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                                  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, 2001

[ ]   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                       (I.R.S. Employer
    of incorporation or organization)                  Identification No.)

          35388 U.S. 19 NORTH
          PALM HARBOR, FLORIDA                                 34684
 (Address of principal executive offices)                    (Zip Code)

                    Issuer's telephone number (727) 786-3888

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

          Title of each class         Name of each exchange on which registered
                  N.A.                                  N.A.

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

                          COMMON SHARES, 0.01 PAR VALUE
                                (Title of class)

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


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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. [X]

State issuer's revenues for its most recent fiscal year were $12,862,000.

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 January 17, 2002, the aggregate market value of the voting and non-voting
common equity held by non-affiliates was $11,810,214.

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

         [ ] Yes  [ ] No     N.A.

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

As of February 1, 2002, the Issuer had 1,493,971 shares of common stock
outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders
filed electronically with the Securities and Exchange Commission on March 15,
2002.


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
<S>   <C>     <C>                                                                                         <C>
PART I...............................................................................................       1

     ITEM 1.  Description of Business................................................................       1

     ITEM 2.  Description of Property................................................................      13

     ITEM 3.  Legal Proceedings......................................................................      13

     ITEM 4.  Submission of Matters to Vote of Security Holders......................................      14


PART II..............................................................................................      14

     ITEM 5.  Market for Common Equity and related Stockholder.......................................      14

     ITEM 6.  Management's Discussion and Analysis or Plan of Operation..............................      15

     ITEM 7.  Financial Statements...................................................................      29

     ITEM 8.  Changes in and Disagreements with Accountants..........................................      53


PART III.............................................................................................      53

     ITEM 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16 (a) of the Exchange Act.....................................         (1)

     ITEM 10. Executive Compensation.................................................................         (1)

     ITEM 11. Security Ownership of Certain Beneficial Owners and Management.........................         (1)

     ITEM 12. Certain Relationships and Related Transactions.........................................         (1)

     ITEM 13.  Index of Exhibits.....................................................................      54

SIGNATURES...........................................................................................      55
</TABLE>


(1)      The material required by Items 9 through 11 is hereby incorporated by
reference from Registrant's definitive Proxy Statement, pursuant to Instruction
E 3 of Form 10-KSB at pages 2 through 12 of that document.


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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

Forward Looking Statements

         This document contains forward-looking statements as defined by Section
21E of the Securities Exchange Act of 1934. These forward-looking statements
involve substantial risks and uncertainties. When used in this document, or in
the documents incorporated by reference, the words "anticipate", "believe",
"estimate", "may", "intend" and "expect" and similar expressions are some of the
forward-looking statements used in these documents. Actual results, performance,
or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements. Factors which may cause results to
change materially include competition, inflation, general economic conditions,
changes in interest rates, and changes in the value of collateral securing loans
Madison 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, Madison BancShares
exchanged its common shares for common shares of Madison Bank on a one-for-one
basis. Madison BancShares has its headquarters in Palm Harbor, Florida. Unless
specifically delineated, Madison BancShares, and Madison Bank are collectively
referred to herein as "Madison". Madison BancShares conducts business as a state
commercial bank holding company, and its principal asset is the capital stock of
Madison Bank. As a holding company, Madison BancShares has greater flexibility
than the Bank to diversify and expand its business activities, either through
expanded services or through acquisitions. Currently, Madison BancShares'
principal source of income is dividends from the Bank.

The Bank

         Madison Bank commenced banking operations in Palm Harbor, Florida, on
December 15, 1985, as a state-chartered savings and loan association. The Bank
converted to a state-commercial bank charter on June 30, 1997. It operates from
four full-service banking offices, the main office in Palm Harbor, and branch
offices in Largo, Tarpon Springs and Port Richey, Florida. The Bank also has an
operations center in Palm Harbor. The 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, the 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. The Bank
offers a broad range of retail and commercial banking products, including
various types of deposit accounts and loans for businesses and consumers. Its
primary source of business is customer referrals. As part of the community bank
approach, officers actively participate in community activities and
organizations.

Operating and Business Strategy

         Madison's goal is to become one of the leading community banks in
Pinellas and Pasco Counties. Madison expects to accomplish this goal through
steady and reasonable growth and a prudent operating strategy. Madison's
operating and business strategy emphasizes:



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

         Personalized Service. Madison strives to provide high levels of service
and to maintain strong customer relationships. Madison seeks customers who
prefer to conduct business with a locally owned and managed institution.

         Local Management and Community Focus. Madison approaches banking with a
community focus, emphasizing local management and local decision-making. The
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 Madison's 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. Madison believes that the key to its success lies
with its employees, because it is through the employees that Madison is able to
provide Pinellas and Pasco County banking customers with a high level of service
and attention. To this end, it seeks to hire qualified banking professionals who
are committed to providing a superior level of banking service and are willing
to accept a significant degree of responsibility. Each employee focuses on the
individual customer's needs and strives to deliver the specific products and
services that are best suited to achieve the customer's financial goals.

         Internal Growth and Branch Expansion. From 1996 to 1999, Madison
concentrated on transitioning the loan and deposit portfolios from a thrift
orientation to a commercial bank orientation. Beginning in 1999, Madison started
growing its business and expanded with new branches. Deposits at December 31,
2001 were $137.1 million, up 2.4% from December 31, 2000, and net loans during
that same period increased 20.6% from $114.1 million at year-end 2000 to $137.6
million at December 31, 2001.

         Development of Commercial Lending Relationships. Since 1996, Madison
has transitioned its loan portfolio mix by originating commercial and commercial
real estate loans. Management believes that large out-of-state financial
institutions, which have acquired several local banks, have shifted the focus of
the acquired banks away from lending to small to medium-sized businesses. As
part of Madison's lending efforts, it has been developing, within its market,
strong commercial lending and depository relationships with small to
medium-sized businesses, entrepreneurs and professionals who value personalized
service and attention to their specific borrowing needs. Timely lending
decisions and prompt, courteous service is very important and, Madison believes
that it has and will continue to foster long-term, quality lending and deposit
relationships.

         Continued Residential Lending. In order to be a full service bank,
Madison is actively engaged in residential lending activities which include the
origination and subsequent sale of residential mortgage loans. Madison's
strategy is to sell all of its long-term, fixed-rate residential mortgage loan
originations and retain its adjustable-rate and short-term, fixed-rate mortgage
loan originations. The sale of mortgage loans in the secondary market provides
additional non-interest income, including mortgage loan origination fees and
gains on the sale of mortgage loans.

         Maintaining High Credit Quality. Management places a great deal of
emphasis on maintaining high asset quality. Management believes that the
outstanding asset quality Madison has experienced is principally due to its


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strict underwriting criteria, the relationship of its lenders, senior officers,
and directors to its customers and their knowledge of Madison's local community.

Primary Market Area

         Madison's headquarters and main office is 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 Madison's primary market areas.

         Madison currently has a branch office in Largo, Florida which is
located 15 miles southeast of the main office. As of December 31, 2001, the
Largo Branch had $16,612,000 in deposits. Largo is also in Pinellas County and
has a population of approximately 69,371 residents, with manufacturing as its
primary industry. Pinellas County has become a strong retirement community and
is emerging as a health care provider community. Pinellas County's other major
industries include, tourism, retail trade, industry excluding mining or ore
refining and real estate.

         In December 1999, Madison opened its second full-service branch in
Pasco County, Florida. This branch is located 12 miles from its main office. As
of December 31, 2001, the Pasco County Branch had $11,444,000 in deposits. As of
2000, Pasco County had a population of 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, Madison opened its third full-service branch in
Tarpon Springs, Florida in North Pinellas County. This branch is located 6 miles
from the Main Office and is housed in an interim facility awaiting new branch
construction in 2002. As of December 31, 2001, the Tarpon Springs Branch had
$19,743,000 in deposits. Tarpon Springs has a population of 21,000, as of 2000,
with tourism, small retail trade and a natural sponge industry as its primary
businesses. Tarpon Springs is undergoing a downtown historical revitalization
and our branch site is located in the downtown area becoming a part of the
city's redevelopment.

Competition

         Competition for deposits and loans is intense among financial
institutions in Florida and particularly in areas of high population
concentrations such as Pinellas County, with 3,245 residents per square mile.
Madison's competitors include institutions, including bank holding companies,
such as Bank America/Nations Bank, First Union, 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 Madison 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, management believes that
Madison can successfully compete in the market for deposits and loans.


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         Geographic deregulation has also had a material impact on the financial
industry. Federally-chartered savings institutions have interstate banking
authority. As for commercial banks, to date, all but three states have enacted
some form of interstate banking legislation. The most common form of interstate
banking statutes has either regional limitations or reciprocity requirements. A
growing number of states, however, now provide for unrestricted entry. A bank
holding company is now permitted to acquire existing banks across state lines
and may consolidate its interstate subsidiary banks into branches and merge with
a bank in another state, depending upon state laws. Recent legislation in
Florida has removed most of the final barriers to interstate banking in Florida.

Loan Strategy

         Since 1996, Madison Bank has placed an emphasis on originating
commercial real estate, commercial and consumer loans. As the large out-of-state
financial institutions, which have acquired several local banks, continue to
shift the focus of the acquired banks away from business opportunities in
smaller businesses, Madison has targeted owners of small to medium-sized
businesses and local professionals as its potential customer base. Madison Bank
also originates and sells residential loans by offering various adjustable-rate
and fixed-rate mortgage loan products.

Loan Activities

         General. Madison's primary business emphasis is on making commercial
business, commercial real estate and consumer loans. As of December 31, 2001,
the net loan portfolio totaled $137.6 million, or 82.6% of total assets.

         General Loan Policies. Loan activities are subject to underwriting
standards and loan origination procedures prescribed by the 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.

         In addition, Madison Bank has several procedures in place to assist it
in maintaining the overall quality of its loan portfolio. These procedures
include an independent credit analysis for all commercial credit relationships
over $300,000. Loans are approved at various management levels up to and
including the Board of Directors, depending on the amount of the loan. Loans
less than $250,000 are approved by authorized officers. The President has loan
authority up to $400,000 and the Chairman of the Board has loan authority up to
$400,000. The Chief Loan Officer can approve loans up to $650,000 with the
consent of the President or the Chairman. The President and Chairman have a
combined lending authority of up to $1,000,000. Loans over $1,000,000 require
approval by the Board of Directors. The Board of Directors reviews all new and
renewed loans on a monthly basis. All unsecured loans in excess of $200,000
required approval of the Board of Directors.

         Interest rates charged on all of Madison's loans vary as they are
affected by competitive factors such as the demand for such loans and the supply
of funds available for lending purposes. These factors are, in turn, affected by
general economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and government
budgetary matters.

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


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         Madison does not usually offer fixed-rate commercial real estate or
multi-family real estate loans. Commercial and multi-family real estate loans
are originated with a loan-to-value ratio generally not exceeding 75%. Loans
secured by this type of collateral will continue to be a part of Madison's
future loan program. Commercial and multi-family real estate loans are generally
larger and involve a greater degree of risk than residential mortgage loans.

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

         Madison Bank is permitted to lend up to 100% of the appraised value of
the real property securing a mortgage loan. However, if the amount of a
conventional, residential loan (including a construction loan or a combination
construction and permanent loan) originated or refinanced exceeds 80% of the
appraised value or of the purchase price, whichever is less, Madison is required
by federal regulations to obtain private mortgage insurance on that portion of
the principal amount of the loan that exceeds 80% of the value of the property.
Madison 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, Madison will lend up to 80% of the appraised
value of the property on an "as completed" basis.

         Commercial Loans. Commercial loans are business loans that are not
secured by real estate and are dependent on business cash flows for repayment.
Although Madison has made Small Business Administration loans, it generally will
underwrite this type of loan for its 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 that Madison Bank faces when
originating commercial loans is that the business assets of the maker tend to
fluctuate with the business cycle causing Madison's collateral to be sold when
difficult economic conditions are experienced.

         Residential Loans. Madison currently originates fixed-rate residential
mortgage loans and ARM loans for 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 Madison's 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. Madison may offer ARM loans with
different annual and life-of-loan interest change limits, shorter or longer
adjustment periods and different base indices as may be appropriate to meet
market demands, portfolio needs, and Madison's interest rate risk management
goals. While the initial rate on ARM loans may be below a fully indexed rate,
the loan is always underwritten based on the borrower's ability to pay at the
interest rate which would be in effect after adjustment of the loan. Some ARM
loans include features that allow the borrower, under special conditions, to
convert the loan to a fixed rate at the then prevailing market rates.

         ARM loans reduce the risks to Madison concerning changes in interest
rates, but involve other risk because 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.


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         Most of Madison's 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 Madison with the contractual right to declare the
loan immediately due and payable in the event the borrower transfers ownership
of the property without Madison's consent. The "Due on Sale" provision is
generally enforced. Historically, Madison Bank's losses on this type of loan
have been less than .006%.

