<PAGE>
 
               United States Securities and Exchange Commission
                            Washington, D. C. 20549

                                 FORM 10 - QSB

(Mark One)

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

                     For the quarterly period ended December 31, 1996

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

                     For the transition period from __________  to  ___________

Commission File Number:  0-28032


                            PATAPSCO BANCORP, INC.
       (Exact Name of Small Business Issuer as Specified in its Charter)


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

             1301 Merritt Boulevard, Dundalk, Maryland 21222-2194
             ----------------------------------------------------    
                   (Address of Principal Executive Offices)

                                 (410)285-1010
                                 -------------
              Registrant's Telephone Number, Including Area Code



       Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. 
Yes  X   No 
    ---     ---
       As of February 11, 1997, the issuer had 362,553 shares of Common
Stock issued and outstanding.

       Traditional Small Business Disclosure Format (check one):

       Yes        No  X
            ---      ---    
<PAGE>
 
<TABLE> 
<CAPTION> 
                                    Contents
                                    --------

Part I.     Financial Information                                                   Page
                                                                                    ----
<S>                                                                               <C> 
Item I.     Financial Statements

            Consolidated Statements of Financial Condition at December 31, 
            1996 and June 30, 1996.........................................          2

            Consolidated Statements of Operations for the Six and Three
            Month Periods Ended December 31, 1996 and 1995 ................          3

            Consolidated Statements of Cash Flows for the Six Month Periods
            Ended December 31, 1996 and 1995 ..............................        4-5

            Notes to Consolidated Financial Statements ....................        6-7

Item 2.     Management's Discussion and Analysis of Financial Condition and 
            Results of Operations .........................................       8-16


Part II.  Other Information
          -----------------    

Item 1.            Legal Proceedings ......................................         17

Item 2.            Changes in Securities ..................................         17
                                                                                  
Item 3.            Defaults Upon Senior Securities ........................         17
                                                                                  
Item 4.            Submission of Matters to a Vote of Security Holders ....         17
                                                                                  
Item 5.            Other Information ......................................         17
                                                                                  
Item 6.            Exhibits and Reports on Form 8-K  ......................         17
                                                                                  
                                                                                  
Signatures  ...............................................................         18

</TABLE> 

                                       1
<PAGE>
 
                     Patapsco Bancorp, Inc. and Subsidiary
                               Dundalk, Maryland

                Consolidated Statements of Financial Condition

<TABLE> 
<CAPTION> 
                                                                              December 31,                June 30,
                                                                                 1996                       1996
                                                                                 ----                       ----
                                                                              (unaudited)
<S>                                                                   <C>                            <C>       
        Assets
        ------  
Cash:
    On hand and due from banks                                          $      1,004,787                   400,286      
    Interest bearing deposits in other banks                                   6,641,005                   229,290      
Federal funds sold                                                             2,597,851                 6,794,889      
Investment securities, at fair value                                           1,958,753                 4,423,767      
Mortgage-backed securities, at fair value                                      7,948,986                12,777,828      
Loans receivable, net                                                         56,568,797                52,031,297      
Investment in securities required by law, at cost                                592,050                   490,500      
Ground rents owned, at cost                                                       41,200                    41,200      
Real estate acquired through foreclosure, net                                     31,081                    31,081      
Property and equipment, net                                                    1,048,309                 1,028,690      
Deferred income taxes                                                              1,903                        --            
Accrued interest, prepaid expenses and other assets                              582,518                   601,118       
                                                                          --------------             -------------        
                            Total assets                                $     79,017,240                78,849,946        
                                                                          ==============             =============        

                Liabilities and Stockholders' Equity
                ------------------------------------

Liabilities:
    Savings deposits                                                    $     65,073,634                64,156,888      
    Advance payments by borrowers for taxes,                                                                            
         insurance and grounds rents                                             633,556                 1,189,735      
    Accrued expenses and other liabilities                                       672,782                   605,180      
    Deferred income taxes                                                             --                   597,000      
                                                                          --------------             -------------
                            Total liabilities                                 66,379,972                66,548,803       

Stockholders' equity:
    Common stock $0.01 par value: authorized 4,000,000        
         shares:  issued and outstanding 362,553 shares                            3,626                     3,626      
    Additional paid-in capital                                                 6,754,240                 6,754,240      
    Contra equity - Employee stock ownership plan                               (522,072)                 (522,072)      
    Contra equity - Management recognition plan                                 (347,942)                       --            
    Retained income, substantially restricted                                  6,763,831                 6,172,405      
    Unrealized net holding losses on available-for-sale                                                                 
         portfolios, net of taxes                                                (14,415)                 (107,056)  
                                                                          --------------             -------------
                            Total stockholders' equity                        12,637,268                12,301,143
                                                                          --------------             -------------
                            Total liabilities and stockholders' equity  $     79,017,240                78,849,946
                                                                          ==============             =============         
</TABLE> 

See accompanying notes to financial statements.

