##### Table of Contents

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United States

Securities and Exchange Commission

Washington, D. C. 20549



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FORM 10 - QSB



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(Mark One)

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



For the quarterly period ended December 31, 2004



| ̈ | 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



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PATAPSCO BANCORP, INC.

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



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



1301 Merritt
Boulevard, Dundalk, Maryland 21222-2194

(Address of Principal Executive Offices)



(410) 285-1010

Registrants Telephone Number, Including Area Code



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



As of February 4, 2005, the issuer had 1,411,486 shares of Common Stock issued and outstanding.



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



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##### Table of Contents

CONTENTS



|                              |  |                                                                                                                                  |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                  |  | PAGE
|PART I.
FINANCIAL INFORMATION |  |                                                                                                                                 
|                              |  |                                                                                                                                 
|Item 1.                       |  | Financial Statements                                                                                                             |  |     
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Financial Condition at December 31, 2004 (unaudited) And June 30, 2004                                |  | 3   
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Income for the Six and Three-Month Periods Ended December 31, 2004 and 2003 (unaudited)               |  | 4   
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Comprehensive Income for the Six and Three-Month Periods Ended December 31, 2004 and 2003 (unaudited) |  | 5   
|                              |  |                                                                                                                                 
|                              |  | Consolidated Statements of Cash Flows for the Six-Month Periods Ended December 31, 2004 and 2003 (unaudited)                     |  | 6   
|                              |  |                                                                                                                                 
|                              |  | Notes to Financial Statements                                                                                                    |  | 7   
|                              |  |                                                                                                                                 
|Item 2.                       |  | Managements Discussion and Analysis or Plan of Operation                                                                        |  | 11  
|                              |  |                                                                                                                                 
|Item 3.                       |  | Controls and procedures                                                                                                          |  | 19  
|                              | 
|PART II.
OTHER INFORMATION    |  |                                                                                                                                 
|                              |  |                                                                                                                                 
|Item 1.                       |  | Legal Proceedings                                                                                                                |  | 20  
|                              |  |                                                                                                                                 
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                      |  | 20  
|                              |  |                                                                                                                                 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                  |  | 20  
|                              |  |                                                                                                                                 
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                              |  | 20  
|                              |  |                                                                                                                                 
|Item 5.                       |  | Other Information                                                                                                                |  | 20  
|                              |  |                                                                                                                                 
|Item 6.                       |  | Exhibits                                                                                                                         |  | 20  
|                              | 
|Signatures                    |  | 21                                                                                                                              
|                              | 
|Certifications                |  |                                                                                                                                 



2



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##### Table of Contents

Part I. FINANCIAL INFORMATION



Item 1. Financial Statements



Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ------------ | - | ------- | -
|($ in thousands except for per share data)                                                                                                                                                                  |  | December 31,2004 (Unaudited) |         |   | June 30,2004 |  
|Assets                                                                                                                                                                                                      |  |                              |         |   |              |   |         |  
|Cash:                                                                                                                                                                                                       |  |                              |         |   |              |   |         |  
|On hand and due from banks                                                                                                                                                                                  |  | $                            | 5,140   |   |              |   | 6,253   |  
|Interest bearing deposits in other banks                                                                                                                                                                    |  |                              | 5,302   |   |              |   | 7,436   |  
|Federal funds sold                                                                                                                                                                                          |  |                              | 1,772   |   |              |   | 4,455   |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Cash and Cash equivalents                                                                                                                                                                                   |  |                              | 12,214  |   |              |   | 18,144  |  
|Time deposits at other financial institutions                                                                                                                                                               |  |                              | 626     |   |              |   | 990     |  
|Investment securities, available for sale                                                                                                                                                                   |  |                              | 13,600  |   |              |   | 16,117  |  
|Mortgage Backed securities, available for sale                                                                                                                                                              |  |                              | 11,825  |   |              |   | 13,110  |  
|Loans receivable, net                                                                                                                                                                                       |  |                              | 154,382 |   |              |   | 151,413 |  
|Investment in securities required by law, at cost                                                                                                                                                           |  |                              | 1,583   |   |              |   | 1,760   |  
|Property and equipment, net                                                                                                                                                                                 |  |                              | 1,616   |   |              |   | 1,615   |  
|Goodwill and other intangible assets                                                                                                                                                                        |  |                              | 3,432   |   |              |   | 3,457   |  
|Accrued interest and other assets                                                                                                                                                                           |  |                              | 4,289   |   |              |   | 4,010   |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Total assets                                                                                                                                                                                                |  | $                            | 203,567 |   |              | $ | 210,616 |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                                        |  |                              |         |   |              |   |         |  
|Liabilities:                                                                                                                                                                                                |  |                              |         |   |              |   |         |  
|Non interest bearing deposits                                                                                                                                                                               |  | $                            | 11,071  |   |              | $ | 10,989  |  
|Interest bearing deposits                                                                                                                                                                                   |  |                              | 152,088 |   |              |   | 157,143 |  
|Accrued expenses and other liabilities                                                                                                                                                                      |  |                              | 1,888   |   |              |   | 3,204   |  
|Long term Debt                                                                                                                                                                                              |  |                              | 21,400  |   |              |   | 22,900  |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                                           |  |                              | 186,447 |   |              |   | 194,236 |  
|                                                                                                                                                                                                            |  |                             
|Temporary Equity  ESOP shares subject to put option                                                                                                                                                        |  |                              | 1,459   |   |              |   | 1,404   |  
|                                                                                                                                                                                                            |  |                             
|Stockholders equity:                                                                                                                                                                                       |  |                              |         |   |              |   |         |  
|Preferred stock-Series A Noncumultive Convertible Perpetual $0.01 par value; authorized 1,000,000 shares with a liquidation preference of $25
per share; 94,413 and 98,090 shares outstanding, respectively |  |                              | 1       |   |              |   | 1       |  
|Additional paid-in capital                                                                                                                                                                                  |  |                              | 2,362   |   |              |   | 2,454   |  
|Common stock $0.01 par value: authorized 4,000,000 shares: issued and outstanding 1,407,952 and 1,386,615 shares, respectively                                                                              |  |                              | 14      |   |              |   | 14      |  
|Additional paid-in capital                                                                                                                                                                                  |  |                              | 4,141   |   |              |   | 4,098   |  
|Obligation under Rabbi Trust                                                                                                                                                                                |  |                              | 250     |   |              |   | 250     |  
|Deferred compensation  stock held by Rabbi Trust                                                                                                                                                           |  |                              | (78     | ) |              |   | (78     | )
|Retained earnings, substantially restricted                                                                                                                                                                 |  |                              | 9,037   |   |              |   | 8,592   |  
|Accumulated other comprehensive loss, net of taxes                                                                                                                                                          |  |                              | (66     | ) |              |   | (355    | )
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Total stockholders equity  permanent                                                                                                                                                                      |  |                              | 15,661  |   |              |   | 14,976  |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Total stockholders equity - including temporary equity                                                                                                                                                     |  |                              | 17,120  |   |              |   | 16,380  |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                  |  | $                            | 203,567 |   |              | $ | 210,616 |  
|                                                                                                                                                                                                            |  |                              |         |   |              |   |         |  



