##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, 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, 2003



| ̈ | 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.)
|                                                               | 
|2122 Palm Harbor Boulevard Palm Harbor, Florida                |  | 34683                               
|(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, 0.008 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.    x  Yes ̈No



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. ̈



The issuers revenues for its most recent fiscal year: $13,834,000.



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.)



As of March 15, 2004, the
aggregate market value of the voting and non-voting common equity held by non-affiliates was $27,640,840.



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



As of March 15, 2004, the Issuer had 2,171,261 shares of common stock
outstanding.



DOCUMENTS INCORPORATED BY REFERENCE:



None.



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



---



---

##### Table of Contents

TABLE OF CONTENTS



|           |  |                                                                                                                  |  |     
|---------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                  |  | Page
|PART I.    |  |                                                                                                                 
|           |  |                                                                                                                 
|Item 1.    |  | Description of Business                                                                                          |  | 1   
|           |  |                                                                                                                 
|Item 2.    |  | Description of Property                                                                                          |  | 13  
|           |  |                                                                                                                 
|Item 3.    |  | Legal Proceedings                                                                                                |  | 14  
|           |  |                                                                                                                 
|Item 4.    |  | Submission of Matters to Vote of Security Holders                                                                |  | 14  
|           | 
|PART II.   |  |                                                                                                                 
|           |  |                                                                                                                 
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                                                         |  | 14  
|           |  |                                                                                                                 
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operation                                                        |  | 16  
|           |  |                                                                                                                 
|Item 7.    |  | Financial Statements                                                                                             |  | 31  
|           |  |                                                                                                                 
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 59  
|           |  |                                                                                                                 
|Item 8a.   |  | Controls and Procedures                                                                                          |  | 59  
|           | 
|PART III.  |  |                                                                                                                 
|           |  |                                                                                                                 
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act |  | 59  
|           |  |                                                                                                                 
|Item 10.   |  | Executive Compensation                                                                                           |  | 61  
|           |  |                                                                                                                 
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 65  
|           |  |                                                                                                                 
|Item 12.   |  | Certain Relationships and Related Transactions                                                                   |  | 67  
|           |  |                                                                                                                 
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                                                 |  | 67  
|           |  |                                                                                                                 
|Item 14.   |  | Principal Accountant Fees and Services                                                                           |  | 69  
|           | 
|SIGNATURES |  | 71                                                                                                              



i



---

##### Table of Contents

PART I



Item 1. Description of Business.



Forward
Looking Statements



This document contains forward-looking
statements as defined by Section 27A of the Securities Act of 1933 and 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 2003, Madison Bank operated from three full-service banking offices, the main office in Palm Harbor, and branch offices in Tarpon Springs and Port Richey, Florida. In December, 2003
we began construction on our fourth office in New Port Richey, Florida. This freestanding location is expected to open in late Spring 2004. Madison Banks operations center and off-site executive offices are located in Palm Harbor. Our branch
located in Largo, Florida was sold in February 2003. 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.



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. Our primary source of business
is customer referrals. As part of the community bank approach, officers actively participate in community activities and organizations.



1



---

##### Table of Contents

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 apply 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 accomplish this goal through steady and reasonable growth and
a prudent business strategy that:



| |  | Provides personalized services;
| | - | -------------------------------



| |  | Focuses on Madisons immediate community;
| | - | -----------------------------------------



| |  | Motivates employees;
| | - | --------------------



| |  | Develops commercial lending relationships with small to medium-sized businesses;
| | - | --------------------------------------------------------------------------------



| |  | Emphasizes mortgage banking activities by continuing to originate residential mortgage loans for Madisons existing customers and to attract new customers; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Maintains 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.



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.



Motivated Employees.Our employees are the key to our success. Through our experienced 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 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 meet the customers financial goals.



2



---

##### Table of Contents

Development of Commercial Lending Relationships. As part of our lending strategy, we concentrate
on developing strong commercial lending and depository relationships with small to medium-sized businesses, entrepreneurs and professionals within our market who value personalized service and attention to their specific borrowing needs. Timely
lending decisions and prompt, courteous service are 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 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.
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 with 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, 2003, had $19.3 million in deposits. According to the U.S. Census Bureau, 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, 2003, the Tarpon Springs Branch had $30.0 million 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 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.



3



---

##### Table of Contents

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 emphasized 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 to add owners of small to
medium-sized businesses and local professionals to our customer base. 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, 2003, the net loan portfolio totaled $169.4 million, or 82.6% 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. Authorized officers approve loans of less than $250,000. 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 and renewed loans on a monthly basis. All unsecured loans in excess of $250,000 require approval of the Board of Directors.



Competitive factors such as the demand for such loans and the supply of funds available for lending purposes effect interest rates that we charge on our
loans. 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.



4



---

##### Table of Contents

Commercial Real Estate Loans. Our commercial real estate loans are secured primarily by office,
warehouse, mobile home parks, multi-family, motel and retail business properties located in Pinellas, Pasco and Hillsborough Counties. Commercial real estate loans may be amortized 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, adverse conditions in the real estate market or
the economy may affect the risk of nonpayment of such loans. 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 loans.
Commercial real estate loans are originated with a loan-to-value ratio generally not exceeding 80%. However, loans secured by this type of collateral will continue to be a part of our future loan portfolio. Commercial 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 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 the purchase price, whichever is less, we 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. 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 resulting in our collateral
being sold when less than ideal economic conditions exist.



Residential Loans. We currently originate fixed-rate residential mortgage loans and adjustable rate mortgages 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



5



---

##### Table of Contents

prevailing market rates. While ARM loans reduce the risks associated with changes in interest rates, they involve other
risks. 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.



Consumer Loans. Our consumer loans are 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, equal or exceed 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. The shorter term and normally higher interest rates on such loans helps 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. However, 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.



Income from Loan Activities. Fees are earned in connection with loan commitments and originations, loan modifications, document preparation, 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 loan. Under current accounting standards the total amount of such fees cannot generally 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.



Non-performing 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,
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.



6



---

##### Table of Contents

A loan is generally placed on non-accrual status and ceases accruing interest when loan payment
performance is deemed unsatisfactory. 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. 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



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 weaknesses are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional
characteristics that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and that there is a high possibility of loss. An asset classified as a 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 a loss, the insured institution establishes specific allowance for loan losses for the full
amount of the portion of the asset classified as a 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.



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 our 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.



Deposit Strategy



Relationship deposit accounts are the centerpiece of our customer
deposit strategy. A broad selection of deposit accounts such as checking, NOW accounts, regular savings and money market accounts each tailored to meet individual customers and commercial business needs are offered in our primary geographic markets
of Pinellas and Pasco counties, Florida. Term certificate of deposit and retirement savings plans are offered at competitive rates and maturities. Deposit account terms are established by management with the needs of our individual and commercial
customers in mind. Deposit interest rates are set weekly by management. To a lesser extent, deposits are also generated on a national basis to supplement local deposits when rates and available terms are favorable. Deposits at December 31, 2003 were
down $7.2 million or 4.4% from December 31, 2002, primarily resulting from the sale of the Largo office deposits.



7



---

##### Table of Contents

Personnel



The executive officers of Madison BancShares are also the executive officers of Madison Bank. As of December 31, 2003, we had 60 full-time employees, 9
part-time employees, and 65 full-time equivalents. Our employees are not represented by any collective bargaining group. We believe that our relations with our employees are good.



Our employees are covered by a comprehensive employee benefits 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, we are 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. We are 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, we are required to file annual reports
and other information with the Federal Reserve regarding our business operations and those of our subsidiary. We are 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:



| |  | 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.



8



---

##### Table of Contents

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, we 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 Financial
Services and the FDIC. The FDIC insures the deposits of Madison Bank for a maximum of $100,000 per deposit. 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 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;
| | - | ------------------------



9



---

##### Table of Contents

| |  | 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.



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.



10



---

##### Table of Contents

Federal Reserve System



The Federal Reserve regulations require depository institutions to maintain non-interest-earning reserves against their transaction accounts (primarily
NOW and regular checking accounts). The Federal Reserve regulations generally require that reserves of 3% must be maintained against aggregate transaction accounts of $45.4 million or less (subject to adjustment by the Federal Reserve) and an
initial reserve of $1,164,000 plus 10% in excess of $45.4 million. The first $6.6 million of otherwise reversible balances (subject to adjustments by the Federal Reserve) are exempted from the reserve requirements. We are in compliance with the
foregoing requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements imposed by the FDIC. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve or a pass-through account as defined by the Federal Reserve, the effect of this reserve requirement is to reduce our interest-earning assets. FHLB System members are also authorized to
borrow from the Federal Reserve discount window, however, Federal Reserve regulations require institutions to exhaust all FHLB sources before borrowing from a Federal Reserve.



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 we may only pay dividends if the dividend payment would not render us insolvent, or unable to meet our obligations as they come due.



The Florida Department of Financial Services 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 Financial Services and the FDIC. Except with the prior approval of the Florida Department of Financial Services, 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;
| | - | ----------------------------------------------------------------------------------------------



| |  | 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



---

##### Table of Contents

| |  | Fair Credit Reporting Act governing the manner in which consumer debts may be collected by collection agencies; and
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | Rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws.
| | - | --------------------------------------------------------------------------------------------------------------------



Our operations are also subject to 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 Financial Services 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 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.



After the September 11, 2001 terrorist attacks in New York and Washington, D.C., the United States government acted in several ways to tighten control on activities perceived to be connected to money laundering and terrorist funding. A
series of orders were issued which identify terrorists and terrorist organizations and require the blocking of property and assets of, as well as prohibiting all transactions or dealings with, such terrorists, terrorist organizations and those that
assist or sponsor them. The USA Patriot Act:



| |  | Substantially broadens existing anti-money laundering legislation and the extraterritorial jurisdiction of the United States;
| | - | -----------------------------------------------------------------------------------------------------------------------------



12



---

##### Table of Contents

| |  | Imposes new compliance and due diligence obligations;
| | - | -----------------------------------------------------



| |  | Creates new crimes and penalties;
| | - | ---------------------------------



| |  | Compels the production of documents located both inside and outside the United States; including those of foreign institutions that have a correspondent relationship in the United
States; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Clarifies the safe harbor from civil liability to customers.
| | - | ------------------------------------------------------------



In addition, the United States Treasury Department issued regulations in cooperation with the federal banking agencies, the Securities and Exchange
Commission, the Commodity Futures Trading Commission and the Department of Justice to:



| |  | Require customer identification and verification;
| | - | -------------------------------------------------



| |  | Expand the money-laundering program requirement to the major financial services sectors; including insurance and unregistered investment companies, such as hedge funds; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Facilitate and permit the sharing of information between law enforcement and financial institutions, as well as among financial institutions themselves.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



The United States Treasury Department also has created the Treasury USA
Patriot Act Task Force to work with other financial regulators, the regulated community, law enforcement and consumers to continually improve the regulations.



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, 2003.



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



13



---

##### Table of Contents

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 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.



We lease our executive offices and the Port Richey branch. As of December 31, 2003, 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.



Item 3. Legal Proceedings.



There
are no pending legal proceedings to which we are a party or to which any of our 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 2003.



PART II



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



On December 27, 2001, our stock began trading on The NASDAQ SmallCap Market under the symbol MDBS. As of January 23, 2004, there were 136 registered holders of common stock of the Company and approximately
360 street name holders.



We have paid the following cash and
stock dividends to our shareholders:



|         |  |                          |  |           
|-------- |  | ------------------------ |  | ----------
|Date     |  | Amount                   |  | Cash/Stock
|11-15-01 |  | $0.05 per share          |  | Cash      
|05-24-02 |  | $0.06 per share          |  | Cash      
|12-23-02 |  | 5% of outstanding shares |  | Stock     
|05-30-03 |  | $0.06 per share          |  | Cash      



Restrictions on our
ability to pay dividends are discussed on the Supervision and Regulation Section. Shareholders of record on May 5, 2003 received a five for four stock split on May 15, 2003.



14



---

##### Table of Contents

On March 15, 2004, the closing sales price of our common stock was $20.00. At December 31, 2003, the closing sales price
of our stock was $15.97. The following table sets forth the high and low bid price for our common stock as shown on Yahoo! Finance.



|                |  |               |  |       |  |       |  |      
|--------------- |  | ------------- |  | ----- |  | ----- |  | -----
|                |  | Calendar Year
|                |  | 2003          |  | 2002 
|                |  | Low$          |  | High$ |  | Low$  |  | High$
|First Quarter*  |  | 11.75         |  | 13.32 |  | 7.32  |  | 8.49 
|Second Quarter* |  | 12.59         |  | 14.89 |  | 8.30  |  | 12.02
|Third Quarter*  |  | 12.23         |  | 13.75 |  | 10.81 |  | 12.08
|Fourth Quarter* |  | 13.00         |  | 16.80 |  | 10.58 |  | 12.35



| |  | Adjusted for stock dividends and split
| | - | --------------------------------------



Equity Compensation Plan Information



|                                                           |  |                                                                                           |  |                                                                          |      |                                                                                              |       
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | -------------------------------------------------------------------------------------------- | ------
|Plan Category                                              |  | Number of securitiesto be issued upon exercise of outstanding options, warrants
andrights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number of securities remaining available for future issuance under equitycompensation
plans*
|Equity compensation plans approved by security holders     |  | 190,937                                                                                   |  | $                                                                        | 6.22 |                                                                                              | 69,385
|Equity compensation plans not approved by security holders |  | None                                                                                      |  |                                                                          |     |                                                                                              |      
|                                                           |  |                                                                                           |  |                                                                          |      |                                                                                              |       
|Total                                                      |  | 190,937                                                                                   |  |                                                                          | 6.22 |                                                                                              | 69,385

---

|* | Excludes securities reflected in first column.
|- | ----------------------------------------------



We have stock option plans for certain officers and directors. The options vest over a five year period from date of grant and are then exercisable for up
to an eight year period. At December 31, 2003, 69,385 options remain available for grant.



15



---

##### Table of Contents

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, 2003, 2002, and 2001. 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  |         
|                                                                               |  | 2003                                  |          |   | 2002 |   |         | 2001 | 
|                                                                               |  | (In thousands, except per share data) |         
|Selected Balance Sheet Data:                                                   |  |                                       |          |   |      |   |         |      |  |   |         |  
|Total assets                                                                   |  | $                                     | 204,909  |   |      | $ | 194,109 |      |  | $ | 166,531 |  
|Cash and cash equivalents                                                      |  |                                       | 6,212    |   |      |   | 10,890  |      |  |   | 2,801   |  
|Securities available for sale                                                  |  |                                       | 20,454   |   |      |   | 23,868  |      |  |   | 20,882  |  
|Loans, net                                                                     |  |                                       | 169,367  |   |      |   | 152,679 |      |  |   | 137,601 |  
|Deposit accounts                                                               |  |                                       | 156,245  |   |      |   | 163,395 |      |  |   | 137,084 |  
|Stockholders equity                                                           |  |                                       | 16,726   |   |      |   | 14,558  |      |  |   | 12,253  |  
|                                                                               |  |                                       |         
|Selected Operating Data:                                                       |  |                                       |          |   |      |   |         |      |  |   |         |  
|Total interest income                                                          |  |                                       | 12,207   |   |      |   | 12,408  |      |  |   | 12,147  |  
|Total interest expense                                                         |  |                                       | 3,793    |   |      |   | 4,657   |      |  |   | 6,299   |  
|Net interest income                                                            |  |                                       | 8,414    |   |      |   | 7,751   |      |  |   | 5,848   |  
|Provision for loan losses                                                      |  |                                       | 405      |   |      |   | 618     |      |  |   | 428     |  
|Net interest income after provision for loan losses                            |  |                                       | 8,009    |   |      |   | 7,133   |      |  |   | 5,420   |  
|Non-interest income                                                            |  |                                       | 1,627    |   |      |   | 962     |      |  |   | 715     |  
|Non-interest expenses                                                          |  |                                       | 6,134    |   |      |   | 5,334   |      |  |   | 4,390   |  
|Net earnings                                                                   |  |                                       | 2,171    |   |      |   | 1,715   |      |  |   | 1,093   |  
|                                                                               |  |                                       |         
|Per Share Date:*                                                               |  |                                       |          |   |      |   |         |      |  |   |         |  
|Basic earnings per share                                                       |  |                                       | 1.06     |   |      |   | .86     |      |  |   | 0.56    |  
|Diluted earnings per share                                                     |  |                                       | 1.02     |   |      |   | .82     |      |  |   | 0.54    |  
|Book value per share                                                           |  |                                       | 8.17     |   |      |   | 7.22    |      |  |   | 6.25    |  
|                                                                               |  |                                       |         
|Performance Ratios:                                                            |  |                                       |          |   |      |   |         |      |  |   |         |  
|Return on average assets (R.O.A.)                                              |  |                                       | 1.11     | % |      |   | 0.92    | %    |  |   | 0.67    | %
|Return on average equity (R.O.E.)                                              |  |                                       | 13.82    |   |      |   | 12.78   |      |  |   | 9.11    |  
|Interest-rate spread during the period                                         |  |                                       | 4.09     |   |      |   | 3.98    |      |  |   | 3.20    |  
|Net interest margin                                                            |  |                                       | 4.47     |   |      |   | 4.35    |      |  |   | 3.75    |  
|Non-interest expense to average assets                                         |  |                                       | 3.13     |   |      |   | 2.86    |      |  |   | 2.70    |  
|                                                                               |  |                                       |         
|Other Ratios and Data:                                                         |  |                                       |          |   |      |   |         |      |  |   |         |  
|Average equity to average assets                                               |  |                                       | 8.02     |   |      |   | 7.20    |      |  |   | 7.37    |  
|Allowance for loan losses as a percentage of total loans outstanding.          |  |                                       | 1.43     |   |      |   | .33     |      |  |   | 1.06    |  
|Net recoveries (charge-offs) as a percent of average loans                     |  |                                       | (0.01    | ) |      |   | (0.03   | )    |  |   | 0.07    |  
|Nonperforming loans to total loans                                             |  |                                       | .12      |   |      |   | 1.75    |      |  |   | 1.06    |  
|Allowance for loan losses as a percent of nonperforming loans                  |  |                                       | 1,236.87 |   |      |   | 75.86   |      |  |   | 100.27  |  
|Nonperforming loans and foreclosed real estate as a percentage of total assets |  |                                       | .10      |   |      |   | 1.40    |      |  |   | 0.85    |  
|Total number of full-service banking offices                                   |  |                                       | 3        |   |      |   | 4       |      |  |   | 4       |  

---

|* | 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, and the five for four stock
split declared on May 5, 2003.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

Managements Discussion and Analysis

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 our two banking offices located in Pinellas County, Florida and one banking office in Pasco County, Florida.



