##### Table of Contents

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United States

Securities and Exchange Commission

Washington, D. C. 20549



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FORM 10-QSB



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(Mark One)

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



For the quarterly period ended December 31, 2005



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



For the transition period from  to



Commission File Number: 0-28032



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PATAPSCO BANCORP, INC.

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



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



1301 Merritt
Boulevard, Dundalk, Maryland 21222-2194

(Address of Principal Executive Offices)



(410) 285-1010

Registrants Telephone Number, Including Area Code



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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, 2006,
the issuer had 1,469,161 shares of Common Stock issued and outstanding.



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



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##### Table of Contents

CONTENTS



|                              |  |                                                                                                                                  |  |   
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --
|                              |  | PAGE                                                                                                                            
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                 
|                              |  |                                                                                                                                 
|Item 1.                       |  | Financial Statements                                                                                                             |  |   
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Financial Condition at December 31, 2005 (unaudited) and June 30, 2005                                |  | 3 
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Income for the Six and Three-Month Periods Ended December 31, 2005 and 2004 (unaudited)               |  | 4 
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Comprehensive Income for the Six and Three-Month Periods Ended December 31, 2005 and 2004 (unaudited) |  | 5 
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Cash Flows for the Six-Month Periods Ended December 31, 2005 and 2004 (unaudited)                     |  | 6 
|                              |  |                                                                                                                                 
|                              |  | Notes to Financial Statements                                                                                                    |  | 7 
|                              |  |                                                                                                                                 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                            |  | 11
|                              |  |                                                                                                                                 
|Item 3.                       |  | Controls and Procedures                                                                                                          |  | 19
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                 
|                              |  |                                                                                                                                 
|Item 1.                       |  | Legal Proceedings                                                                                                                |  | 20
|                              |  |                                                                                                                                 
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                      |  | 20
|                              |  |                                                                                                                                 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                  |  | 20
|                              |  |                                                                                                                                 
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                              |  | 20
|                              |  |                                                                                                                                 
|Item 5.                       |  | Other Information                                                                                                                |  | 20
|                              |  |                                                                                                                                 
|Item 6.                       |  | Exhibits                                                                                                                         |  | 20
|                              | 
|Signatures                    |  | 21                                                                                                                              
|                              | 
|Certifications                |  |                                                                                                                                 



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 per share data)                                                                                                                                                                  |  | December 31, 2005 (Unaudited) |         |   | June 30, 2005 |  
|Assets                                                                                                                                                                                                      |  |                               |         |   |               |   |         |  
|Cash on hand and due from banks                                                                                                                                                                             |  | $                             | 5,237   |   |               |   | 5,270   |  
|Interest bearing deposits in other banks                                                                                                                                                                    |  |                               | 745     |   |               |   | 970     |  
|Federal funds sold                                                                                                                                                                                          |  |                               | 1,636   |   |               |   | 1,408   |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Cash and Cash equivalents                                                                                                                                                                                   |  |                               | 7,618   |   |               |   | 7,648   |  
|Time deposits at other financial institutions                                                                                                                                                               |  |                               | 612     |   |               |   | 619     |  
|Securities, available for sale                                                                                                                                                                              |  |                               | 20,993  |   |               |   | 24,800  |  
|Loans receivable, net of allowance for loan losses of $952 and $945, respectively                                                                                                                           |  |                               | 180,124 |   |               |   | 161,094 |  
|Investments required by law, at cost                                                                                                                                                                        |  |                               | 2,088   |   |               |   | 1,677   |  
|Property and equipment, net                                                                                                                                                                                 |  |                               | 1,550   |   |               |   | 1,585   |  
|Goodwill and other intangible assets                                                                                                                                                                        |  |                               | 3,380   |   |               |   | 3,406   |  
|Accrued interest and other assets                                                                                                                                                                           |  |                               | 4,086   |   |               |   | 3,875   |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total assets                                                                                                                                                                                                |  | $                             | 220,451 |   |               | $ | 204,704 |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                                        |  |                               |         |   |               |   |         |  
|Liabilities:                                                                                                                                                                                                |  |                               |         |   |               |   |         |  
|Deposits:                                                                                                                                                                                                   |  |                               |         |   |               |   |         |  
|Non interest bearing deposits                                                                                                                                                                               |  | $                             | 13,534  |   |               | $ | 12,072  |  
|Interest bearing deposits                                                                                                                                                                                   |  |                               | 153,720 |   |               |   | 152,248 |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total Deposits                                                                                                                                                                                              |  |                               | 167,254 |   |               |   | 164,320 |  
|Accrued expenses and other liabilities                                                                                                                                                                      |  |                               | 1,723   |   |               |   | 2,564   |  
|Subordinated Debentures                                                                                                                                                                                     |  |                               | 5,000   |   |               |   |        |  
|Long term Debt                                                                                                                                                                                              |  |                               | 28,550  |   |               |   | 20,233  |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total liabilities                                                                                                                                                                                           |  |                               | 202,527 |   |               |   | 187,117 |  
|                                                                                                                                                                                                            |  |                              
|Temporary Equity  ESOP shares subject to put option                                                                                                                                                        |  |                               | 1,138   |   |               |   | 1,266   |  
|                                                                                                                                                                                                            |  |                              
|Stockholders equity:                                                                                                                                                                                       |  |                               |         |   |               |   |         |  
|Preferred stock-Series A Noncumultive Convertible Perpetual $0.01 par value; authorized 1,000,000 shares with a liquidation
preference of $25 per share; 85,531 and 93,745 shares outstanding, respectively |  |                               | 1       |   |               |   | 1       |  
|                                                                                                                                                                                                            | 
|Additional paid-in capital                                                                                                                                                                                  |  |                               | 2,140   |   |               |   | 2,345   |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,468,011 and 1,414,456 shares,
respectively                                                                              |  |                               | 15      |   |               |   | 14      |  
|                                                                                                                                                                                                            | 
|Additional paid-in capital                                                                                                                                                                                  |  |                               | 4,805   |   |               |   | 4,332   |  
|Obligation under deferred compensation                                                                                                                                                                      |  |                               | 389     |   |               |   | 440     |  
|Deferred compensation contra                                                                                                                                                                                |  |                               | (78     | ) |               |   | (78     | )
|Retained earnings, substantially restricted                                                                                                                                                                 |  |                               | 9,839   |   |               |   | 9,438   |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                                                          |  |                               | (325    | ) |               |   | (171    | )
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total stockholders equity  permanent                                                                                                                                                                      |  |                               | 16,786  |   |               |   | 16,321  |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total stockholders equity -including temporary equity                                                                                                                                                      |  |                               | 17,924  |   |               |   | 17,587  |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                  |  | $                             | 220,451 |   |               | $ | 204,704 |  
|                                                                                                                                                                                                            |  |                               |         |   |               |   |         |  



