##### 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, 2004



| ̈ | 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 ̈



As of November 10, 2004, the issuer had 1,399,032 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, 2004 (Unaudited) and June 30, 2004                |  | 3   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Income for the Three-Month Periods Ended September 30, 2004 and 2003 (Unaudited)       |  | 4   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Comprehensive Income Three-Month Periods Ended September 30, 2004 and 2003 (Unaudited) |  | 5   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Cash Flows for the Three-Month Periods Ended September 30, 2004 and 2003 (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                                                                                                          |  | 18  
|                              | 
|Signatures                    |  | 19                                                                                                               
|                              | 
|Certifications                |  | 20                                                                                                               



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 302004 |         |   | June 30,2004 |  
|Assets                                                                                                                                                                                        |  |                  |         |   |              |   |         |  
|Cash:                                                                                                                                                                                         |  |                  |         |   |              |   |         |  
|On hand and due from banks                                                                                                                                                                    |  | $                | 5,031   |   |              | $ | 6,253   |  
|Interest bearing deposits in other banks                                                                                                                                                      |  |                  | 3,449   |   |              |   | 7,436   |  
|Federal funds sold                                                                                                                                                                            |  |                  | 4,620   |   |              |   | 4,455   |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Cash & Cash equivalents                                                                                                                                                                       |  |                  | 13,100  |   |              |   | 18,144  |  
|Time Deposits in other financial institutions                                                                                                                                                 |  |                  | 823     |   |              |   | 990     |  
|Investment securities available for sale                                                                                                                                                      |  |                  | 15,253  |   |              |   | 16,117  |  
|Mortgage-Backed Securities available for sale                                                                                                                                                 |  |                  | 12,647  |   |              |   | 13,110  |  
|Loans receivable, net                                                                                                                                                                         |  |                  | 151,849 |   |              |   | 151,413 |  
|Investment in securities required by law, at cost                                                                                                                                             |  |                  | 1,493   |   |              |   | 1,760   |  
|Property and equipment, net                                                                                                                                                                   |  |                  | 1,612   |   |              |   | 1,615   |  
|Goodwill and other intangible assets                                                                                                                                                          |  |                  | 3,445   |   |              |   | 3,457   |  
|Accrued interest and other assets                                                                                                                                                             |  |                  | 3,976   |   |              |   | 4,010   |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total assets                                                                                                                                                                                  |  | $                | 204,198 |   |              | $ | 210,616 |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                          |  |                  |         |   |              |   |         |  
|                                                                                                                                                                                              |  |                 
|Liabilities:                                                                                                                                                                                  |  |                  |         |   |              |   |         |  
|Non interest bearing deposits                                                                                                                                                                 |  | $                | 11,154  |   |              | $ | 10,989  |  
|Interest bearing deposits                                                                                                                                                                     |  |                  | 152,489 |   |              |   | 157,143 |  
|Accrued expenses and other liabilities                                                                                                                                                        |  |                  | 2,237   |   |              |   | 3,204   |  
|Long Term Debt                                                                                                                                                                                |  |                  | 21,400  |   |              |   | 22,900  |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                             |  |                  | 187,280 |   |              |   | 194,236 |  
|                                                                                                                                                                                              |  |                 
|Temporary Equity  ESOP Shares subject to put option                                                                                                                                          |  |                  | 1,298   |   |              |   | 1,404   |  
|                                                                                                                                                                                              |  |                 
|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; 94,079 and 98,090 shares outstanding |  |                  | 1       |   |              |   | 1       |  
|Additional paid-in-capital                                                                                                                                                                    |  |                  | 2,376   |   |              |   | 2,454   |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,399,032 and 1,386,615 shares, respectively                                                                |  |                  | 14      |   |              |   | 14      |  
|Additional paid-in capital                                                                                                                                                                    |  |                  | 4,282   |   |              |   | 4,098   |  
|Deferred Compensation  Rabbi Trust                                                                                                                                                           |  |                  | (78     | ) |              |   | (78     | )
|Obligation under Rabbi trust                                                                                                                                                                  |  |                  | 250     |   |              |   | 250     |  
|Retained earnings substantially restricted                                                                                                                                                    |  |                  | 8,802   |   |              |   | 8,592   |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                                            |  |                  | (27     | ) |              |   | (355    | )
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total stockholders equity - permanent                                                                                                                                                        |  |                  | 15,620  |   |              |   | 14,976  |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total stockholders equity  incl. Temporary Equity                                                                                                                                           |  |                  | 16,918  |   |              |   | 16,380  |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                    |  | $                | 204,198 |   |              | $ | 210,616 |  
|                                                                                                                                                                                              |  |                  |         |   |              |   |         |  