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 non-transaction 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, 2003, we exceeded our regulatory liquidity requirements.



Our primary source of funds during the year ended December 31, 2003 was from an increase in Federal Home Loan Bank advances of $16.1 million and principal repayments on securities available for sale of $8.2 million.



Our primary use of funds during the year ended December 31, 2003 was to
originate net loans of $17.3 million and fund the sale of approximately $11.7 million of deposit accounts at one of our banking offices that was closed.



At December 31, 2003, outstanding commitments to originate loans totaled $9.5 million and commitments to borrowers for available lines of credit and
construction loans totaled $25.3 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, 2003, we had $198,000 in nonperforming loans and no foreclosed
real estate.



Non-performing 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, 2003, 2002, 2001 and 1999 respectively, we had $198,000, $2.7
million, $1.5 million and $200,000 in non-accruing loans. At December 31, 2000 we had no non-accruing loans.



17



---

##### Table of Contents

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 |      
|                                                     |  | 2003           |       |                           | 2002 |   |     | 2001 |                           |  | 2000 |     |  | 1999                      |      
|                                                     |  | Amt            |       | % of Loans to Total Loans |      |   | Amt |      | % of Loans to Total Loans |  |      | Amt |  | % of Loans to Total Loans |       |  | Amt  |   | % of Loans to Total Loans |   |     | Amt |      | % of Loans to Total Loans | 
|Commercial real estate                               |  | $              | 2,300 |                           | 85.0 | % |     | $    | 1,922                     |  | 81.5 | %   |  | $                         | 1,369 |  | 79.8 | % |                           | $ | 869 |     | 72.8 | %                         |  | $ | 679 |  | 63.4 |  
|Commercial                                           |  |                | 100   |                           | 6.2  |   |     |      | 87                        |  | 5.8  |     |  |                           | 70    |  | 5.0  |   |                           |   | 49  |     | 4.6  |                           |  |   | 77  |  | 6.1  |  
|Residential real estate                              |  |                | 11    |                           | 5.7  |   |     |      | 17                        |  | 8.9  |     |  |                           | 17    |  | 12.0 |   |                           |   | 22  |     | 18.3 |                           |  |   | 31  |  | 29.2 |  
|Consumer Equity lines of credit and second mortgages |  |                | 38    |                           | 3.1  |   |     |      | 32                        |  | 3.8  |     |  |                           | 21    |  | 3.2  |   |                           |   | 26  |     | 4.3  |                           |  |   | 15  |  | 1.3  |  
|                                                     |  |                |       |                           |      |   |     |      |                           |  |      |     |  |                           |       |  |      |   |                           |   |     |     |      |                           |  |   |     |  |      |  
|                                                     |  | $              | 2,449 |                           | 100  | % |     | $    | 2,058                     |  | 100  | %   |  | $                         | 1,477 |  | 100  | % |                           | $ | 966 |     | 100  | %                         |  | $ | 802 |  | 100  | %
|                                                     |  |                |       |                           |      |   |     |      |                           |  |      |     |  |                           |       |  |      |   |                           |   |     |     |      |                           |  |   |     |  |      |  



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



|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|--------------------------------------------------------- |  | --------------- | -------- | -- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                                          |  | At Deccember 31 |         
|                                                          |  | 2003            |          |    | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|Average loans outstanding                                 |  | $               | 165,302  |    |      | $ | 147,629 |      |  | $ | 126,151 |   |  | $    | 103,503 |   |  | $ | 89,564 |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Allowance at beginning of period                          |  |                 | 2,058    |    |      |   | 1,477   |      |  |   | 966     |   |  |      | 802     |   |  |   | 798    |  
|Charge-Offs:                                              |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|                                                          |  |                 |          |    |     
|Commercial                                                |  |                 |         |    |      |   | (21     | )    |  |   |        |   |  |      | (200    | ) |  |   | (132   | )
|                                                          |  |                 |          |    |     
|Residential real estate                                   |  |                 |         |    |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       |  
|                                                          |  |                 |          |    |     
|Consumer                                                  |  |                 | (26      | )  |      |   | (32     | )    |  |   |        |   |  |      | (12     | ) |  |   |       |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total loans charged-off                                   |  |                 | (26      | )  |      |   | (53     | )    |  |   |        |   |  |      | (212    | ) |  |   | (132   | )
|                                                          |  |                 |          |    |     
|Recoveries                                                |  |                 | 12       |    |      |   | 16      |      |  |   | 83      |   |  |      | 7       |   |  |   | 27     |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net (charge-offs) recoveries                              |  |                 | (14      | )  |      |   | (37     | )    |  |   | 83      |   |  |      | (205    | ) |  |   | (105   | )
|Provision for loan losses charged to operating expenses   |  |                 | 405      |    |      |   | 618     |      |  |   | 428     |   |  |      | 369     |   |  |   | 109    |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Allowance at end of period                                |  | $               | 2,449    |    |      | $ | 2,058   |      |  | $ | 1,477   |   |  | $    | 966     |   |  | $ | 802    |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net recoveries (charge-offs) to average loans outstanding |  |                 | (0.01    | )% |      |   | (0.03   | )%   |  |   | .07     | % |  |      | .20     | % |  |   | .12    | %
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Allowance as percent of total loans                       |  |                 | 1.43     | %  |      |   | 1.33    | %    |  |   | 1.06    | % |  |      | .84     | % |  |   | .85    | %
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Allowance as percent of non-performing loans              |  |                 | 1,236.87 | %  |      |   | 75.9    | %    |  |   | 100.27  | % |  |      | N/A     |   |  |   | N/A    |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total loans at end of period                              |  | $               | 172,151  |    |      | $ | 155,036 |      |  | $ | 139,394 |   |  | $    | 115,362 |   |  | $ | 94,111 |  
|                                                          |  |                 |          |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  



Loan Portfolio Composition



Our commercial real estate loans comprise the largest
group of loans in our loan portfolio. Commercial real estate loans amounted to $146.4 million or 85.0% of the total loan portfolio as of December 31, 2003.



18



---

##### Table of Contents

Commercial loans comprise the second largest group of loans in our portfolio amounting to $10.6 million,
or 6.2% of the total loan portfolio as of December 31, 2003. Residential real estate loans consist of $9.8 million or 5.7% of the total loan portfolio.



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



|                                                     |  |                 |         |   |            |      |   |      |   |         |            |  |      |      |  |   |            |   |  |      |   |  |            |         |   |     |      |   |            |   |        |   |  |      |  
|---------------------------------------------------- |  | --------------- | ------- | - | ---------- | ---- | - | ---- | - | ------- | ---------- |  | ---- | ---- |  | - | ---------- | - |  | ---- | - |  | ---------- | ------- | - | --- | ---- | - | ---------- | - | ------ | - |  | ---- | -
|                                                     |  | At December 31, |        
|                                                     |  | 2003            |         |   | 2002       |      |   | 2001 |   |         | 2000       |  |      | 1999 | 
|                                                     |  | Amt             |         |   | % of Total |      |   | Amt  |   |         | % of Total |  |      | Amt  |  |   | % of Total |   |  | Amt  |   |  | % of Total |         |   | Amt |      |   | % of Total |  
|Commercial real estate                               |  | $               | 146,371 |   |            | 85.0 | % |      | $ | 126,346 |            |  | 81.5 | %    |  | $ | 111,295    |   |  | 7.98 | % |  | $          | 83,997  |   |     | 72.8 | % |            | $ | 59,592 |   |  | 63.4 | %
|Commercial                                           |  |                 | 10,599  |   |            | 6.2  |   |      |   | 8,944   |            |  | 5.8  |      |  |   | 7,011      |   |  | 5.0  |   |  |            | 5,258   |   |     | 4.6  |   |            |   | 5,770  |   |  | 6.1  |  
|Residential real estate                              |  |                 | 9,768   |   |            | 5.7  |   |      |   | 13,838  |            |  | 8.9  |      |  |   | 16,643     |   |  | 12.0 |   |  |            | 21,139  |   |     | 18.3 |   |            |   | 27,484 |   |  | 29.2 |  
|Consumer Equity lines of credit and second mortgages |  |                 | 5,413   |   |            | 3.1  |   |      |   | 5,908   |            |  | 3.8  |      |  |   | 4,445      |   |  | 3.2  |   |  |            | 4,968   |   |     | 4.3  |   |            |   | 1,265  |   |  | 1.3  |  
|                                                     |  |                 |         |   |            |      |   |      |   |         |            |  |      |      |  |   |            |   |  |      |   |  |            |         |   |     |      |   |            |   |        |   |  |      |  
|Subtotal                                             |  |                 | 172,151 |   |            | 100  | % |      |   | 155,036 |            |  | 100  | %    |  |   | 139,394    |   |  | 100  | % |  |            | 115,362 |   |     | 100  | % |            |   | 94,111 |   |  | 100  | %
|                                                     |  |                 |         |   |            |      |   |      |   |        
|Net deferred loan fees                               |  |                 | (335    | ) |            |      |   |      |   | (299    | )          |  |      |      |  |   | (316       | ) |  |      |   |  |            | (283    | ) |     |      |   |            |   | (149   | ) |  |      |  
|                                                     |  |                 |         |   |            |      |   |      |   |        
|Allowance for loan losses                            |  |                 | (2,449  | ) |            |      |   |      |   | (2,058  | )          |  |      |      |  |   | (1,477     | ) |  |      |   |  |            | (966    | ) |     |      |   |            |   | (802   | ) |  |      |  
|                                                     |  |                 |         |   |            |      |   |      |   |         |            |  |      |      |  |   |            |   |  |      |   |  |            |         |   |     |      |   |            |   |        |   |  |      |  
|Loans, net                                           |  | $               | 169,367 |   |            |      |   |      | $ | 152,679 |            |  |      |      |  | $ | 137,601    |   |  |      |   |  | $          | 114,113 |   |     |      |   |            | $ | 93,160 |   |  |      |  
|                                                     |  |                 |         |   |            |      |   |      |   |         |            |  |      |      |  |   |            |   |  |      |   |  |            |         |   |     |      |   |            |   |        |   |  |      |  



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.



All securities held
at December 31, 2003, 2002 and 2001 have been classified as available for sale.



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



|                                                  |  |                 |        |      |   |        |  |   |       
|------------------------------------------------- |  | --------------- | ------ | ---- | - | ------ |  | - | ------
|                                                  |  | At December 31,
|                                                  |  | 2003            |        | 2002 |   | 2001  
|Securities Available for Sale:                    |  |                 |        |      |   |        |  |   |       
|U.S. Government agency mortgage-backed securities |  | $               | 12,966 |      | $ | 16,254 |  | $ | 19,350
|U.S. Government agency securities                 |  |                 | 604    |      |   | 922    |  |   |      
|Other securities                                  |  |                 | 6,884  |      |   | 6,692  |  |   | 1,532 
|                                                  |  |                 |        |      |   |        |  |   |       
|Total                                             |  | $               | 20,454 |      | $ | 23,868 |  | $ | 20,882
|                                                  |  |                 |        |      |   |        |  |   |       



19



---

##### Table of Contents

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 |  |       | Carrying Value |  | Average Yield |        |  | Carrying Value |   | Average Yield |  
|Securities Available for Sale: December 31, 2003: |  |                  |       |               |                              |   |                |                  |               |  |       |                |  |               |        |  |                |   |               |   |        |  |      |  
|U.S. Government agency mortgage-backed securities |  | $                |      |               |                             |   |                | $                | 781           |  | 3.83  | %              |  | $             | 12,185 |  | 3.95           | % |               | $ | 12,966 |  | 3.94 | %
|U.S. Government agency securities                 |  |                  |      |               |                             |   |                |                  |              |  |      |                |  |               | 604    |  | 1.42           | % |               |   | 604    |  | 1.42 | %
|Other securities                                  |  |                  | 4,183 |               | 3.67                         | % |                |                  | 2,301         |  | 6.06  | %              |  |               | 400    |  | 3.23           | % |               |   | 6,884  |  | 4.45 | %
|                                                  |  |                  |       |               |                              |   |                |                  |               |  |       |                |  |               |        |  |                |   |               |   |        |  |      |  
|Total                                             |  | $                | 4,183 |               | 3.67                         | % |                | $                | 3,082         |  | 5.49  | %              |  | $             | 13,189 |  | 3.81           | % |               | $ | 20,454 |  | 4.04 | %
|                                                  |  |                  |       |               |                              |   |                |                  |               |  |       |                |  |               |        |  |                |   |               |   |        |  |      |  



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.



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, 2003, we met all capital adequacy requirements to which we are subject at the holding company ($ in thousands).



20



---

##### Table of Contents

|                                          |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|----------------------------------------- |  | ------ | ------ | - | ----------------------------- | - | ------ | ---------------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                          |  | Actual |        |   | For Capital Adequacy Purposes |   |        | To Be Well Capitalized Under Prompt Corrective Action Provisions |       
|                                          |  | Amount |        | % |                               |   | Amount |                                                                  | %      |  |      | Amount |  | % |       
|As of December 31, 2003:                  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Total capital (to Risk-Weighted Assets):  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  | $      | 18,853 |   | 10.40                         | % |        | $                                                                | 14,510 |  | 8.00 | %      |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 20,622 |   | 11.38                         |   |        |                                                                  | 14,507 |  | 8.00 |        |  | $ | 18,133 |  | 10.00 | %
|Tier I Capital (to Risk-Weighted Assets): |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 16,584 |   | 9.14                          |   |        |                                                                  | 7,255  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,359 |   | 10.13                         |   |        |                                                                  | 7,253  |  | 4.00 |        |  |   | 10,879 |  | 6.00  |  
|Tier I Capital (to Average Assets):       |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 16,584 |   | 8.24                          |   |        |                                                                  | 8,050  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,359 |   | 9.13                          |   |        |                                                                  | 8,045  |  | 4.00 |        |  |   | 10,058 |  | 5.00  |  
|As of December 31, 2002:                  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Total capital (to Risk-Weighted Assets):  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  | $      | 16,371 |   | 9.79                          | % |        | $                                                                | 13,364 |  | 8.00 | %      |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,207 |   | 10.89                         |   |        |                                                                  | 13,375 |  | 8.00 |        |  | $ | 16,719 |  | 10.00 | %
|Tier I Capital (to Risk-Weighted Assets): |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 14,313 |   | 8.56                          |   |        |                                                                  | 6,688  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,149 |   | 9.66                          |   |        |                                                                  | 6,687  |  | 4.00 |        |  |   | 10,030 |  | 6.00  |  
|Tier I Capital (to Average Assets):       |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 14,313 |   | 7.28                          |   |        |                                                                  | 7,865  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,149 |   | 8.23                          |   |        |                                                                  | 7,849  |  | 4.00 |        |  |   | 9,811  |  | 5.00  |  



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



21



---

##### Table of Contents

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).
| | - | ------------------------------------------------------------------------------------



At December 31, 2003, our cumulative positive gap at the one year measurement period was $3.1 million. This positive gap
reflects our large deposit base of savings, NOW and money market deposits that totaled $63.4 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.