                                       2
<PAGE>
 
                      Patapsco Bancorp, Inc. and Subsidiary
                               Dundalk, Maryland

                     Consolidated Statements of Operations
                                  (unaudited)


<TABLE>   
<CAPTION> 
                                                                   For Six Months Ended             For Three Months Ended
                                                                   --------------------             ----------------------
                                                                       December 31,                       December 31,
                                                                       ------------                       ------------      
                                                                   1996            1995              1996             1995
                                                                   ----            ----              ----             ----
<S>                                                            <C>              <C>               <C>           <C> 
Interest income:
        Loans receivable                                       $  2,220,708        1,636,950      1,123,234          816,907
        Mortgage-backed securities                                  293,055          492,010        123,086          241,765
        Investment securities                                       118,102          389,706         53,482          176,322
        Federal funds sold and interest-bearing deposits            212,197           64,676        117,803           49,541
        Dividends on securities required by law                      19,394           17,927         10,438            8,964
                                                                 -----------    -------------    -----------     ------------
                  Total interest income                           2,863,456        2,601,269      1,428,043        1,293,499
                                                                 -----------    -------------    -----------     ------------

Interest expense:
        Savings deposits                                          1,361,472        1,438,037        679,999          727,600
        Advances from Federal Home
             Bank of Atlanta                                             --          153,361              --          79,260
                                                                 -----------    -------------    -----------     ------------
                  Total interest expense                          1,361,472        1,591,398        679,999          806,860
                                                                 -----------    -------------    -----------     ------------
                  Net interest income                             1,501,984        1,009,871        748,044          486,639
Provision for losses on loans                                       120,000           62,000         60,000           59,000
                                                                 -----------    -------------    -----------     ------------
                  Net interest income after provision
                        for losses on loans                       1,381,984          947,871        688,044          427,639
                                                                 -----------    -------------    -----------     ------------

Noninterest income:
        Fees and service charges                                    106,354           51,899         59,996           26,003
        Net gain (loss) on sales of securities
             and loans                                                1,844          (71,857)            --          (71,857)
        Other                                                         8,254            4,424          3,638            2,645
                                                                 -----------    -------------    -----------     ------------
                  Total noninterest income                          116,452          (15,534)        63,634          (43,209)
                                                                 -----------    -------------    -----------     ------------

Noninterest expenses:
        Compensation and employee benefits                          659,307          579,661        360,264          297,742
        Insurance premiums                                          479,350           96,356         11,227           46,859
        Professional fees                                            61,575           58,053         34,575           29,314
        Equipment expense                                            53,131           54,361         26,634           28,119
        Net occupancy costs                                          41,653           38,970         20,129           18,081
        Advertising                                                  20,812           20,669         10,696           10,676
        Data processing                                              44,858           36,792         22,994           15,665
        Other                                                       151,398          137,388         78,874           80,256
                                                                 -----------    -------------    -----------     ------------
                  Total noninterest expense                       1,512,084        1,022,250        565,393          526,712
                                                                 -----------    -------------    -----------     ------------
                   Income (loss) before provision (benefit)
                          for income taxes                          (13,648)         (89,913)       186,285         (142,282)
Provision (benefit) for income taxes                               (605,074)         (35,111)        71,975          (56,694)
                                                                 ===========    =============    ===========     ============
                  Net Income (loss)                            $    591,426          (54,802)       114,310          (85,588)
                                                                 ===========    =============    ===========     ============

                  Net income per share                         $       1.76               n/a           0.34              n/a
                                                                 ===========    =============    ===========     ============

                  Weighted average number of
                    shares outstanding                              336,449               n/a        336,449              n/a
                                                                 ===========    =============    ===========     ============

</TABLE> 

See accompanying notes to financial statements.

                                       3
<PAGE>
 
                     Patapsco Bancorp, Inc. and Subsidiary
                               Dundalk, Maryland

                     Consolidated Statements of Cash Flows

<TABLE> 
<CAPTION> 
                                                  Six Months Ended December 31,
                                                  ----------------------------
                                                      1996            1995
                                                      ----            ----
                                                           (unaudited)
<S>                                               <C>                <C> 
Cash flows from operating activities:
  Net income (loss)                               $   591,426          (54,802)
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation                                     57,392           54,422
      Provision for losses on loans                   120,000           62,000
      Amortization of premiums and discounts, net       9,724          (44,969)
      Deferred loan origination fees, net of costs     48,062           29,145
      (Gain) loss on sales of mortgage-backed
        securities and investment securities           (1,844)          71,436
      Loss on sales of loans                             --              2,544
      Loans originated for sale, net                     --           (272,794)
      Proceeds from sale of mortgage loans
        originated for sale                              --            270,250
      Decrease in deferred income taxes              (588,903)         (20,889)
      Decrease in taxes recoverable                      --                204
      Decrease in accrued interest on investments,
        prepaid expenses and other assets              18,600            8,405
      Increase in accrued expenses and other 
        liabilities                                    67,602          402,485
                                                  -----------      -----------
        Net cash provided by operating activities     322,059          507,437
                                                  -----------      -----------

