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United States

Securities and Exchange Commission

Washington, D. C. 20549

FORM 10 - QSB

(Mark One)



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

For the quarterly period ended September 30, 2006



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

For the transition period from  to

Commission
File Number: 0-28032

PATAPSCO BANCORP, INC.

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



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Maryland                                                      |  | 52-1951797                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)

1301 Merritt Boulevard, Dundalk, Maryland 21222-2194

(Address of Principal Executive Offices)

(410) 285-1010

Issuers Telephone Number, Including Area Code

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

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

As of November 13, 2006, the issuer had 1,844,317 shares of Common Stock issued and outstanding.

Transitional Small Business
Disclosure Format (check one):

Yes ̈No  x



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##### Table of Contents

CONTENTS



|                              |  |                                                                                                                   |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                   |  | PAGE
|PART I. FINANCIAL INFORMATION |  |                                                                                                                  
|                              |  |                                                                                                                  
|Item 1.                       |  | Financial Statements                                                                                              |  |     
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Financial Condition at September 30, 2006 (Unaudited) and June 30, 2006                |  | 3   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Income for the Three-Month Periods Ended September 30, 2006 and 2005 (Unaudited)       |  | 4   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Comprehensive Income Three-Month Periods Ended September 30, 2006 and 2005 (Unaudited) |  | 5   
|                              |  |                                                                                                                  
|                              |  | Consolidated Statements of Cash Flows for the Three-Month Periods Ended September 30, 2006 and 2005 (Unaudited)   |  | 6   
|                              |  |                                                                                                                  
|                              |  | Notes to Consolidated Financial Statements (Unaudited)                                                            |  | 7   
|                              |  |                                                                                                                  
|Item 2.                       |  | Managements Discussion and Analysis or Plan of Operations                                                        |  | 10  
|                              |  |                                                                                                                  
|Item 3.                       |  | Controls and Procedures                                                                                           |  | 18  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                  
|                              |  |                                                                                                                  
|Item 1.                       |  | Legal Proceedings                                                                                                 |  | 18  
|                              |  |                                                                                                                  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                       |  | 18  
|                              |  |                                                                                                                  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                   |  | 18  
|                              |  |                                                                                                                  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                               |  | 18  
|                              |  |                                                                                                                  
|Item 5.                       |  | Other Information                                                                                                 |  | 18  
|                              |  |                                                                                                                  
|Item 6.                       |  | Exhibits                                                                                                          |  | 18  
|                              | 
|Signatures                    |  | 19                                                                                                               
|                              | 
|Certifications                |  |                                                                                                                  



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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)



|                                                                                                                               |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                               |  | September 302006 |         |   | June 30,2006 |  
|                                                                                                                               |  | (Unaudited)      |        
|Assets                                                                                                                         |  |                  |         |   |              |   |         |  
|Cash on hand and due from banks                                                                                                |  | $                | 3,486   |   |              | $ | 4,839   |  
|Interest bearing deposits in other banks                                                                                       |  |                  | 881     |   |              |   | 968     |  
|Federal funds sold                                                                                                             |  |                  | 153     |   |              |   | 2,381   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Cash & cash equivalents                                                                                                        |  |                  | 4,520   |   |              |   | 8,188   |  
|Time deposits in other financial institutions                                                                                  |  |                  | 602     |   |              |   | 605     |  
|Securities available for sale                                                                                                  |  |                  | 16,541  |   |              |   | 16,667  |  
|Loans receivable, net of allowance for loan losses of $1,007 and $1,000, respectively                                          |  |                  | 202,880 |   |              |   | 190,589 |  
|Investments required by law, at cost                                                                                           |  |                  | 2,539   |   |              |   | 2,416   |  
|Property and equipment, net                                                                                                    |  |                  | 2,640   |   |              |   | 2,175   |  
|Goodwill and other intangible assets                                                                                           |  |                  | 3,341   |   |              |   | 3,354   |  
|Accrued interest and other assets                                                                                              |  |                  | 4,201   |   |              |   | 4,076   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total assets                                                                                                                   |  | $                | 237,264 |   |              | $ | 228,070 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Liabilities and Stockholders Equity                                                                                           |  |                  |         |   |              |   |         |  
|Liabilities:                                                                                                                   |  |                  |         |   |              |   |         |  
|Deposits:                                                                                                                      |  |                  |         |   |              |   |         |  
|Non interest bearing deposits                                                                                                  |  | $                | 12,103  |   |              | $ | 13,186  |  
|Interest bearing deposits                                                                                                      |  |                  | 161,716 |   |              |   | 153,647 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total deposits                                                                                                                 |  |                  | 173,819 |   |              |   | 166,833 |  
|Junior Subordinated Debentures                                                                                                 |  |                  | 5,000   |   |              |   | 5,000   |  
|Long -term debt                                                                                                                |  |                  | 37,800  |   |              |   | 35,050  |  
|Accrued expenses and other liabilities                                                                                         |  |                  | 1,888   |   |              |   | 2,899   |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                              |  |                  | 218,507 |   |              |   | 209,782 |  
|Temporary equity  ESOP shares subject to put option                                                                           |  |                  | 1,064   |   |              |   | 1,121   |  
|Stockholders equity:                                                                                                          |  |                  |         |   |              |   |         |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,844,317 and 1,813,925 shares, respectively |  |                  | 18      |   |              |   | 18      |  
|Additional paid-in capital                                                                                                     |  |                  | 7,076   |   |              |   | 6,950   |  
|Deferred compensation, contra                                                                                                  |  |                  | (78     | ) |              |   | (78     | )
|Obligation under deferred compensation                                                                                         |  |                  | 413     |   |              |   | 395     |  
|Retained earnings, substantially restricted                                                                                    |  |                  | 10,557  |   |              |   | 10,317  |  
|Accumulated other comprehensive loss, net of taxes                                                                             |  |                  | (293    | ) |              |   | (435    | )
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total stockholders equity - permanent                                                                                         |  |                  | 17,693  |   |              |   | 17,167  |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total stockholders equity  incl. temporary equity                                                                            |  |                  | 18,757  |   |              |   | 18,288  |  
|                                                                                                                               |  |                  |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                     |  | $                | 237,264 |   |              | $ | 228,070 |  
|                                                                                                                               |  |                  |         |   |              |   |         |  