22



---

##### Table of Contents

The following table sets forth certain information regarding our interest-earning assets and
interest-bearing liabilities at December 31, 2003, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands):



|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|-------------------------------------- |  | ------------ | ------ | - | ----------------------------------- | - | ------ | ------------------------------ |  | - | ------------------------------- | - |  | --------------------------------- | ------ | - | -------------- | - | ------ | ----- |  | - | ------- | - |  | - | -------
|                                       |  | Three Months |        |   | More Than Three Months to SixMonths |   |        | More Than Six Monthsto OneYear |  |   | More ThanOne Year to Five Years |   |  | More Than Five Years to Ten Years |        |   | Over Ten Years |   |        | Total
|Loans(1)                               |  | $            | 59,559 |   |                                     | $ | 6,204  |                                |  | $ | 12,373                          |   |  | $                                 | 89,562 |   |                | $ | 2,727  |       |  | $ | 1,726   |   |  | $ | 172,151
|Securities available for sale(2)       |  |              | 8,321  |   |                                     |   | 1,425  |                                |  |   | 644                             |   |  |                                   | 2,889  |   |                |   | 3,331  |       |  |   | 3,844   |   |  |   | 20,454 
|Other securities(3)                    |  |              | 983    |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   | 1,316   |   |  |   | 2,299  
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Total rate-sensitive assets            |  |              | 68,863 |   |                                     |   | 7,629  |                                |  |   | 13,017                          |   |  |                                   | 92,451 |   |                |   | 6,058  |       |  |   | 6,886   |   |  |   | 194,904
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Deposit accounts(4):                   |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Savings, NOW and money market deposits |  |              | 31,719 |   |                                     |   |       |                                |  |   |                                |   |  |                                   |       |   |                |   |       |       |  |   | 31,718  |   |  |   | 63,437 
|Time deposits                          |  |              | 11,893 |   |                                     |   | 8,991  |                                |  |   | 21,604                          |   |  |                                   | 24,237 |   |                |   | 1,140  |       |  |   | 5       |   |  |   | 67,870 
|Federal Home Loan Bank advances        |  |              | 9,125  |   |                                     |   |       |                                |  |   |                                |   |  |                                   | 12,000 |   |                |   | 5,000  |       |  |   |        |   |  |   | 26,125 
|Other borrowings                       |  |              | 3,030  |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   | 3,030  
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Total rate-sensitive liabilities       |  |              | 55,767 |   |                                     |   | 8,991  |                                |  |   | 21,604                          |   |  |                                   | 36,237 |   |                |   | 6,140  |       |  |   | 31,723  |   |  |   | 160,462
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|GAP repricing differences              |  |              | 13,096 |   |                                     |   | (1,362 | )                              |  |   | (8,587                          | ) |  |                                   | 56,214 |   |                |   | (82    | )     |  |   | (24,837 | ) |  |   | 34,442 
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Cumulative GAP                         |  |              | 13,096 |   |                                     |   | 11,734 |                                |  |   | 3,147                           |   |  |                                   | 59,361 |   |                |   | 59,279 |       |  |   | 34,442  |   |  |   |        
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        
|Cumulative GAP/total assets            |  |              | 6.4    | % |                                     |   | 5.7    | %                              |  |   | 1.5                             | % |  |                                   | 29.0   | % |                |   | 28.9   | %     |  |   | 16.8    | % |  |   |        
|                                       |  |              |        |   |                                     |   |        |                                |  |   |                                 |   |  |                                   |        |   |                |   |        |       |  |   |         |   |  |   |        

---

|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table reflects the contractual principal repayments by period of our loan portfolio at December 31, 2003 (dollars in thousands):



|                                 |  |                        |         |            |   |                         |  |                                                     |       |       |   |       |  |   |        
|-------------------------------- |  | ---------------------- | ------- | ---------- | - | ----------------------- |  | --------------------------------------------------- | ----- | ----- | - | ----- |  | - | -------
|                                 |  | Commercial Real Estate |         | Commercial |   | Residential Real Estate |  | Consumer Equity Lines of Credit and Second Mortgage |       | Total
|Due within one year              |  | $                      | 7,934   |            | $ | 2,485                   |  | $                                                   | 589   |       | $ | 829   |  | $ | 11,837 
|Due after one through five years |  |                        | 44,841  |            |   | 3,218                   |  |                                                     | 1,903 |       |   | 3,132 |  |   | 53,094 
|Due after five years             |  |                        | 93,596  |            |   | 4,896                   |  |                                                     | 7,276 |       |   | 1,452 |  |   | 107,220
|                                 |  |                        |         |            |   |                         |  |                                                     |       |       |   |       |  |   |        
|Total                            |  | $                      | 146,371 |            | $ | 10,599                  |  | $                                                   | 9,768 |       | $ | 5,413 |  | $ | 172,151
|                                 |  |                        |         |            |   |                         |  |                                                     |       |       |   |       |  |   |        



At December 31, 2003,
of the $160.3 million of loans due after one year, 6.8% of such loans have fixed rates of interest and 93.2% 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.



23



---

##### Table of Contents

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, |        
|                                                    |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Originations:                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Commercial real estate                              |  | $                       | 77,226  |   |      | $ | 57,669  |      |  | $ | 47,605  |  
|Commercial                                          |  |                         | 7,867   |   |      |   | 9,292   |      |  |   | 5,957   |  
|Residential real estate                             |  |                         | 1,513   |   |      |   | 2,084   |      |  |   | 859     |  
|Consumer Equity lines of credit and second mortgage |  |                         | 3,667   |   |      |   | 2,672   |      |  |   | 4,039   |  
|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Total loans originated                              |  | $                       | 90,273  |   |      | $ | 71,717  |      |  |   | 58,460  |  
|Less:                                               |  |                         |         |   |      |   |         |      |  |   |         |  
|Principal reductions                                |  |                         | (68,091 | ) |      |   | (49,967 | )    |  |   | (42,561 | )
|Loans sold, primarily participations                |  |                         | (5,067  | ) |      |   | (6,108  | )    |  |   | (5,422  | )
|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase in total loans                             |  | $                       | 17,115  |   |      | $ | 15,642  |      |  | $ | 10,477  |  
|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  



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, money market 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, 2003, we had $6.6 million in certificates of deposits which have a weighted interest rate of 9.54%. These certificates of deposit were
originated in 1988 and have up to five years remaining on their term. Madison no longer offers certificate of deposit product with extended maturities.



24



---

##### Table of Contents

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



|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  
|-------------------------------------- |  | --------------- | ------- | ------------- | ---- | - | --- | ---- | ------------- |  | ---- | --- |  | ------------- | ------- |  | ---- | -
|                                       |  | At December 31, |        
|                                       |  | 2003            |         |               | 2002 |   |     | 2001 |              
|                                       |  | Amt             |         | % of Deposits |      |   | Amt |      | % of Deposits |  |      | Amt |  | % of Deposits |        
|Noninterest-bearing demand deposits    |  | $               | 24,938  |               | 15.9 | % |     | $    | 15,771        |  | 9.7  | %   |  | $             | 11,164  |  | 8.1  | %
|Savings, NOW and money-market deposits |  |                 | 63,437  |               | 40.6 |   |     |      | 68,334        |  | 41.8 |     |  |               | 53,727  |  | 39.2 |  
|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  
|Subtotal                               |  |                 | 88,375  |               | 56.5 |   |     |      | 84,105        |  | 51.5 |     |  |               | 64,891  |  | 47.3 |  
|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  
|0% - 2.99%                             |  |                 | 36,730  |               | 23.5 |   |     |      | 32,805        |  | 20.1 |     |  |               | 2,496   |  | 1.8  |  
|3.00% - 3.99%                          |  |                 | 16,032  |               | 10.3 |   |     |      | 25,026        |  | 15.3 |     |  |               | 12,141  |  | 8.9  |  
|4.00% - 4.99%                          |  |                 | 7,227   |               | 4.6  |   |     |      | 12,395        |  | 7.6  |     |  |               | 14,230  |  | 10.4 |  
|5.00% - 5.99%                          |  |                 | 306     |               | .2   |   |     |      | 1,180         |  | 0.7  |     |  |               | 19,938  |  | 14.5 |  
|6.00% - 6.99%                          |  |                 | 851     |               | .5   |   |     |      | 1,128         |  | 0.7  |     |  |               | 15,983  |  | 11.7 |  
|7.00% - 7.99%                          |  |                 | 132     |               | .1   |   |     |      | 118           |  |     |     |  |               | 1,197   |  | 0.9  |  
|8.00% - 8.99%                          |  |                 | 27      |               | .0   |   |     |      | 318           |  | 0.2  |     |  |               | 315     |  | 0.2  |  
|9.00% - 9.99%                          |  |                 | 5,532   |               | 3.6  |   |     |      | 5,350         |  | 3.3  |     |  |               | 5,013   |  | 3.7  |  
|10.00% - 10.99%                        |  |                 | 1,033   |               | .7   |   |     |      | 970           |  | 0.6  |     |  |               | 880     |  | 0.6  |  
|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  
|Total certificates of deposit          |  |                 | 67,870  |               | 43.5 |   |     |      | 79,290        |  | 48.5 |     |  |               | 72,193  |  | 52.7 |  
|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  
|Total deposits(*)                      |  | $               | 156,245 |               | 100  | % |     | $    | 163,395       |  | 100  | %   |  | $             | 137,084 |  | 100  | %
|                                       |  |                 |         |               |      |   |     |      |               |  |      |     |  |               |         |  |      |  

---

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



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



|                                    |  |                      |       
|----------------------------------- |  | -------------------- | ------
|                                    |  | At December 31, 2003
|Due three months or less            |  | $                    | 3,563 
|Due over three months to six months |  |                      | 3,624 
|Due over six months to one year     |  |                      | 10,857
|Due over one year                   |  |                      | 9,954 
|                                    |  |                      |       
|Total                               |  | $                    | 27,998
|                                    |  |                      |       



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



|                                                 |  |                         |        |   |      |   |        |  |   |        |  
|------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                                 |  | Year Ended December 31, |       
|                                                 |  | 2003                    |        |   | 2002 |   | 2001   | 
|Net increase (decrease) before interest credited |  | $                       | (9,997 | ) |      | $ | 22,606 |  | $ | (2,247 | )
|Net interest credited                            |  |                         | 3,047  |   |      |   | 3,705  |  |   | 5,456  |  
|                                                 |  |                         |        |   |      |   |        |  |   |        |  
|Net deposit (decrease) increase                  |  | $                       | (6,950 | ) |      | $ | 26,311 |  | $ | 3,209  |  
|                                                 |  |                         |        |   |      |   |        |  |   |        |  



25



---

##### Table of Contents

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.
| | - | -----------------------------------------------------



|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---------------------- | ---- | ------------------- |  | ---- | --------------- |  | ---------------------- | ------- | ------------------- | - | ------ | --------------- | ---- | ---------------------- |  | ------------------- | ------- |  | - | ------ |  | ---- | -
|                                                                                 |  | Year Ended December 31, |        
|                                                                                 |  | 2003                    |         |                        | 2002 |                     |  | 2001 |                
|                                                                                 |  | Average Balance         |         | Interest and Dividends |      | Average Yield/ Rate |  |      | Average Balance |  | Interest and Dividends |         | Average Yield/ Rate |   |        | Average Balance |      | Interest and Dividends |  | Average Yield/ Rate |        
|                                                                                 |  | (Dollars in thousands)  |        
|Interest-earning assets:                                                         |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Loans(1)                                                                         |  | $                       | 165,302 |                        | $    | 11,370              |  | 6.88 | %               |  | $                      | 147,629 |                     | $ | 11,156 |                 | 7.56 | %                      |  | $                   | 126,151 |  | $ | 10,743 |  | 8.51 | %
|Securities                                                                       |  |                         | 20,135  |                        |      | 782                 |  | 3.88 |                 |  |                        | 25,991  |                     |   | 1,156  |                 | 4.45 |                        |  |                     | 21,888  |  |   | 1,073  |  | 4.90 |  
|Other interest-earning assets(2)                                                 |  |                         | 2,597   |                        |      | 55                  |  | 2.12 |                 |  |                        | 4,496   |                     |   | 96     |                 | 2.14 |                        |  |                     | 7,892   |  |   | 331    |  | 419  |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Total interest-earning assets                                                    |  |                         | 188,034 |                        |      | 12,207              |  | 6.49 |                 |  |                        | 178,116 |                     |   | 12,408 |                 | 6.97 |                        |  |                     | 155,931 |  |   | 12,147 |  | 7.79 |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Noninterest-earning assets                                                       |  |                         | 7,934   |                        |      |                     |  |      |                 |  |                        | 8,313   |                     |   |        |                 |      |                        |  |                     | 6,777   |  |   |        |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Total assets                                                                     |  | $                       | 195,968 |                        |      |                     |  |      |                 |  | $                      | 186,429 |                     |   |        |                 |      |                        |  | $                   | 162,708 |  |   |        |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Interest-bearing liabilities:                                                    |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Savings, NOW, money-market deposit accounts                                      |  |                         | 65,468  |                        |      | 595                 |  | .91  |                 |  |                        | 61,545  |                     |   | 885    |                 | 1.44 |                        |  |                     | 49,159  |  |   | 1,192  |  | 2.42 |  
|Time deposits                                                                    |  |                         | 71,969  |                        |      | 2,545               |  | 3.54 |                 |  |                        | 80,189  |                     |   | 3,227  |                 | 4.02 |                        |  |                     | 78,953  |  |   | 4,706  |  | 5.96 |  
|Federal Home Loan Bank advances and other borrowings                             |  |                         | 20,761  |                        |      | 653                 |  | 3.15 |                 |  |                        | 13,896  |                     |   | 545    |                 | 3.92 |                        |  |                     | 9,057   |  |   | 401    |  | 4.43 |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Total interest-bearing liabilities                                               |  |                         | 158,198 |                        |      | 3,793               |  | 2.40 |                 |  |                        | 155,630 |                     |   | 4,657  |                 | 2.99 |                        |  |                     | 137,169 |  |   | 6,299  |  | 4.59 |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Noninterest-bearing demand deposits                                              |  |                         | 18,144  |                        |      |                     |  |      |                 |  |                        | 14,414  |                     |   |        |                 |      |                        |  |                     | 12,388  |  |   |        |  |      |  
|Noninterest-bearing liabilities                                                  |  |                         | 3,917   |                        |      |                     |  |      |                 |  |                        | 2,966   |                     |   |        |                 |      |                        |  |                     | 1,154   |  |   |        |  |      |  
|Stockholders equity                                                             |  |                         | 15,709  |                        |      |                     |  |      |                 |  |                        | 13,419  |                     |   |        |                 |      |                        |  |                     | 11,997  |  |   |        |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Total liabilities and stockholders equity                                       |  |                         | 195,968 |                        |      |                     |  |      |                 |  | $                      | 186,429 |                     |   |        |                 |      |                        |  | $                   | 162,708 |  |   |        |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Net interest income                                                              |  |                         |         |                        | $    | 8,414               |  |      |                 |  |                        |         |                     | $ | 7,751  |                 |      |                        |  |                     |         |  | $ | 5,848  |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Interest-rate spread(3)                                                          |  |                         |         |                        |      |                     |  | 4.09 | %               |  |                        |         |                     |   |        |                 | 3.98 | %                      |  |                     |         |  |   |        |  | 3.20 | %
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Net interest margin(4)                                                           |  |                         |         |                        |      |                     |  | 4.47 | %               |  |                        |         |                     |   |        |                 | 4.35 | %                      |  |                     |         |  |   |        |  | 3.75 | %
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                         |         |                        |      | 1.19                |  |      |                 |  |                        | 1.14    |                     |   |        |                 |      |                        |  |                     | 1.14    |  |   |        |  |      |  
|                                                                                 |  |                         |         |                        |      |                     |  |      |                 |  |                        |         |                     |   |        |                 |      |                        |  |                     |         |  |   |        |  |      |  

---

|(1) | Includes loans on non-accrual 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.
|--- | --------------------------------------------------------------------------------------



26



---

##### Table of Contents

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, 2003 vs. 2002 Increase (Decrease) Due to |       
|                                                     |  | Rate                                                             |        |   | Volume |   |       | Rate/ Volume |  |   | Total |  
|Interest-earning assets:                             |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Loans                                                |  | $                                                                | (1,002 | ) |        | $ | 1,336 |              |  | $ | (120  | ) |  | $ | 214    |  
|Securities                                           |  |                                                                  | (146   | ) |        |   | (261  | )            |  |   | 33    |   |  |   | (374   | )
|Other interest-earning assets                        |  |                                                                  | (1     | ) |        |   | (40   | )            |  |   | 0     |   |  |   | (41    | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Total                                                |  | $                                                                | (1,149 | ) |        | $ | 1,035 |              |  | $ | (87   | ) |  | $ | (201   | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:                        |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Deposits:                                            |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Savings, NOW and money-market deposits               |  |                                                                  | (326   | ) |        |   | 57    |              |  |   | (21   | ) |  |   | (290   | )
|Time deposits                                        |  |                                                                  | (391   | ) |        |   | (331  | )            |  |   | 40    |   |  |   | (682   | )
|Federal Home Loan Bank advances and other borrowings |  |                                                                  | (108   | ) |        |   | 269   |              |  |   | (53   | ) |  |   | 108    |  
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Total                                                |  |                                                                  | (825   | ) |        |   | (5    | )            |  |   | (34   | ) |  |   | (864   | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Net change in net interest income                    |  | $                                                                | (324   | ) |        | $ | 1,040 |              |  | $ | (53   | ) |  | $ | 663    |  
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|                                                     | 
|                                                     |  | Year Ended December 31, 2002 vs. 2001Increase (Decrease) Due to  |       
|                                                     |  | Rate                                                             |        |   | Volume |   |       | Rate/Volume  |  |   | Total |  
|Interest-earning assets:                             |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Loans                                                |  | $                                                                | (1,210 | ) |        | $ | 1,829 |              |  | $ | (206  | ) |  | $ | 413    |  
|Securities                                           |  |                                                                  | (99    | ) |        |   | 201   |              |  |   | (19   | ) |  |   | (83    | )
|Other interest-earning assets                        |  |                                                                  | (163   | ) |        |   | (142  | )            |  |   | 70    |   |  |   | (235   | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Total                                                |  | $                                                                | (1,472 | ) |        | $ | 1,888 |              |  | $ | (155  | ) |  | $ | (261   | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Interest-bearing liabilities:                        |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Deposits:                                            |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Savings, NOW and money-market deposits               |  |                                                                  | (485   | ) |        |   | 300   |              |  |   | (122  | ) |  |   | (307   | )
|Time deposits                                        |  |                                                                  | (1,529 | ) |        |   | 74    |              |  |   | 24    |   |  |   | (1,479 | )
|Federal Home Loan Bank advances and other borrowings |  |                                                                  | (45    | ) |        |   | 214   |              |  |   | (25   | ) |  |   | 144    |  
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Total                                                |  |                                                                  | (2,059 | ) |        |   | 588   |              |  |   | (171  | ) |  |   | (1,642 | )
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  
|Net change in net interest income                    |  | $                                                                | 587    |   |        | $ | 1,300 |              |  | $ | 16    |   |  | $ | 1,903  |  
|                                                     |  |                                                                  |        |   |        |   |       |              |  |   |       |   |  |   |        |  



27



---

##### Table of Contents

Comparison of Years Ended December 31, 2003 and 2002



General. Net earnings for the year ended December 31, 2003,
was $2,171,000 or $1.06 per basic earnings per share ($1.02 per diluted earnings per share) compared to net earnings of $1,715,000 or $.86 per basic ($.82 per diluted earnings per share) for the year ended December 31, 2002. The increase in net
earnings was primarily due to:



| |  | an increase in net interest income due to an increase in the net interest margin and increased earning assets;
| | - | --------------------------------------------------------------------------------------------------------------



| |  | an increase in non-interest income including a gain in sale of deposit accounts, a gain on sale of foreclosed real estate and increased service charge and fee income;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a reduction in the provision for loan losses due to a lower amount of non-performing assets.
| | - | --------------------------------------------------------------------------------------------



The earning improvements were partially offset by an increase in non-interest expenses and an increase in the provision for
income taxes.



