##### Table of Contents





United States Securities and Exchange
Commission

Washington, D.C. 20549





FORM 10 - QSB





(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2007
|- | ----------------------------------------------------------------------------------------------------------------------------------------



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

For the transition period from  to

Commission File Number: 0-28032





PATAPSCO BANCORP, INC.

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







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

Registrants Telephone Number, Including Area Code





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

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

As of February 4, 2008, the issuer had 1,861,883 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 (Unaudited)                                                                                     |  |     
|          |  |                                                                                                                     
|          |  | Consolidated Statements of Financial Condition at December 31, 2007 And June 30, 2007                                |  | 3   
|          |  |                                                                                                                     
|          |  | Consolidated Statements of Operations for the Six and Three-Month Periods Ended December 31, 2007 and 2006           |  | 4   
|          |  |                                                                                                                     
|          |  | Consolidated Statements of Comprehensive Income for the Six and Three-Month Periods Ended December 31, 2007 and 2006 |  | 5   
|          |  |                                                                                                                     
|          |  | Consolidated Statements of Cash Flows for the Six-Month Periods Ended December 31, 2007 and 2006                     |  | 6   
|          |  |                                                                                                                     
|          |  | Notes to Consolidated Financial Statements                                                                           |  | 7   
|          |  |                                                                                                                     
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 11  
|          |  |                                                                                                                     
|Item 3.   |  | Controls and procedures                                                                                              |  | 18  
|          |  |                                                                                                                     
|PART II.  |  | OTHER INFORMATION                                                                                                    |  |     
|          |  |                                                                                                                     
|Item 1.   |  | Legal Proceedings                                                                                                    |  | 19  
|          |  |                                                                                                                     
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                          |  | 19  
|          |  |                                                                                                                     
|Item 3.   |  | Defaults Upon Senior Securities                                                                                      |  | 19  
|          |  |                                                                                                                     
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 19  
|          |  |                                                                                                                     
|Item 5.   |  | Other Information                                                                                                    |  | 19  
|          |  |                                                                                                                     
|Item 6.   |  | Exhibits                                                                                                             |  | 19  
|          | 
|Signature |  | 20                                                                                                                  



