##### Table of Contents





United States

Securities and Exchange Commission

Washington, D. C. 20549





FORM 10 - Q





(Mark One)



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

For the quarterly period ended December 31, 2008



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

For the transition period from to

Commission File Number: 0-28032





PATAPSCO BANCORP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |  |  |                                     
|-------------------------------------------------------------- |  |  |  | ------------------------------------
|Maryland                                                       |  |  |  | 52-1951797                          
|(State or other jurisdiction of incorporation or organization) |  |  |  | (I.R.S. Employer Identification No.)

1301 Merritt Boulevard,

Dundalk, Maryland 21222-2194

(Address of principal executive offices)

(410) 285-1010

Issuers telephone number, including area code





Check whether the issuer
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one)



|                                                                      |  |                            
|--------------------------------------------------------------------- |  | ---------------------------
|Large Accelerated Filer  ̈                                             |  | Accelerated Filer  ̈        
|                                                                      | 
|Non-Accelerated Filer  ̈ (Do not check if a smaller reporting company) |  | Smaller Reporting Company x



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

As of February 13, 2009, the issuer had 1,864,974 shares of Common Stock issued and
outstanding.









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##### Table of Contents

CONTENTS



|           |  |                                                                                                                      |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                      |  | PAGE
|PART I.    |  | FINANCIAL INFORMATION                                                                                                |  |     
|           |  |                                                                                                                     
|Item 1.    |  | Financial Statements (Unaudited)                                                                                     |  |     
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Financial Condition at December 31, 2008 And June 30, 2008                                |  | 3   
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Operations for the Six and Three-Month Periods Ended December 31, 2008 and 2007           |  | 4   
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Comprehensive Income for the Six and Three-Month Periods Ended December 31, 2008 and 2007 |  | 5   
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Cash Flows for the Six-Month Periods Ended December 31, 2008 and 2007                     |  | 6   
|           |  |                                                                                                                     
|           |  | Notes to Consolidated Financial Statements                                                                           |  | 7   
|           |  |                                                                                                                     
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 13  
|           |  |                                                                                                                     
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                           |  | 22  
|           |  |                                                                                                                     
|Item 4T.   |  | Controls and Procedures                                                                                              |  | 22  
|           |  |                                                                                                                     
|PART II.   |  | OTHER INFORMATION                                                                                                    |  |     
|           |  |                                                                                                                     
|Item 1.    |  | Legal Proceedings                                                                                                    |  | 23  
|           |  |                                                                                                                     
|Item 1A.   |  | Risk Factors                                                                                                         |  | 23  
|           |  |                                                                                                                     
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                          |  | 23  
|           |  |                                                                                                                     
|Item 3.    |  | Defaults Upon Senior Securities                                                                                      |  | 23  
|           |  |                                                                                                                     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 23  
|           |  |                                                                                                                     
|Item 5.    |  | Other Information                                                                                                    |  | 23  
|           |  |                                                                                                                     
|Item 6.    |  | Exhibits                                                                                                             |  | 23  
|           | 
|Signatures |  | 24                                                                                                                  



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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 (Unaudited)



|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                             |  | December 31,2008 |         |   | June 30,2008 |  
|($ in thousands except for per share data)                                                                                                                                                   |  |                  |        
|Assets:                                                                                                                                                                                      |  |                  |         |   |              |   |         |  
|Cash and Cash Equivalents:                                                                                                                                                                   |  |                  |         |   |              |   |         |  
|On hand and due from banks                                                                                                                                                                   |  | $                | 4,971   |   |              | $ | 4,617   |  
|Federal funds sold                                                                                                                                                                           |  |                  | 5,024   |   |              |   | 2,473   |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Cash and Cash equivalents                                                                                                                                                                    |  |                  | 9,995   |   |              |   | 7,090   |  
|Interest bearing deposits in other banks                                                                                                                                                     |  |                  | 1,672   |   |              |   | 2,103   |  
|Securities, available for sale                                                                                                                                                               |  |                  | 8,912   |   |              |   | 9,601   |  
|Loans receivable, net of allowance for loan losses of $2,900 and $1,834, respectively                                                                                                        |  |                  | 232,864 |   |              |   | 227,514 |  
|Investment in securities required by law, at cost                                                                                                                                            |  |                  | 2,715   |   |              |   | 2,649   |  
|Property and equipment, net                                                                                                                                                                  |  |                  | 4,107   |   |              |   | 4,178   |  
|Goodwill and core deposit intangible                                                                                                                                                         |  |                  | 3,225   |   |              |   | 3,251   |  
|Accrued interest and other assets                                                                                                                                                            |  |                  | 5,600   |   |              |   | 4,908   |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Total assets                                                                                                                                                                                 |  | $                | 269,090 |   |              | $ | 261,294 |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|                                                                                                                                                                                             |  |                 
|Liabilities and Stockholders Equity                                                                                                                                                         |  |                  |         |   |              |   |         |  
|                                                                                                                                                                                             |  |                 
|Liabilities:                                                                                                                                                                                 |  |                  |         |   |              |   |         |  
|Deposits:                                                                                                                                                                                    |  |                  |         |   |              |   |         |  
|Non interest bearing deposits                                                                                                                                                                |  | $                | 9,312   |   |              | $ | 13,113  |  
|Interest bearing deposits                                                                                                                                                                    |  |                  | 187,572 |   |              |   | 184,773 |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Total Deposits                                                                                                                                                                               |  |                  | 196,884 |   |              |   | 197,886 |  
|Accrued expenses and other liabilities                                                                                                                                                       |  |                  | 1,898   |   |              |   | 1,717   |  
|Short-term debt                                                                                                                                                                              |  |                  | 3,000   |   |              |   |        |  
|Long term debt                                                                                                                                                                               |  |                  | 37,300  |   |              |   | 37,300  |  
|Subordinated debentures                                                                                                                                                                      |  |                  | 5,000   |   |              |   | 5,000   |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                            |  |                  | 244,082 |   |              |   | 241,903 |  
|                                                                                                                                                                                             |  |                 
|Stockholders Equity:                                                                                                                                                                        |  |                  |         |   |              |   |         |  
|Preferred StockSeries A Cumulative Perpetual; $0.01 par value; authorized 1,000,000 shares with a liquidation preference of $1,000 per
share; 6,000 and -0- outstanding, respectively       |  |                  | 5,664   |   |              |   |        |  
|Warrant Preferred StockSeries B Cumulative Perpetual; $0.01 par value; authorized 1,000,000 shares with a liquidation preference of
$1,000 per share; 300 and -0- outstanding, respectively |  |                  | 338     |   |              |   |        |  
|Common stock; $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,864,974 and 1,861,855 shares,
respectively                                                              |  |                  | 19      |   |              |   | 18      |  
|Additional paid in capital                                                                                                                                                                   |  |                  | 7,383   |   |              |   | 7,346   |  
|Obligation under Deferred Compensation                                                                                                                                                       |  |                  | 450     |   |              |   | 442     |  
|Deferred Comp contra                                                                                                                                                                         |  |                  | (78     | ) |              |   | (78     | )
|Retained income, substantially restricted                                                                                                                                                    |  |                  | 11,262  |   |              |   | 11,851  |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                                           |  |                  | (30     | ) |              |   | (188    | )
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Total stockholders equity                                                                                                                                                                   |  |                  | 25,008  |   |              |   | 19,391  |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                   |  | $                | 269,090 |   |              | $ | 261,294 |  
|                                                                                                                                                                                             |  |                  |         |   |              |   |         |  