Cash flows from investing activities:
  Loan principal disbursements                     (6,197,783)      (4,343,124)
  Loan principal repayments                         3,267,282        2,698,452
  Purchase of loan participations                    (390,500)        (182,410)
  Purchase of whole loans                          (1,441,005)         (71,000)
  Purchase of common stock for Management
    Recognition Plan Trust                           (347,942)            --
  Purchase of capital stock in Federal Reserve 
    Bank of Richmond, required by law                (101,550)            --
  Purchase of mortgage-backed securities 
    available-for-sale                                   --         (2,895,020)
  Proceeds from maturing:                           
    Investment securities available-for-sale        2,500,000        1,000,000  
    Investment securities held-to-maturity               --          2,000,000
  Purchase of property and equipment                  (77,011)         (26,062)
  Sale of mortgage-backed securities 
    available-for-sale                              4,335,784        2,880,372

</TABLE> 


                                                                       continued


                                       4


<PAGE>
 
                     Patapsco Bancorp, Inc. and Subsidiary
                               Dundalk, Maryland

                     Consolidated Statements of Cash Flows

<TABLE> 
<CAPTION> 
                                                  Six Months Ended December 31,
                                                  ----------------------------
                                                     1996              1995
                                                     ----              ----
                                                          (unaudited)
<S>                                               <C>             <C> 
Cash flows from investing activities (continued): 
  Principal repayments on:
    Mortgage-backed securities 
      available-for-sale                          $   599,277      $   420,362
    Mortgage-backed securities held-to maturity          --          1,268,790
                                                  -----------      -----------
      Net cash provided by investing activities     2,146,552        2,750,360
                                                  -----------      -----------

Cash flows from financing activities:
  Net increase in savings accounts                    916,746          683,739
  Increase in drafts payable                             --            287,558
  Decrease in advance payments by borrowers for
    taxes, insurance and ground rents                (566,179)        (551,910)
  Decrease in advances from Federal Home Loan
    Bank of Atlanta                                      --         (2,500,000)
                                                  -----------      -----------
          Net cash provided by (used in)
            financing activities                      350,567       (2,080,613)

  Net increase in cash and cash equivalents       $ 2,819,178        1,177,184

  Cash and cash equivalents at beginning of 
    period                                          7,424,465        2,482,154
                                                  -----------      -----------
  Cash and cash equivalents at end of period      $10,243,643        3,659,338
                                                  ===========      ===========

  Supplemental information:
    Interest paid on savings deposits and
      borrowed funds                              $ 1,363,106        1,455,849
    Income taxes paid                                  49,400             --
    Decrease in unrealized holding losses on 
      securities available-for-sale, net of 
      income tax effect                                92,641          231,290
</TABLE> 

See accompanying notes to financial statements.


                                       5

<PAGE>
 
                      Patapsco Bancorp, Inc. and Subsidiary
                                Dundalk, Maryland
                   Notes to Consolidated Financial Statements
                                   (unaudited)

Note 1:    Patapsco Bancorp, Inc.

Patapsco Bancorp, Inc. (the "Company") was incorporated under the laws of the
State of Maryland in November, 1995 for the purpose of serving as the holding
company of Patapsco Federal Savings and Loan Association ("Association") upon
its conversion from mutual to stock form ("Stock Conversion") and of The
Patapsco Bank (the "Bank") following the Association's conversion to a Maryland
chartered commercial bank ("Bank Conversion"). On April 1, 1996, the Company
completed its Stock Conversion and issued 362,553 shares of common stock, par
value $.01 per share for gross proceeds of $7.3 million and net proceeds of $6.8
million. In connection with the Stock Conversion, the Company purchased all of
the capital stock of the Association for $3.4 million or 50% of the net
proceeds. All references to the Company prior to April 1, 1996, except where
otherwise indicated are to the Association.

On September 30, 1996, the Association completed its conversion from a federally
chartered stock savings and loan association to a Maryland chartered commercial
bank known as The Patapsco Bank. The Bank is regulated by The Federal Reserve
Bank of Richmond ("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. The Bank conducts operations through one office located at 1301 Merritt
Boulevard, Dundalk, Maryland 21222.

Note 2:    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 statements of
condition, statements of operations and statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. The results of operations for
the six and three months ended December 31, 1996 are not necessarily indicative
of the results that may be expected for the entire year.

