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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-KSB

|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|- | ----------------------------------------------------------------------------------
|  | For the fiscal year ended December 31, 2002                                       
|  |                                                                                   
|o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  | For the transition period from ________________ to ________________               
|  | Commission file number 0-32867                                                    
|  |                                                                                   

MADISON BANCSHARES, INC. (Name of small business issuer in its charter)

|FLORIDA                                                        |  | 59-3720289                               
|-------------------------------------------------------------- |  | -----------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)     
|                                                               |  |                                          
|35388 U.S. 19 North Palm Harbor, Florida                       |  | 34684                                    
|(Address of principal executive offices)                       |  | (Zip Code)                               
|                                                               |  |                                          
|Issuers telephone number (727) 786-3888                      
|                                                               |  |                                          
|Securities registered under Section 12(b) of the Exchange Act: |  |                                          
|                                                               |  |                                          
|Title of each class                                            |  | Name of each exchange on which registered
|N.A.                                                           |  | N.A.                                     
|                                                               |  |                                          

Securities registered under Section 12(g) of the Exchange Act:

Common Shares, 0.01 par value (Title of class)

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.

|xYes | oNo
|---- | ---

Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. o

The issuers revenues for its most recent fiscal year: $13,370,000.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

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As of February 24, 2003, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $17,940,470.

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

As of February 24, 2003, the Issuer had
1,618,916 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for the 2003 Annual
Meeting of Shareholders filed electronically with the Securities and Exchange Commission on March 17, 2003 are incorporated in Part III of this Form 10-KSB by reference.

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



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TABLE OF CONTENTS

|           |          | Page                                                                                                            
|---------- | -------- | ----------------------------------------------------------------------------------------------------------------
|           |          |                                                                                                                 
|PART I.    |          | 1                                                                                                               
|           |          |                                                                                                                 
|           | Item 1.  | Description of Business                                                                                         
|           |          |                                                                                                                 
|           | Item 2.  | Description of Property                                                                                         
|           |          |                                                                                                                 
|           | Item 3.  | Legal Proceedings                                                                                               
|           |          |                                                                                                                 
|           | Item 4.  | Submission of Matters to Vote of Security Holders                                                               
|           |          |                                                                                                                 
|PART II.   |          | 14                                                                                                              
|           |          |                                                                                                                 
|           | Item 5.  | Market for Common Equity and Related Stockholder Matters                                                        
|           |          |                                                                                                                 
|           | Item 6.  | Managements Discussion and Analysis or Plan of Operation                                                       
|           |          |                                                                                                                 
|           | Item 7.  | Financial Statements                                                                                            
|           |          |                                                                                                                 
|           | Item 8.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            
|           |          |                                                                                                                 
|PART III.  |          | 58                                                                                                              
|           |          |                                                                                                                 
|           | Item 9.  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act
|           |          |                                                                                                                 
|           | Item 10. | Executive Compensation                                                                                          
|           |          |                                                                                                                 
|           | Item 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  
|           |          |                                                                                                                 
|           | Item 12. | Certain Relationships and Related Transactions                                                                  
|           |          |                                                                                                                 
|           | Item 13. | Exhibits and Reports on Form 8-K                                                                                
|           |          |                                                                                                                 
|           | Item 14. | Controls and Procedures                                                                                         
|           |          |                                                                                                                 
|SIGNATURES |          | 61                                                                                                              



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PART I

|Item 1. | Description of Business.
|------- | ------------------------

Forward Looking Statements

This document contains forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements involve
substantial risks and uncertainties.  When used in this document, or in the documents incorporated by reference, the words anticipate, believe, estimate,  may, intend and
expect and similar expressions are some of the forward-looking statements used in these documents.  Actual results, performance, or achievements could differ materially from those contemplated, expressed or implied by the
forward-looking statements.  Factors which may cause results to change materially include competition, inflation, general economic conditions, changes in interest rates, and changes in the value of collateral securing loans Madison Bank has
made, among other things.

General

Madison BancShares, Inc. was incorporated on
May 8, 2001, as a Florida corporation for the purpose of operating as a bank holding company under the Bank Holding Company Act of 1956. On September 4, 2001, we exchanged our common shares for common shares of Madison Bank on a one-for-one
basis.  We have our headquarters in Palm Harbor, Florida. Unless specifically delineated, Madison BancShares, and Madison Bank are collectively referred to herein as Madison.  We conduct business as a state commercial bank
holding company, and our principal asset is the capital stock of Madison Bank. As a holding company, Madison BancShares has greater flexibility than Madison Bank to diversify and expand our business activities, either through expanded services or
through acquisitions. Currently, our primary source of income is dividends from Madison Bank.

The Bank

Madison Bank commenced banking operations in Palm Harbor, Florida, on December 15, 1985, as a state-chartered savings and loan association.  Madison Bank
converted to a state-commercial bank charter on June 30, 1997.  In 2002, Madison Bank operated from four full-service banking offices, the main office in Palm Harbor, and branch offices in Largo, Tarpon Springs and Port Richey, Florida. 
Madison Banks operations center and off-site executive offices are located in Palm Harbor.  Madison Banks primary business is attracting deposits from the general public and using those deposits, together with borrowings and other
funds, to originate loans and purchase investments.

On October 25, 2002, we entered into an agreement to sell the deposits at our Largo
Branch which closed in February, 2003.  Total deposits at the time of closing were approximately $11.6 million with Madison realizing a net pretax gain of $200,000 for the sale.

Since converting to a commercial bank charter, Madison Bank has transitioned its loan portfolio from that of a traditional savings and loan, comprised of mostly
conventional residential loans and home equity loans, to that of a commercial bank loan portfolio, comprised of commercial real estate, commercial and consumer loans, and adjustable rate mortgage loans.  Madison Bank offers a broad range of
retail and commercial banking products, including various types of deposit accounts and loans for businesses and consumers.  Its primary source of business is customer referrals.  As part of the community bank approach, officers actively
participate in community activities and organizations.

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Critical Accounting Policies

Our financial condition
and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain.  When applying accounting policies in areas that are subjective in nature, we must use our best judgment to arrive at the
carrying value of certain assets.  The most critical accounting policy we applied is related to the valuation of the loan portfolio.

A variety of estimates impact carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the
timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.

The allowance for loan losses is
the most difficult and subjective judgment.  The allowance is established and maintained at a level that we believe is adequate to cover losses resulting from the inability of borrowers to make required payments on loans.  Estimates for
loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of our regulators, changes in the size and composition of the loan portfolio and peer
comparisons. The analysis also requires rational consideration of the national economic climate and direction, change in the interest-rate environment (which may impact a borrowers ability to pay) legislation impacting the banking industry and
economic conditions specific to our service area.  Because the calculation of the allowance for loan losses relies on estimates and judgments relating to inherently uncertain events, results may differ from our estimates.

The allowance for loan losses is also discussed as part of Results of Operations and in Note 3 to the financial statements.  The significant
accounting policies are discussed in Note 1 to the consolidated financial statements.

Operating and Business Strategy

Our goal is to become one of the leading community banks in Pinellas and Pasco Counties.  We expect to accomplish this goal through steady and reasonable growth
and a prudent business strategy that emphasizes:

| |  | Providing personalized services;                                                                                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focusing on Madisons immediate community;                                                                                                                      
| |  | Motivating employees;                                                                                                                                           
| |  | Developing commercial lending relationships with small to medium-sized businesses;                                                                              
| |  | Emphasizing mortgage banking activities by continuing to originate residential mortgage loans for Madisons existing customers and to attract new customers; and
| |  | Maintaining high credit quality.                                                                                                                                

Personalized Service.We strive to provide high levels of service in order to be able to maintain strong customer relationships.  Our customer base
is primarily made up of individuals and small to medium size businesses who prefer to conduct business with a locally-owned and managed institution.

Local Management and Community Focus.We approach banking with a community focus, emphasizing local management and local decision-making.  Our Main
Office is located in the heart of the business district of Palm Harbor on Highway U.S. 19 North.  Most of the executive officers and directors are long-time residents of our primary market area, and all management decisions are made in Palm
Harbor. Each branch provides full-service banking and is staffed to meet the financial needs of the local community.

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Motivated Employees.The key to our success lies with our employees.  Through our experienced and
trained employees we are able to provide our Pinellas and Pasco County banking customers with a high level of service and attention.  To this end, we hire qualified banking professionals who are committed to providing a superior level of
banking service and are willing to accept a significant degree of responsibility. Each employee focuses on the individual customers needs and strives to deliver the specific products and services that are best suited to achieve the
customers financial goals.

Deposit Activities.Deposits primarily fund our loan demands.  Deposits at December 31,
2002 were $163.4 million, up 19.2% from December 31, 2001, and net loans during that same period increased 11.0% from $137.6 million at year-end 2001 to $152.7 million at December 31, 2002.

Development of Commercial Lending Relationships.  As part of our lending strategy, we concentrate our efforts on developing within our market, strong
commercial lending and depository relationships with small to medium-sized businesses, entrepreneurs and professionals who value personalized service and attention to their specific borrowing needs.  Timely lending decisions and prompt,
courteous service is very important.  We believe that the strategy has and will continue to foster long-term, quality lending and deposit relationships.

Continued Residential Lending.  In order to be a full service bank, we actively engage in residential lending activities, which include the origination
and brokering of residential mortgage loans.  Our strategy is to broker all of our long-term, fixed-rate residential mortgage loans while retaining our adjustable-rate and short-term, fixed-rate mortgage loan originations.  The brokered
mortgage loans in the secondary market provide additional non-interest income.

Maintaining High Credit Quality.A great deal
of emphasis is placed on maintaining high asset quality.  We believe that our generally high asset quality is principally due to strict underwriting criteria, the relationship of our lenders, senior officers, and directors to our customers and
their knowledge of our primary market area.

Primary Market Area

Our headquarters
and Main Office are in Palm Harbor, Florida, an unincorporated part of Pinellas County, which includes Clearwater and St. Petersburg.  According to the 2000 U.S. Census Bureau statistics, Palm Harbor has a population of approximately 59,248
year round residents, while Pinellas County has a population of approximately 921,482. Pinellas County is contiguous with Hillsborough County, Florida, which as of 2000 had a population of approximately 998,948.  The Tampa Bay Area and, in
particular, Northern Pinellas County and Western Pasco County are considered to be our primary market areas.

Our Port Richey, Pasco County
branch opened in December of 1999.  This branch is located 12 miles from the Main Office, and as of December 31, 2002, had $17.5 in deposits.  According to the latest census tracts, Pasco County had a population of approximately 344,765,
with tourism, real estate development, and agriculture as its primary industries.  Pasco County is developing as a strong retirement community, and with the opening of a new expressway, many people live in Pasco and work in Pinellas and
Hillsborough Counties.

In December 2000, we opened our third full-service branch in Tarpon Springs, North Pinellas County, Florida. 
This branch is located 6 miles from the Main Office.  As of December 31, 2002, the Tarpon Springs Branch had $29.7 in deposits.  Tarpon Springs has a population of approximately 21,000, as of 2000, with tourism, small retail trade and a
natural sponge industry as its primary businesses.  Tarpon

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Springs has undergone a downtown historical revitalization and our branch site is located in the downtown area that has been a part of the citys redevelopment.

Competition

Competition for deposits and loans is intense among financial institutions in
Florida and particularly in areas of high population concentrations such as Pinellas County, with approximately 3,245 residents per square mile.  Our competitors include institutions, including bank holding companies, such as Bank of America,
Wachovia, AmSouth Bank, other commercial banks, savings banks, and credit unions.  Additional competition for deposits comes from government securities, money market funds, mutual fund and securities brokerage firms.  Many of these
competitors have substantially greater resources, higher lending limits, larger branch networks, and are able to offer a broader range of products and services than we can offer.

The primary factors in competing for deposits are service, convenience, interest rates, the range of financial services offered, and the flexibility of office
hours.  The primary factors in competing for loans include service, timely responses, local decision making, interest rates, loan fees, and flexible terms.  Madison competes for deposits by offering a variety of deposit programs geared to
potential customers.  By developing strong ties in the local community and providing a high quality of personal banking services to families, professionals, retirees, and owner-operated businesses, with an emphasis on flexibility and timely
responses to customer demands, we believe that we can successfully compete in the market for deposits and loans.

Loan Strategy

Since 1996, we have placed a strong emphasis on originating commercial real estate, commercial and consumer loans.  As the large out-of-state financial
institutions acquire local banks, and shift the focus of the acquired banks away from servicing the needs of smaller businesses, we have been able too add to our customer base owners of small to medium-sized businesses and local professionals. To a
lesser extent, we also originate and sell residential loans by offering various adjustable-rate and fixed-rate mortgage loan products.

Loan Activities

General.  Our primary business emphasis is on making commercial business, commercial real estate and consumer loans.  As of December 31, 2002, the
net loan portfolio totaled $152.7 million, or 78.7% of total assets.

General Loan Policies.  Loan activities are subject to
underwriting standards and loan origination procedures prescribed by our Board of Directors and management.  Pursuant to these procedures loan applications are obtained to determine the borrowers ability to repay, and the more significant
items on these applications are verified through the use of credit reports, financial statements and confirmations.

Other procedures have
been put in place to assist us in maintaining the overall quality of our loan portfolio.  These procedures include an independent credit analysis for all commercial credit relationships over $300,000.  Loans are approved at various
management levels up to and including the Board of Directors, depending on the amount of the loan.  Loans less than $250,000 are approved by authorized officers.  The President has loan authority up to $400,000 and the Chairman of the
Board has loan authority up to $400,000.  The Chief Loan Officer can approve loans up to $650,000 with the consent of the President or the Chairman.  The President and Chairman have a combined lending authority of up to $1,000,000. 
Loans over $1,000,000 require approval by the Board of Directors.  The Board of Directors reviews all new

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and renewed loans on a monthly basis.  All unsecured loans in excess of $200,000 require approval of the Board of Directors.

The interest rates that we charge on our loans vary as they are affected by competitive factors such as the demand for such loans and the supply of funds available
for lending purposes.  These factors are, in turn, affected by general economic conditions, monetary policies of the federal government, including the Federal Reserve Board, legislative tax policies and government budgetary matters.

Commercial Real Estate Loans.  Our commercial real estate loans are secured primarily by office, motel and retail business properties
located in Pinellas, Pasco and Hillsborough Counties.  Commercial real estate loans may be for an amortization term of up to 25 years, with interest rate resets at three to five-year intervals and maturities generally of five to fifteen
years.  Because payments on loans secured by commercial property depend to a large degree on results of operations and management of the properties, the risk of nonpayment of such loans may be subject to a greater extent to adverse conditions
in the real estate market or the economy.  Our loan policy for real estate loans generally requires that collateral be appraised by an independent, outside appraiser approved by our Board of Directors.

In general, we do not usually offer fixed-rate commercial real estate or multi-family real estate loans. Commercial and multi-family real estate loans are originated
with a loan-to-value ratio generally not exceeding 80%.  Loans secured by this type of collateral will continue to be a part of our future loan portfolio.  Commercial and multi-family real estate loans are generally larger and involve a
greater degree of risk than residential mortgage loans.

Our policy for real estate loans is to have a valid mortgage lien on real estate
securing the loan and to obtain a title insurance policy which insures the validity and priority of the lien.  Borrowers must also obtain hazard insurance policies prior to closing, and when the property is in a flood prone area, flood
insurance is required.  Most real estate loans also require the borrower to advance funds on a monthly basis, together with each payment of principal and interest, to a mortgage escrow account from which disbursements are made for items such as
real estate taxes and property insurance.

We are permitted to lend up to 100% of the appraised value of the real property securing a
mortgage loan.  However, if the amount of a conventional, residential loan (including a construction loan or a combination construction and permanent loan) originated or refinanced exceeds 80% of the appraised value or of the purchase price,
whichever is less, we are required by federal regulations to obtain private mortgage insurance on that portion of the principal amount of the loan that exceeds 80% of the value of the property.  We will originate single-family residential
mortgage loans with up to a 90% loan-to-value ratio if the required private mortgage insurance is obtained.  Loans over 95% loan-to-value ratio are limited to special community support programs or one of the FHA, VA, or Farmers Home
Administration guarantee or insurance programs.  The loan-to-value ratio on a home secured by a junior lien generally does not exceed 85%, including the amount of the first mortgage on the collateral.  With respect to home loans granted
for construction or construction/permanent financing, we will lend up to 80% of the appraised value of the property on an as completed basis.

Commercial Loans.  Our commercial loans are business loans that are not secured by real estate and are dependent on business cash flows for repayment.
While we have made Small Business Administration loans, we generally will underwrite this type of loan for our own portfolio utilizing other sources of collateral and a maximum loan to value ratio of 80%. In most cases, personal guarantees are
required of principals.  The risk associated with originating commercial loans is that the business assets of the maker tend to fluctuate with the business cycle causing our collateral to be sold when difficult economic conditions are
experienced.

