<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   Form 10-KSB

(Mark One)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (fee required)

For the fiscal year ended December 31, 2000.

|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (no fee required)

For the transition period from ____________________ to __________________.

      Commission file number 0-17539

                         MADISON BANCSHARES GROUP, LTD.
                 ----------------------------------------------
                 (Name of Small Business Issuer In Its Charter)

Pennsylvania                                23-25132079
------------                                -----------
(State or Other jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)

1767 Sentry Parkway West, Blue Bell, PA                19422
---------------------------------------                -----
(Address of Principal Executive Offices)               (ZipCode)

Issuer's telephone number, including area code: (215) 641-1111

Securities registered pursuant to Section 12(b) of the Act: None.

  Title of Each Class                  Name of Each Exchange on Which Registered
  -------------------                  -----------------------------------------

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

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 par value per share

--------------------------------------------------------------------------------
                                (Title of Class)

--------------------------------------------------------------------------------
                                (Title of Class)

<PAGE>

      Check whether the Issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been such filing requirements for the past 90
days.

YES |X|         |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, 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.

|_|

      State the Issuer's revenues for its most recent fiscal year. $17,238,256

      State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average of the bid and asked prices of such stock, as of a specified date
within the past 60 days. $11,059,830 based on the average of the bid and asked
on the National Association of Securities Dealers Automated Quotation System on
March 23, 2001.*

      State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest publication date. 2,091,320 as of March 24,
2001.

      Transitional Small Business Disclosure Format (check one). YES |_| NO |X|

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement to be utilized in connection with the
Issuer's 2001 Annual Meeting of Shareholders are incorporated by reference into
Part III hereof.

----------

* Excluded from such market value computation are the approximately 616,676
issued and outstanding shares representing warrants and options held by
executive officers and directors of Issuer and its subsidiary. The shares
underlying such warrants and options may be deemed to be beneficially owned by
such persons.

EXHIBIT INDEX APPEARS ON PAGE 51 IN SEQUENTIAL NUMBERING SYSTEM OF THIS FORM
10-KSB

                               PAGE ____ OF _____


                                       2
<PAGE>

                                         MADISON BANCSHARES GROUP, LTD.

                                                  Form 10-KSB

                                                     INDEX

PART 1                                                                      Page
                                                                            ----
Item 1    Description of Business........................................     4
Item 2    Description of Property........................................     7
Item 3    Legal Proceedings..............................................     7
Item 4    Submission of Matters to a Vote of Security Holders............     7

PART II

Item 5    Market for Common Equity and Related
          Stockholder Matters............................................     8
Item 6    Management's Discussion and Analysis of Financial
          Condition and Results of Operations............................    12
Item 7    Financial Statements...........................................    24
Item 8    Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure............................    51

PART III

Item 9    Director, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act..............    51
Item 10   Executive Compensation.........................................    51
Item 11   Security Ownership of Certain Beneficial Owners and
          Management.....................................................    51
Item 12   Certain Relationships and Related Transactions.................    51
Item 13   Exhibits and Reports on Form 8-K   ............................    51


                                       3
<PAGE>

                                     PART I

ITEM 1 Description of Business

      MADISON BANCSHARES GROUP, LTD

      Madison Bancshares Group, Ltd. (the "Company") is a one-bank holding
      Company registered under the Bank Holding Company Act of 1956, as amended.
      It was incorporated under the laws of the Commonwealth of Pennsylvania on
      May 31, 1988. The Company became a bank holding Company on August 8, 1989
      when it consummated the acquisition of all of the capital stock to be
      issued of The Madison Bank (the "Bank") in connection with the Bank's
      formation. The Company provides banking services through the Bank and does
      not engage in any activities other than banking and related activities.
      The Company's principal executive offices are located at The Madison Bank
      Building, 1767 Sentry Parkway West, Blue Bell, PA 19422. Its telephone
      number at such location is (215) 641-1111. At present, the Bank has nine
      branch offices.

      As of the date hereof, the Company and the Bank have a total of 105
      employees.

      MADISON BANK

      The Bank, the Company's sole subsidiary, commenced operations on August
      16, 1989. The Bank is a commercial bank, chartered pursuant to the laws of
      the Commonwealth of Pennsylvania and is a member of the Federal Reserve
      System. The deposits held by the Bank are insured, up to applicable
      limits, by the Federal Deposit Insurance Corporation (the "FDIC"). The
      regulatory agency with principal responsibility for oversight of the
      Company and the Bank is the Federal Reserve Board.