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)



|                                                        |      |                                    |       |  |   |      
|------------------------------------------------------- | ---- | ---------------------------------- | ----- |  | - | -----
|($ in thousands except for per share data)              |      | For Three Months EndedSeptember 30
|                                                        | 2004 |                                    | 2003 
|Interest income:                                        |      |                                    |       |  |   |      
|Loans receivable                                        |      | $                                  | 2,658 |  | $ | 2,177
|Investment securities                                   |      |                                    | 128   |  |   | 94   
|Mortgage-backed securities                              |      |                                    | 143   |  |   | 270  
|Federal funds sold and other investments                |      |                                    | 36    |  |   | 36   
|                                                        |      |                                    |       |  |   |      
|Total interest income                                   |      |                                    | 2,965 |  |   | 2,577
|                                                        |      |                                    |       |  |   |      
|Interest expense:                                       |      |                                    |       |  |   |      
|Deposits                                                |      |                                    | 703   |  |   | 650  
|Long-term debt                                          |      |                                    | 234   |  |   | 309  
|                                                        |      |                                    |       |  |   |      
|Total interest expense                                  |      |                                    | 937   |  |   | 959  
|                                                        |      |                                    |       |  |   |      
|Net interest income                                     |      |                                    | 2,028 |  |   | 1,618
|Provision for losses on loans                           |      |                                    | 35    |  |   | 42   
|                                                        |      |                                    |       |  |   |      
|Net interest income after provision for losses on loans |      |                                    | 1,993 |  |   | 1,576
|                                                        |      |                                   
|Non-interest income:                                    |      |                                    |       |  |   |      
|Fees and service charges                                |      |                                    | 97    |  |   | 94   
|Net gain on sale of loans held for sale                 |      |                                    |      |  |   | 10   
|Other                                                   |      |                                    | 33    |  |   | 14   
|                                                        |      |                                    |       |  |   |      
|Total non-interest income                               |      |                                    | 130   |  |   | 118  
|                                                        |      |                                    |       |  |   |      
|Non-interest expenses:                                  |      |                                    |       |  |   |      
|Compensation and employee benefits                      |      |                                    | 956   |  |   | 704  
|Insurance premiums                                      |      |                                    | 27    |  |   | 18   
|Professional fees                                       |      |                                    | 80    |  |   | 77   
|Equipment expense                                       |      |                                    | 59    |  |   | 45   
|Net occupancy costs                                     |      |                                    | 81    |  |   | 53   
|Advertising                                             |      |                                    | 51    |  |   | 31   
|Data processing                                         |      |                                    | 60    |  |   | 53   
|Amortization of Core Deposit Intangible                 |      |                                    | 12    |  |   |     
|Other                                                   |      |                                    | 276   |  |   | 149  
|                                                        |      |                                    |       |  |   |      
|Total noninterest expense                               |      |                                    | 1,602 |  |   | 1,130
|                                                        |      |                                    |       |  |   |      
|Income before provision for income taxes                |      |                                    | 521   |  |   | 564  
|Provision for income taxes                              |      |                                    | 187   |  |   | 210  
|                                                        |      |                                    |       |  |   |      
|Net Income                                              |      | $                                  | 334   |  | $ | 354  
|                                                        |      |                                    |       |  |   |      
|Preferred dividends declared                            |      |                                    | 44    |  |   | 47   
|                                                        |      |                                    |       |  |   |      
|Net Income available to common stockholders             |      | $                                  | 290   |  | $ | 307  
|                                                        |      |                                    |       |  |   |      
|Basic earnings per share                                |      | $                                  | 0.20  |  | $ | 0.22 
|                                                        |      |                                    |       |  |   |      
|Net Income                                              |      | $                                  | 334   |  | $ | 354  
|                                                        |      |                                    |       |  |   |      
|Diluted earnings per share                              |      | $                                  | 0.17  |  | $ | 0.18 
|                                                        |      |                                    |       |  |   |      
|Cash dividends paid per common share                    |      | $                                  | 0.053 |  | $ | 0.047
|                                                        |      |                                    |       |  |   |      



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



|                                                                                                      |      |                                     |      |  |   |      |  
|----------------------------------------------------------------------------------------------------- | ---- | ----------------------------------- | ---- |  | - | ---- | -
|($ in thousands)                                                                                      |      | For Three Months EndedSeptember 30, |     
|                                                                                                      | 2004 |                                     | 2003 | 
|Net income                                                                                            |      | $                                   | 334  |  | $ | 354  |  
|Unrealized net holding (losses)/gains on available-for-sale portfolios, net of taxes of $205 and $166 |      |                                     | 328  |  |   | (276 | )
|                                                                                                      |      |                                     |      |  |   |      |  
|Comprehensive income                                                                                  |      | $                                   | 662  |  | $ | 78   |  
|                                                                                                      |      |                                     |      |  |   |      |  



