##### Table of Contents

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United States

Securities and Exchange Commission

Washington, D. C. 20549



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FORM 10 - QSB



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(Mark One)

|x | Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



| ̈ | Transition Report Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------



For the transition period from to



Commission File Number: 0-28032



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PATAPSCO BANCORP, INC.

(Exact Name of Small Business Issuer as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 52-1951797                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



1301 Merritt
Boulevard, Dundalk, Maryland 21222-2194

(Address of Principal Executive Offices)



(410) 285-1010

Issuers Telephone Number, Including Area Code



---



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



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



As of November 10, 2005, the issuer had 1,434,366 shares of Common
Stock issued and outstanding.



Transitional Small Business
Disclosure Format (check one):    Yes ̈No  x



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##### Table of Contents

CONTENTS



|               |  |                                                                                                                   |  |     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                   |  | PAGE
|PART I.        |  | FINANCIAL INFORMATION                                                                                             |  |     
|               |  |                                                                                                                  
|Item 1.        |  | Financial Statements                                                                                              |  |     
|               |  |                                                                                                                  
|               |  | Consolidated Statements of Financial Condition at September 30, 2005 (Unaudited) and June 30, 2005                |  | 3   
|               |  |                                                                                                                  
|               |  | Consolidated Statements of Income for the Three-Month Periods Ended September 30, 2005 and 2004 (Unaudited)       |  | 4   
|               |  |                                                                                                                  
|               |  | Consolidated Statements of Comprehensive Income Three-Month Periods Ended September 30, 2005 and 2004 (Unaudited) |  | 5   
|               |  |                                                                                                                  
|               |  | Consolidated Statements of Cash Flows for the Three-Month Periods Ended September 30, 2005 and 2004 (Unaudited)   |  | 6   
|               |  |                                                                                                                  
|               |  | Notes to Consolidated Financial Statements                                                                        |  | 7   
|               |  |                                                                                                                  
|Item 2.        |  | Managements Discussion and Analysis or Plan of Operations                                                        |  | 10  
|               |  |                                                                                                                  
|Item 3.        |  | Controls and Procedures                                                                                           |  | 18  
|               |  |                                                                                                                  
|PART II.       |  | OTHER INFORMATION                                                                                                 |  |     
|               |  |                                                                                                                  
|Item 1.        |  | Legal Proceedings                                                                                                 |  | 18  
|               |  |                                                                                                                  
|Item 2.        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                       |  | 18  
|               |  |                                                                                                                  
|Item 3.        |  | Defaults Upon Senior Securities                                                                                   |  | 18  
|               |  |                                                                                                                  
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                               |  | 18  
|               |  |                                                                                                                  
|Item 5.        |  | Other Information                                                                                                 |  | 18  
|               |  |                                                                                                                  
|Item 6.        |  | Exhibits                                                                                                          |  | 19  
|               | 
|Signatures     |  | 20                                                                                                               
|               | 
|Certifications |  | 21                                                                                                               



2



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|($ in thousands except for per share data)                                                                                                                                                     |  | September 30, 2005 |         |   | June 30, 2005 |  
|                                                                                                                                                                                               | 
|                                                                                                                                                                                               |  | (Unaudited)        |         |   |               |  
|Assets                                                                                                                                                                                         |  |                    |         |   |               |   |         |  
|Cash on hand and due from banks                                                                                                                                                                |  | $                  | 5,634   |   |               | $ | 5,270   |  
|Interest bearing deposits in other banks                                                                                                                                                       |  |                    | 183     |   |               |   | 970     |  
|Federal funds sold                                                                                                                                                                             |  |                    | 1,838   |   |               |   | 1,408   |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Cash & cash equivalents                                                                                                                                                                        |  |                    | 7,655   |   |               |   | 7,648   |  
|Time deposits in other financial institutions                                                                                                                                                  |  |                    | 616     |   |               |   | 619     |  
|Securities available for sale                                                                                                                                                                  |  |                    | 22,906  |   |               |   | 24,800  |  
|Loans receivable, net of allowance for loan losses of $946 and $945, respectively                                                                                                              |  |                    | 165,636 |   |               |   | 161,094 |  
|Investments required by law, at cost                                                                                                                                                           |  |                    | 1,800   |   |               |   | 1,677   |  
|Property and equipment, net                                                                                                                                                                    |  |                    | 1,558   |   |               |   | 1,585   |  
|Goodwill and other intangible assets                                                                                                                                                           |  |                    | 3,393   |   |               |   | 3,406   |  
|Accrued interest and other assets                                                                                                                                                              |  |                    | 3,683   |   |               |   | 3,875   |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total assets                                                                                                                                                                                   |  | $                  | 207,247 |   |               | $ | 204,704 |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                           |  |                    |         |   |               |   |         |  
|                                                                                                                                                                                               |  |                   
|Liabilities:                                                                                                                                                                                   |  |                    |         |   |               |   |         |  
|Deposits:                                                                                                                                                                                      |  |                    |         |   |               |   |         |  
|Non interest bearing deposits                                                                                                                                                                  |  | $                  | 12,972  |   |               | $ | 12,072  |  
|Interest bearing deposits                                                                                                                                                                      |  |                    | 151,114 |   |               |   | 152,248 |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total deposits                                                                                                                                                                                 |  |                    | 164,086 |   |               |   | 164,320 |  
|Accrued expenses and other liabilities                                                                                                                                                         |  |                    | 1,421   |   |               |   | 2,564   |  
|Long -term debt                                                                                                                                                                                |  |                    | 23,899  |   |               |   | 20,233  |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total liabilities                                                                                                                                                                              |  |                    | 189,406 |   |               |   | 187,117 |  
|                                                                                                                                                                                               |  |                   
|Temporary equity  ESOP shares subject to put option                                                                                                                                           |  |                    | 1,181   |   |               |   | 1,266   |  
|                                                                                                                                                                                               |  |                   
|Stockholders equity:                                                                                                                                                                          |  |                    |         |   |               |   |         |  
|Preferred Stock-Series A Noncumulative Convertible Perpetual; $0.01 par value authorized 1,000,000 shares with a liquidation preference of $25
per share; 92,207 and 93,745 shares outstanding |  |                    | 1       |   |               |   | 1       |  
|Additional paid-in-capital                                                                                                                                                                     |  |                    | 2,307   |   |               |   | 2,345   |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,426,245 and 1,414,456 shares, respectively                                                                 |  |                    | 14      |   |               |   | 14      |  
|Additional paid-in capital                                                                                                                                                                     |  |                    | 4,480   |   |               |   | 4,332   |  
|Deferred compensation, contra                                                                                                                                                                  |  |                    | (78     | ) |               |   | (78     | )
|Obligation under deferred compensation                                                                                                                                                         |  |                    | 449     |   |               |   | 440     |  
|Retained earnings, substantially restricted                                                                                                                                                    |  |                    | 9,619   |   |               |   | 9,438   |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                                             |  |                    | (132    | ) |               |   | (171    | )
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total stockholders equity - permanent                                                                                                                                                         |  |                    | 16,660  |   |               |   | 16,321  |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total stockholders equity  incl. temporary equity                                                                                                                                            |  |                    | 17,841  |   |               |   | 17,587  |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                     |  | $                  | 207,247 |   |               | $ | 204,704 |  
|                                                                                                                                                                                               |  |                    |         |   |               |   |         |  