2



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##### Table of Contents

Part I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                               |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------ | - | ------- | -
|($ in thousands except for share data)                                                                                         |  | December 31,2007 |         |   | June 30,2007 |  
|Assets                                                                                                                         |  |                  |         |   |              |   |         |  
|Cash:                                                                                                                          |  |                  |         |   |              |   |         |  
|On hand and due from banks                                                                                                     |  | $                | 5,054   |   |              | $ | 4,308   |  
|Interest bearing deposits in other banks                                                                                       |  |                  | 1,165   |   |              |   | 907     |  
|Federal funds sold                                                                                                             |  |                  | 3,023   |   |              |   | 2,255   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Cash & Cash equivalents                                                                                                        |  |                  | 9,242   |   |              |   | 7,470   |  
|Securities, available for sale                                                                                                 |  |                  | 11,694  |   |              |   | 13,147  |  
|Loans receivable, net of allowance for loan losses of $1,478 and $1,110, respectively                                          |  |                  | 225,869 |   |              |   | 220,239 |  
|Investment in securities required by law, at cost                                                                              |  |                  | 2,756   |   |              |   | 2,599   |  
|Property and equipment, net                                                                                                    |  |                  | 4,318   |   |              |   | 4,474   |  
|Goodwill and core deposit intangible                                                                                           |  |                  | 3,277   |   |              |   | 3,303   |  
|Accrued interest and other assets                                                                                              |  |                  | 4,558   |   |              |   | 4,226   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total assets                                                                                                                   |  | $                | 261,714 |   |              | $ | 255,458 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Liabilities and Stockholders Equity                                                                                           |  |                  |         |   |              |   |         |  
|                                                                                                                               |  |                 
|Liabilities:                                                                                                                   |  |                  |         |   |              |   |         |  
|Deposits:                                                                                                                      |  |                  |         |   |              |   |         |  
|Non interest bearing deposits                                                                                                  |  | $                | 11,565  |   |              | $ | 11,753  |  
|Interest bearing deposits                                                                                                      |  |                  | 182,387 |   |              |   | 177,959 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total Deposits                                                                                                                 |  |                  | 193,952 |   |              |   | 189,712 |  
|Accrued expenses and other liabilities                                                                                         |  |                  | 1,778   |   |              |   | 3,030   |  
|Short-term debt                                                                                                                |  |                  | 7,700   |   |              |   |        |  
|Long term debt                                                                                                                 |  |                  | 34,600  |   |              |   | 38,800  |  
|Subordinated debentures                                                                                                        |  |                  | 5,000   |   |              |   | 5,000   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                              |  |                  | 243,030 |   |              |   | 236,542 |  
|                                                                                                                               |  |                 
|Temporary Equity - ESOP shares subject to put option                                                                           |  |                  |        |   |              |   | 935     |  
|                                                                                                                               |  |                 
|Stockholders equity:                                                                                                          |  |                  |         |   |              |   |         |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,855,490 and 1,864,985 shares, respectively |  |                  | 18      |   |              |   | 18      |  
|Additional paid in capital                                                                                                     |  |                  | 7,331   |   |              |   | 6,937   |  
|Obligation under Deferred Compensation                                                                                         |  |                  | 438     |   |              |   | 423     |  
|Deferred Comp contra                                                                                                           |  |                  | (78     | ) |              |   | (78     | )
|Retained income, substantially restricted                                                                                      |  |                  | 11,107  |   |              |   | 10,994  |  
|Accumulated other comprehensive loss, net of taxes                                                                             |  |                  | (132    | ) |              |   | (313    | )
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total stockholders equity - Permanent                                                                                         |  |                  | 18,684  |   |              |   | 17,981  |  
|Total stockholders equity including temporary equity                                                                          |  |                  | 18,684  |   |              |   | 18,916  |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                     |  | $                | 261,714 |   |              | $ | 255,458 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|--------------------------------------------------- | ---- | -------------------------------- | ----- | ---------------------------------- | ---- | ----- | ---- | - | ----- |  | - | -----
|($ in thousands except for per share data)          |      | For Six Months EndedDecember 31, |       | For Three Months EndedDecember 31,
|                                                    | 2007 |                                  | 2006  |                                    | 2007 |       | 2006
|Interest income:                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Loans receivable                                    |      | $                                | 8,337 |                                    | $    | 7,441 |      | $ | 4,204 |  | $ | 3,841
|Securities, including securities required by law    |      |                                  | 355   |                                    |      | 415   |      |   | 174   |  |   | 203  
|Federal funds sold and other investments            |      |                                  | 73    |                                    |      | 68    |      |   | 47    |  |   | 42   
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Total interest income                               |      |                                  | 8,765 |                                    |      | 7,924 |      |   | 4,425 |  |   | 4,086
|Interest expense:                                   |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Deposits                                            |      |                                  | 3,203 |                                    |      | 2,486 |      |   | 1,627 |  |   | 1,345
|Short-term debt                                     |      |                                  | 166   |                                    |      | 36    |      |   | 101   |  |   | 2    
|Long-term debt                                      |      |                                  | 1,025 |                                    |      | 980   |      |   | 511   |  |   | 521  
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Total interest expense                              |      |                                  | 4,394 |                                    |      | 3,502 |      |   | 2,239 |  |   | 1,868
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Net interest income                                 |      |                                  | 4,371 |                                    |      | 4,422 |      |   | 2,186 |  |   | 2,218
|Provision for loan losses                           |      |                                  | 600   |                                    |      | 110   |      |   | 450   |  |   | 70   
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Net interest income after provision for loan losses |      |                                  | 3,771 |                                    |      | 4,312 |      |   | 1,736 |  |   | 2,148
|Non-interest income:                                |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Fees and service charges                            |      |                                  | 369   |                                    |      | 351   |      |   | 186   |  |   | 189  
|Other                                               |      |                                  | 46    |                                    |      | 54    |      |   | 22    |  |   | 29   
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Total non-interest income                           |      |                                  | 415   |                                    |      | 405   |      |   | 208   |  |   | 218  
|Non-interest expenses:                              |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Compensation and employee benefits                  |      |                                  | 2,062 |                                    |      | 2,239 |      |   | 1,018 |  |   | 1,096
|Professional fees                                   |      |                                  | 330   |                                    |      | 130   |      |   | 167   |  |   | 72   
|Equipment expense                                   |      |                                  | 165   |                                    |      | 150   |      |   | 78    |  |   | 82   
|Net Occupancy expense                               |      |                                  | 278   |                                    |      | 277   |      |   | 134   |  |   | 141  
|Advertising                                         |      |                                  | 26    |                                    |      | 46    |      |   | 6     |  |   | 21   
|Data processing                                     |      |                                  | 144   |                                    |      | 153   |      |   | 70    |  |   | 80   
|Amortization of core deposit intangible             |      |                                  | 26    |                                    |      | 26    |      |   | 13    |  |   | 13   
|Telephone, postage & delivery                       |      |                                  | 123   |                                    |      | 126   |      |   | 56    |  |   | 65   
|Other                                               |      |                                  | 390   |                                    |      | 428   |      |   | 202   |  |   | 221  
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Total non-interest expense                          |      |                                  | 3,544 |                                    |      | 3,575 |      |   | 1,744 |  |   | 1,791
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Income before provision for income taxes            |      |                                  | 642   |                                    |      | 1,142 |      |   | 200   |  |   | 575  
|Provision for income taxes                          |      |                                  | 399   |                                    |      | 427   |      |   | 136   |  |   | 216  
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Net Income                                          |      | $                                | 243   |                                    | $    | 715   |      | $ | 64    |  | $ | 359  
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Basic earnings per share                            |      | $                                | 0.13  |                                    | $    | 0.38  |      | $ | 0.03  |  | $ | 0.19 
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Diluted earnings per share                          |      | $                                | 0.13  |                                    | $    | 0.37  |      | $ | 0.03  |  | $ | 0.19 
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      
|Cash dividends declared per common share            |      | $                                | 0.07  |                                    | $    | 0.133 |      | $ | 0.07  |  | $ | 0.07 
|                                                    |      |                                  |       |                                    |      |       |      |   |       |  |   |      

See accompanying notes to financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





|                                                                                                                      |      |                                  |      |                                    |      |     |      |   |     |  |   |    
|--------------------------------------------------------------------------------------------------------------------- | ---- | -------------------------------- | ---- | ---------------------------------- | ---- | --- | ---- | - | --- |  | - | ---
|($ in thousands)                                                                                                      |      | For Six Months EndedDecember 31, |      | For Three Months EndedDecember 31,
|                                                                                                                      | 2007 |                                  | 2006 |                                    | 2007 |     | 2006
|Net income                                                                                                            |      | $                                | 243  |                                    | $    | 715 |      | $ | 64  |  | $ | 359
|Other comprehensive income, net of tax:                                                                               |      |                                  |      |                                    |      |     |      |   |     |  |   |    
|Unrealized net holding losses on securities available-for-sale net of taxes of $114, $120, $43, and $31, respectively |      |                                  | 181  |                                    |      | 191 |      |   | 69  |  |   | 49 
|                                                                                                                      |      |                                  |      |                                    |      |     |      |   |     |  |   |    
|Comprehensive income                                                                                                  |      | $                                | 424  |                                    | $    | 906 |      | $ | 133 |  | $ | 408

