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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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QUARTERLY REPORT UNDER SECTION 13 OR
15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2005.



Commission file number: 000-51037



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SFSB, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|United States                                                  |  | 20-2077715                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1614 Churchville
Road, Bel Air, Maryland 21015

Address of principal executive offices



(443) 265-5570

Issuers telephone number



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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 past 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 ̈



State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date:



As of May
2, 2005, there were 2,975,625 shares of the issuers Common Stock, par value $0.01 per share, outstanding.



Transitional Small Business Disclosure Format (Check One):    Yes ̈No  x



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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SFSB, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                           |  |               |             |   |              |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                                           |  | Mar. 31, 2005 |             |   | Dec 31, 2004 |  
|                                                                                                                                           |  | (Unaudited)   |             |   |              |  
|ASSETS                                                                                                                                     |  |               |             |   |              |   |             |  
|Cash and due from banks                                                                                                                    |  | $             | 769,775     |   |              | $ | 745,668     |  
|Federal funds sold                                                                                                                         |  |               | 8,199,615   |   |              |   | 14,851,279  |  
|                                                                                                                                           |  |               |             |   |              |   |             |  
|Cash and cash equivalents                                                                                                                  |  |               | 8,969,390   |   |              |   | 15,596,947  |  
|                                                                                                                                           |  |              
|Investment securities - available for sale                                                                                                 |  |               | 8,014,359   |   |              |   | 7,980,711   |  
|Investment securities - held to maturity                                                                                                   |  |               | 3,996,289   |   |              |   | 3,995,547   |  
|Mortgage backed securities - held to maturity                                                                                              |  |               | 6,456,943   |   |              |   | 6,981,460   |  
|Loans receivable - net of allowance for loan losses of 2005 $433,00; 2004 $413,000                                                         |  |               | 118,176,371 |   |              |   | 117,900,265 |  
|Federal Home Loan Bank of Atlanta stock, at cost                                                                                           |  |               | 1,303,000   |   |              |   | 1,445,600   |  
|Premises and equipment, at cost, less accumulated depreciation                                                                             |  |               | 5,813,248   |   |              |   | 5,842,373   |  
|Accrued interest receivable                                                                                                                |  |               | 429,067     |   |              |   | 426,633     |  
|Other assets                                                                                                                               |  |               | 251,509     |   |              |   | 263,863     |  
|                                                                                                                                           |  |               |             |   |              |   |             |  
|Total assets                                                                                                                               |  | $             | 153,410,176 |   |              | $ | 160,433,399 |  
|                                                                                                                                           |  |               |             |   |              |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       |  |               |             |   |              |   |             |  
|Liabilities                                                                                                                                |  |               |             |   |              |   |             |  
|Deposits                                                                                                                                   |  | $             | 107,561,770 |   |              | $ | 109,711,368 |  
|Checks outstanding in excess of bank balance                                                                                               |  |               | 388,897     |   |              |   | 627,445     |  
|Borrowings                                                                                                                                 |  |               | 21,500,000  |   |              |   | 26,500,000  |  
|Advance payments by borrowers for taxes and insurance                                                                                      |  |               | 956,664     |   |              |   | 329,387     |  
|Other liabilities                                                                                                                          |  |               | 309,852     |   |              |   | 645,098     |  
|                                                                                                                                           |  |               |             |   |              |   |             |  
|Total liabilities                                                                                                                          |  |               | 130,717,183 |   |              |   | 137,813,298 |  
|                                                                                                                                           |  |              
|Commitments and Contingencies                                                                                                              |  |               |             |   |              |   |             |  
|                                                                                                                                           |  |              
|Stockholders Equity                                                                                                                       |  |               |             |   |              |   |             |  
|Preferred stock, no par value, 1,000,000 shares authorized, none issued and outstanding                                                    |  |               |            |   |              |   |            |  
|Common stock, par value $.01, 9,000,000 shares authorized, 2,975,625 shares issued and outstanding at March 31, 2005 and December 31,
2004 |  |               | 29,756      |   |              |   | 29,756      |  
|Additional paid-in capital                                                                                                                 |  |               | 12,680,100  |   |              |   | 12,680,644  |  
|Retained earnings (substantially restricted)                                                                                               |  |               | 11,224,377  |   |              |   | 11,135,940  |  
|Unearned Employee Stock Ownership Plan shares                                                                                              |  |               | (1,166,300  | ) |              |   | (1,166,300  | )
|Accumulated other comprehensive loss                                                                                                       |  |               | (74,940     | ) |              |   | (59,939     | )
|                                                                                                                                           |  |               |             |   |              |   |             |  
|Total stockholders equity                                                                                                                 |  |               | 22,692,993  |   |              |   | 22,620,101  |  
|                                                                                                                                           |  |               |             |   |              |   |             |  
|Total liabilities and stockholders equity                                                                                                 |  | $             | 153,410,176 |   |              | $ | 160,433,399 |  
|                                                                                                                                           |  |               |             |   |              |   |             |  



See
notes to consolidated financial statements.



2



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SFSB, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



|                                                    |  |                              |           |      |   |          
|--------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | ---------
|                                                    |  | Three Months Ended March 31,
|                                                    |  | 2005                         |           | 2004
|Interest and fees on loans                          |  | $                            | 1,588,072 |      | $ | 1,310,906
|Interest and dividends on investment securities     |  |                              | 96,231    |      |   | 81,077   
|Interest on mortgage backed securities              |  |                              | 57,370    |      |   | 90,963   
|Other interest income                               |  |                              | 92,168    |      |   | 14,702   
|                                                    |  |                              |           |      |   |          
|Total interest income                               |  |                              | 1,833,841 |      |   | 1,497,648
|                                                    |  |                             
|Interest on deposits                                |  |                              | 672,871   |      |   | 616,055  
|Interest on short-term borrowings                   |  |                              | 49,178    |      |   | 17,144   
|Interest on long-term borrowings                    |  |                              | 115,540   |      |   | 80,110   
|Other interest expense                              |  |                              | 19        |      |   | 20       
|                                                    |  |                              |           |      |   |          
|Total interest expense                              |  |                              | 837,608   |      |   | 713,329  
|                                                    |  |                              |           |      |   |          
|Net interest income                                 |  |                              | 996,233   |      |   | 784,319  
|Provision for loan losses                           |  |                              | 19,570    |      |   | 12,000   
|                                                    |  |                              |           |      |   |          
|Net interest income after provision for loan losses |  |                              | 976,663   |      |   | 772,319  
|                                                    |  |                             
|Other Income                                        |  |                              |           |      |   |          
|Rental income                                       |  |                              | 31,400    |      |   | 21,546   
|Other income                                        |  |                              | 17,550    |      |   | 17,557   
|Gain on sale of loans                               |  |                              | 1,163     |      |   |         
|                                                    |  |                              |           |      |   |          
|Total other income                                  |  |                              | 50,113    |      |   | 39,103   
|                                                    |  |                             
|Non-Interest Expenses                               |  |                              |           |      |   |          
|Compensation and other related expenses             |  |                              | 435,136   |      |   | 327,412  
|Occupancy expense                                   |  |                              | 106,658   |      |   | 101,941  
|Advertising expense                                 |  |                              | 39,010    |      |   | 53,189   
|Service bureau expense                              |  |                              | 41,108    |      |   | 37,088   
|Furniture, fixtures and equipment                   |  |                              | 54,234    |      |   | 54,735   
|Telephone, postage and delivery                     |  |                              | 20,525    |      |   | 23,303   
|Other expenses                                      |  |                              | 191,868   |      |   | 116,801  
|                                                    |  |                              |           |      |   |          
|Total non-interest expenses                         |  |                              | 888,539   |      |   | 714,469  
|                                                    |  |                              |           |      |   |          
|Income before income tax provision                  |  |                              | 138,237   |      |   | 96,953   
|Income tax provision                                |  |                              | 49,800    |      |   | 39,100   
|                                                    |  |                              |           |      |   |          
|Net income                                          |  | $                            | 88,437    |      | $ | 57,853   
|                                                    |  |                              |           |      |   |          
|Basic earnings per share                            |  | $                            | 0.03      |      |   | N/A      