See accompanying notes to financial
statements



3



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|------------------------------------------------------- |  | -------------------------------- | ----- | ---------------------------------- | - | ------ |  | ---- | ----- |  | - | -----
|($ in thousands except for per share data)              |  | For Six Months EndedDecember 31, |       | For Three Months EndedDecember 31,
|                                                        |  | 2004                             |       | 2003                               |   | 2004   |  | 2003
|Interest income:                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Loans receivable                                        |  | $                                | 5,324 |                                    | $ | 4,287  |  | $    | 2,666 |  | $ | 2,110
|Investment Securities                                   |  |                                  | 258   |                                    |   | 193    |  |      | 130   |  |   | 99   
|Mortgage-backed securities                              |  |                                  | 273   |                                    |   | 538    |  |      | 130   |  |   | 268  
|Federal funds sold and other investments                |  |                                  | 79    |                                    |   | 65     |  |      | 43    |  |   | 29   
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Total interest income                                   |  |                                  | 5,934 |                                    |   | 5,083  |  |      | 2,969 |  |   | 2,506
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Interest expense:                                       |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Deposits                                                |  |                                  | 1,409 |                                    |   | 1,261  |  |      | 706   |  |   | 611  
|Long-term debt                                          |  |                                  | 469   |                                    |   | 617    |  |      | 235   |  |   | 308  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Total interest expense                                  |  |                                  | 1,878 |                                    |   | 1,878  |  |      | 941   |  |   | 919  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Net interest income                                     |  |                                  | 4,056 |                                    |   | 3,205  |  |      | 2,028 |  |   | 1,587
|Provision for losses on loans                           |  |                                  | 85    |                                    |   | 42     |  |      | 50    |  |   | 0    
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Net interest income after provision for losses on loans |  |                                  | 3,971 |                                    |   | 3,163  |  |      | 1,978 |  |   | 1,587
|                                                        |  |                                  |       |                                   
|Non-interest income:                                    |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Fees and service charges                                |  |                                  | 245   |                                    |   | 183    |  |      | 148   |  |   | 89   
|Net gain on sale of loans                               |  |                                  |      |                                    |   | 13     |  |      |      |  |   | 3    
|Other                                                   |  |                                  | 64    |                                    |   | 37     |  |      | 31    |  |   | 23   
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Total non-interest income                               |  |                                  | 309   |                                    |   | 233    |  |      | 179   |  |   | 115  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Non-interest expenses:                                  |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Compensation and employee benefits                      |  |                                  | 1,910 |                                    |   | 1,407  |  |      | 954   |  |   | 702  
|Insurance premiums                                      |  |                                  | 52    |                                    |   | 34     |  |      | 25    |  |   | 16   
|Professional fees                                       |  |                                  | 149   |                                    |   | 125    |  |      | 69    |  |   | 48   
|Equipment expense                                       |  |                                  | 124   |                                    |   | 92     |  |      | 65    |  |   | 46   
|Net Occupancy expense                                   |  |                                  | 151   |                                    |   | 106    |  |      | 70    |  |   | 53   
|Advertising                                             |  |                                  | 94    |                                    |   | 64     |  |      | 43    |  |   | 33   
|Data processing                                         |  |                                  | 113   |                                    |   | 108    |  |      | 53    |  |   | 55   
|Amortization of core deposit intangible                 |  |                                  | 25    |                                    |   |       |  |      | 13    |  |   |     
|Other                                                   |  |                                  | 577   |                                    |   | 352    |  |      | 301   |  |   | 205  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Total non-interest expense                              |  |                                  | 3,195 |                                    |   | 2,288  |  |      | 1,593 |  |   | 1,158
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Income before provision for income taxes                |  |                                  | 1,085 |                                    |   | 1,108  |  |      | 564   |  |   | 544  
|Provision for income taxes                              |  |                                  | 391   |                                    |   | 410    |  |      | 204   |  |   | 200  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Net Income                                              |  | $                                | 694   |                                    | $ | 698    |  | $    | 360   |  | $ | 344  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Preferred dividends declared                            |  |                                  | 89    |                                    |   | 92     |  |      | 44    |  |   | 46   
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Net income available to common stockholders             |  | $                                | 605   |                                    | $ | 606    |  | $    | 316   |  | $ | 298  
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Basic earnings per share                                |  | $                                | 0.42  |                                    | $ | 0.44   |  | $    | 0.22  |  | $ | 0.21 
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Diluted earnings per share                              |  | $                                | 0.36  |                                    | $ | 0.37   |  | $    | 0.19  |  | $ | 0.18 
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      
|Cash dividends paid per common share                    |  | $                                | 0.115 |                                    | $ | 0.0575 |  | $    | 0.10  |  | $ | 0.533
|                                                        |  |                                  |       |                                    |   |        |  |      |       |  |   |      



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)





|                                                                                                             |  |                                  |     |      |                                     |      |      |  |   |      |   |  |   |     |  
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | --- | ---- | ----------------------------------- | ---- | ---- |  | - | ---- | - |  | - | --- | -
|($ in thousands)                                                                                             |  | For Six Months EndedDecember 31, |     |      | For Three Months Ended December 31, |     
|                                                                                                             |  | 2004                             |     | 2003 |                                     |      | 2004 |  |   | 2003 |  
|Net income                                                                                                   |  | $                                | 694 |      | $                                   | 698  |      |  | $ | 360  |   |  | $ | 344 |  
|Other comprehensive income, net of tax:                                                                      |  |                                  |     |      |                                     |      |      |  |   |      |   |  |   |     |  
|Unrealized net holding (losses)/gains on available-for-sale portfolios, net of taxes of $181, $188, $24, $16 |  |                                  | 289 |      |                                     | (300 | )    |  |   | (39  | ) |  |   | (25 | )
|                                                                                                             |  |                                  |     |      |                                     |      |      |  |   |      |   |  |   |     |  
|Comprehensive income                                                                                         |  | $                                | 983 |      | $                                   | 398  |      |  | $ | 321  |   |  | $ | 319 |  
|                                                                                                             |  |                                  |     |      |                                     |      |      |  |   |      |   |  |   |     |  