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |      |                                     |        |      |  |   |         |  
|--------------------------------------------------------------------------------- | ---- | ----------------------------------- | ------ | ---- |  | - | ------- | -
|($ in thousands)                                                                  |      | For Three Months EndedSeptember 30, |       
|                                                                                  | 2004 |                                     |        | 2003 | 
|Cash flows from operating activities:                                             |      |                                     |        |      |  |   |         |  
|Net income                                                                        |      | $                                   | 334    |      |  | $ | 354     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |      |                                     |        |      |  |   |         |  
|Depreciation                                                                      |      |                                     | 60     |      |  |   | 50      |  
|Provision for losses on loans                                                     |      |                                     | 35     |      |  |   | 42      |  
|Proceeds from sale of loans available for sale                                    |      |                                     |       |      |  |   | 1,195   |  
|Disbursements on loans held for sale                                              |      |                                     |       |      |  |   | (1,185  | )
|Gain from sale of loans held for sale                                             |      |                                     |       |      |  |   | (10     | )
|Amortization of premiums and discounts, net                                       |      |                                     | 44     |      |  |   | 3       |  
|Deferred loan origination fees, net of costs                                      |      |                                     | (23    | )    |  |   | (44     | )
|Amortization of core deposit intangible                                           |      |                                     | 12     |      |  |   |        |  
|Increase in accrued interest and other assets                                     |      |                                     | (171   | )    |  |   | (1,530  | )
|Decrease in accrued expenses and other liabilities                                |      |                                     | (971   | )    |  |   | (819    | )
|                                                                                  |      |                                     |        |      |  |   |         |  
|Net cash used in operating activities                                             |      |                                     | (680   | )    |  |   | (1,944  | )
|                                                                                  |      |                                     |        |      |  |   |         |  
|Cash flows from investing activities:                                             |      |                                     |        |      |  |   |         |  
|Loan principal disbursements, net of repayments                                   |      |                                     | (452   | )    |  |   | 4,109   |  
|Maturity of investment security available for sale                                |      |                                     | 1,000  |      |  |   |        |  
|Purchase of investment securities available for sale                              |      |                                     |       |      |  |   | (5,013  | )
|Purchase of mortgage-backed securities available for sale                         |      |                                     |       |      |  |   | (10,200 | )
|Purchase of investment securities required by law                                 |      |                                     |       |      |  |   | (518    | )
|Redemption of investment securities required by law                               |      |                                     | 267    |      |  |   |        |  
|Proceeds from maturing time deposit investment                                    |      |                                     | 100    |      |  |   |        |  
|Purchase of property and equipment                                                |      |                                     | (57    | )    |  |   | (66     | )
|Principal repayment on mortgage-backed securities available-for-sale              |      |                                     | 836    |      |  |   | 4,518   |  
|                                                                                  |      |                                     |        |      |  |   |         |  
|Net cash provided by (used) in investing activities                               |      |                                     | 1,694  |      |  |   | (7,170  | )
|                                                                                  |      |                                    
|Cash flows from financing activities:                                             |      |                                     |        |      |  |   |         |  
|Net decrease in deposits                                                          |      |                                     | (4,438 | )    |  |   | (663    | )
|Proceeds from long-term borrowings                                                |      |                                     |       |      |  |   | 10,000  |  
|Payments of long-term borrowings                                                  |      |                                     | (1,500 | )    |  |   |        |  
|Cash received from exercise of stock options                                      |      |                                     |       |      |  |   | 39      |  
|Dividends paid                                                                    |      |                                     | (120   | )    |  |   | (113    | )
|                                                                                  |      |                                     |        |      |  |   |         |  
|Net cash (used in) provided by financing activities                               |      |                                     | (6,058 | )    |  |   | 9,263   |  
|                                                                                  |      |                                     |        |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |      | $                                   | (5,044 | )    |  | $ | 149     |  
|Cash and cash equivalents at beginning of period                                  |      |                                     | 18,144 |      |  |   | 13,724  |  
|                                                                                  |      |                                     |        |      |  |   |         |  
|Cash and cash equivalents end of period                                           |      | $                                   | 13,100 |      |  | $ | 13,873  |  
|                                                                                  |      |                                     |        |      |  |   |         |  
|Supplemental information:                                                         |      |                                     |        |      |  |   |         |  
|Interest paid on deposits and borrowed funds                                      |      | $                                   | 897    |      |  | $ | 959     |  
|Income taxes paid                                                                 |      |                                     | 25     |      |  |   | 2       |  
|                                                                                  |      |                                     |        |      |  |   |         |  



See accompanying notes to financial
statements.



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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 subsidiary is Prime Business Leasing. All intercompany 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, 2004 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 of form 10-KSB for the year ended June 30, 2004.



Note 4: Cash and Cash Equivalents



Cash
equivalents include short-term investments with an original maturity of 90 days or less which consists of Federal funds sold. Cash equivalents and other liquidity and short-term investments are carried at cost, which approximates fair value.