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                            |  |                           |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                            |  | For the Six Months Ended, |        
|($ in thousands)                                                                            |  | December 31,2007          |         |   | December 31,2006 |  
|Cash flows from operating activities:                                                       |  |                           |         |   |                  |   |         |  
|Net Income                                                                                  |  | $                         | 243     |   |                  | $ | 715     |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                           |         |   |                  |   |         |  
|Amortization of premiums and discounts, net                                                 |  |                           | 21      |   |                  |   | 14      |  
|Amortization of deferred loan origination fees                                              |  |                           | (19     | ) |                  |   | (14     | )
|Provision for loan losses                                                                   |  |                           | 600     |   |                  |   | 110     |  
|Depreciation                                                                                |  |                           | 181     |   |                  |   | 128     |  
|Amortization of core deposit intangible                                                     |  |                           | 26      |   |                  |   | 26      |  
|Increase in cash surrender value of life insurance                                          |  |                           | (37     | ) |                  |   | (33     | )
|Increase in accrued interest and other assets                                               |  |                           | (393    | ) |                  |   | (266    | )
|Non-cash compensation under stock-based benefit plan                                        |  |                           | 42      |   |                  |   | 65      |  
|(Decrease) increase in accrued expenses and other liabilities                               |  |                           | (161    | ) |                  |   | 354     |  
|                                                                                            |  |                           |         |   |                  |   |         |  
|Net cash provided by operations                                                             |  |                           | 503     |   |                  |   | 1,099   |  
|                                                                                            |  |                          
|Cash flows from investing activities:                                                       |  |                           |         |   |                  |   |         |  
|Loan principal disbursements, net of repayments                                             |  |                           | (5,766  | ) |                  |   | (21,218 | )
|Proceeds from maturing time deposit investments                                             |  |                           |        |   |                  |   | 600     |  
|Proceeds from maturity of investments and principal payments on mortgage backed securities  |  |                           | 1,734   |   |                  |   | 1,757   |  
|Purchase of securities available for sale                                                   |  |                           |        |   |                  |   | (2      | )
|Purchase of consumer loans                                                                  |  |                           | (461    | ) |                  |   | (1,333  | )
|Purchase of investments required by law                                                     |  |                           | (157    | ) |                  |   | (123    | )
|Purchase of premises and equipment                                                          |  |                           | (25     | ) |                  |   | (1,631  | )
|                                                                                            |  |                           |         |   |                  |   |         |  
|Net cash used by investing activities                                                       |  |                           | (4,675  | ) |                  |   | (21,950 | )
|                                                                                            |  |                          
|Cash flows from financing activities:                                                       |  |                           |         |   |                  |   |         |  
|Net increase in deposits                                                                    |  |                           | 4,249   |   |                  |   | 15,781  |  
|Net increase in short-term borrowings                                                       |  |                           | 7,700   |   |                  |   | 112     |  
|Proceeds from long-term borrowings                                                          |  |                           | 13,500  |   |                  |   | 5,000   |  
|Payment on long-term borrowings                                                             |  |                           | (17,700 | ) |                  |   | (2,250  | )
|Decrease in advance payments by borrowers                                                   |  |                           | (1,090  | ) |                  |   | (1,071  | )
|Cash received from exercise of stock options                                                |  |                           | 75      |   |                  |   | 67      |  
|Repurchase of common shares due to ESOP put options exercised                               |  |                           | (659    | ) |                  |   |        |  
|Dividends paid                                                                              |  |                           | (131    | ) |                  |   | (230    | )
|                                                                                            |  |                           |         |   |                  |   |         |  
|Net cash provided by financing activities                                                   |  |                           | 5,944   |   |                  |   | 17,409  |  
|                                                                                            |  |                           |         |   |                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                        |  |                           | 1,772   |   |                  |   | (3,442  | )
|Cash and cash equivalents at beginning of period                                            |  |                           | 7,470   |   |                  |   | 8,188   |  
|                                                                                            |  |                           |         |   |                  |   |         |  
|Cash and cash equivalents at end of period                                                  |  | $                         | 9,242   |   |                  | $ | 4,746   |  
|                                                                                            |  |                           |         |   |                  |   |         |  
|Interest paid on deposits and borrowed funds                                                |  | $                         | 4,149   |   |                  | $ | 3,487   |  
|Income taxes paid                                                                           |  |                           | 555     |   |                  |   | 536     |  
|                                                                                            |  |                           |         |   |                  |   |         |  

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1: Principles of Consolidation

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

Note 2: The Patapsco Bank

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

Note 3: Basis of Presentation

The accompanying 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 and six months ended December 31 2007 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 Companys Annual report on Form 10-KSB for the year ended June 30, 2007.

Note 4: Cash and Cash Equivalents

Cash and cash equivalents include short-term investments, with an original maturity of 90 days or less, which consist of federal funds sold and interest
bearing deposits in other financial institutions.

Note 5: Regulatory Capital Requirements

At December 31, 2007, the Bank met each of the three minimum regulatory capital requirements. The following table summarizes the Banks regulatory capital position at December 31, 2007.



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 20,827 |   | 10.21                        | % |        | $                                                       | 16,318 |  | 8.00 | %      |  | $ | 20,398 |  | 10.00 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 19,348 |   | 9.49                         | % |        | $                                                       | 8,159  |  | 4.00 | %      |  | $ | 12,239 |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 19,348 |   | 7.57                         | % |        | $                                                       | 10,228 |  | 4.00 | %      |  | $ | 12,785 |  | 5.00  | %



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The following table summarizes the Banks regulatory capital position at June 30, 2007



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 20,091 |   | 10.26                        | % |        | $                                                       | 15,665 |  | 8.00 | %      |  | $ | 19,582 |  | 10.00 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 18,981 |   | 9.69                         | % |        | $                                                       | 7,833  |  | 4.00 | %      |  | $ | 11,749 |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 18,981 |   | 7.57                         | % |        | $                                                       | 10,030 |  | 4.00 | %      |  | $ | 12,537 |  | 5.00  | %

Note 6: Earnings Per Share

The following table presents a summary of per share data and amounts for the periods indicated.



|                                     |  |                              |       |                                |   |       |  |      |       |  |   |      
|------------------------------------ |  | ---------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                     |  | Six Months EndedDecember 31, |       | Three Months EndedDecember 31,
|(in thousands except for share data) |  | 2007                         |       | 2006                           |   | 2007  |  | 2006
|Net Income as Reported               |  | $                            | 243   |                                | $ | 715   |  | $    | 64    |  | $ | 359  
|Basic EPS shares                     |  |                              | 1,913 |                                |   | 1,895 |  |      | 1,896 |  |   | 1,886
|Basic EPS                            |  | $                            | 0.13  |                                | $ | 0.38  |  | $    | 0.03  |  | $ | 0.19 
|Dilutive shares                      |  |                              | 23    |                                |   | 46    |  |      | 19    |  |   | 48   
|Diluted EPS shares                   |  |                              | 1,936 |                                |   | 1,941 |  |      | 1,915 |  |   | 1,934
|Diluted EPS                          |  | $                            | 0.13  |                                | $ | 0.37  |  | $    | 0.03  |  | $ | 0.19 

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: Guarantees

The Company does not issue any guarantees
that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company,
generally, holds collateral and/or personal guarantees supporting these commitments. The Company had $1,739,000 of standby letters of credit as of December 31, 2007 and $1,749,000 outstanding as of June 30, 2007. 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
December 31, 2007 and June 30, 2007 for guarantees under standby letters of credit issued is not material.



