Road,
Inc. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since date of acquisition. All intercompany transactions have been eliminated in the consolidated financial
statements. Ebenezer Road, Inc. sells insurance products. Its operations are not material to the consolidated financial statements.

Reclassifications - Certain prior years amounts have been reclassified to conform to the current years method of presentation.

Business - The Companys primary purpose is ownership of the Bank. The Banks primary business activity is the acceptance of deposits from the general public in its market area and using the proceeds
for investments and loan originations. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Financial Statement Presentation - The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement
of financial condition and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination
of the allowance for loan losses, valuations of foreclosed real estate, goodwill and intangible assets, deferred income taxes and other than temporary impairment of investment securities.

Investments and Mortgage Backed Securities - Investment securities in equity mutual funds, certain federal agency notes and mortgage backed
securities may be held for an indefinite period of time. However, management may sell them in response to changes in interest rates or other similar factors and, accordingly, carries them at fair value. Other investment securities consisting of
federal agency notes and bonds and mortgage backed securities are carried at cost, since management has the ability and intention to hold them to maturity. Amortization of related premiums and discounts are computed using the level yield method over
the life of the security. Gains and losses on all investments and mortgage backed securities are determined using the specific identification method.

Restricted Stock Investments- The Bank, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the Federal Home Loan Bank of Atlanta (FHLB) in
varying amounts based on balances of outstanding home loans and on amounts borrowed from the FHLB. Because no ready market exists for this stock and it has no quoted market value, the Banks investment in this stock is carried at cost.



F-7



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans Receivable - Loans
receivable are stated at unpaid principal balances, less undisbursed portion of loans in process, unearned interest on consumer loans, deferred loan origination fees and the allowance for loan losses, since management has the ability and intention
to hold them to maturity.

Interest income is accrued on the unpaid principal balance. Unearned interest on consumer loans is amortized to
income over the terms of the related loans on the level yield method. Loan origination fees and certain direct loan origination costs are deferred and recognized by the interest method over the contractual life of the related loan as an adjustment
of yield.

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and
collection efforts, that the borrowers financial condition is such that collection of interest is doubtful or when payment of principal and interest has become ninety days past due unless the obligation is well secured and in the process of
collection. When a payment is received on a loan on non-accrual status, the amount received is allocated to principal and interest in accordance with the contractual terms of the loan. A loan is considered past due or delinquent when a contractual
payment is not paid in the month it is due.

Loans Held for Sale - Loans held for sale are carried at lower of cost or market value
in the aggregate. Market value is derived from secondary market quotations for similar instruments. Net unrealized losses are recognized through a valuation allowance by charges to income.

Allowance for Loan Losses - An allowance for loan losses is provided through charges to income in an amount that management believes will be
adequate to absorb losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. Loans deemed to be uncollectible are charged against the allowance for loans losses and
subsequent recoveries if any, are credited to the allowance. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers ability to pay. Management believes the allowance for losses on loans is adequate. While management uses available information to estimate losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions, particularly in the state of Maryland. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for losses on
loans. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

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

SFAS Nos. 114 and 118 are generally applicable for
all loans except large groups of smaller-balance homogeneous loans that are evaluated collectively for impairment, including residential first and second mortgage loans and consumer installment loans. Impaired loans are therefore generally comprised
of commercial mortgage, real estate development, and certain restructured residential loans. In addition, impaired loans are generally loans which management has placed in non-accrual



F-8



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



status since loans are placed in non-accrual status on the earlier of the date that management determined that the collection of principal and/or interest is
in doubt or the date that principal or interest is 90 days or more past due.

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

Foreclosed Real Estate - Real estate acquired through foreclosure is recorded at fair value. Management periodically evaluates the recoverability
of the carrying value of the real estate acquired through foreclosure using estimates as described above in Allowance for Loan Losses. In the event of a subsequent decline, management provides an additional allowance to reduce real estate acquired
through foreclosure to its fair value less estimated disposal cost. 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. There was no provision for losses during the years ended September 30, 2006, 2005, and 2004.

Loan
Servicing  The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair
values are estimated by calculating the net present values of the interest payments over the life of the loans. Impairment is determined on a loan by loan basis. The amount of impairment recognized, if any, is the amount by which the capitalized
mortgage servicing rights for a loan exceed its fair value.



F-9



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Mortgage Servicing Rights Following is an analysis of the change in mortgage servicing
rights for loans originated and sold during the year and the unamortized balance and change in excess servicing fees from loans originated and sold in prior periods.



|                                                             |  |                |     |   |      |   |     |      |  |   |     |  
|------------------------------------------------------------ |  | -------------- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                             |  | 2006           |     |   | 2005 |   |     | 2004 | 
|                                                             |  | (in thousands) |    
|Balance October 1,                                           |  | $              | 134 |   |      | $ | 178 |      |  | $ | 269 |  
|Capitalized                                                  |  |                |    |   |      |   |    |      |  |   | 47  |  
|(Reversal) provision for losses on mortgage servicing rights |  |                | 24  |   |      |   |    |      |  |   | (74 | )
|Amortization                                                 |  |                | (34 | ) |      |   | (44 | )    |  |   | (64 | )
|                                                             |  |                |     |   |      |   |     |      |  |   |     |  
|Balance September 30,                                        |  | $              | 124 |   |      | $ | 134 |      |  | $ | 178 |  
|                                                             |  |                |     |   |      |   |     |      |  |   |     |  

Premises and Equipment - Premises and equipment are recorded at cost. Depreciation is
computed on the straight-line method, based on the useful lives of the respective assets.

Income Taxes - Deferred income taxes are
recognized for temporary differences between the financial reporting bases and income tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. Deferred tax assets are
recognized only to the extent that is more likely than not that such amounts will be realized based on consideration of available evidence. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.



F-10



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Transfer of Financial Assets- Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Significant Group Concentrations of Credit Risk- Most of the Banks activities are with customers located within the greater Baltimore
metropolitan area. The Bank does not have any significant concentrations to any one industry or customer.

Earnings Per Share - Basic
per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per share. No adjustments were made to net income (numerator). For the years ended September 30, 2006, 2005, 2004 there were no option shares excluded from the computation
of diluted earnings per share. The basic and diluted weighted average shares outstanding for the years ended September 30, 2006, 2005 and 2004 are as follows:



|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|--------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------- | ----- | ---------------- | - | ----- | -
|                                                          |  | 2006                                  |       
|                                                          |  | (Loss) Income(Numerator)              |        |   | Shares(Denominator) |       | Per Share Amount |  
|                                                          |  | ( in thousands except per share data) |       
|Basic EPS                                                 |  |                                       |        |   |                     |       |                  |   |       |  
|(Loss) available to shareholders                          |  | $                                     | (7,393 | ) |                     | 5,855 |                  | $ | (1.26 | )
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|Diluted EPS                                               |  |                                       |        |   |                     |       |                  |   |       |  
|Effect of dilutive shares                                 |  |                                       |       |   |                     |      |                  |   |      |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|(Loss) available to shareholders plus assumed conversions |  | $                                     | (7,393 | ) |                     | 5,855 |                  | $ | (1.26 | )
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|                                                          | 
|                                                          |  | 2005                                  |       
|Basic EPS                                                 |  |                                       |        |   |                     |       |                  |   |       |  
|Income available to shareholders                          |  | $                                     | 601    |   |                     | 5,877 |                  | $ | 0.10  |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|Diluted EPS                                               |  |                                       |        |   |                     |       |                  |   |       |  
|Effect of dilutive shares                                 |  |                                       |       |   |                     | 36    |                  |   |      |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|Income available to shareholders plus assumed conversions |  | $                                     | 601    |   |                     | 5,913 |                  | $ | 0.10  |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|                                                          | 
|                                                          |  | 2004                                  |       
|Basic EPS                                                 |  |                                       |        |   |                     |       |                  |   |       |  
|Income available to shareholders                          |  | $                                     | 885    |   |                     | 5,792 |                  | $ | 0.15  |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|Diluted EPS                                               |  |                                       |        |   |                     |       |                  |   |       |  
|Effect of dilutive shares                                 |  |                                       |       |   |                     | 53    |                  |   |      |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  
|Income available to shareholders plus assumed conversions |  | $                                     | 885    |   |                     | 5,845 |                  | $ | 0.15  |  
|                                                          |  |                                       |        |   |                     |       |                  |   |       |  

Statement of Cash Flows - In the statement of cash flows, cash and equivalents include
cash, Federal Home Loan Bank of Atlanta overnight deposits, federal funds and certificates of deposit and Federal Home Loan Bank of Atlanta time deposits with an original maturity date less than ninety days.



F-11



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Employee Stock Ownership Plan -The Company accounts for its Employee Stock Ownership Plan
(ESOP) in accordance with Statement of Position 93-6 of the Accounting Standards Division of the American Institute of Certified Public Accountants. (See Note 11) ESOP shares are considered to be outstanding for the computation of EPS as
they are committed to be released.

Advertising- All advertising costs are expensed as incurred.

Stock-Based Employee Compensation- In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123R, Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock Issued to Employees. SFAS No. 123R requires that all share-based payments to
employees, including grants of employee stock options, be valued at fair value on the grant date and be expensed over the applicable vesting period. SFAS No. 123R became effective for the Company on October 1, 2005. The Company adopted
SFAS No. 123R using the modified prospective application. Under the modified prospective application, compensation costs are recognized in the financial statements for all new share-based payments granted after
October 1, 2005.

The adoption of SFAS No. 123R resulted in the recognition of compensation expense recognized in earnings of
$33,000 for the year ended September 30, 2006. In accordance with the modified prospective application method of SFAS No. 123R, prior period amounts have not been restated to reflect the recognition of stock-based compensation costs.

Prior to October 1, 2005, the Company applied the intrinsic value method of accounting as prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), with a pro forma disclosure of the impact on net income (loss) of using the fair value option expense recognition method. Under the intrinsic value
method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. If the Company had used the fair value based method, net
earnings and earnings per share for the years ended September 30, 2005 and 2004 would have been reduced to the pro forma amounts listed in the below table.



|                                                                                                             |  |                              |      |   |      |   |      |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                                             |  | For Years EndedSeptember 30, |     
|(dollars in thousands except per share data)                                                                 |  | 2005                         |      |   | 2004 |  
|Net Income, as reported                                                                                      |  | $                            | 601  |   |      | $ | 885  |  
|Add: Stock-based compensation included in the determination of net income as reported, net of tax            |  |                              | 280  |   |      |   | 275  |  
|Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of tax |  |                              | (313 | ) |      |   | (328 | )
|                                                                                                             |  |                              |      |   |      |   |      |  
|Pro forma net income                                                                                         |  | $                            | 568  |   |      | $ | 832  |  
|                                                                                                             |  |                              |      |   |      |   |      |  
|                                                                                                             |  |                             
|Earnings per share:                                                                                          |  |                              |      |   |      |   |      |  
|Basic-as reported                                                                                            |  | $                            | 0.10 |   |      | $ | 0.15 |  
|                                                                                                             |  |                              |      |   |      |   |      |  
|Basic-pro forma                                                                                              |  | $                            | 0.10 |   |      | $ | 0.14 |  
|                                                                                                             |  |                              |      |   |      |   |      |  
|Diluted-as reported                                                                                          |  | $                            | 0.10 |   |      | $ | 0.15 |  
|                                                                                                             |  |                              |      |   |      |   |      |  
|Diluted-pro forma                                                                                            |  | $                            | 0.10 |   |      | $ | 0.14 |  
|                                                                                                             |  |                              |      |   |      |   |      |  



F-12



---

Segment Reporting- The Company acts as an independent community financial services provider,
offering traditional banking and related financial services to individuals and business customers. The Bank offers a full array of commercial and retail financial services, through its branch and automated teller machine networks. This includes
taking time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and providing other financial services.