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Residential Loans. We currently originate fixed-rate residential mortgage loans and ARM loans with terms of up
to 30 years.  The residential ARM loans currently offered have interest rates that are fixed for a period of one, three or five years.  After the initial period the interest rate is adjusted annually based upon an index such as the yield
on treasury securities adjusted to a one-year maturity, plus a margin.  Most of our ARM loans limit the amount of any increase or decrease in the interest rate at each adjustment and over the life of the loan.  Typical limitations are 2%
for each adjustment with a limit of 6% over the life of the loan.  ARM loans may be offered with different annual and life-of-loan interest change limits, shorter or longer adjustment periods and different base indices as may be appropriate to
meet market demands, portfolio needs, and Madisons interest rate risk management goals.  While the initial rate on ARM loans may be below a fully indexed rate, the loan is always underwritten based on the borrowers ability to pay at
the interest rate which would be in effect after adjustment of the loan.  Some ARM loans include features that allow the borrower, under special conditions, to convert the loan to a fixed rate at the then prevailing market rates.

While ARM loans reduce the risks associated with changes in interest rates, they involve other risk. As interest rates increase, the borrowers
required payments increase, thus increasing the potential for default.  The level of interest rates also affects marketability of real estate loans.

Most of our fixed rate home loans are originated for 30-year amortization terms.  Borrowers requesting a term of 15 years or less are usually granted an interest
rate slightly lower than is offered for a 30-year amortizing loan.  These loans are originated in compliance with documentation and underwriting standards which permit their sale in the secondary market to institutional investors such as Fannie
Mae.  Fixed-rate home loans include a Due on Sale clause which provides us with the contractual right to declare the loan immediately due and payable in the event the borrower transfers ownership of the property without our
consent.  The Due on Sale provision is generally enforced.  We have experienced no losses in the last four years in residential real estate loans.

Consumer Loans.  Our consumer loans are considered to be loans to natural persons for personal, family or household purposes, and these loans may be
unsecured, secured by personal property or secured by liens on real estate which, when aggregated with prior liens, equals or exceeds the appraised value of the collateral property.  We make various types of consumer loans, including automobile
and boat loans, but primarily home equity loans.

Consumer loans are originated in order to provide a range of financial services to
customers and to create stronger ties to our customers and because the shorter term and normally higher interest rates on such loans help maintain a profitable spread between our average loan yield and its cost of funds.  The terms of consumer
loans generally range from one to five years.  Underwriting standards for consumer loans include an assessment of the applicants repayment history on other debts and ability to meet existing obligations and payments on the proposed
loans.  Although the applicants creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, to the proposed loan amount.  Consumer loans generally involve
more credit risks than mortgage loans because of the type and nature of the collateral or absence of collateral.  Consumer loan repayments are dependent on the borrowers continuing financial stability, and are likely to be adversely
affected by job loss, divorce or illness.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.  In most
cases, any repossessed collateral will not provide an adequate source of repayment of the outstanding loan balance.  We believe that the yields earned on consumer loans are commensurate with the credit risk associated with such loans and,
therefore, we intend to continue to increase our investment in these types of loans.

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Income from Loan Activities.  Fees are earned in connection with loan commitments and originations, loan
modifications, late payments, changes of property ownership and for miscellaneous services related to loans.  Income from these activities varies from period to period with the volume and type of loans originated, sold and purchased, which in
turn is dependent upon prevailing interest rates and their effect on the demand for loans in our primary service area.

Loan fees typically
are charged at the time of loan origination and may be a flat fee or a percentage of the amount of the loan.  Under current accounting standards the total amount of such fees cannot typically be recognized as income immediately, rather a
portion of the fees are deferred and taken into income over the contractual life of the loan, using a level yield method.  If a loan is prepaid or refinanced, all remaining deferred fees with respect to such loan are taken into income at that
time.

Nonperforming Loans and Real Estate Owned.  When a borrower fails to make a required payment on a loan, our loan
officers attempt to collect the payment by contacting the borrower.  If a payment on a loan has not been received by the end of a grace period (usually 10 days from the payment due date), notices are sent at that time, with follow-up contacts
made thereafter.  In most cases, delinquencies are cured promptly.  If the delinquency exceeds 29 days and is not cured through normal collection procedures, more formal measures are instituted to remedy the default, including the
commencement of foreclosure proceedings.  We will then attempt to negotiate with the delinquent borrower to establish a satisfactory payment schedule.

A loan is generally placed on nonaccrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory.  All loans past due 90 days,
however, are placed on nonaccrual status, unless the loan is both well collateralized and in the process of collection.  Cash payments received while a loan is classified as non-accrual are recorded as a reduction of principal as long as doubt
exists as to collection.

If foreclosure is required, when completed, the property is sold at a public auction in which we will generally
participate as a bidder.  If we are the successful bidder, the acquired real estate property is then included in foreclosed real estate until it is sold.  We are permitted under federal regulations to finance sales of OREO which may
involve more favorable interest rates and terms than generally would be granted under normal underwriting guidelines.

Asset Classification

We, like other commercial banks, are required to review, and when appropriate classify, our assets on a regular basis.  The Federal Deposit Insurance Corporation
(FDIC) and state banking examiners have authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets:  substandard, doubtful and loss. 
Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.  An asset
classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.  If an asset or portion thereof is classified as loss, the insured institution establishes specific
allowance for loan losses for the full amount of the portion of the asset classified as loss.  All or a portion of general loan loss allowances established to cover possible losses related to assets classified substandard or doubtful may be
included in determining an institutions regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.  Assets that do not warrant classification in one of the aforementioned
categories, but possess weaknesses, are classified as special mention and are closely monitored.

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Provision for Losses on Loans

The allowance for loan losses
is established through a provision for loan losses charged against earnings.  Loans are charged against the allowance when our management believes that the collectibility of the principal is unlikely.  The allowance is an estimated amount
that we believe will be adequate to absorb losses inherent in the loan portfolio based on evaluations of its collectibility.  The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans and commitments, and current anticipated economic conditions that may affect the borrowers ability to pay.  While we use the best information available to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic conditions.

Personnel

The executive officers of Madison BancShares are also the executive officers of Madison Bank.  As of December 31, 2002, we had 60 full-time employees, 9
part-time employees, and 65 full-time equivalents. The employees are not represented by any collective bargaining group.  We believe that our relations with our employees are good.

Employees are covered by a comprehensive employee benefit program which provides for, among other benefits, hospitalization and major medical insurance, long-term
disability insurance, life insurance, and education assistance.  We consider our employee benefits to be generally competitive with employee benefits provided by other major employers in our geographic market area.

SUPERVISION AND REGULATION

General

As a registered bank holding company, Madison BancShares is subject to an extensive body of state and federal banking laws and regulations which impose specific
requirements and restrictions on virtually all aspects of our operations.  Madison is affected by government monetary policy and by regulatory measures affecting the banking industry in general.

The following is a brief summary of some of the statutes, rules and regulations which affect our operations. This summary is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to our business.  Any change in applicable laws or regulations may have a
material adverse effect on our business.

Madison BancShares

Madison BancShares
is a bank holding company within the meaning of the Bank Holding Company Act of 1956.  As such, it is required to file annual reports and other information with the Federal Reserve regarding its business operations and those of its subsidiary.
Madison BancShares is also subject to the supervision of, and to periodic inspections by, the Federal Reserve.

The Bank Holding Company
Act generally requires every bank holding company to obtain the prior approval of the Federal Reserve before:

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| |  | Acquiring all or substantially all of the assets of a bank;                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | Acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank or bank holding company; or
| |  | Merging or consolidating with another bank holding company.                                                                   

The Bank Holding Company Act and the Federal Change in Bank Control Act, together with regulations promulgated by the Federal Reserve, require that, depending on the
particular circumstances, either the Federal Reserves approval must be obtained or notice must be furnished to the Federal Reserve and not disapproved prior to any person or company, not a bank holding company, acquiring control of a bank
holding company, subject to certain exemptions. Control is conclusively presumed to exist when an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a
person acquires 10% or more, but less than 25%, of any class of voting securities and either the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934 or no other person owns a greater percentage of
that class of voting securities immediately after the transaction.

Except as authorized by the Bank Holding Company Act and Federal Reserve
regulations or order, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in any business other than the business of banking or managing
and controlling banks. Some of the activities the Federal Reserve has determined by regulation to be proper incidents to the business of banking, and thus permissible for bank holding companies, include:

| |  | Making or servicing loans and certain types of leases;                                         
| | - | -----------------------------------------------------------------------------------------------
| |  | Engaging in certain insurance and discount brokerage activities;                               
| |  | Performing certain data processing services;                                                   
| |  | Acting in certain circumstances as a fiduciary or investment or financial advisor;             
| |  | Providing management consulting services;                                                      
| |  | Owning savings associations; and                                                               
| |  | Making investments in corporations or projects designed primarily to promote community welfare.

In accordance with Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks. In adhering to the
Federal Reserves policy, Madison BancShares may be required to provide financial support to Madison Bank at a time when, absent such Federal Reserve policy, it might not be deemed advisable to provide such assistance. Under the Bank Holding
Company Act, the Federal Reserve may also require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserves determination that the
activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank
holding company to divest itself of any bank or non-bank subsidiary if the agency determines that divestiture may aid the depository institutions financial condition.

Madison
Bank

As a state-chartered bank, Madison Bank is subject to the supervision and regulation of the Florida Department of Banking and
Finance and the FDIC. The deposits of Madison Bank are insured by the FDIC for a maximum of $100,000 per depositor.  For this protection, Madison Bank must pay a semi-annual statutory assessment and comply with the rules and regulations of the
FDIC.  The assessment levied on a

9



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##### Index to Financial Statements

bank for deposit insurance varies, depending on the capital position of each bank, and other supervisory factors.  Currently, our subsidiary bank is subject to the
statutory assessment.

Areas regulated and monitored by the bank regulatory authorities include:

| |  | Security devices and procedures;                                                     
| | - | -------------------------------------------------------------------------------------
| |  | Adequacy of capitalization and loss reserves;                                        
| |  | Loans;                                                                               
| |  | Investments;                                                                         
| |  | Borrowings;                                                                          
| |  | Deposits;                                                                            
| |  | Mergers;                                                                             
| |  | Issuances of securities;                                                             
| |  | Payment of dividends;                                                                
| |  | Establishment of branches;                                                           
| |  | Corporate reorganizations;                                                           
| |  | Transactions with affiliates;                                                        
| |  | Maintenance of books and records; and                                                
| |  | Adequacy of staff training to carry out safe lending and deposit gathering practices.

Capital Adequacy
Requirements

Banks are subject to regulatory capital requirements imposed by the Federal Reserve and the FDIC. Until a bank and its
holding companys assets reach $150 million, the capital adequacy guidelines issued by the Federal Reserve are applied to bank holding companies on a non- consolidated basis, unless the bank holding company is engaged in non-bank activities
involving significant leverage, or it has a significant amount of outstanding debt held by the general public.  The OCCs and the FDICs risk-based capital guidelines apply directly to insured state banks, such as Madison Bank,
regardless of whether they are subsidiaries of a bank holding company. Both agencies requirements, which are substantially similar, establish minimum capital ratios in relation to assets, both on an aggregate basis as adjusted for credit risks
and off balance sheet exposures. The risk weights assigned to assets are based primarily on credit risks. Depending upon the riskiness of a particular asset, it is assigned to a risk category. For example, securities with an unconditional guarantee
by the United States government are assigned to the lowest risk category. The aggregate amount of assets assigned to each risk category is multiplied by the risk weight assigned to that category to determine the weighted values, which are added
together to determine total risk-weighted assets.

Capital is then classified into two categories, Tier 1 and Tier 2.  Tier 1 capital
consists of common and qualifying preferred shareholders equity, less goodwill and other adjustments. Tier 2 capital consists of mandatory convertible, subordinated, and other qualifying term debt, preferred stock not qualifying for Tier 1
capital, and a limited amount of allowance for credit losses, up to a designated percentage of risk-weighted assets. Under the risk-based guidelines, financial institutions must maintain a specified minimum ratio of qualifying capital to
risk-weighted assets. At least 50% of an institutions qualifying capital must be core or Tier 1 capital, and the balance may be supplementary or Tier 2 capital. In addition, the guidelines
require banks to maintain a minimum leverage ratio standard of capital adequacy. The leverage standard requires top-rated institutions to maintain a minimum Tier 1 leverage capital to assets ratio of 3%.  All other institutions are required to
maintain a Tier 1 leverage capital ratio of 4% or greater, based upon their particular circumstances and risk profiles.

10



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##### Index to Financial Statements

Federal banking regulators have adopted regulations revising the risk-based capital guidelines to further ensure that
the guidelines take adequate account of interest rate risk. Interest rate risk is the adverse effect that changes in market interest rates may have on a banks financial condition and is inherent to the business of banking. Under the
regulations, when evaluating a banks capital adequacy, the revised capital standards now explicitly include a banks exposure to declines in the economic value of its capital due to changes in interest rates. The exposure of a banks
economic value generally represents the change in the present value of its assets, less the change in the value of its liabilities, plus the change in the value of its interest rate off-balance sheet contracts.

Federal bank regulatory agencies possess broad powers to take prompt corrective action as deemed appropriate for an insured depository institution and its holding
company, based on the institutions capital levels.  The extent of these powers depends upon whether the institution in question is considered well -capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized.  Generally, as an institution is deemed to be less well-capitalized, the scope and severity of the agencies powers increase, ultimately permitting the
agency to appoint a receiver for the institution.  Business activities may also be influenced by an institutions capital classification.  For instance, only a well-capitalized depository institution may accept brokered
deposits without prior regulatory approval, and can engage in various expansion activities with prior notice, rather than prior regulatory approval.  However, rapid growth, poor loan portfolio performance or poor earnings performance, or a
combination of these factors, could change the capital position of our subsidiary banks in a relatively short period of time. Failure to meet these capital requirements could subject the subsidiary banks to prompt corrective action provisions of the
OCC or the FDIC, which may include filing with the appropriate bank regulatory authorities a plan describing the means and a schedule for achieving the minimum capital requirements. In addition, Madison Bank would not be able to receive regulatory
approval of any application that required consideration of capital adequacy, such as a branch or merger application, unless it could demonstrate a reasonable plan to meet the capital requirement within an acceptable period of time.

Dividends

Our ability to pay cash dividends will depend almost entirely upon the amount of
dividends that Madison Bank is permitted to pay by statutes or regulations.  Additionally, the Florida Business Corporation Act provides that Madison BancShares may only pay dividends if the dividend payment would not render it insolvent, or
unable to meet its obligations as they come due.

The Florida Department of Banking and Finance limits a banks ability to pay
dividends.  As a state-chartered bank, Madison Bank is subject to regulatory restrictions on the payment of dividends, including a prohibition of payment of dividends from the banks capital under certain circumstances without the prior
approval of the Florida Department of Banking and Finance and the FDIC. Except with the prior approval of the Florida Department of Banking and Finance, all dividends of any Florida bank must be paid out of retained net profits from the current
period and the previous two years, after deducting expenses, including losses and bad debts. In addition, a state-chartered bank in Florida is required to transfer at least 20% of its net income to surplus until their surplus equals the amount of
paid-in capital.

Other Laws

State usury and credit laws limit the amount of
interest and various other charges collected or contracted by a bank on loans. Our loans are also subject to federal laws applicable to credit transactions, such as the:

| |  | Federal Truth-In-Lending Act, which governs disclosures of credit terms to consumer borrowers;
| | - | ----------------------------------------------------------------------------------------------

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##### Index to Financial Statements

| |                                        | Community Reinvestment Act, which requires financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including
investing their assets in loans to low- and moderate-income borrowers;                                                                                                                                                             
| | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                        | Home Mortgage Disclosure Act requiring financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its
obligations to meet the housing needs of the community it serves;                                                                                                                                                              
| |                                        | Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibitive factors in extending credit;                                                                                                                                                                                                                                                                         
| |                                        | Real Estate Settlement Procedures Act, which requires lenders to disclose certain information regarding the nature and cost of real estate settlements, and prohibits certain
lending practices, as well as limits escrow account amounts in real estate transactions;                                                                                                                                        
| |                                        | Fair Credit Reporting Act governing the manner in which consumer debts may be collected by collection agencies; and                                                                                                                                                                                                                                                                                           
| |                                        | The rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws.                                                                                                                                                                                                                                                                                      
| |                                         |                                                                                                                                                                                                                                                                                                                                                                                                               
| | Our operations are also subject to the:
| |                                         |                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                        | The privacy provisions of the Gramm-Leach-Bliley Act of 1999, which requires us to maintain privacy policies intended to safeguard consumer financial information, to disclose
these policies to our customers, and allow customers to opt out of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions;
| |                                        | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and                                                                                                                                                                                                
| |                                        | Electronic Funds Transfer Act and Regulation E, which govern automatic deposits to, and withdrawals from, deposit accounts and customers rights and liabilities arising from
the use of debit cards, automated teller machines and other electronic banking services.                                                                                                                                        

Interstate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, eligible bank holding companies in any state are permitted, with Federal Reserve
approval, to acquire banking organizations in any other state. The Interstate Banking and Branching Efficiency Act also removed substantially all of the prohibitions on interstate branching by banks. The authority of a bank to establish and operate
branches within a state, however, continues to be subject to applicable state branching laws.  Under current Florida law, Madison Bank is permitted to establish branch offices throughout Florida with the prior approval of either the OCC or the
Florida Department of Banking and Finance and the FDIC. In addition, with prior regulatory approval, Madison would be able to acquire existing banking operations in other states.