See accompanying notes to financial
statements



3



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|--------------------------------------------------- | ---- | --------------------------------- | ----- | ---------------------------------- | ---- | ----- | ---- | - | ------ |  | - | ------
|($ in thousands except for per share data)          |      | For Six Months Ended December 31, |       | For Three Months EndedDecember 31,
|                                                    | 2005 |                                   | 2004  |                                    | 2005 |       | 2004
|Interest income:                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Loans receivable                                    |      | $                                 | 5,838 |                                    | $    | 5,324 |      | $ | 3,072  |  | $ | 2,666 
|Securities, including securities required by law    |      |                                   | 472   |                                    |      | 531   |      |   | 230    |  |   | 260   
|Federal funds sold and other investments            |      |                                   | 63    |                                    |      | 79    |      |   | 25     |  |   | 43    
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Total interest income                               |      |                                   | 6,373 |                                    |      | 5,934 |      |   | 3,327  |  |   | 2,969 
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Interest expense:                                   |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Deposits                                            |      |                                   | 1,583 |                                    |      | 1,409 |      |   | 814    |  |   | 706   
|Long-term debt                                      |      |                                   | 583   |                                    |      | 469   |      |   | 327    |  |   | 235   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Total interest expense                              |      |                                   | 2,166 |                                    |      | 1,878 |      |   | 1,141  |  |   | 941   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Net interest income                                 |      |                                   | 4,207 |                                    |      | 4,056 |      |   | 2,186  |  |   | 2,028 
|Provision for loan losses                           |      |                                   | 40    |                                    |      | 85    |      |   | 20     |  |   | 50    
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Net interest income after provision for loan losses |      |                                   | 4,167 |                                    |      | 3,971 |      |   | 2,166  |  |   | 1,978 
|                                                    |      |                                   |       |                                   
|Non-interest income:                                |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Fees and service charges                            |      |                                   | 300   |                                    |      | 245   |      |   | 162    |  |   | 148   
|Gain on sale of office building                     |      |                                   | 64    |                                    |      |      |      |   |       |  |   |      
|Other                                               |      |                                   | 77    |                                    |      | 64    |      |   | 36     |  |   | 31    
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Total non-interest income                           |      |                                   | 441   |                                    |      | 309   |      |   | 198    |  |   | 179   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Non-interest expenses:                              |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Compensation and employee benefits                  |      |                                   | 2,220 |                                    |      | 1,910 |      |   | 1,140  |  |   | 954   
|Professional fees                                   |      |                                   | 97    |                                    |      | 149   |      |   | 54     |  |   | 69    
|Equipment expense                                   |      |                                   | 174   |                                    |      | 124   |      |   | 91     |  |   | 65    
|Net occupancy expense                               |      |                                   | 282   |                                    |      | 151   |      |   | 123    |  |   | 70    
|Advertising                                         |      |                                   | 46    |                                    |      | 94    |      |   | 20     |  |   | 43    
|Data processing                                     |      |                                   | 135   |                                    |      | 113   |      |   | 71     |  |   | 53    
|Amortization of core deposit intangible             |      |                                   | 26    |                                    |      | 26    |      |   | 13     |  |   | 13    
|Telephone, postage & delivery                       |      |                                   | 139   |                                    |      | 126   |      |   | 67     |  |   | 63    
|Other                                               |      |                                   | 426   |                                    |      | 502   |      |   | 221    |  |   | 263   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Total non-interest expense                          |      |                                   | 3,545 |                                    |      | 3,195 |      |   | 1,800  |  |   | 1,593 
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Income before provision for income taxes            |      |                                   | 1,063 |                                    |      | 1,085 |      |   | 564    |  |   | 564   
|Provision for income taxes                          |      |                                   | 399   |                                    |      | 391   |      |   | 213    |  |   | 204   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Net Income                                          |      | $                                 | 664   |                                    | $    | 694   |      | $ | 351    |  | $ | 360   
|Preferred dividends declared                        |      |                                   | 83    |                                    |      | 89    |      |   | 40     |  |   | 44    
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Net income available to common stockholders         |      | $                                 | 581   |                                    | $    | 605   |      | $ | 311    |  | $ | 316   
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Basic earnings per share                            |      | $                                 | 0.39  |                                    | $    | 0.42  |      | $ | 0.21   |  | $ | 0.22  
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Diluted earnings per share                          |      | $                                 | 0.35  |                                    | $    | 0.36  |      | $ | 0.18   |  | $ | 0.19  
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       
|Cash dividends declared per common share            |      | $                                 | 0.125 |                                    | $    | 0.115 |      | $ | 0.0625 |  | $ | 0.0575
|                                                    |      |                                   |       |                                    |      |       |      |   |        |  |   |       



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



|                                                                                                                               |  |                                   |      |                                    |      |   |      |  |   |      |   |  |   |     |  
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ---- | ---------------------------------- | ---- | - | ---- |  | - | ---- | - |  | - | --- | -
|                                                                                                                               |  | For Six Months Ended December 31, |      | For Three Months EndedDecember 31, |     
|($ in thousands)                                                                                                               |  | 2005                              |      |                                    | 2004 |   | 2005 |  |   | 2004 |  
|Net income                                                                                                                     |  | $                                 | 664  |                                    |      | $ | 694  |  | $ | 351  |   |  | $ | 360 |  
|Other comprehensive income (loss), net of tax:                                                                                 |  |                                   |      |                                    |      |   |      |  |   |      |   |  |   |     |  
|Unrealized net holding (losses)/gains on securities, available-for-sale net of taxes of $96, $181, $118, and $16, respectively |  |                                   | (153 | )                                  |      |   | 289  |  |   | (193 | ) |  |   | (39 | )
|                                                                                                                               |  |                                   |      |                                    |      |   |      |  |   |      |   |  |   |     |  
|Comprehensive income                                                                                                           |  | $                                 | 511  |                                    |      | $ | 983  |  | $ | 158  |   |  | $ | 321 |  
|                                                                                                                               |  |                                   |      |                                    |      |   |      |  |   |      |   |  |   |     |  