                                       6
<PAGE>
 
Note 3:    Cash and Cash Equivalents

Cash equivalents include short-term investments which consists of Federal funds
sold. Cash equivalents and other liquidity and short-term investments are
carried at cost, which approximates market value.

Note 4:    Net Income Per Share

Net income per share for the six and three months ended December 31, 1996 is
computed based on 336,449 weighted average shares of common stock outstanding.


Note 5:    Regulatory Capital Requirements

At December 31, 1996, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at December 31, 1996:

                                                 Risk-based capital ratios
                                             ---------------------------------
                                                          Total     Leverage
                                              Tier 1     Capital      Ratio 
                                             ---------------------------------
Actual                                         25.88%      26.76%      13.23%

Minimum                                         4.00%       8.00%       4.00%
--------------------------------------------------------------------------------
Excess                                         21.88%      18.67%       9.23%
--------------------------------------------------------------------------------

                                       7
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Impact on Results of Operations Based on Recently Enacted Federal Government
--------------------------------------------------------------------------------
Legislation
-----------

         Reversal of Tax Bad Debt Recapture. On August 20 1996, Federal
legislation was enacted into law which provided that savings and loan
associations that convert to commercial banks will not be required to recapture
the portion of tax bad debt reserve accumulated prior to 1988. On September 30,
1996, the Association converted to a Bank and the Company reversed $600,000 of
the $740,000 tax expense previously recorded in fiscal 1995 when the
Association's Board of Directors made the determination to convert to a Bank.
The reversal of the tax bad debt reserve as described above was reflected as a
reduction of tax expense during the six months ended December 31, 1996.

         Special Savings Association Insurance Fund ("SAIF") Assessment. On
September 30, 1996, Federal legislation was enacted and signed into law which
provides a resolution to the disparity in the Bank Insurance Fund ("BIF") and
the Savings Association Insurance Fund ("SAIF") premiums. In November 1995, the
SAIF-insured institutions, such as the Bank, paid a one-time assessment of 65.7
cents on every $100 of deposits held at March 31, 1995 or approximately
$415,000. The after-tax effect of this one-time charge to earnings totaled
approximately $255,000 and was recorded during the six months ended December 31,
1996. Beginning January 1, 1997, the deposit insurance premiums for highly rated
institutions, such as the bank, will be substantially reduced. The FDIC
assessment for SAIF insured institutions will be 6.48 cents per $100 of deposits
while BIF insured institutions will pay 1.30 cents per $100 of deposits until
the year 2000 when the assessment will be imposed at the same rate on all
Federal Deposit and Insurance Corporation ("FDIC") insured institutions.

Comparison of Financial Condition at December 31, 1996 and June 30, 1996

         The Company's assets increased by $167,000 or 0.2% to $79.0 million at
December 31, 1996 from $78.8 million at June 30, 1996. During the six months
ended December 31, 1996, the Company continued to reconfigure its balance sheet
by emphasizing the origination of loans and reducing its investment in
investment securities and mortgage-backed securities. The Company's net loans
receivable increased by $4.5 million or 8.7% to $56.6 million at December 31,
1996 from $52.0 million at June 30, 1996. The Company's investment securities
decreased by $2.4 million or 55.7% to $2.0 million at December 31, 1996 from
$4.4 million at June 30, 1996 due to the maturity of a security. The Company's
mortgage-backed securities decreased by $4.8 million or 37.8 % to $8.0 million
at December 31, 1996 from $12.8 million at June 30, 1996, as a result of the
sale of $4.3 million of securities classified as available-for-sale. The
intended use of the proceeds from the sale of mortgage-backed securities is to
fund loan originations which are anticipated to have higher yields. Savings
deposits increased by $917,000 or 1.4% to $65.1 million at December 31, 1996
from $64.2 million at June 30, 1996. The increase in deposits was primarily the
result of interest credited. The Company's stockholders' equity increased by

                                       8
<PAGE>
 
$336,000 or 2.7% to $12.6 million at December 31, 1996 from $12.3 million at
June 30, 1996. The increase in stockholders' equity was due primarily to the
$591,000 in net income and a $93,000 decrease in the unrealized net holding
losses on available-for-sale investment portfolios, net of taxes, partially
off-set by the $348,000 purchase of Company common stock by the Management
Recognition Plan Trust during the quarter ended December 31, 1996.