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

Guarantees- The Company does not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have
expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees
supporting these commitments. The Company has $754,000 of standby letters of credit as of September 30, 2006. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be
sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of September 30, 2006 for guarantees under standby letters of credit issued is not material.

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

Goodwill- The Company accounts for goodwill in accordance with SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill no longer be amortized, but rather that it be tested for impairment on an annual basis at the reporting unit level, which is either at the same
level or one level below an operating segment. Other acquired intangible assets with finite lives, such as purchased customer accounts, are required to be amortized over their estimated lives. The Company annually assesses if events or changes in
circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired. The Company has evaluated Goodwill for impairment and found no change in the carrying amount of Goodwill. Goodwill was $2,294,000 at
September 30, 2006 and 2005.



F-13



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Bank Owned Life Insurance-The Company purchased single-premium life insurance policies on
certain employees of the Company. The net cash surrender value of those policies is classified in other assets. Appreciation in the value of the insurance policies is classified in non-interest income.

Core Deposit Intangible - The Company recognized a core deposit intangible as a result of the merger with WHG Bancshares Corporation. This deposit
base is assumed to decay over time as funds are withdrawn by customers. Amortization is calculated using algebraic formulas taking into account current portfolio costs and the current short term LIBOR.



|                                       |  |                        |     |                        |   |    
|-------------------------------------- |  | ---------------------- | --- | ---------------------- | - | ---
|(dollars in thousands)                 |  | As ofSeptember 30,2006 |     | As ofSeptember 30,2005
|Core Deposit Intangible                |  | $                      | 630 |                        | $ | 630
|Accumulated Amortization               |  |                        | 388 |                        |   | 330
|                                       |  |                        |     |                        |   |    
|Net Balance                            |  | $                      | 242 |                        | $ | 300
|                                       |  |                        |     |                        |   |    
|Aggregate Amortization Expense         |  |                        |     |                        |   |    
|For the year ended September 30, 2006  |  | $                      | 58  |                        |   |    
|For the year ended September 30, 2005  |  |                        | 62  |                        |   |    
|For the year ended September 30, 2004  |  |                        | 59  |                        |   |    
|For the year ended September 30, 2003  |  |                        | 121 |                        |   |    
|                                       |  |                       
|Estimated Amortization Expense         |  |                        |     |                        |   |    
|For the year ending September 30, 2007 |  |                        | 59  |                        |   |    
|For the year ending September 30, 2008 |  |                        | 46  |                        |   |    
|For the year ending September 30, 2009 |  |                        | 36  |                        |   |    
|For the year ending September 30, 2010 |  |                        | 26  |                        |   |    
|For the year ending September 30, 2011 |  |                        | 24  |                        |   |    



F-14



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Recent Accounting Pronouncements-In May 2005, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154, Accounting Changes and Error Corrections, which changes the accounting for and reporting of a change in accounting
principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement
requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. SFAS 154 is effective for accounting
changes made in fiscal years beginning after December 15, 2005. The adoption of this standard did not have a material effect on financial condition, results of operations, or liquidity.

In February 2006, The FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB
Statements No. 133 and 140. This statement amends Statements No. 133 and 140 by: permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;
clarifying which interest-only strips and principal-only strips are not subject to the requirements of Statement No. 133; establishing a requirement to evaluate interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; clarifying that concentrations of credit risk in the form of subordination are not embedded derivatives; and amending
Statement No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The statement is
effective for fiscal years beginning after September 15, 2006. The adoption of this standard is not anticipated to have a material impact on the financial condition, results of operations or liquidity.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement
No. 140. This statement amends Statement No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. It requires an entity to recognize a servicing asset or servicing liability each
time an obligation is undertaken to service a financial asset by entering into a servicing contract in certain situations and requires all separately recognized servicing assets and liabilities to be initially measured at fair value, if practicable.
The statement permits the choice between the amortization method and the fair value measurement method for the subsequent measurement of the servicing assets or liabilities and allows for a one-time reclassification of
available-for-sale securities to trading securities at initial adoption. The statement also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets and servicing liabilities. The statement is effective for fiscal years beginning after September 30, 2006. The adoption of this standard is not anticipated to have a material
impact on our financial condition, results of operations or liquidity.

In July 2006, the FASB issued FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement 109, which provides guidance on the measurement, recognition, and disclosure of tax positions taken or expected to be taken in a
tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, and disclosure. FIN 48 prescribes that a tax position should only be recognized if it is more-likely-than-not that the position will be
sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The cumulative
effect of applying FIN 48 is to be reported as an adjustment to the beginning balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The company is assessing the impact,
if any, that the adoption may have on its financial statements.



F-15



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In September 2006, the FASB ratified the consensus reached by the EITF on Issue
No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF 06-4 requires the recognition of a liability and related compensation costs for
endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to postretirement periods as defined in SFAS No. 106,  Employers Accounting for Postretirement Benefits Other Than Pensions.
The EITF reached a consensus that Bank Owned Life Insurance policies purchased for this purpose do not effectively settle the entitys obligation to the employee in this regard and thus the entity must record compensation cost and a related
liability. Entities should recognize the effects of applying this Issue through either, (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings or to other components of equity or net assets in the
balance sheet as of the beginning of the year of adoption, or (b) a change in accounting principle through retrospective application to all prior periods. Management is currently evaluating the impact of adopting this Issue on the
Companys financial statements. This Issue is effective for fiscal years beginning after December 15, 2007.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair
value measurements. While the Statement applies under other accounting pronouncements that require or permit fair value measurements, it does not require any new fair value measurements. SFAS No. 157 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. In addition, the Statement establishes a fair value hierarchy, which prioritizes the inputs
to valuation techniques used to measure fair value into three broad levels. Lastly, SFAS No. 157 requires additional disclosures for each interim and annual period separately for each major category of assets and liabilities. The Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management does not expect the adoption of this Statement to have a material impact on the
Companys consolidated financial statements.

In September 2006, the Securities and Exchange Commission (the
SEC) released Staff Accounting Bulletin No. 108 (SAB 108), which provides detail in the quantification and correction of financial statement misstatements. SAB 108 specifies that companies should apply a combination of
the rollover and iron curtain methodologies when making determinations of materiality. The rollover method quantifies a misstatement based on the amount of the error originating in the current year income statement. The iron
curtain approach quantifies misstatements based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, regardless of the year(s) of origination. SAB 108 instructs companies to quantify the
misstatement under both methodologies and if either method results in the determination of a material error, then the company must adjust its financial statements to correct the error. SAB 108 also reminds preparers that a change from an accounting
principle that is not generally accepted to a principle that is generally accepted is a correction of an error. The Bulletin is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. Management
does not expect the adoption of this Bulletin to have a material impact on the Companys consolidated financial statements.



F-16



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 2 - Investment Securities

The amortized cost and estimated fair values of investment securities are as follows as of September 30, 2006 and 2005.



|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|------------------------------------ |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|(in thousands)                       |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Available for sale:                  |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2006                   |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|US Government and Agency obligations |  | $             | 112,217 |                      | $ | 2                     |  | $ | (2,165              | ) |  | $ | 110,054
|Investment in bond mutual funds      |  |               | 34,546  |                      |   |                      |  |   | (1,532              | ) |  |   | 33,014 
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                     |  | $             | 146,763 |                      | $ | 2                     |  | $ | (3,697              | ) |  | $ | 143,068
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Held to Maturity:                    |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2006                   |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|US Government and Agency obligations |  | $             | 4,496   |                      | $ |                      |  | $ | (8                  | ) |  | $ | 4,488  
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                     |  |               |         |                     
|                                     |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Available for sale:                  |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2005                   |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|US Government and Agency obligations |  | $             | 118,697 |                      | $ |                      |  | $ | (2,254              | ) |  | $ | 116,443
|Investment in bond mutual funds      |  |               | 36,238  |                      |   |                      |  |   | (1,295              | ) |  |   | 34,943 
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                     |  | $             | 154,935 |                      | $ |                      |  | $ | (3,549              | ) |  | $ | 151,386
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Held to maturity:                    |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2005                   |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|US Government and Agency obligations |  | $             | 1,995   |                      | $ |                      |  | $ | (13                 | ) |  | $ | 1,982  
|                                     |  |               |         |                      |   |                       |  |   |                     |   |  |   |        



F-17



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 -
Investment Securities - Continued



The following is a summary of investment securities by maturity:



|                                           |  |                    |         |            |   |        
|------------------------------------------ |  | ------------------ | ------- | ---------- | - | -------
|                                           |  | September 30, 2006
|(in thousands)                             |  | AmortizedCost      |         | Fair Value
|Available for sale:                        |  |                    |         |            |   |        
|US Government and Agency obligations       |  |                    |         |            |   |        
|Due within 12 months                       |  | $                  | 12,004  |            | $ | 11,931 
|Due beyond 12 months by within five years  |  |                    | 80,221  |            |   | 78,576 
|Due beyond five years but within ten years |  |                    | 16,494  |            |   | 16,127 
|Due beyond ten years                       |  |                    | 3,498   |            |   | 3,420  
|Investments in bond mutual funds           |  |                    | 34,546  |            |   | 33,014 
|                                           |  |                    |         |            |   |        
|                                           |  | $                  | 146,763 |            | $ | 143,068
|                                           |  |                    |         |            |   |        
|Held to Maturity:                          |  |                    |         |            |   |        
|US Government and Agency obligations       |  |                    |         |            |   |        
|Due within 12 months                       |  | $                  |        |            | $ |       
|Due beyond 12 months by within five years  |  |                    | 4,000   |            |   | 3,994  
|Due beyond five years but within ten years |  |                    | 496     |            |   | 494    
|                                           |  |                    |         |            |   |        
|                                           |  | $                  | 4,496   |            | $ | 4,488  
|                                           |  |                    |         |            |   |        

Proceeds from sales of available for sale securities during the year ended
September 30, 2006 were $5,405,000. Net gains amounted to $5,000 for the year ended September 30, 2006. This consisted of gross gains of $56,000 and gross losses of $51,000. The tax provisions applicable to these net realized gains
amounted to $2,000.