         Consumer Loans. Consumer loans are considered to be loans to natural
persons for personal, family or household purposes, and these loans may be
unsecured, secured by personal property or secured by liens on real estate
which, when aggregated with prior liens, equals or exceeds the appraised value
of the collateral property. Madison makes 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 its customers and because
the shorter term and normally higher interest rates on such loans help maintain
a profitable spread between Madison's 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. Madison's belief is that the yields
earned on consumer loans are commensurate with the credit risk associated with
such loans and, therefore, it intends to continue to increase its investment in
these types of loans.

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

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

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


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

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

Asset Classification

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

Provision for Losses on Loans

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

Personnel

         Initially, the executive officers of Madison will also be executive
officers of Madison BancShares. As Madison BancShares expands its operations
beyond management of the Bank, additional employees may be hired.

         As of December 31, 2001, Madison had 51 full-time employees, 7
part-time employees, and 55 full-time equivalents. The employees are not
represented by any collective bargaining group. Madison believes that its
relations with its employees are good.


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

REGULATION AND SUPERVISION

Monetary Policies

         The results of Madison Bank's operations, are affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money market, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve Board, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand, or credit losses and earnings.

Regulatory Oversight

         Madison operates in a highly regulated environment with numerous
federal and state laws and regulations governing their activities. Such business
activities, which are governed by statute, regulation and administrative
policies, are supervised by a number of federal regulatory agencies, including
the Federal Reserve Board, the Florida Department of Banking and Finance
("Department") and the FDIC. The following is a brief summary of the legislation
and regulations which affect Madison.

         In November 1999, the financial services regulations were significantly
reformed with the adoption of the Gramm-Leach-Bliley Act ("GLA"). The GLA
provides for the streamlining of the regulatory oversight functions of the
various federal banking agencies. Of significance, the GLA permits bank holding
companies that are well managed, well capitalized and that have at least a
satisfactory Community Reinvestment Act rating to operate as Financial Holding
Companies ("FHC").

         The GLA also requires financial institutions to permit, with few
exceptions, their customers to "opt out" of having their personal financial
information shared with nonaffiliated third parties. The GLA bars financial
institutions from disclosing customer account numbers to direct marketers and
mandates that institutions provide annual disclosure to their customers
regarding the institution's privacy policies and procedures.

         Madison BancShares will be regulated by the Federal Reserve Board under
the Bank Holding Company Act of 1956, which requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before:

         -        Acquiring more than 5% of the voting shares of any bank; or

         -        Acquiring all or substantially all of the assets of a bank;
                  and

         -        Before merging or consolidating with another bank holding
                  company.


                                       8

<PAGE>

The Federal Reserve Board has maintained that a bank holding company must serve
as a source of financial strength to its subsidiary banks. In adhering to the
Federal Reserve Board policy, Madison BancShares may be required to provide
financial support for a subsidiary bank, such as Madison, at a time when, in the
absence of such a Federal Reserve Board policy, Madison BancShares may not deem
it advisable to provide such assistance.

         A bank holding company is generally prohibited from acquiring control
of any company which is not a bank and from engaging in any business other than
the business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies.

         As a bank holding company, Madison BancShares will be required to file
with the Federal Reserve Board an annual report of its operations at the end of
each fiscal year and such additional information as the Federal Reserve Board
may require pursuant to the Bank Holding Company Act. The Federal Reserve Board
may also make examinations of Madison BancShares and each of its subsidiaries.

         As a publicly traded company with its shares of common stock registered
under the Securities Exchange Act of 1934, Madison will be required to file
periodic public disclosure reports with the Securities and Exchange Commission,
and the regulations promulgated thereunder.

         One required form, a Form 10-KSB, is an annual report that must contain
a complete overview of Madison' business, financial, management, regulatory,
legal, ownership and organizational status. Madison must file Form 10-KSB by
March 31st of each year.

         Similarly, a Form 10-QSB, must contain information concerning Madison
on a quarterly basis. Although Form 10-KSB requires the inclusion of audited
financial statements, unaudited statements are sufficient for inclusion on Form
10-QSB. Additionally, any significant non-recurring events that occur during the
subject quarter, as well as changes in securities, any defaults and the
submission of any matters to a vote of security holders, must also be reported
on Form 10-QSB.

         In addition to the annual and quarterly reports, if any of the six
significant events listed below occurs in a period between the filing of Form
10-KSB or a Form 10-QSB, such event must be reported on a Form 8-K within 15
days of the event:

         -        A change in control;
         -        An acquisition or disposition of significant assets;
         -        Bankruptcy or receivership;
         -        A change in certifying accountant;
         -        Any resignation of directors; or
         -        A change in fiscal year end.

When communicating with shareholders, Madison' proxy solicitations for its
Annual Meetings of Shareholders, or any Special Meeting, will be required to
contain certain detailed disclosures regarding the current status of Madison.

         Individual directors, officers and owners of more than 10% of Madison'
stock, will also be required to file individual disclosures of the amount of
Madison' securities (stock, options or warrants) they beneficially own and of
any transactions involving such securities. The initial status of all such
persons will be reported on individual Form 3s. Subsequent securities
transactions will be reported on Form 4 as they occur, and an annual report of
ownership is filed on Form 5. In certain instances, the filing of a Form 4 or a
Form 5 can relieve the reporting individual of their duty to file the other.


                                       9

<PAGE>

         The National Association of Securities Dealers has adopted a rule
requiring the audit committees of Boards of Directors of reporting companies to
undertake certain organizational and operational steps. The Securities and
Exchange Commission has adopted a similar rule. These standards will require
Madison BancShares' audit committee to be comprised of a majority of
independent, non-employee directors who are financially literate. Furthermore,
the audit committee will be required to adopt a formal charter defining the
scope of its operations. The Securities and Exchange Commission's rule also
requires auditors to review the financial statements contained in Form 10-QSBs.

         As a state-chartered bank, Madison Bank is subject to the supervision
of the Department and the FDIC. Madison may establish branch offices anywhere
within the State of Florida. Madison is also subject to the Florida banking and
usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit. In addition, the Bank, as a subsidiary of
Madison BancShares, will be subject to restrictions under federal law in dealing
with Madison and other affiliates, if any. These restrictions apply to
extensions of credit to an affiliate, investments in the securities of an
affiliate and the purchase of assets from an affiliate.

         Loans and extensions of credit by state banks are subject to legal
lending limitations. Under state law, a state bank may grant unsecured loans and
extensions of credit in an amount up to 15% of its unimpaired capital and
surplus to any person. In addition, a state bank may grant additional loans and
extensions of credit to the same person up to 10% of its unimpaired capital and
surplus, provided that the transactions are fully secured. This 10% limitation
is separate from, and in addition to, the 15% limitation for unsecured loans.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions.

         Both Madison BancShares and the Bank are subject to or will be subject
to regulatory capital requirements imposed by the Federal Reserve Board, the
FDIC and the Department. Both the Federal Reserve Board and the FDIC have
established risk-based capital guidelines for bank holding companies and banks
which make regulatory capital requirements more sensitive to differences in risk
profiles of various banking organizations. The capital adequacy guidelines
issued by the Federal Reserve Board are applied to bank holding companies on a
consolidated basis with all banks owned by the holding company. The FDIC's
risk-based capital guidelines apply directly to state banks regardless of
whether they are a subsidiary of a bank holding company. Both agencies'
requirements (which are substantially similar) provide that banking
organizations must have capital equivalent to 8% of weighted risk assets. The
risk weights assigned to assets are based primarily on credit risks.

         Depending upon the risks associated with 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. A risk weight of 50% is assigned to loans secured by owner-occupied
one to four family residential mortgages. 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. At December 31, 2001, the Bank's total risk-based
capital and Tier 1 capital ratio were 10.39% and 9.35%. Both the Federal Reserve
Board and the FDIC have also implemented minimum capital leverage ratios to be
used in tandem with the risk-based guidelines in assessing the overall capital
adequacy of bank and bank holding companies. Under these rules, banking
institutions are required to maintain a ratio of 3% Tier 1 capital to total
assets (net of goodwill). Tier 1 capital includes common shareholders' equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.

         Both the risk-based capital guidelines and the leverage ratio are
minimum requirements applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have
well-diversified risk, excellent asset quality, high liquidity, good earnings
and in general, have to be considered strong banking organizations, rated
composite 1 under the CAMELS rating system for banks or the BOPEC rating system
for bank holding companies. Institutions with lower ratings and institutions
with high levels of risk or experiencing or


                                       10

<PAGE>

anticipating significant growth would be expected to maintain ratios 100 to 200
basis points above the stated minimums. CAMELS is an abbreviation for six
essential bank rating components, Capital Adequacy, Asset Quality, Management,
Earnings, Liquidity and Sensitivity to Market Risk. BOPEC is CAMELS' counterpart
for bank holding companies and evaluates: Bank Subsidiaries, Other (Nonbank)
Subsidiaries, Parent Company, Earnings-Consolidated and Capital
Adequacy-Consolidated.

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), created five capital categories for banks: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. These categories are used to determine the severity
of corrective action that the appropriate regulator may take in the event a bank
reaches a given level of undercapitalization.

         For example, a bank which becomes undercapitalized must submit a
capital restoration plan to the appropriate regulator outlining the steps it
will take to become adequately capitalized. Upon approving the plan, the
regulator will monitor the institution's compliance. Before a capital
restoration plan will be approved, any entity controlling a bank must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of 5% of the institution's total assets or the amount
which is necessary to bring the institution into compliance with all capital
standards. In addition, undercapitalized institutions are restricted from paying
management fees, dividends and other capital distributions, are subject to
certain asset growth restrictions and are required to obtain prior approval from
the appropriate regulator to open new branches or expand into new lines of
business. As a banking institution drops to lower capital levels, the extent of
action to be taken by the appropriate regulator increases, restricting the types
of transactions in which the bank may engage and ultimately providing for the
appointment of a receiver for certain banks deemed to be critically
undercapitalized.

         Each federal banking agency has now prescribed standards for all
insured depository institutions and their holding companies relating to internal
controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, and compensation, fees
and benefits. In addition, the federal banking regulatory agencies have
prescribed by regulatory standards specifying:

         -        Maximum classified assets to capital ratios;
         -        Minimum earnings sufficient to absorb losses without impairing
                  capital;
         -        To the extent feasible, a minimum ratio of market value to
                  book value for publicly traded shares of depository
                  institutions or the depository institution holding companies;
                  and
         -        Such other standards relating to asset quality, earnings and
                  valuation as the agency deems appropriate.

         Finally, each federal banking agency has prescribed standards for
employment contracts and other compensation arrangements of executive officers,
employees, directors and principal shareholders of insured depository
institutions that prohibit compensation and benefits and other arrangements that
are excessive or that could lead to a material financial loss for the
institution. If an insured depository institution or its holding company fails
to meet any of the standards described above, it is required to submit an
acceptable plan remedying the failure. If it fails to implement the plan or
correct the deficiency, the appropriate federal banking agency will require the
institution or holding company to make the correction and, until corrected, may
impose restrictions on the institution or the holding company.


                                       11

<PAGE>

         The following table reflects the capital thresholds that are now
required for all FDIC insured depository institutions:

<TABLE>
<CAPTION>
                                                       TOTAL RISK-                TIER 1                  TIER 1
                                                      BASED CAPITAL             RISK-BASED               LEVERAGE
                                                          RATIO                CAPITAL RATIO               RATIO
                                                      -------------            -------------             ---------
<S>                                                   <C>                      <C>                       <C>
Well capitalized(1)...........................             10%                       6%                       5%

Adequately capitalized(1).....................              8%                       4%                       4%(3)

Undercapitalized(2)...........................             <8%                      <4%                      <4%

Significantly Undercapitalized(2).............             <6%                      <3%                      <3%

Critically Undercapitalized(2)................             --                       --                       <2%

Madison Bank's capital as of
December 31, 2001.............................          10.39%                    9.35%                    7.79%
</TABLE>

---------------

(1)      An institution must meet all three minimums.
(2)      An institution falls into this category if it is below the specified
         capital level for any of the three capital measures.
(3)      3% for composite 1-rated institutions, subject to appropriate federal
         banking agency guidelines.

Based upon the above regulatory ratios, the Bank is considered to be well
capitalized.

         In order to comply with FDICIA, the Federal Reserve Board and the FDIC
adopted a final rule which institutes guidelines defining operational and
managerial standards relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, director and officer
compensation, asset quality, earnings and stock valuation. The FDICIA implements
both the capital standards and the safety and soundness standards which were
designed to bolster and protect the deposit insurance fund.

         Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, restrictions on interstate acquisitions of banks by bank holding
companies were repealed, such that bank holding companies are able to acquire
any Florida-based bank, subject to certain deposit percentage and other
restrictions. De novo branching by an out-of-state bank is permitted only if it
is expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state continues to be subject to
applicable state branching laws. Florida permits interstate branching through
acquisition, but does not allow de novo branching.