Financial
Modernization

The Gramm-Leach-Bliley Act of 1999 sought to achieve significant modernization of the federal bank regulatory framework
by allowing the consolidation of banking institutions with other types of financial services firms, subject to various restrictions and requirements. In general, the Gramm-Leach-Bliley Act repealed most of the federal statutory barriers which
separated commercial banking firms from insurance and securities firms and authorized the consolidation of such firms in a financial services holding company.  We have no immediate plans to utilize the structural options created by
the Gramm-Leach-Bliley Act, but may develop such plans in the future. In the meantime, we will provide our customers

12



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##### Index to Financial Statements

with a broad range of financial products and services, including various insurance products and securities brokerage services, through our wealth management subsidiary and
through cooperative arrangements with certain third-party vendors.

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the Act).  The Securities and Exchange Commission (the SEC) has promulgated certain regulations pursuant to the Act and will continue to propose additional implementing or clarifying regulations as necessary in
furtherance of the Act.  The passage of the Act and the regulations implemented by the SEC subject publicly traded companies to additional and more cumbersome reporting regulations and disclosure.  Compliance with the Act and corresponding
regulations may increase our expenses.

|Item 2: | Description of Property.
|------- | ------------------------

The following table sets forth information with respect to Madisons offices as of
December 31, 2002.

| | Facility Location | Status                                                            
| | ----------------- | ------------------------------------------------------------------
| |                   |                                                                   
| |                   |                                                                   
| | Headquarters      |                                                                   
| |                   | 35388 U.S. Highway 19 North Palm Harbor, Florida  34684           
| |                   |                                                                   
| | Operations Center |                                                                   
| |                   | 34911 U.S. Highway 19 North, Suite 600 Palm Harbor, Florida  34684
| |                   |                                                                   
| | Executive Office  |                                                                   
| |                   | 2122 Palm Harbor Boulevard Unit A Palm Harbor, Florida  34683     
| |                   |                                                                   
| | Branch Office     |                                                                   
| |                   | 503 South Pinellas Avenue Tarpon Springs, Florida  34689          
| |                   |                                                                   
| | Branch Office     |                                                                   
| |                   | 6709 Ridge Road, Suite 100 Port Richey, Florida  34668            
| |                   |                                                                   
| | Branch Office     |                                                                   
| |                   | 12975 Walsingham Largo, Florida  33774                            

---

Our operations center and the Tarpon Springs Branch are wholly-owned.  We own our headquarters building and lease the land. Our monthly rent on the land is
$5,329.12.  The rent adjusts in accordance with the consumer price index every third year.  The last adjustment was on March 1, 2001.  The initial term of the lease is twenty-five years commencing on March 1, 1985.  The lease may
be extended for five five-year terms.  All of our ownership interests are unencumbered.

13



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##### Index to Financial Statements

We lease our executive offices and the Port Richey branch.  We leased the Largo branch prior to its sale. 
As of December 31, 2002, the rent on the executive offices is $4,060.65 per month.  The lease is for three years with three options to renew for an additional one year each.  The lease would expire on October 31, 2008 if all options were
exercised. The rent for the Port Richey branch is $2,829.55 per month.  The rent for that location is adjusted according to the consumer price index annually with a cap of 3%.  The lease has a five-year term with two options to renew for
additional five year periods.  The lease would expire on November 30, 2014, if both five-year options were exercised. The rent for the Largo branch was $2,668.95 per month.

|Item 3. | Legal Proceedings.
|------- | ------------------

There are no pending legal
proceedings to which Madison is a party or to which any of their properties are subject.

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

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2002.

PART II

|Item 5. | Market for Common Equity and Related Stockholder Matters.
|------- | ---------------------------------------------------------

On December 27, 2001, Madison BancShares stock began trading on The NASDAQ SmallCap Market under the symbol MDBS.  As of February 24, 2003,
there were 143 registered holders of common stock of the Company and approximately 219 street name holders.  On December 23, 2002, Madison BancShares paid a stock dividend in common stock equal to 5% of the then outstanding shares.  In
prior years, on May 15, 2001 and 2000, Madison Bank paid a dividend in common stock equal to 5% of the then outstanding shares of Madison Bank, and on December 20, 2000 paid a dividend in common stock equal to 5% of the then outstanding shares of
Madison Bank.  Madison BancShares paid a cash dividend equal to $0.06 per share on May 24, 2002 and $0.05 per share on November 15, 2001.

On February 24, 2003, the closing sales price of Madison BancShares common stock was $16.15.   At December 31, 2002, the closing sales price of
Madison BancShares stock was $15.20.

|                                |  | Calendar Year |      
|------------------------------- |  | ------------- | -----
|                                |  |               |      
|                                |  | 2002          |      
|                                |  |               |      
|                                |  |               | Low $
|                                |  |               |      
|                                |  | (per share)   |      
|First Quarter *                 |  |               | 9.24 
|Second Quarter *                |  |               | 10.57
|Third Quarter *                 |  |               | 13.57
|Fourth Quarter *                |  |               | 13.20
|                                |  |               |      
|* Adjusted for stock dividends. |  |               |      

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##### Index to Financial Statements

Equity Compensation Plan Information

|Plan Category                                              |                                                | Number of securities to be issued upon exercise of outstanding options, warrants and rights |         | Weighted-average exercise price of outstanding options, warrants and rights |      | Number of securities remaining available for future issuance under equity compensation plans* | 
|---------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------- | 
|                                                           |                                                |                                                                                             |         |                                                                             |      |                                                                                               | 
|Equity compensation plans approved by security holders     |                                                | 188,508                                                                                     |         | $                                                                           | 7.18 |                                                                                               | 
|Equity compensation plans not approved by security holders |                                                | None                                                                                        |         |                                                                             |     |                                                                                               | 
|                                                           |                                                |                                                                                             |         |                                                                             |      |                                                                                               | 
|                                                           | Total                                          |                                                                                             | 188,508 |                                                                             | $    | 7.18                                                                                          | 
|                                                           |                                                |                                                                                             |         |                                                                             |      |                                                                                               | 
|*                                                          | Excludes securities reflected in first column. |                                                                                             |         |                                                                             |      |                                                                                               | 
|                                                           |                                                |                                                                                             |         |                                                                             |      |                                                                                               | 

[Intentionally left blank]

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##### Index to Financial Statements

|Item 6. | Managements Discussion and Analysis or Plan of Operation.
|------- | ----------------------------------------------------------

Selected Financial Data

The following table presents selected financial data for the years-ended December 31, 2002, 2001, and 2000.  The data should be read in
conjunction with Madisons financial statements, including the related notes, and Managements Discussion and Analysis or Plan of Operation.

|                             |                                                                                                                                                       | At or for the Year Ended December 31  |     
|---------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ----
|                             |                                                                                                                                                       |                                       |     
|                             |                                                                                                                                                       |                                       | 2002
|                             |                                                                                                                                                       |                                       |     
|                             |                                                                                                                                                       | (In thousands, except per share data) |     
|Selected Balance Sheet Data: |                                                                                                                                                       |                                       |     
|                             | Total assets                                                                                                                                          |                                       | $   
|                             | Cash and cash equivalents                                                                                                                             |                                       |     
|                             | Securities available for sale                                                                                                                         |                                       |     
|                             | Securities held to maturity                                                                                                                           |                                       |     
|                             | Loans, net                                                                                                                                            |                                       |     
|                             | Deposit accounts                                                                                                                                      |                                       |     
|                             | Stockholders equity                                                                                                                                  |                                       |     
|Selected Operating Data:     |                                                                                                                                                       |                                       |     
|                             | Total interest income                                                                                                                                 |                                       |     
|                             | Total interest expense                                                                                                                                |                                       |     
|                             | Net interest income                                                                                                                                   |                                       |     
|                             | Provision for loan losses                                                                                                                             |                                       |     
|                             | Net interest income after provision for loan losses                                                                                                   |                                       |     
|                             | Noninterest income                                                                                                                                    |                                       |     
|                             | Noninterest expenses                                                                                                                                  |                                       |     
|                             | Net earnings                                                                                                                                          |                                       |     
|Per Share Data: *            |                                                                                                                                                       |                                       |     
|                             | Basic earnings per share                                                                                                                              |                                       |     
|                             | Diluted earnings per share                                                                                                                            |                                       |     
|                             | Book value per share                                                                                                                                  |                                       |     
|Performance Ratios:          |                                                                                                                                                       |                                       |     
|                             | Return on average assets (R.O.A.)                                                                                                                     |                                       |     
|                             | Return on average equity (R.O.E.)                                                                                                                     |                                       |     
|                             | Interest-rate spread during the period                                                                                                                |                                       |     
|                             | Net interest margin                                                                                                                                   |                                       |     
|                             | Noninterest expense to average assets                                                                                                                 |                                       |     
|Other Ratios and Data:       |                                                                                                                                                       |                                       |     
|                             | Average equity to average assets                                                                                                                      |                                       |     
|                             | Allowance for loan losses as a percentage of total loan outstanding                                                                                   |                                       |     
|                             | Net recoveries (charge-offs) as a percent of average loans                                                                                            |                                       |     
|                             | Nonperforming loans to total loans                                                                                                                    |                                       |     
|                             | Allowance for loan losses as a percent of nonperforming loans                                                                                         |                                       |     
|                             | Nonperforming loans and foreclosed real estate as a percentage of total assets                                                                        |                                       |     
|                             | Total number of full-service banking offices                                                                                                          |                                       |     
|                             |                                                                                                                                                       |                                       |     
|                             |                                                                                                                                                       |                                       |     
|*                            | All per share information is presented to reflect the 5 stock dividends declared May 15, 2000, December 20, 2000, May
15, 2001 and December 23, 2002.

16



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##### Index to Financial Statements

Managements Discussion and Analysis of Financial Condition or Plan of Operation

General

Madison Bank is a state-chartered commercial bank incorporated under the laws of the State of
Florida. The deposits of Madison Bank are insured by the FDIC.  Madison Bank currently provides a variety of banking services to small and middle-market businesses and individuals through its three banking offices located in Pinellas County,
Florida and one banking office in Pasco County, Florida.

On October 25, 2002, Madison Bank entered into an agreement to sell the deposits
at one of the banking offices in Pinellas County which closed in February, 2003.  As of the closing date, total deposits at this office were approximately $11.6 million with a net pretax gain of approximately $200,000 to Madison.

Liquidity and Capital Resources

A state-chartered commercial bank is required under Florida
Law and FDIC regulations to maintain a liquidity reserve of at least 15% of its total transaction accounts and 8% of its total nontransaction accounts subject to certain restrictions.  The reserve may consist of cash-on-hand, demand deposits
due from correspondent banks, and other investments and short-term marketable securities.  At December 31, 2002, Madison Bank significantly exceeded its regulatory liquidity requirements.

Our primary source of funds during the year-ended December 31, 2002 was from:

| |  | An increase in deposits of $26.3 million, which were used primarily to originate net loans of $15.8 million and purchase securities available for sale of $12.1 million;
and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The principal repayment of securities of $7.6 million and the sale of securities of $2.0 million;                                                                           

At December 31, 2002, outstanding commitments to originate loans totaled $4.9 million and commitments to borrowers for available lines of credit and construction
loans totaled $16.7 million.

Our primary source of funds during the year-ended December 31, 2001, was from:

| |  | The sale of securities and principal repayments of $13.9 million;                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Proceeds from Federal Home Loan Bank advances of $12.0 million; and                                                                                                   
| |  | An increase in deposits of $3.2 million, which were used primarily to originate net loans of $25.6 million and purchase securities available for sale of $9.3 million.

At December 31, 2001, outstanding commitments to originate loans totaled $3.0 million and commitments to borrowers for available
lines of credit and construction loans totaled $10.9 million.

Credit Risk

Our
primary business includes making commercial loans, primarily secured by commercial real estate, and to a lesser extent single family residential loans and consumer loans. That activity entails potential loan losses, the magnitude of which depends on
a variety of economic factors affecting borrowers which are beyond our control.  While underwriting guidelines and credit review procedures have been instituted to protect us from avoidable credit losses, some losses will inevitably occur. At
December 31, 2002, we had $2.7 million in nonperforming loans and no foreclosed real estate.

17



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##### Index to Financial Statements

The following table presents information on our total allowance for loan losses, as well as the allocation of such
amounts to the various categories of loans (dollars in thousands):

|                                            |  | At December 31, |       
|------------------------------------------- |  | --------------- | ------
|                                            |  |                 |       
|                                            |  | 2002            |       
|                                            |  |                 |       
|                                            |  |                 | Amount
|                                            |  |                 |       
|Commercial real estate                      |  | $               | 1,922 
|Commercial                                  |  |                 | 87    
|Residential real estate                     |  |                 | 17    
|Equity lines of credit and second mortgages |  |                 | 2     
|Consumer                                    |  |                 | 30    
|                                            |  |                 |       
|                                            |  | $               | 2,058 
|                                            |  |                 |       

The following table sets forth
information with respect to the activity of our allowance for loan losses (dollars in thousands):

|                                                          |                         | Year Ended December 31, |        
|--------------------------------------------------------- | ----------------------- | ----------------------- | -------
|                                                          |                         |                         |        
|                                                          |                         |                         | 2002   
|                                                          |                         |                         |        
|Average loans outstanding                                 |                         | $                       | 147,629
|                                                          |                         |                         |        
|Allowance at beginning of period                          |                         |                         | 1,477  
|Charge-offs:                                              |                         |                         |        
|                                                          | Commercial              |                         |        
|                                                          | Residential real estate |                         |        
|                                                          | Consumer                |                         |        
|                                                          |                         |                         |        
|                                                          | Total loans charged-off |                         |        
|Recoveries                                                |                         |                         | 16     
|                                                          |                         |                         |        
|Net (charge-offs) recoveries                              |                         |                         | (37    
|Provision for loan losses charged to operating expenses   |                         |                         | 618    
|                                                          |                         |                         |        
|Allowance at end of period                                |                         | $                       | 2,058  
|                                                          |                         |                         |        
|Net recoveries (charge-offs) to average loans outstanding |                         |                         | (.03%  
|                                                          |                         |                         |        
|Allowance as percent of total loans                       |                         |                         | 1.33   
|                                                          |                         |                         |        
|Allowance as percent of nonperforming loans               |                         |                         | 75.9   
|                                                          |                         |                         |        
|Total loans at end of period                              |                         | $                       | 155,036

Nonperforming Assets

All loans past due 90 days are placed on non-accrual status, unless the loan is both well collateralized and in the process of collection.  Cash payments
received while a loan is classified as non-accrual are recorded as a reduction of principal as long as doubt exists as to collection.

At
December 31, 2002 and 2001 respectively, we had $2.7 million and $1.5 million in nonaccruing loans.

18



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##### Index to Financial Statements

Loan Portfolio Composition

Our commercial real estate loans
comprise the largest group of loans in our loan portfolio.  Commercial real estate loans amounted to $126.3 million or 81.5% of the total loan portfolio as of December 31, 2002.

Residential real estate loans comprise the second largest group of loans in our portfolio amounting to $13.8 million, or 8.9% of the total loan portfolio as of
December 31, 2002.  Commercial loans consist of $8.9 million or 5.8% of the total loan portfolio.