See
notes to consolidated financial statements.



3



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SFSB, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



|                                                                                                               |  |                              |         |   |      |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------
|                                                                                                               |  | Three Months Ended March 31,
|                                                                                                               |  | 2005                         |         |   | 2004
|Net income                                                                                                     |  | $                            | 88,437  |   |      | $ | 57,853
|Net unrealized (loss) gain on securities available for sale during the period (net of taxes of $(9,439) and $6 |  |                              | (15,001 | ) |      |   | 9     
|                                                                                                               |  |                              |         |   |      |   |       
|Total Comprehensive Income                                                                                     |  | $                            | 73,436  |   |      | $ | 57,862
|                                                                                                               |  |                              |         |   |      |   |       



See notes to consolidated financial
statements.



4



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SFSB, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                  |  |                              |            |   |      |   |           |  
|----------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | --------- | -
|                                                                  |  | Three Months Ended March 31, |           
|                                                                  |  | 2005                         |            |   | 2004 |  
|Cash Flows From Operating Activities                              |  |                              |            |   |      |   |           |  
|Net income                                                        |  | $                            | 88,437     |   |      | $ | 57,853    |  
|Adjustments to Reconcile Net Income to Net Cash                   |  |                              |            |   |      |   |           |  
|Provided by Operating Activities                                  |  |                              |            |   |      |   |           |  
|Net amortization of premiums and discounts                        |  |                              | 5,945      |   |      |   | 7,495     |  
|Amortization of deferred loan fees                                |  |                              | (19,470    | ) |      |   | (24,515   | )
|Provision for loan losses                                         |  |                              | 19,570     |   |      |   | 12,000    |  
|Gain on sale of loans                                             |  |                              | (1,163     | ) |      |   |          |  
|Loans originated for sale                                         |  |                              | (155,000   | ) |      |   |          |  
|Proceeds from loans sold                                          |  |                              | 156,163    |   |      |   |          |  
|Gain on ground rents                                              |  |                              |           |   |      |   | (1,000    | )
|Provision for depreciation                                        |  |                              | 44,213     |   |      |   | 46,248    |  
|Decrease in accrued interest receivable                           |  |                              |            |   |      |   |           |  
|and other assets                                                  |  |                              | 9,920      |   |      |   | 15,006    |  
|Increase(decrease) in accrued interest payable                    |  |                              | 21,596     |   |      |   | (723      | )
|Decrease in other liabilities                                     |  |                              | (326,351   | ) |      |   | (5,042    | )
|                                                                  |  |                              |            |   |      |   |           |  
|Net Cash (Used in) Provided by Operating Activities               |  |                              | (156,140   | ) |      |   | 107,322   |  
|                                                                  |  |                             
|Cash Flows from Investing Activities                              |  |                              |            |   |      |   |           |  
|Purchase of available for sale securities                         |  |                              | (58,088    | ) |      |   | (42,941   | )
|Net increase in loans                                             |  |                              | (276,206   | ) |      |   | (329,596  | )
|Principal collected on mortgage backed securities                 |  |                              | 517,830    |   |      |   | 666,172   |  
|Purchase of Federal Home Loan Bank of Atlanta stock               |  |                              | (82,400    | ) |      |   | (168,000  | )
|Redemption of Federal Home Loan Bank of Atlanta stock             |  |                              | 225,000    |   |      |   |          |  
|Purchases of premises and equipment                               |  |                              | (15,088    | ) |      |   | (28,642   | )
|                                                                  |  |                              |            |   |      |   |           |  
|Net Cash Provided by Investing Activities                         |  |                              | 311,048    |   |      |   | 96,993    |  
|                                                                  |  |                             
|Cash Flows from Financing Activities                              |  |                              |            |   |      |   |           |  
|Net (decrease) increase in deposits                               |  |                              | (2,171,194 | ) |      |   | 263,056   |  
|Decrease in checks outstanding in excess of bank balance          |  |                              | (238,548   | ) |      |   | (538,932  | )
|Repayment of borrowings                                           |  |                              | (5,000,000 | ) |      |   |          |  
|Increase in advance payments by borrowers for taxes and insurance |  |                              | 627,277    |   |      |   | 576,892   |  
|                                                                  |  |                              |            |   |      |   |           |  
|Net Cash (Used in) Provided by Financing Activities               |  |                              | (6,782,465 | ) |      |   | 301,016   |  
|                                                                  |  |                              |            |   |      |   |           |  
|(Decrease) increase in cash and cash equivalents                  |  |                              | (6,627,557 | ) |      |   | 505,331   |  
|Cash and cash equivalents at beginning of year                    |  |                              | 15,596,947 |   |      |   | 3,497,626 |  
|                                                                  |  |                              |            |   |      |   |           |  
|Cash and cash equivalents at end of year                          |  | $                            | 8,969,390  |   |      | $ | 4,002,957 |  
|                                                                  |  |                              |            |   |      |   |           |  
|Supplemental Disclosures of Cash Flows Information:               |  |                              |            |   |      |   |           |  
|Cash paid during the year for:                                    |  |                              |            |   |      |   |           |  
|Income taxes                                                      |  | $                            | 125,000    |   |      | $ |          |  
|Interest                                                          |  | $                            | 816,012    |   |      | $ | 714,052   |  



See
notes to consolidated financial statements.



5



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SFSB, Inc.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Note 1 
Principles of Consolidation



The consolidated financial
statements include the accounts of SFSB, Inc. (the Company), its wholly-owned subsidiary, Slavie Federal Savings Bank (the Bank) and the Banks wholly-owned subsidiaries, Slavie Holdings, LLC (Holdings) and
Slavie Financial Services, LLC. The accompanying consolidated financial statements include the accounts and transactions of these companies on a consolidated basis since inception. All intercompany transactions have been eliminated in the
consolidated financial statements.