         The scope of regulations and permissible activities of the Bank and
Madison BancShares is subject to change by future federal and state legislation.


                                       12

<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

         The following table sets forth information with respect to Madison's
offices as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                      FACILITY
                  LOCATION                                             STATUS
                ----------------------------------------------------------------
                <S>                                                   <C>
                HEADQUARTERS
                     35388 U.S. Hwy 19 North
                     Palm Harbor, Florida 34684                         Owned

                OPERATIONS CENTER
                     34911 U.S. Highway 19 North
                     Suite 600
                     Palm Harbor, Florida 34684                         Owned

                BRANCH OFFICE
                     503 South Pinellas Avenue
                     Tarpon Springs, Florida 34689                      Owned

                BRANCH OFFICE
                     6709 Ridge Road
                     Suite 100
                     Port Richey, Florida 34688                         Leased

                BRANCH OFFICE
                     12975 Walsingham
                     Largo, Florida 34644                               Leased
</TABLE>

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

         Madison leases the Largo and the Port Richey branches. As of
November 1, 2001, the rent on the Largo branch is $2,277.99 per month. Madison's
lease for this property expires on October 31, 2002. The rent for the Port
Richey branch is $2,713.36 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 5 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 the Bank or Madison
BancShares is a party or to which any of their properties are subject.


                                       13

<PAGE>

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 2001.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         On December 27, 2001, Madison BancShares' stock began trading on the
NASDAQ SmallCap Market under the symbol MDBS. As of February 1, 2002, there were
146 registered holders of common stock of the Company and approximately 150
street name holders. On May 15, 2001, Madison paid a stock dividend in common
stock equal to 5% of the then outstanding shares of Madison. The prior year, on
May 15, 2000, the Bank paid a dividend in common stock equal to 5% of the then
outstanding shares of Madison, and on December 20, 2000 paid a dividend in
common stock equal to 5% of the then outstanding shares of Madison. Madison
BancShares' paid a cash dividend equal to $0.05 cents per share on November 15,
2001.

         On January 17, 2002, the closing sales price of Madison BancShares'
common stock was $10.450. At December 31, 2001, the closing sales price of
Madison BancShares' stock was $9.700.

<TABLE>
<CAPTION>
                                                         CALENDAR YEAR 2001
                                                       ----------------------
                                                       LOW $           HIGH $
                                                       -----           ------
                                                            (per share)
         <S>                                           <C>             <C>
         THIRD QUARTER (9/4-9/30).......                9.600          10.300

         FOURTH QUARTER...................              9.000           9.700
</TABLE>

                      [This page left intentionally blank]


                                       14

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

SELECTED FINANCIAL DATA

         The following table presents selected financial data for Madison for
the years-ended December 31, 2001, 2000, and 1999. The data should be read in
conjunction with Madison's financial statements, including the related notes,
and "Management's Discussion and Analysis or mean of Operations."

<TABLE>
<CAPTION>
                                                                                            AT OR FOR THE
                                                                                             YEAR-ENDED
                                                                                             DECEMBER 31
                                                                            ----------------------------------------------
                                                                              2001              2000               1999
                                                                            ---------         ---------          ---------
                                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                         <C>               <C>                <C>
SELECTED BALANCE SHEET DATA:
     Total assets ....................................................      $ 166,531         $ 147,101          $ 131,755
     Cash and cash equivalents .......................................          2,801             2,672              3,366
     Securities available for sale ...................................         20,882            14,480             15,461
     Securities held to maturity .....................................             --            10,525             15,158
     Loans, net ......................................................        137,601           114,113             93,160
     Deposit accounts ................................................        137,084           133,875            112,703
     Stockholders' equity ............................................         12,253            10,939             10,069

SELECTED OPERATING DATA:
     Total interest income ...........................................         12,147            10,996              9,418
     Total interest expense ..........................................          6,299             5,730              4,710
     Net interest income .............................................          5,848             5,266              4,708
     Provision for loan losses .......................................            428               369                109
     Net interest income after provision
     for loan losses .................................................          5,420             4,897              4,599
     Non-interest income .............................................            715               648                460
     Non-interest expenses ...........................................          4,390             4,028              3,532
     Net earnings ....................................................          1,093               952                947

PER SHARE DATA(1):
     Basic earnings per share ........................................      $    0.73              0.64               0.64
     Diluted earnings per share ......................................           0.71              0.63               0.63
     Book value per share ............................................           8.20              7.33               6.81

PERFORMANCE RATIOS:
     Return on average assets (R.O.A.) ...............................           0.67%             0.68               0.73
     Return on average equity (R.O.E.) ...............................           9.11              9.19               9.41
     Interest-rate spread during the period ..........................           3.20              3.33               3.18
     Net interest margin .............................................           3.75              3.94               3.71
     Non-interest expense to average assets ..........................           2.70              2.88               2.70

OTHER RATIOS AND DATA:
     Average equity to average assets ................................           7.37              7.40               7.71
     Allowance for loan losses as a percentage of
         total loans outstanding .....................................           1.06              0.84               0.85
         Net recoveries (charge-offs) as a percent of average loans ..           0.07             (0.20)              0.12
         Non-performing loans to total loans .........................           1.13               N/A                N/A
     Allowance for loan losses as a percent of
         Non-performing loans ........................................         103.79               N/A                N/A
     Nonperforming loans and foreclosed real estate
         as a percentage of total assets .............................           0.85               N/A                N/A
     Total number of full-service banking offices ....................              4                 4                  3
</TABLE>

---------------

(1)      All per share information is presented to reflect the 5% stock
         dividends declared May 15, 2000, December 20, 2000 and May 15, 2001.


                                       15




<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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

         Madison Bancshares, Inc. was incorporated on May 8, 2001. On September
4, 2001, Madison BancShares exchanged its common shares for common shares of
Madison Bank on a one-for-one basis. Substantially all of the income of Madison
BancShares is from dividends paid to it by the Bank.

LIQUIDITY AND CAPITAL RESOURCES

         A state-chartered commercial bank is required under Florida Law and
FDIC regulations to maintain a liquidity reserve of at least 15% of its total
transaction accounts and 8% of its total nontransaction accounts subject to
certain restrictions. The reserve may consist of cash-on-hand, demand deposits
due from correspondent banks, and other investments and short-term marketable
securities. At December 31, 2001, Madison significantly exceeded its regulatory
liquidity requirements.

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

         -        The sale of securities of $11.4 million;

         -        Proceeds from Federal Home Loan Bank advances of $12.0
                  million; and

         -        An increase in deposits of $3.2 million, which were used
                  primarily to originate net loans of $25.6 million and
                  purchase securities available for sale of $9.3 million.

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

     Madison's primary source of funds during the year ended December 31, 2000,
was from:

         -        Net deposit inflows of $21.2 million;

         -        Proceeds from the repayment of securities of $5.6 million;
                  and

         -        Proceeds from the sale of loans of $2.6 million which were
                  used primarily to originate net loans of $24.1million and
                  pay-off Federal Home Loan Bank advances of $8.1 million.

At December 31, 2000, Madison had outstanding commitments to originate loans
totaling $1.6 million and commitments to borrowers for available lines of
credit totaling $13.1 million.

CREDIT RISK

         Madison's 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 the control of Madison. While underwriting
guidelines and credit review procedures have been instituted to protect Madison
from avoidable credit losses, some losses will inevitably occur. At December
31, 2001, Madison had $1.4 million nonperforming loans and no foreclosed real
estate.

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


                                      16
<PAGE>


<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31,
                                                        -----------------------------------------------
                                                                2001                       2000
                                                        ---------------------      --------------------
                                                                      % OF                       % OF
                                                                     LOANS TO                  LOANS TO
                                                                      TOTAL                     TOTAL
                                                        AMOUNT        LOANS        AMOUNT       LOANS
                                                        ------       --------      ------      --------

<S>                                                     <C>          <C>           <C>         <C>
Commercial Real Estate .........................        $1,369         79.8%        $869         72.8%
Commercial .....................................            70          5.0           49          4.6
Residential real estate ........................            17         12.0           22         18.3
Equity lines of credit and second mortgages ....             2          1.7            2          2.1
Consumer .......................................            19          1.5           24          2.2
                                                        ------        -----         ----        -----
   Total allowance for loan losses .............        $1,477          100%        $966        100.0%
                                                        ======        =====         ====        =====
</TABLE>

         The following table sets forth information with respect to activity in
Madison's allowance for loan losses (dollars in thousands):


<TABLE>
<CAPTION>
                                                                                 YEAR-ENDED
                                                                                 DECEMBER 31,
                                                                        ------------------------------
                                                                          2001                  2000
                                                                        --------             ---------

<S>                                                                     <C>                  <C>
Average loans outstanding ..................................            $126,151             $ 103,503
                                                                        ========             =========

Allowance at beginning of period ...........................                 966                   802
Charge-offs:
         Commercial ........................................                  --                  (200)
         Residential real estate ...........................                  --                    --
         Consumer ..........................................                                       (12)
                                                                        --------             ---------
                  Total Loans charged-off ..................                  --                  (212)
Recoveries .................................................                  83                     7
                                                                        --------             ---------
Net recoveries (charge-offs) ...............................                  83                  (205)
Provision for loan losses charged to operating expenses ....                 428                   369
                                                                        --------             ---------
Allowance at end of period .................................            $  1,477             $     966
                                                                        ========             =========
Net recoveries (charge-offs) to average loans outstanding ..                 .07%                 (.20)%
                                                                        ========             =========
Allowance as percent of total loans ........................                1.06%                  .84%
                                                                        ========             =========
Allowance as percent of nonperforming loans ................              103.79%                  N/A
                                                                        ========             =========
Total loans at end of period ...............................            $139,394             $ 115,362
                                                                        ========             =========
</TABLE>


NONPERFORMING ASSETS

         Madison places all loans past due 90 days 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, 2000, Madison had no non-accruing loans which were
contractually past due 90 days or more and no troubled debt restructurings. At
December 31, 2001, Madison had 1.4 million in non-accruing loans.

         At December 31, 2001, Madison had $1.4 million in nonperforming loans.
Madison had no nonperforming assets in 2000.


                                      17
<PAGE>


LOAN PORTFOLIO COMPOSITION

         Madison has commercial real estate loans which comprise the largest
group of loans in Madison's loan portfolio. Commercial real estate loans
amounted to $111.3 million or 79.8% of the total loan portfolio as of December
31, 2001.

         Residential real estate loans comprise the second largest group of
loans in Madison's portfolio amounting to $16.6 million, or 12.0% of the total
loan portfolio as of December 31, 2001. Commercial loans consist of $7.0
million or 5.0% of the total loan portfolio.

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


<TABLE>
<CAPTION>
                                                                                         AT DECEMBER 31,
                                                            -------------------------------------------------------------------
                                                                        2001                                    2000
                                                            ---------------------------             ---------------------------
                                                                                  % OF                                    % OF
                                                             AMOUNT               TOTAL               AMOUNT              TOTAL
                                                            ---------             -----             ---------             -----

<S>                                                         <C>                     <C>             <C>                     <C>
Commercial real estate .........................            $ 111,295              79.8%            $  83,997              72.8%
Commercial .....................................                7,011               5.0                 5,258               4.6
Residential real estate ........................               16,643              12.0                21,139              18.3
Equity lines of credit and second mortgage .....                2,396               1.7                 2,375               2.1
Consumer .......................................                2,049               1.5                 2,593               2.2
                                                            ---------             -----             ---------             -----
  Subtotal .....................................            $ 139,394               100%            $ 115,362               100%
                                                            =========             =====             =========             =====
Subtract:
  Net deferred loan fees .......................                 (316)                                   (283)
  Allowance for loan losses ....................               (1,477)                                   (966)
                                                            ---------                               ---------
Loans, net .....................................            $ 137,601                               $ 114,113
                                                            =========                               =========
</TABLE>

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 Madison
has the positive intent and 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. Madison does not maintain a trading
securities portfolio.

     During the year ended December 31, 2001, the Company sold $9.0 million of
securities from the held to maturity category. As required by Statement of
Financial Accounting Standards No. 115 - Accounting For Certain Investments in
Debt and Equity Securities, all securities classified as held to maturity
totaling $10.6 million were transferred to the available for sale category.
Furthermore, the Company's management intends to classify all securities
purchased through November 31, 2002 as available for sale.