See
accompanying notes to financial statements.



3



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



|                                                    |  |                                    |        |      |   |       
|--------------------------------------------------- |  | ---------------------------------- | ------ | ---- | - | ------
|                                                    |  | For Three Months EndedSeptember 30
|($ in thousands except for per share data)          |  | 2005                               |        | 2004
|Interest income:                                    |  |                                    |        |      |   |       
|Loans receivable                                    |  | $                                  | 2,767  |      | $ | 2,658 
|Securities, including securities required by law    |  |                                    | 242    |      |   | 271   
|Federal funds sold and other investments            |  |                                    | 37     |      |   | 36    
|                                                    |  |                                    |        |      |   |       
|Total interest income                               |  |                                    | 3,046  |      |   | 2,965 
|                                                    |  |                                    |        |      |   |       
|Interest expense:                                   |  |                                    |        |      |   |       
|Deposits                                            |  |                                    | 769    |      |   | 703   
|Long-term debt                                      |  |                                    | 256    |      |   | 234   
|                                                    |  |                                    |        |      |   |       
|Total interest expense                              |  |                                    | 1,025  |      |   | 937   
|                                                    |  |                                    |        |      |   |       
|Net interest income                                 |  |                                    | 2,021  |      |   | 2,028 
|Provision for loan losses                           |  |                                    | 20     |      |   | 35    
|                                                    |  |                                    |        |      |   |       
|Net interest income after provision for loan losses |  |                                    | 2,001  |      |   | 1,993 
|                                                    |  |                                   
|Non-interest income:                                |  |                                    |        |      |   |       
|Fees and service charges                            |  |                                    | 138    |      |   | 97    
|Gain on sale of office building                     |  |                                    | 63     |      |   |      
|Other                                               |  |                                    | 42     |      |   | 33    
|                                                    |  |                                    |        |      |   |       
|Total non-interest income                           |  |                                    | 243    |      |   | 130   
|                                                    |  |                                    |        |      |   |       
|Non-interest expenses:                              |  |                                    |        |      |   |       
|Compensation and employee benefits                  |  |                                    | 1,080  |      |   | 956   
|Professional fees                                   |  |                                    | 43     |      |   | 80    
|Equipment expense                                   |  |                                    | 83     |      |   | 59    
|Net occupancy costs                                 |  |                                    | 159    |      |   | 81    
|Advertising                                         |  |                                    | 26     |      |   | 51    
|Data processing                                     |  |                                    | 64     |      |   | 60    
|Amortization of core deposit intangible             |  |                                    | 13     |      |   | 13    
|Telephone, postage and delivery                     |  |                                    | 71     |      |   | 63    
|Other                                               |  |                                    | 205    |      |   | 239   
|                                                    |  |                                    |        |      |   |       
|Total noninterest expense                           |  |                                    | 1,744  |      |   | 1,602 
|                                                    |  |                                    |        |      |   |       
|Income before provision for income taxes            |  |                                    | 500    |      |   | 521   
|Provision for income taxes                          |  |                                    | 187    |      |   | 187   
|                                                    |  |                                    |        |      |   |       
|Net Income                                          |  | $                                  | 313    |      | $ | 334   
|                                                    |  |                                    |        |      |   |       
|Preferred dividends declared                        |  |                                    | 43     |      |   | 44    
|                                                    |  |                                    |        |      |   |       
|Net Income available to common stockholders         |  | $                                  | 270    |      | $ | 290   
|                                                    |  |                                    |        |      |   |       
|Basic earnings per share                            |  | $                                  | 0.18   |      | $ | 0.20  
|                                                    |  |                                    |        |      |   |       
|Diluted earnings per share                          |  | $                                  | 0.16   |      | $ | 0.17  
|                                                    |  |                                    |        |      |   |       
|Cash dividends declared per common share            |  | $                                  | 0.0625 |      | $ | 0.0575
|                                                    |  |                                    |        |      |   |       



See
accompanying notes to financial statements.



4



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



|                                                                                            |  |                                      |     |      |   |    
|------------------------------------------------------------------------------------------- |  | ------------------------------------ | --- | ---- | - | ---
|                                                                                            |  | For Three Months Ended September 30,
|($ in thousands)                                                                            |  | 2005                                 |     | 2004
|Net income                                                                                  |  | $                                    | 313 |      | $ | 334
|Unrealized net holding gains on securities available for sale, net of taxes of $24 and $205 |  |                                      | 39  |      |   | 328
|                                                                                            |  |                                      |     |      |   |    
|Comprehensive income                                                                        |  | $                                    | 352 |      | $ | 662
|                                                                                            |  |                                      |     |      |   |    



See
accompanying notes to financial statements.