See accompanying notes to financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

($ in thousands except for per share data)



|                                                    |  |                                    |        |      |   |       
|--------------------------------------------------- |  | ---------------------------------- | ------ | ---- | - | ------
|                                                    |  | For Three MonthsEnded September 30
|                                                    |  | 2006                               |        | 2005
|Interest income:                                    |  |                                    |        |      |   |       
|Loans receivable                                    |  | $                                  | 3,600  |      | $ | 2,767 
|Investment securities                               |  |                                    | 213    |      |   | 242   
|Federal funds sold and other investments            |  |                                    | 25     |      |   | 37    
|                                                    |  |                                    |        |      |   |       
|Total interest income                               |  |                                    | 3,838  |      |   | 3,046 
|                                                    |  |                                    |        |      |   |       
|Interest expense:                                   |  |                                    |        |      |   |       
|Deposits                                            |  |                                    | 1,140  |      |   | 769   
|Short-term borrowings                               |  |                                    | 34     |      |   | 2     
|Long-term debt                                      |  |                                    | 459    |      |   | 254   
|                                                    |  |                                    |        |      |   |       
|Total interest expense                              |  |                                    | 1,633  |      |   | 1,025 
|                                                    |  |                                    |        |      |   |       
|Net interest income                                 |  |                                    | 2,205  |      |   | 2,021 
|Provision for loan losses                           |  |                                    | 40     |      |   | 20    
|                                                    |  |                                    |        |      |   |       
|Net interest income after provision for loan losses |  |                                    | 2,165  |      |   | 2,001 
|Non-interest income:                                |  |                                    |        |      |   |       
|Fees and service charges                            |  |                                    | 162    |      |   | 138   
|Gain on sale of office building                     |  |                                    |       |      |   | 63    
|Other                                               |  |                                    | 25     |      |   | 42    
|                                                    |  |                                    |        |      |   |       
|Total non-interest income                           |  |                                    | 187    |      |   | 243   
|                                                    |  |                                    |        |      |   |       
|Non-interest expenses:                              |  |                                    |        |      |   |       
|Compensation and employee benefits                  |  |                                    | 1,143  |      |   | 1,080 
|Professional fees                                   |  |                                    | 59     |      |   | 43    
|Equipment expense                                   |  |                                    | 68     |      |   | 83    
|Net occupancy costs                                 |  |                                    | 136    |      |   | 159   
|Advertising                                         |  |                                    | 25     |      |   | 26    
|Data processing                                     |  |                                    | 74     |      |   | 64    
|Amortization of core deposit intangible             |  |                                    | 13     |      |   | 13    
|Telephone, postage and delivery                     |  |                                    | 60     |      |   | 71    
|Other                                               |  |                                    | 207    |      |   | 205   
|                                                    |  |                                    |        |      |   |       
|Total noninterest expense                           |  |                                    | 1,785  |      |   | 1,744 
|                                                    |  |                                    |        |      |   |       
|Income before provision for income taxes            |  |                                    | 567    |      |   | 500   
|Provision for income taxes                          |  |                                    | 211    |      |   | 187   
|                                                    |  |                                    |        |      |   |       
|Net Income                                          |  | $                                  | 356    |      | $ | 313   
|                                                    |  |                                    |        |      |   |       
|Preferred dividends declared                        |  |                                    |       |      |   | 43    
|                                                    |  |                                    |        |      |   |       
|Net Income available to common stockholders         |  | $                                  | 356    |      | $ | 270   
|                                                    |  |                                    |        |      |   |       
|Basic earnings per share                            |  | $                                  | 0.19   |      | $ | 0.18  
|                                                    |  |                                    |        |      |   |       
|Diluted earnings per share                          |  | $                                  | 0.19   |      | $ | 0.16  
|                                                    |  |                                    |        |      |   |       
|Cash dividends declared per common share            |  | $                                  | 0.0625 |      | $ | 0.0625
|                                                    |  |                                    |        |      |   |       

See accompanying notes to financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