         SECURITIES PORTFOLIO. The following table sets forth the carrying
value of Madison's securities portfolio (dollars in thousands):


                                      18
<PAGE>


<TABLE>
<CAPTION>
                                                                   AT DECEMBER 31,
                                                            --------------------------
                                                              2001              2000
                                                            -------            -------

<S>                                                         <C>                <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Government mortgage-backed securities .....            $19,350            $14,480
Other securities ...............................              1,532                 --
                                                            -------            -------
      Total ....................................            $20,882            $14,480
                                                            =======            =======

SECURITIES HELD TO MATURITY:
U.S. Government agency securities ..............            $    --            $ 8,982
Other securities ...............................                 --              1,390
U.S. Government mortgage-backed securities .....                 --                153
                                                            -------            -------

      Total ....................................            $    --            $10,525
                                                            =======            =======
</TABLE>

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


<TABLE>
<CAPTION>
                                                                AFTER ONE YEAR
                                          ONE YEAR OR LESS       TO FIVE YEARS          AFTER FIVE YEARS             TOTAL
                                        -------------------   -------------------     -------------------     -------------------
                                        CARRYING    AVERAGE   CARRYING    AVERAGE     CARRYING    AVERAGE     CARRYING    AVERAGE
                                          VALUE      YIELD      VALUE      YIELD        VALUE      YIELD        VALUE      YIELD
                                        --------    -------   --------    -------     --------    -------     --------    -------

<S>                                     <C>         <C>       <C>         <C>         <C>         <C>         <C>         <C>
SECURITIES AVAILABLE FOR SALE
  DECEMBER 31, 2001:
     U. S. Government ..............      $  98      5.42%     $12,498      4.94%      $ 6,754      4.84%      $19,350      4.90%
        mortgaged-backed securities          --        --           --
     Other securities ..............                                                     1,532      6.46         1,532      6.46
                                          =====      ====      =======                 =======      ====       =======      ====
     Total .........................      $  98      5.42%     $12,498      4.94%      $ 8,286      5.14%      $20,882      5.01%
                                          =====                =======                 =======                 =======

  DECEMBER 31, 2000:
     Mortgage-backed securities ....      $  --        --%     $ 3,562      6.45%      $10,918      6.21%      $14,480      6.27%
                                          =====                =======                 =======      ====       =======

SECURITIES HELD TO MATURITY:
  DECEMBER 31, 2000:
     U.S. Government agency
         securities ................      $  --        --%     $ 4,994      3.26%      $ 3,988      2.17%      $ 8,982      2.72%
     Other securities ..............         --        --           --        --         1,390      7.18         1,390      7.18
     U.S. Government mortgage-backed
         securities ................         --        --          102      8.70            51      8.70           153      8.70
                                          -----                -------                 -------                 -------

         Total .....................      $  --        --%     $ 5,096      3.37%      $ 5,429      3.51%      $10,525      3.39%
                                          =====                =======                 =======                 =======
</TABLE>


         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.


                                      19
<PAGE>


REGULATORY CAPITAL REQUIREMENTS

         Under FDIC regulations, the 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 Madison to maintain minimum amounts and percentages (set forth
in the table below) of regulatory capital (as defined in the regulations).
Management believes, as of December 31, 2001, that Madison meets all capital
adequacy requirements to which it is subject.


<TABLE>
<CAPTION>
                                                                                           TO BE WELL
                                                                                        CAPITALIZED UNDER
                                                                   FOR CAPITAL          PROMPT CORRECTIVE
                                            ACTUAL               ADEQUACY PURPOSES:     ACTION PROVISIONS:
                                      ------------------       --------------------    -------------------
                                      AMOUNT         %         AMOUNT         %        AMOUNT         %
                                      -------      -----       -------      -------    ------       ------
                                                             (DOLLARS IN THOUSANDS)

<S>                                   <C>          <C>         <C>          <C>        <C>          <C>
AS OF DECEMBER 31, 2001:
    Total capital (to Risk-
    Weighted Assets):
         Consolidated ..........      $13,789       9.74%      $11,326      8.00%          N/A        N/A
         Bank ..................       14,715      10.39        11,330      8.00       $14,163      10.00%
    Tier I Capital (to Risk-
    Weighted Assets):
         Consolidated ..........       12,313       8.69         5,668      4.00           N/A        N/A
         Bank ..................       13,238       9.35         5,663      4.00         8,495       6.00
    Tier I Capital
    (to Average Assets):
         Consolidated ..........       12,313       7.24         6,803      4.00           N/A        N/A
         Bank ..................       13,238       7.79         6,797      4.00         8,497       5.00

AS OF DECEMBER 31, 2000:
    Total capital (to Risk-
    Weighted Assets) ...........      $12,242      10.57%      $ 9,269      8.00%      $11,586      10.00%
    Tier I Capital (to Risk-
    Weighted Assets) ...........       11,276       9.73         4,634      4.00         6,951       6.00
    Tier I Capital
    (to Average Assets) ........       11,276       7.66         5,885      4.00         7,357       5.00
</TABLE>


MARKET RISK

         Market risk is the risk of loss from adverse changes in market prices
and rates. Madison's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its 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.

         Madison's primary objective in managing interest-rate risk is to
minimize the adverse impact of changes in interest rates on Madison's net
interest income and capital, while adjusting Madison's asset-liability
structure to obtain the maximum yield-cost spread on that structure. Madison
relies primarily on its asset-liability structure to control interest rate
risk. However, a sudden and substantial increase in interest rates may
adversely impact


                                      20
<PAGE>


Madison's 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. Madison does not engage in trading activities.

ASSET AND LIABILITY STRUCTURE

         As part of its asset and liability management, Madison has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing Madison's
earnings. Management believes that these processes and procedures provide
Madison 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, Madison's
management continues 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).

         Madison's cumulative negative gap at the one year measurement period
was $(58.8) million at December 31, 2001. This negative gap reflects Madison's
large deposit base of savings, NOW and money market deposits that totaled $53.7
million for the period ended. While management includes these deposits in the
three month repricing period, much of the industry moves one-half of these
deposits to the longest term repricing maturity. In accordance with this
practice, in the future, management will classify one-half of Madison's
deposits as long-term. Management's 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.

         Going forward management will still continue to increase its loan
portfolio with products with repricing opportunities inside the one year
horizon. In addition, management will endeavor to lengthen its certificate of
deposit portfolio beyond the one year horizon and engage in some Federal Home
Loan Bank borrowings to help in extending the rate sensitivity of Madison's
funding liabilities.

         The following table sets forth certain information relating to
Madison's interest-earning assets and interest-bearing liabilities at December
31, 2001, that are estimated to mature or are scheduled to reprice within the
period shown (dollars in thousands):


                                      21
<PAGE>


<TABLE>
<CAPTION>
                                                        MORE        MORE THAN    MORE THAN     MORE
                                                    THAN THREE     SIX MONTHS    ONE YEAR    THAN FIVE     OVER
                                        THREE        MONTHS TO       TO ONE       TO FIVE     YEARS TO      TEN
                                        MONTHS      SIX MONTHS        YEAR         YEARS     TEN YEARS     YEARS       TOTAL
                                       --------     ----------     ----------    ---------   ---------    ------      -------

<S>                                    <C>          <C>            <C>           <C>         <C>          <C>        <C>
Loans(1) .........................     $ 36,520         5,017         8,478       82,876       4,995       1,508      139,394
Securities available for sale(2) .           --            98            --       12,498       6,837       1,449       20,882
Other securities(3) ..............          361            --            --           --          --         618          979
                                       --------       -------       -------       ------      ------      ------      -------

    Total rate-sensitive assets ..     $ 36,881         5,115         8,478       95,374      11,832       3,575      161,255
                                       ========       =======       =======       ======      ======      ======      =======

Deposit accounts(4):
  Savings, NOW and money-
    market deposits ..............       53,727            --            --           --          --          --       53,727
  Time deposits ..................       25,922         8,882        16,671       14,923       5,795          --       72,193
  Federal Home Loan Bank
    advances .....................        2,200            --            --        5,000       5,000          --       12,200
  Other borrowings ...............        1,801            --            --           --          --          --        1,801
                                       --------       -------       -------       ------      ------      ------      -------
    Total rate-sensitive
      liabilities ................       83,650         8,882        16,671       19,923      10,795          --      139,921
                                       --------       -------       -------       ------      ------      ------      -------

GAP repricing differences ........      (46,769)       (3,767)       (8,193)      75,451       1,037       3,575       21,334
                                       ========       =======       =======       ======      ======      ======      =======

Cumulative GAP ...................     $(46,769)      (50,536)      (58,729)      16,722      17,759      21,334
                                       ========       =======       =======       ======      ======      ======
Cumulative GAP/total assets ......        (28.1)%       (30.3)%       (35.3)%      10.01%       10.7%       12.8%
                                       ========       =======       =======       ======      ======      ======
</TABLE>

---------

(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)      Savings, NOW and money-market deposits are regarded as ready
         accessible withdrawable accounts. Time deposits are scheduled through
         the maturity dates.


                                      22
<PAGE>


       The following table reflects the contractual principal repayments by
period of Madison's loan portfolio at December 31, 2001 (in thousands):


<TABLE>
<CAPTION>
                                                                                                 EQUITY LINES
                                                                                    RESIDEN-      OF CREDIT
                                       COMMERCIAL                                   TIAL REAL    AND SECOND
                                      REAL ESTATE     COMMERCIAL      ESTATE        MORTGAGE      CONSUMER         TOTAL
                                      -----------     ----------      -------       ---------    ------------    --------

<S>                                   <C>             <C>             <C>           <C>          <C>             <C>
Due within one year ............        $ 10,222        $2,496        $     4        $   18        $  129        $ 12,869
Due after one through five years          19,266         1,321            389         1,397         1,583          23,956
Due after five years ...........          81,807         3,194         16,250           981           337         102,569
                                        --------        ------        -------        ------        ------        --------
     Total .....................        $111,295        $7,011        $16,643        $2,396        $2,049        $139,394
                                        ========        ======        =======        ======        ======        ========
</TABLE>

         At December 31, 2001 of the $126.5 million of loans due after one year
8.8% of such loans have fixed rates of interest and 91.2% 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 Madison the right to declare a
conventional loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of loans tends to increase, however, when
current loan rates are substantially higher than rates on existing loans and,
conversely, decrease when rates on existing loans are substantially higher than
current loan rates.

         ORIGINATION, SALE AND REPAYMENT OF LOANS. Madison generally originates
loans located in its primary geographical lending area in Pinellas and Pasco
Counties, Florida. Loan originations by Madison are attributable to depositors,
stockholders, other existing customers, and advertising. Madison's 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
(in thousands):


<TABLE>
<CAPTION>
                                                                                           YEAR ENDED
                                                                                           DECEMBER 31,
                                                                                       ------------------
                                                                                         2001       2000
                                                                                       -------   --------

<S>                                                                                    <C>        <C>
Originations:
    Commercial real estate.....................................................        $47,605    $44,677
    Commercial.................................................................          5,957      1,674
    Residential real estate....................................................            859      3,169
    Equity lines of credit and second mortgage.................................          1,668      1,082
    Consumer...................................................................          2,371      1,182
                                                                                       -------   --------
        Total loans originated.................................................         58,460     51,784

    Less:
    Principal reductions.......................................................         29,006     27,978
    Loans sold.................................................................          5,422      2,555
                                                                                       -------    -------
    Increase in total loans....................................................        $24,032    $21,251
                                                                                       =======     ======
</TABLE>


                                      23
<PAGE>


             DEPOSITS AND OTHER SOURCES OF FUNDS

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

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

         Madison has $5.8 million in certificates of deposits which have a
weighted interest rate of 9.64%. These certificates of deposit were originated
in 1988 and have up to seven years remaining on their term. Madison no longer
offers certificate of deposit product with extended maturities.

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


<TABLE>
<CAPTION>
                                                                                AT DECEMBER 31,
                                                      ----------------------------------------------------------------
                                                                2001                                   2000
                                                      ---------------------------           --------------------------
                                                                           % OF                                  % OF
                                                       AMOUNT            DEPOSITS            AMOUNT           DEPOSITS
                                                      --------           --------           --------          --------

<S>                                                   <C>                <C>                <C>               <C>
Noninterest-bearing demand deposits ......            $ 11,164              8.1%            $  9,605              7.2%
Savings, NOW and money-market deposits ...              53,727             39.2               45,219             33.8
                                                      --------            -----             --------            -----
   Subtotal ..............................              64,891             47.3               54,824             41.0
                                                      --------            -----             --------            -----
Time deposits:
 0% - 2.99% ..............................               2,496              1.8                   18              0.0
3.00% - 3.99% ............................              12,141              8.9                1,442              1.1
4.00% - 4.99% ............................              14,230             10.4               10,473              7.8
5.00% - 5.99% ............................              19,938             14.5               11,049              8.2
6.00% - 6.99% ............................              15,983             11.7               48,298             36.1
7.00% - 7.99% ............................               1,197              0.9                1,910              1.4
8.00% - 8.99% ............................                 315              0.2                  294              0.2
9.00% - 9.99% ............................               5,013              3.7                4,767              3.6
10.00% - 10.99% ..........................                 880              0.6                  800              0.6
                                                      --------            -----             --------            -----
   Total certificates of deposit .........              72,193             52.7               79,051             59.0
                                                      --------            -----             --------            -----
Total deposits(*) ........................            $137,084            100.0%            $133,875            100.0%
                                                      ========            =====             ========            =====
</TABLE>

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


                                      24
<PAGE>


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


<TABLE>
<CAPTION>
                                                            AT DECEMBER 31,
                                                      -------------------------
                                                        2001              2000
                                                      -------            ------

<S>                                                   <C>                <C>
Due three months or less .................            $ 6,203             4,073
Due over three months to six months ......              1,274             3,358
Due over six months to one year ..........              4,770             3,240
Due over one year ........................              4,419             3,878
                                                      -------            ------

Total ....................................            $16,666            14,549
                                                      =======            ======
</TABLE>

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


<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                        --------------------------
                                                          2001               2000
                                                        -------             ------

<S>                                                     <C>                 <C>
Net (decrease) before interest credited ....            $(2,247)            15,632
Net interest credited ......................              5,456              5,540
                                                        -------             ------
Net deposit increase .......................            $ 3,209             21,172
                                                        =======             ======
</TABLE>


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; and

         -        Net interest margin.