Note 5: Regulatory Capital Requirements



At September 30, 2004, 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, 2004.



|                                         |        |        |        |  |                              |        |  |                                                         |        |  |        |   |   |    |  | 
|---------------------------------------- | ------ | ------ | ------ |  | ---------------------------- | ------ |  | ------------------------------------------------------- | ------ |  | ------ | - | - | -- |  | 
|($ in thousands)                         |        | Actual |        |  | For CapitalAdequacy Purposes |        |  | Well Capitalized UnderPrompt CorrectiveAction Provision
|                                         | Amount |        | %      |  |                              | Amount |  | %                                                       |        |  | Amount |   | %
|Total Capital (to Risk Weighted Assets)  |        | $      | 14,207 |  | 11.10                        | %      |  | $                                                       | 10,244 |  | 8.00   | % |   | NA |  | 
|                                         |        |        |        |  |                              |       
|Tier 1 Capital (to Risk Weighted Assets) |        | $      | 13,270 |  | 10.36                        | %      |  | $                                                       | 5,122  |  | 4.00   | % |   | NA |  | 
|                                         |        |        |        |  |                              |       
|Tier 1 Capital (to Average Assets)       |        | $      | 13,270 |  | 6.55                         | %      |  | $                                                       | 8,106  |  | 4.00   | % |   | NA |  | 



7



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##### Table of Contents

The following table summarizes the Banks regulatory capital position at September 30, 2004 (in thousands).



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |    |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | -- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 15,725 |   | 12.30                        | % |        | $                                                       | 10,228 |  | 8.00 | %      |  | $ | 12,785 |  | 10 | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 14,788 |   | 11.57                        | % |        | $                                                       | 5,114  |  | 4.00 | %      |  | $ | 7,671  |  | 6  | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Average Assets)       |  | $      | 14,788 |   | 7.36                         | % |        | $                                                       | 8,034  |  | 4.00 | %      |  | $ | 10,042 |  | 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.



|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|------------------------------------------ |  | ------------------------------------ | ----- | ------------------------------------ | - | ----- |  | ------- | ----- |  | - | -----
|                                           |  | Three Months EndedSeptember 30, 2004 |       | Three Months EndedSeptember 30, 2003
|($ in thousands except for per share data) |  | Basic                                |       | Diluted                              |   | Basic |  | Diluted
|Net Income                                 |  | $                                    | 334   |                                      | $ | 334   |  | $       | 354   |  | $ | 354  
|Preferred Stock Dividends                  |  |                                      | 44    |                                      |   |      |  |         | 47    |  |   |     
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Net Income Available to Common             |  | $                                    | 290   |                                      | $ | 334   |  | $       | 307   |  | $ | 354  
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Weighted average shares outstanding        |  |                                      | 1,426 |                                      |   | 1,426 |  |         | 1,426 |  |   | 1,426
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Diluted Securities:                        |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Preferred Stock                            |  |                                      |       |                                      |   | 379   |  |         |       |  |   | 434  
|Options                                    |  |                                      |       |                                      |   | 115   |  |         |       |  |   | 92   
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares           |  |                                      | 1,426 |                                      |   | 1,921 |  |         | 1,426 |  |   | 1,953
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Per Share Amount                           |  | $                                    | 0.20  |                                      | $ | 0.17  |  | $       | 0.22  |  | $ | 0.18 



Per share amounts have been adjusted
for stock dividends and the three for one stock split in the form of a 200% stock dividend declared in June 2004.



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. 148, Accounting for Stock-Based Compensation, requires the Company to
make certain disclosures as if the fair value method of accounting had been applied to the Companys stock option grants made subsequent to 1994. Accordingly, no stock option based employee compensation cost is reflected in net income, as all
options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. 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. 148.



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|                                                                                                                                                   |          |                    |      |          |  |   |      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ------------------ | ---- | -------- |  | - | ---- | -
|($ in thousands except for per share data)                                                                                                         |          | Three Months Ended |     
|                                                                                                                                                   | 09/31/04 |                    |      | 09/31/03 | 
|Net Income as reported                                                                                                                             |          | $                  | 334  |          |  | $ | 354  |  
|Amounts recognized as expense in financial statements                                                                                              |          |                    |     |          |  |   | 38   |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |          |                    | (7   | )        |  |   | (45  | )
|                                                                                                                                                   |          |                    |      |          |  |   |      |  
|Proforma Net Income                                                                                                                                |          | $                  | 327  |          |  | $ | 347  |  
|                                                                                                                                                   |          |                   
|Earnings per share:                                                                                                                                |          |                    |      |          |  |   |      |  
|                                                                                                                                                   |          |                   
|Basic - as reported                                                                                                                                |          | $                  | 0.20 |          |  | $ | 0.22 |  
|Basic  pro forma                                                                                                                                  |          |                    | 0.20 |          |  |   | 0.21 |  
|                                                                                                                                                   |          |                   
|Diluted  as reported                                                                                                                              |          | $                  | 0.17 |          |  | $ | 0.18 |  
|Diluted  pro forma                                                                                                                                |          |                    | 0.17 |          |  |   | 0.18 |  



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 $964,000 of standby letters of credit as of September 30, 2004. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to
cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of September 30, 2004 for guarantees under standby letters of credit issued is not material.