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                                         |      |                                  |         |      |  |   |        |  
|-------------------------------------------------------------------------------------------------------- | ---- | -------------------------------- | ------- | ---- |  | - | ------ | -
|($ in thousands)                                                                                         |      | For Six Months EndedDecember 31, |        
|                                                                                                         | 2005 |                                  |         | 2004 | 
|Cash flows from operating activities:                                                                    |      |                                  |         |      |  |   |        |  
|Net income                                                                                               |      | $                                | 664     |      |  | $ | 694    |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities:              |      |                                  |         |      |  |   |        |  
|(Accretion)/amortization of premiums and discounts, net                                                  |      |                                  | (3      | )    |  |   | 14     |  
|Amortization of deferred loan origination fees, net of costs                                             |      |                                  | (20     | )    |  |   | (54    | )
|Provision for loan losses                                                                                |      |                                  | 40      |      |  |   | 85     |  
|Depreciation                                                                                             |      |                                  | 154     |      |  |   | 115    |  
|Gain on sale of office building                                                                          |      |                                  | (64     | )    |  |   |       |  
|Amortization of core deposit intangible                                                                  |      |                                  | 26      |      |  |   | 25     |  
|Increase in the cash surrender value of life insurance                                                   |      |                                  | (29     | )    |  |   | (31    | )
|Increase in accrued interest and other assets                                                            |      |                                  | (86     | )    |  |   | (430   | )
|Increase (decrease) in accrued expenses and other liabilities                                            |      |                                  | 276     |      |  |   | (207   | )
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Net cash provided by operating activities                                                                |      |                                  | 958     |      |  |   | 211    |  
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Cash flows from investing activities:                                                                    |      |                                  |         |      |  |   |        |  
|Loan principal disbursements, net of repayments                                                          |      |                                  | (16,857 | )    |  |   | (2,996 | )
|Proceeds from maturing time deposit investments                                                          |      |                                  |        |      |  |   | 293    |  
|Proceeds from maturing investments available for sale & principal payments on mortgage-backed securities |      |                                  | 3,525   |      |  |   | 4,226  |  
|Purchase of consumer loans                                                                               |      |                                  | (2,217  | )    |  |   |       |  
|Purchase of investments required by law                                                                  |      |                                  | (411    | )    |  |   | (90    | )
|Redemption of investments required by law                                                                |      |                                  |        |      |  |   | 267    |  
|Purchase of property and equipment                                                                       |      |                                  | (56     | )    |  |   | (116   | )
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Net cash (used in)/provided by investing activities                                                      |      |                                  | (16,016 | )    |  |   | 1,584  |  
|                                                                                                         |      |                                 
|Cash flows from financing activities:                                                                    |      |                                  |         |      |  |   |        |  
|Net increase (decrease) in deposits                                                                      |      |                                  | 3,001   |      |  |   | (4,873 | )
|Proceeds from long-term borrowings                                                                       |      |                                  | 14,750  |      |  |   |       |  
|Repayments of long-term borrowings                                                                       |      |                                  | (6,433  | )    |  |   | (1,500 | )
|Net decrease in deposits by borrowers for taxes and insurance                                            |      |                                  | (1,163  | )    |  |   | (1,113 | )
|Proceeds from the issuance of subordinated debentures                                                    |      |                                  | 5,000   |      |  |   |       |  
|Cash received from exercise of stock options                                                             |      |                                  | 141     |      |  |   | 6      |  
|Dividends paid                                                                                           |      |                                  | (268    | )    |  |   | (245   | )
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Net cash provided by (used in) financing activities                                                      |      |                                  | 15,028  |      |  |   | (7,725 | )
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Net decrease in cash and cash equivalents                                                                |      | $                                | (30     | )    |  | $ | (5,930 | )
|Cash and cash equivalents at beginning of period                                                         |      |                                  | 7,648   |      |  |   | 18,144 |  
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Cash and cash equivalents end of period                                                                  |      | $                                | 7,618   |      |  | $ | 12,214 |  
|                                                                                                         |      |                                  |         |      |  |   |        |  
|Supplemental information:                                                                                |      |                                  |         |      |  |   |        |  
|Interest paid on deposits and borrowed funds                                                             |      |                                  | 2,098   |      |  |   | 1,949  |  
|Income taxes paid                                                                                        |      |                                  | 73      |      |  |   | 283    |  



See
accompanying notes to financial statements.



6



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary



Notes to Consolidated Financial Statements

(unaudited)



Note 1: Principles of Consolidation



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



Note 2: The Patapsco Bank



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



Note 3: Basis of Presentation



The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-QSB and
therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America. However, all adjustments that are, in the
opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and six months ended December 31, 2005 are
not necessarily indicative of the results that may be expected for the entire year. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual report on Form 10-KSB for the
year ended June 30, 2005.



Note 4: Cash
and Cash Equivalents



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



Note 5: Regulatory Capital Requirements



At December 31, 2005, the Company and the Bank met each of the three minimum regulatory capital requirements. The following table summarizes the Companys
regulatory capital position at December 31, 2005.



|                                         |  |        |        |   |                             |   |        |                                                         |        |  |      |        |  |    |  | 
|---------------------------------------- |  | ------ | ------ | - | --------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | -- |  | 
|                                         |  | Actual |        |   | For CapitalAdequacyPurposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision
|($ in thousands)                         |  | Amount |        | % |                             |   | Amount |                                                         | %      |  |      | Amount |  | % 
|Total Capital (to Risk Weighted Assets)  |  | $      | 20,524 |   | 13.43                       | % |        | $                                                       | 12,229 |  | 8.00 | %      |  | NA |  | 
|                                         |  |        |        |   |                             |  
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 19,427 |   | 12.71                       | % |        | $                                                       | 6,115  |  | 4.00 | %      |  | NA |  | 
|                                         |  |        |        |   |                             |  
|Tier 1 Capital (to Average Assets)       |  | $      | 19,427 |   | 9.27                        | % |        | $                                                       | 8,382  |  | 4.00 | %      |  | NA |  | 



7



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##### Table of Contents

The following table summarizes the Banks regulatory capital position at
December 31, 2005 (in thousands).