Proceeds from sales of available for sale securities during the year ended September 30, 2005 were
$15,536,000. Net gains amounted to $865,000 for the year ended September 30, 2005. This consisted of gross gains of $898,000 and gross losses of $33,000. The tax provisions applicable to these net realized gains amounted to $334,000.

Proceeds from sales of available for sale securities during the year ended September 30, 2004 were $16,976,000. Net
gains amounted to $6,000 for the year ended September 30, 2004. This consisted of gross gains of $62,000 and gross losses of $56,000. The tax provisions applicable to these net realized gains amounted to $2,000.

Investments pledged as collateral have a cost of $4.5 million and a fair value of $4.4 million as of September 30, 2006. The only
issues over 10% of capital as of September 30, 2006 and 2005 are government sponsored agencies.



F-18



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3 - Loans Receivable

Loans receivable at September 30, 2006 and 2005 consist of the following:



|                                               |  |               |         |   |      |   |         |  
|---------------------------------------------- |  | ------------- | ------- | - | ---- | - | ------- | -
|                                               |  | September 30, |        
|(in thousands)                                 |  | 2006          |         |   | 2005 |  
|Single-family residential mortgages            |  | $             | 214,724 |   |      | $ | 195,203 |  
|Single-family rental property loans            |  |               | 29,131  |   |      |   | 26,914  |  
|Commercial real estate loans                   |  |               | 110,179 |   |      |   | 75,034  |  
|Construction loans                             |  |               | 39,021  |   |      |   | 53,755  |  
|Commercial loans secured                       |  |               | 365     |   |      |   | 1,869   |  
|Commercial loans unsecured                     |  |               | 409     |   |      |   | 538     |  
|Commercial lease loans                         |  |               | 4,749   |   |      |   | 3,300   |  
|Commercial lines of credit                     |  |               | 9,606   |   |      |   | 16,463  |  
|Automobile loans                               |  |               | 53,530  |   |      |   | 88,287  |  
|Home equity loans                              |  |               | 17,942  |   |      |   | 17,901  |  
|Other consumer loans                           |  |               | 2,849   |   |      |   | 3,377   |  
|                                               |  |               |         |   |      |   |         |  
|                                               |  |               | 482,505 |   |      |   | 482,641 |  
|Add  purchase accounting premiums, net        |  |               | 451     |   |      |   | 665     |  
|Less  undisbursed portion of loans in process |  |               | (12,014 | ) |      |   | (16,874 | )
|- unearned interest                            |  |               | (4,132  | ) |      |   | (9,067  | )
|- deferred loan origination fees and costs     |  |               | (355    | ) |      |   | (272    | )
|- allowance for loans losses                   |  |               | (2,679  | ) |      |   | (2,746  | )
|                                               |  |               |         |   |      |   |         |  
|                                               |  | $             | 463,776 |   |      | $ | 454,347 |  
|                                               |  |               |         |   |      |   |         |  

The following is a summary of the allowance for loan losses:



|                                         |  |                           |       |   |      |   |       |      |  |   |        |  
|---------------------------------------- |  | ------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                         |  | Years Ended September 30, |      
|(in thousands)                           |  | 2006                      |       |   | 2005 |   |       | 2004 | 
|Balance  beginning of year              |  | $                         | 2,746 |   |      | $ | 2,587 |      |  | $ | 2,698  |  
|(Reversal) Provision for losses on loans |  |                           | (109  | ) |      |   | 168   |      |  |   | 487    |  
|Charge-offs                              |  |                           | (275  | ) |      |   | (392  | )    |  |   | (1,021 | )
|Recoveries                               |  |                           | 317   |   |      |   | 383   |      |  |   | 423    |  
|                                         |  |                           |       |   |      |   |       |      |  |   |        |  
|Balance  end of year                    |  | $                         | 2,679 |   |      | $ | 2,746 |      |  | $ | 2,587  |  
|                                         |  |                           |       |   |      |   |       |      |  |   |        |  

Residential lending is generally considered to involve less risk than other forms
of lending, although payment experience on these loans is dependent to some extent on economic and market conditions in the Banks lending area. Multifamily residential, commercial, construction and other loan repayments are generally dependent
on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy.

A significant portion of the Banks loans receivable include, mortgage loans secured by residential and commercial real estate
properties located in the State of Maryland. Loans are extended only after evaluation by management of customers creditworthiness and other relevant factors on a case-by-case basis. The Bank generally does not lend more than 97% of the
appraised value of a property and requires private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 90%. In addition, the Bank generally obtains personal guarantees of repayment from borrowers and/or others for
multifamily residential, commercial and construction loans and disburses the proceeds of construction and similar loans only as work progresses on the related projects.



F-19



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3 - Loans Receivable - Continued

Automobile loans are secured by vehicles and home equity loans are secured by subordinated liens on real estate properties. Repayments of
automobile loans and home equity loans are expected primarily from the cash flows of the borrowers.

Non-accrual loans
totaled approximately $2.5 million, $738,000 and $872,000 at September 30, 2006, 2005 and 2004, respectively. There were no impaired loans as defined by SFAS No. 114 at September 30, 2006, 2005 and 2004. There was no interest income
recognized on impaired loans during these periods. The Bank was not committed to fund additional amounts on these loans.

Interest income that would have been recorded under the original terms of non-accrual loans and the interest actually recognized for the years ended September 30, are summarized below:



|                                                |      |                          |      |  |      |    |  |   |   
|----------------------------------------------- | ---- | ------------------------ | ---- |  | ---- | -- |  | - | --
|(in thousands)                                  |      | Years EndedSeptember 30,
|                                                | 2006 |                          | 2005 |  | 2004
|Interest income that would have been recognized |      | $                        | 152  |  | $    | 66 |  | $ | 83
|Interest income recognized                      |      |                          | 139  |  |      | 29 |  |   | 28
|                                                |      |                          |      |  |      |    |  |   |   
|Interest income not recognized                  |      | $                        | 13   |  | $    | 37 |  | $ | 55
|                                                |      |                          |      |  |      |    |  |   |   

The Bank has had, and may be expected to have in the future, banking transactions
in the ordinary course of business with directors, officers, their immediate families and affiliated companies (commonly referred to as related parties), on the same terms including interest rates and collateral, as those prevailing at the time for
comparable transactions with others. The following table presents a summary of the activity of loans receivable from related parties:



|                                       |      |               |       |      |  |   |     |  
|-------------------------------------- | ---- | ------------- | ----- | ---- |  | - | --- | -
|(in thousands)                         |      | September 30, |      
|                                       | 2006 |               |       | 2005 | 
|Beginning balance                      |      | $             | 921   |      |  | $ | 922 |  
|New loans                              |      |               | 362   |      |  |   | 29  |  
|Loan repayments                        |      |               | (181  | )    |  |   | (30 | )
|Change in related party classification |      |               | (102  | )    |  |   |    |  
|                                       |      |               |       |      |  |   |     |  
|Ending balance                         |      | $             | 1,000 |      |  | $ | 921 |  
|                                       |      |               |       |      |  |   |     |  

The Bank services loans for others. The amount of such loans serviced at
September 30, 2006 and 2005 was $21,939,000 and $21,520,000, respectively. At September 30, 2006 and 2005, the balance of loans sold by the Bank with recourse amounted to $0 and $0, respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicings were approximately $76,000 and $73,000 at
September 30, 2006 and 2005, respectively.

The Bank is a party to financial instruments with off-balance-sheet risk
made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby letters of credit, lines of credit and commitments to fund mortgage loans and involve to varying degrees elements of credit
risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments express the extent of involvement the Bank has in this class of financial instruments and represents the Banks exposure
to credit loss from nonperformance by the other party.

Unless noted otherwise, the Bank does not require collateral or
other security to support financial instruments with off-balance-sheet credit risk.



F-20



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3 - Loans Receivable - Continued

Financial Instruments Whose Contract Amounts Represents Credit Risk



|                                 |  |                     |        |                    |   |       
|-------------------------------- |  | ------------------- | ------ | ------------------ | - | ------
|                                 |  | Contract Amount at,
|(in thousands)                   |  | September 30, 2006  |        | September 30, 2005
|Standby letters of credit        |  | $                   | 754    |                    | $ | 701   
|Commercial lines of credit       |  |                     | 9,715  |                    |   | 7,002 
|Home equity lines of credit      |  |                     | 20,770 |                    |   | 20,021
|Loan commitments, fixed rates    |  |                     | 6,070  |                    |   | 14,019
|Loan commitments, variable rates |  |                     | 1,135  |                    |   | 2,052 

Standby letters of credit are conditional commitments issued by the Bank
guaranteeing performance by a customer to a third party. Those guarantees are issued primarily to support private borrowing arrangements, generally limited to real estate transactions. Unless otherwise noted, the standby letters of credit are not
collateralized. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Home equity and commercial lines of credit are loan commitments to individuals and companies and have fixed expiration dates as long as there is no violation of any condition established in the contract. The Bank
evaluates each customers credit worthiness on a case-by-case basis.

Rates on mortgage loan commitments for fixed rate
loans ranged from 5.875% and 7.0% and 4.87% to 6.49% at September 30, 2006 and 2005, respectively. There were no mortgage loan commitments for variable rate loans at September 30, 2006 and 2005. Rates on home equity loan commitments for
fixed rate loans ranged from 6.3% to 7.23% and 4.96% to 6.48% at September 30, 2006 and 2005, respectively. Rates on home equity loan commitments for variable rate loans were at prime and .25% to .50% over prime at September 30, 2006.

Rates on commercial loan commitments for fixed rate loans ranged from 7.00% to 10.00% at September 30, 2006. Rates on
commercial loan commitments for variable rate loans ranged from 1.00% over prime to 1.5% over prime at September 30, 2006. Rates on commercial loan commitments for fixed rate loans ranged from 6.20% to 10.00% at September 30, 2005. Rates
on commercial loan commitments for variable rate loans ranged from 1.0% over prime to 1.5% over prime at September 30, 2005.

No amount was recognized in the statement of financial position at September 30, 2006 and 2005, as liability for credit loss nor was any liability recognized for fees received for standby letters of credit.

The Bank grants loans to customers, substantially all of whom are residents of the Metropolitan Baltimore and Harford County areas.