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)



|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|--------------------------------------------------- |  | ------------------------------- | ----- | --------------------------------- | ---- | - | ----- |  | - | ----- | - |  | - | -----
|                                                    |  | For Six MonthsEndedDecember 31, |       | For Three MonthsEndedDecember 31,
|                                                    |  | 2008                            |       |                                   | 2007 |   | 2008  |  |   | 2007 
|($ in thousands except for per share data)          |  |                                
|Interest income:                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Loans receivable, including fees                    |  | $                               | 7,984 |                                   |      | $ | 8,337 |  | $ | 3,994 |   |  | $ | 4,204
|Securities, including securities required by law    |  |                                 | 272   |                                   |      |   | 355   |  |   | 132   |   |  |   | 174  
|Federal funds sold and other investments            |  |                                 | 27    |                                   |      |   | 73    |  |   | 12    |   |  |   | 47   
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Total interest income                               |  |                                 | 8,283 |                                   |      |   | 8,765 |  |   | 4,138 |   |  |   | 4,425
|Interest expense:                                   |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Deposits                                            |  |                                 | 2,739 |                                   |      |   | 3,203 |  |   | 1,378 |   |  |   | 1,627
|Short-term debt                                     |  |                                 | 66    |                                   |      |   | 166   |  |   | 26    |   |  |   | 101  
|Long-term debt                                      |  |                                 | 872   |                                   |      |   | 1,025 |  |   | 430   |   |  |   | 511  
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Total interest expense                              |  |                                 | 3,677 |                                   |      |   | 4,394 |  |   | 1,834 |   |  |   | 2,239
|Net interest income                                 |  |                                 | 4,606 |                                   |      |   | 4,371 |  |   | 2,304 |   |  |   | 2,186
|Provision for loan losses                           |  |                                 | 1,560 |                                   |      |   | 600   |  |   | 1,310 |   |  |   | 450  
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Net interest income after provision for loan losses |  |                                 | 3,046 |                                   |      |   | 3,771 |  |   | 994   |   |  |   | 1,736
|Non-interest income:                                |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Fees and service charges                            |  |                                 | 364   |                                   |      |   | 369   |  |   | 176   |   |  |   | 186  
|Gain on sale of other repossessed assets            |  |                                 | 10    |                                   |      |   |      |  |   |      |   |  |   |     
|Other                                               |  |                                 | 52    |                                   |      |   | 46    |  |   | 22    |   |  |   | 22   
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Total non-interest income                           |  |                                 | 426   |                                   |      |   | 415   |  |   | 198   |   |  |   | 208  
|Non-interest expenses:                              |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Compensation and employee benefits                  |  |                                 | 2,451 |                                   |      |   | 2,062 |  |   | 1,215 |   |  |   | 1,018
|Professional fees                                   |  |                                 | 142   |                                   |      |   | 330   |  |   | 71    |   |  |   | 167  
|Equipment expense                                   |  |                                 | 170   |                                   |      |   | 165   |  |   | 75    |   |  |   | 78   
|Net occupancy expense                               |  |                                 | 301   |                                   |      |   | 278   |  |   | 152   |   |  |   | 134  
|Advertising                                         |  |                                 | 34    |                                   |      |   | 26    |  |   | 27    |   |  |   | 6    
|Data processing                                     |  |                                 | 226   |                                   |      |   | 144   |  |   | 128   |   |  |   | 70   
|Amortization of core deposit intangible             |  |                                 | 26    |                                   |      |   | 26    |  |   | 13    |   |  |   | 13   
|Telephone, postage & delivery                       |  |                                 | 139   |                                   |      |   | 123   |  |   | 70    |   |  |   | 56   
|Other                                               |  |                                 | 480   |                                   |      |   | 390   |  |   | 243   |   |  |   | 202  
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Total non-interest expense                          |  |                                 | 3,969 |                                   |      |   | 3,544 |  |   | 1,994 |   |  |   | 1,744
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Income/(loss) before income taxes                   |  |                                 | (497  | )                                 |      |   | 642   |  |   | (802  | ) |  |   | 200  
|Provision/(benefit) for income taxes                |  |                                 | (203  | )                                 |      |   | 399   |  |   | (319  | ) |  |   | 136  
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Net Income/(loss)                                   |  |                                 | (294  | )                                 |      |   | 243   |  |   | (483  | ) |  |   | 64   
|Preferred Stock dividends                           |  |                                 | 13    |                                   |      |   |      |  |   | 13    |   |  |   |     
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Net Income/(Loss) Available for Common Shareholders |  | $                               | (307  | )                                 |      | $ | 243   |  | $ | (496  | ) |  | $ | 64   
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Basic earnings/(loss) per share                     |  | $                               | (0.16 | )                                 |      | $ | 0.13  |  | $ | (0.26 | ) |  | $ | 0.03 
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Diluted earnings/(loss) per share                   |  | $                               | (0.16 | )                                 |      | $ | 0.13  |  | $ | (0.26 | ) |  | $ | 0.03 
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      
|Cash dividends declared per common share            |  | $                               | 0.07  |                                   |      | $ | 0.07  |  | $ | 0.00  |   |  | $ | 0.00 
|                                                    |  |                                 |       |                                   |      |   |       |  |   |       |   |  |   |      

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)





|                                                                                                                      |  |                                 |      |                                   |      |   |      |  |   |      |   |  |   |    
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | --------------------------------- | ---- | - | ---- |  | - | ---- | - |  | - | ---
|                                                                                                                      |  | For Six MonthsEndedDecember 31, |      | For Three MonthsEndedDecember 31,
|                                                                                                                      |  | 2008                            |      |                                   | 2007 |   | 2008 |  |   | 2007
|($ in thousands)                                                                                                      |  |                                
|Net income/(loss)                                                                                                     |  | $                               | (294 | )                                 |      | $ | 243  |  | $ | (483 | ) |  | $ | 64 
|Other comprehensive income, net of tax:                                                                               |  |                                 |      |                                   |      |   |      |  |   |      |   |  |   |    
|Unrealized net holding gains on securities available-for-sale net of taxes of $103, $114, $154, and $43, respectively |  |                                 | 158  |                                   |      |   | 181  |  |   | 236  |   |  |   | 69 
|                                                                                                                      |  |                                 |      |                                   |      |   |      |  |   |      |   |  |   |    
|Comprehensive income/(loss)                                                                                           |  | $                               | (136 | )                                 |      | $ | 424  |  | $ | (247 | ) |  | $ | 133
|                                                                                                                      |  |                                 |      |                                   |      |   |      |  |   |      |   |  |   |    











See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland

CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                                           |  |                           |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                           |  | For the Six Months Ended, |        
|                                                                                           |  | December 31,2008          |         |   | December 31,2007 |  
|($ in thousands)                                                                           |  |                           |        
|Cash flows from operating activities:                                                      |  |                           |         |   |                  |   |         |  
|Net income/(loss)                                                                          |  | $                         | (294    | ) |                  | $ | 243     |  
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities:   |  |                           |         |   |                  |   |         |  
|Amortization of premiums and discounts, net                                                |  |                           | 18      |   |                  |   | 21      |  
|Amortization of deferred loan origination fees                                             |  |                           | 1       |   |                  |   | (19     | )
|Provision for loan losses                                                                  |  |                           | 1,560   |   |                  |   | 600     |  
|Depreciation                                                                               |  |                           | 168     |   |                  |   | 181     |  
|Amortization of core deposit intangible                                                    |  |                           | 26      |   |                  |   | 26      |  
|Increase in cash surrender value of life insurance                                         |  |                           | (36     | ) |                  |   | (37     | )
|Increase in accrued interest and other assets                                              |  |                           | (751    | ) |                  |   | (393    | )
|Non-cash compensation under stock-based benefit plan                                       |  |                           | 47      |   |                  |   | 42      |  
|Increase/(Decrease) in accrued expenses and other liabilities                              |  |                           | 138     |   |                  |   | (161    | )
|                                                                                           |  |                           |         |   |                  |   |         |  
|Net cash provided by operations                                                            |  |                           | 877     |   |                  |   | 503     |  
|                                                                                           |  |                          
|Cash flows from investing activities:                                                      |  |                           |         |   |                  |   |         |  
|Net decrease in interest bearing deposits in other banks                                   |  |                           | 431     |   |                  |   | 258     |  
|Proceeds from maturity of investments and principal payments on mortgage backed securities |  |                           | 2,579   |   |                  |   | 1,734   |  
|Purchase of securities available for sale                                                  |  |                           | (1,636  | ) |                  |   |        |  
|Loan principal disbursements, net of repayments                                            |  |                           | (6,924  | ) |                  |   | (5,766  | )
|Purchase of consumer loans                                                                 |  |                           | 0       |   |                  |   | (461    | )
|Purchase of investments required by law                                                    |  |                           | (224    | ) |                  |   | (157    | )
|Redemption of investments required by law                                                  |  |                           | 158     |   |                  |   | 0       |  
|Purchase of premises and equipment                                                         |  |                           | (97     | ) |                  |   | (25     | )
|                                                                                           |  |                           |         |   |                  |   |         |  
|Net cash used by investing activities                                                      |  |                           | (5,713  | ) |                  |   | (4,417  | )
|                                                                                           |  |                          
|Cash flows from financing activities:                                                      |  |                           |         |   |                  |   |         |  
|Net increase in deposits                                                                   |  |                           | 118     |   |                  |   | 4,249   |  
|Decrease in advance payments by borrowers                                                  |  |                           | (1,116  | ) |                  |   | (1,090  | )
|Net increase in short-term borrowings                                                      |  |                           | 3,000   |   |                  |   | 7,700   |  
|Proceeds from long-term borrowings                                                         |  |                           | 17,500  |   |                  |   | 13,500  |  
|Payment on long-term borrowings                                                            |  |                           | (17,500 | ) |                  |   | (17,700 | )
|Cash received from the issuance of preferred stock                                         |  |                           | 5,661   |   |                  |   | 0       |  
|Cash received from the issuance of warrant preferred stock                                 |  |                           | 339     |   |                  |   | 0       |  
|Cash received from exercise of stock options                                               |  |                           | 0       |   |                  |   | 75      |  
|Repurchase of common shares due to ESOP put options exercised                              |  |                           | 0       |   |                  |   | (659    | )
|Dividends paid                                                                             |  |                           | (261    | ) |                  |   | (131    | )
|                                                                                           |  |                           |         |   |                  |   |         |  
|Net cash provided by financing activities                                                  |  |                           | 7,741   |   |                  |   | 5,944   |  
|Net increase in cash and cash equivalents                                                  |  |                           | 2,905   |   |                  |   | 2,030   |  
|Cash and cash equivalents at beginning of period                                           |  |                           | 7,090   |   |                  |   | 5,060   |  
|                                                                                           |  |                           |         |   |                  |   |         |  
|Cash and cash equivalents at end of period                                                 |  | $                         | 995     |   |                  | $ | 7,090   |  
|                                                                                           |  |                           |         |   |                  |   |         |  
|                                                                                           |  |                          
|Interest paid on deposits and borrowed funds                                               |  | $                         | 3,740   |   |                  | $ | 4,149   |  
|Income taxes paid                                                                          |  |                           | 310     |   |                  |   | 555     |  