Note 10: Business Combination



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



The combination was accounted for under the purchase method of accounting, and accordingly, the net assets were recorded at their estimated fair values at the date of
acquisition, April 1, 2004. The Company recorded premiums of $674,000 on assets and $364,000 on liabilities and discounts of $144,000 on assets and $0 on liabilities. Fair value adjustments on the assets and liabilities purchased are being amortized
over the estimated lives of the related assets and liabilities. The net effect of the amortization and accretion of premiums and discounts on net income before taxes for fiscal 2004 and the quarter ended September 30, 2004 was $20,000 and $13,000,
respectively. A core deposit intangible of $516,000 was recognized and is being amortized over ten years. The excess of the purchase price over the estimated fair value of the underlying net assets of $1.1 million was allocated to goodwill.



The following unaudited pro forma condensed consolidated financial information
reflects the results of operations of the Company for the year ended June 30, 2004 and the quarter ended September 30, 2003 as if the transaction had occurred at the beginning of each period presented. These pro forma results are not necessarily
indicative of what the Companys results of operations would have been had the acquisition actually taken place at the beginning of each period presented.



|                                         |  |                         |       |                                      |   |      
|---------------------------------------- |  | ----------------------- | ----- | ------------------------------------ | - | -----
|(in thousands except for per share data) |  | Year EndedJune 30, 2004 |       | Three Months EndedSeptember 30, 2003
|Net Interest Income                      |  | $                       | 7,930 |                                      | $ | 1,989
|Net Income                               |  |                         | 1,609 |                                      |   | 387  
|Diluted Net Income per share             |  | $                       | 0.85  |                                      | $ | 0.20 



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Note 11: Recent Accounting Pronouncement



On March 31, 2004, the FASB ratified Emerging Issues Task Force Issue No. 03-1,  The Meaning of Other Than-Temporary Impairment
and Its Application to Certain Investments, (EITF 03-1), which provides guidance on recognizing other-than-temporary impairments on certain investments. EITF 03-1 is effective for other-than temporary impairment evaluations for
investments accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, as well as non-marketable equity securities accounted for under the cost method for reporting periods beginning after June
15, 2004. On September 30, 2004, the FASB directed the FASB staff to delay the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of EITF 03-01. This delay will be superseded concurrent with the final issuance
of EITF 03-01a. During the delay, the Company continues to apply the relevant other-than temporary guidance under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities.



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 reprice at different
times, or on a different basis, than its interest-bearing liabilities. To a lesser extent, the Companys results of operations are also affected by the amount of its noninterest income, including loan fees and deposit service charges, and
levels of noninterest expense, which consists principally of compensation and employee benefits, insurance premiums, professional fees, equipment expense, occupancy costs, advertising, data processing and other operating expenses.



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



Forward-Looking Statements



When used in this 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.



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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 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.



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



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



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



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



11



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##### Table of Contents

Comparison of Financial Condition at September 30, 2004 and June 30, 2003



The Companys assets decreased by $6.4 million, or 3.1% to $204.2 million at September
30, 2004 from $210.6 million at June 30, 2004. During the quarter ended September 30, 2004, the Company utilized cash on hand and cash generated by the securities portfolio to fund deposit outflow, pay-down of long-term debt and minimal loan growth.
The Company allowed higher cost deposits to run-off in order to both allow some shrinkage in the balance sheet to bolster capital ratios and to manage interest expense. The capital ratios of both the Company and the Bank were reduced by the April
2004 purchase of Parkville Federal Savings Bank.



Interest-bearing deposits
decreased $4.7 million or 3.0% to $152.5 million at September 30, 2004 from $157.1 million at June 30, 2004. Total borrowings have decreased by $1.5 million or 6.6% to $21.4 million at September 30,2004 from $22.9 million at June 30. Other
liabilities, primarily escrow accounts for property taxes and insurance held for our mortgage customers decreased by $1.0 million or 30.2% to $2.2 million at September 30 from $3.2 million at June 30, 2004.



Comparison of Operating Results for the Quarter Ended September 30, 2004 and September 30,
2003



Net Income



The Companys net income decreased by $20,000 or 5.6% to $334,000 for the quarter ended
September 30, 2004 from $354,000 for the quarter ended September 30, 2003. The decrease in the Companys net income during the three-month period was due to higher operating expenses offsetting higher net interest income and non-interest
income.



Interest Income



Total interest income increased by $388,000 or 15.1% to $2.9 million for the quarter ended
September 30, 2004 from $2.6 million for the quarter ended September 30, 2003. Higher average balances of interest earning assets, primarily a result of the Parkville acquisition increased interest income by $626,000 when compared to the quarter
ended September 30, 2003. Lower rates on interest earning assets reduced interest income by $238,000. The yield on earning assets decreased by 45 basis points to 6.10% in the quarter ended September 30, 2004 compared to 6.55% in the quarter ended
September 30, 2003.