Interest Income and Expense.
Interest income decreased by $201,000 from $12.4 million for the year ended December 31, 2002 to $12.2 million for the year ended December 31, 2003 due to a reduction in the yields on earning assets resulting from the significant decline in market
interest rates during the past year. Interest income on loans increased $214,000 due to an increase in the average loan portfolio balance of $17.7 million which was partially offset by a decrease in the weighted yield in 2003 to 6.88% from 7.56% in
2002. Interest income on securities decreased $374,000 due to a decrease in the average securities balance from $26.0 million in 2002 to $20.1 million in 2003 and a decrease in the weighted-average yield in 2003 to 3.88% from 4.45% in 2002. Interest
on other interest-earning assets decreased $41,000 primarily due to a decrease from $4.5 million in average other interest-earning assets in 2002 to $2.6 million in 2003.



Interest expense decreased $864,000 in 2003 compared to 2002. Interest expense on deposits decreased $972,000 due to a
decrease in the weighted average rate paid on deposit accounts from 2.90% in 2002 to 2.29% in 2003 resulting from the significant decline in market interest rates and a decrease in the average balance of interest-bearing deposits in 2003 compared to
2002 of $4.3 million due to the sale of $11.7 million in deposits on February 7, 2003. Interest expense on other borrowings increased $108,000 primarily due to an increase in the average balance of other borrowings from $13.9 million in 2002 to
$20.8 million in 2003, partially offset by a decrease in the average rate paid on other borrowings from 3.92% in 2002 to 3.15% in 2003. The additional other borrowings were used to partially fund the sale of deposits and net new loan production.



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 $405,000 provision recorded for the year ended December
31, 2003, compared to $618,000 in 2002 as a result of a lower amount of non-accrual loans in 2003. At December 31, 2003, the allowance for loan losses was $2.4 million. While management believes that its allowance for loan losses is adequate as of
December 31, 2003, 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.



Non-interest Income.Non-interest income increased from
$962,000 in 2002 to $1.6 million in 2003. The $665,000 increase is primarily due to the $200,000 gain recognized on the sale of deposit accounts, a $120,000 increase in gain on sale of foreclosed real estate resulting from the sale of one property,
a $147,000 increase in service charges on deposit accounts resulting from our continued emphasis on increasing customer



28



---

##### Table of Contents

transaction accounts and the implementation of a more competitive fee structure and a $146,000 increase in income from
residential loan brokerage fees due to a significant increase in the amount of residential mortgage loans closed and sold in the secondary market.



Non-interest Expense. Total non-interest expense increased to $6.1 million for the year ended
December 31, 2003, compared to $5.3 million in 2002. The $800,000 increase is primarily due to a $462,000 or 15% increase in employee compensation and benefits and an $181,000 increase in occupancy and equipment expenses. Our employee compensation
and benefit costs increased due to our plan to add staff to properly service the banking needs of our core relationship base of transaction account customers that have increased recently. Our occupancy and equipment costs have increased due to a new
office opened for part of the year in 2002 being open all of 2003 and the addition of our executive office in late 2002.



Income Taxes.The income tax provision for the year ended December 31, 2003, was $1,331,000 or 38.0% of earnings before income taxes
compared to $1,046,000 or 37.9% for the year ended December 31, 2002.



Comparison of Years Ended December 31, 2002 and 2001



General. Net earnings for the year ended December 31, 2002, was $1,715,000 or $0.86 per basic earnings per share ($0.82 per diluted earnings per share) compared to net earnings of $1,093,000 or $.56 per basic ($.54 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 non-interest 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.



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.



29



---

##### Table of Contents

Non-interest Income.Non-interest 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.



Non-interest
Expense. Total non-interest 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.



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.



30



---

##### Table of Contents

Item 7. Financial Statements.



Independent Auditors Report



Madison BancShares, Inc.

Palm Harbor, Florida:



We have audited the accompanying consolidated balance sheets of Madison BancShares, Inc. and Subsidiary (the
Company) as of December 31, 2003 and 2002 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 as of December 31, 2003 and 2002 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.



HACKER, JOHNSON & SMITH PA

Tampa, Florida

January 15, 2004



31



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)



|                                                                                                                            |  |                 |         |      |        
|--------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ---- | -------
|                                                                                                                            |  | At December 31,
|                                                                                                                            |  | 2003            |         | 2002
|Assets                                                                                                                      |  |                 |         |      |        
|                                                                                                                            |  |                
|Cash and due from banks                                                                                                     |  | $               | 5,229   |      | 3,222  
|Interest-bearing deposits with banks                                                                                        |  |                 | 195     |      | 2,965  
|Federal funds sold                                                                                                          |  |                 | 788     |      | 4,703  
|                                                                                                                            |  |                 |         |      |        
|Cash and cash equivalents                                                                                                   |  |                 | 6,212   |      | 10,890 
|                                                                                                                            |  |                
|Securities available for sale                                                                                               |  |                 | 20,454  |      | 23,868 
|Loans, net of allowance for loan losses of $2,449 in 2003 and $2,058 in 2002                                                |  |                 | 169,367 |      | 152,679
|Accrued interest receivable                                                                                                 |  |                 | 704     |      | 706    
|Premises and equipment, net                                                                                                 |  |                 | 5,083   |      | 3,960  
|Federal Home Loan Bank of Atlanta stock, at cost                                                                            |  |                 | 1,316   |      | 759    
|Deferred tax asset                                                                                                          |  |                 | 510     |      | 332    
|Other assets                                                                                                                |  |                 | 1,263   |      | 915    
|                                                                                                                            |  |                 |         |      |        
|                                                                                                                            |  | $               | 204,909 |      | 194,109
|                                                                                                                            |  |                 |         |      |        
|Liabilities and Stockholders Equity                                                                                        |  |                 |         |      |        
|                                                                                                                            |  |                
|Liabilities:                                                                                                                |  |                 |         |      |        
|Noninterest-bearing demand deposits                                                                                         |  |                 | 24,938  |      | 15,771 
|Savings, NOW and money-market deposits                                                                                      |  |                 | 63,437  |      | 68,334 
|Time deposits                                                                                                               |  |                 | 67,870  |      | 79,290 
|                                                                                                                            |  |                 |         |      |        
|Total deposits                                                                                                              |  |                 | 156,245 |      | 163,395
|                                                                                                                            |  |                
|Federal Home Loan Bank advances                                                                                             |  |                 | 26,125  |      | 10,000 
|Other borrowings                                                                                                            |  |                 | 3,030   |      | 3,164  
|Official checks                                                                                                             |  |                 | 1,448   |      | 1,859  
|Accrued expenses and other liabilities                                                                                      |  |                 | 1,335   |      | 1,133  
|                                                                                                                            |  |                 |         |      |        
|Total liabilities                                                                                                           |  |                 | 188,183 |      | 179,551
|                                                                                                                            |  |                 |         |      |        
|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, $.008 par value, authorized 5,000,000 shares; issued and outstanding 2,047,865 and 1,613,028 in 2003 and 2002 |  |                 | 16      |      | 16     
|Additional paid-in capital                                                                                                  |  |                 | 14,371  |      | 14,148 
|Retained earnings                                                                                                           |  |                 | 2,196   |      | 149    
|                                                                                                                            |  |                 |         |      |        
|Accumulated other comprehensive income                                                                                      |  |                 | 143     |      | 245    
|                                                                                                                            |  |                 |         |      |        
|Total stockholders equity                                                                                                  |  |                 | 16,726  |      | 14,558 
|                                                                                                                            |  |                 |         |      |        
|                                                                                                                            |  | $               | 204,909 |      | 194,109
|                                                                                                                            |  |                 |         |      |        



See
Accompanying Notes to Consolidated Financial Statements.



32



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Earnings

(Dollars in thousands, except per share amounts)



Year Ended



|                                                    |  |              |        |      |       
|--------------------------------------------------- |  | ------------ | ------ | ---- | ------
|                                                    |  | December 31,
|                                                    |  | 2003         |        | 2002
|Interest income:                                    |  |              |        |      |       
|Loans                                               |  | $            | 11,370 |      | 11,156
|Securities available for sale                       |  |              | 782    |      | 1,156 
|Other interest-earning assets                       |  |              | 55     |      | 96    
|                                                    |  |              |        |      |       
|Total interest income                               |  |              | 12,207 |      | 12,408
|                                                    |  |              |        |      |       
|Interest expense:                                   |  |              |        |      |       
|Deposits                                            |  |              | 3,140  |      | 4,112 
|Borrowed funds                                      |  |              | 653    |      | 545   
|                                                    |  |              |        |      |       
|Total interest expense                              |  |              | 3,793  |      | 4,657 
|                                                    |  |              |        |      |       
|Net interest income                                 |  |              | 8,414  |      | 7,751 
|Provision for loan losses                           |  |              | 405    |      | 618   
|                                                    |  |              |        |      |       
|Net interest income after provision for loan losses |  |              | 8,009  |      | 7,133 
|                                                    |  |              |        |      |       
|Noninterest income:                                 |  |              |        |      |       
|Service charges on deposit accounts                 |  |              | 708    |      | 561   
|Other service charges and fees                      |  |              | 250    |      | 194   
|Loan brokerage fees                                 |  |              | 243    |      | 97    
|Gain on sale of deposit accounts                    |  |              | 200    |      |      
|Gain on sale of securities                          |  |              |       |      | 4     
|Gain on sale of foreclosed real estate              |  |              | 198    |      | 78    
|Other                                               |  |              | 28     |      | 28    
|                                                    |  |              |        |      |       
|Total noninterest income                            |  |              | 1,627  |      | 962   
|                                                    |  |              |        |      |       
|Noninterest expenses:                               |  |              |        |      |       
|Employee compensation and benefits                  |  |              | 3,497  |      | 3,035 
|Occupancy and equipment                             |  |              | 937    |      | 756   
|Data processing expense                             |  |              | 309    |      | 266   
|Professional fees                                   |  |              | 163    |      | 149   
|Advertising                                         |  |              | 129    |      | 125   
|Stationary and supplies                             |  |              | 147    |      | 111   
|Consulting and outside service fees                 |  |              | 153    |      | 112   
|Other expense                                       |  |              | 799    |      | 780   
|                                                    |  |              |        |      |       
|Total noninterest expenses                          |  |              | 6,134  |      | 5,334 
|                                                    |  |              |        |      |       
|Earnings before income taxes                        |  |              | 3,502  |      | 2,761 
|                                                    |  |             
|Income taxes                                        |  |              | 1,331  |      | 1,046 
|                                                    |  |              |        |      |       
|Net earnings                                        |  | $            | 2,171  |      | 1,715 
|                                                    |  |              |        |      |       
|Earnings per share:                                 |  |              |        |      |       
|                                                    |  |             
|Basic earnings per share                            |  | $            | 1.06   |      | .86   
|                                                    |  |              |        |      |       
|Diluted earnings per share                          |  | $            | 1.02   |      | .82   
|                                                    |  |              |        |      |       



See Accompanying Notes to Consolidated
Financial Statements.



33



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Changes in Stockholders Equity

(Dollars in thousands)



|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|---------------------------------------------------------------------------------------- |  | ------------ | -- | -------------------------- | ------ | ---------------------------------------- | ------ | - | ----------------------------------------------- | ---- | - | ----- | ------ | -
|                                                                                         |  | Common Stock |    | Additional Paid-in Capital |        | Retained Earnings (Accumu-lated Deficit) |        |   | Accumulated Other Comprehen- sive Income (Loss) |      |   | Total |       
|Balance at December 31, 2001                                                             |  | $            | 15 |                            | 12,653 |                                          | (355   | ) |                                                 | (60  | ) |       | 12,253 |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|                                                                                         |  |              |    |                            |       
|Comprehensive income:                                                                    |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Net earnings                                                                             |  |              |   |                            |       |                                          | 1,715  |   |                                                 |     |   |       | 1,715  |  
|                                                                                         |  |              |    |                            |       
|Net change in unrealized loss on securities available for sale, net of tax               |  |              |   |                            |       |                                          |       |   |                                                 | 305  |   |       | 305    |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Comprehensive income                                                                     |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       | 2,020  |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Sale of common stock (20,353 shares)                                                     |  |              |   |                            | 250    |                                          |       |   |                                                 |     |   |       | 250    |  
|                                                                                         |  |              |    |                            |       
|Exercise of common stock options (22,110 shares), including an income tax benefit of $18 |  |              |   |                            | 126    |                                          |       |   |                                                 |     |   |       | 126    |  
|                                                                                         |  |              |    |                            |       
|Stock dividends (76,594 shares)                                                          |  |              | 1  |                            | 1,119  |                                          | (1,120 | ) |                                                 |     |   |       |       |  
|                                                                                         |  |              |    |                            |       
|Cash dividends                                                                           |  |              |   |                            |       |                                          | (91    | ) |                                                 |     |   |       | (91    | )
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Balance at December 31, 2002                                                             |  |              | 16 |                            | 14,148 |                                          | 149    |   |                                                 | 245  |   |       | 14,558 |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|                                                                                         |  |              |    |                            |       
|Comprehensive income:                                                                    |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Net earnings                                                                             |  |              |   |                            |       |                                          | 2,171  |   |                                                 |     |   |       | 2,171  |  
|Net change in unrealized gain on securities available for sale, net of tax               |  |              |   |                            |       |                                          |       |   |                                                 | (102 | ) |       | (102   | )
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Comprehensive income                                                                     |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       | 2,069  |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Exercise of common stock options (29,159 shares), including an income tax benefit of $76 |  |              |   |                            | 191    |                                          |       |   |                                                 |     |   |       | 191    |  
|                                                                                         |  |              |    |                            |       
|Common stock issued as compensation (2,000 shares)                                       |  |              |   |                            | 32     |                                          |       |   |                                                 |     |   |       | 32     |  
|                                                                                         |  |              |    |                            |       
|Cash dividends                                                                           |  |              |   |                            |       |                                          | (123   | ) |                                                 |     |   |       | (123   | )
|                                                                                         |  |              |    |                            |       
|Stock split five-for-four (403,678 shares) (cash paid for fractional shares)             |  |              |   |                            |       |                                          | (1     | ) |                                                 |     |   |       | (1     | )
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  
|Balance at December 31, 2003                                                             |  | $            | 16 |                            | 14,371 |                                          | 2,196  |   |                                                 | 143  |   |       | 16,726 |  
|                                                                                         |  |              |    |                            |        |                                          |        |   |                                                 |      |   |       |        |  



See Accompanying Notes to Consolidated
Financial Statements.



34



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Consolidated Statements of Cash Flows

(In thousands)



|                                                                                                   |  |                         |         |   |      |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | ------- | -
|                                                                                                   |  | Year Ended December 31, |        
|                                                                                                   |  | 2003                    |         |   | 2002 |        
|Cash flows from operating activities:                                                              |  |                         |         |   |      |         |  
|Net earnings                                                                                       |  | $                       | 2,171   |   |      | 1,715   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:                |  |                         |         |   |      |         |  
|Provision for loan losses                                                                          |  |                         | 405     |   |      | 618     |  
|Depreciation and amortization                                                                      |  |                         | 420     |   |      | 375     |  
|Credit for deferred income taxes                                                                   |  |                         | (118    | ) |      | (265    | )
|Amortization of discounts and premiums on securities and deferred loans fees, net                  |  |                         | (26     | ) |      | 37      |  
|Decrease in accrued interest receivable                                                            |  |                         | 2       |   |      | 6       |  
|Increase in other assets                                                                           |  |                         | (348    | ) |      | (136    | )
|Decrease in official checks, accrued expenses and other liabilities                                |  |                         | (209    | ) |      | (201    | )
|Gain on sale of deposit accounts                                                                   |  |                         | (200    | ) |      |        |  
|Gain on sale of securities                                                                         |  |                         |        |   |      | (4      | )
|Gain on sale of foreclosed real estate                                                             |  |                         | (198    | ) |      | (78     | )
|Common stock issued as compensation                                                                |  |                         | 32      |   |      |        |  
|                                                                                                   |  |                         |         |   |      |         |  
|Net cash provided by operating activities                                                          |  |                         | 1,931   |   |      | 2,067   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Cash flows used in investing activities:                                                           |  |                         |         |   |      |         |  
|Net increase in loans                                                                              |  |                         | (17,288 | ) |      | (15,756 | )
|Purchase of securities available for sale                                                          |  |                         | (4,960  | ) |      | (12,119 | )
|Net proceeds from sales of securities                                                              |  |                         |        |   |      | 2,004   |  
|Securities available for sale principal repayments                                                 |  |                         | 8,201   |   |      | 7,567   |  
|Purchase of Federal Home Loan Bank stock                                                           |  |                         | (557    | ) |      | (141    | )
|Purchase of premises and equipment, net                                                            |  |                         | (1,543  | ) |      | (1,447  | )
|Proceeds from sale of foreclosed real estate                                                       |  |                         | 741     |   |      | 155     |  
|Capitalized cost to acquire foreclosed real estate                                                 |  |                         | (311    | ) |      |        |  
|                                                                                                   |  |                         |         |   |      |         |  
|Net cash used in investing activities                                                              |  |                         | (15,717 | ) |      | (19,737 | )
|                                                                                                   |  |                         |         |   |      |         |  
|Cash flows from financing activities:                                                              |  |                         |         |   |      |         |  
|Net (decrease) increase in deposits                                                                |  |                         | (6,950  | ) |      | 26,311  |  
|Proceeds from Federal Home Loan Bank advances                                                      |  |                         | 16,125  |   |      | 10,000  |  
|Repayments of Federal Home Loan Bank advances                                                      |  |                         |        |   |      | (12,200 | )
|Net (repayments) proceeds for other borrowings                                                     |  |                         | (134    | ) |      | 1,363   |  
|Net proceeds from issuance of common stock                                                         |  |                         | 190     |   |      | 376     |  
|Cash dividends paid                                                                                |  |                         | (123    | ) |      | (91     | )
|                                                                                                   |  |                         |         |   |      |         |  
|Net cash provided by financing activities                                                          |  |                         | 9,108   |   |      | 25,759  |  
|                                                                                                   |  |                         |         |   |      |         |  
|Net (decrease) increase in cash and cash equivalents                                               |  |                         | (4,678  | ) |      | 8,089   |  
|Cash and cash equivalents at beginning of year                                                     |  |                         | 10,890  |   |      | 2,801   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Cash and cash equivalents at end of year                                                           |  | $                       | 6,212   |   |      | 10,890  |  
|                                                                                                   |  |                         |         |   |      |         |  
|Supplemental disclosures of cash flow information:                                                 |  |                         |         |   |      |         |  
|Interest paid                                                                                      |  | $                       | 3,748   |   |      | 4,721   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Income taxes paid                                                                                  |  | $                       | 1,482   |   |      | 1,363   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Non cash transactions:                                                                             |  |                         |         |   |      |         |  
|Loans reclassified to foreclosed real estate                                                       |  | $                       | 2,732   |   |      | 1,537   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Foreclosed real estate transferred to loans in connection with sale of foreclosed real estate      |  | $                       | 2,500   |   |      | 1,460   |  
|                                                                                                   |  |                         |         |   |      |         |  
|Accumulated other comprehensive income, change in unrealized gain on securities available for sale |  | $                       | (102    | ) |      | 305     |  
|                                                                                                   |  |                         |         |   |      |         |  
|Stock dividends                                                                                    |  | $                       |        |   |      | 1,120   |  
|                                                                                                   |  |                         |         |   |      |         |  



See Accompanying Notes to Consolidated
Financial Statements.