The following table sets forth the
composition of our loan portfolio (dollars in thousands):

|                                           |                           | At December 31, |        
|------------------------------------------ | ------------------------- | --------------- | -------
|                                           |                           |                 |        
|                                           |                           | 2002            |        
|                                           |                           |                 |        
|                                           |                           | Amount          |        
|                                           |                           |                 |        
|Commercial real estate                     |                           | $               | 126,346
|Commercial                                 |                           |                 | 8,944  
|Residential real estate                    |                           |                 | 13,838 
|Equity lines of credit and second mortgage |                           |                 | 2,713  
|Consumer                                   |                           |                 | 3,195  
|                                           |                           |                 |        
|                                           | Subtotal                  |                 |        
|                                           |                           |                 |        
|Subtract:                                  |                           |                 |        
|                                           | Net deferred loan fees    |                 |        
|                                           | Allowance for loan losses |                 |        
|                                           |                           |                 |        
|                                           | Loans, net                |                 | $      
|                                           |                           |                 |        

Securities

According to Financial Accounting Standards No. 115, a securities portfolio is categorized as held to maturity, available for sale or
trading.  Securities held to maturity represent those securities which we intend and have the ability to hold to maturity and are carried at amortized cost.  Securities available for sale represent those securities which may be
sold for various reasons including changes in interest rates and liquidity considerations.  These securities are reported at fair market value with unrealized gains and losses being reported as a separate component of stockholders equity. 
Trading securities are held primarily for resale and are recorded at their fair values.  Unrealized gains or losses on trading securities are included immediately in earnings.  We do not maintain a trading securities portfolio.

During the year ended December 31, 2001, we sold $9.0 million of securities from the held to maturity category.  As required by Statement of
Financial Accounting Standards No. 115  Accounting For Certain Investments in Debt and Equity Securities, all securities classified as held to maturity totaling $10.6 million were transferred to the available for sale
category.   All securities purchased through December 31, 2002 have been classified as available for sale.

19



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##### Index to Financial Statements

Securities Portfolio.  The following table sets forth the carrying value of our securities
portfolio (dollars in thousands):

|                               |                                                   | At December 31, |     
|------------------------------ | ------------------------------------------------- | --------------- | ----
|                               |                                                   |                 |     
|                               |                                                   |                 | 2002
|                               |                                                   |                 |     
|Securities Available for Sale: |                                                   |                 |     
|                               | U.S. Government agency mortgage-backed securities |                 | $   
|                               | U.S. Government agency securities                 |                 |     
|                               | Other securities                                  |                 |     
|                               |                                                   |                 |     
|                               | Total                                             |                 | $   
|                               |                                                   |                 |     
|                               |                                                   |                 |     

Investment Maturities.  The following table sets forth, by maturity distribution, certain
information pertaining to the securities portfolio as follows (dollars in thousands):

|                               |                                                   | One Year or Less |   | After One Year to Five Years |  | After Five Years |      | Total         |  
|------------------------------ | ------------------------------------------------- | ---------------- | - | ---------------------------- |  | ---------------- | ---- | ------------- | -
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|                               |                                                   | Carrying Value   |   | Average Yield                |  | Carrying Value   |      | Average Yield |  
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|Securities Available for Sale: |                                                   |                  |   |                              |  |                  |      |               |  
|                               | December 31, 2002:                                |                  |   |                              |  |                  |      |               |  
|                               | U.S. Government agency mortgage-backed securities |                  | $ |                             |  |                  |     | %             | $
|                               | U.S. Government agency securities                 |                  |   |                             |  |                  |     |               |  
|                               | Other securities                                  |                  |   | 3,062                        |  |                  | 3.50 |               |  
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|                               | Total                                             |                  | $ | 3,062                        |  |                  | 3.50 | %             | $
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|                               | December 31, 2001:                                |                  |   |                              |  |                  |      |               |  
|                               | U.S. Government mortgage-backed securities        |                  | $ | 98                           |  |                  | 5.42 | %             | $
|                               | Other securities                                  |                  |   |                             |  |                  |     |               |  
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|                               | Total                                             |                  | $ | 98                           |  |                  | 5.42 | %             | $
|                               |                                                   |                  |   |                              |  |                  |      |               |  
|                               |                                                   |                  |   |                              |  |                  |      |               |  

For purposes of the maturity table, mortgage-backed securities and related instruments, which are not due at a
single maturity date, have been allocated over maturity groupings based on the weighted-average contractual maturities of underlying collateral.  These securities may prepay earlier than their weighted-average contractual maturities because of
principal prepayments.

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##### Index to Financial Statements

Regulatory Capital Requirements

Under FDIC regulations,
Madison Bank is required to meet certain minimum regulatory capital requirements.  This is not a valuation allowance and has not been created by charges against earnings.  It represents a restriction on stockholders equity.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and percentages (set
forth in the table below) of regulatory capital (as defined in the regulations).  As of December 31, 2002, we met all capital adequacy requirements to which we are subject at the holding company ($ in thousands).

|                         |                                           | Actual |   | For Capital Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action Provisions |      
|------------------------ | ----------------------------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | -----
|                         |                                           |        |   |                               |  |                                                                  |      
|                         |                                           | Amount |   | %                             |  | Amount                                                           |      
|                         |                                           |        |   |                               |  |                                                                  |      
|As of December 31, 2002: |                                           |        |   |                               |  |                                                                  |      
|                         | Total capital (to Risk-Weighted Assets):  |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 16,371                        |  |                                                                  | 9.79 
|                         | Bank                                      |        |   | 18,207                        |  |                                                                  | 10.89
|                         | Tier I Capital (to Risk-Weighted Assets): |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 14,313                        |  |                                                                  | 8.56 
|                         | Bank                                      |        |   | 16,149                        |  |                                                                  | 9.66 
|                         | Tier I Capital (to Average Assets):       |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 14,313                        |  |                                                                  | 7.28 
|                         | Bank                                      |        |   | 16,149                        |  |                                                                  | 8.23 
|As of December 31, 2001: |                                           |        |   |                               |  |                                                                  |      
|                         | Total capital (to Risk-Weighted Assets):  |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 13,789                        |  |                                                                  | 9.74 
|                         | Bank                                      |        |   | 14,715                        |  |                                                                  | 10.39
|                         | Tier I Capital (to Risk-Weighted Assets): |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 12,313                        |  |                                                                  | 8.69 
|                         | Bank                                      |        |   | 13,238                        |  |                                                                  | 9.35 
|                         | Tier I Capital (to Average Assets):       |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 12,313                        |  |                                                                  | 7.24 
|                         | Bank                                      |        |   | 13,238                        |  |                                                                  | 7.79 
|                         |                                           |        |   |                               |  |                                                                  |      

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##### Index to Financial Statements

Market Risk

Market risk is the risk of loss from adverse
changes in market prices and rates.  We do not engage in trading or hedging activities and does not invest in interest-rate derivatives or enter into interest rate swaps.  Our market risk arises primarily from interest-rate risk inherent
in its lending and deposit taking activities.  To that end, we actively monitor and manage our interest-rate risk exposure.  The measurement of market risk associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 15 of
Notes to the Consolidated Financial Statements.

Our primary objective in managing interest-rate risk is to minimize the adverse impact of
changes in interest rates on our net interest income and capital, while adjusting our asset-liability structure to obtain the maximum yield-cost spread on that structure.  We rely primarily on our asset-liability structure to control interest
rate risk.  However, a sudden and substantial increase in interest rates may adversely impact our earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the
same basis.

We use modeling techniques to simulate changes in net interest income under various rate scenarios.  Important elements
of these techniques include the mix of floating versus fixed rate assets and liabilities, and the scheduled, as well as expected, repricing and maturing volumes and rates of the existing balance sheet.

Asset and Liability Structure

As part of our asset and liability management, emphasis has been placed on
establishing and implementing internal asset-liability decision processes, as well as communications and control procedures to aid in managing our earnings.  We believe that these processes and procedures provide us with better capital
planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive and by
monitoring an institutions interest rate sensitivity gap.  An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.  The interest-rate
sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period.  The gap ratio is computed as rate sensitive assets/rate sensitive liabilities.
 A gap ratio of 1.0% represents perfect matching.  A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities.  A gap is considered negative when the amount of
interest-rate sensitive liabilities exceeds interest-rate sensitive assets.  During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest
income.  During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, We continue to monitor
asset and liability management policies to better match the maturities and repricing terms of its interest-earning assets and interest-bearing liabilities.  Such policies have consisted primarily of:

| |  | Emphasizing the origination of adjustable-rate loans;                               
|- |  | ------------------------------------------------------------------------------------
| |  | Maintaining a stable core deposit base; and                                         
| |  | Maintaining a significant portion of liquid assets (cash and short-term securities).

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##### Index to Financial Statements

At December 31, 2002, our cumulative positive gap at the one year measurement period was $6.0 million.  This
positive gap reflects our large deposit base of savings, NOW and money market deposits that totaled $68.3 million for the period ended. Much of the industry moves one-half of these deposits to the longest term repricing maturity. In accordance with
this practice, management has classified one-half of our deposits as long-term.  Our strategy is to continue to build this portion of the deposit portfolio as these deposits are considered core deposits, and more importantly, have limited rate
sensitivity in an increasing rate environment while they are a less costly source of traditional funding.

The following table sets forth
certain information regarding our interest-earning assets and interest-bearing liabilities at December 31, 2002, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands):

|                                  |                                        | Three Months |        | More Than Three Months to Six Months |   | More Than Six Months to One Year |       | More Than| One Year to Five Years |        | More Than Five Years to Ten Years |   | Over Ten Years |        | Total |       
|--------------------------------- | -------------------------------------- | ------------ | ------ | ------------------------------------ | - | -------------------------------- | ----- | --------------------------------- | ------ | --------------------------------- | - | -------------- | ------ | ----- | ------
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|Loans (1)                         |                                        | $            | 48,681 |                                      | $ | 7,771                            |       | $                                 | 14,672 |                                   | $ | 76,300         |        | $     | 6,256 
|Securities available for sale (2) |                                        |              | 10,358 |                                      |   | 400                              |       |                                   | 1,208  |                                   |   | 4,070          |        |       | 1,651 
|Other securities (3)              |                                        |              | 7,668  |                                      |   |                                 |       |                                   |       |                                   |   |               |        |       |      
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|                                  | Total rate-sensitive assets            |              | $      | 66,707                               |   | $                                | 8,171 |                                   | $      | 15,880                            |   | $              | 80,370 |       | $     
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|Deposit accounts (4):             |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|                                  | Savings, NOW and money-market deposits |              | $      | 34,167                               |   |                                  |      |                                   |        |                                  |   |                |       |       |       
|                                  | Time deposits                          |              |        | 14,428                               |   |                                  | 7,993 |                                   |        | 25,011                            |   |                | 24,083 |       |       
|                                  | Federal Home Loan Bank advances        |              |        |                                     |   |                                  |      |                                   |        |                                  |   |                | 5,000  |       |       
|                                  | Other borrowings                       |              |        | 3,164                                |   |                                  |      |                                   |        |                                  |   |                |       |       |       
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|                                  | Total rate-sensitive liabilities       |              |        | 51,759                               |   |                                  | 7,993 |                                   |        | 25,011                            |   |                | 29,083 |       |       
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|GAP repricing differences         |                                        | $            | 14,948 |                                      | $ | 178                              |       | $                                 | (9,131 | )                                 | $ | 51,287         |        | $     | (4,868
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|Cumulative GAP                    |                                        | $            | 14,948 |                                      | $ | 15,126                           |       | $                                 | 5,995  |                                   | $ | 57,282         |        | $     | 52,414
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|Cumulative GAP/total assets       |                                        |              | 7.7    | %                                    |   | 7.8                              | %     |                                   | 3.1    | %                                 |   | 29.5           | %      |       | 27.0  
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       
|                                  |                                        |              |        |                                      |   |                                  |       |                                   |        |                                   |   |                |        |       |       

---

|(1) | In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the
loans mature.  Fixed-rate loans are scheduled, including repayment, according to their maturities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Securities are scheduled according to their respective repricing and maturity dates.                                                                                                                                                                                             
|(3) | Includes Federal Home Loan Bank stock, federal funds sold and interest-bearing deposits with banks.                                                                                                                                                                              
|(4) | Half of the savings, NOW and money-market deposits are regarded as ready accessible withdrawable accounts, while the other half is considered core deposits and moved to the
longest term reprice maturity.  Time deposits are scheduled through the maturity dates.             

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##### Index to Financial Statements

The following table reflects the contractual principal repayments by period of our loan portfolio at December 31,
2002 (dollars in thousands):

|                                 |       | Commercial Real Estate |        | Commercial |   | Residential Real Estate |       | Equity Lines of Credit and Second Mortgage |        | Consumer |   | Total |      
|-------------------------------- | ----- | ---------------------- | ------ | ---------- | - | ----------------------- | ----- | ------------------------------------------ | ------ | -------- | - | ----- | -----
|                                 |       |                        |        |            |   |                         |       |                                            |        |          |   |       |      
|Due within one year              |       | $                      | 6,771  |            | $ | 1,554                   |       | $                                          | 127    |          | $ | 78    |      
|Due after one through five years |       |                        | 31,760 |            |   | 1,984                   |       |                                            | 914    |          |   | 2,010 |      
|Due after five years             |       |                        | 87,815 |            |   | 5,406                   |       |                                            | 12,797 |          |   | 625   |      
|                                 |       |                        |        |            |   |                         |       |                                            |        |          |   |       |      
|                                 | Total |                        | $      | 126,346    |   | $                       | 8,944 |                                            | $      | 13,838   |   | $     | 2,713
|                                 |       |                        |        |            |   |                         |       |                                            |        |          |   |       |      
|                                 |       |                        |        |            |   |                         |       |                                            |        |          |   |       |      

At December 31, 2002, of the $145.5 million of loans due after one year, 8.6% of such loans have fixed rates of
interest and 91.4% have adjustable rates.

Scheduled contractual principal repayments of loans do not reflect the actual life of such
assets.  The average life of loans is substantially less than their average contractual terms due to prepayments.  In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due and
payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid.  The average life of loans tends to increase, however, when current loan rates are substantially higher than
rates on existing loans and, conversely, decrease when rates on existing loans are substantially higher than current loan rates.

Origination, Sale and Repayment of Loans.  We generally originate loans located in our primary geographical lending area in Pinellas and Pasco
Counties, Florida.  Our loan originations are attributable to depositors, stockholders, other existing customers, and advertising.  Our residential mortgage loans generally are originated in compliance with documentation and underwriting
standards which permit their sale to investors in the secondary market.

The following table sets forth total loans originated, sold and
repaid (dollars in thousands):

|              |                                            | Year Ended December 31, |  
|------------- | ------------------------------------------ | ----------------------- | -
|              |                                            |                         |  
|              |                                            | 2002                    |  
|              |                                            |                         |  
|Originations: |                                            |                         |  
|              | Commercial real estate                     |                         | $
|              | Commercial                                 |                         |  
|              | Residential real estate                    |                         |  
|              | Equity lines of credit and second mortgage |                         |  
|              | Consumer                                   |                         |  
|              |                                            |                         |  
|              | Total loans originated                     |                         |  
|              | Less:                                      |                         |  
|              | Principal reductions                       |                         |  
|              | Loans sold, primarily participations       |                         |  
|              |                                            |                         |  
|              | Increase in total loans                    |                         | $
|              |                                            |                         |  
|              |                                            |                         |  

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##### Index to Financial Statements

Deposits and Other Sources of Funds

General.In addition to deposits, the sources of funds available for lending and other business purposes include loan repayments and borrowed funds.  Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are
influenced significantly by general interest rates and money market conditions.  Borrowed funds may be used as an alternative funding source.

Deposits.Deposits are attracted principally from our primary geographic market area, Pinellas and Pasco Counties, Florida.  A broad
selection of deposit instruments including demand deposit accounts, NOW accounts, regular savings accounts, term certificate accounts and retirement savings plans (such as IRA accounts) are offered.  Certificate of deposit rates and maturities
are established to match the rates and maturities of earning assets.  Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on deposit and the interest rate. 
Commercial banking relationships have been emphasized in an effort to increase demand deposits as a percentage of total deposits.  Deposit interest rates are set weekly by management based on a review of our funding needs, deposit flows for the
previous week, a survey of rates among competitors and other financial institutions in Florida.

At December 31, 2002, we had $6.3
million in certificates of deposits which have a weighted interest rate of 9.59%.  These certificates of deposit were originated in 1988 and have up to six years remaining on their term.  Madison no longer offers certificate of deposit
product with extended maturities.