See accompanying notes to consolidated financial statements.



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Patapsco Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

Note 1: Principles of Consolidation

The consolidated financial statements include the accounts of Patapsco Bancorp, Inc. (the Company or Patapsco Bancorp) 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-Q and therefore, do not include all disclosures necessary for a complete presentation of the financial
statements in conformity with accounting principles generally accepted in the United States of America. However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have
been included. Such adjustments were of a normal recurring nature. The results of operations for the three and six months ended December 31, 2008 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-K for the year ended June 30, 2008.

Note 4: Cash and Cash Equivalents

Cash and cash
equivalents include cash on hand and due from banks and short-term investments, with an original maturity of 90 days or less, which consist of federal funds sold.

Note 5: Preferred Stock

On December 19, 2008, as part of the Troubled Asset Relief Program (TARP) Capital
Purchase Program, the Company entered into a Letter Agreement, and the related Securities Purchase Agreement  Standard Terms (collectively, the Purchase Agreement), with the United States Department of the Treasury
(Treasury), pursuant to which the Company issued (i) 6,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation preference of $1,000 per share (Series A preferred stock), and (ii) a
warrant to purchase an additional $300,000 in preferred stock (Series B preferred stock), for an aggregate purchase price of $6.0 million.

The Series A preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum until February 15, 2014. Beginning February 1, 2014, the dividend rate will increase to
9% per annum. On and after February 15, 2012, the Company may, at its option, redeem shares of Series A preferred stock, in whole or in part, at any time and from time to time, for cash at a per share amount equal to the sum of the
liquidation preference per share plus any accrued and unpaid dividends to but excluding the redemption date. Prior to February 15, 2012, the Company may redeem shares of Series A preferred stock only if it has received aggregate gross proceeds
of not less than $ 1,500,000 from one or more qualified equity offerings, and the aggregate redemption price may not exceed the net proceeds received by the Company form such offerings. The redemption of the Series A preferred stock requires prior
regulatory approval.

On December 19, 2008 Treasury exercised all of the warrants on the Series B preferred stock at the exercise
price of $0.01 per share. The Series B preferred stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 9% per annum. The Series B preferred stock may not be redeemed until all the Series A preferred stock has been
redeemed.

The Series A preferred stock and Series B preferred stock were issued in a transaction exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended. Neither the Series A preferred stock nor the Series B preferred stock will be subject to any contractual restrictions on transfer.



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Note 6: Regulatory Capital Requirements

At December 31, 2008, the Bank met each of the three minimum regulatory capital requirements. The following table summarizes the Banks
regulatory capital position at December 31, 2008.



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|                                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|($ in thousands)                         |  |        |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 25,099 |   | 11.83                        | % |        | $                                                       | 16,977 |  | 8.00 | %      |  | $ | 21,222 |  | 10.00 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 22,447 |   | 10.58                        | % |        | $                                                       | 8,489  |  | 4.00 | %      |  | $ | 12,733 |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 22,447 |   | 8.56                         | % |        | $                                                       | 10,494 |  | 4.00 | %      |  | $ | 13,117 |  | 5.00  | %

The following table summarizes the Banks regulatory capital position at June 30, 2008.



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|                                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|($ in thousands)                         |  |        |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 21,585 |   | 10.45                        | % |        | $                                                       | 16,532 |  | 8.00 | %      |  | $ | 20,665 |  | 10.00 | %
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 19,752 |   | 9.56                         | % |        | $                                                       | 8,266  |  | 4.00 | %      |  | $ | 12,399 |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  | $      | 19,752 |   | 7.63                         | % |        | $                                                       | 10,352 |  | 4.00 | %      |  | $ | 12,940 |  | 5.00  | %

Note 7: Earnings/(Loss) Per Share

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



|                                                                 |  |                              |       |                                |      |   |       |  |    |       |   |  |   |      
|---------------------------------------------------------------- |  | ---------------------------- | ----- | ------------------------------ | ---- | - | ----- |  | -- | ----- | - |  | - | -----
|                                                                 |  | Six Months EndedDecember 31, |       | Three Months EndedDecember 31,
|                                                                 |  | 2008                         |       |                                | 2007 |   | 2008  |  |    | 2007 
|(in thousands except for per share data)                         |  |                             
|Net Income/(Loss) Available for Common Shareholders, as Reported |  | ($                           | 307   | )                              |      | $ | 243   |  | ($ | 496   | ) |  | $ | 64   
|Basic EPS shares                                                 |  |                              | 1,919 |                                |      |   | 1,913 |  |    | 1,919 |   |  |   | 1,896
|Basic EPS                                                        |  | ($                           | 0.16  | )                              |      | $ | 0.13  |  | ($ | 0.26  | ) |  | $ | 0.03 
|Dilutive shares                                                  |  |                              | 0     |                                |      |   | 23    |  |    | 0     |   |  |   | 19   
|Diluted EPS shares                                               |  |                              | 1,919 |                                |      |   | 1,936 |  |    | 1,919 |   |  |   | 1,915
|Diluted EPS                                                      |  | ($                           | 0.16  | )                              |      | $ | 0.13  |  | ($ | 0.26  | ) |  | $ | 0.03 

Note 8: 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



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Company periodically assesses whether events or changes in circumstances indicate that the carrying amounts of goodwill and other intangible assets may be
impaired.

Note 9: Guarantees

The
Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are written 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 $1,504,000 of standby letters of credit as of December 31, 2008 and $2,055,000 outstanding as of June 30, 2008.
Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount
of the liability as of December 31, 2008 and June 30, 2008 for guarantees under standby letters of credit issued is not material.

Note 10:
Recent Accounting Pronouncements

FASB Statement No. 159

In February 2007, the Financial Accounting Standards Board issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement
No. 115. FASB Statement No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. The Company adopted FASB Statement No. 159 on July 1, 2008 and did not elect the fair value option for any financial assets or financial liabilities at that time.

EITF 06-11

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

EITF 06-04

At its September 2007 meeting, the
EITF reached a final consensus on Issue 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The consensus stipulates that an agreement by an employer to
share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under FASB Statement No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions or Accounting Principles Board Opinion (APB) No. 12, Omnibus Opinion1967. The consensus concludes that the purchase of a split-dollar life insurance policy does not
constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12,
if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after December 15, 2007. The Company adopted EITF 06-04 on July 1, 2008, which resulted in a cumulative effect adjustment of $148,000
charge to retained earnings. In addition, the benefit expense to be recorded for the year ending June 30, 2009 will approximate $17,000.

FASB
Statement No. 141(R)

FASB Statement No. 141 (R) Business Combinations was issued in December of 2007. This
Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The
Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of
the business combination. The guidance will become effective as of



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the beginning of a companys fiscal year beginning after December 15, 2008. The impact to the Company is dependent upon acquisitions consummated
after the effective date.