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |    |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | -- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 17,377 |   | 11.39                        | % |        | $                                                       | 12,203 |  | 8.00 | %      |  | $ | 15,254 |  | 10 | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 16,424 |   | 10.77                        | % |        | $                                                       | 6,102  |  | 4.00 | %      |  | $ | 9,152  |  | 6  | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Average Assets)       |  | $      | 16,424 |   | 7.85                         | % |        | $                                                       | 8,369  |  | 4.00 | %      |  | $ | 10,462 |  | 5  | %



Note
6: Earnings Per Share



Basic per share amounts are based on the weighted
average shares of common stock outstanding and shares obligated under the Rabbi trust. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options and convertible securities,
unless the effect is to reduce a loss or increase earnings per share.



|                                            |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|------------------------------------------- |  | ---------------------------------- | ----- | ------------------------------------ | - | ----- |  | ------- | ----- |  | - | -----
|                                            |  | Six Months Ended December 31, 2005 |       | Three Months Ended December 31, 2005
|($ in thousands except for per share data)  |  | Basic                              |       | Diluted                              |   | Basic |  | Diluted
|Net Income                                  |  | $                                  | 664   |                                      | $ | 664   |  | $       | 351   |  | $ | 351  
|Preferred Stock Dividends                   |  |                                    | 83    |                                      |   | 0     |  |         | 40    |  |   | 0    
|                                            |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Net Income Available to Common Stockholders |  |                                    | 581   |                                      |   | 664   |  |         | 311   |  |   | 351  
|                                            |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Weighted average shares outstanding         |  |                                    | 1,473 |                                      |   | 1,473 |  |         | 1,485 |  |   | 1,485
|                                            |  |                                    |       |                                     
|Diluted Securities:                         |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Preferred Stock                             |  |                                    |       |                                      |   | 361   |  |         |       |  |   | 355  
|Options                                     |  |                                    |       |                                      |   | 86    |  |         |       |  |   | 80   
|                                            |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares            |  |                                    | 1,473 |                                      |   | 1,920 |  |         | 1,485 |  |   | 1,920
|                                            |  |                                    |       |                                     
|Per Share Amount                            |  | $                                  | 0.39  |                                      | $ | 0.35  |  | $       | 0.21  |  | $ | 0.18 
|                                            |  |                                    |       |                                      |   |       |  |         |       |  |   |      



|                                           |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|------------------------------------------ |  | ---------------------------------- | ----- | ------------------------------------ | - | ----- |  | ------- | ----- |  | - | -----
|                                           |  | Six Months Ended December 31, 2004 |       | Three Months Ended December 31, 2004
|($ in thousands except for per share data) |  | Basic                              |       | Diluted                              |   | Basic |  | Diluted
|Net Income                                 |  | $                                  | 694   |                                      | $ | 694   |  | $       | 360   |  | $ | 360  
|Preferred Stock Dividends                  |  |                                    | 89    |                                      |   | 0     |  |         | 44    |  |   | 0    
|                                           |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Net Income Available to Common             |  |                                    | 605   |                                      |   | 694   |  |         | 316   |  |   | 360  
|                                           |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Weighted average shares outstanding        |  |                                    | 1,425 |                                      |   | 1,425 |  |         | 1,429 |  |   | 1,429
|                                           |  |                                    |       |                                     
|Diluted Securities:                        |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Preferred Stock                            |  |                                    |       |                                      |   | 377   |  |         |       |  |   | 377  
|Options                                    |  |                                    |       |                                      |   | 109   |  |         |       |  |   | 109  
|                                           |  |                                    |       |                                      |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares           |  |                                    | 1,425 |                                      |   | 1,911 |  |         | 1,429 |  |   | 1,915
|                                           |  |                                    |       |                                     
|Per Share Amount                           |  | $                                  | 0.42  |                                      | $ | 0.36  |  | $       | 0.22  |  | $ | 0.19 
|                                           |  |                                    |       |                                      |   |       |  |         |       |  |   |      



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##### Table of Contents

Note 7: Goodwill and Intangible Assets



SFAS No. 142, Goodwill and Other Intangible Assets requires that goodwill
no longer be amortized, but rather that it be tested for impairment on an annual basis at the reporting unit level, which is either at the same level or one level below an operating segment. Other acquired intangible assets with finite lives, such
as purchased customer accounts, are required to be amortized over their estimated lives. Other intangible assets are amortized using the straight-line method over estimated useful lives of 10 years. The Company periodically assesses whether events
or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be impaired.



Note 8: Stock Options



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



|                                                                                                                                                   |  |                                                                      |      |   |      |   |      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                                                                                   |  | ($ in thousands except per share data) Six Months Ended December 31, |     
|                                                                                                                                                   |  | 2005                                                                 |      |   | 2004 |  
|Net Income as reported                                                                                                                             |  | $                                                                    | 664  |   |      | $ | 694  |  
|Amounts recognized as expense in the financial statements                                                                                          |  |                                                                      | 9    |   |      |   |     |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                                                      | (12  | ) |      |   | (13  | )
|                                                                                                                                                   |  |                                                                      |      |   |      |   |      |  
|Pro forma Net Income                                                                                                                               |  | $                                                                    | 661  |   |      | $ | 681  |  
|                                                                                                                                                   |  |                                                                      |      |   |      |   |      |  
|Earnings per share:                                                                                                                                |  |                                                                      |      |   |      |   |      |  
|                                                                                                                                                   |  |                                                                     
|Basic - as reported                                                                                                                                |  | $                                                                    | 0.39 |   |      | $ | 0.42 |  
|Basic  pro forma                                                                                                                                  |  |                                                                      | 0.39 |   |      |   | 0.42 |  
|                                                                                                                                                   |  |                                                                     
|Diluted  as reported                                                                                                                              |  | $                                                                    | 0.35 |   |      | $ | 0.36 |  
|Diluted  pro forma                                                                                                                                |  |                                                                      | 0.34 |   |      |   | 0.36 |  
|                                                                                                                                                   | 
|                                                                                                                                                   |  | Three Months Ended December 31,                                      |     
|                                                                                                                                                   |  | 2005                                                                 |      |   | 2004 |  
|Net Income as reported                                                                                                                             |  | $                                                                    | 351  |   |      | $ | 360  |  
|Amounts recognized as expense in the financial statements                                                                                          |  |                                                                      | 4    |   |      |   |     |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                                                      | (3   | ) |      |   | (6   | )
|                                                                                                                                                   |  |                                                                      |      |   |      |   |      |  
|Pro forma Net Income                                                                                                                               |  | $                                                                    | 352  |   |      | $ | 354  |  
|                                                                                                                                                   |  |                                                                      |      |   |      |   |      |  
|Earnings per share:                                                                                                                                |  |                                                                      |      |   |      |   |      |  
|                                                                                                                                                   |  |                                                                     
|Basic - as reported                                                                                                                                |  | $                                                                    | 0.21 |   |      | $ | 0.22 |  
|Basic  pro forma                                                                                                                                  |  |                                                                      | 0.21 |   |      |   | 0.22 |  
|                                                                                                                                                   |  |                                                                     
|Diluted  as reported                                                                                                                              |  | $                                                                    | 0.18 |   |      | $ | 0.19 |  
|Diluted  pro forma                                                                                                                                |  |                                                                      | 0.18 |   |      |   | 0.19 |  