F-21



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 4 - Mortgage Backed Securities

The amortized cost and estimated fair values of mortgage backed securities are as follows as of September 30, 2006 and 2005:



|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|-------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|(in thousands)                   |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Available for sale:              |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2006               |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|GNMA certificates                |  | $             | 6,166   |                      | $ |                      |  | $ | (97                 | ) |  | $ | 6,069  
|FNMA certificates                |  |               | 60,727  |                      |   |                      |  |   | (2,284              | ) |  |   | 58,443 
|FHLMC participating certificates |  |               | 23,306  |                      |   | 2                     |  |   | (1,019              | ) |  |   | 22,289 
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  | $             | 90,199  |                      | $ | 2                     |  | $ | (3,400              | ) |  | $ | 86,801 
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2005               |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|GNMA certificates                |  | $             | 9,574   |                      | $ |                      |  | $ | (120                | ) |  | $ | 9,454  
|FNMA certificates                |  |               | 76,655  |                      |   |                      |  |   | (1,870              | ) |  |   | 74,785 
|FHLMC participating certificates |  |               | 28,648  |                      |   |                      |  |   | (767                | ) |  |   | 27,881 
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  | $             | 114,877 |                      | $ |                      |  | $ | (2,757              | ) |  | $ | 112,120
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  |               |         |                     
|(in thousands)                   |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Held to maturity                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 20, 2006               |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|GNMA certificates                |  | $             | 4,124   |                      | $ | 92                    |  | $ |                    |   |  | $ | 4,216  
|FNMA certificates                |  |               | 14,560  |                      |   | 40                    |  |   | (345                | ) |  |   | 14,255 
|FHLMC participating certificates |  |               | 9,991   |                      |   | 77                    |  |   | (183                | ) |  |   | 9,885  
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  | $             | 28,675  |                      | $ | 209                   |  | $ | (528                | ) |  | $ | 28,356 
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|September 30, 2005               |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|GNMA certificates                |  | $             | 4,322   |                      | $ | 96                    |  | $ | (1                  | ) |  | $ | 4,417  
|FNMA certificates                |  |               | 14,904  |                      |   | 45                    |  |   | (260                | ) |  |   | 14,689 
|FHLMC participating certificates |  |               | 7,244   |                      |   | 42                    |  |   | (133                | ) |  |   | 7,153  
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|                                 |  | $             | 26,470  |                      | $ | 183                   |  | $ | (394                | ) |  | $ | 26,259 
|                                 |  |               |         |                      |   |                       |  |   |                     |   |  |   |        

There were no sales of available for sale mortgage backed securities during the
year ended September 30, 2006.

Proceeds from sales of available for sale mortgage backed securities during the year
ended September 30, 2005 were $8,351,000. Net gains amounted to $19,000 for the year ended September 30, 2005. This consisted of gross gains of $30,000 and gross losses of $11,000. The tax provision applicable to these net realized gains
was $7,000.

Proceeds from sales of available for sale mortgage backed securities during the year ended September 30,
2004 were $2,704,000. Net gains amounted to $16,000 for the year ended September 30, 2004. This consisted of gross gains of $17,000 and gross losses of $1,000. The tax provision applicable to these net realized gains was $6,000.



F-22



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 -
Mortgage Backed Securities - continued



Below are schedules of both investment securities and mortgage backed securities with unrealized
losses as of September 30, 2006 and the length of time the individual security has been in a continuous unrealized loss position. Unrealized losses are the result of interest rate levels differing from those existing at the time of purchase of
the securities and, as to mortgage backed securities, estimated prepayment speeds. These unrealized losses are considered temporary as they reflect fair values on September 30, 2006 and are subject to change daily as interest rates fluctuate.
The Company has the ability and intent to hold these securities until the earlier of recovery or maturity.



|                                      |  |                     |       |                  |                   |     |            |       |                  |         |  |            |        |                  |  |   |         |  |   |        |  
|------------------------------------- |  | ------------------- | ----- | ---------------- | ----------------- | --- | ---------- | ----- | ---------------- | ------- |  | ---------- | ------ | ---------------- |  | - | ------- |  | - | ------ | -
|                                      |  | Less than 12 months |       |                  | 12 months or more |     |            | Total |                 
|(in thousands)                        |  | FairValue           |       | UnrealizedLosses |                   |     | Fair Value |       | UnrealizedLosses |         |  | Fair Value |        | UnrealizedLosses | 
|U.S. Government agencies              |  | $                   | 1,997 |                  | $                 | (3  | )          |       | $                | 111,039 |  | $          | (2,170 | )                |  | $ | 113,036 |  | $ | (2,173 | )
|Mortgage-backed securities            |  |                     | 1,707 |                  |                   | (8  | )          |       |                  | 99,387  |  |            | (3,920 | )                |  |   | 101,094 |  |   | (3,928 | )
|Equity securities                     |  |                     |      |                  |                   |    |            |       |                  | 33,014  |  |            | (1,532 | )                |  |   | 33,014  |  |   | (1,532 | )
|                                      |  |                     |       |                  |                   |     |            |       |                  |         |  |            |        |                  |  |   |         |  |   |        |  
|Total temporarily impaired securities |  | $                   | 3,704 |                  | $                 | (11 | )          |       | $                | 243,440 |  | $          | 7,622  |                  |  | $ | 247,144 |  | $ | (7,633 | )
|                                      |  |                     |       |                  |                   |     |            |       |                  |         |  |            |        |                  |  |   |         |  |   |        |  

At September 30, 2006 the Company has three-hundred fourteen securities in an
unrealized loss position. The decline in fair value is due to interest rate fluctuations.



F-23



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 5 - Premises and Equipment

Premises and equipment at September 30, 2006 and 2005 are summarized by major classification as follows:



|                                  |  |               |        |   |      |   |        |      |  |           
|--------------------------------- |  | ------------- | ------ | - | ---- | - | ------ | ---- |  | ----------
|                                  |  | September 30, |        |   |     
|(in thousands)                    |  | 2006          |        |   | 2005 |   |        | Life
|Office Building                   |  | $             | 8,982  |   |      | $ | 8,079  |      |  | 50 Years  
|Leasehold improvements            |  |               | 1,173  |   |      |   | 1,164  |      |  | 7-31 Years
|Furniture, fixtures and equipment |  |               | 8,641  |   |      |   | 8,058  |      |  | 10 Years  
|                                  |  |               |        |   |      |   |        |      |  |           
|                                  |  |               | 18,796 |   |      |   | 17,301 |      |  |           
|Accumulated depreciation          |  |               | (7,571 | ) |      |   | (6,519 | )    |  |           
|                                  |  |               |        |   |      |   |        |      |  |           
|                                  |  | $             | 11,225 |   |      | $ | 10,782 |      |  |           
|                                  |  |               |        |   |      |   |        |      |  |           

The Bank has entered into long-term leases for the land on which the main office
and branches are located. Rental expense under long-term leases for property for the years ended September 30, 2006, 2005 and 2004 was $1.2 million and $990,000, and $943,000, respectively. At September 30, 2006, minimum rental commitments
under noncancellable leases are as follows:



|                          |  |        |       
|------------------------- |  | ------ | ------
|Years Ended September 30, |  | Amount
|(in thousands)            |  |       
|2007                      |  | $      | 1,201 
|2008                      |  |        | 1,067 
|2009                      |  |        | 848   
|2010                      |  |        | 876   
|2011                      |  |        | 810   
|After 2011                |  |        | 7,556 
|                          |  |        |       
|                          |  | $      | 12,358
|                          |  |        |       

Note 6  Deposits

Deposits are summarized as follows at September 30, 2006 and 2005:



|                                  |  |        |         |   |        |   |        |   |         |  |        |  
|--------------------------------- |  | ------ | ------- | - | ------ | - | ------ | - | ------- |  | ------ | -
|                                  |  | 2006   |         |   | 2005   |  
|(dollars in thousands)            |  | Amount |         | % |        |   | Amount |   | %       | 
|Type of Account                   |  |        |         |   |        |   |        |   |         |  |        |  
|NOW                               |  | $      | 35,225  |   | 5.82   | % |        | $ | 38,844  |  | 6.50   | %
|Non-interest bearing NOW          |  |        | 23,406  |   | 3.87   |   |        |   | 24,653  |  | 4.12   |  
|Money market                      |  |        | 17,650  |   | 2.92   |   |        |   | 12,180  |  | 2.04   |  
|Passbook savings                  |  |        | 95,890  |   | 15.85  |   |        |   | 116,693 |  | 19.53  |  
|Certificates                      |  |        | 432,418 |   | 71.49  |   |        |   | 405,222 |  | 67.80  |  
|Purchase accounting premiums, net |  |        | 0       |   |       |   |        |   | 18      |  |       |  
|                                  |  |        |         |   |        |   |        |   |         |  |        |  
|                                  |  |        | 604,589 |   | 99.96  |   |        |   | 597,610 |  | 99.99  |  
|Accrued interest payable          |  |        | 256     |   | .04    |   |        |   | 59      |  | .01    |  
|                                  |  |        |         |   |        |   |        |   |         |  |        |  
|                                  |  | $      | 604,845 |   | 100.00 | % |        | $ | 597,669 |  | 100.00 | %
|                                  |  |        |         |   |        |   |        |   |         |  |        |  



F-24



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6
 Deposits - Continued



The aggregate amount of jumbo certificates of deposit with a minimum denomination of
$100,000 was approximately $130,642,236 and $129,888,000 at September 30, 2006 and 2005, respectively. Deposits in excess of $100,000 are not insured by the Savings Association Insurance Fund of the FDIC. The Bank has approximately $1.0 million
in securities pledged as collateral for deposits held by Maryland government entities.