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary

Dundalk, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                            |  |                                   |        |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ------- | -
|($ in thousands)                                                                            |  | For Six Months Ended December 31, |       
|                                                                                            |  | 2004                              |        |   | 2003 |  
|Cash flows from operating activities:                                                       |  |                                   |        |   |      |   |         |  
|Net income                                                                                  |  | $                                 | 694    |   |      | $ | 698     |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                   |        |   |      |   |         |  
|Depreciation                                                                                |  |                                   | 115    |   |      |   | 98      |  
|Provision for losses on loans                                                               |  |                                   | 85     |   |      |   | 42      |  
|Proceeds from sale of loans available for sale                                              |  |                                   |       |   |      |   | 1,557   |  
|Disbursements from sale of loans available for sale                                         |  |                                   |       |   |      |   | (1,545  | )
|Gain from sale of loans held for sale                                                       |  |                                   |       |   |      |   | (13     | )
|Amortization of premiums and discounts, net                                                 |  |                                   | 14     |   |      |   | 23      |  
|Amortization of core deposit intangible                                                     |  |                                   | 25     |   |      |   |        |  
|Increase in the cash value of life insurance                                                |  |                                   | (31    | ) |      |   | (15     | )
|Deferred loan origination fees/(costs)                                                      |  |                                   | (54    | ) |      |   | (121    | )
|Increase in accrued interest and other assets                                               |  |                                   | (430   | ) |      |   | (525    | )
|Decrease in accrued expenses and other liabilities                                          |  |                                   | (1,320 | ) |      |   | (147    | )
|                                                                                            |  |                                   |        |   |      |   |         |  
|Net cash (used in) provided by operating activities                                         |  |                                   | (902   | ) |      |   | 52      |  
|                                                                                            |  |                                   |        |   |      |   |         |  
|Cash flows from investing activities:                                                       |  |                                   |        |   |      |   |         |  
|Loan principal disbursements, net of repayments                                             |  |                                   | (2,996 | ) |      |   | (1,005  | )
|Proceeds from maturing time deposit investments                                             |  |                                   | 293    |   |      |   |        |  
|Proceeds from maturing investments available for sale                                       |  |                                   | 2,590  |   |      |   | 750     |  
|Purchase of investment security available-for-sale                                          |  |                                   |       |   |      |   | (5,015  | )
|Purchase of mortgage-backed security available-for-sale                                     |  |                                   |       |   |      |   | (10,200 | )
|Purchase of investments required by law                                                     |  |                                   | (90    | ) |      |   | (518    | )
|Redemption of investments required by law                                                   |  |                                   | 267    |   |      |   |        |  
|Purchase of property and equipment                                                          |  |                                   | (116   | ) |      |   | (85     | )
|Purchase of Bank Owned Life Insurance                                                       |  |                                   |       |   |      |   | (1,600  | )
|Principal repayment on mortgage-backed securities available for sale                        |  |                                   | 1,636  |   |      |   | 6,453   |  
|                                                                                            |  |                                   |        |   |      |   |         |  
|Net cash (used in)/provided by investing activities                                         |  |                                   | 1,584  |   |      |   | (11,220 | )
|                                                                                            |  |                                  
|Cash flows from financing activities:                                                       |  |                                   |        |   |      |   |         |  
|Net (decrease) in deposits                                                                  |  |                                   | (4,873 | ) |      |   | (673    | )
|Proceeds from long-term borrowings                                                          |  |                                   |       |   |      |   | 9,000   |  
|Repayments of long-term borrowings                                                          |  |                                   | (1,500 | ) |      |   |         |  
|Cash received from exercise of stock options                                                |  |                                   | 6      |   |      |   | 39      |  
|Dividends paid                                                                              |  |                                   | (245   | ) |      |   | (231    | )
|                                                                                            |  |                                   |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                                         |  |                                   | (6,612 | ) |      |   | 8,135   |  
|                                                                                            |  |                                   |        |   |      |   |         |  
|Net (decrease) in cash and cash equivalents                                                 |  | $                                 | (5,930 | ) |      | $ | (3,033  | )
|Cash and cash equivalents at beginning of period                                            |  |                                   | 18,144 |   |      |   | 14,207  |  
|                                                                                            |  |                                   |        |   |      |   |         |  
|Cash and cash equivalents end of period                                                     |  | $                                 | 12,214 |   |      | $ | 11,174  |  
|                                                                                            |  |                                   |        |   |      |   |         |  
|Supplemental information:                                                                   |  |                                   |        |   |      |   |         |  
|Interest paid on deposits and borrowed funds                                                |  |                                   | 1,949  |   |      |   | 1,862   |  
|Income taxes paid                                                                           |  |                                   | 283    |   |      |   | 71      |  



See accompanying notes to financial
statements.



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##### Table of Contents

Patapsco Bancorp, Inc. and Subsidiary



Notes to Consolidated Financial Statements

(unaudited)



Note 1: Principles of Consolidation



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



Note 2: The Patapsco
Bank



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



Note 3: Basis of Presentation



The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-QSB and therefore, do not include all
disclosures necessary for a complete presentation of the financial statements, in conformity with accounting principles generally accepted in the United States of America. However, all adjustments that are, in the opinion of management, necessary
for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the six months ended December 31, 2004 are not necessarily indicative of the results
that may be expected for the entire year. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Banks Annual report of form 10-KSB for the year ended June 30, 2004.



Note 4 Cash and Cash Equivalents



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



Note 5: Regulatory Capital Requirements



At December 31, 2004, the Company and the Bank met each of the three minimum regulatory capital requirements. The following table summarizes the Companys regulatory
capital position at December 31, 2004.



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |    |  | 
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | -- |  | 
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % 
|Total Capital (to Risk Weighted Assets)  |  | $      | 14,425 |   | 10.98                        | % |        | $                                                       | 10,498 |  | 8.00 | %      |  | NA |  | 
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 13,493 |   | 10.27                        | % |        | $                                                       | 5,249  |  | 4.00 | %      |  | NA |  | 
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Average Assets)       |  | $      | 13,493 |   | 6.72                         | % |        | $                                                       | 8,028  |  | 4.00 | %      |  | NA |  | 



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##### Table of Contents

The following table summarizes the Banks regulatory capital position at December 31, 2004 (in thousands).



|                                         |  |        |        |   |                              |   |        |                                                         |        |  |      |        |  |   |        |  |    |  
|---------------------------------------- |  | ------ | ------ | - | ---------------------------- | - | ------ | ------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | -- | -
|                                         |  | Actual |        |   | For CapitalAdequacy Purposes |   |        | Well Capitalized UnderPrompt CorrectiveAction Provision |       
|($ in thousands)                         |  | Amount |        | % |                              |   | Amount |                                                         | %      |  |      | Amount |  | % |       
|Total Capital (to Risk Weighted Assets)  |  | $      | 15,878 |   | 12.12                        | % |        | $                                                       | 10,480 |  | 8.00 | %      |  | $ | 13,100 |  | 10 | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Risk Weighted Assets) |  | $      | 14,946 |   | 11.41                        | % |        | $                                                       | 5,240  |  | 4.00 | %      |  | $ | 7,860  |  | 6  | %
|                                         |  |        |        |   |                              |  
|Tier 1 Capital (to Average Assets)       |  | $      | 14,946 |   | 7.47                         | % |        | $                                                       | 7,999  |  | 4.00 | %      |  | $ | 9,999  |  | 5  | %