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##### Table of Contents

Note 9: Guarantees



The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.
Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk
involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company, generally, holds collateral and/or personal guarantees supporting these commitments. The Company had
$1,451,000 of standby letters of credit as of December 31, 2005 and $1,365,000 outstanding as of June 30, 2005. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be
sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of December 31, 2005 and June 30, 2005 for guarantees under standby letters of credit issued is
not material.



Note 10: Subsequent Events



On January 19, 2006, the Company issued a press release announcing that
the Board of Directors has voted to call for redemption of all outstanding shares of Series A Non-cumulative, Perpetual Convertible Preferred Stock, par value $0.01 per share (the Series A Preferred Stock), that have not been converted
into common stock at the election of the holders and remain outstanding on or prior to the close of business on March 31, 2006 (the Redemption Date). All shares of Series A Preferred Stock not converted into shares of Patapsco
Bancorp, Inc. common stock prior to the close of business on the Redemption Date will be automatically redeemed.



Prior to the Redemption Date, holders of Series A Preferred Stock may elect to convert such shares into shares of Patapsco Bancorp, Inc. common stock at a rate of 3.993
shares of common stock for each share of Series A Preferred Stock, which, based on the most recent sales price for Patapsco Bancorp, Inc. common stock of $11.00 per share, would amount to a value of $43.92 per share. In accordance with the terms of
the Series A Preferred Stock, all shares of Series A Preferred Stock not converted prior to the close of business on the Redemption Date will be redeemed by the Company in exchange for a cash payment of $25.00 per share plus all accrued and unpaid
dividends on the Series A Preferred Stock for the quarter ending March 31, 2006.



From and after the Redemption Date, dividends on the Series A Preferred Stock will cease to accrue and the Series A Preferred Stock will no longer be deemed outstanding.



If all holders were to elect to convert their shares, a total of 341,525 shares of common stock would be
issued.



Note 11: Recent Accounting
Pronouncements



FAS 123(R)



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



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



SAB 107



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



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##### Table of Contents

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



General



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



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##### Table of Contents

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.



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



Management Summary



The Companys financial results for the three and six months ended December 31, 2005 reflect some significant investments being made to improve the future results of the Company.



Effective July 1, 2005, the Company leased the property at 2028 Joppa Road in Baltimore
County from the lessor for the purpose of building a branch office with administrative office space. This facility will replace the Companys current branch on Joppa Road and much of the leased office space at the Banks administrative
offices on Harford Road. The expenses associated with leasing this property in the six and three month periods totaled $89,000 and $45,000, respectively.



The Company sold the land and building at 8705 Harford Road that previously had housed a branch office that was merged with the Banks branch office at 7802 Harford
Road, for a pre-tax gain of $64,000.



The Company has increased the
professional staffing in its commercial business, leasing and commercial real estate areas in order to increase loan production. These investments have contributed to $10.7 million pipeline of loans awaiting settlement. While the entire pipeline is
not expected to close, the amount is such that continued loan growth is expected by the Company. In January 2006, an additional commercial loan officer was hired who will work in as yet undetermined space in Carroll County, Maryland.



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



Going forward, the immediate challenges facing the organization include funding the anticipated loan growth and controlling operating expenses. With meaningful core deposit growth difficult to attain in the
short-term, the Company anticipates utilizing higher cost retail certificates of deposit, wholesale borrowings and possible brokered deposits to fund loan growth. The Company issued $5.0 million in subordinated debentures on October 31, 2005.
The Company has a number of internal initiatives in place to control the growth in operating expenses. Management believes that these initiatives will be positive for the future financial performance of the Company.



Comparison of Financial Condition at December 31, 2005 and June 30, 2005



The Companys assets increased by $15.7 million or 7.7% to $220.4
million at December 31, 2005 compared to $204.7 million at June 30, 2005. Cash generated by the securities portfolio, deposit growth and borrowings were used to fund loan growth, primarily in the commercial business and commercial real
estate portfolios.



12



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##### Table of Contents

Interest bearing deposits have increased $1.5 million or 1.0% in the six months ended December 31, 2005 to $153.7
million from $152.2 million at June 30, 2005. Non-interest bearing deposits have increased by $1.5 million or 12.1% to $13.5 million at December 31, 2005 compared to $12.1 million at June 30, 2005.



Total borrowings have increased by $13.3 million as loan growth was funded with advances from
the Federal Home Loan Bank of Atlanta and the issuance of $5.0 million in subordinated debentures.



On October 31, 2005 Patapsco Statutory Trust I, a Connecticut statutory business trust and a wholly-owned subsidiary of the Company, issued $5 million of capital trust pass-through securities to investors. The
interest rate is fixed for the first seven years at 6.465%. there after, the interest rate adjusts on a quarterly basis at the rate of the three month LIBOR plus 1.48%. Patapsco Statutory Trust I purchased $5,155,000 million of junior subordinated
deferrable interest debentures from Patapsco Bancorp. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. Patapsco Bancorp has also fully and
unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by Patapsco Bancorp on or after October 31, 2010, at par. The capital securities must be redeemed upon final maturity of
the subordinated debentures on October 31, 2035. The Company used the proceeds pay-off the $1.8 million loan to a Bankers bank. The remaining funds are available to make capital contributions to the Bank.



Comparison of Operating Results for the Quarter and Six Months Ended December 31,
2005 and December 31, 2004



Net
Income



The Companys net income decreased by $9,000 or 2.5% to
$351,000 for the quarter ended December 31, 2005 from $360,000 for the quarter ended December 31, 2004. The Companys net income decreased by $30,000 or 4.3% to $664,000 for the six months ended December 31, 2005 from $694,000
for the six months ended December 31, 2004. The decrease in the Companys net income during the comparable three and six month periods results from higher operating expenses, primarily compensation and benefits, offsetting higher net
interest and non-interest income.