      The Bank conducts retail and commercial banking through its branch offices
      located at 1767 Sentry Parkway West, Blue Bell, PA, 202 West Ridge Pike,
      Conshohocken, PA , 1380 Skippack Pike, Center Square, PA, 600 West
      Lancaster Avenue, Strafford, PA, 100 West Main Street, Century Plaza,
      Suite 100, Lansdale, PA, 8000 Verree Road, Philadelphia, PA, 100 Gibraltar
      Road, Horsham, PA, Route 413 and Doublewoods Road, Langhorne, PA and 101
      Old York Road, Jenkintown, PA, offering a broad range of consumer and
      commercial banking services. The Bank opened the West Ridge Pike office in
      September, 1991, the Center Square office in October, 1995, the Strafford
      office in August, 1996, the Lansdale office in August, 1997, the Northeast
      office in June, 1998, the Horsham office in December, 1999, Langhorne
      office in February, 2000 and the Jenkintown office in January, 2001. As of
      December 31, 2000 and 1999, the Bank held deposits totaling $151,396,140
      and $130,338,463, respectively, including deposits of the Company. As of
      the same dates, the Bank had gross loans receivable of $145,813,912 and
      $129,652,578 (inclusive of residential loans held for sale), respectively.
      The majority of such loans were made for commercial purposes.

      As of December 31, 2000 and 1999, the Company had total assets of
      $176,458,304 and $155,842,410 and total shareholders' equity of
      $11,695,071 and $10,282,531, respectively. Investments amounted to
      $19,206,142 at year end 2000, of which $18,636,115 were classified as
      available for sale with the remaining balance classified as held to
      maturity. Investments amounted to $19,319,853 at the end of 1999, of which
      $16,749,747 were classified as available for sale and the balance
      classified as held to maturity.

      The Bank's branch offices serve an area that encompasses an eight mile
      radius. The addition of the Horsham and Langhorne branches strengthens the
      Bank's visibility in Montgomery and Bucks Counties and enhances the Bank's
      ability to meet the needs of the communities it serves. These added
      offices expand the Bank's presence within the five county regions. The
      Bank currently offers services to residents of approximately 109
      Townships/Boroughs.


                                       4
<PAGE>

      The Bank offers a broad range of consumer and commercial deposit banking
      services including checking accounts for small to midsize businesses,
      personal interest bearing and non-interest bearing checking accounts,
      money market deposit accounts, savings accounts, certificates of deposits
      and Individual Retirement Accounts.

      The Bank also offers many ancillary products to its commercial customers
      such as escrow accounts, investment sweep, merchant services and corporate
      credit cards.

      Additional personal services include travelers checks, safe deposit boxes,
      VISA debit card and automated teller network access.

      In 2000, the Bank began offering its Internet banking product to consumer
      customers. The banking product allows accountholders to pay bills,
      transfer funds and gather account information from the convenience of a
      home computer. The Bank is looking to expand this service to accommodate
      small businesses.

      The Bank offers a broad range of loan and credit facilities to the
      businesses and residents of its service area, including secured and
      unsecured loans, home improvement loans, mortgages and home equity lines
      of credit. The Bank has an in-house mortgage department to better service
      mortgage applications.

      The Bank stresses loan quality. Management attempts to minimize the Bank's
      credit risk through loan application evaluation, approval and post-funding
      monitoring procedures.

      The Bank is a state-chartered bank, a member of the Federal Reserve System
      and is FDIC insured. The Federal Reserve Board, the FDIC and federal and
      state law extensively regulate various aspects of the banking business,
      including, but not limited to, permissible types and amounts of loans,
      investment and other activities, capital adequacy, branching, interest
      rates on loans and the safety and soundness of banking practices.

      Any Federal Reserve member bank that does not operate in accordance with,
      or conform to, Federal Reserve Board regulations, policies and directives
      may be sanctioned for non-compliance. For example, proceedings may be
      instituted by the Federal Reserve Board against any bank which, or any
      director, officer or employee thereof who, engages in unsafe and unsound
      banking practices. Such practices include the violation of applicable laws
      and regulations. As noted above, the FDIC has the authority to terminate
      insurance of deposit accounts pursuant to procedures established for that
      purpose.

      As a consequence of the extensive regulation of commercial banking
      activities in the United States, the business of the Bank and the Company
      may be impacted by changes in federal and state legislation and
      regulations.


                                       5
<PAGE>

      COMPETITION

      There is substantial competition among financial institutions in the
      Bank's service areas for deposits and loan customers. The Bank competes
      with new and established local commercial banks, as well as numerous
      Philadelphia and regionally-based commercial banks. In addition, the Bank
      competes directly and indirectly with savings banks, savings and loan
      associations, finance companies, credit unions, mortgage brokers,
      insurance companies, securities brokerage firms, mutual funds, money
      market funds, private lenders and other institutions for deposits,
      mortgages, consumer and commercial loans, as well as its other services.
      Competition among financial institutions is based upon a number of
      factors, including, but not limited to, the quality of services rendered,
      interest rates offered on deposit accounts, interest rates charged on
      loans and other credits, service charges, the convenience of banking
      facilities, locations and hours of operation and, in the case of loans to
      larger commercial borrowers, relative lending limits.