At September 30, 2006,
scheduled maturities of certificates of deposit are as follows:



|     |  |                |        
|---- |  | -------------- | -------
|     |  | (in thousands)
|2007 |  | $              | 228,357
|2008 |  |                | 104,827
|2009 |  |                | 42,648 
|2010 |  |                | 41,670 
|2011 |  |                | 14,916 
|     |  |                |        
|     |  | $              | 432,418
|     |  |                |        

Interest expense on deposits for the years ended September 30, 2006, 2005 and
2004 is as follows:



|                 |  |      |        |      |   |        |  |   |       
|---------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|(in thousands)   |  | 2006 |        | 2005 |   | 2004  
|NOW              |  | $    | 98     |      | $ | 123    |  | $ | 191   
|Money market     |  |      | 482    |      |   | 132    |  |   | 128   
|Passbook savings |  |      | 1,020  |      |   | 1,107  |  |   | 1,037 
|Certificates     |  |      | 16,779 |      |   | 13,349 |  |   | 12,197
|                 |  |      |        |      |   |        |  |   |       
|                 |  | $    | 18,379 |      | $ | 14,711 |  | $ | 13,553
|                 |  |      |        |      |   |        |  |   |       

Note 7 - Federal Home Loan Bank of Atlanta Advances

The Bank has the following outstanding Federal Home Loan Bank advances as of September 30:



|                             |  |              |  |       |         |      |             |       |   |        
|---------------------------- |  | ------------ |  | ----- | ------- | ---- | ----------- | ----- | - | -------
|                             |  | 2006         |  | 2005 
|(dollars in thousands)       |  | Rate         |  | Total |         | Rate |             | Total
|Due                          |  |              |  |       |         |      |             |       |   |        
|2006                         |  |              |  | $     |        |      | 3.28%-4.23% |       | $ | 81,150 
|2007                         |  | 3.66%-5.28%  |  |       | 40,000  |      | 3.00%-3.66% |       |   | 35,000 
|2008                         |  | 4.34%-5.51%  |  |       | 16,000  |      | 4.34%-5.51% |       |   | 11,000 
|2009                         |  | 4.44%-4.89%  |  |       | 13,000  |      | 4.44%-4.89% |       |   | 8,000  
|2010                         |  | 6.33%-       |  |       | 9,000   |      | 6.33%-      |       |   | 9,000  
|2011 and thereafter          |  | 4.99%-5.011% |  |       | 40,000  |      |             |       |   |       
|Purchase accounting premiums |  |              |  |       | 473     |      |             |       |   | 646    
|                             |  |              |  |       |         |      |             |       |   |        
|Total                        |  |              |  | $     | 118,473 |      |             |       | $ | 144,796
|                             |  |              |  |       |         |      |             |       |   |        

The Bank has variable rate advances totaling $63,000,000 with interest rates
ranging from 4.89% to 6.33% and fixed rate advances totaling $55,000,000 with rates ranging from 3.00% to 4.44%.



F-25



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 -
Federal Home Loan Bank of Atlanta Advances - Continued



The Bank has a line of credit with the Federal Home Loan Bank of Atlanta equal to 20% of total
assets. This line is secured by blanket floating lien on eligible 1-4 family residential loans, and eligible commercial loans. At September 30, 2006, the Bank had an available unused line of credit of $37.0 million. The line of credit requires
no compensating balances.

Note 8  Junior Subordinated Debentures

In June, 2002, the Company issued $12,887,000 of junior subordinated debentures (the debentures) to BCSB Bankcorp Capital Trust I (the
Trust), a Delaware business trust, in which the Company owns all of the common equity. The debentures carry a rate of 3.65% over the three month LIBOR rate, and resets quarterly, the rate was 9.16% and 7.25% at September 30, 2006 and 2005
respectively. The debentures are the sole asset of BCSB Bankcorp Capital Trust I. BCSB Bankcorp Capital Trust I issued $12,500,000 of mandatory redeemable preferred securities to investors. The Companys obligation under the debentures and
related documents, taken together, constitute a full and unconditional guarantee by the Company of BCSB Bankcorp Capital Trust I obligations under the preferred securities. The Preferred securities are redeemable by the Company beginning with the
interest rate adjustment date 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 interest.

In September, 2004, the Company issued $10,310,000 of junior subordinated debentures (the debentures) to BCSB Bankcorp Capital Trust II
(the Trust), a Delaware business trust, in which the Company owns all of the common equity. The debentures carry a rate of 3.00% over the three month LIBOR rate, and resets quarterly, the rate was 8.51% and 6.60% at September 30, 2006 and 2005
respectively. The debentures are the sole asset of BCSB Bankcorp Capital Trust II. BCSB Bankcorp Capital Trust II issued $10,000,000 of mandatory redeemable preferred securities to investors. The Companys obligation under the debentures and
related documents, taken together, constitute a full and unconditional guarantee by the Company of BCSB Bankcorp Capital Trust II obligations under the preferred securities. The Preferred securities are redeemable by the Company on or 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 interest.

Note 9 - Pension Plan

The Bank has a 401(k) Retirement Savings Plan. Employees may
contribute a percentage of their salary up to a maximum of $15,000 for 2006. The Bank was obligated to contribute 100% of the employees contribution, not to exceed 4% of the employees annual salary. The 4% contribution was temporarily
discontinued in April 2006. All employees who have completed one year of service with the Bank are eligible to participate. The Banks contribution to this plan amounted to $75,000, $253,000, and $282,000 for the years ended September 30,
2006, 2005 and 2004, respectively.

Note 10 - Directors Retirement Plan

On October 1, 2004, the Directors Retirement Plan was amended. The Companys retirement plan allows directors to defer
directors fees into Company stock, and will be paid out by delivering only Company stock to the participants, or they can defer their fees into a phantom investment vehicle which allows them to get a return based upon the mutual fund market.



F-26



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 11- Employee Stock Ownership Plan

In 1998, the Bank reorganized from a federally chartered mutual savings bank to a federally chartered stock savings bank.

At the same time as the reorganization, the Bank established an Employee Stock Ownership Plan (ESOP) for its employees. On
July 8, 1998 the ESOP acquired 182,930 shares of the Companys common stock in connection with the Banks Reorganization to a mutual holding company form of organization. The ESOP holds the common stock in a trust for allocation among
participating employees, in trust or allocated to the participants accounts and an annual contribution from the Bank to the ESOP and earnings thereon.

All employees of the Bank who attain the age of 21 and complete one year of service with the Bank will be eligible to participate in the
ESOP. Participants must be employed at least 500 hours in a plan year in order to receive an allocation. Each participants vested interest under the ESOP is determined according to the following schedule: 0% for less than 2 years of service
with the Company or the Bank, 20% for 2 years of service, 40% for 3 years of service, 60% for 4 years of service, 80% for 5 years of service, and 100% for 6 years of service. For vesting purposes, a year of service means any plan year in which an
employee completes at least 1,000 hours of service (whether before or after the ESOPs January 1, 1998 effective date). Vesting accelerates to 100% upon a participants attainment of age 65, death or disability.

The ESOP will be funded by contributions made by the Bank in cash or common stock and dividends on the shares held in the Trust. The Bank
will recognize compensation expense as shares are committed for release from collateral at their current market price. Dividends on allocated shares are recorded as a reduction of retained earnings and dividends on unallocated shares are recorded as
a reduction of the debt service. The compensation costs for the years ended September 30, 2006, 2005 and 2004 were $286,000, $329,000, and $341,000, respectively.

The ESOP shares were as follows as of September 30:



|                              |  |      |         |      |   |        
|----------------------------- |  | ---- | ------- | ---- | - | -------
|                              |  | 2006 |         | 2005
|Shares released and allocated |  |      | 160,060 |      |   | 141,766
|Unearned shares               |  |      | 22,870  |      |   | 41,164 
|                              |  |      |         |      |   |        
|                              |  |      | 182,930 |      |   | 182,930
|                              |  |      |         |      |   |        
|Fair value of unearned shares |  | $    | 287,247 |      | $ | 563,535
|                              |  |      |         |      |   |        

Note 12 - Management Recognition Plan

On July 15, 1999, the Bank established a Management Recognition Plan (MRP) to retain personnel of experience and ability
in key positions of responsibility. Members of the Board of Directors and certain executive officers may be awarded a total of 91,464 shares of stock, which will be held in a separate trust that manages the MRP. The Bank funded the MRP by purchasing
the shares of common stock in the open market. The Bank initially awarded an aggregate of 45,600 shares of common stock. During the year ended September 30, 2002 the Bank awarded an additional 26,500



F-27



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12-
Management Recognition Plan - continued



shares, and intends to reserve the remaining 19,364 shares for possible future awards. Shares awarded to the participants in the MRP vest at a rate of
25% per year on each anniversary of the effective date of the MRP award. As of September 30, 2006, and 2005, 71,350, and 65,475 shares have vested respectively. If a participant terminates employment for reasons other than death,
disability, change in control or retirement he or she forfeits all rights to unvested shares. Compensation expense in the amount of the fair market value of the common stock at the date of the grant is recognized on a pro-rata basis over the years
during which the shares are earned. Compensation expense of $28,000, $53,300, and $52,000 was recognized for the MRP for the years ended September 30, 2006, 2005 and 2004, respectively.

Note 13 - Stock Option Plan

The
Company has a Stock Option Plan (the Plan) whereby 228,660 shares of common stock have been reserved for issuance under the Plan. Options granted under the Plan may be Incentive Stock Options within the meaning of Section 422 of the
Internal Revenue Code of 1986 as amended or Non-Qualified Stock Options. Options are exercisable in four annual installments at the market price of common stock at the date of grant. The Options must be exercised within ten years from the date of
grant. There were 82,500 options granted during the year ended September 30, 2002. No options were granted during the years ended September 30, 2006, 2005, 2004.

The following table summarizes the status of and changes in the Companys stock option plan during the past three years.

At September 30, 2006 there were 36,250 shares under option with an exercise price of $8.00 and a weighted average contractual life of 2.8 years and 77,250 shares with an exercise price of $11.375 and a weighted
average contractual life of 5.8 years. The total exercisable shares of 113,500 have a weighted average contractual life of 4.8 years, and an aggregate intrinsic value of $256,000.



|                                  |  |         |   |  |                                |      
|--------------------------------- |  | ------- | - |  | ------------------------------ | -----
|                                  |  | Shares  |   |  | Weighted AverageExercise Price
|Outstanding at October 1, 2003    |  | 142,625 |   |  | $                              | 9.93 
|Options exercised                 |  | (14,000 | ) |  |                                | 8.36 
|Granted                           |  |        |   |  |                                |     
|                                  |  |         |   |  |                                |      
|Outstanding at September 30, 2004 |  | 128,625 |   |  | $                              | 10.10
|                                  |  |        
|Options exercised                 |  | (13,375 | ) |  |                                | 8.60 
|Granted                           |  |        |   |  |                                |     
|                                  |  |         |   |  |                                |      
|Outstanding at September 30, 2005 |  | 115,250 |   |  | $                              | 10.28
|                                  |  |        
|Options exercised                 |  | (1,750  | ) |  |                                | 10.41
|Granted                           |  |        |   |  |                                |      
|                                  |  |         |   |  |                                |      
|Outstanding at September 30, 2006 |  | 113,500 |   |  | $                              | 10.30
|                                  |  |         |   |  |                                |      
|                                  |  |        
|Exercisable at September 30, 2006 |  | 113,500 |   |  | $                              | 10.30
|                                  |  |         |   |  |                                |      



F-28



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13-
Stock Option Plan-continued



The total intrinsic value of options exercised during the year ended
September 30, 2006 was approximately $3,782.

Our adoption of SFAS No. 123R will continue to affect our Financial
Position and Results of Operations in future periods. At September 30, 2006, the total value of all remaining options both outstanding and vesting to be expensed after October 1, 2006 is expected to be approximately $0. This amount,
however, may be affected by additional future option grants.

The Company estimated the grant date fair value of each option
awarded in fiscal 2002 using the Black-Scholes Option-Pricing model with the following relevant assumptions: dividend yield of 4.08%, risk-free interest rate of 4.49% and expected lives of 10 years. The assumption for expected volatility was 32.63%.
The estimated fair value of each option granted was $2.80. No additional options have been granted since May 2002.