The following table shows the distribution of, and certain other information relating to, our deposit
accounts by type (dollars in thousands):

|                                       |                               | At December 31, |        
|-------------------------------------- | ----------------------------- | --------------- | -------
|                                       |                               |                 |        
|                                       |                               | 2002            |        
|                                       |                               |                 |        
|                                       |                               | Amount          |        
|                                       |                               |                 |        
|Noninterest-bearing demand deposits    |                               | $               | 15,771 
|Savings, NOW and money-market deposits |                               |                 | 68,334 
|                                       |                               |                 |        
|                                       | Subtotal                      |                 |        
|Time deposits:                         |                               |                 |        
|                                       | 0% - 2.99%                    |                 |        
|                                       | 3.00% - 3.99%                 |                 |        
|                                       | 4.00% - 4.99%                 |                 |        
|                                       | 5.00% - 5.99%                 |                 |        
|                                       | 6.00% - 6.99%                 |                 |        
|                                       | 7.00% - 7.99%                 |                 |        
|                                       | 8.00% - 8.99%                 |                 |        
|                                       | 9.00% - 9.99%                 |                 |        
|                                       | 10.00% - 10.99%               |                 |        
|                                       |                               |                 |        
|                                       | Total certificates of deposit |                 |        
|                                       |                               |                 |        
|Total deposits (*)                     |                               | $               | 163,395
|                                       |                               |                 |        

---

(*)          The deposit portfolio does not contain a concentration from any one depositor or related group of depositors.

25



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##### Index to Financial Statements

Jumbo certificates ($100,000 and over) mature as follows (dollars in thousands):

|                                    |  | At December 31, |       
|----------------------------------- |  | --------------- | ------
|                                    |  |                 |       
|                                    |  | 2002            |       
|                                    |  |                 |       
|Due three months or less            |  | $               | 442   
|Due over three months to six months |  |                 | 416   
|Due over six months to one year     |  |                 | 3,315 
|Due over one year                   |  |                 | 22,789
|                                    |  |                 |       
|Total                               |  | $               | 26,962
|                                    |  |                 |       

The following table sets forth the net
deposit flows of Madison during the periods indicated (dollars in thousands):

|                                                 |  | Year Ended December 31, |       
|------------------------------------------------ |  | ----------------------- | ------
|                                                 |  |                         |       
|                                                 |  | 2002                    |       
|                                                 |  |                         |       
|Net increase (decrease) before interest credited |  | $                       | 22,606
|Net interest credited                            |  |                         | 3,705 
|                                                 |  |                         |       
|Net deposit increase                             |  | $                       | 26,311
|                                                 |  |                         |       

Results of Operations

The following table sets forth, for the periods indicated, information regarding:

| |  | The total dollar amount of interest and dividend income of Madison from interest-earning assets and the resultant average yields;
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                  
| |  | The total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost;                      
| |   |                                                                                                                                  
| |  | Net interest income;                                                                                                             
| |   |                                                                                                                                  
| |  | Interest-rate spread;                                                                                                            
| |   |                                                                                                                                  
| |  | Net interest margin; and                                                                                                         
| |   |                                                                                                                                  
| |  | Average balances are based on average daily balances.                                                                            

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##### Index to Financial Statements

|                                                                                 |                                                      | Year Ended December 31, |        
|-------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | -------
|                                                                                 |                                                      |                         |        
|                                                                                 |                                                      | 2002                    |        
|                                                                                 |                                                      |                         |        
|                                                                                 |                                                      | Average Balance         |        
|                                                                                 |                                                      |                         |        
|                                                                                 |                                                      | (Dollars in thousands)  |        
|Interest-earning assets:                                                         |                                                      |                         |        
|                                                                                 | Loans (1)                                            |                         | $      
|                                                                                 | Securities                                           |                         |        
|                                                                                 | Other interest-earning assets (2)                    |                         |        
|                                                                                 |                                                      |                         |        
|                                                                                 | Total interest-earning assets                        |                         |        
|                                                                                 |                                                      |                         |        
|Noninterest-earning assets                                                       |                                                      |                         | 8,313  
|                                                                                 |                                                      |                         |        
|Noninterest-earning assets                                                       |                                                      | $                       | 186,429
|                                                                                 |                                                      |                         |        
|Interest-bearing liabilities:                                                    |                                                      |                         |        
|                                                                                 | Savings, NOW, money-market deposit accounts          |                         |        
|                                                                                 | Time deposits                                        |                         |        
|                                                                                 | Federal Home Loan Bank advances and other borrowings |                         |        
|                                                                                 |                                                      |                         |        
|                                                                                 | Total interest-bearing liabilities                   |                         |        
|                                                                                 |                                                      |                         |        
|Noninterest-bearing demand deposits                                              |                                                      |                         | 14,414 
|Noninterest-bearing liabilities                                                  |                                                      |                         | 2,966  
|Stockholders equity                                                             |                                                      |                         | 13,419 
|                                                                                 |                                                      |                         |        
|                                                                                 | Total liabilities and stockholders equity           |                         | $      
|                                                                                 |                                                      |                         |        
|Net interest income                                                              |                                                      |                         |        
|                                                                                 |                                                      |                         |        
|Interest-rate spread (3)                                                         |                                                      |                         |        
|                                                                                 |                                                      |                         |        
|Net interest margin (4)                                                          |                                                      |                         |        
|                                                                                 |                                                      |                         |        
|Ratio of average interest-earning assets to average interest-bearing liabilities |                                                      |                         | 1.14   
|                                                                                 |                                                      |                         |        
|                                                                                 |                                                      |                         |        

---

|(1) | Includes loans on nonaccrual status.                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes interest-bearing deposits with banks, federal funds sold and Federal Home Loan Bank stock.                                                      
|(3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|(4) | Net interest margin is net interest income divided by average interest-earning assets.                                                                   

27



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##### Index to Financial Statements

Rate/Volume Analysis

The following table sets forth certain
information regarding changes in interest income and interest expense of Madison for the period indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable
to:

| |  | Changes in rate (change in rate multiplied by prior volume);                           
| | - | ---------------------------------------------------------------------------------------
| |  | Changes in volume (change in volume multiplied by prior rate); and                     
| |  | Changes in rate-volume (change in rate multiplied by change in volume), (in thousands).

|                                  |                                                      | Year Ended December 31, Increase (Decrease) Due to |    
|--------------------------------- | ---------------------------------------------------- | -------------------------------------------------- | ---
|                                  |                                                      |                                                    |    
|                                  |                                                      | Rate                                               |    
|                                  |                                                      |                                                    |    
|Interest-earning assets:          |                                                      |                                                    |    
|                                  | Loans                                                |                                                    | $  
|                                  | Securities                                           |                                                    |    
|                                  | Other interest-earning assets                        |                                                    |    
|                                  |                                                      |                                                    |    
|                                  | Total                                                |                                                    | $  
|                                  |                                                      |                                                    |    
|Interest-bearing liabilities:     |                                                      |                                                    |    
|                                  | Deposits:                                            |                                                    |    
|                                  | Savings, NOW and money-market deposits               |                                                    |    
|                                  | Time deposits                                        |                                                    |    
|                                  | Federal Home Loan Bank advances and other borrowings |                                                    |    
|                                  |                                                      |                                                    |    
|                                  | Total                                                |                                                    |    
|                                  |                                                      |                                                    |    
|Net change in net interest income |                                                      | $                                                  | 587
|                                  |                                                      |                                                    |    
|                                  |                                                      |                                                    |    

Comparison of Years Ended December 31, 2002 and 2001

General.  Net earnings for the year ended December 31, 2002, was $1,715,000 or $1.08 per basic earnings per share ($1.02 per diluted earnings per
share) compared to net earnings of $1,093,000 or $.70 per basic ($.67 per diluted earnings per share) for the year ended December 31, 2001.  The increase in net earnings is primarily due to an increase in net interest income and non-interest
income which was partially offset by an increase in the provision for loan losses that was needed to support loan growth, an increase in noninterest expenses and an increase in the provision for income taxes.

Interest Income and Expense.  Interest income increased by $261,000 from $12.1 million for the year ended December 31, 2001 to $12.4 million for
the year ended December 31, 2002.  Interest income on loans increased $413,000 due an increase in the average loan portfolio balance of $21.5 million which was partially offset by a decrease in the weighted yield in 2002 to 7.56% from 8.51% in
2001.  Interest on securities increased $83,000 due to an increase in the average securities balance from $21.9 million in 2001 to $26.0 million in 2002, which was partially offset by a decrease in the weighted-average yield in 2002 to 4.45%
from 4.90% in 2001.  Interest on other interest-earning assets decreased $235,000 primarily due to a decrease from $7.9 million in average other interest-earning assets in 2001 to $4.5 million in 2002, and a decrease in the weighted yield
earned.

28



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##### Table of Contents

##### Index to Financial Statements

Interest expense decreased $1.6 million in 2002 compared to 2001.  Interest expense on deposits decreased $1.8
million due to a decrease in the rate paid on deposit accounts from 4.60% in 2001 to 2.90% in 2002, partially offset by an increase in the average balance of interest-bearing deposits in 2002 compared to 2001 of $13.6 million.  Interest expense
on other borrowings increased $144,000 primarily due to an increase in the average balance of other borrowings from $9.1 million in 2001 to $13.9 million in 2002, partially offset by a decrease in the average rate paid on other
borrowings.

Provision for Loan Losses.  The provision for loan losses is charged to operations to bring the total
allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by Madison, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as
they relate to Madisons market areas, and other factors related to the collectibility of the loan portfolio.  There was a $618,000 provision recorded for the year ended December 31, 2002, compared to $428,000 in 2001.  At December
31, 2002, the allowance for loan losses was $2.1 million.  While management believes that its allowance for loan losses is adequate as of December 31, 2002, future adjustments to Madison Banks allowance for loan losses may be necessary if
economic conditions differ substantially from the assumptions used in making the initial determination.

Noninterest Income.Noninterest income increased from $715,000 in 2001 to $962,000 in 2002 primarily due to increased service charges on deposit accounts in 2002 compared to 2001 due to our continued emphasis on obtaining customer transaction accounts and
related fee income and a $78,000 gain recognized in sale of foreclosed real estate.

Noninterest Expense.  Total
noninterest expense increased to $5.3 million for the year ended December 31, 2002, compared to $4.4 million in 2001. Employee compensation and benefits increased $688,000 and our occupancy and equipment increased $105,000 due to the opening of one
new office in the fourth quarter of 2001.

Income Taxes.The income tax provision for the year ended December 31, 2002,
was $1,046,000 or 37.9% of earnings before income taxes compared to $652,000 or 37.4% for the year ended December 31, 2001.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of Madison are
monetary in nature. As a result, interest rates have a more significant impact on Madisons performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

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##### Index to Financial Statements

|Item 7. | Financial Statements
|------- | --------------------

MADISON BANCSHARES, INC. AND SUBSIDIARY

Index
to Consolidated Financial Statements

|Independent Auditors Report                                                                              | 31   
|--------------------------------------------------------------------------------------------------------- | -----
|                                                                                                          |      
|Consolidated Balance Sheets, December 31, 2002 and 2001                                                   | 32   
|                                                                                                          |      
|Consolidated Statements of Earnings for the Years Ended December 31, 2002 and 2001                        | 33   
|                                                                                                          |      
|Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2002 and 2001 | 34   
|                                                                                                          |      
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001                      | 35   
|                                                                                                          |      
|Notes to Consolidated Financial Statements for the Years Ended December 31, 2002 and 2001                 | 36-57

All schedules are omitted
because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements and related Notes.

30



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##### Index to Financial Statements

Independent Auditors Report

The Board of Directors Madison BancShares, Inc. Palm Harbor, Florida:

We have audited the accompanying consolidated balance sheets of Madison BancShares, Inc. and Subsidiary  (the Company) at December 31, 2002
and 2001 and the related consolidated statements of earnings, changes in stockholders equity and cash flows for the years then ended.  These financial statements are the responsibility of the Companys management.  Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December
31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

|/s/ HACKER, JOHNSON& SMITH P.A. | 
|------------------------------- | 
|                                | 
|Tampa, Florida January 31, 2003 | 

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Consolidated Balance Sheets (Dollars in thousands, except share amounts)

|                                                                             |                                                                                                                             | At December 31, |        
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | --------------- | -------
|                                                                             |                                                                                                                             |                 |        
|                                                                             |                                                                                                                             | 2002            |        
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Assets                                                                                                                      |                 |        
|Cash and due from banks                                                      |                                                                                                                             | $               | 3,222  
|Interest-bearing deposits with banks                                         |                                                                                                                             |                 | 2,965  
|Federal funds sold                                                           |                                                                                                                             |                 | 4,703  
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Cash and cash equivalents                                                                                                   |                 |        
|Securities available for sale                                                |                                                                                                                             |                 | 23,868 
|Loans, net of allowance for loan losses of $2,058 in 2002 and $1,477 in 2001 |                                                                                                                             |                 | 152,679
|Accrued interest receivable                                                  |                                                                                                                             |                 | 706    
|Premises and equipment, net                                                  |                                                                                                                             |                 | 3,960  
|Federal Home Loan Bank of Atlanta stock, at cost                             |                                                                                                                             |                 | 759    
|Deferred tax asset                                                           |                                                                                                                             |                 | 332    
|Other assets                                                                 |                                                                                                                             |                 | 915    
|                                                                             |                                                                                                                             |                 |        
|                                                                             |                                                                                                                             | $               | 194,109
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Liabilities and Stockholders Equity                                                                                        |                 |        
|Liabilities:                                                                 |                                                                                                                             |                 |        
|                                                                             | Noninterest-bearing demand deposits                                                                                         |                 |        
|                                                                             | Savings, NOW and money-market deposits                                                                                      |                 |        
|                                                                             | Time deposits                                                                                                               |                 |        
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Total deposits                                                                                                              |                 |        
|                                                                             | Federal Home Loan Bank advances                                                                                             |                 |        
|                                                                             | Other borrowings                                                                                                            |                 |        
|                                                                             | Official checks                                                                                                             |                 |        
|                                                                             | Accrued expenses and other liabilities                                                                                      |                 |        
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Total liabilities                                                                                                           |                 |        
|                                                                             |                                                                                                                             |                 |        
|Commitments (Notes 1, 5 and 15)                                              |                                                                                                                             |                 |        
|Stockholders equity:                                                        |                                                                                                                             |                 |        
|                                                                             | Preferred stock, $0.01 par value, authorized 1,000,000 shares; none issued or
outstanding                                   |                 |        
|                                                                             | Common stock, $0.01 par value, authorized 4,000,000 shares; issued and outstanding 1,613,028 and 1,493,971 in 2002 and
2001 |                 |        
|                                                                             | Additional paid-in capital                                                                                                  |                 |        
|                                                                             | Retained earnings (accumulated deficit)                                                                                     |                 |        
|                                                                             | Accumulated other comprehensive income (loss)                                                                               |                 |        
|                                                                             |                                                                                                                             |                 |        
|                                                                             | Total stockholders equity                                                                                                  |                 |        
|                                                                             |                                                                                                                             |                 |        
|                                                                             |                                                                                                                             | $               | 194,109
|                                                                             |                                                                                                                             |                 |        
|                                                                             |                                                                                                                             |                 |        

See Accompanying Notes to Consolidated Financial Statements.

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Earnings (Dollars in thousands, except per share amounts)

|                          |                                                     | Year Ended December 31, |      
|------------------------- | --------------------------------------------------- | ----------------------- | -----
|                          |                                                     |                         |      
|                          |                                                     | 2002                    |      
|                          |                                                     |                         |      
|Interest income:          |                                                     |                         |      
|                          | Loans                                               |                         | $    
|                          | Securities available for sale                       |                         |      
|                          | Securities held to maturity                         |                         |      
|                          | Other interest-earning assets                       |                         |      
|                          |                                                     |                         |      
|                          | Total interest income                               |                         |      
|                          |                                                     |                         |      
|Interest expense:         |                                                     |                         |      
|                          | Deposits                                            |                         |      
|                          | Borrowed funds                                      |                         |      
|                          |                                                     |                         |      
|                          | Total interest expense                              |                         |      
|                          |                                                     |                         |      
|                          | Net interest income                                 |                         |      
|Provision for loan losses |                                                     |                         | 618  
|                          |                                                     |                         |      
|                          | Net interest income after provision for loan losses |                         |      
|                          |                                                     |                         |      
|Noninterest income:       |                                                     |                         |      
|                          | Service charges on deposit accounts                 |                         |      
|                          | Other service charges and fees                      |                         |      
|                          | Gain on sale of securities                          |                         |      
|                          | Other                                               |                         |      
|                          |                                                     |                         |      
|                          | Total noninterest income                            |                         |      
|                          |                                                     |                         |      
|Noninterest expenses:     |                                                     |                         |      
|                          | Employee compensation and benefits                  |                         |      
|                          | Occupancy and equipment                             |                         |      
|                          | Data processing expense                             |                         |      
|                          | Professional fees                                   |                         |      
|                          | Advertising                                         |                         |      
|                          | Stationary and supplies                             |                         |      
|                          | Federal deposit insurance premium                   |                         |      
|                          | Other expense                                       |                         |      
|                          |                                                     |                         |      
|                          | Total noninterest expenses                          |                         |      
|                          |                                                     |                         |      
|                          | Earnings before income taxes                        |                         |      
|Income taxes              |                                                     |                         | 1,046
|                          |                                                     |                         |      
|                          | Net earnings                                        |                         | $    
|                          |                                                     |                         |      
|Earnings per share:       |                                                     |                         |      
|                          | Basic earnings per share                            |                         | $    
|                          |                                                     |                         |      
|                          | Diluted earnings per share                          |                         | $    
|                          |                                                     |                         |      
|                          |                                                     |                         |      

See Accompanying Notes to Consolidated Financial Statements.