Note
6: Earnings Per Share



Basic per share amounts are based on the weighted
average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common stock instruments such as options and convertible securities, unless the effect is to reduce a loss or
increase earnings per share. Earnings per share for the prior periods ended December 31, 2003 have been restated to reflect stock dividends and the three for one stock split in the form of a 200% stock dividend declared in June 2004.



|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|------------------------------------------ |  | --------------------------------- | ----- | ----------------------------------- | - | ----- |  | ------- | ----- |  | - | -----
|                                           |  | Six Months EndedDecember 31, 2004 |       | Three Months EndedDecember 31, 2004
|($ in thousands except for per share data) |  | Basic                             |       | Diluted                             |   | Basic |  | Diluted
|Net Income                                 |  |                                   | 694   |                                     |   | 694   |  |         | 360   |  |   | 360  
|Preferred Stock Dividends                  |  |                                   | 89    |                                     |   | 0     |  |         | 44    |  |   | 0    
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Net Income Available to Common             |  |                                   | 605   |                                     |   | 694   |  |         | 316   |  |   | 360  
|                                           |  |                                   |       |                                    
|Weighted average shares outstanding        |  |                                   | 1,425 |                                     |   | 1,425 |  |         | 1,429 |  |   | 1,429
|                                           |  |                                   |       |                                    
|Diluted Securities:                        |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Preferred Stock                            |  |                                   |       |                                     |   | 377   |  |         |       |  |   | 377  
|Options                                    |  |                                   |       |                                     |   | 109   |  |         |       |  |   | 109  
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares           |  |                                   | 1,425 |                                     |   | 1,911 |  |         | 1,429 |  |   | 1,915
|                                           |  |                                   |       |                                    
|Per Share Amount                           |  | $                                 | 0.42  |                                     | $ | 0.36  |  | $       | 0.22  |  | $ | 0.19 
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|                                           |  |                                  
|                                           |  | Six Months EndedDecember 31, 2003 |       | Three Months EndedDecember 31, 2003
|($ in thousands except for per share data) |  | Basic                             |       | Diluted                             |   | Basic |  | Diluted
|Net Income                                 |  |                                   | 698   |                                     |   | 698   |  |         | 344   |  |   | 344  
|Preferred Stock Dividends                  |  |                                   | 92    |                                     |   | 0     |  |         | 46    |  |   | 0    
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Net Income Available to Common             |  |                                   | 606   |                                     |   | 698   |  |         | 298   |  |   | 344  
|                                           |  |                                   |       |                                    
|Weighted average shares outstanding        |  |                                   | 1,386 |                                     |   | 1,386 |  |         | 1,388 |  |   | 1,388
|                                           |  |                                   |       |                                    
|Diluted Securities:                        |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Preferred Stock                            |  |                                   |       |                                     |   | 393   |  |         |       |  |   | 392  
|Options                                    |  |                                   |       |                                     |   | 109   |  |         |       |  |   | 114  
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      
|Adjusted Weighted Average Shares           |  |                                   | 1,386 |                                     |   | 1,888 |  |         | 1,388 |  |   | 1,894
|                                           |  |                                   |       |                                    
|Per Share Amount                           |  | $                                 | 0.44  |                                     | $ | 0.37  |  | $       | 0.21  |  | $ | 0.18 
|                                           |  |                                   |       |                                     |   |       |  |         |       |  |   |      



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Note 7: Goodwill and Intangible Assets



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



Note 8: Stock Options



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



|                                                                                                                                                   |  |                    |      |   |          |   |      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | - | -------- | - | ---- | -
|                                                                                                                                                   |  | Six Months Ended   |     
|                                                                                                                                                   |  | 12/31/04           |      |   | 12/31/03 |  
|Net Income as reported                                                                                                                             |  | $                  | 694  |   |          | $ | 698  |  
|Amounts recognized as expense in the financial statements                                                                                          |  |                    |     |   |          |   | 57   |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                    | (13  | ) |          |   | (70  | )
|                                                                                                                                                   |  |                    |      |   |          |   |      |  
|Proforma Net Income                                                                                                                                |  | $                  | 681  |   |          | $ | 685  |  
|                                                                                                                                                   |  |                   
|Earnings per share:                                                                                                                                |  |                    |      |   |          |   |      |  
|                                                                                                                                                   |  |                   
|Basic - as reported                                                                                                                                |  | $                  | 0.42 |   |          | $ | 0.44 |  
|Basic  pro forma                                                                                                                                  |  |                    | 0.42 |   |          |   | 0.43 |  
|                                                                                                                                                   |  |                   
|Diluted  as reported                                                                                                                              |  | $                  | 0.36 |   |          | $ | 0.37 |  
|Diluted  pro forma                                                                                                                                |  |                    | 0.36 |   |          |   | 0.36 |  
|                                                                                                                                                   | 
|                                                                                                                                                   |  | Three Months Ended |     
|                                                                                                                                                   |  | 12/31/04           |      |   | 12/31/03 |  
|Net Income as reported                                                                                                                             |  | $                  | 360  |   |          | $ | 344  |  
|Amounts recognized as expense in the financial statements                                                                                          |  |                    |      |   |          |   | 12   |  
|Deduct: Total stock option based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                    | (6   | ) |          |   | (16  | )
|                                                                                                                                                   |  |                    |      |   |          |   |      |  
|Proforma Net Income                                                                                                                                |  | $                  | 354  |   |          | $ | 340  |  
|                                                                                                                                                   |  |                   
|Earnings per share:                                                                                                                                |  |                    |      |   |          |   |      |  
|                                                                                                                                                   |  |                   
|Basic - as reported                                                                                                                                |  | $                  | 0.22 |   |          | $ | 0.21 |  
|Basic  pro forma                                                                                                                                  |  |                    | 0.22 |   |          |   | 0.21 |  
|                                                                                                                                                   |  |                   
|Diluted  as reported                                                                                                                              |  | $                  | 0.19 |   |          | $ | 0.18 |  
|Diluted  pro forma                                                                                                                                |  |                    | 0.19 |   |          |   | 0.18 |  



9



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Note 9: Guarantees



The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.
Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk
involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Company, generally, holds collateral and/or personal guarantees supporting these commitments. The Company had
$964,000 of standby letters of credit as of December 31, 2004. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment
required under the corresponding guarantees. The current amount of the liability as of December 31, 2004 for guarantees under standby letters of credit issued is not material.



Note 10: Business Combination



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



The combination was accounted for under the purchase method of accounting, and accordingly, the net assets were recorded at their estimated fair values at the date of
acquisition, April 1, 2004. The Company recorded premiums of $674,000 on assets and $364,000 on liabilities and discounts of $144,000 on assets and $0 on liabilities. Fair value adjustments on the assets and liabilities purchased are being amortized
over the estimated lives of the related assets and liabilities. The net effect of the amortization and accretion of premiums and discounts on net income before taxes for fiscal 2004 and the six and three months ended December 31, 2004 was $20,000,
$26,000 and $13,000, respectively. A core deposit intangible of $516,000 was recognized and is being amortized over ten years. The excess of the purchase price over the estimated fair value of the underlying net assets of $1.1 million was allocated
to goodwill.