SAB 110

In
December 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 110 (SAB 110). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment, of the
Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the simplified method in developing an estimate of expected term of plain vanilla share options and
allows usage of the simplified method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the
simplified method for estimating the expected term of plain vanilla share option grants after December 31, 2007. SAB 110 is effective January 1, 2008. The Company adopted SAB 110 without material impact to the
consolidated financial statements.

FSP 142-3

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141R, Business Combinations, and other GAAP. This FSP is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.

EITF 08-5

In September 2008, the FASB ratified EITF Issue No. 08-5, Issuers Accounting for Liabilities Measured at Fair Value With a Third-Party
Credit Enhancement (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party
credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF 08-5 is effective for the first reporting period beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-5 on its consolidated financial position and results of operations.

International Financial Reporting Standards

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in
accordance with International Financial Reporting (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (IASB). Under the proposed roadmap, the Company may be required to
prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its
consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

FSP FAS 132(R)-1

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets.
This FSP amends SFAS 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan.
The disclosures about plan assets required by this FSP shall be provided for fiscal years ending after December 15, 2009. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

EITF 08-6

In November 2008, the FASB
ratified Emerging Issues Task Force (EITF) Issue No. 08-6, Equity Method Investment Accounting Considerations. EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method
investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

EITF 08-7



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In November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-7, Accounting for
Defensive Intangible Assets. EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use, but intends to hold to prevent its competitors from obtaining access to
them. EITF 08-7 required an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is effective
for fiscal years beginning after December 15, 2008, with early adoption prohibited. This new pronouncement will impact the Companys accounting for any defensive intangible assets acquired in a business combination completed beginning
January 1, 2009.

Note 11: Share-Based Compensation

A summary of share option activity for the six month period ended December 31, 2008 follows:



|                             |  |        |  |                              |      |                                                  |     |                                |   |   
|---------------------------- |  | ------ |  | ---------------------------- | ---- | ------------------------------------------------ | --- | ------------------------------ | - | --
|                             |  | Shares |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm in Years |     | AggregateIntrinsicValue (000s)
|Outstanding at June 30, 2008 |  | 20,832 |  | $                            | 6.29 |                                                  | 3.1 |                                | $ | 19
|Granted                      |  |       |  |                              |     |                                                  |    |                                |   |   
|Exercised                    |  |       |  |                              |     |                                                  |    |                                |   |   
|Forfeited or expired         |  |       |  |                              |     |                                                  |    |                                |   |   
|                             |  |        |  |                              |      |                                                  |     |                                |   |   
|Balance at December 31, 2008 |  | 20,832 |  | $                            | 6.29 |                                                  | 2.6 |                                | $ | 0 

A summary of the activity in the Companys non-vested shares as of December 31, 2008 is
presented below:



|                                |  |              |   |  |                                      |      
|------------------------------- |  | ------------ | - |  | ------------------------------------ | -----
|                                |  | CommonShares |   |  | Weighted AverageGrant-DateFair
Value
|Non-Vested as of June 30, 2008  |  | 12,649       |   |  | $                                    | 13.71
|Awards Granted, July 2008       |  | 3,250        |   |  |                                      | 7.10 
|Vested                          |  | (2,415       | ) |  |                                      | 13.71
|Forfeited                       |  |             |   |  |                                      |     
|                                |  |              |   |  |                                      |      
|Non-vested at December 31, 2008 |  | 13,484       |   |  | $                                    | 12.12

As of December 31, 2008, there was $60,000 of total unrecognized compensation costs related
to non-vested share-based compensation. The cost is expected to be recognized over a weighted average period of 13 months. At grant date, vesting of the shares was cliff vesting at the end of a three year period. Compensation expense
totaling $36,000, $19,000, $35,000 and $18,000 in the six and three month periods ending December 31, 2008 and 2007, respectively, has been recognized as a result of these awards.

Note 12: Termination of Merger Agreement

On January 3, 2008, Patapsco Bancorp, Inc. and
Bradford Bancorp, Inc. announced that they have mutually terminated the Agreement and Plan of Merger that the parties previously executed on March 19, 2007. Pursuant to the termination agreement, Bradford Mid-Tier Company agreed to pay Patapsco
Bancorp a termination fee of $2.0 million payable in the form of a promissory note. This $2.0 million was recognized as income in the quarter ended March 31, 2008. The promissory note matured on December 31, 2008, at which point Bradford
Mid-Tier Company renewed the note. The renewed promissory note matures on December 31, 2011 and provides for interest equal to the prime rate but no less than 3.25%. In the event Bradford Mid-Tier Company elects to defer interest payments in
2010 or 2011, the interest rate will be increased to the prime rate plus 0.70%. Repayment of this debt is guaranteed by the FDIC under the FDICs Temporary Liquidity Guarantee Program.

Note 13: Fair Value Measurements

Effective
July 1, 2008, the Company adopted SFAS No. 157Fair Value Measurements (SFAS No. 157). This statement defined the concept of fair value, established a framework for measuring fair value in GAAP, and
expands disclosure about fair value measurements. SFAS No. 157 applies only to fair value measurements required or permitted under current accounting



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pronouncements, but does not require any new fair value measurements. Fair value is defined as the price to sell an asset or to transfer a liability in an
orderly transaction between willing market participants as of the measurement date. The statement also expands disclosures about financial instruments that are measured at fair value and eliminates the use of large position discounts for financial
instruments quoted in active markets. The disclosures emphasis is on the inputs used to measure fair value and the effect on the measurement on earnings for the period. The adoption of SFAS No. 157 did not have any effect on the
Companys consolidated financial position or results of operations.

In December 2007, the FASB issued FASB Staff Position (FSP)
157-2, Effective Date of FASB Statement No. 157, that permits a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are
not recognized or disclosed at fair value in an entitys financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the
financial statements on an annual basis or more frequently, the effective date of application of FASB Statement No. 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal
years. The Company has elected to defer in accordance with FSP 157-2.

In October 2008, the FASB issued FSP SFAS No. 157-3,
Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair
value in an inactive market. FSP 157-3 is effective immediately and applies to our December 31, 2008 financial statements. The application of the provisions of FSP 157-3 did not materially affect our results of consolidated operations
or financial condition as of and for the period ended December 31, 2008.

The Company has an established and documented process for
determining fair values. Fair value is based on quoted market prices, when available. If listed prices or quotes are not available, fair value is based on fair value models that use market participant or independently sourced market data, which
include discount rate, interest rate yield curves, prepayment speeds, bond ratings, credit risk, loss severities, default rates, and expected cash flow assumptions. In addition, valuation adjustments may be made in the determination of fair value.
These fair value adjustments may include amounts to reflect counterparty credit quality, creditworthiness, liquidity, and other unobservable inputs that are applied consistently over time. These adjustments are estimated and therefore, subject to
managements judgment, and at times, may be necessary to mitigate the possibility of error or revision in the model-based estimate of the fair value provided by the model. The Company has various controls in place to ensure that the valuations
are appropriate, including review and approval of the valuation models, benchmarking, comparison to similar products, and reviews of actual cash settlements. The methods described above may produce fair value calculations that may not be indicative
of the net realizable value or reflective of future fair values. While the Company believes its valuation methods are consistent with other financial institutions, the use of different methods or assumptions to determine fair values could result in
different estimates of fair value.

SFAS No. 157 establishes a three-level valuation hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based on the inputs used to value the particular asset or liability at the measurement date. The three levels are defined as follows:



| |  |  | Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices of identical or similar
assets or liabilities in markets that are not active, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| | - |  | -----------------------------------------------------------------------------------------------------------

Each financial instruments level assignment within the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement for that particular category.

The following is a description of the valuation methodologies used for instruments
measured at fair value, as well as the general classification of each instrument under the valuation hierarchy.

Securities Available for Sale

Fair values of investment securities are estimated by using pricing models, quoted prices of securities with similar characteristics,
or discounted cash flows and are generally classified within Level 2 of the valuation hierarchy.