Note 14- Regulatory Capital

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the regulations) and risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of September 30, 2006, that
the Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 2006, the most recent
notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk- based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks category. The Banks actual capital amounts and ratios are also
presented in the table.



F-29



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14-
Regulatory Capital-continued



The following table presents the Banks capital position based on the September 30
financial statements and the current capital requirements.



|                   |  |                        |        |       |                             |   |        |                                                              |        |  |     |        |  |       |        |  |      |  
|------------------ |  | ---------------------- | ------ | ----- | --------------------------- | - | ------ | ------------------------------------------------------------ | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|                   |  | Actual                 |        |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalizedUnder PromptCorrective ActionProvisions |       
|                   |  | Amount                 |        | Ratio |                             |   | Amount |                                                              | Ratio  |  |     | Amount |  | Ratio |       
|                   |  | (dollars in thousands) |       
|September 30, 2006 |  |                        |        |       |                             |   |        |                                                              |        |  |     |        |  |       |        |  |      |  
|Tangible (1)       |  | $                      | 46,833 |       | 6.01                        | % |        | $                                                            | 11,685 |  | 1.5 | %      |  | $     | N/A    |  | N/A  | %
|Tier I capital (2) |  |                        | 46,833 |       | 10.61                       |   |        |                                                              | N/A    |  | N/A |        |  |       | 26,487 |  | 6.0  |  
|Core (1)           |  |                        | 46,833 |       | 6.01                        |   |        |                                                              | 31,161 |  | 4.0 |        |  |       | 38,951 |  | 5.0  |  
|Risk-weighted (2)  |  |                        | 49,103 |       | 11.12                       |   |        |                                                              | 35,315 |  | 8.0 |        |  |       | 44,144 |  | 10.0 |  
|                   |  |                        |        |       |                             |  
|September 30, 2005 |  |                        |        |       |                             |   |        |                                                              |        |  |     |        |  |       |        |  |      |  
|Tangible (1)       |  | $                      | 55,325 |       | 6.89                        | % |        | $                                                            | 12,051 |  | 1.5 | %      |  | $     | N/A    |  | N/A  | %
|Tier I capital (2) |  |                        | 55,325 |       | 12.58                       |   |        |                                                              | N/A    |  | N/A |        |  |       | 26,395 |  | 6.0  |  
|Core (1)           |  |                        | 55,325 |       | 6.89                        |   |        |                                                              | 32,138 |  | 4.0 |        |  |       | 40,172 |  | 5.0  |  
|Risk-weighted (2)  |  |                        | 57,534 |       | 13.08                       |   |        |                                                              | 35,194 |  | 8.0 |        |  |       | 43,992 |  | 10.0 |  



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



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

The OTS has
adopted an interest rate risk component of regulatory capital requirements effective January 1, 1994. The rule requires additional capital to be maintained if the Banks interest rate risk exposure, measured by the decline in the market
value of the Banks net portfolio value, exceeds 2% of assets as a result of a 200 basis point shift in interest rates. As of September 30, 2006, the Bank is not subject to the interest rate risk requirement.

OTS regulations limit the payment of dividends and other capital distributions by the Bank. The Bank is able to pay dividends during a
calendar year without regulatory approval to the extent of the greater of (i) an amount which will reduce by one-half its surplus capital ratio at the beginning of the year plus all its net income determined on the basis of generally accepted
accounting principles for that calendar year or (ii) 75% of net income for the last four calendar quarters.

The Bank
is restricted in paying dividends on its stock to the greater of the restrictions described in the preceding paragraph, or an amount that would reduce its retained earnings below its regulatory capital requirement or the accumulated bad debt
deduction.

As of December 2, 2005 the Bank formally entered into a Supervisory Agreement with the Office of Thrift
Supervision (OTS). The entry into the Supervisory Agreement was based on the Banks 2005 report of examination in which the OTS concluded that grounds existed for the initiation of administrative proceedings against the Bank.
Without admitting or denying that such grounds existed, the Bank determined to enter into the Supervisory Agreement to cooperate with the OTS and as evidence of the Banks intent to comply with all applicable laws and regulations and engage in
safe and sound practices.

The Company was notified in November 2006 by the Office of Thrift Supervision that is must cease
paying dividends to public stockholders.

During December 2006, the Company announced that it has determined to suspend its
dividend program and has agreed with its primary regulator, the Office of Thrift Supervision, that it will not issue dividend to its stockholders going forward without the regulators consent as the Company seeks to implement its business plan
to improve earnings, capital position and liquidity.



F-30



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 15- Income Taxes

The income tax provision consists of the following for the years ended September 30, 2006, 2005 and 2004:



|                  |  |                        |        |   |      |   |      |      |  |   |      |  
|----------------- |  | ---------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ---- | -
|                  |  | 2006                   |        |   | 2005 |   |      | 2004 | 
|                  |  | (dollars in thousands) |       
|Current expense   |  | $                      | (4,015 | ) |      | $ | 242  |      |  | $ | 348  |  
|Deferred benefit  |  |                        | (34    | ) |      |   | (131 | )    |  |   | (204 | )
|                  |  |                        |        |   |      |   |      |      |  |   |      |  
|Total tax expense |  | $                      | (4049  | ) |      | $ | 111  |      |  | $ | 144  |  
|                  |  |                        |        |   |      |   |      |      |  |   |      |  

The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at September 30, 2006 and 2005 are as follows:



|                                                  |  |      |       |   |      |   |       |  
|------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                  |  | 2006 |       |   | 2005 |  
|Deferred Tax Assets:                              |  |      |       |   |      |   |       |  
|ESOP and MRP                                      |  | $    | 38    |   |      | $ | 44    |  
|Deferred compensation                             |  |      | 817   |   |      |   | 572   |  
|Allowance for loan losses                         |  |      | 1,035 |   |      |   | 1,061 |  
|Allowance for uncollected interest                |  |      | 10    |   |      |   | 14    |  
|Net operating loss carry forward                  |  |      | 3,981 |   |      |   |      |  
|Unrealized holding losses on securities           |  |      | 2,739 |   |      |   | 2,429 |  
|                                                  |  |      |       |   |      |   |       |  
|Total gross deferred tax assets                   |  |      | 8,620 |   |      |   | 4,120 |  
|Deferred Tax Liabilities:                         |  |      |       |   |      |   |       |  
|Federal Home Loan Bank of Atlanta stock dividends |  |      | (209  | ) |      |   | (209  | )
|Depreciation                                      |  |      | (602  | ) |      |   | (395  | )
|Market value change in Rabbi Trust assets         |  |      | (44   | ) |      |   | (68   | )
|Purchase accounting premiums, net                 |  |      | 6     |   |      |   | (4    | )
|                                                  |  |      |       |   |      |   |       |  
|Total gross deferred tax liabilities              |  |      | (849  | ) |      |   | (676  | )
|                                                  |  |      |       |   |      |   |       |  
|Net Deferred Tax Assets                           |  | $    | 7,771 |   |      | $ | 3,444 |  
|                                                  |  |      |       |   |      |   |       |  

As of September 30, 2006 the Company has a federal net operating loss carry forward of $11.7
million which expires in the year 2026.



F-31



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 15 - Income Taxes - Continued

The amount computed by applying the statutory federal income tax rate to income before taxes is greater than the taxes provided for the following reasons:



|                                                   |  |                                   |        |   |                        |        |    |        |   |      |                        |  |        |        |  |   |                        |   |  |        |  
|-------------------------------------------------- |  | --------------------------------- | ------ | - | ---------------------- | ------ | -- | ------ | - | ---- | ---------------------- |  | ------ | ------ |  | - | ---------------------- | - |  | ------ | -
|                                                   |  | For the Years Ended September 30, |       
|                                                   |  | 2006                              |        |   | 2005                   |        |    | 2004   |  
|(dollars in thousands)                             |  | Amount                            |        |   | Percent ofPretaxIncome |        |    | Amount |   |      | Percent ofPretaxIncome |  |        | Amount |  |   | Percent ofPretaxIncome |  
|Statutory federal income tax rate                  |  | $                                 | (3,890 | ) |                        | (34.00 | )% |        | $ | 242  |                        |  | 34.00  | %      |  | $ | 350                    |   |  | 34.00  | %
|Changes Resulting From                             |  |                                   |        |   |                        |        |    |        |   |      |                        |  |        |        |  |   |                        |   |  |        |  
|State income tax net of federal income tax benefit |  |                                   |       |   |                        |       |    |        |   |     |                        |  |       |        |  |   | (14                    | ) |  | (1.36  | )
|Income from life insurance                         |  |                                   | (183   | ) |                        | (1.60  | )  |        |   | (154 | )                      |  | (21.63 | )      |  |   | (166                   | ) |  | (16.09 | )
|Other                                              |  |                                   | 24     |   |                        | .21    |    |        |   | 23   |                        |  | 3.23   |        |  |   | (26                    | ) |  | (2.56  | )
|                                                   |  |                                   |        |   |                        |        |    |        |   |      |                        |  |        |        |  |   |                        |   |  |        |  
|                                                   |  | $                                 | (4,049 | ) |                        | (35.39 | )% |        | $ | 111  |                        |  | 15.60  | %      |  | $ | 144                    |   |  | 13.99  | %
|                                                   |  |                                   |        |   |                        |        |    |        |   |      |                        |  |        |        |  |   |                        |   |  |        |  

The Company and its subsidiaries file a consolidated income tax return on a fiscal year basis. The
returns have been audited by the Internal Revenue Service through the year ended September 30, 1994.

Qualified thrift
lenders such as the Bank are not required to provide a deferred tax liability for bad debt reserves for tax purposes that arose in fiscal years beginning before December 31, 1987. Such bad debt reserve for the Bank amounted to approximately
$6.2 million with an income tax effect of approximately $2.4 million at September 30, 2006. This bad debt reserve would become taxable if certain conditions are met by the Bank.

Note 16- Related Party Transactions

Director Michael J. Klein is a member holding a
20% ownership interest in Colgate Investments, LLC, a limited liability company that owns real property that the Bank leases for a branch office site. The Bank paid $65,000, $67,000 and $57,000 in rent to Colgate Investments, LLC during the years
ended September 30, 2006, 2005 and 2004 respectively, and expects to pay $67,000 during the year ended September 30, 2007. The remaining 80% of Colgate Investments, LLC is owned by Mr. Kleins siblings.