5



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                        |  |                                     |        |   |      |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                        |  | For Three Months EndedSeptember 30, |       
|($ in thousands)                                                                        |  | 2005                                |        |   | 2004 |  
|Cash flows from operating activities:                                                   |  |                                     |        |   |      |   |        |  
|Net income                                                                              |  | $                                   | 313    |   |      | $ | 334    |  
|Adjustments to reconcile net income to net cash provided by operating activities:       |  |                                     |        |   |      |   |        |  
|Depreciation                                                                            |  |                                     | 75     |   |      |   | 60     |  
|Provision for loan losses                                                               |  |                                     | 20     |   |      |   | 35     |  
|Amortization (accretion) of premiums and discounts, net                                 |  |                                     | (9     | ) |      |   | 44     |  
|Amortization of deferred loan origination fees, net of costs                            |  |                                     | (8     | ) |      |   | (23    | )
|Amortization of core deposit intangible                                                 |  |                                     | 13     |   |      |   | 12     |  
|Income from bank-owned life insurance                                                   |  |                                     | (15    | ) |      |   | (15    | )
|Gain on sale of office building                                                         |  |                                     | (63    | ) |      |   |       |  
|Decrease (increase) in accrued interest and other assets                                |  |                                     | 182    |   |      |   | (156   | )
|Increase in accrued expenses and other liabilities                                      |  |                                     | 39     |   |      |   | 159    |  
|                                                                                        |  |                                     |        |   |      |   |        |  
|Net cash provided by operating activities                                               |  |                                     | 547    |   |      |   | 450    |  
|                                                                                        |  |                                     |        |   |      |   |        |  
|Cash flows from investing activities:                                                   |  |                                     |        |   |      |   |        |  
|Loan principal disbursements, net of repayments                                         |  |                                     | (2,349 | ) |      |   | (452   | )
|Purchase of consumer loans                                                              |  |                                     | (2,217 | ) |      |   |       |  
|Proceeds from maturing investments and principal payments on mortgage backed securities |  |                                     | 1,941  |   |      |   | 1,836  |  
|Purchase of investment securities required by law                                       |  |                                     | (123   | ) |      |   |       |  
|Redemption of investment securities required by law                                     |  |                                     |       |   |      |   | 267    |  
|Proceeds from maturing time deposit investment                                          |  |                                     |       |   |      |   | 100    |  
|Disposal (purchase) of property and equipment                                           |  |                                     | 15     |   |      |   | (57    | )
|                                                                                        |  |                                     |        |   |      |   |        |  
|Net cash (used in) provided by investing activities                                     |  |                                     | (2,733 | ) |      |   | 1,694  |  
|                                                                                        |  |                                    
|Cash flows from financing activities:                                                   |  |                                     |        |   |      |   |        |  
|Net decrease in deposits                                                                |  |                                     | (193   | ) |      |   | (4,438 | )
|Proceeds from long-term borrowings                                                      |  |                                     | 6,250  |   |      |   |       |  
|Payments of long-term borrowings                                                        |  |                                     | (2,584 | ) |      |   | (1,500 | )
|Decrease in advance payments by borrowers                                               |  |                                     | (1,180 | ) |      |   | (1,130 | )
|Cash received from exercise of stock options                                            |  |                                     | 25     |   |      |   |       |  
|Dividends paid                                                                          |  |                                     | (125   | ) |      |   | (120   | )
|                                                                                        |  |                                     |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                                     |  |                                     | 2,193  |   |      |   | (7,188 | )
|                                                                                        |  |                                     |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                                    |  | $                                   | 7      |   |      | $ | (5,044 | )
|Cash and cash equivalents at beginning of period                                        |  |                                     | 7,648  |   |      |   | 18,144 |  
|                                                                                        |  |                                     |        |   |      |   |        |  
|Cash and cash equivalents end of period                                                 |  | $                                   | 7,655  |   |      | $ | 13,100 |  
|                                                                                        |  |                                     |        |   |      |   |        |  
|Supplemental information:                                                               |  |                                     |        |   |      |   |        |  
|Interest paid on deposits and borrowed funds                                            |  | $                                   | 1,174  |   |      | $ | 897    |  
|Income taxes paid                                                                       |  |                                     | 73     |   |      |   | 25     |  
|                                                                                        |  |                                     |        |   |      |   |        |  



See
accompanying notes to financial statements.



6



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary



Notes to Consolidated Financial Statements

(unaudited)



Note 1: Principles of Consolidation



The consolidated financial statements include the accounts of Patapsco Bancorp, Inc. (the Company) and its wholly-owned
subsidiary, The Patapsco Bank (the Bank). The Patapsco Banks wholly owned subsidiaries are Prime Business Leasing and Patapsco Financial Services, Inc. All inter-company accounts and transactions have been eliminated in the
accompanying consolidated financial statements.



Note 2: The Patapsco Bank



The Bank is regulated by The Federal
Reserve Bank of Richmond (the Federal Reserve Bank) and The State of Maryland. The primary business of the Bank is to attract deposits from individual and corporate customers and to originate residential and commercial mortgage loans,
consumer loans and commercial business loans. The Bank competes with other financial and mortgage institutions in attracting and retaining deposits and originating loans.



Note 3: Basis of Presentation



The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-QSB and
therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America. However, all adjustments that are, in the
opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three months ended September 30, 2005 are
not necessarily indicative of the results that may be expected for the entire year. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Banks Annual report on Form 10-KSB for the
year ended June 30, 2005.



Note 4: Cash
and Cash Equivalents



Cash and cash equivalents include cash on hand, amounts
due from banks, federal funds sold and interest bearing deposits in other financial institutions.



Note 5: Regulatory Capital Requirements



At September 30, 2005, the Bank and the Company met each of the three minimum regulatory capital requirements. The following table summarizes the Companys
regulatory capital position at September 30, 2005.



|                                         |        |        |        |  |                              |        |  |                                                          |        |  |        |   |   |    |  | 
|---------------------------------------- | ------ | ------ | ------ |  | ---------------------------- | ------ |  | -------------------------------------------------------- | ------ |  | ------ | - | - | -- |  | 
|($ in thousands)                         |        | Actual |        |  | For Capital AdequacyPurposes |        |  | Well Capitalized UnderPrompt CorrectiveAction Provisions
|                                         | Amount |        | %      |  |                              | Amount |  | %                                                        |        |  | Amount |   | %
|Total Capital (to Risk Weighted Assets)  |        | $      | 15,329 |  | 11.02                        | %      |  | $                                                        | 11,127 |  | 8.00   | % |   | NA |  | 
|                                         |        |        |        |  |                              |       
|Tier 1 Capital (to Risk Weighted Assets) |        | $      | 14,383 |  | 10.34                        | %      |  | $                                                        | 5,564  |  | 4.00   | % |   | NA |  | 
|                                         |        |        |        |  |                              |       
|Tier 1 Capital (to Average Assets)       |        | $      | 14,383 |  | 7.16                         | %      |  | $                                                        | 8,039  |  | 4.00   | % |   | NA |  | 