On December 30,
2004, the Bank reorganized from a federally chartered mutual savings bank to a federally chartered stock savings bank. Simultaneously, the Bank consummated the formation of a new holding company, SFSB, Inc. Also simultaneously, a mutual holding
company was formed, Slavie Bancorp, MHC. In connection with the reorganization, the Company issued 2,975,625 shares of its common stock. A majority of that stock (1,636,594 shares) was issued to Slavie Bancorp, MHC. The remainder was sold and issued
to depositors of the Bank and the Employee Stock Ownership Plan for a total price of $13,390,310. Costs associated with the conversion, totaling $679,910 were deducted from the sale proceeds. Prior to the consummation of the reorganization, the
Company had no assets or liabilities. Accordingly, the Companys financial statements consist of those of the Bank for periods prior to December 30, 2004.



Note 2  Business



The Companys primary business is the ownership and operation of the Bank. The Banks primary business activity is the acceptance of deposits
from the general public and the use of the proceeds for investments and loan originations. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities.



Holdings, formed on August 18, 1999 as a Maryland limited liability company, was created to acquire and manage certain real property located at 1614 Churchville Road, Bel Air, Maryland. This property includes the main office and corporate
headquarters of the Bank. In addition, the property houses mixed use office space which is available for lease. As of March 31, 2005, approximately 81% of the available space to non-affiliated tenants was leased. During the year ended December 31,
2004, the Company dissolved its subsidiary, Slavie Financial Services, LLC.



Note 3  Basis of Presentation



The
accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to SEC Form
10-QSB. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.



The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2004 have been derived from the audited consolidated financial statements. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in SFSB, Inc.s Annual Report on Form 10-KSB. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results that may be
expected for the full year.



6



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Note 4  Earnings Per Share



The Company currently has a simple capital structure. Basic earnings per share for the three months ended March 31, 2005 is
computed by dividing net income by the weighted average number of common shares outstanding of 2,859,967 for the period. Unearned Employee Stock Ownership Plan (ESOP) shares are not included in outstanding shares. Earnings per share does not apply
to March 31, 2004 since the company was not a stock company at that time.



Note 5  Regulatory Capital Requirements



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



|                           |  |        |            |   |                              |   |        |                                                                |           |  |      |        |  |   |           |  |       |  
|-------------------------- |  | ------ | ---------- | - | ---------------------------- | - | ------ | -------------------------------------------------------------- | --------- |  | ---- | ------ |  | - | --------- |  | ----- | -
|                           |  | Actual |            |   | For CapitalAdequacy Purposes |   |        | To Be WellCapitalized Under Prompt Corrective Action Provision |          
|March 31, 2005 (Unaudited) |  | Amount |            | % |                              |   | Amount |                                                                | %         |  |      | Amount |  | % |          
|Tangible (1)               |  | $      | 16,360,168 |   | 10.64                        | % |        | $                                                              | 2,305,946 |  | 1.50 | %      |  |   | N/A       |  | N/A   |  
|Tier I capital (2)         |  |        | 16,360,168 |   | 20.89                        | % |        |                                                                | N/A       |  | N/A  |        |  | $ | 4,698,554 |  | 6.00  | %
|Core (leverage) (1)        |  |        | 16,360,168 |   | 10.64                        | % |        |                                                                | 6,149,188 |  | 4.00 | %      |  |   | 7,686,486 |  | 5.00  | %
|Risk-weighted (2)          |  |        | 16,793,168 |   | 21.44                        | % |        |                                                                | 6,264,739 |  | 8.00 | %      |  |   | 7,830,924 |  | 10.00 | %

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|(1) | To adjusted total assets.
|--- | -------------------------

|(2) | To risk-weighted assets.
|--- | ------------------------



Note 6 - Recent Accounting Pronouncements



In December, 2004, the Financial Accounting Standards Board (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 a 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 SFSB, Inc., SFAS 123R will be effective for annual periods beginning after December 15, 2005. The Company will adopt this standard in 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 Financial Accounting Standards Board 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
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.



7



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



Introduction



Some of the matters discussed below include forward-looking statements. Forward-looking statements often use words such as
believe, expect, plan, may, will, should, project, contemplate, anticipate, forecast, intend or other words of
similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. Our actual results and the actual outcome of our expectations and strategies could be different from those anticipated or
estimated for the reasons discussed below and the reasons under the heading Information Regarding Forward Looking Statements.



SFSB, Inc. (the Company) had not been organized as of March 31, 2004. References to we or our with respect to the
three months ended March 31, 2004 refers to Slavie Federal Savings Bank (the Bank).



Overview



The
Companys growth from prior periods resulted in improved operating results during the three month period ended March 31, 2005 as compared to the same period in the prior year. As we look ahead at the remainder of the year, our loan pipeline
remains steady and the economic conditions in the communities in which we operate remain solid. As a result, we anticipate that our loans and deposits will grow and we will continue to realize improved earnings over the prior year.



Key measurements and events for the three-month period ended March 31, 2005
include the following:



| |  |  | Total assets at March 31, 2005 decreased by 4.38% to $153,410,176 as compared to $160,433,399 as of December 31, 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | Net loans outstanding increased by 0.23% from $117,900,265 as of December 31, 2004 to $118,176,371 as of March 31, 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Nonperforming loans at March 31, 2005 totaled $1,273,867. Nonaccrual loans totaled $193,684 and loans over ninety days and still accruing totaled $1,080,183. We believe an
appropriate allowance for loan losses continues to be maintained.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deposits at March 31, 2005 were $107,561,770, a decrease of $2,149,598 or 1.96% from $109,711,368 at December 31, 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | SFSB, Inc. realized net income of $88,437 for the three-month period ended March 31, 2005. This compares to net income of $57,853 for the three-month period ended March 31, 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest income, our main source of income, was $996,233 during the three-month period ended March 31, 2005 compared to $784,319 for the same period in 2004. This represents an
increase of 27.02% for the three-months ended March 31, 2005 as compared to the same period in 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We had no loan charge-offs during the three month periods ending March 31, 2005 or March 31, 2004.
| | - |  | --------------------------------------------------------------------------------------------------



8



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| |  |  | Non-interest income increased by $11,010, or 28.16%, for the three-month period ended March 31, 2005, as compared to the three-month period ended March 31, 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-interest expenses increased by $174,070 or 24.36%, for the three-month period ended March 31, 2005, as compared to the same period ended March 31, 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



Assets declined during the first three months of
2005 primarily because we repaid $5,000,000 of borrowings and returned $1,452,720 of funds deposited with us by potential purchasers in the stock offering whose subscription funds were returned in January 2005. Loan growth was flat during the first
three months of 2005 because we were unable for most of the quarter to advertise our mortgage rates in the rate chart advertisement of our local newspaper due to a contractual dispute between the newspaper and the marketing company that sells the
advertisements. The dispute was resolved in the last week of March and our rates again appear in the advertisement. We anticipate improved loan growth during the second quarter.



The $1,080,183 of accruing loans more than ninety days past due related to one loan. The loan is an acquisition and
development loan in which we hold an approximately 20% participation. Because we believe that collection of all principal and interest on this loan is probable, we continue to accrue interest on this loan.



A detailed discussion of the factors leading to these changes can be found in
the discussion below.



Critical Accounting Policies



The Companys consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the United States of America or GAAP, and follow general practices within the industry in which we operate. Application of these principles requires management to make
estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements;
accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such
have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in
the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation allowance to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying
assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or
are provided by other third-party sources, when available.



Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses as
the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.



Managements judgment is inherent in the determination of the provision and allowance for loan losses, including in connection with the valuation
of collateral and the financial condition of the borrower. The establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance
based upon the same volume and classification of loans.



9



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Changes in allowance factors or in managements interpretation of those factors will have a direct
impact on the amount of the provision, and a corresponding effect on income and assets. Also, errors in managements perception and assessment of the allowance factors could result in the allowance not being adequate to cover losses in the
portfolio, and may result in additional provisions or charge-offs, which would adversely affect income and capital. For additional information regarding the allowance for loan losses, see Results of Operations for the Three Months Ended March
31, 2005 and 2004 -Provision for Loan Losses and Analysis of Allowance for Loan Losses.



Results of Operations for the Three Months Ended March 31, 2005 and 2004



General. Net income increased $30,584, to $88,437 for the three months ended March 31, 2005 compared to $57,853 for the same period in the prior
year. The increase was due primarily to a $211,914 increase in net interest income, offset by a $174,070 increase in non-interest expense.



Average Balances, Net Interest Income, Yields Earned and Rates Paid.The following tables present for the periods indicated the total dollar amount
of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made and no income was
exempt from federal income taxes. All average balances are monthly average balances. We do not believe that the monthly averages differ materially from what the daily averages would have been. Non-accruing loans have been included in the table as
loans carrying a zero yield. The amortization of loan fees is included in computing interest income, however, such fees are not material.



10



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|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|---------------------------------------------------------------- |  | --------------------------------- | ------- | ------------------- | --------------------------------- | ----- | ----------- |  | ---- | ------------------------- |  | --------------------- | ------- |  | ---------- | ----- | - |  | ---- | -
|                                                                 |  | Three Months Ended March 31, 2005 |         |                     | Three Months Ended March 31, 2004 |      
|                                                                 |  | Average Outstanding Balance       |         | InterestEarned/Paid |                                   |       | Yield/ Rate |  |      | AverageOutstandingBalance |  | Interest Earned/ Paid |         |  | Yield/Rate |      
|                                                                 |  | (Dollars In Thousands)            |        
|Interest-earning assets:                                         |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Loans receivable(1)                                              |  | $                                 | 118,550 |                     | $                                 | 1,588 |             |  | 5.36 | %                         |  | $                     | 93,362  |  | $          | 1,311 |   |  | 5.62 | %
|Mortgage-backed securities                                       |  |                                   | 6,623   |                     |                                   | 58    |             |  | 3.50 |                           |  |                       | 9,813   |  |            | 91    |   |  | 3.71 |  
|Investment securities (available for sale)                       |  |                                   | 8,002   |                     |                                   | 58    |             |  | 2.90 |                           |  |                       | 7,873   |  |            | 43    |   |  | 2.18 |  
|Investment securities (held to maturity)                         |  |                                   | 3,996   |                     |                                   | 38    |             |  | 3.80 |                           |  |                       | 3,993   |  |            | 38    |   |  | 3.81 |  
|Other interest-earning assets                                    |  |                                   | 13,038  |                     |                                   | 92    |             |  | 2.82 |                           |  |                       | 4,062   |  |            | 15    |   |  | 1.48 |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Total interest-earning assets                                    |  |                                   | 150,209 |                     |                                   | 1,834 |             |  | 4.88 | %                         |  |                       | 119,103 |  |            | 1,498 |   |  | 5.03 | %
|Non-interest earning assets                                      |  |                                   | 7,158   |                     |                                   |       |             |  |      |                           |  |                       | 7,506   |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Total assets                                                     |  | $                                 | 157,367 |                     |                                   |       |             |  |      |                           |  | $                     | 126,609 |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Interest-bearing liabilities:                                    |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Savings deposits                                                 |  | $                                 | 37,614  |                     |                                   | 116   |             |  | 1.23 | %                         |  | $                     | 29,848  |  |            | 71    |   |  | 0.95 | %
|Demand and NOW accounts                                          |  |                                   | 2,315   |                     |                                   | 5     |             |  | 0.86 |                           |  |                       | 2,019   |  |            | 3     |   |  | 0.59 |  
|Certificates of deposit                                          |  |                                   | 67,621  |                     |                                   | 552   |             |  | 3.27 |                           |  |                       | 65,988  |  |            | 542   |   |  | 3.28 |  
|Escrows                                                          |  |                                   | 12      |                     |                                   |      |             |  |     |                           |  |                       | 12      |  |            |      |   |  |     |  
|Borrowings                                                       |  |                                   | 24,833  |                     |                                   | 165   |             |  | 2.66 |                           |  |                       | 16,500  |  |            | 97    |   |  | 2.35 |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Total interest-bearing liabilities                               |  |                                   | 132,395 |                     |                                   | 838   |             |  | 2.53 | %                         |  |                       | 114,367 |  |            | 713   |   |  | 2.49 | %
|Non-interest bearing liabilities                                 |  |                                   | 2,282   |                     |                                   |       |             |  |      |                           |  |                       | 1,279   |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Total liabilities                                                |  |                                   | 134,677 |                     |                                   |       |             |  |      |                           |  |                       | 115,646 |  |            |       |   |  |      |  
|Total equity(2)                                                  |  |                                   | 22,690  |                     |                                   |       |             |  |      |                           |  |                       | 10,963  |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Total liabilities and equity                                     |  | $                                 | 157,367 |                     |                                   |       |             |  |      |                           |  | $                     | 126,609 |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Net interest income                                              |  |                                   |         |                     | $                                 | 996   |             |  |      |                           |  |                       |         |  | $          | 785   |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Interest rate spread(3)                                          |  |                                   |         |                     |                                   |       |             |  | 2.35 | %                         |  |                       |         |  |            |       |   |  | 2.54 | %
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Net interest-earning assets                                      |  | $                                 | 17,814  |                     |                                   |       |             |  |      |                           |  | $                     | 4,736   |  |            |       |   |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Net interest margin(4)                                           |  |                                   |         |                     |                                   |       |             |  | 2.65 | %                         |  |                       |         |  |            |       |   |  | 2.64 | %
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  
|Ratio of interest earning assets to interest bearing liabilities |  |                                   |         |                     |                                   | 1.13  | x           |  |      |                           |  |                       |         |  |            | 1.04  | x |  |      |  
|                                                                 |  |                                   |         |                     |                                   |       |             |  |      |                           |  |                       |         |  |            |       |   |  |      |  

---

|(1) | Loans receivable are net of the allowance for loan losses.
|--- | ----------------------------------------------------------

|(2) | Total equity includes retained earnings and accumulated other comprehensive income (loss).
|--- | ------------------------------------------------------------------------------------------

|(3) | Net interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin represents net interest income as a percentage of average interest earning assets.
|--- | ------------------------------------------------------------------------------------------------------



Net Interest Income.