($ in thousands)



|                                                                                           |  |                                     |     |      |   |    
|------------------------------------------------------------------------------------------ |  | ----------------------------------- | --- | ---- | - | ---
|                                                                                           |  | For Three MonthsEnded September 30,
|                                                                                           |  | 2006                                |     | 2005
|Net income                                                                                 |  | $                                   | 356 |      | $ | 313
|Unrealized net holding gains on securities available for sale, net of taxes of $89 and $24 |  |                                     | 142 |      |   | 39 
|                                                                                           |  |                                     |     |      |   |    
|Comprehensive income                                                                       |  | $                                   | 498 |      | $ | 352
|                                                                                           |  |                                     |     |      |   |    

See accompanying notes to financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

($ in thousands)



|                                                                                        |  |                                     |         |   |      |   |        |  
|--------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                        |  | For Three MonthsEnded September 30, |        
|                                                                                        |  | 2006                                |         |   | 2005 |  
|Cash flows from operating activities:                                                   |  |                                     |         |   |      |   |        |  
|Net income                                                                              |  | $                                   | 356     |   |      | $ | 313    |  
|Adjustments to reconcile net income to net cash provided by operating activities:       |  |                                     |         |   |      |   |        |  
|Depreciation                                                                            |  |                                     | 65      |   |      |   | 75     |  
|Provision for loan losses                                                               |  |                                     | 40      |   |      |   | 20     |  
|Amortization (accretion) of premiums and discounts, net                                 |  |                                     | 4       |   |      |   | (9     | )
|Amortization of deferred loan origination fees, net of costs                            |  |                                     | (8      | ) |      |   | (8     | )
|Amortization of core deposit intangible                                                 |  |                                     | 13      |   |      |   | 13     |  
|Income from bank-owned life insurance                                                   |  |                                     | (16     | ) |      |   | (15    | )
|Gain on sale of office building                                                         |  |                                     |        |   |      |   | (63    | )
|(Increase) Decrease in accrued interest and other assets                                |  |                                     | (172    | ) |      |   | 182    |  
|Non-cash compensation under stock based benefit plan                                    |  |                                     | 16      |   |      |   |       |  
|Increase in accrued expenses and other liabilities                                      |  |                                     | 123     |   |      |   | 39     |  
|                                                                                        |  |                                     |         |   |      |   |        |  
|Net cash provided by operating activities                                               |  |                                     | 421     |   |      |   | 547    |  
|                                                                                        |  |                                     |         |   |      |   |        |  
|Cash flows from investing activities:                                                   |  |                                     |         |   |      |   |        |  
|Loan principal disbursements, net of repayments                                         |  |                                     | (11,784 | ) |      |   | (2,349 | )
|Purchase of consumer loans                                                              |  |                                     | (540    | ) |      |   | (2,217 | )
|Proceeds from maturing investments and principal payments on mortgage backed securities |  |                                     | 347     |   |      |   | 1,941  |  
|Purchase of investment securities required by law                                       |  |                                     | (123    | ) |      |   | (123   | )
|Cash received in sale of premises and equipment                                         |  |                                     |        |   |      |   | 154    |  
|Purchase of investment securities                                                       |  |                                     | (2      | ) |      |   |       |  
|Purchase of property and equipment                                                      |  |                                     | (530    | ) |      |   | (139   | )
|                                                                                        |  |                                     |         |   |      |   |        |  
|Net cash used in investing activities                                                   |  |                                     | (12,632 | ) |      |   | (2,733 | )
|Cash flows from financing activities:                                                   |  |                                     |         |   |      |   |        |  
|Net increase (decrease) in deposits                                                     |  |                                     | 6,998   |   |      |   | (193   | )
|Proceeds from short-term borrowings                                                     |  |                                     | 2,250   |   |      |   | 3,250  |  
|Payments of short-term borrowings                                                       |  |                                     | (2,250  | ) |      |   | (1,250 | )
|Proceeds from long-term borrowings                                                      |  |                                     | 5,000   |   |      |   | 3,000  |  
|Payments of long-term borrowings                                                        |  |                                     | (2,250  | ) |      |   | (1,334 | )
|Decrease in advance payments by borrowers                                               |  |                                     | (1,136  | ) |      |   | (1,180 | )
|Cash received from exercise of stock options                                            |  |                                     | 46      |   |      |   | 25     |  
|Dividends paid                                                                          |  |                                     | (115    | ) |      |   | (125   | )
|                                                                                        |  |                                     |         |   |      |   |        |  
|Net cash provided by financing activities                                               |  |                                     | 8,543   |   |      |   | 2,193  |  
|                                                                                        |  |                                     |         |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                                    |  | $                                   | (3,668  | ) |      |   | 7      |  
|Cash and cash equivalents at beginning of period                                        |  |                                     | 8,188   |   |      |   | 7,648  |  
|                                                                                        |  |                                     |         |   |      |   |        |  
|Cash and cash equivalents end of period                                                 |  | $                                   | 4,520   |   |      | $ | 7,655  |  
|                                                                                        |  |                                     |         |   |      |   |        |  
|Supplemental information:                                                               |  |                                     |         |   |      |   |        |  
|Interest paid on deposits and borrowed funds                                            |  | $                                   | 1,637   |   |      | $ | 1,174  |  
|Income taxes paid                                                                       |  |                                     | 70      |   |      |   | 73     |  
|                                                                                        |  |                                     |         |   |      |   |        |  

See accompanying notes to financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1:
Principles of Consolidation

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

Note 2: The Patapsco Bank

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

Note 3: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-QSB and therefore, do not include all
disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America. However, all adjustments that are, in the opinion of management, necessary for
the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three months ended September 30, 2006 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, 2006.