Note 17- Disclosures About Fair Value of Financial Instruments

The estimated fair values of the Banks financial instruments are summarized below. The fair values of a significant portion of these financial instruments are estimates derived using present value techniques
prescribed by the FASB and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

The carrying amount is a reasonable estimate of fair value for cash, federal funds and interest-bearing deposits in other
banks. Fair value is based upon market prices quoted by dealers for investment securities and mortgage backed securities. The carrying amount of Federal Home Loan Bank of Atlanta stock is a reasonable estimate of fair value. Loans receivable were
discounted using a single discount rate, comparing the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. These rates were used for each aggregated category of loans as
reported on the Office of Thrift Supervision Quarterly Report. The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. Trust Preferred Securities are considered to be at
fair value. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered on deposits



F-32



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17-
Disclosures About Fair Value of Financial Instruments - Continued



of similar remaining maturities. The fair value of Federal Home Loan Bank advances is estimated using rates currently offered on advances of similar
remaining maturities. The carrying amounts of accrued interest receivable, accrued interest payable, and mortgage servicing rights approximate fair value. Fair values for off-balance-sheet, credit-related financial instruments are based on fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.

The Company charges fees for commitments to extend credit. Interest rates on loans for which these commitments are extended are normally committed for periods of less than one month. Fees charged on standby letters of
credit and other financial guarantees are deemed to be immaterial and these guarantees are expected to be settled at face amount or expire unused. It is impractical to assign any fair value to these commitments.

The estimated fair values of the Banks financial instruments are as follows:



|                                                |  |                        |         |                     |         |                |   |                     |  |        
|----------------------------------------------- |  | ---------------------- | ------- | ------------------- | ------- | -------------- | - | ------------------- |  | -------
|                                                |  | September 30, 2006     |         | September 30, 2005 
|                                                |  | CarryingAmount         |         | EstimatedFair Value |         | CarryingAmount |   | EstimatedFair Value
|                                                |  | (Amounts in Thousands)
|Financial Assets                                |  |                        |         |                     |         |                |   |                     |  |        
|                                                |  |                        |         |                    
|Cash                                            |  | $                      | 8,421   |                     | 8,421   |                | $ | 21,713              |  | 21,713 
|Interest bearing deposits in other banks        |  |                        | 2,854   |                     | 2,854   |                |   | 1,578               |  | 1,578  
|Federal funds sold                              |  |                        | 462     |                     | 462     |                |   | 238                 |  | 238    
|Interest bearing time deposits                  |  |                        | 100     |                     | 100     |                |   | 100                 |  | 100    
|Investment securities  available for sale      |  |                        | 143,068 |                     | 143,068 |                |   | 151,386             |  | 151,386
|Investment securities  held to maturity        |  |                        | 4,496   |                     | 4,488   |                |   | 1,995               |  | 1,982  
|                                                |  |                        |         |                    
|Loans Receivable                                |  |                        |         |                     |         |                |   |                     |  |        
|Mortgage loans                                  |  |                        | 412,120 |                     | 402,508 |                |   | 379,344             |  | 381,685
|Share loans                                     |  |                        | 1,256   |                     | 1,256   |                |   | 1,399               |  | 1,399  
|Consumer loans                                  |  |                        | 50,400  |                     | 51,063  |                |   | 73,604              |  | 75,732 
|Mortgage backed securities  available for sale |  |                        | 86,801  |                     | 86,801  |                |   | 112,120             |  | 112,120
|Mortgage backed securities  held to maturity   |  |                        | 28,675  |                     | 28,356  |                |   | 26,470              |  | 26,259 
|Federal Home Loan Bank of Atlanta stock         |  |                        | 6,972   |                     | 6,972   |                |   | 8,060               |  | 8,060  
|Accrued interest receivable                     |  |                        | 2,752   |                     | 2,752   |                |   | 2,676               |  | 2,676  
|Mortgage servicing rights                       |  |                        | 124     |                     | 124     |                |   | 134                 |  | 134    
|                                                |  |                        |         |                    
|Financial Liabilities                           |  |                        |         |                     |         |                |   |                     |  |        
|                                                |  |                        |         |                    
|Deposits                                        |  | $                      | 604,845 |                     | 604,585 |                | $ | 597,669             |  | 596,920
|Federal Home Loan Bank of Atlanta advances      |  |                        | 118,473 |                     | 118,378 |                |   | 144,796             |  | 144,748
|Junior Subordinated Debt                        |  |                        | 23,197  |                     | 23,197  |                |   | 23,197              |  | 23,197 
|Accrued interest payable                        |  |                        | 256     |                     | 256     |                |   | 429                 |  | 429    



F-33



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 18- Condensed Financial Information (Parent Company Only)

Information as to the financial position of BCSB Bankcorp as of September 30, 2006, and 2005 and the results of operations and cash
flows for the years ended September 30, 2006, 2005, and 2004 are summarized below.



|                                           |  |                |        |      |   |       
|------------------------------------------ |  | -------------- | ------ | ---- | - | ------
|Statements of Financial Condition          |  | September 30, 
|                                           |  | 2006           |        | 2005
|                                           |  | (in thousands)
|Assets                                     |  |                |        |      |   |       
|Cash                                       |  | $              | 1,994  |      | $ | 56    
|Interest bearing deposits in other banks   |  |                | 33     |      |   | 1,116 
|Investment securities  available for sale |  |                | 3,258  |      |   | 5,407 
|Investment securities  held to maturity   |  |                | 1,496  |      |   | 1,995 
|Employee Stock Ownership Plan loan         |  |                | 364    |      |   | 547   
|Accrued interest receivable                |  |                | 39     |      |   | 28    
|Investment in subsidiaries                 |  |                | 47,888 |      |   | 54,301
|Prepaid income taxes                       |  |                | 48     |      |   | 98    
|Other assets                               |  |                | 732    |      |   | 885   
|                                           |  |                |        |      |   |       
|Total assets                               |  | $              | 55,852 |      | $ | 64,433
|                                           |  |                |        |      |   |       
|Liabilities and Stockholders Equity       |  |                |        |      |   |       
|Liabilities                                |  |                |        |      |   |       
|Junior Subordinated Debentures             |  | $              | 23,197 |      | $ | 23,197
|Dividends payable                          |  |                | 270    |      |   | 269   
|Other liabilities                          |  |                | 209    |      |   | 165   
|                                           |  |                |        |      |   |       
|                                           |  |                | 23,676 |      |   | 23,631
|Total stockholders equity                 |  |                | 32,176 |      |   | 40,802
|                                           |  |                |        |      |   |       
|Total liabilities and stockholders equity |  | $              | 55,852 |      | $ | 64,433
|                                           |  |                |        |      |   |       



F-34



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18-
Condensed Financial Information (Parent Company Only) - Continued



|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |  | Years Ended September 30, |       
|                                                      |  | 2006                      |        |   | 2005 |   |        | 2004 | 
|                                                      |  | (in thousands)            |       
|Statements of Operations                              |  |                           |        |   |      |   |        |      |  |   |        |  
|Interest and fees on loans                            |  | $                         | 27     |   |      | $ | 29     |      |  | $ | 32     |  
|Interest and dividends on investment securities       |  |                           | 367    |   |      |   | 311    |      |  |   | 273    |  
|Other interest income                                 |  |                           | 17     |   |      |   | 35     |      |  |   | 26     |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Total interest income                                 |  |                           | 411    |   |      |   | 375    |      |  |   | 331    |  
|Interest on borrowings                                |  |                           | 1,921  |   |      |   | 1,464  |      |  |   | 1,086  |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Net interest (expense)                                |  |                           | (1,510 | ) |      |   | (1,089 | )    |  |   | (755   | )
|Other income                                          |  |                           | (46    | ) |      |   |       |      |  |   | 4      |  
|Non interest expense                                  |  |                           |        |   |      |   |        |      |  |   |        |  
|Professional fees                                     |  |                           | 102    |   |      |   | 93     |      |  |   | 78     |  
|Other expenses                                        |  |                           | 215    |   |      |   | 220    |      |  |   | 204    |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Total non-interest expense                            |  |                           | 317    |   |      |   | 313    |      |  |   | 282    |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Loss before tax benefit                               |  |                           | (1,873 | ) |      |   | (1,402 | )    |  |   | (1,033 | )
|Income tax benefit                                    |  |                           | (637   | ) |      |   | (477   | )    |  |   | (351   | )
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Loss before equity in net (loss) income of subsidiary |  |                           | (1,236 | ) |      |   | (925   | )    |  |   | (682   | )
|Equity in net (loss) income of subsidiary             |  |                           | (6,157 | ) |      |   | 1,526  |      |  |   | 1,567  |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Net (loss) income                                     |  | $                         | (7,393 | ) |      | $ | 601    |      |  | $ | 885    |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|                                                      | 
|                                                      |  | Years Ended September 30, |       
|                                                      |  | 2006                      |        |   | 2005 |   |        | 2004 | 
|                                                      |  | (in thousands)            |       
|Statements of Cash Flows                              |  |                           |        |   |      |   |        |      |  |   |        |  
|                                                      |  |                           |       
|Net (loss) income                                     |  | $                         | (7,393 | ) |      | $ | 601    |      |  | $ | 885    |  
|Adjustments to reconcile Net Income to Net Cash Used  |  |                           |        |   |      |   |        |      |  |   |        |  
|By Operating Activities                               |  |                           |        |   |      |   |        |      |  |   |        |  
|Accretion of discount on investments                  |  |                           |       |   |      |   | 2      |      |  |   | 1      |  
|Loss (gain) on sale of investments                    |  |                           | 46     |   |      |   |       |      |  |   | (4     | )
|Equity in net (loss) income of subsidiary             |  |                           | 6,157  |   |      |   | (1,526 | )    |  |   | (1,567 | )
|(Increase) decrease in accrued interest receivable    |  |                           | (12    | ) |      |   | 12     |      |  |   | 25     |  
|Decrease (increase) in prepaid taxes                  |  |                           | 51     |   |      |   | 461    |      |  |   | (334   | )
|Decrease in receivable from subsidiary                |  |                           | 183    |   |      |   | 183    |      |  |   | 183    |  
|Decrease (increase) in other assets                   |  |                           | 154    |   |      |   | (324   | )    |  |   | 137    |  
|Decrease in income taxes payable                      |  |                           |       |   |      |   | (174   | )    |  |   | (15    | )
|Increase in other liabilities                         |  |                           | 44     |   |      |   | 60     |      |  |   | 75     |  
|Noncash compensation under stock-based benefit plan   |  |                           | 52     |   |      |   | 52     |      |  |   | 52     |  
|                                                      |  |                           |        |   |      |   |        |      |  |   |        |  
|Net cash used by operating activities                 |  |                           | (718   | ) |      |   | (653   | )    |  |   | (562   | )