                           [Intentionally left blank]


                                      25
<PAGE>


<TABLE>
<CAPTION>
                                                                                YEAR-ENDED DECEMBER 31,
                                                       -----------------------------------------------------------------------
                                                                      2001                                 2000
                                                       --------------------------------      ---------------------------------
                                                                     INTEREST   AVERAGE                   INTEREST     AVERAGE
                                                        AVERAGE        AND       YIELD/       AVERAGE        AND        YIELD/
                                                        BALANCE     DIVIDENDS    RATE         BALANCE     DIVIDENDS     RATE
                                                       --------     ---------   -------      --------     ---------    -------
                                                                               (DOLLARS IN THOUSANDS)

<S>                                                    <C>          <C>         <C>          <C>          <C>          <C>
Interest-earning assets:
   Loans(1) .....................................      $126,151      $10,743      8.51%      $103,503      $ 9,333      9.02%
   Securities ...................................        21,888        1,073      4.90         28,798        1,551      5.39
   Other interest-earning assets(2) .............         7,892          331      4.19          1,389          112      8.06
                                                       --------      -------                 --------      -------
       Total interest-earning assets ............       155,931       12,147      7.79        133,690       10,996      8.22
                                                                     -------                               -------

Noninterest-earning assets ......................         6,777                                 6,308
                                                       --------                              --------

       Total assets .............................      $162,708                              $139,998
                                                       ========                              ========

Interest-bearing liabilities:
   Savings, NOW, money-market deposit
       accounts .................................        49,159        1,192      2.42         43,308        1,377      3.18
   Time deposits ................................        78,953        4,706      5.96         70,255        4,122      5.87
   Federal Home Loan Bank advances
   and other borrowings .........................         9,057          401      4.43          3,551          231      6.51
                                                       --------      -------                 --------      -------
       Total interest-bearing liabilities .......       137,169        6,299      4.59        117,114        5,730      4.89
                                                                     -------                               -------

Non-interest-bearing demand deposits ............        12,388                                10,969
Non-interest-bearing liabilities ................         1,154                                 1,552
Stockholders' equity ............................        11,997                                10,363
                                                       --------                              --------

       Total liabilities and shareholders' equity      $162,708                              $139,998
                                                       ========                              ========

Net interest income .............................                    $ 5,848                               $ 5,266
                                                                     =======                               =======

Interest-rate spread(3) .........................                                 3.20%                                 3.33%
                                                                                  ====                                  ====

Net interest margin(4) ..........................                                 3.75%                                 3.94%
                                                                                  ====                                  ====

Ratio of average interest-earning assets to
   average interest-bearing liabilities .........          1.14                                  1.14
                                                           ====                                  ====
</TABLE>

---------

(1)      Includes loans on nonaccrual status.

(2)      Includes Federal Home Loan Bank stock, federal funds sold and
         interest-bearing deposits with banks.

(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
<PAGE>


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).


<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                              2001 VS. 2000
                                                                                      INCREASE (DECREASE) DUE TO
                                                                        ------------------------------------------------------
                                                                                                         RATE/
                                                                         RATE           VOLUME          VOLUME          TOTAL
                                                                        -----           ------          ------          ------

<S>                                                                     <C>             <C>             <C>             <C>
Interest earning assets:
    Loans ....................................................          $(519)           2,042           (113)           1,410
    Securities ...............................................           (139)            (372)            33             (478)
    Other interest-earning assets ............................            (53)             524           (252)             219
                                                                        -----           ------           ----           ------

      Total ..................................................          $(711)           2,194           (332)           1,151
                                                                        =====           ======           ====           ======

Interest-bearing liabilities:
    Deposits:
      Savings, NOW and money-market deposits .................           (327)             186            (44)            (185)
      Time deposits ..........................................             66              510              8              584
      Federal Home Loan Bank advances and other borrowings ...            (74)             358           (114)             170
                                                                        -----           ------           ----           ------

      Total ..................................................           (335)           1,054           (150)             569
                                                                        -----           ------           ----           ------

Net change in net interest income ............................          $(376)           1,140           (182)             582
                                                                        =====           ======           ====           ======
</TABLE>


COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000


         GENERAL. Net earnings for the year ended December 31, 2001, was
$1,093,000 or $.73 per basic earnings per share ($.71 per diluted earnings per
share) compared to net earnings of $952,000 or $.64 per basic ($.63 per diluted
earnings per share) for the year ended December 31, 2000. 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 and an increase in
noninterest expenses.

         INTEREST INCOME AND EXPENSE. Interest income increased by $1.1 million
from $11.0 million for the year ended December 31, 2000 to $12.1 million for
the year ended December 31, 2001. Interest income on loans increased $1.4
million due an increase in the average loan portfolio balance of $22.6 million
which was partially offset by a decrease in the weighted yield in 2001 to 8.51%
from 9.02% in 2000. Interest on securities decreased $478,000 due to a decrease
in the average securities balance from $28.8 million in 2000 to $21.9 million
in 2001, and a decrease in the weighted-average yield of 49 basis points.
Interest on other interest-earning assets increased $219,000 primarily due to
an increase from $1.4 million in average other interest-earning assets in 2000
to $7.9 million in 2001 partially offset by a decrease in the weighted yield
earned.

         Interest expense increased $569,000 in 2001 compared to 2000. Interest
expense on deposits increased $399,000 due to an increase in the average
balance of interest-bearing deposits in 2001 compared to 2000 of


                                      27
<PAGE>


$14.5 million, partially offset by a decrease in the rate paid on deposit
accounts from 4.84% in 2000 to 4.60% in 2001. Interest expense on other
borrowings increased $170,000 primarily due to an increase in the average
balance of other borrowings from $3.6 million in 2000 to $9.1 million in 2001,
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 $428,000 provision recorded for the year ended December
31, 2001, compared to $369,000 in 2000. At December 31, 2001, the allowance for
loan losses was $1.5 million. While management believes that its allowance for
loan losses is adequate as of December 31, 2001, future adjustments to the
Bank's allowance for loan losses may be necessary if economic conditions differ
substantially from the assumptions used in making the initial determination.

         NONINTEREST INCOME. Noninterest income increased from $648,000 in 2000
to $715,000 in 2001 primarily due to increased service charges on deposit
accounts in 2001 compared to 2000 due to our continued emphasis on obtaining
customer transaction accounts and related fee income.

         NONINTEREST EXPENSE. Total noninterest expense increased $362,000 for
the year ended December 31, 2001, compared to 2000. Professional fees increased
in 2001 compared to 2000 as a result of the formation of the holding company.
Employee compensation and benefits increased $86,000, and our occupancy and
equipment increased $89,000 due to the opening of one new office in the fourth
quarter of 2000.

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.


                                      28
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

                   [Hacker, Johnson & Smith, P.A. Letterhead]

                          INDEPENDENT AUDITORS' REPORT

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

         We have audited the accompanying consolidated balance sheets of Madison
BancShares, Inc. and Subsidiary (the "Company") at December 31, 2001 and 2000
and the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 2001 and 2000 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.



/s/ Hacker, Johnson & Smith, P.A.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
January 25, 2002


                                       29

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                            AT DECEMBER 31,
                                                                                  --------------------------------
                                                                                     2001                  2000
                                                                                  ----------            ----------
<S>                                                                               <C>                   <C>
     ASSETS

Cash and due from banks ...................................................       $    2,440                 2,282
Interest-bearing deposits with banks ......................................               33                    87
Federal funds sold ........................................................              328                   303
                                                                                  ----------            ----------

    Cash and cash equivalents .............................................            2,801                 2,672

Securities available for sale .............................................           20,882                14,480
Securities held to maturity (market value of $9,261 in 2000) ..............               --                10,525
Loans, net of allowance for loan losses of $1,477 in 2001
    and $966 in 2000 ......................................................          137,601               114,113
Accrued interest receivable ...............................................              712                   851
Premises and equipment, net ...............................................            2,888                 3,032
Federal Home Loan Bank of Atlanta stock, at cost ..........................              618                   483
Deferred tax asset ........................................................              250                   122
Other assets ..............................................................              779                   823
                                                                                  ----------            ----------

                                                                                  $  166,531               147,101
                                                                                  ==========            ==========

    LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
    Noninterest-bearing demand deposits ...................................           11,164                 9,605
    Savings, NOW and money-market deposits ................................           53,727                45,219
    Time deposits .........................................................           72,193                79,051
                                                                                  ----------            ----------

       Total deposits .....................................................          137,084               133,875

    Federal Home Loan Bank advances .......................................           12,200                   250
    Other borrowings ......................................................            1,801                    --
    Official checks .......................................................            1,736                 1,205
    Accrued expenses and other liabilities ................................            1,457                   832
                                                                                  ----------            ----------

       Total liabilities ..................................................          154,278               136,162
                                                                                  ----------            ----------

Commitments (Notes 5 and 15)

Stockholders' equity:
    Preferred stock, $0.01 par value, authorized 1,000,000 shares;
       none issued or outstanding .........................................               --                    --
    Common stock, $0.01 par value, authorized 4,000,000 shares;
       issued and outstanding 1,493,971 and 1,420,696 in 2001 and 2000 ....               15                    14
    Additional paid-in capital ............................................           12,653                12,032
    Accumulated deficit ...................................................             (355)                 (770)
    Accumulated other comprehensive income (loss) .........................              (60)                 (337)
                                                                                  ----------            ----------

       Total stockholders' equity .........................................           12,253                10,939
                                                                                  ----------            ----------

                                                                                  $  166,531               147,101
                                                                                  ==========            ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


                                       30

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF EARNINGS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED
                                                                                             DECEMBER 31,
                                                                                  --------------------------------
                                                                                     2001                  2000
                                                                                  ----------            ----------
<S>                                                                               <C>                   <C>
Interest income:
     Loans ................................................................       $   10,743                 9,333
     Securities available for sale ........................................              630                   983
     Securities held to maturity ..........................................              443                   568
     Other interest-earning assets ........................................              331                   112
                                                                                  ----------            ----------

          Total interest income ...........................................           12,147                10,996
                                                                                  ----------            ----------

Interest expense:
     Deposits .............................................................            5,898                 5,499
     Borrowed funds .......................................................              401                   231
                                                                                  ----------            ----------

          Total interest expense ..........................................            6,299                 5,730
                                                                                  ----------            ----------

          Net interest income .............................................            5,848                 5,266

Provision for loan losses .................................................              428                   369
                                                                                  ----------            ----------

          Net interest income after provision for loan losses .............            5,420                 4,897
                                                                                  ----------            ----------

Noninterest income:
     Service charges on deposit accounts ..................................              470                   426
     Other service charges and fees .......................................              158                   145
     Gain on sale of securities ...........................................               14                    --
     Other ................................................................               73                    77
                                                                                  ----------            ----------

          Total noninterest income ........................................              715                   648
                                                                                  ----------            ----------

Noninterest expenses:
     Employee compensation and benefits ...................................            2,347                 2,261
     Occupancy and equipment ..............................................              651                   562
     Data processing expense ..............................................              258                   225
     Professional fees ....................................................              175                   105
     Advertising ..........................................................              108                   114
     Stationary and supplies ..............................................              102                   105
     Federal deposit insurance premium ....................................               25                    24
     Other expense ........................................................              724                   632
                                                                                  ----------            ----------

          Total noninterest expenses ......................................            4,390                 4,028
                                                                                  ----------            ----------

         Earnings before income taxes .....................................            1,745                 1,517

Income taxes ..............................................................              652                   565
                                                                                  ----------            ----------

         Net earnings .....................................................       $    1,093                   952
                                                                                  ==========            ==========

Earnings per share:

     Basic earnings per share .............................................       $      .73                   .64
                                                                                  ==========            ==========

     Diluted earnings per share ...........................................       $      .71                   .63
                                                                                  ==========            ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