The following table presents the
financial instruments measured at fair value on a recurring basis as of December 31, 2008 on the Condensed Consolidated Statement of Condition utilizing the SFAS No. 157 hierarchy discussed above:



|                              |  |                      |       |         |   |         |  |         |       |  |   |  
|----------------------------- |  | -------------------- | ----- | ------- | - | ------- |  | ------- | ----- |  | - | -
|                              |  | At December 31, 2008
|                              |  | Total                |       | Level 1 |   | Level 2 |  | Level 3
|                              |  | ($ in thousands)    
|Securities available for sale |  | $                    | 8,912 |         | $ |        |  | $       | 8,912 |  | $ | 
|                              |  |                      |       |         |   |         |  |         |       |  |   |  



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Nonrecurring fair value changes

Certain assets and liabilities are measured at fair value on a nonrecurring basis. These instruments are not measured at fair value on an ongoing basis, but are subject to fair value in certain circumstances, such as
when there is evidence of impairment that may require write downs. The write-downs for the Companys more significant assets or liabilities measured on a non-recurring basis are based on the lower of amortized cost or estimated fair value.

Impaired Loans

The Company considers
loans to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. All non-accrual loans are considered impaired. The measurement of impaired loans
is based on the present value of the expected cash flows discounted at the historical effective interest rate, the market price of the loan, or the fair value of the underlying collateral. These assets are included as Level 3 fair values, based upon
the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances of $3.9 million less their specific valuation allowances of $594,000 as determined under SFAS 114. The increase in the
allowance of $594,000 resulted in an impairment charge of $594,000, which was included in earnings.

Foreclosed Assets

Once an asset is determined to be uncollectible, the underlying collateral is repossessed and reclassified to other assets owned. These assets are carried
at lower of cost or fair value of the collateral, less cost to sell. The Company had foreclosed assets with a balance of $0 at December 31, 2008.

Impaired loans are classified as Level 3 within the valuation hierarchy.



|                 |  |                      |       |         |   |         |  |         |   |  |   |      
|---------------- |  | -------------------- | ----- | ------- | - | ------- |  | ------- | - |  | - | -----
|                 |  | At December 31, 3008
|                 |  | Total                |       | Level 1 |   | Level 2 |  | Level 3
|($ in thousands) |  |                     
|Impaired Loans   |  | $                    | 3,692 |         | $ |        |  | $       |  |  | $ | 3,692
|                 |  |                      |       |         |   |         |  |         |   |  |   |      

Note 14: Reclassification

Certain prior period amounts have been reclassified to conform to the current periods presentation.



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

General

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

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

Forward-Looking Statements

When used in this Form 10-Q, 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



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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 terms of the loan. The
adequacy of the allowance is determined through careful evaluation of the loan portfolio. This determination is inherently subjective and requires significant estimates, including estimated losses on pools of homogeneous loans based on historical
loss experience and consideration of the current economic environment that may be subject to change. Loans and leases deemed uncollectible are charged against the allowance and recoveries of previously charged-off amounts are credited to it. The
level of the allowance is adjusted through the provision for loan losses that is recorded as a current period expense.

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

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), the Company
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 the Company will be unable to collect all amounts due according to the contractual terms of
the loan agreement. A loan is not considered impaired during an insignificant period of delay in payment if the Company expects to collect all amounts due, including past-due interest. The Company generally considers a period of delay in payment to
include delinquency up to and including 90 days. Statement 114 requires that impairment in a 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.



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Comparison of Financial Condition at December 31, 2008 and June 30, 2008

Patapsco Bancorps assets increased by $7.8 million, or 3.0% to $269.1 million at December 31, 2008 from $261.3 million at June 30, 2008.
Net loans grew by $5.5 million or 2.4% to $232.9 million at December 31, 2008 from $227.5 million at June 30, 2008. Growth in commercial mortgage loans of $4.8 million, commercial business loans of $2.2 million and residential mortgage
loans of $2.0 million offset decreases in construction loans of $1.6 million, commercial leases of $0.9 million and consumer loans of $0.1 million. The decrease in commercial equipment leasing balances is a result of the Companys decision to
cease origination of this product in October 2008. Securities available for sale decreased by $689,000 to $8.9 million at December 31, 2008 from $9.6 million at June 30, 2008 as maturities of $2.0 million and amortization of the
mortgage-backed securities of $0.6 million were replaced by new purchases of investment securities of $1.5 million.

Interest-bearing
deposits increased $2.8 million, or 1.5%, to $187.6 million at December 31, 2008 from $184.8 million at June 30, 2008. Noninterest-bearing deposits decreased $3.8 million, or 29%, to $9.3 million at December 31, 2008 from $13.1
million at June 30, 2008. The pay-out of mortgage escrow funds accounted for $1.1 million of this decline. Short-term borrowings increased to $3.0 million at December 31, 2008 funding loans and the slight decline in deposits. Long-term
borrowings from the Federal Home Loan Bank of Atlanta were flat at $37.3 million at December 31, 2008 and June 30, 2008.

For the
six month period ending December 31, 2008, stockholders equity grew $5.6 million to $25.0 million as the Company completed the sale of 6,000 Shares of Preferred stock, Series A under the TARP Capital Purchase Program for $6 million from
the U.S. Treasury. The Preferred Stock carries a 5% annual dividend yield for five years, and 9% thereafter. In addition, the Treasury has received and exercised warrants to purchase an additional $300,000 of preferred stock. These preferred shares
carry a 9% annual dividend. Stockholders equity also grew as a result of the improvement in the market value of available for sale securities, net of tax, by $158,000. Partially offsetting these increases was a $589,000 decline in retained
earnings due to the year to date loss applicable to common shareholders of $307,000, the adoption of Emerging Issues Task Force (EITF) Issue 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements amounting to a $148,000 charge and declared dividends amounting to $130,000.

Comparison of
Operating Results for the Quarter and Six Months Ended December 31, 2008 and December 31, 2007

Net Income.Patapsco Bancorp recorded a net loss applicable to common shareholders of $496,000 for the quarter ended December 31, 2008 compared to net income of $64,000 for the quarter ended December 31, 2007. The loss was due to an $860,000
increase in the loan loss provision which totaled $1.3 million in the current quarter compared to $450,000 in the same quarter in 2007. Quarterly net interest income grew $118,000 or 5.4% to $2.3 million while operating expenses increased $250,000
or 14.3% to $2.0 million from $1.7 million last year. For the six months ended December 31, 2008, the Company recorded a net loss applicable to common shareholders of $307,000 compared to net income of $243,000 for the same period in 2007 as
the loan loss provision increased $960,000 to $1.6 million in the current period versus $600,000 in the same period of the prior year.

Net Interest Income. The Companys net interest income increased by $118,000 or 5.4% to $2.3 million for the quarter ended December 31, 2008 from $2.2 million for the quarter ended December 31, 2007. Net
interest income increased by $235,000 or 5.4% to $4.6 million for the six months ended December 31, 2008 from $4.4 million during the six months ended December 31, 2007. The increases in net interest income during the comparable three and
six-month periods were primarily due to lower rates of interest paid on interest bearing liabilities. As shown in the tables below, the Companys net interest margin has grown in both the six and three month periods as the cost of funding has
decreased more than the yield earned on interest bearing assets.

Interest Income. Total interest income decreased by
$287,000 or 6.5% to $4.1 million for the quarter ended December 31, 2008 compared to $4.4 million in the quarter ended December 31, 2007. Total interest income decreased by $482,000 or 5.5% to $8.3 million for the six months ended
December 31, 2008 compared to $8.8 million in the six months ended December 31, 2007. The decreases in interest income during the comparable three and the six month periods were due to lower rates of interest earned, which more than offset
the increase in volume of earning assets.

Interest income on loans receivable decreased by $210,000 or 5.0% to $4.0 million for the
quarter ended December 31, 2008 from $4.2 million for the quarter ended December 31, 2007. Interest income on loans receivable decreased by $353,000 or 4.2% to $8.0 million for the six months ended December 31, 2008 from $8.3 million
for the six months ended December 31, 2007. The decreases in interest income on loans receivable during both the three and six-month periods were due to lower yields, more than offsetting higher average balances. The lower yields were primarily
the result of the impact of dramatically lower market rates on the variable rate portion of the



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loan portfolio as well as an 83% increase in the level of non-accrual loans.

Interest income on investment and mortgage-backed securities decreased by $42,000 or 24.1% to $132,000 and by $83,000 or 23.4% to $272,000 in the three and six month periods ended December 31, 2008, respectively
due to both lower average balances outstanding and lower yields. The Company has redirected pay-downs in the mortgage-backed securities portfolio and maturities in the investment portfolio into the loan portfolio.