35



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements



For the Years Ended December 31, 2003 and 2002



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



General.Madison BancShares, Inc. (the Holding Company) owns 100% of the outstanding common stock of Madison Bank (the
Bank) (collectively, the Company). The only activity of the Holding Company is the operation of the Bank. The Bank is a state-chartered commercial bank incorporated under the laws of the State of Florida. The deposits of the
Bank are insured by the Federal Deposit Insurance Corporation. The Bank currently provides a variety of banking services to small and middle-market businesses and individuals through its two banking offices located in Pinellas County, Florida and
one banking office in Pasco County, Florida.



On February 7,
2003, the Company sold the deposits at one of the banking offices in Pinellas County. Total deposits at this office were approximately $11.7 million and the Company realized a net pretax gain of $200,000. The office closed effective with the closing
of this transaction.



Basis of Presentation.The
accompanying consolidated financial statements include the accounts of the Holding Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.



Use of Estimates. In preparing consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance
sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and deferred tax assets.



Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits with banks and federal funds sold, all of
which mature within 90 days.



The Bank is required by law or
regulation to maintain cash reserves with the Federal Reserve Bank or in accounts with other banks. The reserve requirements at December 31, 2003 and 2002 were approximately $911,000 and $834,000, respectively.



36



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



Securities. The Company may classify its securities as either trading, held to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. The Company does not maintain a trading portfolio. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains
and losses, net of tax, on available-for-sale securities are excluded from earnings and reported in other comprehensive income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the
specific-identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.



Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity
or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.



Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of
the related loan.



The accrual of interest on loans is
discontinued at the time the loan is ninety days delinquent unless the credit is well-secured and in process of collection. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is
considered improbable.



All interest accrued but not collected
for loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to
accrual status when future payments are reasonably assured.



Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of
the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.



37



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



Allowance for Loan Losses, Continued. A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment
record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows
discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.



Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does
not separately identify individual consumer and residential loans for impairment disclosures.



Premises and Equipment. Land is stated at cost. Company premises, furniture and equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization computed using the
straight-line method.



Foreclosed Real Estate.
Real estate acquired through, or in lieu of, foreclosure, is initially recorded at the lower of fair value or the loan balance plus acquisition costs at the date of foreclosure. After foreclosure, valuations are periodically performed by management
and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in earnings.



Advertising. The Company expenses all media advertising as
incurred.



Transfer of Financial Assets.
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.



Income
Taxes. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between
the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.



38



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



Stock Compensation Plans. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (collectively SFAS No. 123) encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), whereby compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock.



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 these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings if the
Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. All per share amounts reflect the five-for-four stock split declared in April, 2003 and the 5% stock dividend declared in November, 2002
($ in thousands, except per share amounts).



|                                                                                                                                       |  |                         |       |   |      |       |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | ----- | -
|                                                                                                                                       |  | Year Ended December 31, |      
|                                                                                                                                       |  | 2003                    |       |   | 2002 |      
|Net earnings, as reported                                                                                                              |  | $                       | 2,171 |   |      | 1,715 |  
|                                                                                                                                       |  |                        
|Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax
effect |  |                         | (66   | ) |      | (70   | )
|                                                                                                                                       |  |                         |       |   |      |       |  
|Proforma net earnings                                                                                                                  |  | $                       | 2,105 |   |      | 1,645 |  
|                                                                                                                                       |  |                         |       |   |      |       |  
|Earnings per share:                                                                                                                    |  |                         |       |   |      |       |  
|Basic, as reported                                                                                                                     |  | $                       | 1.06  |   |      | .86   |  
|                                                                                                                                       |  |                         |       |   |      |       |  
|Basic, proforma                                                                                                                        |  | $                       | 1.03  |   |      | .83   |  
|                                                                                                                                       |  |                         |       |   |      |       |  
|Diluted, as reported                                                                                                                   |  | $                       | 1.02  |   |      | .82   |  
|                                                                                                                                       |  |                         |       |   |      |       |  
|Diluted, proforma                                                                                                                      |  | $                       | .99   |   |      | .79   |  
|                                                                                                                                       |  |                         |       |   |      |       |  



39



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



Stock Compensation Plans, Continued. 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, |     
|                                                                             |  | 2003                    |      |   | 2002 |     
|Weighted-average risk-free interest rate                                     |  |                         | 4.5  | % |      | 5.1  | %
|Dividend yield                                                               |  |                         | 2.0  | % |      | 2.0  | %
|Volatility                                                                   |  |                         | 30.2 | % |      | 28.0 | %
|Expected life in years                                                       |  |                         | 10   |   |      | 10   |  
|                                                                             |  |                        
|Weighted-average grant date fair value of each option issued during the year |  | $                       | 4.59 |   |      | 2.53 |  
|                                                                             |  |                         |      |   |      |      |  



Off-Balance-Sheet Financial Instruments. In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are funded.



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 non-financial 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:



Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximates their fair
value.



Securities. Fair values for
securities available for sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of Federal Home Loan Bank stock
approximates fair value.



Loans. For
variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate loans are estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality.



40



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



Fair Values of Financial Instruments, Continued.



Accrued Interest. The carrying amount approximates fair value.



Deposit Liabilities. The fair values disclosed for demand, savings, NOW and money-market deposits are, by
definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregate expected monthly maturities of time deposits.



Federal Home Loan Bank Advances and Other Borrowings. Fair values for Federal Home Loan Bank advances and other borrowings are estimated
using a discounted cash flow calculation that applies interest rates currently being offered on borrowings with similar terms and maturities.



Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.



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 five-for-four stock split declared in
April, 2003 and the 5% stock dividend declared in November, 2002.



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, |     
|                                                                   |  | 2003                    |      |   | 2002 |     
|Unrealized holding (losses) gains on available-for-sale securities |  | $                       | (162 | ) |      | 492  |  
|Reclassification adjustment for gains realized in earnings         |  |                         |     |   |      | (4   | )
|                                                                   |  |                         |      |   |      |      |  
|                                                                   |  |                        
|Net unrealized (losses) gains                                      |  |                         | (162 | ) |      | 488  |  
|                                                                   |  |                        
|Income taxes                                                       |  |                         | 60   |   |      | (183 | )
|                                                                   |  |                         |      |   |      |      |  
|Net amount                                                         |  | $                       | (102 | ) |      | 305  |  
|                                                                   |  |                         |      |   |      |      |  



41



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



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 is applied on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material affect on the consolidated financial statements of the Company.



In January 2003, the FASB issued (Revised in December 2003) FASB Interpretation No. 46 Consolidation of Variable Interest Entities
(FIN 46) which addresses consolidation by business enterprises of variable interest entities. FIN 46 applies to variable interest entities created after January 31, 2003. The Company has no variable interest entities, therefore FIN 46
had no effect on the consolidated financial statements of the Company.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance on the recognition and measurement of liabilities for costs associated
with exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The adoption of this Statement had no effect on the Companys consolidated financial statements.



In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities.This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003. The adoption of this Statement had no effect on the Companys consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity.This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this Statement had no effect on the Companys consolidated financial statements.



Reclassification. Certain amounts in the 2002
consolidated financial statements have been reclassified to conform to the 2003 presentation.



42



---

##### Table of Contents

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 UnrealizedLosses |     |   | Fair Value
|Securities Available for Sale:                     |  |                |        |                        |     |                        |     |   |            |       
|At December 31, 2003:                              |  |                |        |                        |     |                        |     |   |            |       
|U. S. Government agency mortgage-backed securities |  | $              | 12,835 |                        | 159 |                        | (28 | ) |            | 12,966
|U.S. Government agency securities                  |  |                | 602    |                        | 2   |                        |    |   |            | 604   
|Other securities                                   |  |                | 6,787  |                        | 97  |                        |    |   |            | 6,884 
|                                                   |  |                |        |                        |     |                        |     |   |            |       
|                                                   |  | $              | 20,224 |                        | 258 |                        | (28 | ) |            | 20,454
|                                                   |  |                |        |                        |     |                        |     |   |            |       
|At December 31, 2002:                              |  |                |        |                        |     |                        |     |   |            |       
|U. S. Government agency mortgage-backed securities |  |                | 15,933 |                        | 337 |                        | (16 | ) |            | 16,254
|U.S. Government agency securities                  |  |                | 919    |                        | 3   |                        |    |   |            | 922   
|Other securities                                   |  |                | 6,624  |                        | 68  |                        |    |   |            | 6,692 
|                                                   |  |                |        |                        |     |                        |     |   |            |       
|                                                   |  | $              | 23,476 |                        | 408 |                        | (16 | ) |            | 23,868
|                                                   |  |                |        |                        |     |                        |     |   |            |       



The scheduled
maturities of securities available for sale at December 31, 2003 were as follows (in thousands):



|                           |  |                |        |            |       
|-------------------------- |  | -------------- | ------ | ---------- | ------
|                           |  | Amortized Cost |        | Fair Value
|Due in one year            |  | $              | 4,165  |            | 4,183 
|Due from one to five years |  |                | 2,988  |            | 3,082 
|Due from five to ten years |  |                | 4,302  |            | 4,336 
|Due after ten years        |  |                | 8,769  |            | 8,853 
|                           |  |                |        |            |       
|                           |  | $              | 20,224 |            | 20,454
|                           |  |                |        |            |       



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.





43



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(2) | Securities Available for Sale, Continued
|--- | ----------------------------------------



There were no security sales during 2003. Security sales transactions during 2002 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, |        
|                                                     |  | 2003            |         |   | 2002 |        
|Commercial real estate                               |  | $               | 146,371 |   |      | 126,346 |  
|Commercial                                           |  |                 | 10,599  |   |      | 8,944   |  
|Residential real estate                              |  |                 | 9,768   |   |      | 13,838  |  
|Consumer, equity lines of credit and second mortgage |  |                 | 5,413   |   |      | 5,908   |  
|                                                     |  |                 |         |   |      |         |  
|Subtotal                                             |  |                 | 172,151 |   |      | 155,036 |  
|                                                     |  |                
|Net deferred loan fees                               |  |                 | (335    | ) |      | (299    | )
|Allowance for loan losses                            |  |                 | (2,449  | ) |      | (2,058  | )
|                                                     |  |                 |         |   |      |         |  
|Loans, net                                           |  | $               | 169,367 |   |      | 152,679 |  
|                                                     |  |                 |         |   |      |         |  



An analysis of the
change in the allowance for loan losses is as follows (in thousands):



|                                |  |                        |       |   |      |       |  
|------------------------------- |  | ---------------------- | ----- | - | ---- | ----- | -
|                                |  | Year EndedDecember 31, |      
|                                |  | 2003                   |       |   | 2002 |      
|Balance at beginning of year    |  | $                      | 2,058 |   |      | 1,477 |  
|Provision charged to operations |  |                        | 405   |   |      | 618   |  
|Charge-offs                     |  |                        | (26   | ) |      | (53   | )
|Recoveries                      |  |                        | 12    |   |      | 16    |  
|                                |  |                        |       |   |      |       |  
|Balance at end of year          |  | $                      | 2,449 |   |      | 2,058 |  
|                                |  |                        |       |   |      |       |  





44



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(3) | Loans, Net, Continued
|--- | ---------------------



The following summarizes the amount of impaired loans at December 31, 2003 and 2002, all of which are collateral dependent (in thousands):



|                                                       |  |                 |     |      |      
|------------------------------------------------------ |  | --------------- | --- | ---- | -----
|                                                       |  | At December 31,
|                                                       |  | 2003            |     | 2002
|Loans identified as impaired:                          |  |                 |     |      |      
|Gross loans with no related allowance for losses       |  | $               |    |      |     
|Gross loans with related allowance for losses recorded |  |                 | 198 |      | 2,706
|Less: Allowances on these loans                        |  |                 | 20  |      | 270  
|                                                       |  |                 |     |      |      
|Net investment in impaired loans                       |  | $               | 178 |      | 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,
|                                             |  | 2003                    |       | 2002
|Average investment in impaired loans         |  | $                       | 1,390 |      | 2,294
|                                             |  |                         |       |      |      
|Interest income recognized on impaired loans |  | $                       | 81    |      | 21   
|                                             |  |                         |       |      |      
|Interest income received on impaired loans   |  | $                       | 81    |      | 21   
|                                             |  |                         |       |      |      



Non-accrual and past
due loans were as follows (in thousands):



|                                                 |  |                 |     |      |      
|------------------------------------------------ |  | --------------- | --- | ---- | -----
|                                                 |  | At December 31,
|                                                 |  | 2003            |     | 2002
|Non-accrual loans                                |  | $               | 198 |      | 2,713
|Past due ninety days or more, but still accruing |  |                 |    |      |     
|                                                 |  |                 |     |      |      
|                                                 |  | $               | 198 |      | 2,713
|                                                 |  |                 |     |      |      



45



---

##### Table of Contents

|(4) | Loan Servicing
|--- | --------------



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,
|                                       |  | 2003            |       | 2002
|Mortgage loan portfolios serviced for: |  |                 |       |      |      
|FHLMC                                  |  | $               | 794   |      | 1,049
|FNMA                                   |  |                 | 224   |      | 350  
|Other investors                        |  |                 | 7,248 |      | 3,847
|                                       |  |                 |       |      |      
|                                       |  | $               | 8,266 |      | 5,246
|                                       |  |                 |       |      |      



Custodial escrow
balances maintained in connection with the foregoing loan servicing were approximately $6,000 and $7,000 at December 31, 2003 and 2002, respectively.



46



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(5) | Premises and Equipment, Net
|--- | ---------------------------



Components of premises and equipment were as follows (in thousands):



|                                               |  |                 |        |   |      |        |  
|---------------------------------------------- |  | --------------- | ------ | - | ---- | ------ | -
|                                               |  | At December 31, |       
|                                               |  | 2003            |        |   | 2002 |       
|Land and land improvements                     |  | $               | 1,723  |   |      | 894    |  
|Buildings                                      |  |                 | 2,878  |   |      | 2,592  |  
|Leasehold improvements                         |  |                 | 39     |   |      | 182    |  
|Furniture and equipment                        |  |                 | 2,311  |   |      | 2,190  |  
|Construction in progress                       |  |                 | 54     |   |      | 11     |  
|                                               |  |                 |        |   |      |        |  
|Total at cost                                  |  |                 | 7,005  |   |      | 5,869  |  
|Less accumulated depreciation and amortization |  |                 | (1,922 | ) |      | (1,909 | )
|                                               |  |                 |        |   |      |        |  
|Premises and equipment, net                    |  | $               | 5,083  |   |      | 3,960  |  
|                                               |  |                 |        |   |      |        |  



The Company is
currently constructing a branch office in Pasco County. The contractor of this branch is a director of the Company and the total purchase commitment is $933,000 of which $879,000 remains outstanding at December 31, 2003.



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, 2003 and 2002 was approximately $161,000 and $134,000, respectively. The Company also leases office space to third parties. Rental income under operating leases was approximately $58,000 and $39,000 during the years ended December 31, 2003 and
2002, respectively. The future minimum lease payments and estimated future rentals at December 31, 2003 on these leases are approximately as follows (in thousands):



|                         |  |                         |     |                        |    
|------------------------ |  | ----------------------- | --- | ---------------------- | ---
|Year Ending December 31: |  | Operating Lease Expense |     | Operating Lease Income
|                         | 
|2004                     |  | $                       | 144 |                        | 64 
|2005                     |  |                         | 105 |                        | 64 
|2006                     |  |                         | 64  |                        | 61 
|2007                     |  |                         | 64  |                        | 49 
|2008                     |  |                         | 64  |                        | 49 
|Thereafter               |  |                         | 139 |                        | 89 
|                         |  |                         |     |                        |    
|                         |  | $                       | 580 |                        | 376
|                         |  |                         |     |                        |    



47



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(6) | Deposits
|--- | --------



The aggregate amount of short-term jumbo certificates of deposit with a minimum denomination of $100,000 was approximately $28.0 million and $27.0 million
at December 31, 2003 and 2002, respectively.