      Many of the financial institutions with which the Bank competes have
      established depositor and borrowing relationships, greater financial
      resources, a wider range of deposit and credit instruments, and greater
      depth of management. The Bank is subject to potential additional
      competition from new branch banks which could open in its trade areas.

      In addition, there are banks and other financial institutions which serve
      surrounding areas and out-of-state financial institutions which currently,
      or in the future, may compete in the Bank's market. The Bank competes to
      attract deposits and loan applications both from customers of existing
      institutions and from customers new to its service areas.


                                       6
<PAGE>

ITEM 2 Description of Property

      The Company leases approximately 13,381 total square feet on the first
      floor and 3,355 total square feet on the second floor for its mortgage
      department operations of The Madison Bank Building, 1767 Sentry Parkway
      West, Blue Bell, Pennsylvania, (the "Building"). Of the 13,381 square feet
      of space on the first floor, 3,381 square feet was leased by the Company
      on February 1, 1996 and an additional 1,400 square feet leased by the
      Company on January 21, 1997. The leased space is occupied by both the
      Company and the Bank and serves as the Bank's primary banking location.
      The space contains a banking area, lobby, operations center and a vault
      together with administrative and executive offices. The Bank's space also
      includes a drive-thru banking facility and an automated walk-up teller
      machine. The Company exercised its second five year renewal option of its
      lease, beginning January 1, 2000, and base rental payments increased to
      $164,700 per annum. The Lease provides for a redecoration allowance based
      on $5.00 per square foot or the sum of $45,395 for each option term which
      was paid to the Bank in February, 2000. In addition to the base rents
      referred to above, the Company is required to pay its pro rata share of
      the Building's operating costs, including real estate taxes, water and
      sewer charges, equipment maintenance charges, exterior maintenance and
      upkeep, common area electric charges, trash removal, and certain other
      similar items. For 2000, the amount of such expenses was $41,742. The
      maximum allocable portion of the Building's operating costs will be
      approximately $45,612 for 2001. The additional 3,381 square feet are
      leased at an annual rate of approximately $84,525 for 2001 and increases
      up to a maximum of $98,894 in year 2005. The additional 1,400 square feet
      are leased for approximately $35,025 in year 2001 and increases up to a
      maximum of $40,974 in year 2005. The second floor space of 3,355 square
      feet was leased at an annual rate of approximately $70,722 and increases
      to $77,354 through November 30, 2001.

      The Bank also leased space in 2000 for branch banking facilities at the
      following locations and through the years indicated in parentheses: (i)
      2,800 square feet in Horsham, Pennsylvania (2009) (ii) 3,965 square feet
      in Lansdale, Pennsylvania (2007), (iii) 3,000 square feet in Strafford,
      Pennsylvania (2006); (iv) 3,600 square feet in Center Square, Pennsylvania
      (2005), (v) 3,620 square feet in Conshohocken, Pennsylvania (2001), (vi)
      2,800 square feet in Horsham, Pennsylvania (2009) and (vii) 2,400 square
      feet in Langhorne, Pennsylvania (2009). The aggregate annual rent for the
      space leased for branch banking facilities is $814,041 and is subject to
      annual increases. The Bank is also responsible for its allocable share of
      operating costs for such space.

ITEM 3 Legal Proceedings

      The Company and the Bank are involved from time to time in legal
      proceedings arising in the ordinary course of business. In the opinion of
      management, no pending proceedings will have a material adverse effect on
      the Company's results of operations or financial condition.

ITEM 4 Submission of Matters to a Vote of Security Holders

      NONE.


                                       7
<PAGE>

      PART II

ITEM 5 - Market for the Registrant's Common Stock and Related Stockholder
         Matters

      The common stock of the Company is traded on the NASDAQ SmallCap Market.
      As of March 23, 2001, there were approximately 238 holders of record of
      the Company's common stock.

      The high and low bid prices for the Company's common stock during each
      quarter of the last two fiscal years as reported on the NASDAQ Small Cap
      Market were as follows:

                                               2000
                          1st Qtr      2nd Qtr        3rd Qtr         4th Qtr
                          -------      -------        -------         -------
High Bid                     6          8-3/8          7-7/8           5-7/16

Low Bid                      5          5-3/4          6-3/16          4



                                               1999
                          1st Qtr      2nd Qtr        3rd Qtr         4th Qtr
                          -------      -------        -------         -------
High Bid                     10            10          8-3/4           7-7/16

Low Bid                      6-13/16    7-3/64         7-1/8           4-7/8

      Such quotations reflect inter-dealer prices, without retail mark-ups,
      mark-downs or commissions and may not necessarily reflect actual
      transactions. Trading in the Company's common stock during such periods
      was sporadic. The quotations do not reflect an adjustment for the stock
      dividends described below.