Net interest income increased $211,914, or 27.02%, to $996,233 for the three months ended March 31, 2005 from $784,319 for the three months ended March
31, 2004. The increase was due primarily to an increase of $31,105,789, or 26.12%, in average interest earning assets to $150,208,924 from $119,103,135, partially offset by an increase of $18,030,687, or 15.77%, in average interest bearing
liabilities to $132,395,396 from $114,366,699. The increase was also offset by a decrease of 15 basis points in the yield of interest earning assets from 5.03% to 4.88% and a four basis point increase in the cost of our interest bearing liabilities.
Our interest rate spread declined to 2.35% from 2.54% as a result of these basis point changes. Our net interest margin increased to 2.65% from 2.64%, due to interest earning assets growing at a faster rate than interest bearing liabilities. The
ratio of interest earning assets to interest bearing liabilities improved to 1.13 times for the three months ended March 31, 2005 from 1.04 times for 2004.



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Interest Income.



Interest income increased by $336,193, or 22.45%, to $1,833,841 for the three months ended March 31, 2005, from $1,497,648
for the three months ended March 31, 2004. The increase in interest income resulted primarily from increases of $277,166, or 21.14%, in interest and fee income from loans and $77,466, or 526.91%, in interest income from other interest earning assets
(primarily consisting of interest earned on federal funds sold and Federal Home Loan Bank Stock), partially offset by a decrease of $33,593, or 36.93%, in interest income from mortgage backed securities.



The increase in interest income reflected a $31,105,789, or 26.12% increase
in the average balance of interest-earning assets to $150,208,924 from $119,103,135, partially offset by a 15 basis point decrease in the average yield on interest-earning assets to 4.88% for the three months ended March 31, 2005 from 5.03% for the
three months ended March 31, 2004. The average yield declined because long term interest rates generally declined throughout the second part of 2004, and we made a large number of long-term fixed rate mortgage loans during that period.



The increase in interest income and fees on loans was due to a
$25,187,438, or 26.98% increase in average net loans receivable, from $93,362,648 to $118,550,086, offset by a 26 basis point decrease in average yield on net loans receivable.



The increase in interest income from other interest earning assets was due to an $8,975,873, or 220.98% increase in average
other interest earning assets, from $4,061,827 to $13,037,700, and a 134 basis point increase in the average yield on these assets (as a result of increases in short term market interest rates). Other interest earning assets increased primarily as a
result of the additional capital received from the stock offering.



Interest Expense.



Interest expense, which
consists of interest paid on deposits and borrowings, increased by $124,279, or 17.42%, to $837,608 for the three months ended March 31, 2005 from $713,329 for the three months ended March 31, 2004. The increase in interest expense resulted from an
increase in the average balance and average cost of interest-bearing liabilities. The average balance of deposits increased to $107,549,937 from $97,854,298 The average cost of borrowings increased by 31 basis points as a result of longer term
borrowing at higher interest rates and the average balance of borrowings increased to $24,833,333 from $16,500,000.



Provision for Loan Losses and Analysis of Allowance for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a
level estimated as necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers, among other
things, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and prevailing economic
conditions (particularly as such conditions relate to our market area). We charge losses on loans against the allowance when we believe that collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the
allowance.



Based on our evaluation of these factors,
management made a provision of $19,570 and $12,000 for the three months ended March 31, 2005 and March 31, 2004. We had no charge-offs during the three-month periods ended March 31, 2005 and March 31, 2004. We used the same methodology and generally
similar assumptions in assessing the allowance for these periods.



We have developed a methodology for assessing the adequacy of the allowance for loan losses. Our methodology consists of three key elements: (1) specific allowances for identified problem loans, including certain impaired or
collateral-dependent loans; (2) a general valuation allowance on certain identified problem loans; and (3) a general valuation allowance on the remainder of the loan portfolio.



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Specific Allowance on Identified Problem Loans. The loan portfolio is segregated first between
loans that are on our watch list and loans that are not. Our watch list includes:



| |  |  | loans 90 or more days delinquent;
| | - |  | ---------------------------------



| |  |  | loans with anticipated losses;
| | - |  | ------------------------------



| |  |  | loans referred to attorneys for collection or in the process of foreclosure;
| | - |  | ----------------------------------------------------------------------------



| |  |  | nonaccrual loans;
| | - |  | -----------------



| |  |  | loans classified as substandard, doubtful or loss by either our internal classification system or by regulators during the course of their examination of us; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | troubled debt restructurings and other non-performing loans.
| | - |  | ------------------------------------------------------------



Two of our officers review each loan on the watch list and establish an individual allowance allocation on certain loans based on such factors as: (1) the
strength of the customers personal or business cash flow; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated
cost to sell the collateral; and (7) the borrowers effort to cure the delinquency.



We also review and establish, if necessary, an allowance for certain impaired loans for the amounts by which the discounted cash flows (or collateral value or observable market price) are lower than the carrying value
of the loan. Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan
agreement.



General Valuation Allowance on Certain
Identified Problem Loans.We also establish a general allowance for watch list loans that do not have an individual allowance. We segregate these loans by loan category and assign allowance percentages to each category based on inherent losses
associated with each type of lending and consideration that these loans, in the aggregate, represent an above-average credit risk and that more of these loans will prove to be uncollectible compared to loans in the general portfolio.



General Valuation Allowance on the Remainder of the Loan Portfolio. We
establish another general allowance for loans that are not on the watch list to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This
general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages based on our historical loss experience and delinquency trends. The allowance may be adjusted for significant factors that, in
managements judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions
affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in a particular segment of
the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated annually to ensure their relevance in the current environment.



Although we believe that we use the best information available to establish
the allowance for loan losses, the evaluation is inherently subjective as it requires estimates that are susceptible to significant



13



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revisions as more information becomes available or as future events change. If circumstances differ substantially from
the assumptions used in making our determinations, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected. In addition, the Office of Thrift Supervision, as an integral part of
its examination process, periodically reviews our allowance for loan losses. The Office of Thrift Supervision may require us to increase the allowance for loan losses based on its judgments about information available to it at the time of its
examination, which would adversely affect our results of operations.



The allowance for loan losses totaled $433,000, or 0.36% of gross loans outstanding of $118,891,285 at March 31, 2005, compared to an allowance for loan losses of $375,189, or 0.40% of gross loans outstanding of $94,894,129 at March 31,
2004.



The following table summarizes the activity in the
provision for loan losses for the three months ended March 31, 2005 and 2004.



|                                                                                                             |  |                              |       |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ----- | - | ---- | - | ------ | -
|                                                                                                             |  | Three Months Ended March 31, |      
|                                                                                                             |  | 2005                         |       |   | 2004 |  
|                                                                                                             |  | (Dollars in Thousands)       |      
|Balance at beginning of period                                                                               |  | $                            | 413   |   |      | $ | 362    |  
|                                                                                                             |  |                             
|Charge-offs                                                                                                  |  |                              |      |   |      |   |       |  
|Recoveries                                                                                                   |  |                              |      |   |      |   | 1      |  
|                                                                                                             |  |                              |       |   |      |   |        |  
|Net charge-offs                                                                                              |  |                              |      |   |      |   | 1      |  
|Provision for loan losses                                                                                    |  |                              | 20    |   |      |   | 12     |  
|                                                                                                             |  |                              |       |   |      |   |        |  
|Ending balance                                                                                               |  | $                            | 433   |   |      | $ | 375    |  
|                                                                                                             |  |                              |       |   |      |   |        |  
|Ratio of net charge-offs (recoveries) during the period to average loans outstanding, net, during the period |  |                              |      |   |      |   |       |  
|                                                                                                             |  |                              |       |   |      |   |        |  
|Ratio of allowance of loan losses to total loans outstanding                                                 |  |                              | 0.36  | % |      |   | 0.40   | %
|                                                                                                             |  |                              |       |   |      |   |        |  
|Allowance for loan losses as a percent of total non-performing loans                                         |  |                              | 33.99 | % |      |   | 275.09 | %
|                                                                                                             |  |                              |       |   |      |   |        |  



Other Income.