F-35



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18-
Condensed Financial Information (Parent Company Only) - Continued



|                                                                     |  |                           |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                     |  | Years Ended September 30, |       
|                                                                     |  | 2006                      |        |   | 2005 |   |        | 2004 | 
|                                                                     |  | (in thousands)            |       
|Cash Flows from Investing Activities                                 |  |                           |        |   |      |   |        |      |  |   |        |  
|Proceeds from maturities of investment securities  held to maturity |  | $                         | 500    |   |      | $ | 500    |      |  | $ | 2,000  |  
|Proceeds from sale of investment securities  available for sale     |  |                           | 2,376  |   |      |   |       |      |  |   | 21     |  
|Purchase of investment securities  available for sale               |  |                           | (257   | ) |      |   | (210   | )    |  |   | (2,153 | )
|Purchase of investment securities  held to maturity                 |  |                           |       |   |      |   |       |      |  |   | (2,498 | )
|                                                                     |  |                           |        |   |      |   |        |      |  |   |        |  
|Net cash provided (used) by investing activities                     |  |                           | 2,619  |   |      |   | 290    |      |  |   | (2,630 | )
|                                                                     |  |                           |       
|Cash Flows from Financing Activities                                 |  |                           |        |   |      |   |        |      |  |   |        |  
|Treasury Stock repurchase                                            |  |                           | (2     | ) |      |   | (5     | )    |  |   | (6     | )
|Exercised options                                                    |  |                           | 15     |   |      |   | 115    |      |  |   | 117    |  
|Dividends paid                                                       |  |                           | (1,059 | ) |      |   | (1,045 | )    |  |   | (1,033 | )
|                                                                     |  |                           |        |   |      |   |        |      |  |   |        |  
|Net cash used by financing activities                                |  |                           | (1,046 | ) |      |   | (935   | )    |  |   | (922   | )
|                                                                     |  |                           |       
|Increase (decrease) in cash and cash equivalents                     |  |                           | 855    |   |      |   | (1,298 | )    |  |   | (4,114 | )
|Cash and cash equivalents at beginning of period                     |  |                           | 1,172  |   |      |   | 2,470  |      |  |   | 6,584  |  
|                                                                     |  |                           |        |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at end of period                           |  | $                         | 2,027  |   |      | $ | 1,172  |      |  | $ | 2,470  |  
|                                                                     |  |                           |        |   |      |   |        |      |  |   |        |  



F-36



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 19- Quarterly Financial Date (Unaudited)

Summarized unaudited quarterly financial data for the year ended September 30, 2006 is as follows:



|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------------ | ----- | - | ------------- | - | ----- | ------------ |  | - | ------------- | - |  | - | ------ | -
|Operating Summary:                                  |  | FirstQuarter                         |       |   | SecondQuarter |   |       | ThirdQuarter |  |   | FourthQuarter |  
|                                                    |  | (in thousands except per share data) |      
|Interest Income                                     |  | $                                    | 9,596 |   |               | $ | 9,881 |              |  | $ | 10,179        |   |  | $ | 10,339 |  
|Interest Expense                                    |  |                                      | 5,970 |   |               |   | 6,135 |              |  |   | 6,607         |   |  |   | 7,064  |  
|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Net Interest Income                                 |  |                                      | 3,626 |   |               |   | 3,746 |              |  |   | 3,572         |   |  |   | 3,275  |  
|(Reversal) provision for Loan Losses                |  |                                      | (109  | ) |               |   |      |              |  |   |              |   |  |   |       |  
|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Net Interest Income after provision for loan losses |  |                                      | 3,735 |   |               |   | 3,746 |              |  |   | 3,572         |   |  |   | 3,275  |  
|Other Income                                        |  |                                      | 265   |   |               |   | 259   |              |  |   | 380           |   |  |   | 294    |  
|Other Expenses                                      |  |                                      | 4,275 |   |               |   | 3,893 |              |  |   | 14,445        |   |  |   | 4,355  |  
|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Income (loss) before income tax expense             |  |                                      | (275  | ) |               |   | 112   |              |  |   | (10,493       | ) |  |   | (786   | )
|Income Taxes (benefit)                              |  |                                      | (156  | ) |               |   | (2    | )            |  |   | (3,603        | ) |  |   | (288   | )
|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Net Income                                          |  | $                                    | (119  | ) |               | $ | 114   |              |  | $ | (6,890        | ) |  | $ | (498   | )
|                                                    |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Per share date:                                     |  |                                      |       |   |               |   |       |              |  |   |               |   |  |   |        |  
|Earnings  basic                                    |  | $                                    | (.02  | ) |               | $ | .02   |              |  | $ | (1.18         | ) |  | $ | (.08   | )
|Earnings  diluted                                  |  | $                                    | (.02  | ) |               | $ | .02   |              |  | $ | (1.18         | ) |  | $ | (.08   | )



F-37



---

BCSB BANKCORP, INC.

AND SUBSIDIARIES

Baltimore, Maryland

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19-
Quarterly Financial Date (Unaudited) - Continued



Summarized unaudited quarterly financial data for the year ended September 30,
2005 is as follows:



|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|--------------------------------------------------- |  | ------------------------------------ | ----- | - | ------------- | - | ----- | ------------ |  | ------------- | ----- |  | - | ----- | -
|Operating Summary:                                  |  | FirstQuarter                         |       |   | SecondQuarter |   |       | ThirdQuarter |  | FourthQuarter |      
|                                                    |  | (in thousands except per share data) |      
|Interest Income                                     |  | $                                    | 8,633 |   |               | $ | 8,918 |              |  | $             | 9,119 |  | $ | 9,553 |  
|Interest Expense                                    |  |                                      | 4,624 |   |               |   | 4,836 |              |  |               | 5,238 |  |   | 5,686 |  
|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Net Interest Income                                 |  |                                      | 4,009 |   |               |   | 4,082 |              |  |               | 3,881 |  |   | 3,867 |  
|Provision for Loan Losses                           |  |                                      | 120   |   |               |   | 0     |              |  |               | 48    |  |   | 0     |  
|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Net Interest Income after provision for loan losses |  |                                      | 3,889 |   |               |   | 4,082 |              |  |               | 3,833 |  |   | 3,867 |  
|Other Income                                        |  |                                      | 298   |   |               |   | 215   |              |  |               | 1,148 |  |   | 194   |  
|Other Expenses                                      |  |                                      | 4,114 |   |               |   | 4,208 |              |  |               | 4,230 |  |   | 4,262 |  
|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Income ( loss) before income tax expense            |  |                                      | 73    |   |               |   | 89    |              |  |               | 751   |  |   | (201  | )
|Income Taxes                                        |  |                                      | (13   | ) |               |   | (7    | )            |  |               | 217   |  |   | (86   | )
|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Net Income                                          |  | $                                    | 86    |   |               | $ | 96    |              |  | $             | 534   |  | $ | (115  | )
|                                                    |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Per share date:                                     |  |                                      |       |   |               |   |       |              |  |               |       |  |   |       |  
|Earnings  basic                                    |  | $                                    | .01   |   |               | $ | .02   |              |  | $             | .09   |  | $ | (.02  | )
|Earnings  diluted                                  |  | $                                    | .01   |   |               | $ | .02   |              |  | $             | .09   |  | $ | (.02  | )



F-38



---

BOARD OF DIRECTORS



|                                                                                                                         |  |                                                                                       |  |                                                                                                          
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------
|Henry V. Kahl  Chairman of the Board Assessor Supervisor with the State of Maryland Department of Assessments & Taxation |  | Joseph J. Bouffard  President and Chief Executive Officer of the Company and the
Bank |  | John J. Panzer, Jr.  Self-employed Builder                                                               
|                                                                                                                         |  |                                                                                      
|H. Adrian Cox  Vice Chairman of the Board Insurance Agent for Rohe and Rohe Associates, Baltimore, Maryland              |  | William M. Loughran  Executive Vice President of the Company and the Bank             |  | P. Louis Rohe, Jr.  Retired                                                                              
|                                                                                                                         |  |                                                                                      
|                                                                                                                         |  | Michael J. Klein  Vice President Kleins Super Markets                                |  | William J. Kappauf, Jr.  Director of Cash Management for Baltimore Gas & Electric
Co. Baltimore, Maryland

EXECUTIVE OFFICERS



|                                                                          |  |                                                                     |  |                                                                             
|------------------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | ----------------------------------------------------------------------------
|Joseph J. Bouffard  President and Chief Executive Officer                 |  | William M. Loughran  Executive Vice President Chief Lending Officer |  | Bonnie M. Klein  Senior Vice President and Treasurer Chief Financial
Officer
|David M. Meadows  Executive Vice President, Secretary and General Counsel |  |                                                                     |  |                                                                             

OFFICE LOCATIONS



|                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4111 E. Joppa Road, Suite 300 Baltimore, Maryland
21236  1736 Merritt Boulevard Dundalk, Maryland 21222  515 Eastern Avenue Baltimore, Maryland 21221  2105 Rock Spring Road Forest Hill, Maryland 21050  1505 York Road
Lutherville, Maryland 21093  9416 Baltimore National Pike Ellicott City, Maryland 21042  9231 Lakeside Boulevard Owings Mills, Maryland 21117 |  | 4208 Ebenezer Road Perry Hall, Maryland 21128
 2165 York Road Timonium, Maryland 21093  5340 Campbell
Boulevard Baltimore, Maryland 21236  402 Constant Friendship Boulevard Abingdon, Maryland 21009  8767 K Philadelphia Road Baltimore, Maryland 21237  5000 Honeygo Center
Drive Perry Hall, Maryland 21128 |  | 563 Bel Air Plaza Bel Air, Maryland 21014  6335 Baltimore National Pike Catonsville, Maryland 21228  2128 N. Fountain Green
Road Bel Air, Maryland 21015  9613 Harford Road Baltimore, Maryland 21234  4226 Harford Road Baltimore, Maryland 21214  109 Sparks Valley
Road Sparks, Maryland 21152



---

CORPORATE INFORMATION



|                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Independent Registered Public Accounting
Firm  Stegman & Company Suite 100 405 East Joppa Road Baltimore, Maryland 21286  General Counsel  Moore, Carney,
Ryan & Lattanzi, LLC 4111 E. Joppa Road, Suite
201 Baltimore, Maryland 21236  Transfer Agent and Registrar  American Stock and Transfer Co. 6201 15thAvenue Brooklyn, New York 11212 |  | Special Counsel  Muldoon Murphy & Aguggia LLP 5101 Wisconsin Avenue, NW Washington, DC 20016  Annual Meeting  The 2007 Annual Meeting of
Stockholders will be held on February 14, 2007 at 4:00 p.m. at the Banks Perry Hall office located at 4208 Ebenezer Road, Baltimore, Maryland. |  | Annual Report on Form 10-K  A copy of the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission, will be
furnished without charge to stockholders as of the record date for the 2007 Annual Meeting upon written request to Corporate Secretary, BCSB Bankcorp, Inc., 4111 E. Joppa Road, Suite 300, Baltimore, Maryland 21236.