Interest income on federal funds sold and other investments decreased by $35,000 or 74.4% to $12,000 for the quarter ended December 31, 2008 from
$47,000 for the quarter ended December 31, 2007. Interest income on federal funds sold and other investments decreased by $46,000 or 63.0% to $27,000 for the six months ended December 31, 2008 from $73,000 for the six months ended
December 31, 2007. The decreases in the three month and six month periods were due to lower rates of interest earned offsetting higher average balances.

Interest Expense.Total interest expense decreased by $405,000 or 18.1% to $1.8 million for the quarter ended December 31, 2008 from $2.2 million for the quarter ended December 31, 2007. Total
interest expense decreased $717,000 or 16.3% to $3.7 million for the six-month period ended December 31, 2008 from $4.4 million for the six-month period ended December 31, 2007. The decrease in interest expense during the comparable three
and six-month periods is due to lower rates paid on interest bearing liabilities, which more than offset the higher level of average balances.

Interest expense on deposits decreased by $249,000 or 15.3% to $1.4 million for the quarter ended December 31, 2008 from $1.6 million for the quarter ended December 31, 2007. Interest expense on deposits decreased by $464,000 or
14.5% to $2.7 million from $3.2 million for the six months ended December 31, 2007. The decrease in interest expense on deposits in both the quarterly and year to date periods is due to lower rates paid on deposit accounts more than offsetting
higher average balances. The lower average rates were primarily the result of certificates of deposit repricing at lower rates, and secondarily due to lower money market deposit rates.

Interest expense on short-term borrowings decreased by $75,000 or 74.3% to $26,000 in the quarter ended December 31, 2008 from $101,000 in the
quarter ended December 31, 2007. Interest expense on short-term borrowings decreased $100,000 or 60.2% to $66,000 in the six-months ended December 31, 2008 from $166,000 in the six-months ended December 31, 2007. The decreases in the
comparable three and six month periods were due to both lower average balances outstanding and lower rates of interest paid.

Interest
expense on long-term borrowings decreased by $81,000 or 15.9% to $430,000 for the quarter ended December 31, 2008 from $511,000 for the quarter ended December 31, 2007. Interest expense on long-term borrowings decreased by $153,000 or
14.9% to $872,000 from $1,025,000 for the six months ended December 31, 2007. The decreases in interest expense in the comparable three and six month periods were due to both lower average balances outstanding and lower rates of interest paid.
The lower rates paid on borrowings was consistent with the drop in market rates since last year.

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 dates 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.



16



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##### Table of Contents

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 is 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.



|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Six Months Ended December 31, |        
|                                                                                 |  | 2008                          |         |          | 2007 |               
|                                                                                 |  | AverageBalance                |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)        |        
|Interest-earning assets:                                                         |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable, including fees (2)                                             |  | $                             | 232,781 |          | $    | 7,984          |  | 6.78   | %              |  | $        | 223,572 |                | $ | 8,337 |  | 7.46   | %
|Securities, including securities required by law                                 |  |                               | 11,692  |          |      | 272            |  | 4.65   | %              |  |          | 14,937  |                |   | 355   |  | 4.75   | %
|Federal funds sold and other investments                                         |  |                               | 3,891   |          |      | 27             |  | 1.38   | %              |  |          | 3,142   |                |   | 73    |  | 4.71   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                               | 248,364 |          |      | 8,283          |  | 6.59   | %              |  |          | 241,651 |                |   | 8,765 |  | 7.25   | %
|Non-interest-earning assets                                                      |  |                               | 15,980  |          |      |                |  |        |                |  |          | 15,494  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                             | 264,344 |          |      |                |  |        |                |  | $        | 257,145 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest bearing deposits                                                        |  | $                             | 185,042 |          |      | 2,739          |  | 2.94   | %              |  | $        | 179,344 |                |   | 3,203 |  | 3.57   | %
|Short-term debt                                                                  |  |                               | 4,908   |          |      | 66             |  | 2.62   | %              |  |          | 6,225   |                |   | 166   |  | 5.33   | %
|Long-term debt                                                                   |  |                               | 40,778  |          |      | 872            |  | 4.19   | %              |  |          | 39,656  |                |   | 1,025 |  | 5.17   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                               | 230,728 |          |      | 3,677          |  | 3.16   | %              |  |          | 225,225 |                |   | 4,394 |  | 3.90   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing liabilities                                                 |  |                               | 13,772  |          |      |                |  |        |                |  |          | 13,193  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                               | 244,500 |          |      |                |  |        |                |  |          | 238,418 |                |   |       |  |        |  
|Stockholders equity                                                             |  |                               | 19,844  |          |      |                |  |        |                |  |          | 18,727  |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                             | 264,344 |          |      |                |  |        |                |  | $        | 257,145 |                |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest income                                                              |  |                               |         |          | $    | 4,606          |  |        |                |  |          |         |                | $ | 4,371 |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                               |         |          |      |                |  | 3.43   | %              |  |          |         |                |   |       |  | 3.35   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest margin                                                              |  |                               |         |          |      |                |  | 3.69   | %              |  |          |         |                |   |       |  | 3.62   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                               |         |          |      |                |  | 107.64 | %              |  |          |         |                |   |       |  | 107.29 | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  



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

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



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|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three Months Ended December 31, |        
|                                                                                 |  | 2008                            |         |          | 2007 |               
|                                                                                 |  | AverageBalance                  |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)          |        
|Interest-earning assets:                                                         |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable, including fees (2)                                             |  | $                               | 234,638 |          | $    | 3,994          |  | 6.73   | %              |  | $        | 226,087 |                | $ | 4,204 |  | 7.44   | %
|Securities, including securities required by law                                 |  |                                 | 11,718  |          |      | 132            |  | 4.50   | %              |  |          | 14,695  |                |   | 174   |  | 4.73   | %
|Federal funds sold and other investments                                         |  |                                 | 5,240   |          |      | 12             |  | 0.92   | %              |  |          | 4,094   |                |   | 47    |  | 4.64   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                                 | 251,596 |          |      | 4,138          |  | 6.50   | %              |  |          | 244,876 |                |   | 4,425 |  | 7.23   | %
|Non-interest-earning assets                                                      |  |                                 | 16,020  |          |      |                |  |        |                |  |          | 14,957  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                               | 267,616 |          |      |                |  |        |                |  | $        | 259,833 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest bearing deposits                                                        |  | $                               | 188,026 |          |      | 1,378          |  | 2.92   | %              |  | $        | 180,953 |                |   | 1,627 |  | 3.60   | %
|Short-term borrowings                                                            |  |                                 | 3,883   |          |      | 26             |  | 2.62   | %              |  |          | 7,700   |                |   | 101   |  | 5.26   | %
|Long-term borrowings                                                             |  |                                 | 42,006  |          |      | 430            |  | 4.10   | %              |  |          | 39,600  |                |   | 511   |  | 5.17   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing debt                                                      |  |                                 | 233,915 |          |      | 1,834          |  | 3.11   | %              |  |          | 228,253 |                |   | 2,239 |  | 3.92   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Non-interest-bearing debt                                                        |  |                                 | 13,419  |          |      |                |  |        |                |  |          | 12,887  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                                 | 247,334 |          |      |                |  |        |                |  |          | 241,140 |                |   |       |  |        |  
|Stockholders equity                                                             |  |                                 | 20,282  |          |      |                |  |        |                |  |          | 18,693  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                               | 267,616 |          |      |                |  |        |                |  | $        | 259,833 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest Income                                                              |  |                                 |         |          | $    | 2,304          |  |        |                |  |          |         |                | $ | 2,186 |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                                 |         |          |      |                |  | 3.39   | %              |  |          |         |                |   |       |  | 3.30   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest margin                                                              |  |                                 |         |          |      |                |  | 3.64   | %              |  |          |         |                |   |       |  | 3.57   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                 |         |          |      |                |  | 107.56 | %              |  |          |         |                |   |       |  | 107.28 | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  



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

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

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, amount and type of past due loans in
Patapsco Bancorps loan portfolio, current economic conditions, both national and local, and other factors unique to particular loans and leases in the portfolio. Patapsco Bancorp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 $1.3 million in the quarter
ended December 31, 2008, compared to $450,000 for the quarter ended December 31, 2007. The increase in the provision is due to several factors. Non-accrual loans increased $1.9 million or 82% to $4.3 million at December 31, 2008 from
$2.3 million at December 31, 2007. Net charge-offs increased 98% to $246,000 in the current quarter from $124,000 in the same quarter of the prior year. In addition, economic activity slowed significantly in the current quarter as the U.S.
economy officially entered into a recession. This has resulted in increased stress on the Companys loan portfolio, which has also led to a higher than normal level of loan modifications that have allowed our customers to better service their
loans.