Note 4: Cash and Cash Equivalents

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

Note 5: Regulatory Capital Requirements

On
February 27, 2006, The Board of Governors of the Federal Reserve System (Board) announced the approval of a final rule that expands the definition of a small bank holding company under the Boards Small Bank Holding Company Policy
Statement and the Boards risk based and leverage capital guidelines for bank holding companies. The Company has been informed by the Federal Reserve Bank of Richmond that it meets the expanded criteria for definition as a small bank holding
company. One result of this rule change is that the Company is now exempt from the Boards consolidated risk-based and leverage capital adequacy guidelines for Bank Holding Companies. The Banks regulatory capital guidelines remain
unchanged.

At September 30, 2006, the Bank met each of the three minimum regulatory capital requirements.



7



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The following table summarizes the Banks regulatory capital position at September 30, 2006 (in thousands).



|                                         |  |        |        |   |                              |   |        |                                                          |        |  |      |        |  |   |        |  |    |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | -------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | -- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provisions |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                          | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 18,673 |   | 10.75                        | % |        | $                                                        | 13,894 |  | 8.00 | %      |  | $ | 17,367 |  | 10 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 17,666 |   | 10.17                        | % |        | $                                                        | 6,947  |  | 4.00 | %      |  | $ | 10,420 |  | 6  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 17,666 |   | 7.78                         | % |        | $                                                        | 9,085  |  | 4.00 | %      |  | $ | 11,357 |  | 5  | %

The following table summarizes the Banks regulatory capital position at June 30, 2006 (in thousands).



|                                         |  |        |        |   |                              |   |        |                                                          |        |  |      |        |  |   |        |  |    |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | -------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | -- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provisions |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                          | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 18,144 |   | 11.25                        | % |        | $                                                        | 12,904 |  | 8.00 | %      |  | $ | 16,130 |  | 10 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 17,144 |   | 10.63                        | % |        | $                                                        | 6,452  |  | 4.00 | %      |  | $ | 9,678  |  | 6  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 17,144 |   | 7.66                         | % |        | $                                                        | 8,958  |  | 4.00 | %      |  | $ | 11,197 |  | 5  | %

Note 6: Earnings Per Share

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



|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|------------------------------------------ |  | ------------------------------------ | ----- | ------------------------------------ | - | ----- |  | ------- | ----- |  | - | -----
|                                           |  | Three Months EndedSeptember 30, 2006 |       | Three Months EndedSeptember 30, 2005
|                                           |  | Basic                                |       | Diluted                              |   | Basic |  | Diluted
|($ in thousands except for per share data) |  |                                      |       |                                      |   |       |  |        
|Net Income                                 |  | $                                    | 356   |                                      | $ | 356   |  | $       | 313   |  | $ | 313  
|Preferred Stock Dividends                  |  |                                      |      |                                      |   |      |  |         | 43    |  |   |     
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Net Income Available to Common             |  | $                                    | 356   |                                      | $ | 356   |  | $       | 270   |  | $ | 313  
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Weighted average shares outstanding        |  |                                      | 1,875 |                                      |   | 1,875 |  |         | 1,461 |  |   | 1,461
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Diluted Securities:                        |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Preferred Stock                            |  |                                      |      |                                      |   |      |  |         |      |  |   | 368  
|Options                                    |  |                                      |      |                                      |   | 48    |  |         |      |  |   | 92   
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares           |  |                                      | 1,875 |                                      |   | 1,923 |  |         | 1,461 |  |   | 1,921
|                                           |  |                                      |       |                                      |   |       |  |         |       |  |   |      
|Per Share Amount                           |  | $                                    | 0.19  |                                      | $ | 0.19  |  | $       | 0.18  |  | $ | 0.16 



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Note 7: Goodwill and Intangible Assets

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

Note 8: Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit
written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters
of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company, generally, holds collateral and/or personal guarantees supporting these commitments. The Company had $1,456,000 of standby letters
of credit as of September 30, 2006 and $1,583,000 outstanding as of June 30, 2006. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the
potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of September 30, 2006 and June 30, 2006 for guarantees under standby letters of credit issued is not material.

Note 9: Recent Accounting Pronouncements

FAS 157

In September 2006, the FASB issued
FASB Statement No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other
accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We
are currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on our consolidated financial position, results of operations and cash flows.

FAS 158

On September 29, 2006, the
Financial Accounting Standards Board FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158), which amends SFAS 87 and SFAS 106 to require
recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and
SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date 
the date at which the benefit obligation and plan assets are measured  is required to be the companys fiscal year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the
measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The Company has analyzed the effects of SFAS 158 but does not expect its implementation will have a significant impact on the Companys
financial conditions or results of operations.

SAB 108

On September 13, 2006, the Securities and Exchange Commission SEC issued Staff Accounting Bulleting No. 108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, Companies might evaluate the materiality of financial-statement misstatements using either the income
statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a companys balance
sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material
according to either the income statement or balance sheet approach.