7



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##### Table of Contents

The following table summarizes the Banks regulatory capital position at
September 30, 2005 (in thousands).



|                                         |        |        |        |  |                               |        |  |                                                          |        |  |        |   |   |   |        |  |    |  
|---------------------------------------- | ------ | ------ | ------ |  | ----------------------------- | ------ |  | -------------------------------------------------------- | ------ |  | ------ | - | - | - | ------ |  | -- | -
|($ in thousands)                         |        | Actual |        |  | For Capital Adequacy Purposes |        |  | Well Capitalized UnderPrompt CorrectiveAction Provisions |       
|                                         | Amount |        | %      |  |                               | Amount |  | %                                                        |        |  | Amount |   | % |  
|Total Capital (to Risk Weighted Assets)  |        | $      | 17,095 |  | 12.30                         | %      |  | $                                                        | 11,118 |  | 8.00   | % |   | $ | 13,897 |  | 10 | %
|                                         |        |        |        |  |                               |       
|Tier 1 Capital (to Risk Weighted Assets) |        | $      | 16,149 |  | 11.62                         | %      |  | $                                                        | 5,559  |  | 4.00   | % |   | $ | 8,338  |  | 6  | %
|                                         |        |        |        |  |                               |       
|Tier 1 Capital (to Average Assets)       |        | $      | 16,149 |  | 8.05                          | %      |  | $                                                        | 8,026  |  | 4.00   | % |   | $ | 10,032 |  | 5  | %



Note
6: 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 and convertible securities, unless the effect is to reduce a loss or
increase earnings per share.



|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|------------------------------------------ | ----- | ------------------------------------ | ------- | ------------------------------------ | ----- | ----- | ------- | - | ----- |  | - | -----
|($ in thousands except for per share data) |       | Three Months EndedSeptember 30, 2005 |         | Three Months EndedSeptember 30, 2004
|                                           | Basic |                                      | Diluted |                                      | Basic |       | Diluted
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Net Income                                 |       | $                                    | 313     |                                      | $     | 313   |         | $ | 334   |  | $ | 334  
|Preferred Stock Dividends                  |       |                                      | 43      |                                      |       |      |         |   | 44    |  |   |     
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Net Income Available to Common             |       | $                                    | 270     |                                      | $     | 313   |         | $ | 290   |  | $ | 334  
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Weighted average shares outstanding        |       |                                      | 1,461   |                                      |       | 1,461 |         |   | 1,426 |  |   | 1,426
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Diluted Securities:                        |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Preferred Stock                            |       |                                      |        |                                      |       | 368   |         |   |      |  |   | 379  
|Options                                    |       |                                      |        |                                      |       | 92    |         |   |      |  |   | 115  
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Adjusted Weighted Average Shares           |       |                                      | 1,461   |                                      |       | 1,921 |         |   | 1,426 |  |   | 1,921
|                                           |       |                                      |         |                                      |       |       |         |   |       |  |   |      
|Per Share Amount                           |       | $                                    | 0.18    |                                      | $     | 0.16  |         | $ | 0.20  |  | $ | 0.17 



Note
7: Goodwill and Intangible Assets



SFAS No. 142, Goodwill and Other
Intangible Assets 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. Other intangible assets are amortized using the straight-line method over estimated useful lives of 10 years.
The Company periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired.



Note 8: Stock Options



SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company to make certain disclosures as if the fair
value method of accounting had been applied to the Companys stock option grants made subsequent to 1994. Accordingly, no stock option based employee compensation cost is reflected in net income, as all options granted under these plans had an
exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123.



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##### Table of Contents

|                                                                                                                                                   |      |                                  |      |      |  |   |      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -------------------------------- | ---- | ---- |  | - | ---- | -
|($ in thousands except for per share data)                                                                                                         |      | Three Months Ended September 30, |     
|                                                                                                                                                   | 2005 |                                  |      | 2004 | 
|Net Income as reported                                                                                                                             |      | $                                | 313  |      |  | $ | 334  |  
|Amounts recognized as expense in financial statements                                                                                              |      |                                  | 5    |      |  |   |     |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |      |                                  | (11  | )    |  |   | (7   | )
|                                                                                                                                                   |      |                                  |      |      |  |   |      |  
|Proforma Net Income                                                                                                                                |      | $                                | 307  |      |  | $ | 327  |  
|                                                                                                                                                   |      |                                 
|Earnings per share:                                                                                                                                |      |                                  |      |      |  |   |      |  
|                                                                                                                                                   |      |                                 
|Basic - as reported                                                                                                                                |      | $                                | 0.18 |      |  | $ | 0.20 |  
|Basic  pro forma                                                                                                                                  |      |                                  | 0.17 |      |  |   | 0.20 |  
|                                                                                                                                                   |      |                                 
|Diluted  as reported                                                                                                                              |      | $                                | 0.16 |      |  | $ | 0.17 |  
|Diluted  pro forma                                                                                                                                |      |                                  | 0.16 |      |  |   | 0.17 |  



Note
9: Guarantees



The Company does not issue any guarantees that would require
liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of
credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company, generally, holds collateral
and/or personal guarantees supporting these commitments. The Company had $1,317,000 of standby letters of credit as of September 30, 2005 and $1,365,000 outstanding as of June 30, 2005. 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, 2005
and June 30, 2005 for guarantees under standby letters of credit issued is not material.



Note 10: Recent Accounting Pronouncements



FAS 123(R)



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123(R), Share-Based Payment. Statement No. 123(R) revised
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. Statement No. 123(R) will
require compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or
liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.



On April 14, 2005, the Securities and Exchange Commission (SEC) adopted a new rule that amends the compliance dates for Statement No. 123 (R). Under
the new rule, the Company is required to adopt SFAS No. 123R on July 1, 2006. The Company has not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and it has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures under SFAS No. 123.