      The Company has not paid any cash dividends. The Board of Directors does
      not intend to declare cash dividends in the immediate future. In May, 1998
      a 20% stock dividend was declared, resulting in 259,040 additional shares
      of common stock, and in September, 1999 a 10% stock dividend was declared,
      resulting in 156,648 additional shares of common stock being issued
      (collectively, the "Stock Dividends").

                                  RISK FACTORS

      You should consider carefully the following risks that could occur in the
      Company's business and cause its financial condition and/or results of
      operations to suffer. The risk factors below do not necessarily appear in
      order of importance. The risks and uncertainties described below are not
      the only ones the Company faces. Additional risks and uncertainties not
      presently known to the Company or that the Company currently deems
      immaterial may also impair its business operations.

      The Company faces strong competition

      The financial services industry is highly competitive and is rapidly
      evolving, both on-line and through traditional channels. The Company faces
      strong competition from more established providers of direct-marketed
      savings and investment products, such as Wells Fargo, First Union and
      E-Trade. The Company also faces competition from traditional banks and
      non-bank financial institutions, many of which are adopting or have
      adopted their own Internet strategies. Additionally, new competitors and
      competitive factors are likely to emerge, particularly in light of the
      rapid development of the Internet and electronic commerce and the
      relatively low barriers to entry. As a consequence, other financial
      services companies may be able to adopt strategies similar to the
      Company's with relative ease. Most competitors have financial and other
      resources greater than the Company's and have other competitive
      advantages. There can be no assurance that the Company will be able to
      continually successfully compete with its competitors.


                                       8
<PAGE>

      The following competitive factors are of particular importance to the
      Company's success and profitability:

            o     price competition for deposits and borrowings;

            o     introduction of new products by us and our competitors;

            o     changes in the mix of products and services we offer.

      Network and computer systems could fail, which could adversely affect the
      business

      The Company's computer system and network infrastructure could be
      vulnerable to unforeseen problems. Because the Company outsources several
      critical functions to third parties, its operations depend on its ability,
      as well as that of the third party service providers, to protect its
      computer systems and network infrastructure against damage from fire,
      power loss, telecommunications failure, physical break-ins or similar
      catastrophic events. Customers may become dissatisfied by any system
      failure that interrupts the Company's ability to provide its services to
      them. To the extent that that the Company does not effectively address any
      capacity constraints or system failures, its customers could seek other
      providers of banking services. Any damage or failure that causes
      interruptions in the Company's operations, could materially adversely
      affect its business, financial condition, results of operations and cash
      flows.

      Security could be breached, which could damage the Company's reputation
      and deter customers from using its services

      The Company must protect its computer systems and network from physical
      break-ins, security breaches and other disruptive problems caused by the
      Internet or other users. Computer break-ins could jeopardize the security
      of information stored in and transmitted through its computer systems and
      network, which would likely adversely affect its ability to retain or
      attract customers, could damage its reputation and could subject it to
      litigation. Although the Company relies on encryption and authentication
      technology to provide the security and authentication necessary to effect
      secure transmissions of confidential information, and although the Company
      intends to continue to implement security technology and establish
      operational procedures to prevent break-ins, damage and failures, these
      security measures may fail. If any compromise of the Company's security
      were to occur, it could have a material adverse effect on its business,
      financial condition, results of operations and cash flows.

      Rapidly changing technologies may cause the Company to delay introduction
      of new products, services and enhancements, which may result in a loss of
      existing customers or a failure to attract new customers

      The Company's future success will depend on its ability to adapt to
      rapidly changing technologies. The Company also will have to enhance
      existing products and services and develop and introduce a variety of new
      products and services to address its customers' changing demands. If the
      Company is unable to develop and bring additional products and services to
      market in a timely manner, they could lose market share to competitors who
      are able to offer these services, which could materially adversely affect
      its business, financial condition, results of operations and cash flows.

      The Company receives essential technical and customer service support from
      third-party providers. The Company outsources web-hosting, check
      processing, check imaging, electronic bill payment, home banking through
      the Internet, statement rendering services and other additional services
      to third party vendors. If one of its third party service providers
      terminates its agreement with them and they are unable to replace such
      provider with another service provider, its operations may be interrupted.
      If an interruption were to continue for a significant period of time, its
      business, financial condition, results of operations and cash flows could
      be materially adversely affected.