The following unaudited pro forma condensed consolidated
financial information reflects the results of operations of the Company for the year ended June 30, 2004 and the six-months ended December 31, 2004 as if the transaction had occurred at the beginning of each period presented. These pro forma results
are not necessarily indicative of what the Companys results of operations would have been had the acquisition actually taken place at the beginning of each period presented.



|                                         |  |                         |       |                                   |   |      
|---------------------------------------- |  | ----------------------- | ----- | --------------------------------- | - | -----
|(in thousands except for per share data) |  | Year EndedJune 30, 2004 |       | Six Months EndedDecember 31, 2003
|Net Interest Income                      |  | $                       | 7,930 |                                   | $ | 3,898
|Net Income                               |  |                         | 1,609 |                                   |   | 792  
|Diluted Net Income per share             |  | $                       | 0.85  |                                   | $ | 0.42 



Note
11: Recent Accounting Pronouncement



In December 2004, the FASB issued SFAS
123R, Share-Based Payment, (SFAS 123R). This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or
that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation
transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of income. For Patapsco
Bancorp, Inc., SFAS 123R will be effective for all interim or annual periods beginning after December 15, 2005. The Company will adopt this standard January 1, 2006. The Company is in the process of assessing the impact of the pronouncements
requirements on its financial statements



On March 31, 2004, the FASB ratified
Emerging Issues Task Force Issue No. 03-1,  The Meaning of Other Than-Temporary Impairment and Its Application to Certain Investments, (EITF 03-1), which provides guidance on recognizing other-than-temporary impairments
on certain investments. EITF 03-1 is effective for other-than temporary impairment



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evaluations for investments accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, as well as
non-marketable equity securities accounted for under the cost method for reporting periods beginning after June 15, 2004. On September 30, 2004, the FASB directed the FASB staff to delay the effective date for the measurement and recognition
guidance contained in paragraphs 10-20 of EITF 03-01. This delay will be superseded concurrent with the final issuance of EITF 03-01a. During the delay, the Company continues to apply the relevant other-than temporary guidance under SFAS
115, Accounting for Certain Investments in Debt and Equity Securities.



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



General



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



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



Forward-Looking Statements



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



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



Critical Accounting Policies



The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP) and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements
and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the



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financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of
estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. These estimates, assumptions and judgments are necessary when financial instruments are
required to be recorded at fair value or when the decline in the value of an asset carried on the balance sheet at historic cost requires an impairment write-down or a valuation reserve to be established.



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



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



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



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



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



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



Comparison of
Financial Condition at December 31, 2004 and June 30, 2004



The
Companys assets decreased by $7.0 million or 3.4% to $203.6 million at December 31, 2004 compared to $210.6 million at June 30, 2004. Cash on hand as well as cash generated by the securities portfolio was used to fund loan growth, interest
bearing deposit run-off and the pay-off of $1.5 million in long-term debt.



12



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Interest bearing deposits have decreased $5.1 million or $3.2% in the six months ended December 31, 2004 to $152.0
million from $157.1 million at June 30, 2004. This decrease has primarily occurred in the certificate of deposit account category. With the relatively high level of cash on hand, the Company has not negotiated with customers with limited
relationships in order to retain the certificate accounts. We believe many of these customers have taken their certificate accounts to local thrifts for higher rates and that if needed, these types of funds can be raised locally by posting more
competitive rates. Non-interest bearing deposits remained relatively unchanged at $11.1 million as compared to $11.0 million at June 30, 2004. Although balances in these accounts are volatile, the Company has experienced core growth in these types
of accounts.



Total borrowings have decreased by $1.5 million as a maturing
advance from the Federal Home Loan Bank of Atlanta was paid off.



Comparison
of Operating Results for the Quarter and Six Months Ended December 31, 2004 and December 31, 2003



Net Income



The results of operations
for the six and three month periods ended December 31, 2004 include the impact of the acquisition of Parkville Federal on April 1, 2004.



The Companys net income increased by $16,000 or 4.6% to $360,000 for the quarter ended December 31, 2004 from $344,000 for the quarter ended December 31, 2003. The
Companys net income decreased by $4,000 or 0.6% to $694,000 for the six months ended December 31, 2004 from $698,000 for the six months ended December 31, 2003. The increase in the Companys net income during the comparable three-month
period is a result of higher net interest income and non-interest income offsetting higher operating expenses and a higher provision for loan losses. The decrease in the Companys net income for the comparable six-month period is a result of
higher net interest and non-interest income being offset by a higher provision for loan losses and higher operating expenses.



Interest Income



Total interest income increased by $463,000 or 18.5% to $3.0 million for the quarter ended December 31, 2004 when compared to $2.5 million in the quarter ended December 31, 2003 as higher interest income due to
increased balances, primarily from the Parkville acquisition, offsetting lower rates and a reduction in the mortgage-backed securities portfolio.



Total interest income increased by $851,000 or 16.7% to $5.9 million for the six months ended December 31, 2004 when compared to $5.1 million in the six months ended
December 31, 2003 as higher interest income on loans, investment securities and other interest earning assets offset lower interest income from mortgage-backed securities. Approximately $1.2 million of the increase in interest income in the
six-month period is the result of higher balances, primarily from the Parkville acquisition somewhat offset by a $379,000 reduction in interest income due to lower yields.



Interest income on loans receivable increased by $556,000 or 26.4% to $2.7 million for the quarter ended December 31, 2004 from $2.1 million
for the quarter ended December 31, 2003. Interest income on loans receivable increased by $1.0 million or 24.2% to $5.3 million for the six months ended December 31, 2004 from $4.2 million for the six months ended December 31, 2003. The increase in
interest income on loans receivable during both the three and six-month periods is due to higher average balances on loans receivable offsetting lower yields earned on loans receivable. The majority of the increase in the average balances in loans
receivable resulted from the acquisition of Parkville in April 2004.



Interest
income on investment securities increased by $31,000 to $130,000 and by $65,000 to $258,000 in the three and six month periods ended December 31, 2004, respectively primarily due to higher average balances of investment securities offsetting lower
yields on these securities.



Interest income on mortgage-backed securities
decreased by $138,000 to $130,000 and by $265,000 to $273,000 in the three and six month periods ended December 31, 2004, respectively. These decreases result from lower average balances due to prepayments and normal amortization.



Interest income on federal funds sold and other investments increased by $14,000 or 48.3% to
$43,000 for the quarter ended December 31,



13



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2004 from $29,000 for the quarter ended December 31, 2003. Interest income on federal funds sold and other investments increased by $14,000 or 21.5% to
$79,000 for the six months ended December 31, 2004 from $65,000 for the six months ended December 31, 2003. The increase in the three and six-month periods are due to higher rates earned on short-term investments offsetting lower average balances.