SAB 107



In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB No. 107), Share-Based Payment, providing guidance on option
valuation methods, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123(R), and the disclosures in MD&A subsequent to the adoption. The Company will provide SAB No. 107
required disclosures upon adoption of SFAS No. 123(R) on July 1, 2006.



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##### Table of Contents

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



General



The Companys results of operations depend primarily on its level of net interest income, which is the difference between interest earned on interest-earning assets, consisting primarily of loans, investment
securities, mortgage-backed securities and other investments, and the interest paid on interest-bearing liabilities, consisting primarily of deposits and advances from the Federal Home Loan Bank of Atlanta. The net interest income earned on
interest-earning assets (net interest margin) and the ratio of interest-earning assets to interest-bearing liabilities have a significant impact on net interest income. The Companys net interest margin is affected by regulatory,
economic and competitive factors that influence interest rates, loan and deposit flows. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets mature or re-price at different
times, or on a different basis, than its interest-bearing liabilities. To a lesser extent, the Companys results of operations are also affected by the amount of its non-interest income, including loan fees and deposit service charges, and
levels of non-interest expense, which consists principally of compensation and employee benefits, insurance premiums, professional fees, equipment expense, occupancy costs, advertising, data processing and other operating expenses.



The Companys operating results are significantly affected by general
economic and competitive conditions, in particular, changes in market interest rates, government policies and actions taken by regulatory authorities. Lending activities are influenced by general economic conditions, competition among lenders, the
level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities and the level of personal income and savings in the
Companys market area.



Forward-Looking Statements



When used in this Form 10-QSB, the words or phrases will likely result,
are expected to, will continue, is anticipated, estimate, project or similar expressions are intended to identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Companys market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Companys financial performance and could cause the Companys
actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.



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



Critical Accounting Policies



The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP) and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different
estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than
originally reported. These estimates, assumptions and judgments are necessary when financial instruments are required to be recorded at fair value or when the decline in the value of an asset carried on the balance sheet at historic cost requires an
impairment write-down or a valuation reserve to be established.



The allowance
for loan losses (allowance) represents an amount, that in the judgment of management, will be adequate to absorb probable losses on outstanding loans and leases that may become uncollectible. The allowance represents an estimate made
based upon two principles of accounting: (1) Statement of Financial Accounting



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##### Table of Contents

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



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



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



SFAS
No. 123, Accounting for Stock-Based Compensation, requires the Company to make certain disclosures as if the fair value method of accounting had been applied to the Companys stock option grants made subsequent to 1994.
Accordingly, no stock option based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant.



Management Summary



The Companys financial results for the quarter ended September 30, 2005 reflect some significant investments being made to
improve the future of the Company.



Effective July 1, 2005, the Company
leased the property at 2028 Joppa Road in Baltimore County from the lessor for the purpose of building a branch office with administrative office space. This facility will replace the Companys current branch on Joppa Road and much of the
leased office space at the Banks administrative offices on Harford Road. The expenses associated with leasing this property in the first quarter totaled $44,700. Additionally, the Company accrued $30,000 for the demolition of the existing
structure. The new facility is scheduled to open in the summer of 2006.



The
Company sold the land and building at 8705 Harford Road that previously had housed a branch office that was merged with the Banks branch office at 7802 Harford Road, for a pre-tax gain of $63,000.



The Company has increased the professional staffing in its commercial business, leasing and
commercial real estate areas in order to increase loan production. These investments have contributed to $10.8 million pipeline of loans awaiting settlement. While the entire pipeline is not expected to close, the amount is such that continued loan
growth is expected by the Company.



On September 30, 2005, the Company
purchased $2.2 million in consumer home improvement loans at par from a local financial institution exiting the home improvement line of business.



Going forward, the immediate challenges facing the organization include funding the anticipated loan growth and controlling operating expenses. With meaningful core
deposit growth difficult to attain in the short-term, the Company anticipates utilizing higher cost retail certificates of deposit, wholesale borrowings and possible brokered deposits to fund loan growth. The Company issued $5.0 million in Trust
Preferred Securities on October 31, 2005. The Company has a number of internal initiatives in place to control the growth in operating expenses.



Management believes that these initiatives will be positive for the future financial performance of the Company.



11



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##### Table of Contents

Comparison of Financial Condition at September 30, 2005 and June 30, 2005



The Companys assets increased by $2.5 million, or 1.2% to $207.3 million at
September 30, 2005 from $204.7 million at June 30, 2005. During the quarter ended September 30, 2005, the Company utilized cash generated by the securities portfolio and wholesale borrowings to fund loan growth and escrow
disbursements.



Total loans grew by $4.5 million or 2.8% to $165.6 million at
September 30, 2005 from $161.1 million at June 30, 2005. The growth in loans includes the $2.2 million purchase of consumer loans mentioned above. This purchase and the majority of the new loan production all occurred in the last weeks of
the quarter so the impact on net income was minimal. The securities portfolio decreased by $1.9 million or 7.6% in the quarter as maturities and pay-downs in the mortgage-backed securities portfolio were reinvested into the loan portfolio.



Interest-bearing deposits decreased $1.1 million or 0.7% to $151.1 million at
September 30, 2005 from $152.2 million at June 30, 2005. Non-interest bearing deposits increased $0.9 million or 7.5% to $13.0 million at September 30, 2005 from 12.1 million at June 30, 2005. Total borrowings have increased
by $3.7 million or 18.1% to $23.9 million at September 30,2005 from $20.2 million at June 30. Other liabilities, primarily escrow accounts for property taxes and insurance held for our mortgage customers decreased by $1.2 million or 44.5%
to $1.4 million at September 30 from $2.6 million at June 30, 2005.



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



Net Income



The Companys net income decreased by $21,000 or 6.3% to $313,000 for the quarter ended September 30, 2005 from $334,000 for the quarter ended
September 30, 2004. The decrease in the Companys net income during the three-month period was due to higher operating expenses offsetting higher non-interest income and a lower provision for loan losses.



Interest Income



Total interest income increased by $81,000 or 2.7% to $3.0 million for the quarter ended
September 30, 2005 from $2.9 million for the quarter ended September 30, 2004. Higher average balances in the loan portfolio and higher average rates in the securities portfolio offset slightly lower rates earned on the loan portfolio and
the lower balances in the security portfolio. The yield on earning assets increased by 28 basis points to 6.38% in the quarter ended September 30, 2005 compared to 6.10% in the quarter ended September 30, 2004.