The scheduled
maturities of time deposits at December 31, 2003 is as follows (in thousands):



|                         |  |        |       
|------------------------ |  | ------ | ------
|Year Ending December 31, |  | Amount
|2004                     |  | $      | 42,488
|2005-2006                |  |        | 16,140
|2007-2008                |  |        | 8,097 
|Thereafter               |  |        | 1,145 
|                         |  |        |       
|                         |  | $      | 67,870
|                         |  |        |       



|(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 $29,000 and $22,000,
respectively, net of the increase in the cash surrender value of the life insurance policy, under this Agreement in 2003 and 2002.



|(8) | Federal Home Loan Bank Advances
|--- | -------------------------------



Federal Home Loan Bank of Atlanta (FHLB) advances, which are collateralized by a blanket floating lien on residential and commercial real
estate mortgage loans of approximately $44.2 million, are as follows (in thousands):



|                            |  |                                |  |                 |        |  |       
|--------------------------- |  | ------------------------------ |  | --------------- | ------ |  | ------
|Maturing in the Year
Ending |  | Weighted-Average Interest Rate |  | At December 31,
|                            |  | 2003                           |  | 2002           
|Daily                       |  | Variable                       |  | $               | 9,125  |  |      
|2005                        |  | 2.00%                          |  |                 | 3,500  |  |      
|2006                        |  | 4.79%                          |  |                 | 5,000  |  | 5,000 
|2006                        |  | 1.97%                          |  |                 | 2,000  |  |      
|2007                        |  | 2.43%                          |  |                 | 1,500  |  |      
|2011                        |  | 4.03%                          |  |                 | 5,000  |  | 5,000 
|                            |  |                                |  |                 |        |  |       
|                            |  |                                |  | $               | 26,125 |  | 10,000
|                            |  |                                |  |                 |        |  |       



The fixed rate FHLB advance of
$5,000,000 at 4.03% maturing in 2011 has a call option.



48



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(9) | Other Borrowings
|--- | ----------------



Other borrowings are summarized as follows (in thousands):



|                               |  |                 |       |      |      
|------------------------------ |  | --------------- | ----- | ---- | -----
|                               |  | At December 31,
|                               |  | 2003            |       | 2002
|Customer repurchase agreements |  | $               | 1,124 |      | 1,258
|Line of credit                 |  |                 | 1,906 |      | 1,906
|                               |  |                 |       |      |      
|Total other borrowings         |  | $               | 3,030 |      | 3,164
|                               |  |                 |       |      |      



At December 31, 2003,
the Company has pledged securities with a carrying value of $5.1 million as collateral for customer repurchase agreements. Also, the Company has a line of credit with another financial institution with a maximum limit of $5.0 million at a variable
rate, which adjusts quarterly, as defined by the agreement (at December 31, 2003 the rate was 2.93%). The Company has pledged the stock of the Bank as collateral.



|(10) | Income Taxes
|---- | ------------



Allocation of Federal and state income taxes between current and deferred portions is as follows (in thousands):



|          |  |                         |       |   |      |       |  
|--------- |  | ----------------------- | ----- | - | ---- | ----- | -
|          |  | Year Ended December 31, |      
|          |  | 2003                    |       |   | 2002 |      
|Current:  |  |                         |       |   |      |       |  
|Federal   |  | $                       | 1,249 |   |      | 1,119 |  
|State     |  |                         | 200   |   |      | 192   |  
|          |  |                         |       |   |      |       |  
|          |  |                         | 1,449 |   |      | 1,311 |  
|          |  |                         |       |   |      |       |  
|Deferred: |  |                         |       |   |      |       |  
|Federal   |  |                         | (101  | ) |      | (226  | )
|State     |  |                         | (17   | ) |      | (39   | )
|          |  |                         |       |   |      |       |  
|          |  |                         | (118  | ) |      | (265  | )
|          |  |                         |       |   |      |       |  
|Total     |  | $                       | 1,331 |   |      | 1,046 |  
|          |  |                         |       |   |      |       |  



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, |      
|                                                    |  | 2003                    |       |        | 2002 |  
|                                                    |  | % of Earnings           |       | Amount |      |   | % of Earnings |   | Amount | 
|Income taxes at statutory income tax rate           |  | $                       | 1,191 |        | 34.0 | % |               | $ | 939    |  | 34.0 | %
|Increae resulting from:                             |  |                         |       |        |      |   |               |   |        |  |      |  
|State income tax, net of Federal income tax benefit |  |                         | 121   |        | 3.5  |   |               |   | 99     |  | 3.6  |  
|Other, net                                          |  |                         | 19    |        | .5   |   |               |   | 8      |  | .3   |  
|                                                    |  |                         |       |        |      |   |               |   |        |  |      |  
|Total                                               |  | $                       | 1,331 |        | 38.0 | % |               | $ | 1,046  |  | 37.9 | %
|                                                    |  |                         |       |        |      |   |               |   |        |  |      |  



49



---

##### Table of Contents

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, |     
|                                                     |  | 2003            |      |   | 2002 |     
|Deferred tax assets:                                 |  |                 |      |   |      |      |  
|Allowance for loan losses                            |  | $               | 795  |   |      | 642  |  
|Salary continuation plan                             |  |                 | 90   |   |      | 69   |  
|Impaired loan interest                               |  |                 | 10   |   |      | 87   |  
|Organizational costs                                 |  |                 | 13   |   |      | 17   |  
|                                                     |  |                 |      |   |      |      |  
|Total deferred tax assets                            |  |                 | 908  |   |      | 815  |  
|                                                     |  |                 |      |   |      |      |  
|Deferred tax liabilities:                            |  |                 |      |   |      |      |  
|Accumulated depreciation                             |  |                 | (202 | ) |      | (175 | )
|Net unrealized gain on securities available for sale |  |                 | (87  | ) |      | (147 | )
|Deferred loan costs                                  |  |                 | (55  | ) |      | (63  | )
|Deferred loan fees                                   |  |                 | (37  | ) |      | (59  | )
|Federal Home Loan Bank of Atlanta stock              |  |                 | (15  | ) |      | (29  | )
|Other                                                |  |                 | (2   | ) |      | (10  | )
|                                                     |  |                 |      |   |      |      |  
|Total deferred tax liabilities                       |  |                 | (398 | ) |      | (483 | )
|                                                     |  |                 |      |   |      |      |  
|Net deferred tax asset                               |  | $               | 510  |   |      | 332  |  
|                                                     |  |                 |      |   |      |      |  



|(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 $168,000 and $114,000 for the years ended December 31, 2003 and 2002, respectively.



50



---

##### Table of Contents

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 five-for-four stock split declared in April, 2003 and the 5% stock dividend declared in November, 2002. At December 31, 2003, 69,385 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, 2001 |  | 218,848          |   |  | $                               | 3.75-7.09  |                                  | 4.66  |                        | 1,019 |  
|Options granted                          |  | 60,538           |   |  |                                 | 7.73-11.09 |                                  | 8.75  |                        | 530   |  
|Options exercised                        |  | (28,863          | ) |  |                                 | 3.58-3.75  |                                  | 3.75  |                        | (108  | )
|Options terminated                       |  | (14,927          | ) |  |                                 | 5.10-5.68  |                                  | 5.36  |                        | (80   | )
|                                         |  |                  |   |  |                                 |            |                                  |       |                        |       |  
|Options outstanding at December 31, 2002 |  | 235,596          |   |  |                                 | 3.75-11.09 |                                  | 5.78  |                        | 1,361 |  
|Options granted                          |  | 14,680           |   |  |                                 | 8.82-13.73 |                                  | 12.60 |                        | 185   |  
|Options exercised                        |  | (29,159          | ) |  |                                 | 3.75-5.11  |                                  | 3.98  |                        | (116  | )
|Options terminated                       |  | (30,180          | ) |  |                                 | 7.10-12.06 |                                  | 8.07  |                        | (243  | )
|                                         |  |                  |   |  |                                 |            |                                  |       |                        |       |  
|Options outstanding at December 31, 2003 |  | 190,937          |   |  | $                               | 3.75-13.73 |                                  | 6.22  |                        | 1,187 |  
|                                         |  |                  |   |  |                                 |            |                                  |       |                        |       |  



The weighted-average
remaining contractual life of options outstanding at December 31, 2003 and 2002 was 4.7 years and 5.5 years, respectively.



These options are exercisable as follows:



|                         |  |                  |  |                                 |      
|------------------------ |  | ---------------- |  | ------------------------------- | -----
|Year Ending December 31, |  | Number of Shares |  | Weighted-Average Exercise Price
|Currently exercisable    |  | 124,009          |  | $                               | 5.03 
|2004                     |  | 29,074           |  |                                 | 6.99 
|2005                     |  | 13,884           |  |                                 | 8.75 
|2006                     |  | 12,291           |  |                                 | 9.20 
|2007                     |  | 9,398            |  |                                 | 10.38
|2008                     |  | 2,281            |  |                                 | 13.13
|                         |  |                  |  |                                 |      
|                         |  | 190,937          |  | $                               | 6.22 
|                         |  |                  |  |                                 |      



51



---

##### Table of Contents

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
judgments 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, 2003, that
the Company and the Bank met all capital adequacy requirements to which they are subject.



52



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



|(13) | Regulatory Matters, Continued
|---- | -----------------------------



As of December 31, 2003, 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, 2003 and 2002 are also presented in the table ($ in thousands).



|                                          |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|----------------------------------------- |  | ------ | ------ | - | ----------------------------- | - | ------ | ---------------------------------------------------------------- | ------ |  | ---- | ------ |  | - | ------ |  | ----- | -
|                                          |  | Actual |        |   | For Capital Adequacy Purposes |   |        | To Be Well Capitalized Under Prompt Corrective Action Provisions |       
|                                          |  | Amount |        | % |                               |   | Amount |                                                                  | %      |  |      | Amount |  | % |       
|As of December 31, 2003:                  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Total capital (to Risk-Weighted Assets):  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  | $      | 18,853 |   | 10.40                         | % |        | $                                                                | 14,510 |  | 8.00 | %      |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 20,628 |   | 11.38                         |   |        |                                                                  | 14,507 |  | 8.00 |        |  | $ | 18,133 |  | 10.00 | %
|Tier I Capital (to Risk-Weighted Assets): |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 16,584 |   | 9.14                          |   |        |                                                                  | 7,255  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,359 |   | 10.13                         |   |        |                                                                  | 7,253  |  | 4.00 |        |  |   | 10,879 |  | 6.00  |  
|Tier I Capital (to Average Assets):       |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 16,584 |   | 8.24                          |   |        |                                                                  | 8,050  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,359 |   | 9.13                          |   |        |                                                                  | 8,045  |  | 4.00 |        |  |   | 10,058 |  | 5.00  |  
|                                          |  |        |        |   |                               |  
|As of December 31, 2002:                  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Total capital (to Risk-Weighted Assets):  |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 16,371 |   | 9.79                          |   |        |                                                                  | 13,364 |  | 8.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 18,207 |   | 10.89                         |   |        |                                                                  | 13,375 |  | 8.00 |        |  |   | 16,719 |  | 10.00 |  
|Tier I Capital (to Risk-Weighted Assets): |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 14,313 |   | 8.56                          |   |        |                                                                  | 6,688  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,149 |   | 9.66                          |   |        |                                                                  | 6,687  |  | 4.00 |        |  |   | 10,030 |  | 6.00  |  
|Tier I Capital (to Average Assets):       |  |        |        |   |                               |   |        |                                                                  |        |  |      |        |  |   |        |  |       |  
|Consolidated                              |  |        | 14,313 |   | 7.28                          |   |        |                                                                  | 7,865  |  | 4.00 |        |  |   | N/A    |  | N/A   |  
|Bank                                      |  |        | 16,149 |   | 8.23                          |   |        |                                                                  | 7,849  |  | 4.00 |        |  |   | 9,811  |  | 5.00  |  



53



---

##### Table of Contents

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 $15.6 million at December
31, 2003, 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.



54



---

##### Table of Contents

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, 2003 |         | At December 31, 2002
|                                |  | Carrying Amount      |         | Fair Value           |         | Carrying Amount |         | Fair Value
|Financial assets:               |  |                      |         |                      |         |                 |         |            |        
|Cash and cash equivalents       |  | $                    | 6,212   |                      | 6,212   |                 | 10,890  |            | 10,890 
|                                |  |                      |         |                      |         |                 |         |            |        
|Securities available for sale   |  | $                    | 20,454  |                      | 20,454  |                 | 23,868  |            | 23,868 
|                                |  |                      |         |                      |         |                 |         |            |        
|Loans, net                      |  | $                    | 169,367 |                      | 169,363 |                 | 152,679 |            | 152,717
|                                |  |                      |         |                      |         |                 |         |            |        
|Accrued interest receivable     |  | $                    | 704     |                      | 704     |                 | 706     |            | 706    
|                                |  |                      |         |                      |         |                 |         |            |        
|Federal Home Loan Bank stock    |  | $                    | 1,316   |                      | 1,316   |                 | 759     |            | 759    
|                                |  |                      |         |                      |         |                 |         |            |        
|Financial liabilities:          |  |                      |         |                      |         |                 |         |            |        
|Deposits                        |  | $                    | 156,245 |                      | 159,896 |                 | 163,395 |            | 168,492
|                                |  |                      |         |                      |         |                 |         |            |        
|Federal Home Loan Bank advances |  | $                    | 26,125  |                      | 26,163  |                 | 10,000  |            | 11,106 
|                                |  |                      |         |                      |         |                 |         |            |        
|Other borrowings                |  | $                    | 3,030   |                      | 3,030   |                 | 3,164   |            | 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, 2003, follows (in thousands):



|                                              |  |                 |        |                 |   |                      |  
|--------------------------------------------- |  | --------------- | ------ | --------------- | - | -------------------- | -
|                                              |  | Contract Amount |        | Carrying Amount |   | Estimated Fair Value
|Commitments to extend credit                  |  | $               | 9,501  |                 |  |                      | 
|                                              |  |                 |        |                 |   |                      |  
|Unused lines of credit and construction loans |  | $               | 25,273 |                 |  |                      | 
|                                              |  |                 |        |                 |   |                      |  
|Standby letters of credit                     |  | $               | 307    |                 |  |                      | 
|                                              |  |                 |        |                 |   |                      |  



55



---

##### Table of Contents

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, |      
|                                                  |  | 2003                    |       |   | 2002 |       
|Loans outstanding, beginning of year              |  | $                       | 5,236 |   |      | 7,103  |  
|Loans granted during the year                     |  |                         | 1,876 |   |      | 1,787  |  
|Loan repayments and net change in lines of credit |  |                         | (595  | ) |      | (3,654 | )
|                                                  |  |                         |       |   |      |        |  
|Loans outstanding, end of year                    |  | $                       | 6,517 |   |      | 5,236  |  
|                                                  |  |                         |       |   |      |        |  



In addition, deposits
from such related parties were approximately $1,298,000 and $1,246,000 at December 31, 2003 and 2002, 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 five-for-four stock split declared in April, 2003 and the 5%
stock dividend declared in November, 2002. The following tables present the calculations of EPS (dollars in thousands, except per share amounts).



|                                                                      |  |                                      |       |                          |           |                  |   |     
|--------------------------------------------------------------------- |  | ------------------------------------ | ----- | ------------------------ | --------- | ---------------- | - | ----
|                                                                      |  | For the Year Ended December 31, 2003
|                                                                      |  | Earnings                             |       | Weighted- Average Shares |           | Per Share Amount
|Basic EPS:                                                            |  |                                      |       |                          |           |                  |   |     
|Net earnings available to common stockholders                         |  | $                                    | 2,171 |                          | 2,038,876 |                  | $ | 1.06
|                                                                      |  |                                      |       |                          |           |                  |   |     
|                                                                      |  |                                      |      
|Effect of dilutive securities-                                        |  |                                      |       |                          |           |                  |   |     
|Incremental shares from assumed conversion of options                 |  |                                      |       |                          | 91,320    |                  |   |     
|                                                                      |  |                                      |       |                          |           |                  |   |     
|Diluted EPS:                                                          |  |                                      |       |                          |           |                  |   |     
|Net earnings available to common stockholders and assumed conversions |  | $                                    | 2,171 |                          | 2,130,196 |                  | $ | 1.02
|                                                                      |  |                                      |       |                          |           |                  |   |     



56



---

##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Consolidated Financial Statements, Continued



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



|                                                                      |  |                                      |       |                          |           |                  |   |    
|--------------------------------------------------------------------- |  | ------------------------------------ | ----- | ------------------------ | --------- | ---------------- | - | ---
|                                                                      |  | For the Year Ended December 31, 2002
|                                                                      |  | Earnings                             |       | Weighted- Average Shares |           | Per Share Amount
|Basic EPS:                                                            |  |                                      |       |                          |           |                  |   |    
|Net earnings available to common stockholders                         |  | $                                    | 1,715 |                          | 1,986,999 |                  | $ | .86
|                                                                      |  |                                      |       |                          |           |                  |   |    
|                                                                      |  |                                      |      
|Effect of dilutive securities-                                        |  |                                      |       |                          |           |                  |   |    
|Incremental shares from assumed conversion of options                 |  |                                      |       |                          | 105,373   |                  |   |    
|                                                                      |  |                                      |       |                          |           |                  |   |    
|                                                                      |  |                                      |      
|Diluted EPS:                                                          |  |                                      |       |                          |           |                  |   |    
|Net earnings available to common stockholders and assumed conversions |  | $                                    | 1,715 |                          | 2,092,372 |                  | $ | .82
|                                                                      |  |                                      |       |                          |           |                  |   |    