Interest
Income



Total interest income increased by $358,000 or 12.1% to $3.3
million for the quarter ended December 31, 2005 when compared to $2.9 million in the quarter ended December 31, 2004 due primarily to higher loan average balances and rates offsetting lower interest income from the security portfolio and
interest-earning cash balances.



Total interest income increased by $439,000 or
7.4% to $6.4 million for the six months ended December 31, 2005 when compared to $5.9 million in the six months ended December 31, 2004 due primarily to higher loan average balances and rates offsetting lower interest income from the
security portfolio and interest-earning cash balances.



Interest income on
loans receivable increased by $406,000 or 15.2% to $3.1 million for the quarter ended December 31, 2005 from $2.7 million for the quarter ended December 31, 2004. Interest income on loans receivable increased by $514,000 or 9.7% to $5.8
million for the six months ended December 31, 2005 from $5.3 million for the six months ended December 31, 2004. 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. The majority of the increase in the average balances in loans receivable occurred in most recent quarter.



Interest income on investment and mortgage-backed securities decreased by $30,000 to $230,000 and by $59,000 to $472,000 in the three and
six month periods ended December 31, 2005, respectively primarily due to lower average balances outstanding. The Company has redirected pay-downs in the mortgage-backed securities portfolio and maturities in the investment portfolio to the loan
portfolio.



Interest income on federal funds sold and other investments
decreased by $18,000 or 41.9% to $25,000 for the quarter ended December 31, 2005 from $43,000 for the quarter ended December 31, 2004. Interest income on federal funds sold and other investments decreased by $16,000 or 20.3% to $63,000 for
the six months ended December 31, 2005 from $79,000 for the six months ended December 31, 2004. The decreases in the three and six-month periods are due to lower average balances offsetting higher rates earned on these assets.



13



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##### Table of Contents

Interest Expense



Total interest expense increased by $200,000 or 21.3% to $1.1 million for the quarter ended December 31, 2005 from $0.9 million for the
quarter ended December 31, 2004. Total interest expense increased $288,000 or 15.3% to $2.2 million for the six-month period ended December 31, 2005 from $1.9 million for the six-month period ended December 31, 2004. The increase in
interest expense during the comparable quarterly and six-month periods is due to higher rates paid on deposits and higher average balances outstanding of borrowed money.



Interest expense on deposits increased by $108,000 or 15.3% to $814,000 for the quarter ended December 31, 2005 from $706,000 for the
quarter ended December 31, 2004. Interest expense on deposits increased by $174,000 or 12.4% to $1.6 million from $1.4 million for the six months ended December 31, 2004. The increase in interest expense on deposits in both the quarterly
and year to date periods is due to higher rates paid on deposit accounts offsetting slightly lower average balances outstanding throughout the respective periods. Interest expense on borrowings increased by $92,000 or 39.2% to $327,000 for the
quarter ended December 31, 2005 from $235,000 for the quarter ended December 31, 2004. Interest expense on borrowings increased by $114,000 or 24.3% to $583,000 from $469,000 for the six months ended December 31, 2004. The increase in
interest expense in both the quarterly and year to date periods results primarily from higher average balances outstanding. Higher rates paid on borrowings also contributed to the increase.



Net Interest Income



The Companys net interest income increased by $158,000 or 7.8% to $2.2 million for the
quarter ended December 31, 2005 from $2.0 million for the quarter ended December 31, 2004. Net interest income increased by $151,000 or 3.7% to $4.2 million for the six months ended December 31, 2005 from $4.1 million during the six
months ended December 31, 2004. The increases in net interest income during the comparable quarters and six-month periods were primarily due to the higher volume of earning 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.



14



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##### Table of Contents

|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Six Months Ended December 31, |        
|                                                                                 |  | 2005                          |         |          | 2004 |               
|                                                                                 |  | AverageBalance                |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)        |        
|Interest-earning assets:                                                         |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable (2)                                                             |  |                               | 166,880 |          | $    | 5,838          |  | 7.00   | %              |  | $        | 154,389 |                | $ | 5,324 |  | 6.90   | %
|Investment and mortgage-backed securities                                        |  |                               | 24,793  |          |      | 472            |  | 3.81   | %              |  |          | 29,581  |                |   | 531   |  | 3.59   | %
|Federal funds sold and other interest-earning assets                             |  |                               | 3,478   |          |      | 63             |  | 3.67   | %              |  |          | 9,369   |                |   | 79    |  | 1.69   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                               | 195,151 |          |      | 6,373          |  | 6.53   | %              |  |          | 193,339 |                |   | 5,934 |  | 6.14   | %
|Non-interest-earning assets                                                      |  |                               | 13,401  |          |      |                |  |        |                |  |          | 12,071  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                             | 208,552 |          |      |                |  |        |                |  | $        | 205,410 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Savings deposits                                                                 |  | $                             | 151,201 |          | $    | 1,583          |  | 2.09   | %              |  | $        | 153,832 |                | $ | 1,409 |  | 1.83   | %
|Borrowings                                                                       |  |                               | 25,120  |          |      | 583            |  | 4.65   | %              |  |          | 21,457  |                |   | 469   |  | 4.38   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                               | 176,321 |          |      | 2,166          |  | 2.46   | %              |  |          | 175,289 |                |   | 1,878 |  | 2.14   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                               | 14,465  |          |      |                |  |        |                |  |          | 13,226  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                               | 190,786 |          |      |                |  |        |                |  |          | 188,515 |                |   |       |  |        |  
|Stockholders equity                                                             |  |                               | 17,766  |          |      |                |  |        |                |  |          | 16,895  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                             | 208,552 |          |      |                |  |        |                |  | $        | 205,410 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest income                                                              |  |                               |         |          | $    | 4,207          |  |        |                |  |          |         |                | $ | 4,056 |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                               |         |          |      |                |  | 4.07   | %              |  |          |         |                |   |       |  | 4.00   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest margin                                                              |  |                               |         |          |      |                |  | 4.31   | %              |  |          |         |                |   |       |  | 4.20   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                               |         |          |      |                |  | 110.68 | %              |  |          |         |                |   |       |  | 110.30 | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  