Interest income on loans receivable increased by $109,000 or 4.1% to $2.8 million for the
quarter ended September 30, 2005 from $2.7 million for the quarter ended September 30, 2004. The increase in interest income on loans receivable during the three-month period is due to the higher average balance of loans receivable
offsetting a decrease in the average yield earned on the loan portfolio. During the three months ended September 30, 2005 as compared to the same period ended September 30, 2004 the average loans receivable balance increased by $7.0
million to $161.0 million from $154.0 million and the average yield decreased by 3 basis points to 6.87% from 6.90%.



Interest income on investment securities, including investments required by law, decreased by $29,000 or 10.7% as the $5.1 million decrease in the average balance was
offset by a 25 basis point increase in the yield earned on these securities.



Interest income on federal funds sold and other investments was flat at $37,000.



Interest Expense



Total interest expense increased by $88,000 or 9.4% to $1.0 million for the quarter ended September 30, 2005 from $937,000 for the quarter ended September 30,
2004 as higher rates paid were only partially offset by slightly lower average balances. Interest expense on deposits increased by $66,000 or 9.4% to $769,000 as higher rates paid on deposits were only partially offset by slightly lower average
balances. Interest expense on borrowings increased $22,000 or 9.4% primarily due to higher rates paid on wholesale borrowings.



Net Interest Income



The Companys net interest income decreased by $7,000 or 0.35% to $2.2 million for the quarter ended September



12



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##### Table of Contents

30, 2005 from $2.2 million for the quarter ended September 30, 2004. The decrease in net interest income during the
comparable three-month period was primarily due to higher rates paid on liabilities offsetting higher average balances of interest earning assets.



Average Balance, Interest and Average Yields and Rates



The following table sets forth certain information relating to the Companys average interest-earning assets and interest-bearing liabilities and reflects the
average yield on assets and cost of liabilities for the periods and at the date indicated. Dividing income or expense by the average daily balance of assets or liabilities, respectively, derives such yields and costs for the periods presented.
Average balances are derived from daily balances.



The table also presents
information for the periods indicated with respect to the Companys net interest margin, which is net interest income divided by the average balance of interest earning assets. This in an important indicator of commercial bank profitability.
The net interest margin is affected by yields on interest-earning assets, the costs of interest-bearing liabilities and the relative amounts of interest earning assets and interest bearing liabilities. Another indicator of The Companys net
interest income is the interest rate spread, or the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities.



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|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -------- | ---- | ---------------------- |  | ------ | -------------- |  | -------- | ------- | ----------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three months ended September 30, |        
|                                                                                 |  | 2005                             |         |          | 2004 |                       
|                                                                                 |  | AverageBalance                   |         | Interest |      | AverageYield/Cost      |  |        | AverageBalance |  | Interest |         | AverageYield/Cost |  
|                                                                                 |  |                                  |         |          |      | (Dollars in thousands) |  |        |                |  |         
|Interest-earning assets:                                                         |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Loans receivable (1)                                                             |  | $                                | 161,022 |          | $    | 2,767                  |  | 6.87   | %              |  | $        | 154,034 |                   | $ | 2,658 |  | 6.90   | %
|Investment and mortgage-backed securities(2)                                     |  |                                  | 25,371  |          |      | 242                    |  | 3.81   |                |  |          | 30,496  |                   |   | 271   |  | 3.56   |  
|Short-term investments and other interest-earning assets                         |  |                                  | 4,524   |          |      | 37                     |  | 3.27   |                |  |          | 9,886   |                   |   | 36    |  | 1.44   |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-earning assets                                                    |  |                                  | 190,917 |          |      | 3,046                  |  | 6.38   |                |  |          | 194,416 |                   |   | 2,965 |  | 6.10   |  
|Non-interest-earning assets                                                      |  |                                  | 13,176  |          |      |                        |  |        |                |  |          | 11,901  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Total assets                                                                     |  | $                                | 204,093 |          |      |                        |  |        |                |  | $        | 206,317 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Deposits (3)                                                                     |  | $                                | 151,208 |          | $    | 769                    |  | 2.03   |                |  | $        | 153,720 |                   |   | 703   |  | 1.85   |  
|Borrowings                                                                       |  |                                  | 21,615  |          |      | 256                    |  | 4.75   |                |  |          | 21,514  |                   |   | 234   |  | 4.35   |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                  | 172,823 |          |      | 1,025                  |  | 2.37   |                |  |          | 175,234 |                   |   | 937   |  | 2.14   |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                                  | 13,577  |          |      |                        |  |        |                |  |          | 14,381  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities                                                                |  |                                  | 186,400 |          |      |                        |  |        |                |  |          | 189,615 |                   |   |       |  |        |  
|Total Equity                                                                     |  |                                  | 17,693  |          |      |                        |  |        |                |  |          | 16,702  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities and equity                                                     |  | $                                | 204,093 |          |      |                        |  |        |                |  | $        | 206,317 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest income                                                              |  |                                  |         |          | $    | 2,021                  |  |        |                |  |          |         |                   | $ | 2,028 |  |        |  
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest margin                                                              |  |                                  |         |          |      |                        |  | 4.24   | %              |  |          |         |                   |   |       |  | 4.17   | %
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest rate spread                                                             |  |                                  |         |          |      |                        |  | 4.01   | %              |  |          |         |                   |   |       |  | 3.96   | %
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                  |         |          |      |                        |  | 110.47 | %              |  |          |         |                   |   |       |  | 110.95 | %
|                                                                                 |  |                                  |         |          |      |                        |  |        |                |  |          |         |                   |   |       |  |        |  

---

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

|(2) | Includes investments required by law
|--- | ------------------------------------

|(3) | Includes interest bearing escrow accounts
|--- | -----------------------------------------



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Provision For Loan Losses



Provision for Loan losses. Provisions for loan losses are charged to earnings to
maintain the total allowance for loan losses at a level considered adequate by management to provide for loan losses. The components of the allowance for loan losses represent an estimation done pursuant to either Statement of Financial Accounting
Standards (SFAS) No. 5, Accounting for Contingencies, or SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The adequacy of the allowance for loan losses is determined through a continuous
review of the loan and lease portfolio and considers factors such as prior loss experience, type of collateral, industry standards, past due loans in the Companys loan portfolio, current economic conditions, both national and local, and other
factors unique to particular loans and leases. The Companys management periodically monitors and adjusts its allowance for loan losses based upon its analysis of the loan portfolio.