                                       31

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                   ACCUMULATED
                                                                                                     OTHER
                                                                                                     COMPRE-
                                                                       ADDITIONAL                   HENSIVE
                                                          COMMON        PAID-IN      ACCUMULATED     INCOME
                                                          STOCK         CAPITAL        DEFICIT        (LOSS)           TOTAL
                                                         -------       ----------    -----------   -----------       --------
<S>                                                      <C>           <C>           <C>           <C>               <C>
Balance at December 31, 1999 .....................       $    13         11,000           (655)         (289)          10,069
                                                                                                                     --------

Comprehensive income:
     Net earnings ................................            --             --            952            --              952

     Net change in unrealized loss on securities
         available for sale ......................            --             --             --           (48)             (48)
                                                                                                                     --------

Comprehensive income .............................                                                                        904
                                                                                                                     --------

Exercise of common stock options
     (11,130 shares) .............................            --             43             --            --               43

Stock dividends (131,467 shares) .................             1            989           (990)           --               --

Cash dividends ...................................            --             --            (77)           --              (77)
                                                         -------        -------        -------         -----         --------

Balance at December 31, 2000 .....................            14         12,032           (770)         (337)          10,939
                                                                                                                     --------

Comprehensive income:
     Net earnings ................................            --             --          1,093            --            1,093

     Net change in unrealized loss on securities
         available for sale ......................            --             --             --           277              277
                                                                                                                     --------

Comprehensive income .............................                                                                      1,370
                                                                                                                     --------

Exercise of common stock options
     (2,315 shares) ..............................            --             19             --            --               19

Stock dividends (70,960 shares) ..................             1            602           (603)           --               --

Cash dividends ...................................            --             --            (75)           --              (75)
                                                         -------        -------        -------         -----         --------

Balance at December 31, 2001 .....................       $    15         12,653           (355)          (60)          12,253
                                                         =======        =======        =======         =====         ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


                                       32

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                             YEAR ENDED
                                                                                                             DECEMBER 31,
                                                                                                     ---------------------------
                                                                                                        2001             2000
                                                                                                     ----------       ----------
<S>                                                                                                  <C>              <C>
Cash flows from operating activities:
   Net earnings ...............................................................................      $    1,093              952
   Adjustments to reconcile net earnings to net cash provided by
     operating activities:
      Provision for loan losses ...............................................................             428              369
      Depreciation and amortization ...........................................................             362              285
      Credit for deferred income taxes ........................................................            (299)            (131)
      Amortization of discounts and premiums on securities and deferred
         loans fees, net ......................................................................             (58)              71
      Decrease (increase) in accrued interest receivable ......................................             139             (207)
      Decrease in other assets ................................................................              44              149
      Increase in official checks, accrued expenses and other liabilities .....................           1,156            1,393
      Gain on sale of securities ..............................................................             (14)              --
      Gain on sale of loans ...................................................................              (6)             (17)
                                                                                                     ----------       ----------

         Net cash provided by operating activities ............................................           2,845            2,864
                                                                                                     ----------       ----------

Cash flows used in investing activities:
   Net increase in loans ......................................................................         (25,594)         (24,086)
   Proceeds from sale of loans ................................................................           1,651            2,572
   Purchase of securities available for sale ..................................................          (9,258)              --
   Net proceeds from sales of securities ......................................................          11,418               --
   Securities available for sale principal repayments .........................................           2,490              897
   Securities held to maturity principle repayments ...........................................              26            4,702
   Purchase of Federal Home Loan Bank stock ...................................................            (135)              (6)
   Purchase of premises and equipment, net ....................................................            (218)            (800)
   Proceeds from sale of foreclosed real estate ...............................................              --               75
                                                                                                     ----------       ----------

         Net cash used in investing activities ................................................         (19,620)         (16,646)
                                                                                                     ----------       ----------

Cash flows from financing activities:
   Net increase in deposits ...................................................................           3,209           21,172
   Net increase (decrease) in Federal Home Loan Bank advances .................................          11,950           (8,050)
   Net proceeds from other borrowings .........................................................           1,801               --
                                                                                                                      ----------
   Net proceeds from issuance of common stock .................................................              19               43
   Cash dividends paid ........................................................................             (75)             (77)
                                                                                                     ----------       ----------

         Net cash provided by financing activities ............................................          16,904           13,088
                                                                                                     ----------       ----------

         Net increase (decrease) in cash and cash equivalents .................................             129             (694)

Cash and cash equivalents at beginning of year ................................................           2,672            3,366
                                                                                                     ----------       ----------

Cash and cash equivalents at end of year ......................................................      $    2,801            2,672
                                                                                                     ==========       ==========

Supplemental disclosures of cash flow information:
   Interest paid ..............................................................................      $    6,349            5,540
                                                                                                     ==========       ==========

   Income taxes paid ..........................................................................      $      766              686
                                                                                                     ==========       ==========

Noncash transactions:
   Transfer of securities held to maturity to securities available for sale ...................      $   10,564               --
                                                                                                     ==========       ==========

   Loans reclassified to foreclosed real estate................................................      $       --              225
                                                                                                     ==========       ==========

   Foreclosed real estate transferred to loans in connection with
      sale of foreclosed real estate...........................................................      $       --              150
                                                                                                     ==========       ==========

   Accumulated other comprehensive income (loss), change in
      unrealized loss on securities available for sale ........................................      $      277              (48)
                                                                                                     ==========       ==========

   Stock dividends ............................................................................      $      603              990
                                                                                                     ==========       ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.


                                       33

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         GENERAL. On June 19, 2001, the shareholders' of Madison Bank (the
               "Bank") approved a plan of corporate reorganization under which
               the Bank would become a wholly-owned subsidiary of Madison
               BancShares, Inc. (the "Holding Company") (collectively, the
               "Company"). This transaction became effective on September 4,
               2001. Initially, the only activity of the Holding Company is the
               operation of the Bank. This corporate reorganization was
               accounted for similar to a pooling of interests. All previously
               issued $1.10 par value common shares of the Bank were exchanged
               on a one for one basis for $.01 par value common shares of the
               Holding Company. 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 three banking offices located in Pinellas County,
               Florida and one banking office in Pasco County, Florida.

         BASIS OF PRESENTATION. The accompanying consolidated financial
               statements include 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.

         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.

         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.

                                                                     (continued)


                                       34

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         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
               nonaccrual 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 nonaccrual 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.

               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.

                                                                     (continued)


                                       35

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         PREMISES AND EQUIPMENT. 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.

         STOCK COMPENSATION PLANS. Statement of Financial Accounting Standards
               (SFAS) No. 123, Accounting for Stock-Based Compensation,
               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, 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. Stock options issued
               under the Company's stock option plan have no intrinsic value at
               the grant date, and under Opinion No. 25 no compensation cost is
               recognized for them. The Company has elected to continue with the
               accounting methodology in Opinion No. 25 and, as a result, has
               provided proforma disclosures of net earnings and earnings per
               share and other disclosures, as if the fair value based method of
               accounting had been applied.

         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.

                                                                     (continued)


                                       36

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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

               CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
                    equivalents approximates their fair value.

               SECURITIES. Fair values for securities held to maturity and
                    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 residential
                    mortgage loans and fixed-rate commercial real estate and
                    commercial 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.

               ACCRUED INTEREST. The carrying amount approximates fair value.

               DEPOSIT LIABILITIES. The fair values disclosed for demand,
                    savings and NOW 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.

                                                                     (continued)


                                       37

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         EARNINGS PER SHARE. Basic earnings per share is computed on the basis
               of the weighted-average number of common shares outstanding.
               Diluted earnings per share is computed based on the
               weighted-average number of shares outstanding plus the effect of
               outstanding stock options, computed using the treasury stock
               method. All per share amounts reflect the 5% stock dividends
               declared on May 15, 2000, December 20, 2000 and May 15, 2001.

         COMPREHENSIVE INCOME. Accounting principles generally require that
               recognized revenue, expenses, gains and losses be included in net
               earnings. Although certain changes in assets and liabilities,
               such as unrealized gains and losses on available-for-sale
               securities, are reported as a separate component of the equity
               section of the consolidated balance sheet, such items, along with
               net earnings, are components of comprehensive income. The
               components of other comprehensive income and related tax effects
               are as follows:

<TABLE>
<CAPTION>
                                                                                                            YEAR ENDED DECEMBER 31,
                                                                                                            -----------------------
                                                                                                             2001            2000
                                                                                                            ------          ------
               <S>                                                                                          <C>             <C>
               Unrealized holding gains (losses) on available-for-sale
                  securities ............................................................................   $  462             (77)
               Reclassification adjustment for gains realized in earnings ...............................      (14)             --
                                                                                                            ------          ------

               Net unrealized gains (losses) ............................................................      448             (77)

               Income (taxes) benefit ...................................................................     (171)             29
                                                                                                            ------          ------

               Net amount ...............................................................................   $  277             (48)
                                                                                                            ======          ======
</TABLE>

         RECLASSIFICATION. Certain amounts in the 2000 consolidated financial
               statements have been reclassified to conform with the 2001
               presentation.

                                                                     (continued)


                                       38

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(2)      SECURITIES

         Securities have been classified according to management's intent. The
               carrying amounts of securities and their approximate fair values
               were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               GROSS       GROSS
                                                                AMORTIZED    UNREALIZED  UNREALIZED       FAIR
                                                                  COST         GAINS       LOSSES         VALUE
                                                                ---------    ----------  ----------     --------
               <S>                                              <C>          <C>         <C>            <C>
               SECURITIES AVAILABLE FOR SALE:
                 AT DECEMBER 31, 2001:
                   U. S. Government agency mortgage-backed
                        securities .........................    $ 19,516           50         (216)       19,350
                   Other securities ........................       1,462          109          (39)        1,532
                                                                --------     --------     --------      --------

                                                                $ 20,978          159         (255)       20,882
                                                                ========     ========     ========      ========

                 AT DECEMBER 31, 2000:
                   U.S. Government agency mortgage-backed
                        securities .........................    $ 15,024           22         (566)       14,480
                                                                ========     ========     ========      ========

               SECURITIES HELD TO MATURITY:
                AT DECEMBER 31, 2000:
                   U.S. Government agency securities .......       8,982           --       (1,456)        7,526
                   U.S. Government agency mortgage-backed
                        securities .........................         153            6           --           159
                   Other securities ........................       1,390          186           --         1,576
                                                                --------     --------     --------      --------

                                                                $ 10,525          192       (1,456)        9,261
                                                                ========     ========     ========      ========
</TABLE>

     The  scheduled maturities of securities available for sale at December 31,
          2001 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                AVAILABLE-FOR-SALE
                                                                                            --------------------------
                                                                                            AMORTIZED          FAIR
                                                                                               COST            VALUE
                                                                                            ---------        --------
              <S>                                                                           <C>               <C>
              Due in one year........................................................       $     24              98
              Due from one to five years.............................................         12,615          12,498
              Due from five to ten years.............................................          6,840           6,837
              Due after ten years....................................................          1,499           1,449
                                                                                            --------          ------

                                                                                            $ 20,978          20,882
                                                                                            ========          ======
</TABLE>

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

                                                                     (continued)


                                       39

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(2)      SECURITIES, CONTINUED

         During the year ended December 31, 2001, the Company sold $9.0 million
               of securities from the held to maturity category. As required by
               Statement of Financial Accounting Standards No. 115 -- Accounting
               For Certain Investments in Debt and Equity Securities, all
               securities classified as held to maturity totaling $10.6 million
               were transferred to the available for sale category. Furthermore,
               the Company's management intends to classify all securities
               purchased through December 31, 2002 as available for sale.