Historically, our non-interest income has been relatively
modest and one of our strategic initiatives is to increase our non-interest income. Non-interest income increased $11,010, or 28.16%, to $50,113 for the three months ended March 31, 2005, as compared to $39,103 for the three months ended March 31,
2004. The primary reason for the increase in non-interest income was a $9,854 increase in rental income from our headquarters building. Rental income increased because more of the leaseable space in our headquarters building was leased during the
first quarter of 2005 as compared to the first quarter of 2004. As of March 31, 2005, we leased 81% of the total leaseable space in our headquarters building. During the first quarter, we discussed possibly utilizing the remaining space for future
expansion and have ceased actively attempting to lease the remaining 19% of the space available in the building until we finalize our decision.



Non-interest Expense.



Non-interest expense was $888,539 for the three months ended March 31, 2005 as compared to $714,469 for the three months ended March 31, 2004, an increase
of $174,070, or 24.36%. The increase was due primarily to a $107,724 increase in compensation and related expenses and an increase of $75,067 in other expenses, consisting primarily of network support and maintenance, professional services, office
supplies and a robbery loss. The increase in compensation and related expenses reflected, among other items, the hiring of a residential loan officer in March 2004 and a commercial lender in April 2004 and the accrual of ESOP expense of
$14,036 in the current quarter (none in 2004). Much of the increase in professional services expenses is directly related to being a public company.



14



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Income Tax Expense.



The provision for income taxes increased to $49,800 for the three months ended March 31, 2005 from $39,100 for the three
months ended March 31, 2004, representing an increase of $10,700. The increase in the provision for income taxes was primarily due to our higher level of income before taxes of $138,237 for the three months ended March 31, 2005, as compared to
$96,953 for the three months ended March 31, 2004.



Analysis of
Financial Condition



Assets.



General.



Our total assets decreased by $7,023,223 or 4.38%, to $153,410,176 at March
31, 2005, from $160,433,399 at December 31, 2004. The decrease in total assets resulted primarily from a $6,627,557, or 42.49 % decrease in cash and cash equivalents, from $15,596,947 at December 31, 2004 to $8,969,390 at March 31, 2005, and a
$524,517, or 7.51% decrease in mortgage backed securities-held to maturity. These decreases were offset slightly by a $276,106, or 0.23% increase in net loans receivable, from $117,900,265 at December 31, 2004 to $118,176,371 at March 31, 2005.



Cash and cash equivalents declined primarily because we repaid
$5,000,000 of borrowings and returned $1,452,720 of funds deposited with us by potential purchasers in the stock offering whose subscription funds were returned in January 2005.



Investment Securities.



The investment portfolio at March 31, 2005 amounted to $18,467,591, a decrease of $490,127, or 2.59%, from $18,957,718 at December 31, 2004. Investment
securities  available for sale, increased $33,648, or 0.42%, to $8,014,359 at March 31, 2005 from $7,980,711 at December 31, 2004, primarily as a result of dividends credited to the account. Mortgage backed securities  held to maturity,
decreased $524,517, or 7.51%, to $6,456,943 at March 31, 2005 from $6,981,460 at December 31, 2004, as a result of principal repayments.



The carrying value of available for sale securities includes a net unrealized loss of $122,092 at March 31, 2005 (reflected as accumulated other
comprehensive loss of $74,940 in equity after deferred taxes) as compared to a net unrealized loss of $97,652 ($59,939 net of taxes) as of December 31, 2004. In general, this increase in unrealized loss was a result of rising interest rates.



Loan Portfolio.



Loans receivable, net, increased $276,106, or 0.23%, to $118,176,371 at
March 31, 2005 from $117,900,265 at December 31, 2004. The commercial loan portfolio increased $1,662,505, or 37.40%, to $6,108,207 at March 31, 2005 from $4,445,702 at March 31, 2004. One-to-four family residential loans decreased $1,270,979, or
1.21% to $103,583,548 at March 31, 2005 from $104,854,527 at December 31, 2004. Our loan customers are generally located in Baltimore City, Baltimore County and Harford County, Maryland.



15



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Asset Quality.



Loans are reviewed on a regular basis and are generally placed on non-accrual status when they become more than 90 days
delinquent. When we classify a loan as non-accrual, we no longer accrue interest on such loan and reversing any interest previously accrued but not collected. Typically, payments received on a non-accrual loan are applied to the outstanding
principal and interest as determined at the time of collection of the loan. We return a non-accrual loan to accrual status when factors indicating doubtful collection no longer exist and the loan has been brought current.



We consider repossessed assets and loans that are 90 days or more past due to
be non-performing assets. Real estate and other assets that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure or repossession on collateral-dependent loans are classified as real estate owned or other repossessed assets until
sold. Such assets are recorded at foreclosure or other repossession and updated quarterly at the lower of cost or estimated fair value less estimated selling costs. Any portion of the outstanding loan balance in excess of fair value is charged off
against the allowance for loan losses. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate or other assets is recorded. We did not have any real estate owned
or other repossessed assets at March 31, 2005 or December 31, 2004.



Under current accounting guidelines, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. We
consider one- to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, do not separately evaluate them for impairment. All other loans are evaluated for impairment on an individual basis. At March 31, 2005 and
December 31, 2004, we had no loans that were considered impaired.



Non-accrual loans totaled $193,864, or 0.16% of net loans receivable at March 31, 2005 and $365,233, or 0.31% of net loans receivable at December 31, 2004. All of these loans were one-to-four family residential loans.



Accruing loans which were contractually passed due 90 days or more as to
principal or interest payments totaled $1,080,183 or 0.91% of net loans receivable at March 31, 2005 and $0 at December 31, 2004. This amount relates to a commercial real estate acquisition and development loan in which we hold an approximately 20%
participation. Although we had previously reported in our annual report on Form 10-KSB that the loan would become a non-accrual loan in the first quarter, we have continued to accrue interest on this loan because we believe that collection of all
principal and interest on this loan is probable. We expect that a national homebuilder will purchase the property to build residential units as soon as the borrower develops the property to record plat, at which time the loan will be
paid in full. We expect the project to be complete by the end of the year.



Other than as disclosed, there are no other loans at March 31, 2005 about which management has serious doubts concerning the ability of the borrowers to comply with the present loan repayment terms.



General.