Patapsco Bancorps allowance for loan losses as a percentage of total loans outstanding grew to 1.23% of total loans as of
December 31, 2008 versus 0.80% at June 30, 2008. Patapsco Bancorps allowance for loan losses as a percentage of nonperforming loans was 67.7% at December 31, 2008 as compared to 72.4% at June 30, 2008. Patapsco Bancorp has
concluded, after a thorough analysis of the nonperforming loan portfolio, watch list loans, delinquencies and the factors mentioned above, that the allowance is adequate at December 31, 2008.



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



|                           |  |                              |       |                                |   |       |  |      |       |  |   |      
|-------------------------- |  | ---------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                           |  | Six Months EndedDecember 31, |       | Three Months EndedDecember 31,
|                           |  | 2008                         |       | 2007                           |   | 2008  |  | 2007
|Allowance for loan losses, |  |                              |       |                                |   |       |  |      |       |  |   |      
|Beginning of period        |  | $                            | 1,834 |                                | $ | 1,110 |  | $    | 1,836 |  | $ | 1,153
|Provision for loan losses  |  |                              | 1,560 |                                |   | 600   |  |      | 1,310 |  |   | 450  
|Loans charged-off:         |  |                              |       |                                |   |       |  |      |       |  |   |      
|Consumer                   |  |                              | 283   |                                |   | 125   |  |      | 95    |  |   | 76   
|Real Estate                |  |                              | 1     |                                |   |      |  |      | 1     |  |   |     
|Commercial loan            |  |                              |      |                                |   | 16    |  |      |      |  |   | 16   
|Commercial lease           |  |                              | 280   |                                |   | 121   |  |      | 201   |  |   | 43   
|                           |  |                              |       |                                |   |       |  |      |       |  |   |      
|Total charge-offs          |  |                              | 564   |                                |   | 262   |  |      | 297   |  |   | 135  
|Recoveries:                |  |                              |       |                                |   |       |  |      |       |  |   |      
|Consumer                   |  |                              | 38    |                                |   | 20    |  |      | 24    |  |   | 8    
|Real Estate                |  |                              |      |                                |   |      |  |      |      |  |   |     
|Commercial loan            |  |                              | 2     |                                |   | 3     |  |      | 1     |  |   | 1    
|Commercial lease           |  |                              | 30    |                                |   | 7     |  |      | 26    |  |   | 1    
|                           |  |                              |       |                                |   |       |  |      |       |  |   |      
|Total recoveries           |  |                              | 70    |                                |   | 30    |  |      | 51    |  |   | 10   
|                           |  |                              |       |                               
|Allowance for loan losses, |  |                              |       |                                |   |       |  |      |       |  |   |      
|End of period              |  | $                            | 2,900 |                                | $ | 1,478 |  | $    | 2,900 |  | $ | 1,478
|                           |  |                              |       |                                |   |       |  |      |       |  |   |      

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



|                                                                |  |                     |       |   |                 |   |       |  
|--------------------------------------------------------------- |  | ------------------- | ----- | - | --------------- | - | ----- | -
|                                                                |  | At December 31,2008 |       |   | At June 30,2008 |  
|Loans accounted for on a non-accrual basis: (1)                 |  |                     |       |   |                 |   |       |  
|Real estate:                                                    |  |                     |       |   |                 |   |       |  
|Residential                                                     |  | $                   | 118   |   |                 | $ | 81    |  
|Commercial                                                      |  |                     | 635   |   |                 |   |      |  
|Construction                                                    |  |                     | 1,998 |   |                 |   | 1,989 |  
|Consumer                                                        |  |                     | 20    |   |                 |   | 6     |  
|Commercial Loan/Lease                                           |  |                     | 1,515 |   |                 |   | 457   |  
|                                                                |  |                     |       |   |                 |   |       |  
|Total                                                           |  | $                   | 4,286 |   |                 | $ | 2,533 |  
|                                                                |  |                     |       |   |                 |   |       |  
|Accruing loans which are contractually past due 90 days or more |  | $                   |      |   |                 | $ |      |  
|                                                                |  |                     |       |   |                 |   |       |  
|Total non-performing loans                                      |  | $                   | 4,286 |   |                 | $ | 2,533 |  
|                                                                |  |                     |       |   |                 |   |       |  
|Non-performing loans to total loans                             |  |                     | 1.82  | % |                 |   | 1.10  | %
|                                                                |  |                     |       |   |                 |   |       |  
|Troubled debt restructurings                                    |  | $                   | 2,254 |   |                 | $ | 1,550 |  
|                                                                |  |                     |       |   |                 |   |       |  
|Other non-performing assets (2)                                 |  | $                   |      |   |                 | $ | 7     |  
|                                                                |  |                     |       |   |                 |   |       |  



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

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

At December 31, 2008, nonaccrual loans included two land acquisition and development loans totaling $1.5 million, not including a commitment to fund
an additional $154,000, a residential construction loan with a balance of



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$505,000, two home equity line of credit loans totaling $118,000, six commercial equipment leases totaling $162,000 and five consumer loans with a balance of
$20,000. Additionally, there were six commercial loans totaling $1.4 million. Two loans totaling $1.0 million represent businesses whose cash flows have been negatively impacted by the economy and account for the increase in commercial business
non-accrual loans. Both loans are well collateralized. In addition, there are two commercial business loans, the balance of which have been written down to their SBA guaranteed amount of $209,000. Finally, there is one commercial mortgage totaling
$635,000, which is suffering from decreased rental income. This loan is considered well collateralized.

During the six months ended
December 31, 2008, the Company modified the terms of one commercial business loan, which is guaranteed by the SBA, in the amount of $704,000 in a troubled debt restructuring. The original terms were modified to reduce the interest rate for
three years and extend the term in order to lessen the near term cash requirements of the borrowers obligations. The Company currently expects to collect all principal and interest of this loan based on the modified loan terms.

The Company accepted a $2 million note receivable from Bradford Mid-Tier Company as payment for the merger termination fee. See Note 11,
Termination of Merger Agreement, to the consolidated financial statements. Effective December 31, 2008, Bradford Mid-Tier Company renewed the note payable to the Company. The renewed promissory note matures on December 31,
2011 and provides for interest equal to the prime rate but no less than 3.25%. In the event Bradford Mid-Tier Company elects to defer interest payments in 2010 or 2011, the interest rate will be increased to the prime rate plus 0.70%. Repayment of
this debt is guaranteed by the FDIC under the FDICs Temporary Liquidity Guarantee Program.

Noninterest Income.
Patapsco Bancorps noninterest income consists of deposit fees, service charges, income from bank owned life insurance (BOLI) and gains. Total noninterest income decreased by $10,000, or 4.8%, to $198,000 for the quarter ended
December 31, 2008 from $208,000 for the quarter ended December 31, 2007. The decrease was primarily a result of a decline in deposit service fees. For the six months ended December 31, 2008, noninterest income increased $11,000 or
2.7% to $426,000 due primarily to a $10,000 gain on sale of repossessed assets.

Noninterest Expenses. Total noninterest
expenses increased by $250,000, or 14.3%, to $1.99 million for the quarter ended December 31, 2008 from $1.74 million for the quarter ended December 31, 2007. Compensation costs increased $197,000 or 19% as staffing returned to normal
levels over the past three quarters. Also included in the current quarter is $68,000 of severance expense associated with the decision to cease origination of commercial leases. In the prior years quarter, open positions were not filled in
anticipation of the merger with Bradford Bancorp, Inc. Data processing costs increased $58,000 or 83% due to a conversion of the Companys primary operating systems in the current quarter. Other expenses increased $40,000 or 20% due to several
smaller items. Advertising costs rose $21,000 or 350% as they start to return to normal subsequent to the merger with Bradford Bancorp. having been terminated. Partially offsetting these increases, professional fees declined $96,000 or 58% as merger
related legal and accounting fees inflated the prior year amount. For the six months ended December 31, 2008, noninterest expenses increased $425,000 or 12% to $4.0 million from $3.5 million in the same period of the prior year. Similar trends
as in the current quarter were prevalent in the six month period.

The Company anticipates a significant increase in the cost of federal
deposit insurance from current levels of five to seven basis points. The FDIC has recently proposed to increase the assessment rate for the most highly rated institutions to between 12 and 14 basis points for the quarter ended March 31, 2009
and to between 10 and 14 basis points thereafter. Assessment rates could be further increased if an institutions FHLB advances exceed 15% of deposits.