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Note 9: Share-Based Compensation

A summary of share option activity for the six month period ended December 31, 2007 follows:



|                             |  |        |  |                              |      |                                                  |      |                                |   |    
|---------------------------- |  | ------ |  | ---------------------------- | ---- | ------------------------------------------------ | ---- | ------------------------------ | - | ---
|                             |  | Shares |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm in Years |      | AggregateIntrinsicValue (000s)
|Outstanding at June 30, 2007 |  | 47,872 |  | $                            | 6.02 |                                                  | 3.92 |                                | $ | 801
|Granted                      |  |       |  |                              |     |                                                  |     |                                |   |    
|Exercised                    |  | 20,647 |  |                              | 5.68 |                                                  |     |                                |   |    
|Forfeited or expired         |  |       |  |                              |     |                                                  |     |                                |   |    
|                             |  |        |  |                              |      |                                                  |      |                                |   |    
|Balance at December 31, 2007 |  | 27,225 |  | $                            | 6.29 |                                                  | 3.60 |                                | $ | 203

A summary of the activity in the Companys non-vested shares as of December 31, 2007 is presented below:



|                                |  |              |  |                                      |      
|------------------------------- |  | ------------ |  | ------------------------------------ | -----
|                                |  | CommonShares |  | Weighted AverageGrant-DateFair Value
|Non-Vested as of June 30, 2007  |  | 14,453       |  | $                                    | 13.71
|Awards Granted                  |  |             |  |                                      |     
|Vested                          |  |             |  |                                      |     
|Forfeited                       |  | 600          |  |                                      |     
|                                |  |              |  |                                      |      
|Non-vested at December 31, 2007 |  | 13,853       |  | $                                    | 13.71

As of December 31, 2007 there was $116,000 of total unrecognized compensation costs related to non-vested
share-based compensation. The cost is expected to be recognized over a weighted average period of 20 months. At grant date, vesting of the shares was cliff vesting at the end of either a two or three year period. Compensation expense
totaling $35,000, $18,000, $13,000 and $13,000 in the six and three month periods ending December 31, 2007 and 2006, respectively, has been recognized as a result of these awards.

Note 10: Termination of Merger Agreement

On January 3, 2008, Patapsco Bancorp, Inc. and Bradford Bancorp, Inc.
announced that they have mutually terminated the Agreement and Plan of Merger that the parties previously executed on March 19, 2007. Pursuant to the termination agreement, Bradford Mid-Tier Company has agreed to pay Patapsco Bancorp a
termination fee of $2.0 million payable in the form of a promissory note. This $2.0 million will be recognized as income in the quarter ended March 31, 2008. The promissory note matures on December 31, 2008 and provides for interest equal
to the prime rate plus one percent. On August 1, 2008, this rate will increase to the prime rate plus three percent. The termination agreement also provides for a mutual release of claims in connection with the merger.



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Note 11: Recent Accounting Pronouncements:

FASB Statement No. 141(R)

FASB statement No. 141 (R) Business Combinations was issued in
December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. The guidance will become effective as of the beginning of a companys fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement will have an
immaterial impact on the Companys financial statements in future periods.

FASB Statement No. 160

FASB statement No. 160 Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 was issued in December of 2007.
This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a companys fiscal year
beginning after December 15, 2008. The Company believes that this new pronouncement will have an immaterial impact on the Companys financial statements in future periods.

SAB 110

Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14,
Share-Based Payment, of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the simplified method in developing an estimate of expected term of
plain vanilla share options and allows usage of the simplified method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a
reasonable estimate to continue use of the simplified method for estimating the expected term of plain vanilla share option grants after December 31, 2007. SAB 110 is effective January 1, 2008.

SAB 109

Staff Accounting Bulletin No. 109 (SAB 109), Written
Loan Commitments Recorded at Fair Value Through Earnings expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the
staffs views consistent with current authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, Application of Accounting Principles to Loan Commitments. Specifically, the SAB revises the SEC
staffs views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The SAB retains the staffs views on incorporating expected net future cash
flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments
issued or modified in fiscal quarters beginning after December 15, 2007. The Company does not expect SAB 109 to have a material impact on its financial statements.



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FSP 157-b

In December 2007,
the FASB issued proposed FASB Staff Position (FSP) 157-b, Effective Date of FASB Statement No. 157, that would permit a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and
non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entitys financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is
not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Company is currently evaluating the
impact, if any, that the adoption of FSP 157-b will have on the Companys operating income or net earnings.

EITF 06-11

In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards (EITF 06-11). EITF 06-11 states that an entity should recognize a realized tax benefit associated with dividends on nonvested equity shares, nonvested equity share units and outstanding equity share options
charged to retained earnings as an increase in additional paid in capital. The amount recognized in additional paid in capital should be included in the pool of excess tax benefits available to absorb potential future tax deficiencies on
share-based payment awards. EITF 06-11 should be applied prospectively to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The
Company expects that EITF 06-11 will not have an impact on its consolidated financial statements.



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

General

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

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

Forward-Looking Statements

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



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statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Companys
financial performance and could cause the Companys actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

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

The allowance for loan losses
(allowance) represents an amount, that in the judgment of management, will be adequate to absorb probable losses on outstanding loans and leases that may become uncollectible. The allowance represents an estimate made based upon two
principles of accounting: (1) Statement of Financial Accounting 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 terms of the loan. The adequacy of the
allowance is determined through careful evaluation of the loan portfolio. This determination is inherently subjective and requires significant estimates, including estimated losses on pools of homogeneous loans based on historical loss experience
and consideration of the current economic environment that may be subject to change. Loans and leases deemed uncollectible are charged against the allowance and recoveries of previously charged-off amounts are credited to it. The level of the
allowance is adjusted through the provision for loan losses that is recorded as a current period expense.