Total liabilities decreased by $7,096,115, or 5.15%, to $130,717,183 at
March 31, 2005, from $137,813,298 at December 31, 2004. The decrease in total liabilities resulted from a $2,149,598, or 1.96% decrease in deposits and a $5,000,000, or 18.87% decrease in borrowings, offset slightly by a $627,277, or 190.44%
increase in advance payments by borrowers for taxes and insurance. Advance payments by borrowers for taxes and insurance increased because the semi-annual taxes for June, 2005 had not been paid as of March 31, 2005.



16



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Deposits.



Deposits decreased $2,149,598, or 1.96%, to $107,561,770 at March 31, 2005 from $109,711,368 at December 31, 2004. Most of
the decline in deposits was in savings and money market deposits, which decreased by $1,937,417 to $36,248,582 at March 31, 2005 from 38,185,999 at December 31, 2004, and demand and NOW accounts, which decreased by $1,151,738 to $2,886,712 at March
31, 2005 from $4,038,450 at December 31, 2004. These losses were partially offset by a gain in certificates of deposit of $939,557 to $68,426,476 at March 31, 2005 from $67,486, 919 at December 31, 2004. We believe that, as savings deposit rates are
beginning to rise, some customers are moving funds into higher-yielding investments, thus accounting for the increase in certificates of deposits. The decrease in savings and money market deposits reflects $1,452,720 of funds deposited with us
during the fourth quarter of 2004 by potential purchasers in our stock offering, whose subscription funds were returned to them in January, 2005.



Borrowings.



At March 31, 2005, we were permitted to borrow up to $65,000,000 from the Federal Home Loan Bank of Atlanta. We had $21,500,000 and $26,500,000 of Federal
Home Loan Bank advances as of March 31, 2005 and December 31, 2004, respectively, and we averaged $24,833,333 and $23,916,667 of Federal Home Loan Bank advances during the three months ended March 31, 2005 and the year ended December 31, 2004,
respectively. The decrease in borrowings reflects the repayment of a maturing $5,000,000 advance in March, 2005. We have relied on borrowing to a significant extent since the third quarter of 2003 to fund loan growth.



Liquidity Management



Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of
funds consist of deposit inflows, borrowings from the Federal Home Loan Bank of Atlanta, scheduled amortization and prepayment of loans and mortgage-backed securities, maturities and calls of held to maturity investment securities and earnings and
funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows, calls of securities and loan prepayments are greatly influenced by market
interest rates, economic conditions, and rates offered by our competition.



We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the
objectives of our asset/liability management policy.



Our most
liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2005, cash and cash equivalents totaled $8,969,390. Securities
classified as available-for-sale, which can provide additional sources of liquidity, totaled $8,014,359 at March 31, 2005. However, because all of these securities were in an unrealized loss position at March 31, 2005, and because management has the
intent and ability to hold these securities until recovery or maturity, management does not consider these securities as a source of liquidity at March 31, 2005. Also, at March 31, 2005, we had advances outstanding of $21,500,000 from the Federal
Home Loan Bank of Atlanta. On that date, we had the ability to borrow an additional $43,500,000.



At March 31, 2005, we had outstanding commitments to originate loans of $2,124,585 (excluding the undisbursed portions of loans). These commitments do not
necessarily represent future cash requirements since certain of these instruments may expire without being funded. We also extend lines of credit to customers, primarily home equity lines of credit. The borrower is able to draw on these lines as
needed, thus the funding is generally unpredictable. Unused home equity lines of credit amounted to $4,055,123 at March 31, 2005. Since the majority of unused lines of credit expire without being funded, it is anticipated that our obligation to fund
the above commitment amount will be substantially less than the amounts reported.



17



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Certificates of deposit accounts scheduled to mature within one year totaled $30,455,201 or 28.31% of
total deposits at March 31, 2005. Management believes that the large percentage of deposits in shorter-term certificates of deposit reflects customers hesitancy to invest their funds in long-term certificates of deposit in the current low
interest rate environment. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and/or additional borrowings. Depending on market conditions, we may be required to pay
higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2006. We believe, however, based on past experience, that a significant portion of our certificates of deposit will
remain with us. We believe we have the ability to attract and retain deposits by adjusting the interest rates offered.



The following table presents certain of our contractual obligations as of March 31, 2005.



|                                     |  |                |            |                    |   |                   |  |                     |            |                     |   |            |  |   |          
|------------------------------------ |  | -------------- | ---------- | ------------------ | - | ----------------- |  | ------------------- | ---------- | ------------------- | - | ---------- |  | - | ---------
|                                     |  | Total          |            | Less than One Year |   | One to ThreeYears |  | Three to Five Years |            | More thanFive Years
|                                     |  | (In Thousands)
|Contractual Obligations              |  |               
|Long and short-term debt obligations |  | $              | 21,500,000 |                    | $ | 10,000,000        |  | $                   | 5,000,000  |                     | $ | 1,500,000  |  | $ | 5,000,000
|Certificate of deposit maturities    |  |                | 68,426,476 |                    |   | 30,455,201        |  |                     | 24,692,714 |                     |   | 13,278,561 |  |   |         
|Leases                               |  |                | 28,341     |                    |   | 26,153            |  |                     | 2,188      |                     |   |           |  |   |         
|                                     |  |                |            |                    |   |                   |  |                     |            |                     |   |            |  |   |          
|Total                                |  | $              | 89,954,817 |                    | $ | 40,481,354        |  | $                   | 29,694,902 |                     | $ | 14,778,561 |  | $ | 5,000,000
|                                     |  |                |            |                    |   |                   |  |                     |            |                     |   |            |  |   |          



Our borrowings are
with the Federal Home Loan Bank of Atlanta and are secured by Federal Home Loan Bank of Atlanta stock that we own and a blanket lien on mortgages. Borrowings at March 31, 2005 consisted of $10,000,000 of short term fixed rate advances with interest
rates ranging from 2.08% to 2.43% and $11,500,000 of long term fixed rate advances with rates ranging from 2.83% to 4.90%.



Our primary investing activity is the origination of loans, primarily one- to four-family residential mortgage loans, and the purchase of securities. Our
primary financing activity consists of activity in deposit accounts and Federal Home Loan Bank of Atlanta advances. Asset growth has outpaced deposit growth over the past 15-18 months and the increased liquidity needed to fund the asset growth has
been provided through increased Federal Home Loan Bank borrowings. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the
pricing of our deposits to be competitive.



We are not aware of
any known trends, events or uncertainties that will have or are reasonably likely to have a material effect on our liquidity, capital or operations, nor are we aware of any current recommendation by regulatory authorities, which if implemented,
would have a material effect on liquidity, capital or operations.



Stockholders Equity



Total stockholders equity increased $72,892, or 0.32%, to $22,692,993 at March 31, 2005 from $22,620,101 at December 31, 2004 as a result of net income of $88,437, partially offset by a $15,001 increase in accumulated other
comprehensive loss (resulting from unrealized losses on investments available for sale, net of tax). We are considered well capitalized under the risk-based capital guidelines applicable to us.



18



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Off-balance Sheet Arrangements



In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally
accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers
requests for funding and take the form of loan commitments and lines of credit.