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The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial conditions.

FASB Staff Position AUG AIR-1

In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities which is effective for fiscal years beginning after December 15, 2006. This position statement eliminates
the accrue-in-advance method of accounting for planned major maintenance activities. We do not expect this pronouncement to have a significant impact on the determination or reporting of our financial results.

FAS 123(R)

In December 2004, the FASB
issued SFAS No. 123 (revised), Share-Based Payment (SFAS 123(R)). SFAS 123(R) replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), and supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee
provides services in exchange for the award. The Company will adopt effective July 1, 2006, the new standard using the modified prospective method. Under the modified prospective method, companies are required to record compensation cost for
new and modified awards over the related vesting period of such awards prospectively, and to record compensation cost prospectively on the non-vested portion, at the date of adoption, of previously issued and outstanding awards over the remaining
vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. The Company recognized pre-tax expense of approximately $5,600 in the quarter ending September 30, 2006 for the expense
related to the final scheduled vesting of all outstanding stock option awards. No options have been granted since August 3, 2000. Any additional impact of adopting the new accounting standard will be determined by share-based payments granted
in future periods.

A summary of share option activity for the three month period ended September 30, 2006 follows:



|                              |  |         |  |                              |      |                                                  |     |                                |   |    
|----------------------------- |  | ------- |  | ---------------------------- | ---- | ------------------------------------------------ | --- | ------------------------------ | - | ---
|                              |  | Shares  |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm in Years |     | AggregateIntrinsicValue (000s)
|Outstanding at July 1, 2006   |  | 138,495 |  | $                            | 5.62 |                                                  | 3.6 |                                | $ | 704
|Granted                       |  | 0       |  |                              |     |                                                  |    |                                |   |    
|Exercised                     |  | 42,584  |  |                              | 4.62 |                                                  | 0   |                                |   | 173
|Forfeited or expired          |  | 0       |  |                              |     |                                                  |    |                                |   |    
|Balance at September 30, 2006 |  | 95,911  |  | $                            | 6.07 |                                                  | 4.7 |                                |   | 406



|Item 2. | Managements Discussion and Analysis or Plan 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 available for sale, and the interest paid on interest-bearing liabilities, consisting primarily of deposits and borrowings. 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



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Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets mature or reprice at different
times, or on a different basis, than its interest-bearing liabilities. The Companys results of operations are also significantly impacted by the amount of its non-interest income, including loan fees and service charges, and levels of
non-interest expense, which consists principally of compensation and employee benefits, professional fees, equipment expense, occupancy costs, advertising, data processing, telephone, 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 consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this
information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater
possibility of producing results that could be materially different than originally reported. These estimates, assumptions and judgments are necessary when financial instruments are required to be recorded at fair value or when the decline in the
value of an asset carried on the balance sheet at historic cost requires an impairment write-down or a valuation reserve to be established.

The allowance
for loan losses (allowance) represents an amount, that in the judgment of management, will be adequate to absorb probable losses on outstanding loans and leases that may become uncollectible. The allowance represents an estimate made
based upon two principles of accounting: (1) Statement of Financial Accounting Standards (SFAS) No.5 Accounting for Contingencies, that requires losses to be accrued when their occurrence is probable and estimable, and
(2) SFAS No. 114 Accounting by Creditors for Impairment of a Loan, that requires losses be accrued when it is probable that the lender will not collect all principal and interest due under the original term of the loan. The
adequacy of the allowance is determined through careful evaluation of the loan portfolio. This determination is inherently subjective and requires significant estimates, including estimated losses on pools of homogeneous loans based on historical
loss experience and consideration of the current economic environment that may be subject to change. Loans and leases deemed uncollectible are charged against the allowance and recoveries of previously charged-off amounts are credited to it. The
level of the allowance is adjusted through the provision for loan losses that is recorded as a current period expense.

The methodology for assessing the
appropriateness of the allowance includes a specific allowance and a formula allowance. The specific allowance is for risk rated credits on an individual basis. The formula allowance reflects historical losses by credit category.



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##### Table of Contents

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

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

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

Comparison of Financial Condition at September 30, 2006 and June 30, 2006

The Companys assets
increased by $9.2 million, or 4.0% to $237.3 million at September 30, 2006 from $228.1 million at June 30, 2006.

Total loans grew by $12.3
million or 6.5% to $202.9million at September 30, 2006 from $190.6 million at June 30, 2006. The growth in loans includes a $0.5 million purchase of consumer loans. Growth in commercial business loans of $7.8 million, construction loans of
$3.2 million, commercial mortgages of $1.4 million and consumer loans of $1.0 million offset decreases in commercial leases and residential mortgages. Securities available for sale remained flat at $16.5 million as amortization of the
mortgage-backed securities portfolio was offset by an increase in the market value of the portfolio.