         There were no sales of securities during 2000. Security sales
               transactions during 2001 are summarized as follows (in
               thousands):

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                                            DECEMBER 31,
                                                                                2001
                                                                            ------------
               <S>                                                          <C>
               Principal received from sales ....................            $ 11,418
                                                                             ========

               Gross gains ......................................                 201
               Gross losses .....................................                (187)
                                                                             --------

               Net gain .........................................            $     14
                                                                             ========
</TABLE>

(3)      LOANS, NET

         The components of loans were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                          AT DECEMBER 31,
                                                                                  -------------------------------
                                                                                     2001                  2000
                                                                                  ---------             ---------
               <S>                                                                <C>                   <C>
               Commercial real estate ................................            $ 111,295                83,997
               Commercial ............................................                7,011                 5,258
               Residential real estate ...............................               16,643                21,139
               Equity lines of credit and second mortgage ............                2,396                 2,375
               Consumer ..............................................                2,049                 2,593
                                                                                  ---------             ---------

                  Subtotal ...........................................              139,394               115,362

               Net deferred loan fees ................................                 (316)                 (283)
               Allowance for loan losses .............................               (1,477)                 (966)
                                                                                  ---------             ---------

                  Loans, net .........................................            $ 137,601               114,113
                                                                                  =========             =========
</TABLE>

                                                                     (continued)


                                       40

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(3)      LOANS, NET, CONTINUED

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

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                    2001                  2000
                                                                                  ---------             ---------
               <S>                                                                <C>                   <C>
               Balance at beginning of year ..........................            $     966                   802
               Provision charged to operations .......................                  428                   369
               Charge-offs ...........................................                   --                  (212)
               Recoveries ............................................                   83                     7
                                                                                  ---------             ---------

                  Balance at end of year .............................            $   1,477                   966
                                                                                  =========             =========
</TABLE>

         There were no impaired loans at December 31, 2000. At December 31,
               2001, there was one impaired loan which was collateral dependent.
               The following information relates to this impaired loan (in
               thousands):

<TABLE>
<CAPTION>
                                                                                        AMOUNT
                                                                                       --------
               <S>                                                                     <C>
               Loan identified as impaired:
                  Gross loan with no related allowance for losses .........            $     --
                  Gross loan with related allowance for losses recorded ...               1,423
                  Less:  Allowances on this loan ..........................                 142
                                                                                       --------

               Net investment in impaired loan ............................            $  1,281
                                                                                       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                    2001                  2000
                                                                                  ---------             ---------
               <S>                                                                <C>                   <C>
               Average investment in impaired loans ..................            $     234                    69
                                                                                  =========             =========

               Interest income recognized on impaired loans ..........            $      --                     1
                                                                                  =========             =========

               Interest income received on impaired loans ............            $      --                     1
                                                                                  =========             =========
</TABLE>

(4)      LOAN SERVICING

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

<TABLE>
<CAPTION>
                                                                                          AT DECEMBER 31,
                                                                                  -------------------------------
                                                                                     2001                  2000
                                                                                  ---------             ---------
               <S>                                                                <C>                   <C>
               Mortgage loan portfolios serviced for:
                  FHLMC ..............................................            $   1,355                 1,933
                  FNMA ...............................................                  527                   924
                  Other investors ....................................                7,334                 4,956
                                                                                  ---------             ---------

                                                                                  $   9,216                 7,813
                                                                                  =========             =========
</TABLE>

                                                                     (continued)


                                       41

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(4)      LOAN SERVICING, CONTINUED

         Custodial escrow balances maintained in connection with the
               foregoing loan servicing were approximately $8,000 and $13,000
               at December 31, 2001 and 2000, respectively.

(5)      PREMISES AND EQUIPMENT, NET

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

<TABLE>
<CAPTION>
                                                                                          AT DECEMBER 31,
                                                                                  -------------------------------
                                                                                     2001                 2000
                                                                                  ---------             ---------
               <S>                                                                <C>                   <C>
               Land ..................................................            $     802                   744
               Buildings .............................................                1,570                 1,516
               Leasehold improvements ................................                  155                   154
               Furniture and equipment ...............................                1,900                 1,877
               Construction in progress ..............................                    2                    64
                                                                                  ---------             ---------

                  Total, at cost .....................................                4,429                 4,355

               Less accumulated depreciation and amortization ........               (1,541)               (1,323)
                                                                                  ---------             ---------

                  Premises and equipment, net ........................            $   2,888                 3,032
                                                                                  =========             =========
</TABLE>

         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, 2001 and 2000 was approximately $124,000 and $123,000,
               respectively. The Company also leases office space to third
               parties. Rental income under operating leases was approximately
               $51,000 and $43,000 during the years ended December 31, 2001 and
               2000, respectively. The future minimum lease payments and
               estimated future rentals at December 31, 2001 on these leases are
               approximately as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  OPERATING             OPERATING
                                                                                   LEASE                  LEASE
         YEAR ENDING DECEMBER 31:                                                  EXPENSE                INCOME
         ------------------------                                                 ---------             ---------
         <S>                                                                      <C>                   <C>
               2002 ..................................................            $     119                    62
               2003 ..................................................                   92                    64
               2004 ..................................................                   89                    64
               2005 ..................................................                   60                    64
               2006 ..................................................                   60                    61
               Thereafter ............................................                  149                   191
                                                                                  ---------             ---------

                                                                                  $     569                   506
                                                                                  =========             =========
</TABLE>

                                                                     (continued)


                                       42




<PAGE>

                     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 $16.7 million and $14.5
         million at December 31, 2001 and 2000, respectively.

         The scheduled maturities of certificates of deposit at December 31,
2001 is as follows (in thousands):

<TABLE>
<CAPTION>
         YEAR ENDING DECEMBER 31,                         AMOUNT
         ------------------------                       ---------
         <S>                                            <C>

               2002...........................          $  51,475
               2003-2004 .....................             12,866
               2005-2006 .....................              2,057
               Thereafter ....................              5,795
                                                        ---------

                                                        $  72,193
                                                        =========
</TABLE>

(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 $59,000 and $14,000, respectively, net of the
         increase in the cash surrender value of the life insurance policy,
         under this Agreement in 2001 and 2000.

(8)  FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank of Atlanta ("FHLB") advances, which are collateralized by
         a blanket floating lien on 1-4 family mortgage loans and commercial
         real estate loans, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  AT DECEMBER 31,
MATURING IN THE                         WEIGHTED-AVERAGE                        --------------------
  YEAR ENDING                            INTEREST RATE                           2001           2000
---------------                         ----------------                         ----           ----
<S>                                     <C>                                    <C>              <C>
    Daily............................      Variable.......................     $  2,200          250
    2006.............................         4.79%.......................        5,000           --
    2011.............................         4.03%.......................        5,000           --
                                                                               --------          ---

                                                                               $ 12,200          250
                                                                               ========          ===
</TABLE>

         Both fixed rate FHLB advances have call options.           (continued)


                                       43
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(9)  OTHER BORROWINGS

         Other borrowings are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31,
                                                                  ---------------------
                                                                    2001           2000
                                                                  --------         ----
         <S>                                                      <C>              <C>
         Customer repurchase agreements..................         $    795          --
         Line of credit..................................            1,006          --
                                                                  --------         ---

                 Total other borrowings..................         $  1,801          --
                                                                  ========         ===
</TABLE>

         The Company has pledged securities with a carrying value of $1.6
million as collateral for customer repurchase agreements. Also the Company has a
line of credit with another financial institution with a maximum limit of $2.5
million at a variable rate, which adjusts quarterly, as defined by the agreement
(at December 31, 2001 the rate was 3.782%). 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):

<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                                       DECEMBER 31,
                                                                   2001             2000
                                                                  ------           -----
         <S>                                                      <C>              <C>
         Current:
                 Federal.............................             $  812             595
                 State...............................                139             101
                                                                  ------           -----

                                                                     951             696
                                                                  ------           -----
         Deferred:
                 Federal.............................               (255)           (112)
                 State...............................                (44)            (19)
                                                                  ------           -----

                                                                    (299)           (131)
                                                                  ------           -----

                    Total............................             $  652             565
                                                                  ======           =====
</TABLE>

                                                                     (continued)


                                       44
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(10)  INCOME TAXES, CONTINUED

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

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                        -----------------------------------------------
                                                                                2001                        2000
                                                                        -------------------         -------------------
                                                                        AMOUNT          %           AMOUNT          %
                                                                        ------        -----         ------        -----
         <S>                                                            <C>           <C>           <C>           <C>
         Tax at Federal statutory income tax rate............           $  593         34.0%        $  516         34.0%
         Increase (decrease) resulting from:
            State income tax, net of Federal
                income tax benefit...........................               63          3.6             54          3.5
            Other, net.......................................               (4)         (.2)            (5)         (.3)
                                                                        ------        -----         ------        -----

                Total........................................           $  652         37.4%        $  565         37.2%
                                                                        ======        =====         ======        =====
</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below (in
thousands):

<TABLE>
<CAPTION>
                                                                                           AT DECEMBER 31,
                                                                                        2001             2000
                                                                                      -------           -----
         <S>                                                                          <C>               <C>
         Deferred tax assets:
             Allowance for loan losses .....................................          $   410             249
             Salary continuation plan ......................................               50              17
             Impaired loan interest ........................................               37              --
             Net unrealized loss on securities available
                 for sale ..................................................               36             207
             Organizational costs ..........................................               22              --
                                                                                      -------           -----

                    Total deferred tax assets ..............................              555             473
                                                                                      -------           -----

         Deferred tax liabilities:
             Deferred loan fees ............................................             (106)           (138)
             Accumulated depreciation ......................................             (153)           (181)
             Federal Home Loan Bank of Atlanta stock .......................              (29)            (29)
             Other .........................................................              (17)             (3)
                                                                                       -------           -----

                    Total deferred tax liabilities .........................             (305)           (351)
                                                                                      -------           -----

                    Net deferred tax asset .................................          $   250             122
                                                                                      =======           =====
</TABLE>

(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 $60,000 for each of the years ended
December 31, 2001 and 2000, respectively.

                                                                     (continued)


                                       45

<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(12)  STOCK OPTIONS

         The Company has stock option plans for certain officers and directors
of the Company. The options vest over a five year period from date of grant and
are then exercisable for up to an eight year period. All per share amounts
reflect the 5% stock dividends declared on May 15, 2000, December 20, 2000 and
May 15, 2001. A summary of stock option transactions follows ($ in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                                                          WEIGHTED
                                                                   NUMBER               RANGE OF          AVERAGE        AGGREGATE
                                                                     OF                PER SHARE         PER SHARE        OPTION
                                                                   SHARES            OPTION PRICE          PRICE          PRICE
                                                                  --------           ------------        ---------        ------
         <S>                                                      <C>                <C>                 <C>             <C>
         Options outstanding at December 31, 1999 ......           136,021            $ 2.89-8.31           5.62             764
         Options granted ...............................            61,079              6.70-6.97           6.88             420
         Options exercised .............................           (11,687)             2.89-4.05           3.68             (43)
         Options expired ...............................           (14,360)             4.04-8.31           6.69             (96)
                                                                  --------                                                ------

         Options outstanding at December 31, 2000 ......           171,053              4.92-8.31           6.11           1,045
         Options granted ...............................             1,500                   9.30           9.30              14
         Options exercised .............................            (2,315)                  8.31           8.31             (19)
         Options expired ...............................            (3,473)                  8.31           8.31             (29)
                                                                  --------                                                ------

         Options outstanding at December 31, 2001 ......           166,765            $ 4.92-9.30           6.06           1,011
                                                                  ========            ===========           ====          ======
</TABLE>

         The weighted-average remaining contractual life of options outstanding
at December 31, 2001 and 2000 was 5.0 years and 5.9 years, respectively.

         These options are exercisable as follows:

<TABLE>
<CAPTION>
                                                                     NUMBER OF          WEIGHTED-AVERAGE
         YEAR ENDING DECEMBER 31,                                     SHARES             EXERCISE PRICE
         ------------------------                                    ---------          ----------------
         <S>                                                          <C>               <C>
            Currently exercisable .........................            88,729               $  5.61
            2002 ..........................................            40,299                  6.25
            2003 ..........................................            11,358                  7.21
            2004 ..........................................            18,304                  7.10
            2005 ..........................................             5,570                  7.09
            2006 ..........................................             2,505                  7.45
                                                                     --------               -------

                                                                      166,765               $  6.06
                                                                     ========               =======
</TABLE>

                                                                     (continued)


                                       46
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(12)  STOCK OPTIONS, CONTINUED

         FASB Statement 123 requires proforma information regarding net earnings
and earnings per share. This proforma information has been determined as if the
Company had accounted for its stock options under the fair value method of that
statement. All per share amounts reflect the 5% stock dividends declared on May
15, 2000, December 20, 2000 and May 15, 2001 (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                                                                   DECEMBER 31,
                                                                            -------------------------
                                                                              2001              2000
                                                                            --------          -------
         <S>                                                                <C>               <C>
         Weighted-average grant-date fair value of options
             issued during the year ..............................          $   1.86             1.82
                                                                            ========          =======

         Proforma net earnings ...................................          $  1,021              887
                                                                            ========          =======

         Proforma basic earnings per share .......................          $    .68              .60
                                                                            ========          =======

         Proforma diluted earnings per share .....................          $    .66              .59
                                                                            ========          =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED
                                                                                   DECEMBER 31,
                                                                            -------------------------
                                                                              2001              2000
                                                                            --------          -------
         <S>                                                                <C>               <C>
         Risk-free interest rate..................................          4.5%                 5.5%
         Dividend yield...........................................          2.0%                 2.0%
         Volatility ..............................................         21.0%                12.0%
         Expected life in years...................................           10                   10

</TABLE>

(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 quantitative measures of their
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classifications are
also subject to qualitative judgements by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions are not
applicable to the Holding Company.

                                                                     (continued)


                                       47
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(13)  REGULATORY MATTERS, CONTINUED

         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, 2001, that the Company and the Bank met all capital adequacy
requirements to which they are subject.