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders Equity

For the Years Ended December 31, 2002 and 2001
(Dollars in thousands)

|                                                                                         |                                                                            | Common Stock |    | Additional Paid-in Capital |  | Retained Earnings (Accumulated Deficit) |   | Accumulated Other Compre- hensive Income (Loss) |        | Total | 
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------ | -- | -------------------------- |  | --------------------------------------- | - | ----------------------------------------------- | ------ | ----- | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Balance at December 31, 2000                                                             |                                                                            | $            | 14 |                            |  | 12,032                                  |   |                                                 | (770   | )     | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Comprehensive income:                                                                    |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|                                                                                         | Net earnings                                                               |              |    |                           |  |                                         |  |                                                 |        | 1,093 | 
|                                                                                         | Net change in unrealized loss on securities available for sale, net of tax |              |    |                           |  |                                         |  |                                                 |        |      | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Comprehensive income                                                                     |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Exercise of common stock options (2,315 shares)                                          |                                                                            |              |   |                            |  | 19                                      |   |                                                 |       |       | 
|Stock dividends (70,960 shares)                                                          |                                                                            |              | 1  |                            |  | 602                                     |   |                                                 | (603   | )     | 
|Cash dividends                                                                           |                                                                            |              |   |                            |  |                                        |   |                                                 | (75    | )     | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Balance at December 31, 2001                                                             |                                                                            |              | 15 |                            |  | 12,653                                  |   |                                                 | (355   | )     | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Comprehensive income:                                                                    |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|                                                                                         | Net earnings                                                               |              |    |                           |  |                                         |  |                                                 |        | 1,715 | 
|                                                                                         | Net change in unrealized loss on securities available for sale, net of tax |              |    |                           |  |                                         |  |                                                 |        |      | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Comprehensive income                                                                     |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Sale of common stock (20,353 shares)                                                     |                                                                            |              |   |                            |  | 250                                     |   |                                                 |       |       | 
|Exercise of common stock options (22,110 shares), including an income tax benefit of $18 |                                                                            |              |   |                            |  | 126                                     |   |                                                 |       |       | 
|Stock dividends (76,594 shares)                                                          |                                                                            |              | 1  |                            |  | 1,119                                   |   |                                                 | (1,120 | )     | 
|Cash dividends                                                                           |                                                                            |              |   |                            |  |                                        |   |                                                 | (91    | )     | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 
|Balance at December 31, 2002                                                             |                                                                            | $            | 16 |                            |  | 14,148                                  |   |                                                 | 149    |       | 
|                                                                                         |                                                                            |              |    |                            |  |                                         |   |                                                 |        |       | 

See Accompanying Notes to Consolidated Financial Statements.

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (In thousands)

|                                                   |                                                                                                    | Year Ended December 31, |       
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------- | ------
|                                                   |                                                                                                    |                         |       
|                                                   |                                                                                                    | 2002                    |       
|                                                   |                                                                                                    |                         |       
|Cash flows from operating activities:              |                                                                                                    |                         |       
|                                                   | Net earnings                                                                                       |                         | $     
|                                                   | Adjustments to reconcile net earnings to net cash provided by operating activities:                |                         |       
|                                                   | Provision for loan losses                                                                          |                         |       
|                                                   | Depreciation and amortization                                                                      |                         |       
|                                                   | Credit for deferred income taxes                                                                   |                         |       
|                                                   | Amortization of discounts and premiums on securities and deferred loans fees, net                  |                         |       
|                                                   | Decrease in accrued interest receivable                                                            |                         |       
|                                                   | (Increase) decrease in other assets                                                                |                         |       
|                                                   | (Decrease) increase in official checks, accrued expenses and other liabilities                     |                         |       
|                                                   | Gain on sale of securities                                                                         |                         |       
|                                                   | Gain on sale of loans                                                                              |                         |       
|                                                   | Gain on sale of foreclosed real estate                                                             |                         |       
|                                                   |                                                                                                    |                         |       
|                                                   | Net cash provided by operating activities                                                          |                         |       
|                                                   |                                                                                                    |                         |       
|Cash flows used in investing activities:           |                                                                                                    |                         |       
|                                                   | Net increase in loans                                                                              |                         |       
|                                                   | Proceeds from sale of loans                                                                        |                         |       
|                                                   | Purchase of securities available for sale                                                          |                         |       
|                                                   | Net proceeds from sales of securities                                                              |                         |       
|                                                   | Securities available for sale principal repayments                                                 |                         |       
|                                                   | Securities held to maturity principle repayments                                                   |                         |       
|                                                   | Purchase of Federal Home Loan Bank stock                                                           |                         |       
|                                                   | Purchase of premises and equipment, net                                                            |                         |       
|                                                   | Proceeds from sale of foreclosed real estate                                                       |                         |       
|                                                   |                                                                                                    |                         |       
|                                                   | Net cash used in investing activities                                                              |                         |       
|                                                   |                                                                                                    |                         |       
|Cash flows from financing activities:              |                                                                                                    |                         |       
|                                                   | Net increase in deposits                                                                           |                         |       
|                                                   | Net (decrease) increase in Federal Home Loan Bank advances                                         |                         |       
|                                                   | Net proceeds from other borrowings                                                                 |                         |       
|                                                   | Net proceeds from issuance of common stock                                                         |                         |       
|                                                   | Cash dividends paid                                                                                |                         |       
|                                                   |                                                                                                    |                         |       
|                                                   | Net cash provided by financing activities                                                          |                         |       
|                                                   |                                                                                                    |                         |       
|                                                   | Net increase in cash and cash equivalents                                                          |                         |       
|Cash and cash equivalents at beginning of year     |                                                                                                    |                         | 2,801 
|                                                   |                                                                                                    |                         |       
|Cash and cash equivalents at end of year           |                                                                                                    | $                       | 10,890
|                                                   |                                                                                                    |                         |       
|Supplemental disclosures of cash flow information: |                                                                                                    |                         |       
|                                                   | Interest paid                                                                                      |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   | Income taxes paid                                                                                  |                         | $     
|                                                   |                                                                                                    |                         |       
|Noncash transactions:                              |                                                                                                    |                         |       
|                                                   | Transfer of securities held to maturity to securities available for sale                           |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   | Loans reclassified to foreclosed real estate                                                       |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   | Foreclosed real estate transferred to loans in connection with sale of foreclosed real
estate      |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   | Accumulated other comprehensive income, change in unrealized loss on securities available for
sale |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   | Stock dividends                                                                                    |                         | $     
|                                                   |                                                                                                    |                         |       
|                                                   |                                                                                                    |                         |       

See Accompanying Notes to Consolidated Financial Statements.

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2002 and 2001

|(1) Summary of Significant Accounting Policies
|----------------------------------------------
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(1) Summary of Significant Accounting Policies, Continued
|---------------------------------------------------------
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(1) Summary of Significant Accounting Policies, Continued
|---------------------------------------------------------
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                         

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(1) | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Fair Values of Financial Instruments.  The fair value of a financial instrument is the current amount that would be exchanged between willing
parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Companys various financial instruments.  In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.  The following methods and assumptions were used by the Company in estimating fair values of financial
instruments:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

39



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(1) | Summary of Significant Accounting Policies, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Earnings Per Share.  Basic earnings per share is computed on the basis of the weighted-average number of common shares outstanding.  Diluted earnings per
share is computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method.  All per share amounts reflect the 5% stock dividends declared on December 23,
2002 and May 15, 2001.                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Comprehensive Income.Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings. 
Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items, along with net
earnings, are components of comprehensive income.  The components of other comprehensive income and related tax effects are as follows (in thousands):

|                                                           |  | Year Ended December 31, |     
|---------------------------------------------------------- |  | ----------------------- | ----
|                                                           |  |                         |     
|                                                           |  | 2002                    |     
|                                                           |  |                         |     
|Unrealized holding gains on available-for-sale securities  |  | $                       | 492 
|Reclassification adjustment for gains realized in earnings |  |                         | (4  
|                                                           |  |                         |     
|Net unrealized gains                                       |  |                         | 488 
|Income taxes                                               |  |                         | (183
|                                                           |  |                         |     
|Net amount                                                 |  | $                       | 305 
|                                                           |  |                         |     

| | Recent Pronouncements.  In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness to Others (FIN 45), which expands previously issued accounting guidance and disclosure requirements for certain guarantees.  FIN 45 requires the Company to
recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after
December 31, 2002.  The adoption of FIN 45 is not expected to materially affect the consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

40



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(2) | Securities Available for Sale                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Securities have been classified according to managements intent.  The carrying amounts of securities and their approximate fair values were as follows (in
thousands):

|                               |                                                    | Amortized Cost |        | Gross Unrealized Gains |  | Gross Unrealized Losses |     | Fair Value |     
|------------------------------ | -------------------------------------------------- | -------------- | ------ | ---------------------- |  | ----------------------- | --- | ---------- | ----
|                               |                                                    |                |        |                        |  |                         |     |            |     
|Securities Available for Sale: |                                                    |                |        |                        |  |                         |     |            |     
|                               | At December 31, 2002:                              |                |        |                        |  |                         |     |            |     
|                               | U. S. Government agency mortgage-backed securities |                | $      | 15,933                 |  |                         | 337 |            |     
|                               | U.S. Government agency securities                  |                |        | 919                    |  |                         | 3   |            |     
|                               | Other securities                                   |                |        | 6,624                  |  |                         | 68  |            |     
|                               |                                                    |                |        |                        |  |                         |     |            |     
|                               |                                                    | $              | 23,476 |                        |  | 408                     |     |            | (16 
|                               |                                                    |                |        |                        |  |                         |     |            |     
|                               | At December 31, 2001:                              |                |        |                        |  |                         |     |            |     
|                               | U. S. Government agency mortgage-backed securities |                |        | 19,516                 |  |                         | 50  |            |     
|                               | Other securities                                   |                |        | 1,462                  |  |                         | 109 |            |     
|                               |                                                    |                |        |                        |  |                         |     |            |     
|                               |                                                    | $              | 20,978 |                        |  | 159                     |     |            | (255
|                               |                                                    |                |        |                        |  |                         |     |            |     
|                               |                                                    |                |        |                        |  |                         |     |            |     

| | The scheduled maturities of securities available for sale at December 31, 2002 were as follows (in thousands):
| | --------------------------------------------------------------------------------------------------------------

|                           |  | Amortized Cost |        | Fair Value | 
|-------------------------- |  | -------------- | ------ | ---------- | 
|                           |  |                |        |            | 
|Due in one year            |  | $              | 3,062  |            | 
|Due from one to five years |  |                | 3,977  |            | 
|Due from five to ten years |  |                | 3,419  |            | 
|Due after ten years        |  |                | 13,018 |            | 
|                           |  |                |        |            | 
|                           |  | $              | 23,476 |            | 
|                           |  |                |        |            | 

| | For purposes of the maturity table, U.S. Government agency mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.  These securities may prepay earlier than their weighted-average contractual maturities because of principal prepayments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (continued)                                                                                                                                                                                                                                                                                                                                                                             

41



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(2) | Securities Available for Sale, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | During the year ended December 31, 2001, the Company sold $9.0 million of securities from the held to maturity category.  As required by Statement of Financial Accounting
Standards No. 115  Accounting For Certain Investments in Debt and Equity Securities, all securities classified as held to maturity totaling $10.6 million were transferred to the available for sale category.  Furthermore, the
Companys management has classified all securities purchased through December 31, 2002 as available for sale.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Security sales transactions during 2002 and 2001 are summarized as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                

|                              |  | Year Ended December 31, |      
|----------------------------- |  | ----------------------- | -----
|                              |  |                         |      
|                              |  | 2002                    |      
|                              |  |                         |      
|Principal received from sales |  | $                       | 2,004
|                              |  |                         |      
|Gross gains                   |  |                         | 4    
|Gross losses                  |  |                         |     
|                              |  |                         |      
|Net gain                      |  | $                       | 4    
|                              |  |                         |      

|(3) | Loans, Net                                             
|--- | -------------------------------------------------------
|    | The components of loans were as follows (in thousands):

|                                           |            | At December 31, |        
|------------------------------------------ | ---------- | --------------- | -------
|                                           |            |                 |        
|                                           |            | 2002            |        
|                                           |            |                 |        
|Commercial real estate                     |            | $               | 126,346
|Commercial                                 |            |                 | 8,944  
|Residential real estate                    |            |                 | 13,838 
|Equity lines of credit and second mortgage |            |                 | 2,713  
|Consumer                                   |            |                 | 3,195  
|                                           |            |                 |        
|                                           | Subtotal   |                 |        
|Net deferred loan fees                     |            |                 | (299   
|Allowance for loan losses                  |            |                 | (2,058 
|                                           |            |                 |        
|                                           | Loans, net |                 | $      
|                                           |            |                 |        

(continued)

42



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(3) | Loans, Net, Continued                                                                   
|--- | ----------------------------------------------------------------------------------------
|    | An analysis of the change in the allowance for loan losses is as follows (in thousands):

|                                |                        | Year Ended December 31, |      
|------------------------------- | ---------------------- | ----------------------- | -----
|                                |                        |                         |      
|                                |                        | 2002                    |      
|                                |                        |                         |      
|Balance at beginning of year    |                        | $                       | 1,477
|Provision charged to operations |                        |                         | 618  
|Charge-offs                     |                        |                         | (53  
|Recoveries                      |                        |                         | 16   
|                                |                        |                         |      
|                                | Balance at end of year |                         | $    
|                                |                        |                         |      
|                                |                        |                         |      

| | The following summarizes the amount of impaired loans at December 31, 2002 and 2001, all of which are collateral dependent (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------

|                                 |                                                        | At December 31, |      
|-------------------------------- | ------------------------------------------------------ | --------------- | -----
|                                 |                                                        |                 |      
|                                 |                                                        | 2002            |      
|                                 |                                                        |                 |      
|Loans identified as impaired:    |                                                        |                 |      
|                                 | Gross loans with no related allowance for losses       |                 | $    
|                                 | Gross loans with related allowance for losses recorded |                 |      
|                                 | Less:  Allowances on these loans                       |                 |      
|                                 |                                                        |                 |      
|Net investment in impaired loans |                                                        | $               | 2,436
|                                 |                                                        |                 |      

| | The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------

|                                             |  | Year Ended December 31, |      
|-------------------------------------------- |  | ----------------------- | -----
|                                             |  |                         |      
|                                             |  | 2002                    |      
|                                             |  |                         |      
|Average investment in impaired loans         |  | $                       | 2,294
|                                             |  |                         |      
|Interest income recognized on impaired loans |  | $                       | 21   
|                                             |  |                         |      
|Interest income received on impaired loans   |  | $                       | 21   
|                                             |  |                         |      

| | Nonaccrual and past due loans were as follows (in thousands):
| | -------------------------------------------------------------

|                                                 |  | At December 31, |      
|------------------------------------------------ |  | --------------- | -----
|                                                 |  |                 |      
|                                                 |  | 2002            |      
|                                                 |  |                 |      
|Nonaccrual loans                                 |  | $               | 2,713
|Past due ninety days or more, but still accruing |  |                 |     
|                                                 |  |                 |      
|                                                 |  | $               | 2,713
|                                                 |  |                 |      

(continued)

43



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(4) | Loan Servicing                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of these loans are summarized as follows
(in thousands):

|                                       |                 | At December 31, |      
|-------------------------------------- | --------------- | --------------- | -----
|                                       |                 |                 |      
|                                       |                 | 2002            |      
|                                       |                 |                 |      
|Mortgage loan portfolios serviced for: |                 |                 |      
|                                       | FHLMC           |                 | $    
|                                       | FNMA            |                 |      
|                                       | Other investors |                 |      
|                                       |                 |                 |      
|                                       |                 | $               | 5,246
|                                       |                 |                 |      

|    | Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $7,000 and $8,000 at December 31, 2002 and 2001, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                       
|(5) | Premises and Equipment, Net                                                                                                                                           
|    | Components of premises and equipment were as follows (in thousands):                                                                                                  

|                                               |                             | At December 31, |       
|---------------------------------------------- | --------------------------- | --------------- | ------
|                                               |                             |                 |       
|                                               |                             | 2002            |       
|                                               |                             |                 |       
|Land and land improvements                     |                             | $               | 894   
|Buildings                                      |                             |                 | 2,592 
|Leasehold improvements                         |                             |                 | 182   
|Furniture and equipment                        |                             |                 | 2,190 
|Construction in progress                       |                             |                 | 11    
|                                               |                             |                 |       
|                                               | Total, at cost              |                 |       
|Less accumulated depreciation and amortization |                             |                 | (1,909
|                                               |                             |                 |       
|                                               | Premises and equipment, net |                 | $     
|                                               |                             |                 |       