Comparison of Operating Results for the Quarter and Six Months Ended December
31, 1996 and December 31, 1995

Net Income
----------

           The Company reported net income of $114,000 for the quarter ended
December 31, 1996 as compared to a net loss of $86,000 for the quarter ended
December 31, 1995. The $200,000 increase in net income was primarily due to a
$261,000 increase in net interest income and a $107,000 increase in noninterest
expense, offset slightly by an increase of $58,000 in provision for loan losses.
The Company's net income for the six months ended December 31, 1996 was $591,000
as compared to a net loss of $55,000 for the six months ended December 31, 1995.
Net income for the six months ended December 31, 1996 was significantly affected
by a $600,000 reduction in income tax expense and a $415,000 pretax deposit
insurance premium expense. The $600,000 reduction in income tax expense was a
partial reversal of the $740,000 tax bad debt reserve which was recorded in the
fourth quarter of fiscal 1995, as a result of the Company's decision to convert
its charter from a federal savings and loan to a state chartered commercial
bank. The $415,000 deposit insurance premium expense resulted from a one-time
assessment by the Federal Government to recapitalize SAIF. Excluding these
one-time charges, the Company would have earned approximately $246,000 for the
six months ended December 31, 1996. The $301,000 increase in net income, after
adjustments, was primarily attributable to the $492,000 increase in net interest
income during the six months ended December 31, 1996 and the $72,000 loss
incurred during the six months ended December 31, 1995.

           Net income for the quarter and six months ended December 31, 1996, as
compared to the same periods ended December 31, 1995, also reflected the
utilization of proceeds from the Company's stock conversion which was completed
during the fourth quarter of fiscal 1996.

Interest Income
---------------

           Total interest income increased by $135,000 or 10.4% to $1.4 million
for the quarter ended December 31, 1996 from $1.3 million for the quarter ended
December 31, 1995. Total interest income increased by $262,000 or 10.1% to $2.9
million for the six months ended December 31, 1996 from $2.6 million for the six
months ended December 31, 1995. The increase in the Company's total interest
income for the quarter ended December 31, 1996 as compared to the quarter ended
December 31, 1995 was due to an increase of $2.1 million in the average balance
of interest-earning assets to $77.0 million from $74.9 million and an increase
of 51 basis points in the average yield on interest-earning assets to 7.42% from
6.91%.

                                       9
<PAGE>
 
           The increase in the Company's total interest income for the six
months ended December 31, 1996 as compared to the six months ended December 31,
1995 was due to an increase of $2.4 million in the average balance of
interest-earning assets to $77.0 million from $74.6 million and an increase of
46 basis points in the average yield on interest-earning assets to 7.43% from
6.97%. The increase in the average balance is due to the proceeds from the
Company's stock conversion and the increase in the average yield is largely
attributable to the Company's efforts to transform its balance sheet from
investment and mortgage-backed securities to loans receivable. During the six
month period ended December 31, 1996, the Company sold certain investments which
has increased its balance of short-term interest-earning assets such as federal
funds sold. The intended use of this liquidity is to fund loan demand which will
increase the average yield on interest-earning assets.

Interest Expense
----------------

           Total interest expense decreased by $127,000 or 15.7% to $680,000 for
the quarter ended December 31, 1996 from $807,000 for the quarter ended December
31, 1995. Total interest expense decreased by $230,000 or 14.5% to $1.4 million
for the six months ended December 31, 1996 from $1.6 million for the six months
ended December 31, 1995. The decrease in the Company's interest expense during
the quarter and six months ended December 31, 1996 as compared to the same
periods in 1995 were attributable to the repayment of $5.0 million of Federal
Home Loan Bank of Atlanta advances and the decrease in the average interest rate
paid on savings deposits. As a result, the average balance and average rate of
interest-bearing liabilities decreased by $5.3 million and 41 basis points to
$63.0 million and 4.32% during the quarter ended December 31, 1996 from $68.3
million and 4.73% during the same quarter in 1995, respectively. Comparing the
six months ended December 31, 1996 to the six months ended December 31, 1995,
the average balance and average rate of interest-bearing liabilities decreased
by $5.1 million and 35 basis points to $62.9 million and 4.33% from $68.0
million and 4.68%, respectively.

           Interest expense on savings deposits decreased by $48,000 or 6.5% to
$680,000 for the quarter ended December 31, 1996 from $728,000 for the quarter
ended December 31, 1995. Interest expense on savings deposits decreased by
$77,000 or 5.3% to $1.4 million for the six months ended December 31, 1996 from
$1.4 million for the six months ended December 31, 1995. The decrease in
interest expense on savings deposits was primarily attributable to lower
interest rates during the quarter and six months ended December 31, 1996 as
compared to the same periods in 1995.

Net Interest Income
-------------------

           The Company's net interest income increased by $261,000 or 53.7% to
$748,000 for the quarter ended December 31, 1996 from $487,000 for the quarter
ended December 31, 1995. The increase in net interest income was primarily due
to an increase of 91 basis points in the interest 

                                      10
<PAGE>
 
rate spread (net yield on average interest-earning assets less the rate paid on
average interest-bearing liabilities) to 3.10% from 2.19% and an increase in the
ratio of average interest-earning assets to average interest bearing liabilities
to 122.2% from 109.6%.