Interest Expense



Total interest expense increased by $22,000 or 2.4% to $0.94 million for the quarter ended
December 31, 2004 from $0.92million for the quarter ended December 31, 2003. Total interest expense was unchanged at $1.9 million in the six months ended December 31, 2004. The increase in interest expense during the comparable quarterly period is
due to higher balances of interest bearing liabilities offsetting lower rates paid on these liabilities.



Interest expense on deposits increased by $95,000 or 15.6% to $706,000 for the quarter ended December 31, 2004 from $611,000 for the quarter ended December 31, 2003. Interest expense on deposits increased by $148,000
or 11.7% to $1.4 million from $1.3 million for the six months ended December 31, 2003. The increase in interest expense on deposits in both the quarterly and year to date periods is due to higher average balances of interest bearing deposits,
primarily resulting from the Parkville acquisition, offsetting lower rates paid on these deposits. Interest expense on borrowings decreased by $73,000 or 23.7% to $235,000 for the quarter ended December 31, 2004 from $308,000 for the quarter ended
December 31, 2003. Interest expense on borrowings decreased by $148,000 or 24.0% to $469,000 from $617,000 for the six months ended December 31, 2003. The decrease in interest expense in both the quarterly and year to date periods results from lower
average balances outstanding offsetting slightly higher rates paid on borrowed money.



Net Interest Income



The Companys net interest income before the provision for loan losses increased by $441,000 or 27.8% to $2.0 million for the quarter ended December 31, 2004 from
$1.6 million for the quarter ended December 31, 2003. Net interest income before the provision for loan losses increased by $851,000 or 26.6% to $4.1 million for the six months ended December 31, 2004 from $3.2 million during the six months ended
December 31, 2003. The increases in net interest income during the comparable quarters and six-month periods were primarily due to the higher volume of earning assets.



Average Balance Sheet



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



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





14



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|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | ------- | - | ----- |  | ------ | -
|                                                                                 |  | Six Months Ended December 31, |        
|                                                                                 |  | 2004                          |         |          | 2003 |               
|                                                                                 |  | AverageBalance                |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | Rate(1) |  
|                                                                                 |  | (Dollars in thousands)        |        
|Interest-earning assets:                                                         |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Loans receivable (2)                                                             |  |                               | 154,389 |          | $    | 5,324          |  | 6.90   | %              |  | $        | 112,928 |         | $ | 4,287 |  | 7.59   | %
|Investment securities                                                            |  |                               | 16,946  |          |      | 258            |  | 3.05   | %              |  |          | 9,937   |         |   | 193   |  | 3.89   | %
|Mortgage-backed securities                                                       |  |                               | 12,635  |          |      | 273            |  | 4.32   | %              |  |          | 24,503  |         |   | 538   |  | 4.39   | %
|Federal funds sold and other interest-earning assets                             |  |                               | 9,369   |          |      | 79             |  | 1.69   | %              |  |          | 11,366  |         |   | 65    |  | 1.14   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Total interest earning assets                                                    |  |                               | 193,339 |          |      | 5,934          |  | 6.14   | %              |  |          | 158,734 |         |   | 5,083 |  | 6.40   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Noninterest-earning assets                                                       |  |                               | 12,071  |          |      |                |  |        |                |  |          | 6,791   |         |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Total Average Assets                                                             |  | $                             | 205,410 |          |      |                |  |        |                |  | $        | 165,525 |         |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Savings deposits                                                                 |  | $                             | 153,832 |          | $    | 1,409          |  | 1.83   | %              |  | $        | 112,071 |         | $ | 1,261 |  | 2.25   | %
|Borrowings                                                                       |  |                               | 21,457  |          |      | 469            |  | 4.38   | %              |  |          | 29,861  |         |   | 617   |  | 4.13   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                               | 175,289 |          |      | 1,878          |  | 2.14   | %              |  |          | 141,932 |         |   | 1,878 |  | 2.65   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Noninterest-bearing liabilities                                                  |  |                               | 13,226  |          |      |                |  |        |                |  |          | 7,727   |         |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Total liabilities                                                                |  |                               | 188,515 |          |      |                |  |        |                |  |          | 149,659 |         |   |       |  |        |  
|Stockholders equity                                                             |  |                               | 16,895  |          |      |                |  |        |                |  |          | 15,866  |         |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                             | 205,410 |          |      |                |  |        |                |  | $        | 165,525 |         |   |       |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Net interest income                                                              |  |                               |         |          | $    | 4,056          |  |        |                |  |          |         |         | $ | 3,205 |  |        |  
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Interest rate spread                                                             |  |                               |         |          |      |                |  | 4.00   | %              |  |          |         |         |   |       |  | 3.76   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Net Interest margin                                                              |  |                               |         |          |      |                |  | 4.20   | %              |  |          |         |         |   |       |  | 4.04   | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                               |         |          |      |                |  | 110.30 | %              |  |          |         |         |   |       |  | 111.84 | %
|                                                                                 |  |                               |         |          |      |                |  |        |                |  |          |         |         |   |       |  |        |  

---

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

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



15



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##### Table of Contents

|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | -------- | ---- | -------------- |  | ------ | -------------- |  | -------- | ------- | -------------- | - | ----- |  | ------ | -
|                                                                                 |  | Three Months Ended December 31, |        
|                                                                                 |  | 2004                            |         |          | 2003 |               
|                                                                                 |  | AverageBalance                  |         | Interest |      | AverageRate(1) |  |        | AverageBalance |  | Interest |         | AverageRate(1) |  
|                                                                                 |  | (Dollars in thousands)          |        
|Interest-earning assets:                                                         |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Loans receivable (2)                                                             |  | $                               | 153,034 |          | $    | 2,666          |  | 6.97   | %              |  | $        | 113,952 |                | $ | 2,110 |  | 7.41   | %
|Investment securities                                                            |  |                                 | 12,321  |          |      | 130            |  | 4.21   | %              |  |          | 10,831  |                |   | 99    |  | 3.67   | %
|Mortgage-backed securities                                                       |  |                                 | 16,345  |          |      | 130            |  | 3.18   | %              |  |          | 23,418  |                |   | 268   |  | 4.57   | %
|Federal funds sold and other interest-earning assets                             |  |                                 | 9,348   |          |      | 43             |  | 1.86   | %              |  |          | 9,652   |                |   | 29    |  | 1.18   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest earning assets                                                    |  |                                 | 191,048 |          |      | 2,969          |  | 6.22   | %              |  |          | 157,853 |                |   | 2,506 |  | 6.35   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Noninterest-earning assets                                                       |  |                                 | 13,422  |          |      |                |  |        |                |  |          | 8,256   |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total assets                                                                     |  | $                               | 204,470 |          |      |                |  |        |                |  | $        | 166,109 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest-bearing liabilities:                                                    |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Savings deposits                                                                 |  | $                               | 153,294 |          | $    | 706            |  | 1.84   | %              |  | $        | 111.954 |                | $ | 611   |  | 2.18   | %
|Borrowings                                                                       |  |                                 | 21,400  |          |      | 235            |  | 4.40   | %              |  |          | 29,533  |                |   | 308   |  | 4.17   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total interest-bearing liabilities                                               |  |                                 | 174,694 |          |      | 941            |  | 2.15   | %              |  |          | 141,487 |                |   | 919   |  | 2.60   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Noninterest-bearing liabilities                                                  |  |                                 | 12,730  |          |      |                |  |        |                |  |          | 8,686   |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities                                                                |  |                                 | 187,424 |          |      |                |  |        |                |  |          | 150,173 |                |   |       |  |        |  
|Stockholders equity                                                             |  |                                 | 17,046  |          |      |                |  |        |                |  |          | 15,936  |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Total liabilities and stockholders equity                                       |  | $                               | 204,470 |          |      |                |  |        |                |  | $        | 166,109 |                |   |       |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net Interest Income                                                              |  |                                 |         |          | $    | 2,028          |  |        |                |  |          |         |                | $ | 1,587 |  |        |  
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Interest rate spread                                                             |  |                                 |         |          |      |                |  | 4.07   | %              |  |          |         |                |   |       |  | 3.75   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Net interest margin                                                              |  |                                 |         |          |      |                |  | 4.25   | %              |  |          |         |                |   |       |  | 4.02   | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                 |         |          |      |                |  | 109.36 | %              |  |          |         |                |   |       |  | 111.57 | %
|                                                                                 |  |                                 |         |          |      |                |  |        |                |  |          |         |                |   |       |  |        |  