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

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

The Companys assessment of potential impairment associated
with goodwill and other intangible assets as well as other than temporary impairment of investment securities are also critical accounting policies.

Comparison of Financial Condition at December 31, 2007 and June 30, 2007

The Companys assets increased by $6.3 million or
2.5% to $261.7 million at December 31, 2007 compared to $255.4 million at June 30, 2007.

Total loans grew by $5.6 million or 2.6% to $225.8
million at December 31, 2007 from $220.2 million at June 30, 2007. The growth in loans includes $461,000 in purchases of consumer loans.

Interest-bearing deposits increased $4.4 million or 2.5% to $182.4 million at December 31, 2007 from $178.0 million at June 30, 2007. Non-interest bearing deposits decreased $0.2 million or 1.60% to $11.6 million at
December 31 2007 from $11.8 million at June 30, 2007. During the six-month period ended December 31, 2007, the Company paid down $3.5 million in brokered deposits and replaced



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them with short-term borrowings from the Federal Home Loan Bank of Atlanta and retail interest-bearing deposits. The decrease in stockholders equity
resulted primarily from holders of shares in the now terminated employee stock ownership plan exercising their options to sell the shares back to Patapsco Bancorp

Comparison of Operating Results for the Quarter and Six Months Ended December 31, 2007 and December 31, 2006

Net Income

The Companys net income decreased by $295,000 or 82.2% to $64,000 for the quarter ended December 31, 2007 from $359,000 for the quarter ended
December 31, 2006. The Companys net income decreased by $472,000 or 66.0% to $243,000 for the six months ended December 31, 2007 from $715,000 for the six months ended December 31, 2006. The decrease in the Companys net
income during the comparable quarter is due the higher provision for loan losses, non-tax deductable merger expenses of $119,000 and slightly lower net interest income. The decrease in the Companys net income in the comparable six month
periods results from the higher provision for loan losses, non-tax deductable merger expenses of $228,000 and slightly lower net interest income.

Interest Income

Total interest income increased by $339,000 or 8.3% to $4.4 million for the quarter ended December 31, 2007 when
compared to $4.1 million in the quarter ended December 31, 2006 due to both higher loan average balances and rates offsetting lower interest income from the security portfolio.

Total interest income increased by $0.8 million or 10.6% to $8.7 million for the six months ended December 31, 2007 when compared to $7.9 million in the six months ended December 31, 2006 due primarily to
higher average loan balances and rates offsetting lower interest income from the security portfolio.

Interest income on loans receivable increased by
$363,000 or 9.5% to $4.2 million for the quarter ended December 31, 2007 from $3.8 million for the quarter ended December 31, 2006. Interest income on loans receivable increased by $0.9 million or 12.0% to $8.3 million for the six months
ended December 31, 2007 from $7.4 million for the six months ended December 31, 2006. The increase in interest income on loans receivable during both the three and six-month periods is due to both higher average balances on loans
receivable and higher yields earned on loans receivable, with the majority of the increases attributable to higher average balances outstanding.

Interest
income on investment and mortgage-backed securities decreased by $29,000 to $174,000 and by $60,000 to $355,000 in the three and six month periods ended December 31, 2007, respectively due to lower average balances outstanding and lower yields.
The Company has redirected pay-downs in the mortgage-backed securities portfolio and maturities in the investment portfolio into the loan portfolio.

Interest income on federal funds sold and other investments increased by $5,000 or 11.9% to $47,000 for the quarter ended December 31, 2007 from $42,000 for the quarter ended December 31, 2006. Interest income on federal funds
sold and other investments increased by $5,000 or 7.5% to $73,000 for the six months ended December 31, 2007 from $68,000 for the six months ended December 31, 2006. The increase in the three month and six month periods is due to higher
average balances offsetting lower rates earned on short-term investments .

Interest Expense

Total interest expense increased by $371,000 or 19.9% to $2.2 million for the quarter ended December 31, 2007 from $1.9 million for the quarter ended
December 31, 2006. Total interest expense increased $0.9 million or 25.4% to $4.4 million for the six-month period ended December 31, 2007 from $3.5 million for the six-month period ended December 31, 2006. The increase in interest
expense during the comparable three and six-month periods is due to both higher rates paid on interest bearing liabilities and higher average balances outstanding.

Interest expense on deposits increased by $282,000 or 21.0% to $1.6 million for the quarter ended December 31, 2007 from $1.3 million for the quarter ended December 31, 2006. Interest expense on deposits increased by $717,000 or
28.8% to $3.2 million from $2.5 million for the six months ended December 31, 2006. The increase in interest expense on deposits in both the quarterly and year to date periods is due primarily to higher rates paid on deposit accounts although
the higher average balance of interest-bearing deposits outstanding also contributed to the increase.



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Interest expense on short-term borrowings increased to $101,000 in the quarter ended December 31, 2007 from $2,000
in the quarter ended December 31, 2006 due to higher average balances outstanding. Interest expense on short-term borrowings increased to $166,000 in the six-months ended December 31, 2007 from $36,000 in the six-months ended
December 31, 2006 due to higher average balances outstanding.

Interest expense on long-term borrowings decreased by $10,000 or 1.9% to $511,000 for
the quarter ended December 31, 2007 from $521,000 for the quarter ended December 31, 2006. Interest expense on long-term borrowings increased by $45,000 or 4.6% to $1.0 million from $980,000 for the six months ended December 31, 2006.
The decrease in interest expense in the quarterly period is a result of lower average balances offsetting higher rates paid. The increase in the year-to-date period is a result of higher rates paid offsetting lower average balances.

Net Interest Income

The Companys net interest income before
the provision for loan losses decreased by $32,000 or 1.4% to $2.2 million for the quarter ended December 31, 2007 from $2.2 million for the quarter ended December 31, 2006. Net interest income before the provision for loan losses
decreased by $51,000 or 1.2% to $4.4 million for the six months ended December 31, 2007 from $4.4 million during the six months ended December 31, 2006. The decreases in net interest income before the provision for loan losses during the
comparable three and six-month periods were primarily due to the higher cost of interest bearing liabilities. As shown in the tables below, the Companys net interest margin has shrunk considerably in both the six and three month periods as the
cost of funding has increased substantially more than the yield earned on interest bearing assets.