           The Company's net interest income increased by $492,000 or 48.7% to
$1.5 million for the six months ended December 31, 1996 from $1.0 million for
the six months ended December 31, 1995. The Company's net interest spread
increased 81 basis points during the comparable six months periods and the
Company's net yield on interest-earning assets increased 119 basis points to
3.90% for the six months ended December 31, 1996 from 2.71% during the same six
months in 1995. The proceeds from the Company's stock conversion was a major
influence in the increased net interest spread and net yield on interest-earning
assets.

           During fiscal 1996, the Company began to implement a strategy to
improve the net interest spread by expanding its lending products to include
construction, consumer and commercial business loans. These loan products
generally earn higher yields than conventional single-family residential loans.
As previously discussed, the Company has also taken steps to reconfigure its
balance sheet by selling certain lower yielding investment and mortgage-backed
securities and funding loan demand with the proceeds.

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 years indicated and the average yields earned and
rates paid. Such yield and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily balances has
caused any material differences in the information presented.

           The tables also presents information for the periods indicated with
respect to the differences between the average yield earned on interest-earning
assets and average rate paid on interest-bearing liabilities, or "interest rate
spread", which banks have traditionally used as an indicator of profitability.
Another indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive spread will generate net
interest income.

                                      11
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                               Three Months Ended December 31,
                                                           -----------------------------------------------------------------------
                                                                        1996                                 1995
                                                           -------------------------------     -----------------------------------
                                                                                  Average                                 Average
                                                           Average                 Yield/       Average                    Yield/
                                                           Balance   Interest     Rate (1)      Balance     Interest      Rate (1)
                                                           -------   --------     --------      -------     --------      --------
                                                                                 (Dollars in thousands)
<S>                                                       <C>        <C>           <C>        <C>         <C>             <C>       

Interest-earning assets:
  Loans receivable (2)                                    $  56,443  $  1,123        7.96%    $  43,393   $      817         7.53%
  Investment securities                                       3,239        54        6.67%       11,908          177         5.95%
  Mortgage-backed securities                                  8,046       123        6.11%       15,429          241         6.25%
  Federal funds sold and other                                                                                            
    interest-earning assets                                   9,231       128        5.55%        4,174           59         5.65%
                                                          ---------- ---------                ----------  -----------
        Total interest earning assets                        76,959     1,428        7.42%       74,904        1,294         6.91%
Noninterest-earning assets                                    1,882                               1,685
                                                          ----------                          ----------
        Total assets                                      $  78,841                           $  76,589
                                                          ==========                          ==========
                                                                                          
Interest-bearing liabilities:                                                             
  Savings deposits (3)                                    $  62,986  $    680        4.32%    $  63,452   $      728         4.59%
  Borrowings                                                    --        --           --         4,864           79         6.50%
                                                          ---------- ---------                ----------  -----------
        Total interest-bearing liabilities                   62,986       680        4.32%       68,316          807         4.73%
                                                                                   --------                                --------
Noninterest-bearing liabilities                               3,276                               2,194
                                                          ----------                          ----------
        Total liabilities                                    66,262                              70,510
Stockholders' equity                                         12,579                               6,079
                                                          ----------                          ----------
        Total liabilities and stockholders' equity        $  78,841                           $  76,589
                                                          ==========                          ==========
                                                                                          
Net interest income                                                  $    748                             $      487
                                                                     =========                            ===========
Interest rate spread                                                                 3.10%                                   2.19%
                                                                                   ========                                ========
Net yield on interest-earning assets                                                 3.89%                                   2.60%
                                                                                   ========                                ========
Ratio of average interest-earning assets                                                  
  to average interest-bearing liabilities                                          122.18%                                 109.64%
                                                                                   ========                                ========
</TABLE> 

----------------------------------------------------- 
(1)   Yields and rates are annualized.
(2)   Includes nonaccrual loans.
(3)   Includes interest-bearing escrow accounts.

                                       12
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                                Six Months Ended December 31,
                                                           -----------------------------------------------------------------------
                                                                        1996                                 1995
                                                           -------------------------------     -----------------------------------
                                                                                  Average                                 Average
                                                           Average                 Yield/       Average                    Yield/
                                                           Balance   Interest     Rate (1)      Balance     Interest      Rate (1)
                                                           -------   --------     --------      -------     --------      --------
                                                                                 (Dollars in thousands)                           
<S>                                                       <C>        <C>           <C>        <C>         <C>             <C>       

Interest-earning assets:
  Loans receivable (2)                                    $ 55,407   $  2,221        8.02%    $  43,046     $  1,637         7.61%
  Investment securities                                      3,773        118        6.25%       13,380          390         5.83%
  Mortgage-backed securities                                 9,444        293        6.20%       15,392          492         6.39%
  Federal funds sold and other                                                                                           
     interest-earning assets                                 8,421        231        5.49%        2,822           82         5.81%
                                                          ---------  ---------                ----------    ---------      
        Total interest earning assets                       77,045      2,863        7.43%       74,640        2,601         6.97%
Noninterest-earning assets                                   1,796                                    0                  
                                                          ---------                           ----------                 
        Total assets                                      $ 78,841                            $  74,640                  
                                                          =========                           ==========                 
                                                                                                                         