      The Company's competitive position depends on its ability to attract and
      retain key employees

      The operations of the Company to date have been largely dependent on
      existing management. The loss to the Company of one or more of its
      existing executive officers, including Vito A. DeLisi, President and


                                       9
<PAGE>

      Chief Executive Officer, Thomas J. Coletti, Executive Vice President and
      E. Cheryl Hinkle, Chief Financial Officer, could have a material adverse
      effect on its business and results of operations. The Company has entered
      into one year employment agreements with the executive officers of the
      Company and the Bank. If they lose the services of Messers. DeLisi or
      Coletti or Ms. Hinkle, or if they are unable to attract additional
      qualified employees, its business would likely be adversely affected.

      Changes in interest rates could adversely affect the Company

      Like most financial institutions, the Company's results of operations are
      primarily dependent on net interest income. Net interest income results
      from the "margin" between interest earned on interest-earning assets, such
      as investments and loans, and interest paid on interest-bearing
      liabilities, such as deposits and borrowings.

      Interest rates are highly sensitive to many factors that are beyond the
      Company's control. Some of these factors include: governmental monetary
      policies; inflation; recession; unemployment; the money supply; domestic
      and international economic and political conditions; and domestic and
      international crises. Changes in interest rates could have adverse effects
      on the Company's operations. Historically, the Company has relied on
      short-term and institutional deposits as a source of funds, and they will
      continue to rely on these types of deposits. The ability of the Company to
      retain these deposits is directly related to the rate of interest paid by
      the Company. When interest-bearing liabilities mature or reprice more
      quickly than interest-earning assets, in a particular period of time, a
      significant increase in interest rates could adversely impact its net
      interest income. Changes in interest rates could adversely affect:

            o     the volume of loans the Company originates;
            o     the value of other interest-earning assets, particularly loans
                  and the fixed rate debt instruments in its investment
                  securities portfolio;
            o     loan repayments and prepayments.

      The Company's commercial lending activity exposes it to credit risks

      The Company is engaged in a variety of lending activities which generally
      involve significant uncertainties and risks, including changing economic
      conditions and interest rates. In addition, some of the activities of the
      Company in the residential mortgage lending involve real estate.
      Accordingly, the Company's operating performance is subject to and
      affected by many of the risks typically related to real estate lending,
      including borrower default, foreclosure, liquidation, significant declines
      in the value of properties that secure loans as well as environmental
      hazards. In addition, the Company's loan portfolio is concentrated in its
      local market area which consists of the northern and western suburbs of
      Philadelphia and Montgomery County, Pennsylvania. As a result, a decline
      in the general economic conditions in the Philadelphia region or
      Montgomery County could have a material adverse effect on the Corporation.

      Increases in the Company's reserve coverage for loan losses would
      adversely affect its business

      Industry experience indicates that a portion of the Company's loans will
      become delinquent and a portion of the loans may require partial or entire
      charge-off. The risk of loan losses varies with, among other things,
      general economic conditions, the type of loan being made, the
      creditworthiness of the borrower over the term of the loan and, in the
      case of a collateralized loan, the value of the collateral. The Company's
      management maintains an allowance for loan losses based upon, among other
      things, historical experience, an evaluation of economic conditions and a
      regular review of delinquencies and loan portfolio quality. Based upon
      such factors, management makes various assumptions and judgments about the
      ultimate collectibility of the loan portfolio and provides an allowance
      for loan losses for specific loans when their ultimate collectibility is
      considered questionable and, for other loans, based upon a percentage of
      the outstanding balances. Because certain lending activities involve
      greater risks, the percentage applied to specific loan types may vary. If
      management's assumptions and judgments prove to be incorrect and the
      allowance for loan losses is inadequate to absorb future credit losses, or
      if the regulatory


                                       10
<PAGE>

      authorities require the Company to increase its allowance for loan losses,
      the Company's earnings could be significantly and adversely affected.

      As of December 31, 2000, the allowance for loan losses amounted to 1.00%
      of total loans receivable, including non-accrual loans. The Company
      actively manages its non-performing loans in an effort to minimize credit
      losses and monitors its asset quality to maintain an adequate allowance
      for loan losses. As its loan growth has increased, the Company has
      increased its allowance for loan losses. The Company believes that such
      allowance is adequate; however, future additions to the allowance in the
      form of the provision for loan losses may be necessary due to changes in
      economic conditions and the growth and performance of the Company's loan
      portfolio.