Interest income on loans receivable increased by $481,000
or 22.1% to $2.7 million for the quarter ended September 30, 2004 from $2.2 million for the quarter ended September 30, 2003. 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, 2004 as compared to the same period ended September 30, 2003 the average loans receivable balance increased by
$42.1 million or 37.6% to $154.0 million from $111.9 million and the average yield decreased by 99 basis points to 6.90% from 7.89%. The increase in average loans receivable is primarily due to the Parkville acquisition.



Interest income on investment securities, including investments required by law, increased by
$34,000 or 36.4% as the $8.5 million increase in the average balance was offset by a 129 basis point decrease in the yield earned on these securities.



Interest income on mortgage-backed securities decreased by $127,000 or 47.0% in the quarter ended September 30, 2004 to $143,000 from $270,000 in the quarter ended
September 30, 2003 primarily due to the lower volumes resulting from sales and principal pay-downs.



Interest income on federal funds sold and other investments was flat at $36,000 as lower balances offset higher yields earned on these investments.



Interest Expense



Total interest expense decreased by $22,000 or 2.3% to $937,000 for the quarter ended September 30, 2004 from $959,000 for the quarter ended September 30, 2003 as higher
average balances were offset by lower costs of



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##### Table of Contents

liabilities. Interest expense on deposits increased by $53,000 or 8.1% to $703,000 as higher balances outstanding were
somewhat offset by lower rates paid on deposits. Interest expense on borrowings decreased $75,000 or 24.2% due to the lower average balance of borrowings outstanding offsetting higher rates paid on borrowed money.



Net Interest Income



The Companys net interest income increased by $410,000 or 25.4% to $2.0 million for the quarter ended September 30, 2004 from $1.6
million for the quarter ended September 30, 2003. The increase in net interest income during the comparable three-month period was primarily due to higher balances of interest earning assets. The Companys net interest margin has increased from
4.11% in the quarter ended September 30, 2003 to 4.17% in the quarter ended September 30, 2004.



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, |        
|                                                                                 |  | 2004                             |         |          | 2003 |                  
|                                                                                 |  | AverageBalance                   |         | Interest |      | AverageYield/Cost |  |        | AverageBalance |  | Interest |         | AverageYield/Cost |  
|                                                                                 |  | (Dollars in thousands)           |        
|Interest-earning assets:                                                         |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Loans receivable (1)                                                             |  | $                                | 154,034 |          | $    | 2,658             |  | 6.90   | %              |  | $        | 111,908 |                   | $ | 2,177 |  | 7.89   | %
|Investment securities(2)                                                         |  |                                  | 17,546  |          |      | 128               |  | 2.92   |                |  |          | 9,043   |                   |   | 94    |  | 4.21   |  
|Mortgage-backed securities                                                       |  |                                  | 12,950  |          |      | 143               |  | 4.42   |                |  |          | 25,588  |                   |   | 270   |  | 4.28   |  
|Short-term investments and other interest-earning assets                         |  |                                  | 9,886   |          |      | 36                |  | 1.44   |                |  |          | 13,080  |                   |   | 36    |  | 1.13   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-earning assets                                                    |  |                                  | 194,416 |          |      | 2,965             |  | 6.10   |                |  |          | 159,619 |                   |   | 2,577 |  | 6.55   |  
|Non-interest-earning assets                                                      |  |                                  | 11,901  |          |      |                   |  |        |                |  |          | 5,322   |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total assets                                                                     |  | $                                | 206,317 |          |      |                   |  |        |                |  | $        | 164,941 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Deposits (3)                                                                     |  | $                                | 153,720 |          | $    | 703               |  | 1.83   |                |  | $        | 112,187 |                   |   | 650   |  | 2.35   |  
|Borrowings                                                                       |  |                                  | 21,514  |          |      | 234               |  | 4.35   |                |  |          | 30,190  |                   |   | 309   |  | 4.09   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                  | 175,234 |          |      | 937               |  | 2.14   |                |  |          | 142,377 |                   |   | 959   |  | 2.73   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                                  | 14,381  |          |      |                   |  |        |                |  |          | 6,833   |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities                                                                |  |                                  | 189,615 |          |      |                   |  |        |                |  |          | 149,210 |                   |   |       |  |        |  
|Total Equity                                                                     |  |                                  | 16,702  |          |      |                   |  |        |                |  |          | 15,731  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities and retained earnings                                          |  | $                                | 206,317 |          |      |                   |  |        |                |  | $        | 164,941 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest income                                                              |  |                                  |         |          | $    | 2,028             |  |        |                |  |          |         |                   | $ | 1,618 |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest margin                                                              |  |                                  |         |          |      |                   |  | 4.17   | %              |  |          |         |                   |   |       |  | 4.11   | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest rate spread                                                             |  |                                  |         |          |      |                   |  | 3.96   | %              |  |          |         |                   |   |       |  | 3.82   | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                  |         |          |      |                   |  | 110.95 | %              |  |          |         |                   |   |       |  | 112.11 | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  