Interest-bearing deposits increased $8.1 million or
5.3% to $161.7 million at September 30, 2006 from $153.6 million at June 30, 2006. Non-interest bearing deposits decreased $1.1 million or 8.2% to $12.1 million at September 30, 2006 from $13.2 million at June 30, 2006. During
the quarter ended September 30, 2006, the Company acquired $9.0 million in brokered deposits to fund loan growth and to offset the decline in non-interest bearing deposits and a $0.9 million decrease in interest-bearing retail deposits.
Additionally, borrowings from the Federal Home Loan Bank of Atlanta increased by $2.8 million or 7.9% to $37.8 million at September 30, 2006 from $35.1 million at June 30, 2006.

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

Net Income

The Companys net
income increased by $43,000 or 13.7% to $356,000 for the quarter ended September 30, 2006 from $313,000 for the quarter ended September 30, 2005. The increase in the Companys net income during the three-month period was due to higher
net interest income offsetting a higher provision for loan losses, lower non-interest income and slightly higher operating expenses.

Interest Income

Total interest income increased by $792,000 or 26.0% to $3.8 million for the quarter ended
September 30, 2006 from $3.0 million for the quarter ended September 30, 2005. Higher average balances in the loan portfolio and higher average rates earned in all asset categories offset lower volumes in other interest-bearing assets. The
yield on earning assets increased by 70 basis points to 7.08% in the quarter ended September 30, 2006 compared to 6.38% in the quarter ended September 30, 2005.



12



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##### Table of Contents

Interest income on loans receivable increased by $833,000 or 30.1% to $3.6 million for the quarter ended
September 30, 2006 from $2.8 million for the quarter ended September 30, 2005. The increase in interest income on loans receivable during the three-month period is due to both the higher average balance of loans receivable and an increase
in the average yield earned on the loan portfolio. During the three months ended September 30, 2006 as compared to the same period ended September 30, 2005 the average loans receivable balance increased by $34.4 million to $195.5 million
from $161.0 million and the average yield increased by 50 basis points to 7.37% from 6.87%.

Interest income on investment securities, including
investments required by law, decreased by $29,000 or 12.0% as the $6.3 million decrease in the average balance was offset higher rates earned on these investments.

Interest income on federal funds sold and other investments decreased $12,000 or 32.4% to $25,000 as lower average balances outstanding offset higher rates earned.

Interest Expense

Total interest
expense increased by $608,000 or 59.3% to $1.6 million for the quarter ended September 30, 2006 from $1.0 million for the quarter ended September 30, 2005 due to both higher rates paid and higher average balances of interest-bearing
liabilities. Interest expense on deposits increased by $371,000 or 48.2% to $1.1 million from $769,000 primarily due to higher rates paid on deposits. Interest expense on borrowings increased $237,000 or 92.6% primarily due to higher average
balances outstanding.

Net Interest Income

The Companys net interest income increased by $184,000 or 9.1% to $2.2 million for the quarter ended September 30, 2006 from $2.0 million for the quarter ended September 30, 2005. The increase in net
interest income during the comparable three-month period was primarily due to higher average balances of interest-earning assets outstanding offsetting a decrease in the net interest margin to 4.07% from 4.24%.

Average Balance, Interest and Average Yields and Rates

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

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



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|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -------- | ---- | ----------------- |  | ------ | -------------- |  | -------- | ------- | ----------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three months ended September 30, |        
|                                                                                 |  | 2006                             |         |          | 2005 |                  
|                                                                                 |  | AverageBalance                   |         | Interest |      | AverageYield/Cost |  |        | AverageBalance |  | Interest |         | AverageYield/Cost |  
|                                                                                 |  | (Dollars in thousands)           |        
|Interest-earning assets:                                                         |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Loans receivable (1)                                                             |  | $                                | 195,468 |          | $    | 3,600             |  | 7.37   | %              |  | $        | 161,022 |                   | $ | 2,767 |  | 6.87   | %
|Investment and mortgage-backed securities(2)                                     |  |                                  | 19,051  |          |      | 213               |  | 4.48   |                |  |          | 25,371  |                   |   | 242   |  | 3.81   |  
|Short-term investments and other interest-earning assets                         |  |                                  | 2,264   |          |      | 25                |  | 4.43   |                |  |          | 4,524   |                   |   | 37    |  | 3.27   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-earning assets                                                    |  |                                  | 216,783 |          |      | 3,838             |  | 7.08   |                |  |          | 190,917 |                   |   | 3,046 |  | 6.38   |  
|Non-interest-earning assets                                                      |  |                                  | 13,914  |          |      |                   |  |        |                |  |          | 13,176  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total assets                                                                     |  | $                                | 230,697 |          |      |                   |  |        |                |  | $        | 204,093 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Deposits (3)                                                                     |  | $                                | 156,779 |          | $    | 1,140             |  | 2.91   |                |  | $        | 151,208 |                   |   | 769   |  | 2.03   |  
|Short-term borrowings                                                            |  |                                  | 2,424   |          |      | 34                |  | 5.59   |                |  |          | 253     |                   |   | 2     |  | 3.62   |  
|Long-term borrowings                                                             |  |                                  | 38,167  |          |      | 459               |  | 4.81   |                |  |          | 21,362  |                   |   | 254   |  | 4.76   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                  | 197,370 |          |      | 1,633             |  | 3.31   |                |  |          | 172,823 |                   |   | 1,025 |  | 2.37   |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                                  | 14,785  |          |      |                   |  |        |                |  |          | 13,577  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities                                                                |  |                                  | 212,155 |          |      |                   |  |        |                |  |          | 186,400 |                   |   |       |  |        |  
|Total Equity                                                                     |  |                                  | 18,542  |          |      |                   |  |        |                |  |          | 17,693  |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Total liabilities and equity                                                     |  | $                                | 230,697 |          |      |                   |  |        |                |  | $        | 204,093 |                   |   |       |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest income                                                              |  |                                  |         |          | $    | 2,205             |  |        |                |  |          |         |                   | $ | 2,021 |  |        |  
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Net interest margin                                                              |  |                                  |         |          |      |                   |  | 4.07   | %              |  |          |         |                   |   |       |  | 4.24   | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Interest rate spread                                                             |  |                                  |         |          |      |                   |  | 3.77   | %              |  |          |         |                   |   |       |  | 4.01   | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                  |         |          |      |                   |  | 109.84 | %              |  |          |         |                   |   |       |  | 110.47 | %
|                                                                                 |  |                                  |         |          |      |                   |  |        |                |  |          |         |                   |   |       |  |        |  