Interest-bearing liabilities:                                                                                            
  Savings deposits (3)                                    $ 62,890   $  1,361        4.33%    $  63,111     $  1,438         4.56%
  Borrowings                                                   --         --           --         4,931          153         6.21%
                                                          ---------  ---------                ----------    ---------      
        Total interest-bearing liabilities                  62,890      1,361        4.33%       68,042        1,591         4.68%
                                                                                  ---------                               ---------
Noninterest-bearing liabilities                              3,372                                2,505                  
                                                          ---------                           ----------                 
        Total liabilities                                   66,262                               70,547                  
Stockholders' equity                                        12,579                                6,081                  
                                                          ---------                           ----------                 
        Total liabilities and stockholders' equity        $ 78,841                            $  76,628                  
                                                          =========                           ==========                 
                                                                                                                         
Net interest income                                                  $  1,502                               $  1,010       
                                                                     =========                              =========      
Interest rate spread                                                                 3.10%                                   2.29%
                                                                                  =========                               ========= 
Net yield on interest-earning assets                                                 3.90%                                   2.71%
                                                                                  =========                               ========= 

Ratio of average interest-earning assets                                                                                 
  to average interest-bearing liabilities                                          122.51%                                 109.70%
                                                                                  =========                               ========= 

</TABLE> 

----------------------------------------------------- 
(1)   Yields and rates are annualized.
(2)   Includes nonaccrual loans.
(3)   Includes interest-bearing escrow accounts.

                                       13
<PAGE>
 
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 probable loan losses, based on prior loss experience, volume and
type of collateral by the Company, industry standards and past due loans in the
Company's loan portfolio. The Company's management periodically monitors and
adjusts its allowance for loan losses based upon its analysis of the loan
portfolio. The Company increased its provision for loan losses to $60,000 and
$120,000 for the quarter ended December 31, 1996 from $59,000 and $62,000 for
the six months ended December 31, 1995. The increased provision for loan losses
for the quarter and six months ended December 31, 1996 was due to the Company's
higher levels of consumer and commercial loans, which generally entail a greater
risk than single-family residential loans. The Company's nonperforming loans as
a percentage of loans receivable was 1.01% and 0.91% at December 31, 1996 and
December 31, 1995, respectively. All of the nonperforming loans consisted of
single-family residential mortgage loans. The Company has increased its
allowance for loan losses as a percentage of total loans outstanding, net of
unearned origination fees to 0.55% at December 31, 1996 from 0.50% at December
31, 1995.

Noninterest Income
------------------

           The Company's noninterest income consists of deposit fees, service
charges, late fees and gains and losses on sales of securities and loans. Total
noninterest income increased by $107,000 and $132,000 to $64,000 and $116,000
for the quarter and six months ended December 31, 1996, respectively from losses
of $43,000 and $16,000 for the quarter and six months ended December 31, 1995,
respectively. The increase in noninterest income was primarily due to a $72,000
loss from the sale of investment securities during the quarter and six months
ended December 31, 1995 and an increase in fees and service charges of $34,000
or 130.7% and $54,000 or 104.9% for the quarter and six months ended December
31, 1996, respectively as compared to the same periods in 1995. The increase in
fees and service charges are primarily related to commercial checking accounts.

Noninterest Expenses
--------------------

           Total noninterest expenses increased by $39,000 or 7.3% to $565,000
for the quarter ended December 31, 1996 from $527,000 for the quarter ended
December 31, 1995. The increase in noninterest expenses was primarily due to
increases in compensation and employee benefits expense offset slightly by a
decrease in insurance premiums. Compensation and employee benefits expense
increased $63,000 or 21.0% to $360,000 for the quarter ended December 31, 1996
from $297,000 for the quarter ended December 31, 1995. The increase was largely
attributable to expenses related to the Company's Employee Stock Ownership Plan
("ESOP"), incentive compensation plan and Management Recognition Plan ("MRP").
Insurance premiums decreased $36,000 or 76.0% to $11,000 for the quarter ended
December 31, 1996 from $47,000 for the quarter ended December 31, 1995. The
decrease resulted from the refund of the 

                                       14
<PAGE>
 
Bank's $36,000 FDIC-SAIF deposit insurance premium for the quarter ended
December 31, 1996. Effective January 1, 1997, the Bank's FDIC after-tax
assessment costs was reduced by approximately $65,000 or 71.8% based upon a
September 30, 1996 assessment base.