---

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

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



Provision For Loan Losses



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



There Companys provision for loan losses in the quarter ended December 31, 2004 was $50,000. There was no provision for loan losses in the quarter ended December
31, 2003. The provision for loan losses increased by $43,000 or 102.4% to $85,000 in the six-months ended December 31, 2004 from $42,000 in the six-months ended December 31, 2003. Due to charge-offs and growth in the loan portfolio, the
Companys allowance for loan losses has decreased as a percentage of total loans outstanding to 0.60% at December 31, 2004 from 0.61% at June 30, 2004. The Companys allowance for loan losses as a percentage of non-performing loans was
157.4% at December 31, 2004 as compared to 187.9% at June 30, 2004.



16



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##### Table of Contents

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



|                                               |  |                  |     |                    |   |       |  |      |     |  |   |      
|---------------------------------------------- |  | ---------------- | --- | ------------------ | - | ----- |  | ---- | --- |  | - | -----
|                                               |  | Six Months Ended |     | Three Months Ended
|                                               |  | December 31,    
|                                               |  | 2004             |     | 2003               |   | 2004  |  | 2003
|Allowance for loan losses, beginning of period |  | $                | 936 |                    |   | 1,139 |  | $    | 937 |  |   | 1,158
|                                               |  |                  |     |                   
|Provision for loan losses                      |  |                  | 85  |                    |   | 42    |  |      | 50  |  |   | 0    
|                                               |  |                  |     |                   
|Loans Charged Off:                             |  |                  |     |                    |   |       |  |      |     |  |   |      
|Consumer                                       |  |                  | 93  |                    |   | 86    |  |      | 60  |  |   | 55   
|Real Estate                                    |  |                  | 0   |                    |   | 0     |  |      | 0   |  |   | 0    
|Commercial                                     |  |                  | 64  |                    |   | 71    |  |      | 24  |  |   | 51   
|                                               |  |                  |     |                    |   |       |  |      |     |  |   |      
|Total Charge-Offs                              |  |                  | 157 |                    |   | 157   |  |      | 84  |  |   | 106  
|                                               |  |                  |     |                   
|Recoveries:                                    |  |                  |     |                    |   |       |  |      |     |  |   |      
|Consumer                                       |  |                  | 34  |                    |   | 17    |  |      | 24  |  |   | 4    
|Real Estate                                    |  |                  | 0   |                    |   | 0     |  |      | 0   |  |   | 0    
|Commercial                                     |  |                  | 34  |                    |   | 74    |  |      | 5   |  |   | 59   
|                                               |  |                  |     |                    |   |       |  |      |     |  |   |      
|Total Recoveries                               |  |                  | 68  |                    |   | 91    |  |      | 29  |  |   | 63   
|                                               |  |                  |     |                    |   |       |  |      |     |  |   |      
|Allowance for loan losses, end of period       |  | $                | 932 |                    | $ | 1,115 |  | $    | 932 |  | $ | 1,115
|                                               |  |                  |     |                    |   |       |  |      |     |  |   |      



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



|                                                |  |                     |      |   |                 |   |      |  
|----------------------------------------------- |  | ------------------- | ---- | - | --------------- | - | ---- | -
|                                                |  | At December 31,2004 |      |   | At June 30,2004 |  
|                                                |  | (In thousands)      |     
|Loans accounted for on a non-accrual basis: (1) |  |                     |      |   |                 |   |      |  
|Real estate:                                    |  |                     |      |   |                 |   |      |  
|Residential                                     |  | $                   | 34   |   |                 | $ |     |  
|Commercial                                      |  |                     |     |   |                 |   |     |  
|Construction                                    |  |                     |     |   |                 |   |     |  
|Consumer                                        |  |                     |     |   |                 |   | 12   |  
|Commercial Loan/Lease                           |  |                     | 573  |   |                 |   | 486  |  
|                                                |  |                     |      |   |                 |   |      |  
|Total                                           |  | $                   | 607  |   |                 | $ | 498  |  
|                                                |  |                     |      |   |                 |   |      |  
|Accruing loans which are contractually past due |  |                     |      |   |                 |   |      |  
|90 days or more                                 |  | $                   |     |   |                 | $ |     |  
|                                                |  |                     |      |   |                 |   |      |  
|Total                                           |  | $                   |     |   |                 | $ |     |  
|                                                |  |                     |      |   |                 |   |      |  
|Total non-performing loans                      |  | $                   | 607  |   |                 | $ | 498  |  
|                                                |  |                     |      |   |                 |   |      |  
|Percentage of total loans                       |  |                     | 0.39 | % |                 |   | 0.33 | %
|                                                |  |                     |      |   |                 |   |      |  
|Other non-performing assets (2)                 |  | $                   | 5    |   |                 | $ |     |  
|                                                |  |                     |      |   |                 |   |      |  

---

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

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



At December 31, 2004, non-accrual loans consisted of one residential real estate loan totaling $34,000, three commercial business loans $532,000 and seven commercial leases totaling $41,000. As of February 4, 2005,
the residential real estate loan has been sold at auction to an unaffiliated third party at a price sufficient for the Company to recover full principal,



17



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##### Table of Contents

interest, late charges and collection expenses. Two of the non-accrual commercial loans are to the same borrower. One of these loans with a balance of
$232,000 is 75% guaranteed by the Small Business Administration. The $100,000 line of credit to this same borrower is collateralized by marketable securities in the Banks possession with a value of approximately $150,000. In the event of
liquidation, the excess collateral on this line will be applied to the un-guaranteed portion of the SBA loan. The remaining $200,000 non-accrual commercial loan is secured by business assets and the primary residence of the principal. This same
borrower has a $130,000 term loan that is currently 30 days delinquent and is 75% guaranteed by the SBA.