Average Balance Sheet

The following tables set forth certain information relating to the Companys average balance sheets and reflect the average yield on assets and cost of liabilities
for the periods indicated and the average yields earned and rates paid. Dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods presented derives these yield and costs. Average balances
are daily balances.

The table presents information for the periods indicated with respect to the net interest margin, which is net interest income divided
by the average balance of interest-earning assets. Also presented is the difference between the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities, or interest rate spread, which is also used to
measure the earnings power of financial institutions.



|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Six Months Ended December 31, |        
|                                                                                 |  | 2007                          |         |          | 2006 |               
|                                                                                 |  | AverageBalance                |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)        |        
|Interest-earning assets:                                                         |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable (2)                                                             |  | $                             | 223,572 |          | $    | 8,337          |  | 7.46   | %              |  | $        | 201,867 |                | $ | 7,441 |  | 7.37   | %
|Investment & Mortgage-backed securities                                          |  |                               | 14,937  |          |      | 355            |  | 4.75   | %              |  |          | 18,610  |                |   | 415   |  | 4.46   | %
|Federal funds sold and other interest-earning assets                             |  |                               | 3,142   |          |      | 73             |  | 4.71   | %              |  |          | 2,829   |                |   | 68    |  | 4.82   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                               | 241,651 |          |      | 8,765          |  | 7.25   | %              |  |          | 223,306 |                |   | 7,924 |  | 7.10   | %
|Non-interest-earning assets                                                      |  |                               | 15,494  |          |      |                |  |        |                |  |          | 13,883  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                             | 257,145 |          |      |                |  |        |                |  | $        | 237,189 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |               
|Interest-bearing liabilities:                                                    |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest bearing deposits                                                        |  | $                             | 179,344 |          | $    | 3,203          |  | 3.57   | %              |  | $        | 162,036 |                | $ | 2,486 |  | 3.07   | %
|Short-term borrowings                                                            |  |                               | 6,225   |          |      | 166            |  | 5.33   | %              |  |          | 1,279   |                |   | 36    |  | 5.56   | %
|Long-term borrowings                                                             |  |                               | 39,656  |          |      | 1,025          |  | 5.17   | %              |  |          | 40,482  |                |   | 980   |  | 4.84   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                               | 225,225 |          |      | 4,394          |  | 3.90   | %              |  |          | 203,797 |                |   | 3,502 |  | 3.44   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                               | 13,193  |          |      |                |  |        |                |  |          | 14,630  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                               | 238,418 |          |      |                |  |        |                |  |          | 218,427 |                |   |       |  |        |  
|Stockholders' equity                                                             |  |                               | 18,727  |          |      |                |  |        |                |  |          | 18,762  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                             | 257,145 |          |      |                |  |        |                |  | $        | 237,189 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest income                                                              |  |                               |         |          | $    | 4,371          |  |        |                |  |          |         |                | $ | 4,422 |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                               |         |          |      |                |  | 3.35   | %              |  |          |         |                |   |       |  | 3.66   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest margin                                                              |  |                               |         |          |      |                |  | 3.62   | %              |  |          |         |                |   |       |  | 3.96   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                               |         |          |      |                |  | 107.29 | %              |  |          |         |                |   |       |  | 109.57 | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  



|(1) | Yields and rates are annualized.
|--- | --------------------------------

|(2) | Includes nonaccrual loans.
|--- | --------------------------



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|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three Months Ended December 31, |        
|                                                                                 |  | 2007                            |         |          | 2006 |               
|                                                                                 |  | AverageBalance                  |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)          |        
|Interest-earning assets:                                                         |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable (2)                                                             |  | $                               | 226,087 |          | $    | 4,204          |  | 7.44   | %              |  | $        | 208,228 |                | $ | 3,841 |  | 7.38   | %
|Investment and mortgage-backed securities                                        |  |                                 | 14,695  |          |      | 174            |  | 4.73   | %              |  |          | 18,161  |                |   | 203   |  | 4.45   | %
|Federal funds sold and other interest-earning assets                             |  |                                 | 4,094   |          |      | 47             |  | 4.64   | %              |  |          | 3,381   |                |   | 42    |  | 5.11   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                                 | 244,876 |          |      | 4,425          |  | 7.23   | %              |  |          | 229,770 |                |   | 4,086 |  | 7.11   | %
|Non-interest-earning assets                                                      |  |                                 | 14,957  |          |      |                |  |        |                |  |          | 14,092  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                               | 259,833 |          |      |                |  |        |                |  | $        | 243,862 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest bearing deposits                                                        |  | $                               | 180,953 |          | $    | 1,627          |  | 3.60   | %              |  | $        | 167,335 |                | $ | 1,345 |  | 3.21   | %
|Short-term borrowings                                                            |  |                                 | 7,700   |          |      | 101            |  | 5.26   | %              |  |          | 137     |                |   | 2     |  | 4.96   | %
|Long-term borrowings                                                             |  |                                 | 39,600  |          |      | 511            |  | 5.17   | %              |  |          | 42,800  |                |   | 521   |  | 4.88   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                 | 228,253 |          |      | 2,239          |  | 3.92   | %              |  |          | 210,272 |                |   | 1,868 |  | 3.55   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                                 | 12,887  |          |      |                |  |        |                |  |          | 14,607  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                                 | 241,140 |          |      |                |  |        |                |  |          | 224,879 |                |   |       |  |        |  
|Stockholders' equity                                                             |  |                                 | 18,693  |          |      |                |  |        |                |  |          | 18,983  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                               | 259,833 |          |      |                |  |        |                |  | $        | 243,862 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest Income                                                              |  |                                 |         |          | $    | 2,186          |  |        |                |  |          |         |                | $ | 2,218 |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                                 |         |          |      |                |  | 3.30   | %              |  |          |         |                |   |       |  | 3.56   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest margin                                                              |  |                                 |         |          |      |                |  | 3.57   | %              |  |          |         |                |   |       |  | 3.86   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                 |         |          |      |                |  | 107.28 | %              |  |          |         |                |   |       |  | 109.27 | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  



|(1) | Yields and rates are annualized.
|--- | --------------------------------

|(2) | Includes nonaccrual loans.
|--- | --------------------------

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
Companys provision for loan losses in the quarter ended December 31, 2007 increased $380,000 or 542.9% to $450,000 from $70,000 in the quarter ended December 31, 2006. The provision for loan losses increased by $490,000 or 445.5% to
$600,000 in the six-months ended December 31, 2007 from $110,000 in the six-months ended December 31, 2006. The Companys allowance for loan losses has increased as a percentage of total loans outstanding to 0.65% at December 31,
2007 from 0.502% at June 30, 2007. The increase in the allowance for loan losses is primarily due to the increase in non-accrual loans and the deterioration of the national and local economies. The Companys allowance for loan losses as a
percentage of non-performing loans was 62.91% at December 31, 2007 as compared to 230.43% at June 30, 2007.