      The Company is vulnerable to unfavorable economic conditions

      The Company's operating expenses have been increasing in recent years due
      primarily to the Company's determination to expand its branch network.
      Many of the its current business activities are relatively new and have
      incurred in recent periods, and will continue to incur, start up costs and
      expenses. As a consequence, the Company's efficiency ratio is higher than
      many other financial institutions and its peer group. Although the Company
      has made progress in improving its efficiency, it expects that its
      efficiency ratio will continue to exceed that of its peer group until its
      various business activities are more fully developed.

      The Company needs to maintain adequate capital to support its anticipated
      growth

      The Company is required by federal and state regulatory authorities to
      maintain adequate levels of capital to support its operations. To the
      extent that its operations expand, the Company will be required to support
      such growth by increasing its capital to acceptable regulatory levels. The
      Company expects its operations, including its asset base, to grow
      substantially as a result of expanding its branches and banking
      strategies. Accordingly, the Company may need to raise additional capital
      in the future to support its operations should they continue to expand.
      This may be accomplished through the sale and issuance of additional
      shares of the Company's common stock. There is no assurance that the
      Company will be able to raise additional capital when needed. If the
      Company cannot raise additional capital when needed, its business,
      financial condition, results of operations, capital levels and cash flows
      will be materially adversely affected. Should the Company choose to raise
      capital through the sale of its common stock, such action would dilute the
      ownership and voting power of the outstanding shares and reduce the
      portion of any dividend and liquidation proceeds payable to the holders of
      the common stock.

      The Company could be adversely affected by government regulation

      The Company is subject to a complex body of federal and state banking laws
      and regulations which are intended primarily for the protection of
      depositors. Governmental or regulatory authorities could revise existing
      regulations or adopt new regulations at any time. Certain revisions could
      subject the Company to more demanding regulatory compliance requirements
      and could thereby adversely affect its ability to conduct, or the cost of
      conducting, business. Legislation and regulatory initiatives containing
      wide-ranging proposals for altering the structure, regulation and
      competitive relationships of financial institutions are introduced
      regularly. The Company cannot predict whether or what form of proposed
      statute or regulation will be adopted or the extent to which such adoption
      will affect its business. Furthermore, given the rapid expansion of the
      electronic commerce market, many regulatory bodies are adopting measures
      to ensure that their regulations are keeping pace. Any proposed laws,
      rules and regulations could force the Company to comply with more complex
      and perhaps more burdensome regulatory requirements, which could
      materially adversely affect its business, financial condition, results of
      operations and cash flows.


                                       11
<PAGE>

ITEM 6 Management's Discussion and Analysis of Financial Condition and Results
of Operations

      This report contains "forward-looking" statements. The Company is
      including this statement for the express purpose of availing itself of the
      protections of the safe harbor provided by the Private Securities
      Litigation Reform Act of 1995 with respect to all of such forward-looking
      statements. Examples of forward-looking statements include, but are not
      limited to (a) projections of revenues, income or loss, earnings or loss
      per share, capital expenditures, growth prospects, dividends, capital
      structure and other financial items, (b) statements of plans and
      objectives of the Company or its management or Board of Directors (c)
      statements of future economic performance and (d) statements of
      assumptions underlying other statements and statements about the Company
      or its business.

            CAPITAL RESOURCES

      In May, 1998, a 20% stock dividend was declared, resulting in the
      issuance of 259,040 additional shares of common stock being issued.
      Also, a total of 50,205 shares were exercised in 1998 in conjunction
      with stock options. In September, 1999, 156,648 additional shares of
      common stock were issued in conjunction with a 20% stock dividend. In
      addition to the dividends issued, a total of 79,486 options and
      warrants were exercised. At December 31, 1999, the common stock
      outstanding was 1,747,947 shares compared to 2,091,320 shares at
      December 31, 2000. On February 8, 2000, the Company received
      commitments to purchase, in a private placement to its Board of
      Directors, 335,000 shares of its common stock. All of the shares were
      purchased in June and September, 2000 and the private placement raised
      additional capital (after legal expenses) of $1,896,996. The increase
      in the common stock outstanding was also the result of 8,373 warrants
      being exercised. The book value per share of the Company's common stock
      at December 31, 2000, 1999, and 1998 was $5.59, $4.91 and $4.52,
      respectively, after giving retroactive effect to the issuance of stock
      dividends and options exercised and the private placement.

      The charts below present risk weighted assets and various capital ratios
      applicable to state-chartered, Federal Reserve member banks and bank
      holding companies. The requirements are compared to the Company's actual
      ratios at December 31, 2000, which exceeded the levels required to be
      "well capitalized" under applicable Federal Deposit Insurance
      Corporations' regulations.