(continued)

44



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(5) | Premises and Equipment, Net, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Company is obligated under various operating lease agreements for office facilities.  The operating lease agreements contain escalation clauses and increases in
proportionate operating costs of the facilities and provide for annual adjustments to the previous years rental. Rent expense for the years ended December 31, 2002 and 2001 was approximately $134,000 and $124,000, respectively.  The
Company also leases office space to third parties.  Rental income under operating leases was approximately $39,000 and $51,000 during the years ended December 31, 2002 and 2001, respectively. The future minimum lease payments and estimated
future rentals at December 31, 2002 on these leases are approximately as follows (in thousands):

|Year Ending December 31: |            | Operating Lease Expense |     | Operating Lease Income | 
|------------------------ | ---------- | ----------------------- | --- | ---------------------- | 
|                         |            |                         |     |                        | 
|                         | 2003       |                         | $   | 138                    | 
|                         | 2004       |                         |     | 135                    | 
|                         | 2005       |                         |     | 98                     | 
|                         | 2006       |                         |     | 60                     | 
|                         | 2007       |                         |     | 60                     | 
|                         | Thereafter |                         |     | 94                     | 
|                         |            |                         |     |                        | 
|                         |            | $                       | 585 |                        | 
|                         |            |                         |     |                        | 

|(6) | Deposits                                                                                                                                                                                               
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The aggregate amount of short-term jumbo certificates of deposit with a minimum denomination of $100,000 was approximately $27.0 million and $16.7 million at December 31, 2002 and
2001, respectively.
|    |                                                                                                                                                                                                        
|    | The scheduled maturities of time deposits at December 31, 2002 is as follows (in thousands):                                                                                                           

|Year Ending December 31, |            | Amount |       
|------------------------ | ---------- | ------ | ------
|                         |            |        |       
|                         | 2003       |        | $     
|                         | 2004-2005  |        |       
|                         | 2006-2007  |        |       
|                         | Thereafter |        |       
|                         |            |        |       
|                         |            | $      | 79,290
|                         |            |        |       

(continued)

45



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(7) | Benefit Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Company has a Salary Continuation Agreement  (the Agreement) with the President and Chief Executive Officer of the Bank which requires the Company to provide
salary continuation benefits to him upon retirement.  The Agreement requires the Company to pay monthly benefits, as calculated in the Agreement, for twenty years following his normal retirement age. The Agreement also provides for salary
continuation in the event of a change in control of the Company and for early voluntary termination by the officer, based on a sixteen-year vesting schedule. The Company is accruing the present value of the future benefits over the term of the
Agreement. The Company has purchased a life insurance policy on the officer which although not formally linked, has future cash value that exceeds the estimated future benefit.  The Company expensed approximately $22,000 and $59,000,
respectively, net of the increase in the cash surrender value of the life insurance policy, under this Agreement in 2002 and 2001.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(8) | Federal Home Loan Bank Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Federal Home Loan Bank of Atlanta (FHLB) advances, which are collateralized by a blanket floating lien on 1-4 family mortgage loans of approximately $10.5 million and
specific commercial real estate loans of approximately $10.5 million, are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                            |       |                                |  |          |      | At December 31, |       
|--------------------------- | ----- | ------------------------------ |  | -------- | ---- | --------------- | ------
|                            |       |                                |  |          |      |                 |       
|Maturing in the Year Ending |       | Weighted-Average Interest Rate |  |          | 2002 |                 | 2001  
|                            |       |                                |  |          |      |                 |       
|                            | Daily |                                |  | Variable |      |                 | $     
|                            | 2006  |                                |  | 4.79%    |      |                 |       
|                            | 2011  |                                |  | 4.03%    |      |                 |       
|                            |       |                                |  |          |      |                 |       
|                            |       |                                |  |          |      | $               | 10,000
|                            |       |                                |  |          |      |                 |       

|    | Both fixed rate FHLB advances have call options.          
|--- | ----------------------------------------------------------
|    |                                                           
|(9) | Other Borrowings                                          
|    | Other borrowings are summarized as follows (in thousands):

|                               |                        | At December 31, |      
|------------------------------ | ---------------------- | --------------- | -----
|                               |                        |                 |      
|                               |                        | 2002            |      
|                               |                        |                 |      
|Customer repurchase agreements |                        | $               | 1,258
|Line of credit                 |                        |                 | 1,906
|                               |                        |                 |      
|                               | Total other borrowings |                 | $    
|                               |                        |                 |      
|                               |                        |                 |      

| | At December 31,2002, the Company has pledged securities with a carrying value of $2.3 million as collateral for customer repurchase agreements.  Also the Company has a line
of credit with another financial institution with a maximum limit of $2.5 million at a variable rate, which adjusts quarterly, as defined by the agreement (at December 31, 2002 the rate was 3.175%). The Company has pledged the stock of the Bank as
collateral.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                     

46



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(10) | Income Taxes                                                                                                    
|---- | ----------------------------------------------------------------------------------------------------------------
|     | Allocation of Federal and state income taxes between current and deferred portions is as follows (in thousands):

|          |         | Year Ended December 31, |      
|--------- | ------- | ----------------------- | -----
|          |         |                         |      
|          |         | 2002                    |      
|          |         |                         |      
|Current:  |         |                         |      
|          | Federal |                         | $    
|          | State   |                         |      
|          |         |                         |      
|          |         |                         | 1,311
|          |         |                         |      
|Deferred: |         |                         |      
|          | Federal |                         |      
|          | State   |                         |      
|          |         |                         |      
|          |         |                         | (265 
|          |         |                         |      
|          | Total   |                         | $    
|          |         |                         |      
|          |         |                         |      

| | The Companys effective income tax rate differs from the statutory Federal income tax rate for the following reasons ($ in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------

|                                         |                                                     | Year Ended December 31, |    
|---------------------------------------- | --------------------------------------------------- | ----------------------- | ---
|                                         |                                                     |                         |    
|                                         |                                                     | 2002                    |    
|                                         |                                                     |                         |    
|                                         |                                                     | Amount                  |    
|                                         |                                                     |                         |    
|Tax at Federal statutory income tax rate |                                                     | $                       | 939
|Increase (decrease) resulting from:      |                                                     |                         |    
|                                         | State income tax, net of Federal income tax benefit |                         |    
|                                         | Other, net                                          |                         |    
|                                         |                                                     |                         |    
|                                         | Total                                               |                         | $  
|                                         |                                                     |                         |    
|                                         |                                                     |                         |    

(continued)

47



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(10) | Income Taxes, Continued                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):

|                          |                                                      | At December 31, |  
|------------------------- | ---------------------------------------------------- | --------------- | -
|                          |                                                      |                 |  
|                          |                                                      | 2002            |  
|                          |                                                      |                 |  
|Deferred tax assets:      |                                                      |                 |  
|                          | Allowance for loan losses                            |                 | $
|                          | Salary continuation plan                             |                 |  
|                          | Impaired loan interest                               |                 |  
|                          | Net unrealized loss on securities available for sale |                 |  
|                          | Organizational costs                                 |                 |  
|                          |                                                      |                 |  
|                          | Total deferred tax assets                            |                 |  
|                          |                                                      |                 |  
|Deferred tax liabilities: |                                                      |                 |  
|                          | Accumulated depreciation                             |                 |  
|                          | Net unrealized gain on securities available for sale |                 |  
|                          | Deferred loan costs                                  |                 |  
|                          | Deferred loan fees                                   |                 |  
|                          | Federal Home Loan Bank of Atlanta stock              |                 |  
|                          | Other                                                |                 |  
|                          |                                                      |                 |  
|                          | Total deferred tax liabilities                       |                 |  
|                          |                                                      |                 |  
|                          | Net deferred tax asset                               |                 | $
|                          |                                                      |                 |  
|                          |                                                      |                 |  

|(11) | 401(k) Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | The Company sponsors a 401(k) Plan (the Plan) which is available to all employees electing to participate after meeting certain length-of-service requirements. 
The Companys contributions to the Plan are discretionary and are determined annually prior to the end of the calendar year.  Expense relating to the Companys contributions to the Plan included in the accompanying consolidated
financial statements was $114,000 and $60,000 for the years ended December 31, 2002 and 2001, respectively.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

48



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(12) | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | The Company has stock option plans for certain officers and directors of the Company.  The options vest over a five year period from date of grant and are then exercisable
for up to an eight year period.  All per share amounts reflect the 5% stock dividends declared on December 23, 2002 and May 15, 2001. At December 31, 2002, 79,990 options remain available for grant.  A summary of stock option transactions
follows ($in thousands, except per share amounts):

|                                         |  | Number of Shares |         | Range of Per Share Option Price |   | Weighted Average Per Share Price |  | Aggregate Option Price |      
|---------------------------------------- |  | ---------------- | ------- | ------------------------------- | - | -------------------------------- |  | ---------------------- | -----
|                                         |  |                  |         |                                 |   |                                  |  |                        |      
|Options outstanding at December 31, 2000 |  |                  | 179,580 |                                 | $ | 4.69-7.91                        |  |                        | 5.82 
|Options granted                          |  |                  | 1,575   |                                 |   | 8.86                             |  |                        | 8.86 
|Options exercised                        |  |                  | (2,431  | )                               |   | 7.91                             |  |                        | 7.91 
|Options expired                          |  |                  | (3,646  | )                               |   | 7.91                             |  |                        | 7.91 
|                                         |  |                  |         |                                 |   |                                  |  |                        |      
|Options outstanding at December 31, 2001 |  |                  | 175,078 |                                 |   | 4.69-8.86                        |  |                        | 5.77 
|Options granted                          |  |                  | 48,430  |                                 |   | 9.66-13.86                       |  |                        | 10.95
|Options exercised                        |  |                  | (23,090 | )                               |   | 4.47-4.69                        |  |                        | 4.67 
|Options expired                          |  |                  | (11,910 | )                               |   | 6.38-7.10                        |  |                        | 6.78 
|                                         |  |                  |         |                                 |   |                                  |  |                        |      
|Options outstanding at December 31, 2002 |  |                  | 188,508 |                                 | $ | 4.69-13.86                       |  |                        | 7.18 
|                                         |  |                  |         |                                 |   |                                  |  |                        |      

| | The weighted-average remaining contractual life of options outstanding at December 31, 2002 and 2001 was 5.5 years and 5.0 years, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                
| | These options are exercisable as follows:                                                                                                      

|Year Ending December 31, |                       | Number of Shares |         | Weighted- Average  Exercise  Price |  
|------------------------ | --------------------- | ---------------- | ------- | ---------------------------------- | -
|                         |                       |                  |         |                                    |  
|                         | Currently exercisable |                  |         | 108,720                            |  
|                         | 2003                  |                  |         | 18,451                             |  
|                         | 2004                  |                  |         | 25,744                             |  
|                         | 2005                  |                  |         | 13,591                             |  
|                         | 2006                  |                  |         | 12,316                             |  
|                         | 2007                  |                  |         | 9,686                              |  
|                         |                       |                  |         |                                    |  
|                         |                       |                  | 188,508 |                                    | $
|                         |                       |                  |         |                                    |  

(continued)

49



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(12) | Stock Options, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | The Company accounts for their stock option plans under the recognition and measurement principles of APB No. 25.  No stock-based employee compensation cost is reflected in
net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effect on net earnings if the Company had applied
the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation ($in thousands, except per share amounts).

|                                                                                                                                        |                      | Year Ended December 31, |      
|--------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------------------- | -----
|                                                                                                                                        |                      |                         |      
|                                                                                                                                        |                      | 2002                    |      
|                                                                                                                                        |                      |                         |      
|Net earnings, as reported                                                                                                               |                      | $                       | 1,715
|Deduct:  Total stock-based employee compensation determined under the fair value based method for all awards, net
of related tax effect |                      |                         | (70  
|                                                                                                                                        |                      |                         |      
|Proforma net earnings                                                                                                                   |                      | $                       | 1,645
|                                                                                                                                        |                      |                         |      
|Earnings per share:                                                                                                                     |                      |                         |      
|                                                                                                                                        | Basic, as reported   |                         | $    
|                                                                                                                                        |                      |                         |      
|                                                                                                                                        | Basic, proforma      |                         | $    
|                                                                                                                                        |                      |                         |      
|                                                                                                                                        | Diluted, as reported |                         | $    
|                                                                                                                                        |                      |                         |      
|                                                                                                                                        | Diluted, proforma    |                         | $    
|                                                                                                                                        |                      |                         |      

| | The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                         |  | Year Ended December 31, |     
|------------------------------------------------------------------------ |  | ----------------------- | ----
|                                                                         |  |                         |     
|                                                                         |  | 2002                    |     
|                                                                         |  |                         |     
|Weighted-average risk-free interest rate                                 |  |                         | 5.1 
|Dividend yield                                                           |  |                         | 2.0 
|Volatility                                                               |  |                         | 28.0
|Expected life in years                                                   |  |                         | 10  
|Weighted-average grant date fair value of options issued during the year |  | $                       | 2.53
|                                                                         |  |                         |     

(continued)

50



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(13) | Regulatory Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Federal and state banking regulations place certain restrictions on dividends paid and loans or advances made by the Bank to the Holding Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the Federal and state banking agencies.  Failure to
meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial
statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitive measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. 
Prompt corrective action provisions are not applicable to the Holding Company.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and percentages (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2002, that the Company and the
Bank met all capital adequacy requirements to which they are subject.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

51



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(13) | Regulatory Matters, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | As of December 31, 2002, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the table.  There are no conditions or events since that notification that
management believes have changed the Banks category. The Companys and the Banks actual capital amounts and percentages as of December 31, 2002 and 2001 are also presented in the table ($in thousands).

|                         |                                           | Actual |   | For Capital Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action Provisions |      
|------------------------ | ----------------------------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | -----
|                         |                                           |        |   |                               |  |                                                                  |      
|                         |                                           | Amount |   | %                             |  | Amount                                                           |      
|                         |                                           |        |   |                               |  |                                                                  |      
|As of December 31, 2002: |                                           |        |   |                               |  |                                                                  |      
|                         | Total capital (to Risk-Weighted Assets):  |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        | $ | 16,371                        |  |                                                                  | 9.79 
|                         | Bank                                      |        |   | 18,207                        |  |                                                                  | 10.89
|                         | Tier I Capital (to Risk-Weighted Assets): |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 14,313                        |  |                                                                  | 8.56 
|                         | Bank                                      |        |   | 16,149                        |  |                                                                  | 9.66 
|                         | Tier I Capital (to Average Assets):       |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 14,313                        |  |                                                                  | 7.28 
|                         | Bank                                      |        |   | 16,149                        |  |                                                                  | 8.23 
|As of December 31, 2001: |                                           |        |   |                               |  |                                                                  |      
|                         | Total capital (to Risk-Weighted Assets):  |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 13,789                        |  |                                                                  | 9.74 
|                         | Bank                                      |        |   | 14,715                        |  |                                                                  | 10.39
|                         | Tier I Capital (to Risk-Weighted Assets): |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 12,313                        |  |                                                                  | 8.69 
|                         | Bank                                      |        |   | 13,238                        |  |                                                                  | 9.35 
|                         | Tier I Capital (to Average Assets):       |        |   |                               |  |                                                                  |      
|                         | Consolidated                              |        |   | 12,313                        |  |                                                                  | 7.24 
|                         | Bank                                      |        |   | 13,238                        |  |                                                                  | 7.79 
|                         |                                           |        |   |                               |  |                                                                  |      

(continued)

52



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(14) | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Most of the Companys business activity is with customers located within the Pinellas, Pasco and Hillsborough County, Florida area.  Therefore, the Companys
exposure to credit risk is significantly affected by changes in the economy in the Pinellas, Pasco and Hillsborough County area.  Other than a loan concentration in the hospitality industry of approximately $16.5 million at December 31, 2002,
the loan portfolio is diversified among individuals and types of industries. Loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers.  The distribution of commitments to extend credit and
standby letters of credit approximates the distribution of loans outstanding. The contractual amounts of credit related financial instruments such as commitments to extend credit and standby letters of credit represent the amounts of potential
accounting loss should the contract be fully drawn upon, the customer default, and the value of any existing collateral become worthless.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(15) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial
instruments include commitments to extend credit and standby letters of credit.  These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance
sheet.  The contract or notional amounts of those instruments reflect the extent of the Companys involvement in particular classes of financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash
requirements.  The Company evaluates each customers credit worthiness on a case-by-case basis.  The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on managements
credit evaluation of the counter party.                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