---

|(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 $35,000 in the quarter ended September 30, 2004, compared to $42,000 for the quarter ended September 30, 2003. The Companys
allowance for loan losses has decreased as a percentage of total loans outstanding to 0.61% at September 30, 2004 from 1.05% at June 30, 2004. The primary reason for this decrease is the purchase of Parkville in April 2004. The Parkville loan
portfolio consisted almost entirely of first mortgage loans. The Companys allowance for loan losses as a percentage of non-performing loans was 109.2% at September 30, 2004 as compared to 291.7% at June 30, 2004. 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 MonthsEnded September 30,
|($ in thousands)                               |  | 2004                            |     | 2003
|Allowance for loan losses, beginning of period |  | $                               | 936 |      |   | 1,139
|                                               |  |                                
|Provision for loan losses                      |  |                                 | 35  |      |   | 42   
|                                               |  |                                
|Loans Charged Off:                             |  |                                 |     |      |   |      
|Consumer                                       |  |                                 | 33  |      |   | 31   
|Real Estate                                    |  |                                 | 0   |      |   | 0    
|Commercial                                     |  |                                 | 40  |      |   | 20   
|                                               |  |                                 |     |      |   |      
|Total Charge-Offs                              |  |                                 | 73  |      |   | 51   
|Recoveries:                                    |  |                                 |     |      |   |      
|Consumer                                       |  |                                 | 9   |      |   | 14   
|Real Estate                                    |  |                                 | 0   |      |   | 0    
|Commercial                                     |  |                                 | 30  |      |   | 14   
|                                               |  |                                 |     |      |   |      
|Total Recoveries                               |  |                                 | 39  |      |   | 28   
|                                               |  |                                 |     |      |   |      
|Allowance for loan losses, end of period       |  | $                               | 937 |      | $ | 1,158
|                                               |  |                                 |     |      |   |      



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



|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|--------------------------------------------------------------- |  | -------------- | ---- | - | ----------- | - | ---- | ------------ |  | - | ---- | -
|                                                                |  | At Sept. 30,   |      |   | At June 30, |   |      | At Sept. 30, | 
|                                                                |  | 2004           |      |   | 2004        |   |      | 2003         | 
|                                                                |  | (In thousands) |     
|Loans accounted for on a non-accrual basis: (1)                 |  |                |      |   |             |   |      |              |  |   |      |  
|Real estate:                                                    |  |                |      |   |             |   |      |              |  |   |      |  
|Residential                                                     |  | $              | 34   |   |             | $ |     |              |  | $ | 129  |  
|Commercial                                                      |  |                | 325  |   |             |   |     |              |  |   |     |  
|Construction                                                    |  |                |     |   |             |   |     |              |  |   |     |  
|Consumer                                                        |  |                |     |   |             |   | 12   |              |  |   | 32   |  
|Commercial Loan/Lease                                           |  |                | 499  |   |             |   | 486  |              |  |   | 236  |  
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Total                                                           |  | $              | 858  |   |             | $ | 498  |              |  | $ | 397  |  
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Accruing loans which are contractually past due 90 days or more |  | $              |     |   |             | $ |     |              |  | $ |     |  
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Total                                                           |  | $              |     |   |             | $ |     |              |  | $ |     |  
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Total non-performing loans                                      |  | $              | 858  |   |             | $ | 498  |              |  | $ | 397  |  
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Percentage of total loans                                       |  |                | 0.56 | % |             |   | 0.33 | %            |  |   | 0.36 | %
|                                                                |  |                |      |   |             |   |      |              |  |   |      |  
|Other non-performing assets (2)                                 |  | $              | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Other non-performing assets represents property acquired by the Company through foreclosure or repossession. This property is carried at the lower of its fair market value less
estimated selling costs or the principal balance of the related loan, whichever is lower.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At September 30, 2004, non-accrual loans consisted of one residential real estate loan totaling $34,000, two commercial loans totaling $436,000 of which $236,000 is guaranteed by the Small Business Administration, one
owner occupied commercial real estate loan with a balance of $325,000 that has since been brought current and eleven commercial leases totaling $63,000.