                                       12
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                  RISK WEIGHTED CATEGORY
--------------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>       <C>         <C>
Risk Weighted Assets                   0%         20%        50%       100%      Total

Loans                                                   $59,296   $ 86,190    $145,486
Securities available for sale   $  3,082    $ 15,040                            19,722
Securities held to maturity                      570                 1,600         570
Federal funds sold                                 0                                 0
Cash and due from banks            6,367         520                             6,887
Other assets                                                         5,154       5,154
                                ------------------------------------------------------
--------------------------------------------------------------------------------------
Category totals                    9,449      16,130     59,296     92,944     177,819
--------------------------------------------------------------------------------------
Off balance-sheet items (risk
  weighted)                                       11
--------------------------------------------------------------------------------------
Total risk-weighted assets      $      0    $  3,228    $29,648   $ 92,944    $125,820
======================================================================================

Average total assets            $176,938

--------------------------------------------------------------------------------------
</TABLE>


-------------------------------------------------------------------------
Capital                                        Tier 1    Tier 2     Total
-------------------------------------------------------------------------
Shareholders' equity (inclusive of  trust
  preferred securities eligible for Tier 1)   $15,961             $15,961
Allowance for loan losses and trust
  preferred                                             $ 2,371     2,371
                                              =======   =======   =======
-------------------------------------------------------------------------
Total capital                                 $15,961   $ 2,371   $18,332
=========================================================================

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

                                           Regulatory
                                            Minimum     Actual       Actual
Ratio                                       12/31/00   12/31/00     12/31/99
-----                                       --------   --------     --------

Qualifying Total Capital
to Risk Weighted Assets                       8.0%       14.57%       14.57%

Tier 1 Capital to Risk Weighted
Assets                                        4.0%       12.69%       12.16%

Tier 1 Ratio to
Total Adjusted Average Assets                 4.0%        9.02%        8.96%


                                       13
<PAGE>

      The Company's capital-to-assets ratio increased from 6.60% as of December
      31, 1999 to 6.63% at December 31, 2000. The slight increase in the
      capital-to-assets ratio was due to the Company's ability to successfully
      raise $1,896,996 in additional capital in a private placement offering.
      This increase was partially affected by an increase in the assets of the
      Company of approximately 13% and a loss was incurred for the year. The
      Company's return on average equity for 2000 was (4.22)% and for 1999 was
      9.39%; and its return on average assets was (0.27)% for 2000 as compared
      to 0.61% for 1999. The decrease in the Company's return on equity and
      return on assets from 1999 to 2000 was directly attributable to decreased
      net income. (See "Management's Discussion and Results of Operations.") For
      information concerning the Bank's capital ratios, see footnote 17 of the
      Company's financial statements.

      The following table sets forth certain information from the Company's
      average consolidated statement of financial condition and reflects the
      weighted average yield on its assets and weighted average cost of its
      liabilities for the periods ended December 31, 2000 and 1999. Such yields
      and costs were derived by dividing actual income or expense by the monthly
      average balance of assets or liabilities, respectively, for the respective
      period, and exclude unrecorded interest income related to non-accrual
      loans.


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                  2000                                      1999
                                                                  ----                                      ----
                                                             (in thousands)                             (in thousands)
                                                  Average                        Yield       Average                         Yield
                                                  Balance       Interest          Cost       Balance       Interest          Cost
<S>                                               <C>           <C>              <C>         <C>           <C>               <C>
Assets
Interest-earning assets:
    Loans receivable (includes
    mortgage loans held for sale)                 $134,483      $ 13,547         10.07%      $123,628      $ 12,037          9.74%
    Other investments                               20,195         1,418          7.02         11,255           302          2.68
    Federal funds sold                                 733            43          5.87
                                                  --------      --------          ----       --------      --------          ----
                                                                                                7,880           370          4.70

Total interest-earning assets                     $155,411      $ 15,008          9.66       $142,763      $ 12,709          8.90
Non-interest-earning assets                         11,052                                      8,309
                                                  --------      --------          ----       --------      --------          ----

       Total assets                               $166,463                                   $151,072
                                                  ========                                   ========

Liabilities & Shareholders' Equity:
Interest-bearing liabilities:
    Demand interest-bearing                       $ 14,167      $    245          1.73       $ 12,624      $    249          1.97
    Money market & savings                          25,424           762          3.00         26,943           754          2.80
    Other time deposits                             82,312         4,939          6.00         71,933         3,810          5.30
    Borrowed funds                                   6,038           371          6.14          2,444           139          5.69
    Preferred trust                                  5,000           450          9.00          5,000           450          9.00
                                                  --------      --------          ----       --------      --------          ----

Total interest-bearing liabilities                 132,941         6,767          5.09        118,944      $  5,402          4.54
Other liabilities                                   23,033                                     22,272
                                                  --------      --------          ----       --------      --------          ----