53



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(15) | Financial Instruments, Continued                                                                
|---- | ------------------------------------------------------------------------------------------------
|     | The estimated fair values of the Companys financial instruments were as follows (in thousands):

|                       |                                 | At December 31, 2002 |   | At December 31, 2001 | 
|---------------------- | ------------------------------- | -------------------- | - | -------------------- | 
|                       |                                 |                      |   |                      | 
|                       |                                 | Carrying Amount      |   | Fair Value           | 
|                       |                                 |                      |   |                      | 
|Financial assets:      |                                 |                      |   |                      | 
|                       | Cash and cash equivalents       |                      | $ | 10,890               | 
|                       |                                 |                      |   |                      | 
|                       | Securities available for sale   |                      | $ | 23,868               | 
|                       |                                 |                      |   |                      | 
|                       | Loans, net                      |                      | $ | 152,679              | 
|                       |                                 |                      |   |                      | 
|                       | Accrued interest receivable     |                      | $ | 706                  | 
|                       |                                 |                      |   |                      | 
|                       | Federal Home Loan Bank stock    |                      | $ | 759                  | 
|                       |                                 |                      |   |                      | 
|Financial liabilities: |                                 |                      |   |                      | 
|                       | Deposits                        |                      | $ | 163,395              | 
|                       |                                 |                      |   |                      | 
|                       | Federal Home Loan Bank advances |                      | $ | 10,000               | 
|                       |                                 |                      |   |                      | 
|                       | Other borrowings                |                      | $ | 3,164                | 
|                       |                                 |                      |   |                      | 

| | A summary of the notional amounts of the Companys financial instruments, which approximates fair value, with off-balance sheet risk at December 31, 2002, follows (in
thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              |  | Contract Amount |        | Carrying Amount |  | Estimated Fair Value | 
|--------------------------------------------- |  | --------------- | ------ | --------------- |  | -------------------- | 
|                                              |  |                 |        |                 |  |                      | 
|Commitments to extend credit                  |  | $               | 4,911  |                 |  |                     | 
|                                              |  |                 |        |                 |  |                      | 
|Unused lines of credit and construction loans |  | $               | 16,694 |                 |  |                     | 
|                                              |  |                 |        |                 |  |                      | 
|Standby letters of credit                     |  | $               | 968    |                 |  |                     | 
|                                              |  |                 |        |                 |  |                      | 

(continued)

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(16) | Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | All loans from the Company involving directors and officers were made in the ordinary course of business.  Such loans were made on substantially the same terms, including
interest rate and collateral, if any, as those prevailing at the time for comparable transactions with unaffiliated persons and did not involve more than normal risk of collectibility or present other unfavorable features.  The activity of
loans outstanding to directors and officers are as follows (in thousands):

|                                                  |  | Year Ended December 31, |       
|------------------------------------------------- |  | ----------------------- | ------
|                                                  |  |                         |       
|                                                  |  | 2002                    |       
|                                                  |  |                         |       
|Loans outstanding, beginning of year              |  | $                       | 7,103 
|Loans granted during the year                     |  |                         | 1,787 
|Loan repayments and net change in lines of credit |  |                         | (3,654
|                                                  |  |                         |       
|Loans outstanding, end of year                    |  | $                       | 5,236 
|                                                  |  |                         |       

|     | In addition, deposits from such related parties were approximately $1,246,000 and $836,000 at December 31, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(17) | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Earnings per share (EPS) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding.  Outstanding stock
options are considered dilutive securities for purposes of calculating diluted EPS which is computed using the treasury stock method. All per share amounts reflect the 5% stock dividends declared on December 23, 2002 and May 15, 2001.  The
following tables present the calculations of EPS (dollars in thousands, except per share amounts).

|                               |                                                                       | For the Year Ended December 31, 2002 |  
|------------------------------ | --------------------------------------------------------------------- | ------------------------------------ | -
|                               |                                                                       |                                      |  
|                               |                                                                       | Earnings                             |  
|                               |                                                                       |                                      |  
|Basic EPS:                     |                                                                       |                                      |  
|                               | Net earnings available to common stockholders                         |                                      | $
|                               |                                                                       |                                      |  
|Effect of dilutive securities- |                                                                       |                                      |  
|                               | Incremental shares from assumed conversion of options                 |                                      |  
|                               |                                                                       |                                      |  
|Diluted EPS:                   |                                                                       |                                      |  
|                               | Net earnings available to common stockholders and assumed conversions |                                      | $
|                               |                                                                       |                                      |  

(continued)

55



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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(17) | Earnings Per Share, Continued
|---- | -----------------------------

|                               |                                                                       | For the Year Ended December 31, 2001 |  
|------------------------------ | --------------------------------------------------------------------- | ------------------------------------ | -
|                               |                                                                       |                                      |  
|                               |                                                                       | Earnings                             |  
|                               |                                                                       |                                      |  
|Basic EPS:                     |                                                                       |                                      |  
|                               | Net earnings available to common stockholders                         |                                      | $
|                               |                                                                       |                                      |  
|Effect of dilutive securities- |                                                                       |                                      |  
|                               | Incremental shares from assumed conversion of options                 |                                      |  
|                               |                                                                       |                                      |  
|Diluted EPS:                   |                                                                       |                                      |  
|                               | Net earnings available to common stockholders and assumed conversions |                                      | $
|                               |                                                                       |                                      |  

| | Shares not included in the computations of diluted earnings per share because the option exercise price was not less than the average market price are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     |  | Number of Shares |        | Price Range |   | Year Issued |  | Year Expires |     
|------------------------------------ |  | ---------------- | ------ | ----------- | - | ----------- |  | ------------ | ----
|                                     |  |                  |        |             |   |             |  |              |     
|For the year ended December 31, 2002 |  |                  | 13,890 |             | $ | 13.7113.86 |  |              | 2002
|For the year ended December 31, 2001 |  |                  | 1,575  |             |   | 9.30        |  |              | 2001

|(18) | Holding Company Financial Information                                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | As discussed in Note 1 to the consolidated financial statements, the Holding Company was organized during 2001.  The Holding Companys financial information as of
December 31, 2002 and 2001 and for the years then ended is as follows, assuming the corporate reorganization with the Bank occurred on January 1, 2001 (in thousands):

Condensed Balance Sheets

|                         |                                            | At December 31, |       
|------------------------ | ------------------------------------------ | --------------- | ------
|                         |                                            |                 |       
|                         |                                            | 2002            |       
|                         |                                            |                 |       
|                         | Assets                                     |                 |       
|Cash                     |                                            | $               | 48    
|Investment in subsidiary |                                            |                 | 16,394
|Other assets             |                                            |                 | 29    
|                         |                                            |                 |       
|                         | Total assets                               |                 | $     
|                         |                                            |                 |       
|                         | Liabilities and Stockholders Equity       |                 |       
|Other liabilities        |                                            |                 | 7     
|Other borrowings         |                                            |                 | 1,906 
|Stockholders equity     |                                            |                 | 14,558
|                         |                                            |                 |       
|                         | Total liabilities and stockholders equity |                 | $     
|                         |                                            |                 |       
|                         |                                            |                 |       

(continued)

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##### Index to Financial Statements

MADISON BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements,
Continued

|(18) | Holding Company Financial Information, Continued
|---- | ------------------------------------------------

Condensed Statements of
Earnings

|                                   |              | For the Year Ended December 31, |      
|---------------------------------- | ------------ | ------------------------------- | -----
|                                   |              |                                 |      
|                                   |              | 2002                            |      
|                                   |              |                                 |      
|Revenues                           |              | $                               |     
|Expenses                           |              |                                 | 78   
|                                   |              |                                 |      
|Loss before earnings of subsidiary |              |                                 | (78  
|Earnings of subsidiary             |              |                                 | 1,793
|                                   |              |                                 |      
|                                   | Net earnings |                                 | $    
|                                   |              |                                 |      

Condensed Statements of Cash Flows

|                                      |                                                                                                                                                                | For the Year Ended December 31, |   
|------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --
|                                      |                                                                                                                                                                |                                 |   
|                                      |                                                                                                                                                                | 2002                            |   
|                                      |                                                                                                                                                                |                                 |   
|Cash flows from operating activities: |                                                                                                                                                                |                                 |   
|                                      | Net earnings                                                                                                                                                   |                                 | $ 
|                                      | Adjustments to reconcile net earnings to net cash used in operating activities:                                                                                |                                 |   
|                                      | Equity in undistributed earnings of subsidiary                                                                                                                 |                                 |   
|                                      | Decrease (increase) in other assets                                                                                                                            |                                 |   
|                                      | (Decrease) increase in other liabilities                                                                                                                       |                                 |   
|                                      |                                                                                                                                                                |                                 |   
|                                      | Net cash used in operating activities                                                                                                                          |                                 |   
|                                      |                                                                                                                                                                |                                 |   
|Cash flows from investing activity-   |                                                                                                                                                                |                                 |   
|                                      | Investment in subsidiary                                                                                                                                       |                                 |   
|                                      |                                                                                                                                                                |                                 |   
|Cash flows from financing activities: |                                                                                                                                                                |                                 |   
|                                      | Net proceeds from other borrowings                                                                                                                             |                                 |   
|                                      | Proceeds from issuance of common stock                                                                                                                         |                                 |   
|                                      | Cash dividends paid                                                                                                                                            |                                 |   
|                                      |                                                                                                                                                                |                                 |   
|                                      | Net cash provided by financing activities                                                                                                                      |                                 |   
|                                      |                                                                                                                                                                |                                 |   
|Net (decrease) increase in cash       |                                                                                                                                                                |                                 | (5
|Cash at beginning of the year         |                                                                                                                                                                |                                 | 53
|                                      |                                                                                                                                                                |                                 |   
|Cash at end of year                   |                                                                                                                                                                | $                               | 48
|                                      |                                                                                                                                                                |                                 |   
|Noncash transactions:                 |                                                                                                                                                                |                                 |   
|                                      | Change in investment in subsidiary due to change in accumulated other comprehensive income unrealized gain on
securities available for sale, net of income tax |                                 | $ 
|                                      |                                                                                                                                                                |                                 |   
|                                      | Stock dividends                                                                                                                                                |                                 | $ 
|                                      |                                                                                                                                                                |                                 |   
|                                      |                                                                                                                                                                |                                 |   

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|Item 8. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

Neither Madison BancShares nor Madison Bank has had any disagreements with its accountants.

PART III

|Item 9. | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.
|------- | ----------------------------------------------------------------------------------------------------------------

Madison hereby incorporates by reference the sections entitled Election of Directors contained at pages 7 through 10 and the section entitled
Section 16(a) Beneficial Ownership Reporting Compliance contained at page 16 of the Proxy Statement filed electronically with the Securities and Exchange Commission on March 17, 2003.

|Item 10. | Executive Compensation.
|-------- | -----------------------

Madison hereby
incorporates by reference the section entitled Executive Compensation contained at pages 10 through 13 of the Proxy Statement referenced immediately above.

|Item 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- | -----------------------------------------------------------------------------------------------
|         |                                                                                                
|         | (a)                                                                                            
|         |                                                                                                

Madison hereby incorporates by reference the section entitled Beneficial Stock Ownership of
Directors and Executive Officers contained at pages 3 through 4 of the Proxy Statement.

| | (b) | Changes in Control
| | --- | ------------------

Madison is not aware of any arrangements, including any pledge by any person of securities of Madison, the operation of which may, at a subsequent date,
result in a change in control of Madison.

|Item 12. | Certain Relationships and Related Transactions.
|-------- | -----------------------------------------------

Madison hereby incorporates by reference the section entitled Certain Relationships and Related Transactions on page 14 of the Proxy
Statement.

|Item 13. | Exhibits and Reports on Form 8-K.
|-------- | ---------------------------------
|         |                                  
|         | (a)                              
|         |                                  

The following exhibits are filed with or incorporated by reference into this report. The exhibits were
previously filed as a part of Madisons Registration Statement on Form 10-SB and Form 10-QSB as indicated and are hereby incorporated by reference.

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|Exhibit No. |                                                                                        | Description of Exhibit
|----------- | -------------------------------------------------------------------------------------- | ----------------------
|            |                                                                                        |                       
|*           | 2                                                                                      |                       
|*           | 3.1                                                                                    |                       
|*           | 3.2                                                                                    |                       
|*           | 4                                                                                      |                       
|*           | 10.1                                                                                   |                       
|*           | 10.2                                                                                   |                       
|*           | 10.3                                                                                   |                       
|**          | 10.4                                                                                   |                       
|*           | 10.5                                                                                   |                       
|            |                                                                                        |                       
|*           | 10.6                                                                                   |                       
|            | 10.7                                                                                   |                       
|            | 11                                                                                     |                       
|            | 21                                                                                     |                       
|**          | 23.1                                                                                   |                       
|*           | 23.2                                                                                   |                       
|*           | 99.1                                                                                   |                       
|*           | 99.2                                                                                   |                       
|            | 99.3                                                                                   |                       
|            | 99.4                                                                                   |                       
|            |                                                                                        |                       
|*           | These exhibits were filed with Madisons Form 10-SB on June 6, 2001.                  
|**          | These exhibits were filed with Madisons Amendment One to Form 10-SB on July 17, 2001.
|            |                                                                                        |                       
|            | (b)                                                                                    | Reports on Form 8-K   
|            |                                                                                        |                       

There were two reports on Form 8-K filed during the quarter ended December 31, 2002.

On October 22, 2002, Madison Bancshares, Inc. issued a press release announcing the resignation of its Chief Financial Officer, Henry O.
Speight.  The resignation was effective November 4, 2002.  Mr. Speight resigned in order to accept a new position with Public Bank, in Vero Beach, Florida.

On December 2, 2002, Madison Bancshares, Inc. issued a press release announcing the hiring of its new Vice-President and Chief Financial Officer, Martin
W. Gladysz.  Mr. Gladysz began in this position effective December 2, 2002.

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|Item 14. | Controls and Procedures.
|-------- | ------------------------
|         |                         
|         | (a)                     
|         |                         

Madison maintains controls and procedures designed to ensure that information required to be disclosed
in the reports that Madison files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive and Chief Financial Officer of Madison concluded that Madisons disclosure controls and procedures were
adequate.

| | (b) | Changes in internal controls
| | --- | ----------------------------

Madison made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the Chief Executive and Chief Financial Officer.

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##### Index to Financial Statements

SIGNATURES

In accordance with Section 13 or 15(d) of the
Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| |  | MADISONBANCSHARES,INC.
| |  | ----------------------
| |  |                       
| |  | By                    
| |  |                       
| |  |                       
| |  |                       
| |  | Date                  
| |  |                       
| |  |                       
| |  | By                    
| |  |                       
| |  |                       
| |  |                       
| |  | Date                  

In
accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

|/s/ ROBERTW. BYRD             |  | March 10, 2003
|----------------------------- |  | --------------
|                              |  |               
|Robert W. Byrd, Director      |  | Date          
|                              |  |               
|/s/ GEORGEM. CANTONIS         |  | March 10, 2003
|                              |  |               
|George M. Cantonis, Director  |  | Date          
|                              |  |               
|/s/ THOMASA. CASTRIOTA        |  | March 10, 2003
|                              |  |               
|Thomas A. Castriota, Director |  | Date          
|                              |  |               
|/s/ WAYNER. COULTER           |  | March 10, 2003
|                              |  |               
|Wayne R. Coulter, Director    |  | Date          
|                              |  |               
|/s/ MELVINS. CUTLER           |  | March 10, 2003
|                              |  |               
|Melvin S. Cutler, Director    |  | Date          
|                              |  |               
|/s/ ROBERTB. MCGIVNEY         |  | March 10, 2003
|                              |  |               
|Robert B. McGivney, Director  |  | Date          
|                              |  |               
|/s/ PAULJ. WIKLE              |  | March 10, 2003
|                              |  |               
|Paul J. Wikle, Director       |  | Date          

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CERTIFICATIONS

|I, Robert B. McGivney, certify, that:
|-------------------------------------
|                                     
|1.                                   
|                                     
|2.                                   
|                                     
|3.                                   
|                                     
|4.                                   
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|5.                                   
|                                     
|                                     
|                                     
|                                     
|                                     
|6.                                   
|                                     
|Date:                                
|                                     
|                                     
|                                     

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|I, Martin W. Gladysz, certify, that:
|------------------------------------
|                                    
|1.                                  
|                                    
|2.                                  
|                                    
|3.                                  
|                                    
|4.                                  
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|5.                                  
|                                    
|                                    
|                                    
|                                    
|                                    
|6.                                  
|                                    
|Date: March 10, 2003                
|                                    
|                                    
|                                    

63