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 result in disclosure as non-accrual, 90 days past due or restructured. The Company has an additional
$146,000 loan to the same borrower who has a $200,000 commercial loan on non-accrual. The loan not reported as non-accrual is current and is being paid as agreed. This loan is 75% guaranteed by the Small Business Administration. The Company is
working closely with the borrower and a plan is being worked out to bring the non-accrual loan current. The Company also has a line of credit with a balance of $100,000 to a borrower whose $236,000 loan is listed above as a commercial non-accrual
loan. This line of credit, that became 90 days delinquent and was placed on non-accrual status as of October 31, 2004, is secured with liquid collateral in the Companys possession with a value of approximately $150,000. In the event of
liquidation, the excess collateral on this loan will be applied to the un-guaranteed portion of the SBA term loan



Non-interest Income



The Companys non-interest income consists of deposit fees, service charges, income from bank owned life insurance (BOLI) fees and gains on the sale of loans, securities and repossessed real estate. Total
noninterest income increased by $12,000 or 10.2% to $130,000 for the quarter ended September 30, 2004 from $118,000 for the quarter ended September 30, 2003. The increase in non-interest income is primarily the result of the income from BOLI
purchased in October 2003 which totaled $15,600 for the three months ended September 30, 2004.



Non-interest Expenses



Total
non-interest expenses increased by $472,000 or 41.7% to $1.6 million for the quarter ended September 30, 2004 from $1.1 million for the quarter ended September 30, 2003. The majority of the increase is a result of the acquisition of Parkville in
April 2004. The increase in the costs of regulatory compliance has also contributed to the overall increase in operating expenses.



Income Taxes



Income tax expense was $187,000 (or 35.89% of income before the provision for income taxes) and $210,000 (or 37.23% of income before the provision for income taxes) for the periods ended September 30, 2004 and 2003,
respectively. The reduction in the effective income tax rates is attributable to the tax- free income on BOLI.



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



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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 investing activities during any
given period. At September 30, 2004, the Companys cash on hand, interest-bearing deposits and Federal funds sold totaled $13.9 million. In addition, the Company has approximately $27.9 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 $2.4 million and unused lines of credit of $7.1 million. Certificates of deposit that are scheduled to mature in less than one year at September 30, 2004 totaled $41.1
million. Historically, a high percentage of maturing deposits have remained with the Company.



The Companys primary sources of funds are deposits and proceeds from maturing investment securities, 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, 2004 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 the purchase of property and equipment.



The Companys
primary use of cash in financing activities during the three months ended September 30, 2004 consisted of a $4.4 million decrease in deposits and the payoff of a $1.5 million borrowing.



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, 2004     |       | June 30, 2004
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 2,445 |               | $ | 3,354
|Undisbursed lines of credit         |  |                        | 7,073 |               |   | 7,061
|Financial standby letters of credit |  |                        | 964   |               |   | 964  



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



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Contractual Obligations



The following table sets forth the companys contractual obligations as of September 30, 2004:



|                                   |  |                  |        |              |   |              |  |              |        |  |   |       
|---------------------------------- |  | ---------------- | ------ | ------------ | - | ------------ |  | ------------ | ------ |  | - | ------
|                                   |  | Less than 1 year |        | 1 to 3 years |   | 4 to 5 years |  | Over 5 years
|                                   |  | ( In thousands) 
|Time Deposits                      |  | $                | 41,121 |              | $ | 21,742       |  | $            | 12,440 |  | $ | 3,487 
|Long-term borrowings               |  |                  | 4,250  |              |   | 6,050        |  |              | 4,000  |  |   | 7,100 
|Lease obligations                  |  |                  | 58     |              |   | 36           |  |              | 36     |  |   |      
|                                   |  |                  |        |              |   |              |  |              |        |  |   |       
|Total Contractual Cash Obligations |  | $                | 45,429 |              | $ | 27,828       |  | $            | 16,476 |  | $ | 10,587
|                                   |  |                  |        |              |   |              |  |              |        |  |   |       



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



In addition, there
have been no changes in the Companys internal control over financial reporting (to the extent that elements of internal control over financial reporting are subsumed within disclosure controls and procedures) identified in connection with the
evaluation described in the above paragraph that occurred during the Companys last fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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
|---- | --------------------



None



|Item | 6. Exhibits
|---- | -----------



(a) Exhibits



The following
exhibits are filed herewith:



|              |  |                                                        
|------------- |  | -------------------------------------------------------
|ExhibitNumber |  | Title                                                  
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer
|              | 
|32            |  | Certification pursuant to 18 U.S.C. Section            



The
Company filed the following Current Report on Form 8-K during the first quarter of the fiscal year ending June 30, 2005:



|               |  |                  |  |                           
|-------------- |  | ---------------- |  | --------------------------
|Date of Report |  | Item(s) Reported |  | Financial Statements Filed
|August 2, 2004 |  | 7,12             |  | N/A                       



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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 12, 2004 |  | /s/ Joseph J. Bouffard                                  
|                        |  | Joseph J. Bouffard President and Chief Executive Officer
|                        |  | (Principal Executive Officer)                           
|                        | 
|Date: November 12, 2004 |  | /s/ Michael J. Dee                                      
|                        |  | Michael J. Dee                                          
|                        |  | Chief Financial Officer & Controller                    
|                        |  | (Principal Financial Officer)                           



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