           Total noninterest expenses increased by $490,000 or 47.9% to $1.5
million for the six months ended December 31, 1996 from $1.0 million for the six
months ended December 31, 1995. As discussed earlier, the Company incurred a
$415,000 one-time deposit insurance premium expense during the six months ended
December 31, 1996 and a $74,000 one-time charge relating to the adoption of a
directors retirement plan during the six months ended December 31, 1995.
Excluding those one-time adjustments, the Company's noninterest expense would
have increased by $149,000 or 15.7% to $1.1 million for the six months ended
December 31, 1996 from $948,000 for the six months ended December 31, 1995. The
increase in noninterest expense is primarily related to a $154,000 or 30.4%
increase in compensation and employee benefits expense during the six months
ended December 31, 1996 as compared to the same period in 1995. The increase in
compensation and employee benefits expense is primarily due to expenses related
to the Company's ESOP, incentive compensation plan, MRP, normal salary increases
and those salaries associated with the hiring of additional lending personnel.

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

           The Company's most liquid assets are cash on hand, interest-bearing
deposits and Federal funds sold, which are short-term, highly liquid investments
with original maturities of less than three months that are readily convertible
to known amounts of cash. The levels of these assets are dependent on the
Company's operating, financing and investing activities during any given period.
At December 31, 1996, the Company's cash on hand, interest-bearing deposits and
Federal funds sold totaled $10.2 million.

           The Company anticipates that it will have sufficient funds available
to meet its current loan commitments of $2.8 million. Certificates of deposit
which are scheduled to mature in less than one year at December 31, 1996 totaled
$23.3 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

                                       15
<PAGE>
 
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, competition and other
factors.

           The Company's primary uses of cash in investing activities during the
six months ended December 31, 1996, were the origination and purchase of $6.2
million and $1.8 million of loans, respectively. The Company's primary sources
of cash from investing activities during the six months ended December 31, 1996
were the sale of $4.3 million of mortgage-backed securities and the repayment of
$3.2 million, $2.5 million and $599,000 of loan principal, investment securities
and mortgage-backed securities, respectively.

           The Company's primary use of cash in financing activities during the
six months ended December 31, 1996 consisted of $566,000 in net disbursements of
advance payments by borrowers for property taxes, insurance and ground rents.
The Company's primary sources of cash provided by financing activities during
the six months ended December 31, 1996 consisted primarily of a $917,000 net
increase in savings deposits.

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


Impact of New Accounting Standards
----------------------------------

           In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (SFAS 125). SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. This
Statement will require, among other things, that the Company record at fair
value, assets and liabilities resulting from a transfer of assets. The Company
adopted the provisions of SFAS 125 as of January 1, 1997, and the adoption of
SFAS 125 did not have a material effect on the Company's financial condition or
results of operation.

                                       16
<PAGE>
 
Part II.   Other Information

Item 1.    Legal Proceedings
           None.

Item 2.    Changes in Securities
           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 which were voted
           upon at the Company's Annual Meeting of Stockholders held
           on October 10, 1996:
<TABLE> 
<CAPTION> 
           
       <S>                                                      <C>      <C>        <C>             <C> 
       Matter                                                   Votes      Votes 
         #                                                       For     Withheld                                 
       ------                                                   -----    --------                                 
                                                                                                                  
         1.   Election of Directors                                                                               
                                                                                                                  
               S. Robert Kinghorn                              284,193      600                                   
               Douglas H. Ludwig                               284,793        0                                   
               Theodore C. Patterson                           284,793        0                                   
                                                                                                                  
                                                                                                                  
                                                                Votes     Votes                      Broker       
                                                                 For     Against    Abstentions     Non-Votes     
                                                                -----    -------    -----------     ---------      
                                                               
                                                               
         2.    Approve Stock Option and Incentive Plan         234,879    12,715          2,116        35,033
                                                               
         3.    Approve Management Recognition Plan             228,820    13,140          7,300        35,483
</TABLE> 

Item 5.    Other Information
           None

Item 6.    Exhibits and Reports on Form 8-K
           None

           (a)  The following exhibit is filed as part of this Form 10-QSB:  
                Exhibit 27 Financial Data Schedule

           (b)  On October 11, 1996, the Registrant filed a Form 8-K reporting
                stockholder approval of a stock-option plan and management
                recognition plan and the completion of the conversion of the
                Registrant's wholly owned subsidiary from federal savings and
                loan association to a Maryland commercial bank.

                                       17
<PAGE>
 
                                  Signatures

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



                                   PATAPSCO BANCORP, INC.

                                   /s/ Joseph J. Bouffard
Date:  February 11, 1997           ------------------------------
                                   Joseph J. Bouffard
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)



                                   /s/ Timothy C. King 
Date:  February 11, 1997           ------------------------------
                                   Timothy C. King
                                   Controller and Treasurer
                                   (Principal Financial and Accounting Officer)

                                       18