The provision for loan losses was $20,000 in the quarter ended September 30, 2005, compared to $35,000 for the quarter ended
September 30, 2004. The Companys allowance for loan losses as a percentage of total loans outstanding has decreased to 0.57% of total loans at September 30, 2005 from 0.58% at June 30, 2005. The Companys allowance for loan
losses as a percentage of non-performing loans was 955.6% at September 30, 2005 as compared to 2,486.8% at June 30, 2005. The Company has concluded after analyzing the non-performing loan portfolio and the factors mentioned above, that the
allowance is adequate.



The following table shows the activity in the allowance
for loan losses.



|                                               |  |                                  |     |      |   |    
|---------------------------------------------- |  | -------------------------------- | --- | ---- | - | ---
|                                               |  | Three Months Ended September 30,
|($ in thousands)                               |  | 2005                             |     | 2004
|Allowance for loan losses, beginning of period |  | $                                | 945 |      |   | 936
|                                               |  |                                 
|Provision for loan losses                      |  |                                  | 20  |      |   | 35 
|                                               |  |                                 
|Loans Charged Off:                             |  |                                  |     |      |   |    
|Consumer                                       |  |                                  | 69  |      |   | 33 
|Real Estate                                    |  |                                  | 0   |      |   | 0  
|Commercial                                     |  |                                  | 12  |      |   | 40 
|                                               |  |                                  |     |      |   |    
|Total Charge-Offs                              |  |                                  | 81  |      |   | 73 
|Recoveries:                                    |  |                                  |     |      |   |    
|Consumer                                       |  |                                  | 11  |      |   | 9  
|Real Estate                                    |  |                                  | 0   |      |   | 0  
|Commercial                                     |  |                                  | 51  |      |   | 30 
|                                               |  |                                  |     |      |   |    
|Total Recoveries                               |  |                                  | 62  |      |   | 39 
|                                               |  |                                  |     |      |   |    
|Allowance for loan losses, end of period       |  | $                                | 946 |      | $ | 937
|                                               |  |                                  |     |      |   |    



The following table
sets forth information with respect to the Companys non-performing assets at the dates indicated.



|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|--------------------------------------------------------------- |  | ---------------- | ---- | - | --------------- | - | ---- | ---------------- |  | - | ---- | -
|                                                                |  | At Sept. 30,2005 |      |   | At June 30,2005 |   |      | At Sept. 30,2004 | 
|                                                                |  |                  |      |   | (In thousands)  |   |      |                  | 
|Loans accounted for on a non-accrual basis: (1)                 |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Real estate:                                                    |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Residential                                                     |  | $                |     |   |                 | $ |     |                  |  | $ | 34   |  
|Commercial                                                      |  |                  |     |   |                 |   |     |                  |  |   | 325  |  
|Construction                                                    |  |                  |     |   |                 |   |     |                  |  |   |     |  
|Consumer                                                        |  |                  |     |   |                 |   | 16   |                  |  |   |     |  
|Commercial Loan/Lease                                           |  |                  | 99   |   |                 |   | 22   |                  |  |   | 499  |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Total                                                           |  | $                | 99   |   |                 | $ | 38   |                  |  | $ | 858  |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Accruing loans which are contractually past due 90 days or more |  | $                |     |   |                 | $ |     |                  |  | $ |     |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Total                                                           |  | $                |     |   |                 | $ |     |                  |  | $ |     |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Total non-performing loans                                      |  | $                | 99   |   |                 | $ | 38   |                  |  | $ | 858  |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Percentage of total loans                                       |  |                  | 0.06 | % |                 |   | 0.02 | %                |  |   | 0.56 | %
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  
|Other non-performing assets (2)                                 |  | $                |     |   |                 | $ | 60   |                  |  | $ | 5    |  
|                                                                |  |                  |      |   |                 |   |      |                  |  |   |      |  

---

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

|(2) | Other non-performing assets represents property acquired by the Company through foreclosure or repossession.
|--- | ------------------------------------------------------------------------------------------------------------



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At September 30, 2005, non-accrual assets consisted of four commercial equipment
leases totaling $99,000.



Except as discussed below, the Company had no loans
not classified as non-accrual, 90 days past due or restructured where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment
terms and may subsequently result in disclosure as non-accrual, 90 days past due or restructured. The Company has been informed that a commercial borrower with an outstanding loan balance of $90,000 has closed the business. The loan is 85%
guaranteed by the Small Business Administration and is secured by business assets and land. The Company expects to be made whole however liquidation will take some time.



Non-interest Income



The Companys non-interest income consists of deposit fees, service charges, income from bank owned life insurance (BOLI) and gains on
the sale of loans, securities and other assets. Total non-interest income increased by $113,000 or 86.9% to $243,000 for the quarter ended September 30, 2005 from $130,000 for the quarter ended September 30, 2004. The increase in
non-interest income is the result of the $63,000 gain on the sale of the real estate that formerly housed a branch office and increased deposit related fees and commission income on the sale of alternative investments. Without the gain on the sale
of the real estate, the increase in non-interest income would have been $50,000 or 38.5%.



Non-interest Expenses



Total non-interest expenses increased by $142,000 or 8.9% to $1.7 million for the quarter ended September 30, 2005 from $1.6 million for the quarter ended
September 30, 2004. The majority of the increase is a result of the increases in professional lending staff as well as the expenses associated with the new branch site mentioned above.



Income Taxes



Income tax expense was $187,000 (or 37.4% of income before the provision for income taxes)
and $187,000 (or 35.9% of income before the provision for income taxes) for the periods ended September 30, 2005 and 2004, respectively.