---

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

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



15



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##### Table of Contents

|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three Months Ended December 31, |        
|                                                                                 |  | 2005                            |         |          | 2004 |               
|                                                                                 |  | AverageBalance                  |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)          |        
|Interest-earning assets:                                                         |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable (2)                                                             |  | $                               | 172,646 |          | $    | 3,072          |  | 7.12   | %              |  | $        | 153,034 |                | $ | 2,666 |  | 6.97   | %
|Investment and mortgage-backed securities                                        |  |                                 | 24,222  |          |      | 230            |  | 3.80   | %              |  |          | 28,666  |                |   | 260   |  | 3.62   | %
|Federal funds sold and other interest-earning assets                             |  |                                 | 2,426   |          |      | 25             |  | 4.22   | %              |  |          | 9,348   |                |   | 43    |  | 1.86   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                                 | 199,294 |          |      | 3,327          |  | 6.68   | %              |  |          | 191,048 |                |   | 2,969 |  | 6.22   | %
|Non-interest-earning assets                                                      |  |                                 | 13,926  |          |      |                |  |        |                |  |          | 13,422  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                               | 213,220 |          |      |                |  |        |                |  | $        | 204,470 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Savings deposits                                                                 |  | $                               | 151,207 |          | $    | 814            |  | 2.15   | %              |  | $        | 153,294 |                | $ | 706   |  | 1.85   | %
|Borrowings                                                                       |  |                                 | 28,619  |          |      | 327            |  | 4.57   | %              |  |          | 21,400  |                |   | 235   |  | 4.40   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                 | 179,826 |          |      | 1,141          |  | 2.54   | %              |  |          | 174,694 |                |   | 941   |  | 2.15   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                                 | 15,544  |          |      |                |  |        |                |  |          | 12,730  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                                 | 195,370 |          |      |                |  |        |                |  |          | 187,424 |                |   |       |  |        |  
|Stockholders equity                                                             |  |                                 | 17,850  |          |      |                |  |        |                |  |          | 17,046  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                               | 213,220 |          |      |                |  |        |                |  | $        | 204,470 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest Income                                                              |  |                                 |         |          | $    | 2,186          |  |        |                |  |          |         |                | $ | 2,028 |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                                 |         |          |      |                |  | 4.14   | %              |  |          |         |                |   |       |  | 4.07   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest margin                                                              |  |                                 |         |          |      |                |  | 4.39   | %              |  |          |         |                |   |       |  | 4.25   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                 |         |          |      |                |  | 110.83 | %              |  |          |         |                |   |       |  | 109.36 | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  

---

|(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, 2005 decreased $30,000 or 60.0% to $20,000 from $50,000 in the quarter ended
December 31, 2004. The provision for loan losses decreased by $45,000 or 52.9% to $40,000 in the six-months ended December 31, 2005 from $85,000 in the six-months ended December 31, 2004. Due to charge-offs and growth in the loan
portfolio, the Companys allowance for loan losses has decreased as a percentage of total loans outstanding to 0.53% at December 31, 2005 from 0.58% at June 30, 2005. The Companys allowance for loan losses as a percentage of
non-performing loans was 488.21% at December 31, 2005 as compared to 2,486.8% at June 30, 2005.



16



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##### Table of Contents

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



|                                               |              |                  |     |                    |   |      |  |      |     |  |   |    
|---------------------------------------------- | ------------ | ---------------- | --- | ------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                               |              | Six Months Ended |     | Three Months Ended
|                                               | December 31,
|                                               |              | 2005             |     | 2004               |   | 2005 |  | 2004
|Allowance for loan losses, beginning of period |              | $                | 945 |                    |   | 936  |  | $    | 946 |  |   | 937
|                                               |              |                  |     |                   
|Provision for loan losses                      |              |                  | 40  |                    |   | 85   |  |      | 20  |  |   | 50 
|                                               |              |                  |     |                   
|Loans Charged Off:                             |              |                  |     |                    |   |      |  |      |     |  |   |    
|Consumer                                       |              |                  | 97  |                    |   | 93   |  |      | 28  |  |   | 60 
|Real Estate                                    |              |                  | 0   |                    |   | 0    |  |      | 0   |  |   | 0  
|Commercial                                     |              |                  | 17  |                    |   | 64   |  |      | 5   |  |   | 24 
|                                               |              |                  |     |                    |   |      |  |      |     |  |   |    
|Total Charge-Offs                              |              |                  | 114 |                    |   | 157  |  |      | 33  |  |   | 84 
|                                               |              |                  |     |                   
|Recoveries:                                    |              |                  |     |                    |   |      |  |      |     |  |   |    
|Consumer                                       |              |                  | 23  |                    |   | 34   |  |      | 11  |  |   | 24 
|Real Estate                                    |              |                  | 0   |                    |   | 0    |  |      | 0   |  |   | 0  
|Commercial                                     |              |                  | 58  |                    |   | 34   |  |      | 8   |  |   | 5  
|                                               |              |                  |     |                    |   |      |  |      |     |  |   |    
|Total Recoveries                               |              |                  | 81  |                    |   | 68   |  |      | 19  |  |   | 29 
|                                               |              |                  |     |                    |   |      |  |      |     |  |   |    
|Allowance for loan losses, end of period       |              | $                | 952 |                    | $ | 932  |  | $    | 952 |  | $ | 932
|                                               |              |                  |     |                    |   |      |  |      |     |  |   |    



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



|                                                                |  |                     |      |   |                 |   |      |  
|--------------------------------------------------------------- |  | ------------------- | ---- | - | --------------- | - | ---- | -
|($ In thousands)                                                |  | At December 31,2005 |      |   | At June 30,2005 |  
|Loans accounted for on a non-accrual basis: (1)                 |  |                     |      |   |                 |   |      |  
|Real estate:                                                    |  |                     |      |   |                 |   |      |  
|Residential                                                     |  | $                   |     |   |                 | $ |     |  
|Commercial                                                      |  |                     |     |   |                 |   |     |  
|Construction                                                    |  |                     |     |   |                 |   |     |  
|Consumer                                                        |  |                     | 30   |   |                 |   | 16   |  
|Commercial Loan/Lease                                           |  |                     | 165  |   |                 |   | 22   |  
|                                                                |  |                     |      |   |                 |   |      |  
|Total                                                           |  | $                   | 195  |   |                 | $ | 38   |  
|Accruing loans which are contractually past due 90 days or more |  | $                   |     |   |                 | $ |     |  
|                                                                |  |                     |      |   |                 |   |      |  
|Total                                                           |  | $                   |     |   |                 | $ |     |  
|                                                                |  |                     |      |   |                 |   |      |  
|Total non-performing loans                                      |  | $                   | 195  |   |                 | $ | 38   |  
|                                                                |  |                     |      |   |                 |   |      |  
|Percentage of total loans                                       |  |                     | 0.11 | % |                 |   | 0.02 | %
|                                                                |  |                     |      |   |                 |   |      |  
|Other non-performing assets (2)                                 |  | $                   |     |   |                 | $ | 60   |  
|                                                                |  |                     |      |   |                 |   |      |  

---

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

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



At December 31, 2005, non-accrual loans consists of two commercial leases totaling
$76,000, one commercial loan totaling $90,000, one home equity loan with a balance of $24,000 and one secured consumer loan for $5,000. The commercial loan is secured by business assets, land and carries an SBA guarantee.