Our exposure to credit loss from non-performance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making
commitments and conditional obligations as we do for on-balance-sheet instruments. In general, we do not require collateral or other security to support financial instruments with off-balance-sheet credit risk.

|
|



|                                                                   |                |                    |                   |  |   |          
|------------------------------------------------------------------ | -------------- | ------------------ | ----------------- |  | - | ---------
|Financial Instruments Whose Contract Amount Represents Credit Risk |                | Contract Amount At
|                                                                   | March 31, 2005 |                    | December 31, 2004
|Lines of credit-home equity                                        |                | $                  | 4,055,123         |  | $ | 3,602,774
|Lines of credit-overdraft checking                                 |                |                    | 28,492            |  |   | 13,523   
|Mortgage loan commitments                                          |                |                    | 2,124,585         |  |   | 2,428,520



Lines of credit-home
equity are lines of credit secured by second deeds of trust on residential real estate. They have fixed expiration dates as long as there is no violation of any condition established in the contract. We evaluate each customers credit
worthiness on a case-by-case basis.



The Banks
outstanding commitments to make mortgages are at fixed rates ranging from 4.75% to 6.25% and 4.875% to 5.75% at March 31, 2005 and December 31, 2004, respectively. Loan commitments expire 60 days from the date of the commitment.



For the three months ended March 31, 2005, we engaged in no off-balance-sheet
transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.



Information Regarding Forward-Looking Statements



In addition to the historical information contained in Part I of this Quarterly Report on Form 10-QSB, the discussion in Part I of this Quarterly Report
on Form 10-QSB contains certain forward-looking statements. Forward-looking statements often use words such as believe, expect, plan, may, will, should, project,
contemplate, anticipate, forecast, intend or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.



Our goals, objectives, expectations and intentions, including statements
regarding profitability, growth and operating strategy, liquidity, asset quality of our loan and investment portfolio, the allowance for loan losses, interest rate sensitivity, liquidity management, market risk and financial and other goals are
forward looking. These statements are based on our beliefs, assumptions and on information available to us as of the date of this filing, and involve risks and uncertainties. These risks and uncertainties include, among others, those discussed in
this Quarterly Report on Form 10-QSB; the effect of rising interest rates on our profits and asset values; risks related to our intended increased focus on commercial real estate and commercial business loans; our limited recognition and reputation
in our markets; adverse economic conditions in our market area; the dependence on key personnel; competitive factors within our market area; the effect of developments in technology on our business; adverse changes in the overall national economy as
well as adverse economic conditions in our specific market area; adequacy of the allowance for loan losses; expenses as a result of our stock benefit plans; and changes in regulatory requirements and/or restrictive banking legislation.



19



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Our actual results could differ materially from those discussed herein and you should not put undue
reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and we undertake no obligation to make any revisions to the forward-looking statements to reflect events or circumstances after the
date of this filing or to reflect the occurrence of unanticipated events.



Item 3. Controls and Procedures



As of the end
of the period covered by this quarterly report on Form 10-QSB, SFSB, Inc.s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of SFSB, Inc.s and Slavie Federal Savings Banks disclosure controls and
procedures. Based upon that evaluation, SFSB, Inc.s and Slavie Federal Savings Banks Chief Executive Officer and Chief Financial Officer concluded that SFSB, Inc.s and Slavie Federal Savings Banks disclosure controls and
procedures are effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by SFSB, Inc. in the 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 were no changes in SFSB, Inc.s or Slavie Federal Savings Banks internal controls over
financial reporting (as defined in Rule 13a-15 or Rule 15d-15) under the Securities Act of 1934, as amended) during the quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, SFSB, Inc.s or
Slavie Federal Savings Banks internal control over financial reporting.



20



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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.



Not applicable.



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



Not applicable.



Item 5. Other Information.



Director Compensation Policy.



On February 7, 2005, the Board of Directors of SFSB, Inc. and Slavie Federal Savings Bank adopted a formal Director
Compensation Policy. Under the Director Compensation Policy, the directors of Slavie Federal Savings Bank, including directors who are officers of SFSB, Inc. or Slavie Federal Savings Bank are entitled to cash remuneration for serving as a director
as follows:



Each director, including employee directors, shall
receive $700 for each regular meeting and the annual meeting, $75 for each quarterly meeting and an amount determined by the board of directors for special meetings. All directors are also eligible for an annual bonus, which shall be awarded at the
discretion of the board of directors. In addition, each non-employee director shall be paid $200 for the first hour of each committee meeting attended, and $50 for each additional half-hour with a $700 maximum fee per committee meeting. Members of
the loan committee shall also receive a monthly fee of $50. Directors shall be paid for two excused absences from board and committee meetings. Directors shall only paid for additional absences if the absence is for a medical reason.



The board of directors or the compensation committee of the board of
directors of Slavie Federal Savings Bank may also authorize discretionary payments to one or more Directors or the entire Board of Directors as a result of outstanding service.



All directors of SFSB, Inc. and Slavie Federal Savings Bank are entitled to reimbursement for reasonable expenses incurred
on behalf of SFSB, Inc. and Slavie Federal Savings Bank.



The
Secretary of Slavie Federal Savings Bank, in addition to any fees such person may receive as a director, shall be compensated $150.00 for each regular, annual and special board meeting attended and $75.00 for each quarterly meeting.



The Director Compensation Policy provides that unless and until SFSB, Inc.
becomes actively involved in additional businesses other than owning all the capital stock of Slavie Federal Savings Bank, no separate cash compensation will be paid to the directors of SFSB, Inc. in addition to that paid to them by Slavie Federal
Savings Bank in their capacities as directors of Slavie Federal Savings Bank. SFSB, Inc. may determine in the future that such separate cash compensation is appropriate.



21



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The Director Compensation Policy provides that the policy may be changed from time to time.



Item 6. Exhibits.



| | 10.1 | SFSB, Inc. and Slavie Federal Savings Bank Director Compensation Policy
| | ---- | -----------------------------------------------------------------------



| | 10.2 | Amendment to Employment Agreement between Slavie Federal Savings Bank and Philip E. Logan  Increase in Annual Salary and Bonus for 2004 Service
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.3 | Amendment to Employment Agreement between Slavie Federal Savings Bank and Charles E. Wagner, Jr.  Increase in Annual Salary, Bonus for 2004 Service and Compensation for
Service as Secretary
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.4 | Amendment to Employment Agreement between Slavie Federal Savings Bank and Sophie T. Wittelsberger  Increase in Annual Salary and Bonus for 2004 Service
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



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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.



|                   |  |            |  |                                             
|------------------ |  | ---------- |  | --------------------------------------------
|                   |  | SFSB, Inc.
|                   |  |           
|Date: May 12, 2005 |  | By:        |  | /s/ Philip E. Logan                         
|                   |  |            |  | Philip E. Logan, President                  
|                   |  |            |  | (Principal Executive Officer)               
|                   |  |           
|Date: May 12, 2005 |  | By:        |  | /s/ Ronald W. Robinson                      
|                   |  |            |  | Ronald W. Robinson, Chief Financial Officer 
|                   |  |            |  | (Principal Accounting and Financial Officer)



23