         As of December 31, 2001, 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 actual capital amounts and
percentages as of December 31, 2001 and the Bank's actual capital amounts and
percentages as of December 31, 2001 and 2000 are also presented in the table ($
in thousands).

<TABLE>
<CAPTION>
                                                                                                                TO BE WELL
                                                                                                             CAPITALIZED UNDER
                                                                                      FOR CAPITAL            PROMPT CORRECTIVE
                                                               ACTUAL              ADEQUACY PURPOSES         ACTION PROVISIONS
                                                       --------------------      --------------------      --------------------
                                                         AMOUNT         %         AMOUNT          %         AMOUNT          %
                                                       ---------      -----      ---------      -----      ---------      -----
<S>                                                    <C>            <C>        <C>            <C>        <C>            <C>
AS OF DECEMBER 31, 2001:
    Total capital (to Risk-Weighted Assets):
         Consolidated ............................     $  13,789       9.74%     $  11,326       8.00%           N/A        N/A
         Bank ....................................        14,715      10.39         11,330       8.00      $  14,163      10.00%
    Tier I Capital (to Risk-Weighted Assets):
         Consolidated ............................        12,313       8.69          5,668       4.00            N/A        N/A
         Bank ....................................        13,238       9.35          5,663       4.00          8,495       6.00
    Tier I Capital (to Average
      Assets):
         Consolidated ............................        12,313       7.24          6,803       4.00            N/A        N/A
         Bank ....................................        13,238       7.79          6,797       4.00          8,497       5.00

AS OF DECEMBER 31, 2000:
    Total capital (to Risk-
    Weighted Assets) .............................        12,242      10.57          9,269       8.00         11,586      10.00
    Tier I Capital (to Risk-
    Weighted Assets) .............................        11,276       9.73          4,634       4.00          6,951       6.00
    Tier I Capital
    (to Average Assets) ..........................        11,276       7.66          5,885       4.00          7,357       5.00

</TABLE>

                                                                     (continued)


                                       48
<PAGE>

                     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 $19.1 million at
December 31, 2001, 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 notional amount of
those instruments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total committed amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter party.

         Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.

                                                                     (continued)


                                       49
<PAGE>

                     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):

<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31, 2001                 AT DECEMBER 31, 2000
                                                                  ----------------------------          --------------------------
                                                                    CARRYING              FAIR          CARRYING              FAIR
                                                                      AMOUNT             VALUE            AMOUNT             VALUE
                                                                  ----------          --------          --------          --------
         <S>                                                      <C>                 <C>               <C>               <C>
         Financial assets:
            Cash and cash equivalents ..................          $    2,801             2,801             2,672             2,672
                                                                  ==========          ========          ========          ========

            Securities available for sale ..............          $   20,882            20,882            14,480            14,480
                                                                  ==========          ========          ========          ========

            Securities held to maturity ................          $       --                --            10,525             9,261
                                                                  ==========          ========          ========          ========

            Loans, net .................................          $  137,601           138,594           114,113           114,545
                                                                  ==========          ========          ========          ========

            Accrued interest ...........................          $      712               712               851               851
                                                                  ==========          ========          ========          ========

            Federal Home Loan Bank stock ...............          $      618               618               483               483
                                                                  ==========          ========          ========          ========

         Financial liabilities:
            Deposits ...................................          $  137,084           137,459           133,875           135,105
                                                                  ==========          ========          ========          ========

            Federal Home Loan Bank advances ............          $   12,200            12,077               250               250
                                                                  ==========          ========          ========          ========

            Other borrowings ...........................          $    1,801             1,801                --                --
                                                                  ==========          ========          ========          ========
</TABLE>

         A summary of the notional amounts, which approximates fair value, of
the Company's financial instruments with off-balance-sheet risk at December 31,
2001 is as follows (in thousands):

<TABLE>
         <S>                                                                                         <C>
         Commitments to extend credit.......................................................         $   3,002
                                                                                                     =========

         Unused lines of credit.............................................................         $  10,876
                                                                                                     =========

         Standby letters of credit..........................................................         $     523
                                                                                                     =========
</TABLE>

                                                                     (continued)


                                       50
<PAGE>

                     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):

<TABLE>
<CAPTION>
                                                                                                     YEAR ENDED
                                                                                                     DECEMBER 31,
                                                                                                ---------------------
                                                                                                  2001          2000
                                                                                                --------       ------
<S>                                                                                             <C>            <C>
           Loans outstanding, beginning of year..........................................       $ 5,854         4,080
           Loans granted during the year.................................................         2,793         2,407
           Loan repayments and net change in lines of credit.............................        (1,544)         (633)
                                                                                                -------        ------

           Loans outstanding, end of year................................................       $ 7,103         5,854
                                                                                                =======        ======
</TABLE>

         In addition, deposits from such related parties were approximately
$836,000 and $782,000 at December 31, 2001 and 2000, 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. For
2001 and 2000, outstanding stock options are considered dilutive securities for
purposes of calculating diluted EPS which is computed using the treasury stock
method. All per share amounts reflect the 5% stock dividends declared on May 15,
2000, December 20, 2000 and May 15, 2001. The following tables present the
calculations of EPS (dollars in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                                  FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                                  ------------------------------------
                                                                                                WEIGHTED-        PER
                                                                                                 AVERAGE        SHARE
                                                                                  EARNINGS        SHARES        AMOUNT
                                                                                  --------      ---------       ------
         <S>                                                                      <C>           <C>             <C>
         Basic EPS:
            Net earnings available to common stockholders.....................    $ 1,093        1,492,182       $ .73
                                                                                                                 =====

         Effect of dilutive securities-
            Incremental shares from assumed conversion of options.............         --          53,431
                                                                                  -------       ---------

         Diluted EPS:
            Net earnings available to common stockholders
                and assumed conversions.......................................    $ 1,093        1,545,613       $ .71
                                                                                  =======       ==========       =====
</TABLE>

                                                                     (continued)


                                       51
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(17)  EARNINGS PER SHARE, CONTINUED

<TABLE>
<CAPTION>
                                                                                  FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                                  ------------------------------------
                                                                                                WEIGHTED-          PER
                                                                                                 AVERAGE         SHARE
                                                                                  EARNINGS        SHARES        AMOUNT
                                                                                  --------      ---------       ------
         <S>                                                                      <C>           <C>             <C>
         Basic EPS:
           Net earnings available to common stockholders.....................      $ 952        1,482,964        $ .64
                                                                                                                 =====

         Effect of dilutive securities-
           Incremental shares from assumed conversion of options.............        --            26,620
                                                                                   -----       ----------

         Diluted EPS:
           Net earnings available to common stockholders
               and assumed conversions.......................................      $ 952        1,509,584        $ .63
                                                                                   =====        =========        =====
</TABLE>

(18)  HOLDING COMPANY FINANCIAL INFORMATION

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

                             CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31,
                                                                          ---------------
                                                                               2001
                                                                            ---------
         <S>                                                                <C>
                 ASSETS

         Cash ....................................................          $      53
         Investment in subsidiary ................................             13,179
         Other assets ............................................                 49
                                                                            ---------

             Total assets ........................................          $  13,281
                                                                            =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY

         Other liabilities .......................................                 22
         Other borrowings ........................................              1,006
         Stockholders' equity ....................................             12,253
                                                                            ---------

             Total liabilities and stockholders' equity ..........          $  13,281
                                                                            =========
</TABLE>

                                                                     (continued)


                                       52
<PAGE>

                     MADISON BANCSHARES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(18)  HOLDING COMPANY FINANCIAL INFORMATION, CONTINUED

                         CONDENSED STATEMENT OF EARNINGS

<TABLE>
<CAPTION>
                                                                             FOR THE
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                              2001
                                                                          ------------
         <S>                                                                <C>
         Revenues ................................................          $     --
         Expenses ................................................                70
                                                                            --------

         Loss before earnings of subsidiary ......................               (70)

         Earnings of subsidiary ..................................             1,163
                                                                            --------

             Net earnings ........................................          $  1,093
                                                                            ========
</TABLE>

                        CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                FOR THE
                                                                                               YEAR ENDED
                                                                                              DECEMBER 31,
                                                                                                  2001
                                                                                              ------------
         <S>                                                                                  <C>
         Cash flows from operating activities:
             Net earnings ............................................................          $   1,093
             Adjustments to reconcile net earnings to net cash used in
               operating activities:
                 Equity in undistributed earnings of subsidiary ......................             (1,163)
                 Increase in other assets ............................................                (49)
                 Increase in other liabilities .......................................                 22
                                                                                                ---------

                 Net cash used in operating activities ...............................                (97)
                                                                                                ---------

         Cash flows from investing activity-
             Investment in subsidiary ................................................               (800)
                                                                                                ---------

         Cash flows from financing activities:
             Net proceeds from other borrowings ......................................              1,006
             Proceeds from the stock options exercised ...............................                 19
             Cash dividends ..........................................................                (75)
                                                                                                ---------

                 Net cash provided by financing activities ...........................                950
                                                                                                ---------

         Net increase in cash ........................................................                 53

         Cash at beginning of the year ...............................................                 --
                                                                                                ---------

         Cash at end of year .........................................................          $      53
                                                                                                =========

         Noncash transactions:
             Change in investment in subsidiary due to change in
                 accumulated other comprehensive income (loss) , unrealized
                 loss on securities available for sale, net of
                 income tax ..........................................................          $     277
                                                                                                =========

             Stock dividends .........................................................          $     603
                                                                                                =========
</TABLE>


                                       53
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

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

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         Madison hereby incorporates by reference the sections entitled
"Election of Directors" contained at pages 4 through 6 and the section entitled
"Compliance with Section 16(a) of the Exchange Act" contained at page 12 of the
Proxy Statement filed electronically with the Securities and Exchange Commission
on March 15, 2002.

ITEM 10. EXECUTIVE COMPENSATION.

         Madison hereby incorporates by reference the section entitled
"Executive Compensation" contained at pages 7 through 11 of the Proxy Statement
referenced immediately above.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         (A)      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         Madison is not aware of any shareholder other than officers and
directors which holds more than 5% of the outstanding common stock.

         (B)      SECURITY OWNERSHIP OF MANAGEMENT

         Madison hereby incorporates by reference the section entitled
"Beneficial Stock Ownership of Directors and Executive Officers" contained at
pages 2 through 4 of the Proxy Statement.

         (C)      CHANGES IN CONTROL

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Madison hereby incorporates by reference the section entitled "Certain
Relationships and Related Transactions" on pages 10 and 12 of the Proxy
Statement.


                                       54
<PAGE>

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 the
         Company's Registration Statement on Form 10-SB as indicated and are
         hereby incorporated by reference.

<TABLE>
<CAPTION>
EXHIBIT NO.              DESCRIPTION OF EXHIBIT
----------               ----------------------
<S>                      <C>
    *  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.

   *  10.1               Employment Agreement of Henry Speight

   *  10.2               Employment Agreement of Robert McGivney

   *  10.3               Employment Agreement of David Paetzold

 **   10.4               Employment Agreement of Judith Gaffney

   *  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

      11                 Statement re: Computation of per Share Earnings at
                           Footnote 15 of the Consolidated Financial Statements

***   13                 Annual or quarterly reports, Form 10-Q

      21                 Subsidiaries of the registrant

   ** 23.1               Consent of Accountants

    * 23.2               Consent of Counsel

    * 99.1               Plan of Reorganization of Madison Bank

   *  99.2               Proxy of Madison Bank
</TABLE>

*        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.

***      Madison's Form 10-QSB was filed on November 6, 2001 and is incorporated
         by reference in this document.

         (B)      REPORTS ON FORM 8-K

         There were no reports on Form 8-K filed during the quarter ended
         December 31, 2001.


                                       55
<PAGE>

                                   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 8, 2002
                     ----------------------------------------------------------



                 By /s/ Henry O. Speight
                   ------------------------------------------------------------
                       Henry O. Speight, Treasurer and Assistant Secretary



                 Date March 8, 2002
                     ----------------------------------------------------------

         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. Byrd                                          March 8, 2002
---------------------------------------               -------------------------
Robert W. Byrd, Director                                        Date


/s/ George M. Cantonis                                      March 8, 2002
---------------------------------------               -------------------------
George M. Cantonis, Director                                    Date


/s/ Thomas A. Castriota                                     March 8, 2002
---------------------------------------               -------------------------
Thomas A. Castriota, Director                                   Date


/s/ Wayne R. Coulter                                        March 8, 2002
---------------------------------------               -------------------------
Wayne R. Coulter, Director                                      Date


/s/ Melvin S. Cutler                                        March 8, 2002
---------------------------------------               -------------------------
Melvin S. Cutler, Director                                      Date


/s/ Robert B. McGivney                                      March 8, 2002
---------------------------------------               -------------------------
Robert B. McGivney, Director                                    Date


/s/ Paul J. Wikle                                           March 8, 2002
---------------------------------------               -------------------------
Paul J. Wikle, Director                                         Date