Non-interest Income



The Companys
non-interest income consists of deposit fees, service charges, late fees and gains and losses on sales of securities, loans and repossessed real estate. Total noninterest income increased by $64,000 or 55.6% to $179,000 for the quarter ended
December 31, 2004 from $115,000 for the quarter ended December 31, 2003. Total non-interest income increased by $76,000 or 32.6% to $309,000 during the six months ended December 31, 2004 from $233,000 during the six months ended December 31, 2003.
Non-interest income has increased in both comparable periods due to higher sales of investment products and higher service charges on deposit accounts offsetting the fact that there were no gains on the sale of loans in the periods ended December
31, 2004.



Non-interest Expenses



Total non-interest expenses increased by $435,000 or 37.6% to $1.6 million for the quarter
ended December 31, 2004 from $1.2 million for the quarter ended December 31, 2003. Total non-interest expense increased by $907,000 or 39.4% to $3.2 million during the six months ended December 31, 2004 from $2.3 million during the six months ended
December 31, 2003. The primary reasons for the increases in both the three and six-month periods is the acquisition of Parkville in April 2004 and the increased costs associated with regulatory compliance. The Company is continuing the process of
analyzing operating expenses and the venders we are dealing with.



Income
Taxes



Income tax expense was $391,000 (or 36.04% of income before the
provision for income taxes) and $410,000 (or 37.00% of income before the provision for income taxes) for the six month periods ended December 31, 2004 and 2003, respectively. Income tax expense was $204,000 (or 36.17% of income before the provision
for income taxes) and $200,000 (or 36.77% of income before the provision for income taxes) for the six month periods ended December 31, 2004 and 2003, respectively. The reduction in the effective income tax rates is attributable to the tax- free
income on BOLI.



Liquidity and Capital Resources



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



The Companys most liquid assets are cash on hand, interest-bearing deposits and Federal funds sold, which are short-term, highly
liquid investments with original maturities of less than three months that are readily convertible to known amounts of cash. The levels of these assets are dependent on the Companys operating, financing and investing activities during any
given period. At December 31, 2004, the Companys cash on hand, interest-bearing deposits and Federal funds sold totaled $12.2 million. In addition, the Company has approximately $25.4 million of mortgage-backed and investment securities
classified as available-for-sale.



The Company anticipates that it will have
sufficient funds available to meet its current loan commitments of $5.2 million. These funds will be internally generated, raised through deposit operations, or borrowed. Certificates of deposits that are scheduled to mature in less than one year at
December 31, 2004 totaled $35.0 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.



18



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##### Table of Contents

The Company, as the holding company for the Bank, has an annual cash requirement of approximately $930,000 for the
payment of common and preferred dividends as well as interest and principal payments on the $2.0 million loan taken out as part of the Parkville acquisition. The holding company currently has cash on hand of $891,000. The only source of funds for
the holding company is dividends from the Bank. The amount of dividends that can be paid to the holding company from the bank is limited by the earnings of the bank.



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



Contingencies and Off-Balance Sheet Items



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



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



|                                    |  |                        |       |               |   |      
|----------------------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                                    |  | December 31, 2004      |       | June 30, 2004
|                                    |  | (dollars in thousands)
|Commitments to originate new loans  |  | $                      | 5,152 |               | $ | 3,354
|Undisbursed lines of credit         |  |                        | 7,130 |               |   | 7,061
|Financial standby letters of credit |  |                        | 964   |               |   | 964  



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



Contractual Obligations



The following table
sets forth the companys contractual obligations as of December 31, 2004:



|                                   |  |                  |        |              |   |              |  |              |       |  |   |       
|---------------------------------- |  | ---------------- | ------ | ------------ | - | ------------ |  | ------------ | ----- |  | - | ------
|                                   |  | Less than 1 year |        | 1 to 3 years |   | 4 to 5 years |  | Over 5 years
|                                   |  | (In thousands)  
|Time Deposits                      |  | $                | 34,929 |              | $ | 24,789       |  | $            | 5,314 |  | $ | 14,212
|Long-term borrowings               |  |                  | 6,350  |              |   | 3,950        |  |              | 4,000 |  |   | 7,100 
|Lease obligations                  |  |                  | 58     |              |   | 36           |  |              | 36    |  |   |      
|                                   |  |                  |        |              |   |              |  |              |       |  |   |       
|Total Contractual Cash Obligations |  | $                | 41,337 |              | $ | 28,775       |  | $            | 9,350 |  | $ | 21,302
|                                   |  |                  |        |              |   |              |  |              |       |  |   |       



Item 3 : Controls and Procedures



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



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



19



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##### Table of Contents

Part II. Other Information



Item 1. Legal Proceedings



None.



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



None.



Item 3. Defaults Upon Senior Securities



None



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



The following table sets forth matters that were voted upon at the Companys Annual Meeting of Stockholders held on October 28, 2004:



|                          |  |           |  |              |  |                 |  |        
|------------------------- |  | --------- |  | ------------ |  | --------------- |  | -------
|                          |  | Votes For |  | VotesAgainst |  | BrokerNon-votes |  | Abstain
|Election of Directors:    |  |           |  |              |  |                 |  |        
|                          |  |           |  |             
|Thomas P. ONeill         |  | 1,213,304 |  | 1,617        |  |                |  |       
|William R. Waters         |  | 1,171,772 |  | 43,149       |  |                |  |       
|Gary R. Bozel             |  | 1,169,246 |  | 45,675       |  |                |  |       
|                          |  |           |  |             
|2004 Stock Incentive Plan |  | 711,896   |  | 137,796      |  | 331,149         |  | 34,080 



None



Item 5. Other Information



None



Item 6. Exhibits



The following
exhibit is filed herewith:



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



20



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##### Table of Contents

Signatures



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



|                        |  |                                      
|----------------------- |  | -------------------------------------
|                        |  | PATAPSCO BANCORP, INC.               
|                        | 
|Date: February 11, 2005 |  |                                      
|                        | 
|                        |  | /s/ Joseph J. Bouffard               
|                        |  | Joseph J. Bouffard                   
|                        |  | President and Chief Executive Officer
|                        |  | (Principal Executive Officer)        
|                        | 
|Date: February 11, 2005 |  |                                      
|                        | 
|                        |  | /s/ Michael J. Dee                   
|                        |  | Michael J. Dee                       
|                        |  | Chief Financial Officer & Controller 
|                        |  | (Principal Financial Officer)        



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