15



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##### Table of Contents

Activity in the allowance for loan losses is as follows (dollars in thousands):



|                                               |  |                              |       |                                |   |       |  |      |       |  |   |      
|---------------------------------------------- |  | ---------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                               |  | Six Months EndedDecember 31, |       | Three Months EndedDecember 31,
|                                               |  | 2007                         |       | 2006                           |   | 2007  |  | 2006
|Allowance for loan losses, Beginning of period |  | $                            | 1,110 |                                | $ | 1,000 |  | $    | 1,153 |  | $ | 1,007
|                                               |  |                              |       |                               
|Provision for loan losses                      |  |                              | 600   |                                |   | 110   |  |      | 450   |  |   | 70   
|                                               |  |                              |       |                               
|Loans charged-off:                             |  |                              |       |                                |   |       |  |      |       |  |   |      
|Consumer                                       |  |                              | 125   |                                |   | 106   |  |      | 76    |  |   | 77   
|Real Estate                                    |  |                              |      |                                |   |      |  |      |      |  |   |     
|Commercial loan                                |  |                              | 16    |                                |   |      |  |      | 16    |  |   |     
|Commercial lease                               |  |                              | 121   |                                |   | 115   |  |      | 43    |  |   | 38   
|                                               |  |                              |       |                                |   |       |  |      |       |  |   |      
|Total charge-offs                              |  |                              | 262   |                                |   | 221   |  |      | 135   |  |   | 115  
|                                               |  |                              |       |                               
|Recoveries:                                    |  |                              |       |                                |   |       |  |      |       |  |   |      
|Consumer                                       |  |                              | 20    |                                |   | 50    |  |      | 8     |  |   | 33   
|Real Estate                                    |  |                              |      |                                |   |      |  |      |      |  |   |     
|Commercial loan                                |  |                              | 3     |                                |   | 24    |  |      | 1     |  |   | 2    
|Commercial lease                               |  |                              | 7     |                                |   | 38    |  |      | 1     |  |   | 4    
|                                               |  |                              |       |                                |   |       |  |      |       |  |   |      
|Total recoveries                               |  |                              | 30    |                                |   | 112   |  |      | 10    |  |   | 39   
|                                               |  |                              |       |                                |   |       |  |      |       |  |   |      
|Allowance for loan losses End of period        |  | $                            | 1,478 |                                | $ | 1,001 |  | $    | 1,478 |  | $ | 1,001
|                                               |  |                              |       |                                |   |       |  |      |       |  |   |      

The following table sets forth information with respect to the Companys non-performing assets at the dates
indicated (dollars in thousands):



|                                                                |  |                     |       |   |                 |   |      |  
|--------------------------------------------------------------- |  | ------------------- | ----- | - | --------------- | - | ---- | -
|                                                                |  | At December 31,2007 |       |   | At June 30,2007 |  
|Loans accounted for on a non-accrual basis: (1)                 |  |                     |       |   |                 |   |      |  
|Real estate:                                                    |  |                     |       |   |                 |   |      |  
|Residential                                                     |  | $                   | 168   |   |                 | $ | 168  |  
|Commercial                                                      |  |                     |      |   |                 |   |     |  
|Construction                                                    |  |                     | 1,827 |   |                 |   |     |  
|Consumer                                                        |  |                     | 98    |   |                 |   | 14   |  
|Commercial Loan/Lease                                           |  |                     | 242   |   |                 |   | 300  |  
|                                                                |  |                     |       |   |                 |   |      |  
|Total                                                           |  | $                   | 2,335 |   |                 | $ | 482  |  
|                                                                |  |                     |       |   |                 |   |      |  
|Accruing loans which are contractually past due 90 days or more |  | $                   |      |   |                 | $ |     |  
|                                                                |  |                     |       |   |                 |   |      |  
|Total non-performing loans                                      |  | $                   | 2,335 |   |                 | $ | 482  |  
|                                                                |  |                     |       |   |                 |   |      |  
|Percentage of total loans                                       |  |                     | 1.03  | % |                 |   | 0.22 | %
|                                                                |  |                     |       |   |                 |   |      |  
|Other non-performing assets (2)                                 |  | $                   |      |   |                 | $ |     |  



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

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

At December 31, 2007, non-accrual loans consist of one land acquisition and development loan with a balance of $1.8 million, one residential mortgage with a balance
of $168,000, two commercial loans totaling $230,000, one commercial lease with a balance of $11,500, one home equity loan with a balance of $83,000 and three consumer loans with balances of $15,000. A new appraisal has been ordered on the
acquisition and development loan. The



16



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##### Table of Contents

property securing the residential mortgage has been sold at foreclosure auction at a price sufficient for a full recovery and the funds are in the hands of
the bankruptcy trustee. One of the commercial loans has been written down to the SBA guaranteed balance of $91,000. The other commercial loan with a balance of $139,000 has an 85% SBA guarantee. The Bank is in negotiations with the borrower over a
potential restructure. The home equity loan has a balance of $83,000. The property securing this loan was recently appraised and as of the date of the appraisal, there is sufficient value for the Bank to recover the balance due.

Non-interest Income

The Companys non-interest income consists
of deposit fees, service charges, late fees and gains and losses on sales of securities, loans and repossessed real estate. Total non-interest income decreased by $10,000 or 4.6% to $208,000 for the quarter ended December 31, 2007 from $218,000
for the quarter ended December 31, 2006. Total non-interest income increased by $10,000 or 2.5% to $415,000 during the six months ended December 31, 2007 from $405,000 during the six months ended December 31, 2006.