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, 2003 |  | 1,965            |  | $           | 13.73       |             | 2003 |              | 2009-2013
|For the year ended December 31, 2002 |  | 17,315           |  | $           | 10.9911.09 |             | 2002 |              | 2008-2012



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



The Holding Companys financial information as of December 31, 2003 and 2002 and for the years then ended is as follows (in thousands):



Condensed Balance Sheets



|                                           |  |                 |        |      |       
|------------------------------------------ |  | --------------- | ------ | ---- | ------
|                                           |  | At December 31,
|                                           |  | 2003            |        | 2002
|Assets                                     |  |                 |        |      |       
|Cash                                       |  | $               | 140    |      | 48    
|Securities available for sale              |  |                 | 1      |      |      
|Investment in subsidiary                   |  |                 | 18,502 |      | 16,394
|Other assets                               |  |                 | 36     |      | 29    
|                                           |  |                 |        |      |       
|Total assets                               |  | $               | 18,679 |      | 16,471
|                                           |  |                 |        |      |       
|Liabilities and Stockholders Equity       |  |                 |        |      |       
|Other liabilities                          |  |                 | 47     |      | 7     
|Other borrowings                           |  |                 | 1,906  |      | 1,906 
|Stockholders equity                       |  |                 | 16,726 |      | 14,558
|                                           |  |                 |        |      |       
|Total liabilities and stockholders equity |  | $               | 18,679 |      | 16,471
|                                           |  |                 |        |      |       



57



---

##### Table of Contents

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, |      
|                                   |  | 2003                            |       |   | 2002 |      
|Expenses                           |  | $                               | 132   |   |      | 78    |  
|                                   |  |                                 |       |   |      |       |  
|Loss before earnings of subsidiary |  |                                 | (132  | ) |      | (78   | )
|                                   |  |                                
|Earnings of subsidiary             |  |                                 | 2,303 |   |      | 1,793 |  
|                                   |  |                                 |       |   |      |       |  
|Net earnings                       |  | $                               | 2,171 |   |      | 1,715 |  
|                                   |  |                                 |       |   |      |       |  



Condensed Statements
of Cash Flows



|                                                                                                                                                                |  |                                 |        |   |      |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | ------ | -
|                                                                                                                                                                |  | For the Year Ended December 31, |       
|                                                                                                                                                                |  | 2003                            |        |   | 2002 |       
|Cash flows from operating activities:                                                                                                                           |  |                                 |        |   |      |        |  
|Net earnings                                                                                                                                                    |  | $                               | 2,171  |   |      | 1,715  |  
|Adjustments to reconcile net earnings to net cash used in operating activities:                                                                                 |  |                                 |        |   |      |        |  
|Equity in undistributed earnings of subsidiary                                                                                                                  |  |                                 | (2,303 | ) |      | (1,793 | )
|(Increase) decrease in other assets                                                                                                                             |  |                                 | (7     | ) |      | 20     |  
|Increase (decrease) in other liabilities                                                                                                                        |  |                                 | 40     |   |      | (15    | )
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Net cash used in operating activities                                                                                                                           |  |                                 | (99    | ) |      | (73    | )
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Cash flows from investing activities:                                                                                                                           |  |                                 |        |   |      |        |  
|Investment in subsidiary                                                                                                                                        |  |                                 |       |   |      | (1,117 | )
|Dividends received from subsidiary                                                                                                                              |  |                                 | 200    |   |      |       |  
|Purchase of security available for sale                                                                                                                         |  |                                 | (1     | ) |      |       |  
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Net cash provided by (used in) investing activities                                                                                                             |  |                                 | 199    |   |      | (1,117 | )
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Cash flows from financing activities:                                                                                                                           |  |                                 |        |   |      |        |  
|Net proceeds from other borrowings                                                                                                                              |  |                                 |       |   |      | 900    |  
|Proceeds from issuance of common stock                                                                                                                          |  |                                 | 115    |   |      | 376    |  
|Cash dividends paid                                                                                                                                             |  |                                 | (123   | ) |      | (91    | )
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Net cash (used in) provided by financing activities                                                                                                             |  |                                 | (8     | ) |      | 1,185  |  
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Net increase (decrease) increase in cash                                                                                                                        |  |                                 | 92     |   |      | (5     | )
|                                                                                                                                                                |  |                                
|Cash at beginning of the year                                                                                                                                   |  |                                 | 48     |   |      | 53     |  
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Cash at end of year                                                                                                                                             |  | $                               | 140    |   |      | 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 |  | $                               | (102   | ) |      | 305    |  
|                                                                                                                                                                |  |                                 |        |   |      |        |  
|Stock dividends                                                                                                                                                 |  | $                               |       |   |      | 1,120  |  
|                                                                                                                                                                |  |                                 |        |   |      |        |  



58



---

##### Table of Contents

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.



Item 8A. Controls and Procedures.



| | (a) | Evaluation of disclosure controls and procedures.
| | --- | -------------------------------------------------



Madison BancShares and Madison Bank maintain controls and procedures designed to ensure that information required to be disclosed in the reports that
Madison BancShares 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 BancShares concluded that Madison BancShares and Madison Banks disclosure
controls and procedures were adequate.



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



Madison BancShares and Madison Bank made no significant changes in their 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.



PART III



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



Robert W. Byrd, age 63, is a founding director of Madison Bank, having first been elected to the Board in 1985. He is also a director of
Madison BancShares. Since 1989, he has been a real estate investor and developer at Byrd Corporation of Clearwater, Inc. with current projects in Pinellas, Pasco and Hillsborough Counties, Florida. Mr. Byrd has served as President of the Florida
Association of Realtors. He has also served as President of the Greater Clearwater Chamber of Commerce and the Downtown Clearwater Rotary Club. Mr. Byrd is a distinguished alumnus of Florida State University.



George M. Cantonis, age 55, is a founding director of the Bank,
having first been elected to the Board in 1985. Mr. Cantonis is also a director of Madison BancShares. Mr. Cantonis has been President of The Cantonis Company and Executive Vice President of Acme Sponge & Chamois Company, Inc., a subsidiary of
The Cantonis Company since 1972. Acme Sponge & Chamois is an international company and one of the major providers in the world for chamois products. The Cantonis Company also owns five hotels in Florida. Mr. Cantonis is active in the community
and has recently served as Chairman of the Board of Morton Plant Mease Health Care and Chairman of BayCare Health System, Inc. He received his Bachelors Degree from Princeton University and his Masters of Business Administration from the University
of Chicago.



59



---

##### Table of Contents

Thomas A. Castriota, age 50, became a member of the Banks Board in 2000 and now
serves on Madison BancShares Board. Mr. Castriota has been the owner of Castriota Chevrolet, Inc. since 1994 and serves on the Board of Trustees of Bayonet Regional Hospital. He is currently President of the Pasco Education Foundation and a
Charter Member of the Trinity Rotary Club. He was awarded the Paul Harris Fellow Award from Rotary International, received the Florida Business Partners Award from the Florida Commissioner of Education, and the Genuine Leaders Award from Chevrolet
Motors Division in 1997 and 1998.



Wayne R. Coulter, age
61, became a member of the Banks Board in 1999. Mr. Coulter is now a director of Madison BancShares. Mr. Coulter is a partner in the law firm of Delzer, Coulter & Bell, P.A. and is a Board Certified Wills, Trusts and Estates
Attorney. He has been a partner in that firm since 1972. Mr. Coulter is a former director of NationsBank (North Suncoast) and Barnett Bank of Pasco. Mr. Coulter is a past President of the West Pasco Bar Association and the Greater West Hernando
Chamber of Commerce. Mr. Coulter received a Juris Doctorate and a Bachelors of Science from Stetson University. Mr. Coulter is a fourth generation resident of Pasco County, Florida.



Melvin S. Cutler, age 71, is the Chairman of the Board of both Madison BancShares and the Bank. Mr. Cutler is
a founding director of the Bank, having first been elected to the Board in 1985, and a principal shareholder of Madison BancShares. Since 1999, Mr. Cutler has been President of Cutler Capital Management, a registered investment advisor. Since 1972
he has served as Chairman of the Board and is a principal shareholder of Cutler Associates, Inc., a design, building and contracting firm with offices in Florida, Massachusetts and Pennsylvania. He received his Bachelors Degree at City College of
New York. Mr. Cutler is a professional engineer and a registered investment representative.



Robert B. McGivney, age 55, is a director and the President and Chief Executive Officer of both Madison BancShares and the Bank. Mr. McGivney became the President of the Bank in September 1991. Before
joining the Bank, Mr. McGivney had been a banker in San Antonio, Texas for 21 years, 17 of which were with Cullen/Frost Bankers, Inc., a $8 billion bank holding company headquartered in San Antonio. He served as President and Chief Executive Officer
of two of the holding companys affiliate banks in San Antonio. Mr. McGivney is active in the community and currently is on the Board of Directors of the Florida Bankers Association. He was Chairman of the Trustees of Mease Hospitals. He also
serves as a member of the Morton Plant Mease Health Care Board and has served on the Executive Board of the West Central Florida Council of the Boy Scouts of America.



Paul J. Wikle, CCIM, age 42, was first elected to the Bank Board in 1996. He is also a director of Madison
BancShares. Mr. Wikle is the President and Owner of Coldwell Banker/Wikle Properties, a commercial and residential real estate firm located in Palm Harbor, Florida. He has owned and operated that company since 1993. Mr. Wikle is also active as a
real estate investor and developer in Northern Pinellas County. He is very active in the community, serving on the Board of the Tarpon Springs Chamber of Commerce, and as a past Secretary and Treasurer for the Greater Clearwater Association of
Realtors. He is a Trustee for the First United Methodist Church of Tarpon Springs and has served as President of the Tarpon Springs Chamber of Commerce and Tarpon Springs Jaycees. Mr. Wikle is a native of Palm Harbor and received his Bachelors
Degree in Real Estate from Florida State University.



Non-Director Executive
Officers



Martin W. Gladysz, age 51,is Vice
President and Chief Financial Officer for Madison BancShares and Executive Vice President and Chief Financial Officer of the Bank. Prior to joining Madison



60



---

##### Table of Contents

BancShares in December, 2002, Mr. Gladysz was a financial consultant with Sterling Management Resources for approximately
ten months. From September 1994 to January 2000, he served as Vice President and Treasurer for the Eckerd Corporation. Between June of 1982 and June of 1994, Mr. Gladysz was Executive Vice President and Chief Financial Officer of Fortune Bancorp,
Inc. Mr. Gladysz is a resident of Palm Harbor, Florida and serves on the Board of Directors of Goodwill Industries, Suncoast, Inc.



David P. Paetzold, age 53, is the Assistant Secretary to Madison Bancshares and is Executive Vice President and Senior Loan Officer of the
Bank. Mr. Paetzold joined the Bank in October 1999. Mr. Paetzold received his Bachelors Degree in Management from Milton College in 1972. From August 1994 to October 1999, he served as President and Chief Executive Officer of American Sterling
Bank and Sterling Bancorp, Inc., Sugar Creek, Missouri. From 1991 to 1994, Mr. Paetzold was President and Chief Executive Officer of South Trust Bank of Southwest Florida, N.A., Fort Myers, Florida.



Otho B. Young, III, age 54,served as Executive Vice President
of Customer Service at Madison Bank. He joined the Bank in February, 2002. From January, 1999, to February, 2002, Mr. Young was Owner and President of a consulting firm, Woodlake, Young & Associates, Inc. in San Antonia, Texas. Prior to that,
beginning in 1998, Mr. Young served as Senior Vice President and Director of Strategic Planning at Cullen/Frost Bankers, Inc. From 1989 to 1998, he was Senior Vice President and Director of Non-Branch Delivery Systems at the same bank holding
company. Mr. Young was terminated on July 22, 2003.



No member
of our Audit Committee has the requisite financial expertise to qualify as an audit committee financial expert as defined by SEC Rules. The Board has determined that, given the size of our organization and the number of competitors in
our marketplace, obtaining an audit committee financial expert who has the specific bank accounting experience to qualify, would be extremely difficult. However, the Board believes that several of our current Audit Committee members,
have a level of financial literacy and familiarity with banking operations to provide strong financial guidance to the Committee, with the assistance of our independent auditors.



To the best of Madison BancShares knowledge, during 2003, each of its directors, executive officers and beneficial
owners of 10% of its common stock, other than Robert B. McGivney (1 late Form 4), Martin W. Gladysz (1 late Form 3), Otho B. Young III ( 2 late Form 4s), Robert W. Byrd (3 late Form 4s), and George M. Cantonis (1 late Form 4), timely filed all
reports required by Section 16(a) of the Securities Exchange Act of 1934.



We have adopted a Code of Ethics that applies to our executive officers, a copy of which has been filed with this Report on Form 10-KSB as Exhibit 13. Persons who would like to obtain a copy of our Code of Ethics may
receive one without charge upon request made to Martin W. Gladysz, Chief Financial Officer, Madison Bancshares, Inc., 2122 Palm Harbor Blvd, Palm Harbor, Florida 34683.



Item 10. Executive Compensation.



Madison BancShares has no employment agreements with its employees and no additional compensation is provided for Bank employees service to Madison BancShares. The Bank, however, has employment agreements with three of its executive
officers. The following is a summary of the key terms common to all three of the Banks employment agreements, followed by a summary of the unique features of each employment agreement.



Terms Common to All Employment Agreements - The Bank may terminate
each employment agreement for just cause, and each officer may terminate their employment agreement for good reason,



61



---

##### Table of Contents

as those terms are defined in the employment agreements. Termination for just cause immediately terminates the
employees rights to receive any further payments or employee benefits. In the event the Bank terminates an employment agreement for other than just cause or an officer terminates his or her employment agreement for good reason, the officer
shall be entitled to defined severance payments. Each officer is also eligible to participate in all stock option and benefit plans available to other employees and officers of the Bank.



Robert B. McGivneys two-year employment agreement was amended and restated effective as of January 1, 2000.
Each day, the employment agreement automatically renews for one day, unless such renewals are terminated by either party. Under the terms of the employment agreement, Mr. McGivney is to serve as the President and Chief Executive Officer of the Bank
and is to receive an initial annual base salary of $170,000, which may be increased by the Board of Directors. Mr. McGivneys base salary in 2003 was $200,000. He is also eligible to receive a bonus of up to 25% of his salary each year, based
on his achieving certain performance goals related to the Banks asset size and net income. In the event Mr. McGivneys employment agreement is terminated in such a manner as to entitle him to severance payments, such payments shall be
equal to the total salary due for the remainder of the term of the employment agreement and a prorated portion of any bonus payment he would have been entitled to receive in the year of termination. In the event Mr. McGivneys employment is
terminated as a result of a change in control of the Bank, as defined in the agreement, or a change in control occurs within nine months of his voluntary termination or his termination for good reason, Mr. McGivney is to receive a
severance payment equal to two and one-half times his current annual base salary, plus a pro-rated portion of any bonus that would have become payable under the employment agreement. In addition, the Bank has agreed to advance Mr. McGivney up to
$15,000 in attorneys fees in the event he is terminated and files an action to enforce the terms of his employment agreement. The advanced fees are to be deducted from any later recovery or reimbursed to the Bank in the event Mr.
McGivneys action is unsuccessful.



David P.
Paetzolds employment agreement was effective on November 1, 1999, and is for a term of one year. Each day, Mr. Paetzolds employment agreement automatically renews for one additional day, unless either party terminates such renewals.
Pursuant to the employment agreement, Mr. Paetzold is to serve as the Banks Executive Vice President/Senior Loan Officer and shall receive a base salary of $100,000, which may be increased by the Board. Mr. Paetzolds base salary in 2003
was $120,810. Under the terms of the employment agreement, Mr. Paetzold may receive an annual bonus of up to 12% of his base salary, at the sole discretion of the Board. In the event Mr. Paetzolds employment agreement is terminated in such a
way that he is to receive severance payments, the payments shall total 12 months base salary, plus any bonus payment he would have been entitled to at the time of the termination.



Martin W. Gladyszsemployment agreement was effective on December 2, 2002, and is for a term of one year. Each
day, Mr. Gladyszs employment agreement automatically renews for one additional day, unless either party terminates such renewals. Pursuant to the employment agreement, Mr. Gladysz is to serve as Vice President and Chief Financial Officer for
Madison BancShares and Executive Vice President and Chief Financial Officer of the Bank and receives a base salary of $110,000, which may be increased by the Board. Mr. Gladyszs base salary in 2003 was $110,000. Under terms of the employment
agreement, Mr. Gladysz may receive an annual bonus of up to 12% of his base salary, at the sole discretion of the Board. In the event Mr. Gladyszs employment agreement is terminated in such a way that he is to receive severance payments, the
payments shall total twelve months base salary, plus any bonus payment he would have been entitled to at the time of the termination.



Otho B. Young, IIIserved as the Banks Executive Vice President/Customer Service and received a base salary of not less than $100,000 per
year. Mr. Youngs employment was terminated on July 22, 2003. He received severance payments totaling his base salary through December 31, 2003. The employment agreement prevents Mr. Young from competing with the Bank for one year following
termination.