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



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



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



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Provision For Loan Losses

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

The provision for
loan losses was $40,000 in the quarter ended September 30, 2006, compared to $20,000 for the quarter ended September 30, 2005. The Companys allowance for loan losses as a percentage of total loans outstanding has decreased to 0.50%
of total loans at September 30, 2006 from 0.52% at June 30, 2006. The Companys allowance for loan losses as a percentage of non-performing loans was 367.5% at September 30, 2006 as compared to 409.8% at June 30, 2006. The
Company has concluded after analyzing the non-performing loan portfolio and the factors mentioned above, that the allowance is adequate.

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



|                                               |  |                                 |       |      |   |    
|---------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ---
|                                               |  | Three Months EndedSeptember 30,
|($ in thousands)                               |  | 2006                            |       | 2005
|Allowance for loan losses, beginning of period |  | $                               | 1,000 |      |   | 945
|Provision for loan losses                      |  |                                 | 40    |      |   | 20 
|Loans Charged Off:                             |  |                                 |       |      |   |    
|Consumer                                       |  |                                 | 29    |      |   | 69 
|Real Estate                                    |  |                                 |      |      |   |   
|Commercial loan                                |  |                                 |      |      |   |   
|Commercial lease                               |  |                                 | 77    |      |   | 12 
|                                               |  |                                 |       |      |   |    
|Total Charge-Offs                              |  |                                 | 106   |      |   | 81 
|Recoveries:                                    |  |                                 |       |      |   |    
|Consumer                                       |  |                                 | 18    |      |   | 11 
|Real Estate                                    |  |                                 |      |      |   |   
|Commercial loan                                |  |                                 | 22    |      |   | 4  
|Commercial lease                               |  |                                 | 33    |      |   | 47 
|                                               |  |                                 |       |      |   |    
|Total Recoveries                               |  |                                 | 73    |      |   | 62 
|                                               |  |                                 |       |      |   |    
|Allowance for loan losses, end of period       |  | $                               | 1,007 |      | $ | 946
|                                               |  |                                 |       |      |   |    



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



|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|--------------------------------------------------------------- |  | --------------- | ---- | - | -------------- | - | ---- | --------------- |  | - | ---- | -
|                                                                |  | AtSept. 30,2006 |      |   | AtJune 30,2006 |   |      | AtSept. 30,2005 | 
|                                                                |  | (In thousands)  |     
|Loans accounted for on a non-accrual basis: (1)                 |  |                 |      |   |                |   |      |                 |  |   |      |  
|Real estate:                                                    |  |                 |      |   |                |   |      |                 |  |   |      |  
|Residential                                                     |  | $               |     |   |                | $ | 13   |                 |  | $ |     |  
|Commercial                                                      |  |                 |     |   |                |   |     |                 |  |   |     |  
|Construction                                                    |  |                 |     |   |                |   |     |                 |  |   |     |  
|Consumer                                                        |  |                 | 12   |   |                |   | 7    |                 |  |   |     |  
|Commercial loan                                                 |  |                 | 142  |   |                |   | 146  |                 |  |   |      |  
|Commercial lease                                                |  |                 | 120  |   |                |   | 78   |                 |  |   | 99   |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Total                                                           |  | $               | 274  |   |                | $ | 244  |                 |  | $ | 99   |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Accruing loans which are contractually past due 90 days or more |  | $               |     |   |                | $ |     |                 |  | $ |     |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Total                                                           |  | $               |     |   |                | $ |     |                 |  | $ |     |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Total non-performing loans                                      |  | $               | 274  |   |                | $ | 244  |                 |  | $ | 99   |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Percentage of total loans                                       |  |                 | 0.13 | % |                |   | 0.13 | %               |  |   | 0.06 | %
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  
|Other non-performing assets (2)                                 |  | $               | 24   |   |                | $ |     |                 |  | $ |     |  
|                                                                |  |                 |      |   |                |   |      |                 |  |   |      |  

---

|(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 September 30, 2006, non-accrual loans consisted of one commercial loan with a balance of $142,000 and an 85% SBA guarantee, four commercial equipment leases
totaling $120,000 and one consumer loan with a balance of $12,000. Other repossessed assets represents the estimated fair value, less selling costs of a truck that was repossessed off of an equipment lease. The equipment is scheduled to be sold at
auction in the quarter ended December 31, 2006.