Non-interest Expenses

Total non-interest expenses decreased by
$47,000 or 2.6% to $1.7 million for the quarter ended December 31, 2007 from $1.8 million for the quarter ended December 31, 2006. Total non-interest expense decreased by $31,000 or 0.9% to $3.5 million during the six months ended
December 31, 2007 from $3.5 million during the six months ended December 31, 2006. The primary reasons for the decrease in the three month period is lower compensation and benefit costs due to open positions, lower other expenses and
advertising costs offsetting higher professional fees. In the quarter, merger-related professional fees totaled $119,000. The decrease in non-interest expense in the comparable six-month period is due to lower compensation and benefits expenses due
to open positions and reduced incentive compensation accruals as well as lower other and advertising expenses offsetting higher professional fees. Merger-related professional fees in the six-months ended December 31, 2007 totaled $228,000.

Income Taxes

Income tax expense was $136,000 (or
68.0% of income before the provision for income taxes) and $216,000 (or 37.6% of income before the provision for income taxes) for the three month periods ended December 31, 2007 and 2006, respectively. Income tax expense was $399,000 (or 62.2%
of income before the provision for income taxes) and $427,000 (or 37.4% of income before the provision for income taxes) for the six month periods ended December 31, 2007 and 2006, respectively. The higher effective tax rates in both the
quarterly and year-to-date periods are due to the non-deductibility of the merger-related expenses. Given that the Company terminated the merger agreement in January 2008, the tax accruals will be adjusted to reflect a deduction for the
merger-related expenses in the period ending March 31, 2008.

Liquidity and Capital Resources

An important component of the Companys asset/liability structure is the level of liquidity available to meet the needs of customers and creditors. The
Companys Asset/Liability Management Committee has established general guidelines for the maintenance of prudent levels of liquidity. The Committee continually monitors the amount and sources of available liquidity, the time to acquire it and
its cost. Management of the Company seeks to maintain an adequate 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, a high level
of liquidity will, to a certain extent, result in lower net interest margins and lower net income.

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 December 31, 2007, the Companys cash on hand, interest-bearing deposits and Federal funds sold totaled $9.2 million. In addition, the Company has
approximately $11.7 million of mortgage-backed and investment securities classified as available-for-sale.

The Company anticipates that it will have
sufficient funds available to meet its current loan commitments of $22.4 million. These funds will be internally generated, raised through deposit operations, or borrowed. Certificates of deposits that are scheduled to mature in less than one year
at December 31, 2007 totaled $87.6 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 and



17



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##### Table of Contents

mortgage-backed securities and principal and interest payments on loans. 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, as the holding company for the Bank, has an annual cash requirement of approximately $843,000 for the payment of common dividends as well as interest payments on the $5.0 million in subordinated
debentures. The holding company currently has cash on hand of $0.7 million. The holding company will be receiving interest payments of approximately $150,000 on the $2,000,000 note receivable from Bradford Bancorp that resulted from the termination
of the merger agreement. This note matures on December 31, 2008. The only other recurring 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 and capital position of the bank.

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

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:



|                                    |  |                        |        |              |   |       
|----------------------------------- |  | ---------------------- | ------ | ------------ | - | ------
|                                    |  | December 31,2007       |        | June 30,2007
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 22,355 |              | $ | 19,452
|Undisbursed lines of credit         |  |                        | 8,233  |              |   | 14,909
|Financial standby letters of credit |  |                        | 1,739  |              |   | 1,749 

Contractual Obligations

The following table sets forth the companys contractual obligations as of December 31, 2007:



|                                              |  |                        |         |              |   |              |  |              |        |       |   |        |  |   |        
|--------------------------------------------- |  | ---------------------- | ------- | ------------ | - | ------------ |  | ------------ | ------ | ----- | - | ------ |  | - | -------
|                                              |  | < 1 year               |         | 1 to 3 Years |   | 4 to 5 Years |  | Over 5 Years |        | Total
|                                              |  | (dollars in thousands)
|Time Deposits                                 |  | $                      | 87,642  |              | $ | 21,181       |  | $            | 9,802  |       | $ | 26     |  | $ | 118,651
|Borrowings, including subordinated debentures |  |                        | 25,200  |              |   | 8,100        |  |              |       |       |   | 14,000 |  |   | 47,300 
|Lease obligations                             |  |                        | 216     |              |   | 376          |  |              | 364    |       |   | 2,332  |  |   | 3,288  
|                                              |  |                        |         |              |   |              |  |              |        |       |   |        |  |   |        
|Total Contractual Obligations                 |  | $                      | 113,058 |              | $ | 29,657       |  | $            | 10,166 |       | $ | 16,358 |  | $ | 169,239



|Item 3: | Controls and Procedures
|------- | -----------------------

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

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



18



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##### Table of Contents

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

The following table
sets forth matters that were voted upon at the Companys Annual Meeting of Stockholders held on December 6, 2007:



|                                                                                                |  |           |  |              |  |                 |  |        
|----------------------------------------------------------------------------------------------- |  | --------- |  | ------------ |  | --------------- |  | -------
|                                                                                                |  | VotesFor  |  | VotesAgainst |  | BrokerNon-votes |  | Abstain
|Election of Directors:                                                                          |  |           |  |              |  |                 |  |        
|                                                                                                |  |           |  |             
|William R. Waters                                                                               |  | 1,771,192 |  | 59,083       |  |                |  |       
|Gary R. Bozel                                                                                   |  | 1,804,960 |  | 25,315       |  |                |  |       
|Approval of the adjournment of the meeting prior to voting on the Agreement and Plan of Merger: |  | 1,830,275 |  |             |  |                |  |       



|Item 5. | Other Information
|------- | -----------------

None



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

The following exhibits are filed herewith:



|               |  |                                                                                    
|-------------- |  | -----------------------------------------------------------------------------------
|Exhibit Number |  | Title                                                                              
|31             |  | Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer
|32             |  | Certification pursuant to 18 U.S.C. Section 1350                                   



19



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Signature

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: February 13, 2008 |  | /s/ Michael J. Dee                                            
|                        |  | Michael J. Dee                                                
|                        |  | President, Chief Executive Officer and Chief Financial Officer
|                        |  | (Principal Financial Officer)                                 



20