62



---

##### Table of Contents

The following Summary Compensation Table shows compensation information regarding Robert B. McGivney,
Martin W. Gladysz, David P. Paetzold and Otho B. Young, III. No other executive officer received compensation at a level required to be reported herein by Securities and Exchange Commission regulations.



|                                                                                                                                                           |  |              |  |                     |                        |       |                             |                           |  |                           |                                    |  |         
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------- | ---------------------- | ----- | --------------------------- | ------------------------- |  | ------------------------- | ---------------------------------- |  | --------
|                                                                                                                                                           |  |              |  | ANNUAL COMPENSATION |                        |       | LONG-TERMCOMPENSATIONAWARDS
|Name and Principal
Position                                                                                                                                |  | Year         |  | Salary              |                        | Bonus |                             | Other Annual Compensation |  |                           | Securities Underlying Options/SARs
|Robert B. McGivney President and Chief Executive Officer of the Bank and of Madison BancShares                                                             |  | 200320022001 |  |                     | $200,000180,000175,000 |       | $                           | 36,000                  |  | $80,702(150,567(175,809(1 | )))                                |  | 57,881
|                                                                                                                                                           |  |              |  |                     |                       
|Martin W. Gladysz(2) Executive Vice President and Chief Financial Officer of the Bank and Vice President and Chief Financial Officer of Madison Bancshares |  | 20032002     |  |                     | 110,0009,166           |       |                             |                         |  |                         |                                    |  | 10,500 
|                                                                                                                                                           |  |              |  |                     |                       
|David P. Paetzold Executive Vice President and Senior Loan Officer of the Bank and Assistant Secretary of Madison BancShares                               |  | 200320022001 |  |                     | 120,810116,480104,000  |       |                             | 23,29612,4809,000         |  | 10,830(34,539(4          | ))                                 |  | 11,576
|                                                                                                                                                           |  |              |  |                     |                       
|Otho B. Young, III(5) Executive Vice President of the Bank                                                                                                 |  | 20032002     |  |                     | 123,878100,000         |       |                             | 37,50030,000              |  | 2,999(620,367(7           | ))                                 |  | 21,000 

---

|(1) | Includes automobile allowance, country club memberships, payment under a salary continuation agreement and 401(k) contribution.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Gladysz commenced employment with Madison Bancshares and the Bank in December, 2002.
|--- | ----------------------------------------------------------------------------------------

|(3) | Includes 401(k) contribution and country club membership.
|--- | ---------------------------------------------------------



63



---

##### Table of Contents

|(4) | Includes 401(k) contribution
|--- | ----------------------------

|(5) | Mr. Young commenced employment with the Bank in February, 2002 and was terminated on July 22,
2003.
|--- | ---------------------------------------------------------------------------------------------------

|(6) | Includes country club membership.
|--- | ---------------------------------

|(7) | Includes relocation expense and country club membership
|--- | -------------------------------------------------------



No stock options were granted to any of the Named Executive Officers during
2003.



64



---

##### Table of Contents

Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Values



The following table sets forth information concerning the exercise of stock
options during the 2003 Fiscal Year by each of the Named Executive Officers and the fiscal year-end value of unexercised options.



|                   |  |                             |  |                |       
|------------------ |  | --------------------------- |  | -------------- | ------
|                   |  | SHARES ACQUIRED ON EXERCISE |  | VALUE REALIZED
|Robert B. McGivney |  | 6,077                       |  | $              | 22,785



|                   |  |                                                                          |  |                                                                     |  |             |         |               |   |        
|------------------ |  | ------------------------------------------------------------------------ |  | ------------------------------------------------------------------- |  | ----------- | ------- | ------------- | - | -------
|                   |  | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT DECEMBER 31, 2003 |  | VALUE OF UNEXERCISED IN-THE -MONEY OPTIONS AT DECEMBER 31, 2003 (1)
|                   |  | EXERCISABLE                                                              |  | UNEXERCISABLE                                                       |  | EXERCISABLE |         | UNEXERCISABLE
|Robert B. McGivney |  | 60,772                                                                   |  | 9,116                                                               |  | $           | 283,128 |               | $ | 47,997 
|Martin W. Gladysz  |  | 2,625                                                                    |  | 10,500                                                              |  |             | 29,100  |               |   | 116,400
|David P. Paetzold  |  | 14,359                                                                   |  | 11,881                                                              |  |             | 86,604  |               |   | 87,366 
|Otho B. Young, III |  | 0                                                                        |  | 0                                                                   |  |             | 0       |               |   | 0      

---

|(1) | The fair market value of the Common Stock as of December 31, 2003 was $15.97.
|--- | -----------------------------------------------------------------------------



Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



| | (a) | Security Ownership of Management
| | --- | --------------------------------



The following table contains information regarding the current beneficial ownership of each director nominee, continuing director and non-director
executive officer of Madison Bancshares common stock as of March 15, 2004. The percentage of shares held by each person reflects the number of shares that person currently owns, plus the number of shares that person has the right to acquire
within 60 days.



|                                                                |  |                                  |   |  |                  |  |                               |  
|--------------------------------------------------------------- |  | -------------------------------- | - |  | ---------------- |  | ----------------------------- | -
|Name and Address of Beneficial Owner                            |  | Numberof Common Shares Owned (5) |   |  | Right to Acquire |  | % of Beneficial Ownership(10) |  
|Robert W. Byrd(1)(2) 931 Osceola Rd. Bellair, FL 33756          |  | 47,218                           |   |  |                 |  | 2.17                          | %
|                                                                |  |                                  |  
|George M. Cantonis(1)(2) 205 Bayview
Drive Bellair, FL 33756    |  | 43,617(6                         | ) |  |                 |  | 2.01                          | %
|                                                                |  |                                  |  
|Thomas A. Castriota(1)(2) 1116 Arevalo De
Avila Tampa, FL 33613 |  | 22,391                           |   |  |                 |  | 1.03                          | %



65



---

##### Table of Contents

|                                                                               |  |                                   |   |  |                  |  |                               |  
|------------------------------------------------------------------------------ |  | --------------------------------- | - |  | ---------------- |  | ----------------------------- | -
|Name and Address of Beneficial Owner                                           |  | Number of Common Shares Owned (5) |   |  | Right to Acquire |  | % of Beneficial Ownership(10) |  
|Wayne R. Coulter(1)(2) 7920 U.S. Highway 19 Port Richey, FL 34668              |  | 46,133(7                          | ) |  |                 |  | 2.12                          | %
|                                                                               |  |                                   |  
|Melvin S. Cutler(1)(2)(3)(4) 35388 U.S.
Highway 19 North Palm Harbor, FL 34684 |  | 417,631(8                         | ) |  |                 |  | 19.23                         | %
|                                                                               |  |                                   |  
|Martin W. Gladysz(3)(4) 115 Phillips Way Palm Harbor, FL 34683                 |  | 6,250                             |   |  | 2,625            |  | 0.41                          | %
|                                                                               |  |                                   |  
|Robert B. McGivney(1)(2)(3)(4) 2122 Palm
Harbor Blvd. Palm Harbor, FL 34683    |  | 143,430(9                         | ) |  |                 |  | 6.61                          | %
|                                                                               |  |                                   |  
|David P. Paetzold(3)(4) 3678 Woodridge Place Palm Harbor, FL 34684             |  | 29,213                            |   |  |                 |  | 1.35                          | %
|                                                                               |  |                                   |  
|Paul J. Wikle(1)(2) 33 Central Court Tarpon Springs, FL 34689                  |  | 33,336                            |   |  |                 |  | 1.54                          | %
|                                                                               |  |                                   |  
|All Directors and Executive Officers as a Group (9 persons)                    |  | 789,219                           |   |  | 2,625            |  | 36.47                         | %

---

|(1) | Madison Bank director.
|--- | ----------------------

|(2) | Madison BancShares director.
|--- | ----------------------------

|(3) | Madison Bank executive officer.
|--- | -------------------------------

|(4) | Madison BancShares executive officer.
|--- | -------------------------------------

|(5) | Includes shares for which the named person has sole voting and investment power, has shared voting and investment power with a spouse, or holds in an IRA or other
retirement plan program, unless otherwise indicated in these footnotes, but does not include shares that may be acquired by exercising stock options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | All shares of common stock held in Trust.
|--- | -----------------------------------------

|(7) | Includes 28,240 shares of common stock owned with his spouse Pamela W. Coulter as tenants in the entirety.
|--- | ----------------------------------------------------------------------------------------------------------

|(8) | Includes 107,625 common shares held by Cutler Associates Investments, Inc.; 33,643 common shares held by Melvin S. Cutler Charitable Foundation; and, 43,615 common
shares held in The Elizabeth J. Fallow Family Trust.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 80 shares of common stock held in Trust and 7,679 shares are held in the IRA of Mr. McGivneys spouse.
|--- | ---------------------------------------------------------------------------------------------------------------

|(10) | Under the rules of the SEC, the determinations of beneficial ownership of our
common stock are based upon Rule 13d-3 under the Securities Exchange Act of 1934, which provides that shares will be deemed to be beneficially owned where a person has, either solely or in conjunction with others, the power to vote or to
direct the voting of shares and/or the power to dispose, or to direct the disposition of shares, or where a person has the right to acquire any such power within 60 days after the date such beneficial ownership is determined. Shares of our common
stock that a beneficial owner has the right to acquire within 60 days under the exercise of the options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such owner, but are not deemed outstanding for
the purpose of computing the percentage ownership of any other person.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



66



---

##### Table of Contents

| | (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.



Certain of Madison BancShares directors, officers and employees have banking relations with the Bank. Loans made to directors, executive officers and principal shareholders, defined as individuals owning 10% or
more of Madison BancShares common stock, are governed under the provisions of Section 22(h) of the Federal Reserve Act, which requires that any loans made to those individuals must:



| |  | Be on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with non-affiliated parties; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Not involve more than the normal risk of repayment or present other unfavorable features.
| | - | -----------------------------------------------------------------------------------------



There is, however, an exception for loans made to employees who are affiliates that are made pursuant to a benefit or
compensation package that is widely available to all Bank employees and does not give a preference to affiliates. There is also an aggregate limit of $25,000, or 5% of the amount of the Banks unimpaired capital and unimpaired surplus on all
loans to those individuals, unless the Board of Directors has approved the amount and the individual has abstained from participating in the voting.



There is further exception for loans made to executive officers. Executive officers are those people who participate, or who have authority to
participate, in major policymaking functions of Madison BancShares, regardless of their title. In 2003, the Bank had five employees who would be considered executive officers. The Bank may lend any otherwise permissible sum of money to an executive
officer for:



| |  | Financing the education of the officers children;
| | - | --------------------------------------------------



| |  | A Board of Directors approved first mortgage on the officers residence; or
| | - | ----------------------------------------------------------------------------



| |  | A loan secured by certain low-risk collateral.
| | - | ----------------------------------------------



The Bank may also lend up to the higher of $25,000, or 2.5% of its unimpaired capital and unimpaired surplus (but never more than $100,000) to an
executive officer for any other purpose.



During 2003, Madison
BancShares directors and executive officers (or their related business interests) had loans or lines of credit with the Bank that, in the aggregate totaled $7,159,434. These loans and lines of credit were made on the same terms as extensions
of credit are made to the Banks unaffiliated customers.



Item 13. Exhibits and Reports on Form 8-K.



| | (a) | Exhibits
| | --- | --------



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.



67



---

##### Table of Contents

|             |  |                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Exhibit                                                                                                                       
|*    2       |  | Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession                                                                 
|             | 
|*    3.1     |  | Articles of Incorporation of Madison BancShares, Inc.                                                                                        
|             | 
|*    3.2     |  | Bylaws of Madison BancShares, Inc.                                                                                                           
|             | 
|*    4       |  | Sample Stock Certificate for Madison BancShares, Inc.                                                                                        
|             | 
|*    10.2    |  | Employment Agreement of Robert McGivney                                                                                                      
|             | 
|*    10.3    |  | Employment Agreement of David Paetzold                                                                                                       
|             | 
|*    10.5    |  | Madison Bank Amended and Restated 1998 Key Employee Stock Compensation Program                                                               
|             | 
|*    10.6    |  | Madison Bank Amended and Restated 1998 Directors Stock Option Plan                                                                          
|             | 
|**** 10.7    |  | Employment Agreement of Otho B. Young, III                                                                                                   
|             | 
|***   10.8   |  | Employment Agreement of Martin W. Gladysz                                                                                                    
|             | 
|11           |  | Statement re: Computation of per Share Earnings at Footnote 17 of the Consolidated Financial Statements                                      
|             | 
|13           |  | Code of Ethics                                                                                                                               
|             | 
|21           |  | Subsidiaries of the Registrant                                                                                                               
|             | 
|**     23.1  |  | Consent of Accountants                                                                                                                       
|             | 
|*       23.2 |  | Consent of Counsel                                                                                                                           
|             | 
|31.1         |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|             | 
|31.2         |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|             | 
|32.1         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|             | 
|32.2         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|             | 
|*      99.1  |  | Plan of Reorganization of Madison Bank                                                                                                       
|             | 
|*      99.2  |  | Proxy of Madison Bank                                                                                                                        

---

|* |  | 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.
|-- |  | --------------------------------------------------------------------------------------

|*** |  | This exhibit was filed with Madisons 10-QSB on August 8, 2003.
|--- |  | ---------------------------------------------------------------

|**** |  | This exhibit was filed with Madisons 10-KSB on March 17, 2003.
|---- |  | ---------------------------------------------------------------



| | (b) | Reports on Form 8-K
| | --- | -------------------



This was one Form 8-K filed during the three month ended December 31, 2003. On October 9, 2003, Madison BancShares, Inc. released earnings for the three
and six months ended September 30, 2003.



68



---

##### Table of Contents

Item 14. Principal Accountant Fees and Services.



The audit functions of the Audit Committee are focused on three areas:



| |  | The adequacy of Madison Bancshares and the Banks internal controls and financial reporting process and the reliability of Madison Bancshares and the Banks
financial statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The performance of Madison Bancshares and the Banks internal auditors and the independence and performance of Madison Bancshares and the Banks independent
auditors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Madison Bancshares and the Banks compliance with legal and regulatory requirements.
| | - | -------------------------------------------------------------------------------------



The Audit Committee met with management periodically to consider the adequacy of Madison Bancshares and the
Banks internal controls and the objectivity of their financial reporting. The Audit Committee discussed these matters with Madison Bancshares and the Banks independent auditors and with appropriate company financial personnel.



The Audit Committee meets regularly with the independent
auditors without the presence of management. The independent auditors have unrestricted access to the Committee.



The Audit Committee also recommends to the Board the appointment of the independent auditors and reviews their performance, fees and independence from
management.



The Board of Directors has determined that none of
the members of the Audit Committee has a relationship to Madison Bancshares and the Bank that may interfere with the members independence from Madison Bancshares and the Bank and their management.



Management has primary responsibility for Madison Bancshares and the
Banks financial statements and the overall reporting process, including the system of internal controls. The independent auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial
statements fairly present the financial position, results of operations and cash flows of Madison Bancshares and the Bank in conformity with accounting principles generally accepted in the United States of America. The independent auditors discuss
any issues they believe should be brought to the Audit Committees attention. The Audit Committee monitors these processes, relying without independent verification, on the information provided and on the representations made by management and the
independent auditors.



This year, the Audit Committee reviewed
Madison Bancshares audited financial statements as of and for the fiscal year ended December 31, 2003, and met with both management and Madison



69



---

##### Table of Contents

Bancshares and the Banks independent auditors to discuss those financial statements. Management has
represented that the financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.



The Audit Committee has received from and discussed with Hacker, Johnson & Smith, P.A. the written disclosure and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees). These items relate to that firms independence from Madison Bancshares and the Bank. The Audit Committee also discussed with Hacker, Johnson & Smith, P.A. any
matters required to be discussed by Statement on Auditing Standards No. 61. (Communication with Audit Committees).



Based on these reviews and discussions, the members of the Audit Committee (Chairman Robert W. Byrd, and directors Thomas A. Castriota and Paul J. Wikle)
recommended to the Board that Madison Bancshares and the Banks audited financial statements be included in Madison Bancshares annual report on Form 10-KSB for the fiscal year ended December 31, 2003.



Audit Fees.The aggregate fees billed for professional services
by Hacker, Johnson & Smith, P.A. in connection with the audit of the annual financial statements for the year and for the reviews of the quarterly financial statements filed with the Securities and Exchange Commission as well as tax-related
services were $46,500. The Audit Committee does not believe that Madison BancShares payment for tax services impairs Hacker, Johnson & Smith, P.A.s independence in conducting its audits of Madison BancShares.



All Other Fees.In addition to fees billed for audit services
and reviews of financial statements for 2003 by Hacker, Johnson & Smith, P.A., Madison BancShares was billed $24,800 by Reeves & Pearigen, CPAs for internal review services, and loan and document reviews.



70



---

##### Table of Contents

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.



|                         |  |                                                          
|------------------------ |  | ---------------------------------------------------------
|MADISON BANCSHARES, INC.
|                         | 
|By                       |  | /s/ Robert B. McGivney                                   
|                         |  | Robert B. McGivney, President and Chief Executive Officer
|                        
|Date: March 26, 2004    
|                         | 
|By                       |  | /s/ Martin W. Gladysz                                    
|                         |  | Martin W. Gladysz, Chief Financial Officer and Treasurer 
|                        
|Date: March 26, 2004    



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/ Robert W. ByrdRobert W. Byrd, Director         |  | March 26, 2004 Date
|                                                   | 
|/s/ George M. CantonisGeorge M. Cantonis, Director |  | March 26, 2004 Date
|                                                   | 
|Thomas A. Castriota, Director                      |  | Date               
|                                                   | 
|/s/ Wayne R. CoulterWayne R. Coulter, Director     |  | March 26, 2004 Date
|                                                   | 
|/s/ Melvin S. CutlerMelvin S. Cutler, Director     |  | March 26, 2004 Date
|                                                   | 
|/s/ Robert B. McGivneyRobert B. McGivney, Director |  | March 26, 2004 Date
|                                                   | 
|/s/ Paul J. WiklePaul J. Wikle, Director           |  | March 26, 2004 Date



71