Income Taxes. The Company recorded an income tax benefit of $319,000 (or 39.8% of pre-tax loss) for the quarter ended December 31, 2008 versus expense of $136,000 (or 68% of pre-tax income) in the
same quarter last year. For the six months ended December 31, 2008 the Company recorded a tax benefit of $203,000 versus expense of $399,000 in the same period of the prior year. The unusually high effective tax rate in the prior years
quarter and six month period is a result of the non-deductibility of the merger-related professional fees incurred in those periods.

Liquidity and
Capital Resources

An important component of the Companys asset/liability structure is the level of liquidity available to meet
the needs of customers and creditors. The Companys Asset/Liability Management Committee has established general guidelines for the maintenance of prudent levels of liquidity. The Committee continually monitors the amount and sources of
available liquidity, the time to acquire it and its cost. Management of the Company seeks to maintain an



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adequate level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide
lower rates of return, a high level of liquidity will, to a certain extent, result in lower net interest margins and lower net income.

The
Companys most liquid assets are cash on hand, interest-bearing deposits and Federal funds sold, which are short-term, highly liquid investments with original maturities of less than three months that are readily convertible to known amounts of
cash. The levels of these assets are dependent on the Companys operating, financing and investing activities during any given period. At December 31, 2008, the Companys cash on hand and Federal funds sold totaled $10.0 million. In
addition, the Company had approximately $1.7 million in interest-bearing deposits and $8.9 million of mortgage-backed and investment securities classified as available-for-sale, none of which were pledged.

The Company anticipates that it will have sufficient funds available to meet its current loan commitments of $25.2 million. These funds will be
internally generated, raised through deposit operations, or borrowed. Certificates of deposit that are scheduled to mature in less than one year at December 31, 2008 totaled $85.6 million. Historically, a high percentage of maturing deposits
have remained with the Company.

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

The Company, as the holding company for the
Bank, has an annual cash requirement to pay dividends on its common stock and its $5.0 million in subordinated debentures. In January 2009, the Board of Directors declared a regular cash dividend of $0.02 per share to common stockholders, which
represents a 74% decrease in the dividend compared to previous quarters. The Board of Directors determined that in these challenging times, the prudent decision was to reduce the dividend in order to preserve capital while still distributing a
portion of the Companys core earnings to stockholders. Based on this lower dividend amount, the Companys annual cash requirement for dividends on common stock and subordinated debentures totals approximately $473,000. In addition, during
December of 2008, the Company issued $6.0 million in 5.0% preferred stock and $300,000 in 9.0% warrant preferred stock to the U.S. Treasury, with a stated annual dividend requirement of $327,000. The primary source of funds for the holding company
is dividends from the Bank, as well as earnings on its investments. The amount of dividends that can be paid to the holding company from the bank is limited by the earnings and capital position of the bank. As of December 31, 2008, the holding
company had cash on hand of $2.9 million.

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

Contingencies and Off-Balance Sheet Items

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

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



|                                    |  |                        |        |               |   |       
|----------------------------------- |  | ---------------------- | ------ | ------------- | - | ------
|                                    |  | December 31, 2008      |        | June 30, 2008
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 25,248 |               | $ | 20,087
|Undisbursed lines of credit         |  |                        | 10,486 |               |   | 11,787
|Financial standby letters of credit |  |                        | 1,504  |               |   | 2,055 



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Contractual Obligations

The following table sets forth the Companys contractual obligations as of December 31, 2008:



|                                              |  |                        |         |              |   |              |  |              |       |       |   |        |  |   |        
|--------------------------------------------- |  | ---------------------- | ------- | ------------ | - | ------------ |  | ------------ | ----- | ----- | - | ------ |  | - | -------
|                                              |  | < 1 year               |         | 1 to 3 Years |   | 4 to 5 Years |  | Over 5 Years |       | Total
|                                              |  | (dollars in thousands)
|Time Deposits                                 |  | $                      | 85,586  |              | $ | 31,395       |  | $            | 5,328 |       | $ | 290    |  | $ | 122,599
|Borrowings, including subordinated debentures |  |                        | 18,200  |              |   | 13,100       |  |              |      |       |   | 14,000 |  |   | 45,300 
|Lease obligations                             |  |                        | 165     |              |   | 321          |  |              | 310   |       |   | 2,023  |  |   | 2,819  
|                                              |  |                        |         |              |   |              |  |              |       |       |   |        |  |   |        
|Total Contractual Obligations                 |  | $                      | 103,951 |              | $ | 44,816       |  | $            | 5,638 |       | $ | 16,313 |  | $ | 170,718
|                                              |  |                        |         |              |   |              |  |              |       |       |   |        |  |   |        

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

Recent Developments

The Federal Deposit Insurance Corporation (FDIC) insures deposits at FDIC insured financial institutions up to certain limits. The FDIC charges insured financial institutions premiums to maintain the
Deposit Insurance Fund. Current economic conditions have increased expectations for bank failures, in which case the FDIC would take control of failed banks and ensure payment of deposits up to insured limits using the resources of the Deposit
Insurance Fund. In such case, the FDIC may increase premium assessments to maintain adequate funding of the Deposit Insurance Fund, including requiring riskier institutions to pay a larger share of the premiums. An increase in premium assessment
would increase the Companys expenses. The Emergency Economic Stabilization Act of 2008 (EESA) included a provision for an increase in the amount of deposits insured by FDIC to $250,000 until December 2009. On October 14, 2008,
the FDIC announced a new programthe Temporary Liquidity Guarantee Program that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of
$250,000. All eligible institutions will be covered under the program for the first 30 days without incurring any costs. After the initial period, participating institutions will be assessed a 10 basis point surcharge on the additional insured
deposits. Companies have the option to opt out of this program. The Company has chosen to not opt out. The incremental cost to the Company will be immaterial.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

This item is not applicable as the Company is a smaller reporting company.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

Disclosure Controls and Procedures

The Companys management, including the Companys principal executive officer and principal financial officer, have evaluated the
effectiveness of the Companys disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act). Based upon their
evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective for the purpose of ensuring that the
information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and (2) is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure.

Changes to Internal Control Over Financial Reporting

There were no changes in the Companys internal control over financial reporting during the three months ended December 31, 2008 that have
materially affected, or are reasonable likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

Part II. OTHER INFORMATION



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

None.



|Item 1A. | Risk Factors
|-------- | ------------

This item is not applicable as the
Company is a smaller reporting company.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



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

None



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

The following table sets forth matters that were voted upon at the Companys Annual Meeting of Stockholders held on November 6, 2008:



|                       |  |           |  |              |  |                 |  |        
|---------------------- |  | --------- |  | ------------ |  | --------------- |  | -------
|                       |  | VotesFor  |  | VotesAgainst |  | BrokerNon-votes |  | Abstain
|Election of Directors: |  |           |  |              |  |                 |  |        
|Douglas H. Ludwig      |  | 1,300,504 |  | 183,404      |  |                |  |       
|Thomas P. ONeill      |  | 1,374,590 |  | 109,318      |  |                |  |       
|Michael J. Dee         |  | 1,366,650 |  | 117,258      |  |                |  |       



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

None



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

The following exhibits are filed
herewith:



|              |  |                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Title                                                                                                                                                           
|              | 
|10            |  | Form of Amendment No. 1 to the Amended and Restated Severance Agreement by and between The Patapsco Bank and Laurence S. Mitchell and Frank J. Duchacek, Jr.*(1)
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                         
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                         
|              | 
|32            |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350                                                         



|* | Management contract or compensatory plan, contract or arrangement.
|- | ------------------------------------------------------------------

|(1) | Amended during the quarter ended December 31, 2008 to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the Code) and
the regulations and guidance issued with respect to Section 409A of the Code.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

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



|                        |  |  |  |  |  |                                                  
|----------------------- |  |  |  |  |  | -------------------------------------------------
|                        |  |  |  |  |  | PATAPSCO BANCORP, INC.                           
|                        |  |  | 
|Date: February 13, 2009 |  |  |  |  |  | /S/    MICHAEL J.
DEE                            
|                        |  |  |  |  |  | Michael J. Dee                                   
|                        |  |  |  |  |  | President and Chief Executive Officer            
|                        |  |  | 
|                        |  |  |  |  |  | /S/    WILLIAM C. WIEDEL,
JR.                    
|                        |  |  |  |  |  | William C. Wiedel, Jr.                           
|                        |  |  |  |  |  | Senior Vice President and Chief Financial Officer



24