Liquidity and Capital Resources



An important component of the Companys asset/liability structure is the level of liquidity available to meet the needs of customers and creditors. The
Companys Asset/Liability Management Committee has established general guidelines for the maintenance of prudent levels of liquidity. The Committee continually monitors the amount and source of available liquidity, the time to acquire it and
its cost. Management of the Company 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 lower rates of return, the
Company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 on hand, interest-bearing deposits and Federal funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are
readily convertible to known amounts of cash. The levels of these assets are dependent on the Companys operating, financing and



16



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##### Table of Contents

investing activities during any given period. At September 30, 2005, the Companys cash on hand,
interest-bearing deposits and Federal funds sold totaled $7.6 million. In addition, the Company has approximately $22.9 million of investment securities classified as available-for-sale, none of which are pledged.



The Company anticipates that it will have sufficient funds available to meet its current loan
commitments of $10.8 million and unused lines of credit of $10.1 million. Certificates of deposit that are scheduled to mature in less than one year at September 30, 2005 totaled $31.5 million. Historically, a high percentage of maturing
deposits have remained with the Company.



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



The Companys primary sources of cash provided from investing activities during the three months ended September 30, 2005 were
principal pay-downs in the mortgage-backed securities portfolios and proceeds from the maturing and redemption of investment securities. The primary uses of funds in investing activities were loan disbursements and loan purchases.



The Companys primary uses of cash in financing activities during the three months ended
September 30, 2005 was $2.6 million of payments on long-term borrowings and $1.2 million in payments of property taxes for mortgage customers. The Companys primary source of cash in financing activities during the three months ended
September 30, 2005 was $6.3 million in borrowings.



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



Contingencies and Off-Balance Sheet Items



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



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



|                                    |  |                        |        |               |   |      
|----------------------------------- |  | ---------------------- | ------ | ------------- | - | -----
|                                    |  | September 30, 2005     |        | June 30, 2005
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 10,780 |               | $ | 9,000
|Undisbursed lines of credit         |  |                        | 10,117 |               |   | 9,799
|Financial standby letters of credit |  |                        | 1,317  |               |   | 1,365



As discussed in Note 5 - Regulatory
Capital Requirements, the Company and the Bank exceeded all regulatory minimum capital requirements.



Contractual Obligations



The following table sets forth the Companys contractual obligations as of September 30, 2005:



|                                   |  |                  |        |                 |   |              |  |              |        |  |   |       
|---------------------------------- |  | ---------------- | ------ | --------------- | - | ------------ |  | ------------ | ------ |  | - | ------
|                                   |  | Less than 1 year |        | 1 to 3 years    |   | 4 to 5 years |  | Over 5 years
|                                   |  |                  |        | ( In thousands) |   |             
|Time Deposits                      |  | $                | 31,494 |                 | $ | 24,320       |  | $            | 19,432 |  | $ | 4,025 
|Long-term borrowings               |  |                  | 6,350  |                 |   | 4,700        |  |              | 8,100  |  |   | 4,749 
|Lease obligations                  |  |                  | 246    |                 |   | 337          |  |              | 310    |  |   | 2,520 
|                                   |  |                  |        |                 |   |              |  |              |        |  |   |       
|Total Contractual Cash Obligations |  | $                | 45,429 |                 | $ | 27,828       |  | $            | 16,476 |  | $ | 10,587
|                                   |  |                  |        |                 |   |              |  |              |        |  |   |       



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Item 3 : Controls and Procedures



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



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



Part II. Other Information



Item 1. Legal Proceedings



None.



Item 2. Unregistered sales of equity securities and use of proceeds



None.



Item 3. Defaults Upon Senior Securities



None



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



None



Item 5. Other Information



On October 31,
2005, the Company completed a trust preferred securities financing in the amount of $5.0 million. In the transaction, the Company formed a Connecticut statutory trust, known as Patapsco Statutory Trust I (the Trust). The Trust issued and
sold $5.0 million of trust preferred securities in a private placement and issued $155,000 of trust common securities to the Company. The Trust used the proceeds of these issuances to purchase $5,155,000 of the Companys floating rate junior
subordinated debentures due December 15, 2035 (the Debentures). The interest rate on the Debentures and the trust preferred securities is fixed at 6.465% for the first seven years, and thereafter is variable and adjustable quarterly
at 1.48% over three-month LIBOR. The Debentures are the sole assets of the Trust and are subordinate to all of the Companys existing and future obligations for borrowed money. The trust preferred securities generally rank equal to the trust
common securities in priority of payment, but will rank prior to the trust common securities if and so long as the Company fails to make principal or interest payments on the Debentures. Concurrently with the issuance of the Debentures and the trust
preferred securities, the Company issued a guarantee related to the trust securities for the benefit of the holders.



The Debentures and the trust preferred securities each have 30-year lives. The trust preferred securities and the Debentures will each be callable by the Company or the
Trust, at their respective option after five years, and sooner in certain specific events, including in the event that the securities are not eligible for treatment as Tier 1 capital, subject to prior approval by the Federal Reserve Board, if then
required. Interest on the trust preferred securities and the Debentures may be deferred at any time or from time to time for a period not exceeding 20 consecutive quarterly payments (five years), provided there is no event of default.



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##### Table of Contents

Item 6. Exhibits



(a) Exhibits



The following exhibits are filed herewith:



|              |  |                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Title                                                                                                                
|4.1           |  | Indenture, dated October 31, 2005, between Patapsco Bancorp, Inc. and U.S. Bank National Association                 
|              | 
|4.2           |  | Form of Junior Subordinated Debt Security Due 2035 (filed as Exhibit A to Exhibit 4.1 filed herewith)                
|              | 
|10.1          |  | Guarantee Agreement, dated October 31, 2005, by Patapsco Bancorp, Inc. and U.S. Bank National Association, as trustee
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                              
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                              
|              | 
|32            |  | Certification pursuant to 18 U.S.C. Section                                                                          



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Signatures



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



|                        |  |                                                            
|----------------------- |  | -----------------------------------------------------------
|                        |  | PATAPSCO BANCORP, INC.                                     
|                        | 
|Date: November 14, 2005 |  | /s/ Joseph J. Bouffard                                     
|                        |  | Joseph J. Bouffard                                         
|                        |  | President and Chief Executive Officer                      
|                        |  | (Principal Executive Officer)                              
|                        | 
|Date: November 14, 2005 |  | /s/ Michael J. Dee                                         
|                        |  | Michael J. Dee                                             
|                        |  | Senior Vice President, Chief Financial Officer & Controller
|                        |  | (Principal Financial Officer)                              



20