17



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##### Table of Contents

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 increased by $19,000 or 10.6% to $198,000 for the quarter ended December 31, 2005 from $179,000 for the quarter ended December 31,
2004. Total non-interest income increased by $132,000 or 42.7% to $441,000 during the six months ended December 31, 2005 from $309,000 during the six months ended December 31, 2004. Non-interest income has increased in the quarterly period
due to higher sales of investment products and higher service charges on deposit accounts. Non-interest income has increased in the six-month period due to the $64,000 gain on the sale of an office building as well as increased sales of investment
products and higher service charges on deposit accounts.



Non-interest Expenses



Total
non-interest expenses increased by $207,000 or 13.0% to $1.8 million for the quarter ended December 31, 2005 from $1.6 million for the quarter ended December 31, 2004. Total non-interest expense increased by $350,000 or 10.9% to $3.5
million during the six months ended December 31, 2005 from $3.2 million during the six months ended December 31, 2004. The primary reasons for the increases in both the three and six-month period is the additions to the loan production
staff and the cost of leasing the site where the Bank is building a new branch.



Income Taxes



Income tax expense was $213,000 (or 37.8% of income before the provision for income taxes) and $204,000 (or 36.20% of income before the provision for income taxes) for
the three month periods ended December 31, 2005 and 2004, respectively. Income tax expense was $399,000 (or 37.5% of income before the provision for income taxes) and $391,000 (or 36.0% of income before the provision for income taxes) for the
six month periods ended December 31, 2005 and 2004, respectively. The increase in the effective income tax rates is attributable to the lower percentage of total revenue attributable to tax- free income on Bank Owned Life Insurance.



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, 2005, the Companys cash on hand, interest-bearing deposits and Federal funds sold totaled $7.6 million. In addition, the Company has approximately $20.9 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 $10.7 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, 2005 totaled $37.8 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 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 $775,000 for the payment of common and preferred dividends as well as interest payments on the $5.0 million in subordinated debentures. The holding company currently has cash on hand of $3.2
million. The only 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 of the bank.



On January 20, 2006, the Company announced that it has elected to call for redemption
($25.00) per share or conversion (3.993 common stock for each share of preferred stock) all outstanding shares of preferred stock that



18



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##### Table of Contents

have not been converted into common stock at the election of the holders and remain outstanding on or prior to the close
of business on March 31, 2006, the redemption date. To the extent that any preferred shareholders choose to redeem rather than convert their preferred shares, the Companys cash and capital will be reduced. As the value of the conversion
option substantially exceeds the value of the redemption option, the Company anticipates that the vast majority of preferred shareholders will convert their shares into common.



As discussed in Note 5 - Regulatory Capital Requirements, the Company and 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, 2005      |        | June 30, 2005
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 10,683 |               | $ | 9,000
|Undisbursed lines of credit         |  |                        | 10,386 |               |   | 9,799
|Financial standby letters of credit |  |                        | 1,451  |               |   | 1,365



Contractual Obligations



The
following table sets forth the companys contractual obligations as of December 31, 2005:



|                                   |  |                  |        |              |   |              |  |              |        |  |   |       
|---------------------------------- |  | ---------------- | ------ | ------------ | - | ------------ |  | ------------ | ------ |  | - | ------
|                                   |  | Less than 1 year |        | 1 to 3 years |   | 4 to 5 years |  | Over 5 years
|                                   |  | ( In thousands) 
|Time Deposits                      |  | $                | 37,896 |              | $ | 21,682       |  | $            | 19,992 |  | $ | 2,707 
|Long-term borrowings               |  |                  | 6,750  |              |   | 4,700        |  |              | 8,100  |  |   | 14,000
|Lease obligations                  |  |                  | 237    |              |   | 323          |  |              | 310    |  |   | 2,520 
|                                   |  |                  |        |              |   |              |  |              |        |  |   |       
|Total Contractual Cash Obligations |  | $                | 44,883 |              | $ | 26,705       |  | $            | 28,402 |  | $ | 19,227
|                                   |  |                  |        |              |   |              |  |              |        |  |   |       



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.



19



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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
October 27, 2005:
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  |           |  |               |  |                  |  |        
|---------------------- |  | --------- |  | ------------- |  | ---------------- |  | -------
|                       |  | Votes For |  | Votes Against |  | Broker Non-votes |  | Abstain
|Election of Directors: |  |           |  |               |  |                  |  |        
|                       |  |           |  |              
|Thomas P. ONeill      |  | 1,184,038 |  | 63,528        |  |                 |  |       
|Douglas H. Ludwig      |  | 1,185,683 |  | 61,883        |  |                 |  |       



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



None



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



The following exhibits are filed herewith:



|               |  |                                                        
|-------------- |  | -------------------------------------------------------
|Exhibit Number |  | Title                                                  
|31.1           |  | Rule 13a-14(a) Certification of Chief Executive Officer
|               | 
|31.2           |  | Rule 13a-14(a) Certification of Chief Financial Officer
|               | 
|32             |  | Certification pursuant to 18 U.S.C. Section 1350       



20



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##### Table of Contents

Signatures



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



|                        |  |                                      
|----------------------- |  | -------------------------------------
|                        |  | PATAPSCO BANCORP, INC.               
|                        | 
|Date: February 14, 2006 |  |                                      
|                        |  | /s/ Joseph J. Bouffard               
|                        |  | Joseph J. Bouffard                   
|                        |  | President and Chief Executive Officer
|                        |  | (Principal Executive Officer)        
|                        | 
|Date: February 14, 2006 |  |                                      
|                        | 
|                        |  | /s/ Michael J. Dee                   
|                        |  | Michael J. Dee                       
|                        |  | Chief Financial Officer & Controller 
|                        |  | (Principal Financial Officer)        



21