The Company had no loans not classified as non-accrual, 90 days past due or restructured where known
information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may subsequently result in disclosure as non-accrual, 90 days past
due or restructured.

Non-interest Income

The Companys non-interest income consists of deposit fees, service charges, income from bank owned life insurance (BOLI) and gains on the sale of loans, securities and other assets. Total non-interest income
decreased by $56,000 or 23.1% to $187,000 for the quarter ended September 30, 2006 from $243,000 for the quarter ended September 30, 2005. The quarter ended September 30, 2005 included a one-time gain on the sale of an office building
of $63,000.

Non-interest Expenses

Total non-interest expenses increased by $41,000 or 2.49% to $1.78 million for the quarter ended September 30, 2006 from $1.74 million for the quarter ended September 30, 2005. Increases in compensation and
benefits and professional fees offset decreases in occupancy, equipment and telephone, postage & delivery expense.



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##### Table of Contents

Income Taxes

Income tax expense was $211,000 (or 37.2% of income before the provision for income taxes) and $187,000 (or 37.4% of income before the provision for income taxes) for the periods ended September 30, 2006 and
2005, respectively.

Liquidity and Capital Resources

An important component of the Companys asset/liability structure is the level of liquidity available to meet the needs of customers and creditors. The Companys Asset/Liability Management Committee has
established general guidelines for the maintenance of prudent levels of liquidity. The Committee continually monitors the amount and source of available liquidity, the time to acquire it and its cost. Management of the Company seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide lower rates of return, the Companys relatively high liquidity will, to a
certain extent, result in lower rates of return on assets.

The Companys most liquid assets are cash on hand, interest-bearing deposits and Federal
funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are readily convertible to known amounts of cash. The levels of these assets are dependent on the Companys operating, financing
and investing activities during any given period. At September 30, 2006, the Companys cash on hand, interest-bearing deposits and Federal funds sold totaled $4.5 million. In addition, the Company has approximately $16.5 million of
investment securities classified as available-for-sale, none of which are pledged.

The Company anticipates that it will have sufficient funds available to
meet its current loan commitments of $15.6 million and unused lines of credit of $11.6 million. Certificates of deposit that are scheduled to mature in less than one year at September 30, 2006 totaled $55.7 million. Historically, a high
percentage of maturing deposits have remained with the Company.

The Company, as the holding company for the Bank, has an annual cash requirement of
approximately $800,000 for the payment of common dividends and debt service on the subordinated debentures. The only source of funds for the holding company is dividends from the Bank. The amount of dividends that can be paid to the holding company
from the bank is limited by the earnings of the bank. At September 30, the Company had cash on hand of $2.6 million.

Contingencies and Off-Balance Sheet Items

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

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



|                                    |  |                        |        |              |   |       
|----------------------------------- |  | ---------------------- | ------ | ------------ | - | ------
|                                    |  | September 30,2006      |        | June 30,2006
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 15,574 |              | $ | 13,860
|Undisbursed lines of credit         |  |                        | 11,602 |              |   | 11,161
|Financial standby letters of credit |  |                        | 1,487  |              |   | 1,583 

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

Contractual Obligations

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



|                                                        |  |                        |        |             |   |            |  |             |        |       |   |        |  |   |        
|------------------------------------------------------- |  | ---------------------- | ------ | ----------- | - | ---------- |  | ----------- | ------ | ----- | - | ------ |  | - | -------
|                                                        |  | < 1 year               |        | 1 to 3Years |   | 4  5Years |  | Over 5Years |        | Total
|                                                        |  | (dollars in thousands)
|Time Deposits                                           |  | $                      | 55,746 |             | $ | 22,639     |  | $           | 18,662 |       | $ | 204    |  | $ | 97,251 
|Long-term borrowings, including subordinated debentures |  |                        | 8,700  |             |   | 4,000      |  |             | 5,100  |       |   | 25,000 |  |   | 42,800 
|Lease obligations                                       |  |                        | 199    |             |   | 314        |  |             | 310    |       |   | 2,450  |  |   | 3,273  
|                                                        |  |                        |        |             |   |            |  |             |        |       |   |        |  |   |        
|Total Contractual Obligations                           |  | $                      | 64,645 |             | $ | 26,953     |  | $           | 24,072 |       | $ | 27,654 |  | $ | 143,324



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##### Table of Contents

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

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

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

Part II. Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

None.



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

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



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

None



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

None



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

(a) Exhibits

The following exhibits are filed herewith:



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



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##### Table of Contents

Signatures

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



|                        |  |  |  |                                                                                             
|----------------------- |  |  |  | --------------------------------------------------------------------------------------------
|                        |  |  |  | PATAPSCO BANCORP, INC.                                                                      
|                        |  | 
|Date: November 13, 2006 |  |  |  | /s/ Michael J. Dee                                                                          
|                        |  |  |  | Michael J. Dee                                                                              
|                        |  |  |  | President, Chief Executive Officer and Chief Financial Officer (Principal Financial Officer)



19