Total liabilities                                  155,974                                    141,216
Shareholders' equity                                10,489                                      9,856
                                                  --------                                   --------
Total liabilities and shareholders'
   equity                                         $166,463                                   $151,072
                                                  ========                                   ========
Net interest income/rate spread                                 $  8,241          4.57%                    $  7,307          4.36%
                                                                ========          ====                     ========          ====
Net interest Margin                                                               5.30%                                      5.12%
                                                                                  ====                                       ====
</TABLE>

      The following table analyzes the rate/volume variances between the Bank's
      interest-earning assets and interest-bearing liabilities for fiscal years
      2000 compared to 1999 and 1999 compared to 1998. For each category of
      interest-bearing assets and interest-bearing liabilities, information is
      provided on changes attributable to (i) changes in volume (change in
      volume multiplied by prior year rate), (ii) changes to rate (change in
      rate multiplied by prior year volume), and (iii) total change in rate and
      volume. The combined effect of changes in both rate and volume has been
      allocated proportionately to the change due to rate and the change due to
      volume.


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31

                                                                2000 vs. 1999                             1999 vs. 1998
                                                                -------------                             -------------
                                                                (in Thousands)                            (in Thousands)

                                                      Volume          Rate         Total        Volume         Rate         Total
                                                      ------          ----         -----        ------         ----         -----
<S>                                                  <C>           <C>           <C>           <C>          <C>           <C>
Interest income:
   Loan portfolio (includes mortgages
     held for sale)                                  $   1,117     $     393     $   1,510     $   1,247    $     283     $   1,530
   Other investments                                       368           748         1,116           242         (176)           66
   Federal funds                                          (401)           74          (327)           74          (56)           18
                                                     ---------     ---------     ---------     ---------    ---------     ---------

Total interest earning assets                            1,084         1,215         2,299         1,563           51         1,614
                                                     ---------     ---------     ---------     ---------    ---------     ---------

Interest expense:
   Demand interest - bearing                               488          (492)                         67           (7)           60
   Money market & savings                                  (44)           52                         141          (27)          114
   Other time deposits                                   1,473          (344)                        161         (270)         (109)
   Borrowed funds                                          232                                       139                        139
   Preferred trust                                     101,111      (101,111)                        225                        225
                                                     ---------     ---------     ---------     ---------    ---------     ---------

Total interest bearing liabilities                     103,260       101,895         1,365           733         (304)          429
                                                     ---------     ---------     ---------     ---------    ---------     ---------

Net change in net interest income                    $(102,176)    $ 103,110     $     934     $     830    $     355     $   1,185
                                                     =========     =========     =========     =========    =========     =========
</TABLE>

      LIQUIDITY

      The Bank's Asset/Liability Management Committee, comprised of the members
      of the Bank's Executive Committee and its Treasurer, are responsible for
      managing the liquidity position and interest rate sensitivity of the Bank.
      The Committee's function is to balance the Bank's interest-sensitive
      assets and liabilities, while providing adequate liquidity for projected
      needs. The primary objective of the Asset/Liability Management Committee
      is to optimize net interest margin in an ever changing rate environment.

      Due to the nature of the Company's business, some degree of interest rate
      risk is inherent and appropriate. Management attempts to manage the level
      of earnings exposure arising from interest rate movements.

      Interest rate sensitivity is measured by the difference between
      interest-earning assets and interest-bearing liabilities which mature or
      reprice within a specific time interval (the "Gap"). A positive Gap
      indicates that interest-earning assets exceed interest-bearing liabilities
      within a given interval. A positive Gap position results in increased net
      interest income when rates increase and the opposite when rates decline.

      At December 31, 2000, the risk management review included an "earnings at
      risk" analysis as well as a "risk sensitivity" analysis. Potential monthly
      net revenue change indicated that in a static rate environment, increased
      earnings would be approximately $17,692. If rates fell 200 basis points,
      monthly revenues a year from now would increase approximately $19,403, and
      a rise in rates by 200 basis points would represent a monthly loss in
      revenues of approximately $15,040.

      Management attempts to structure the balance sheet to provide for the
      repricing of assets and liabilities in approximately equal amounts.


                                       16
<PAGE>

      The following table represents the interest rate sensitivity of the
      Company as of December 31, 2000 by listing major categories of
      interest-sensitive assets and compares them to interest-sensitive
      liabilities for various time periods. The repricing intervals primarily
      are determined by the first opportunity for the Company to change the
      interest rate on the subject instrument. The table shows the difference
      between interest-sensitive assets and interest-sensitive liabilities, or
      Gap, for each repricing interval and a cumulative Gap and certain
      calculations based on such information.

                        Interest Ratio Sensitivity Report
                             As of December 31, 2000
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                              1-90           91-180          181-365           1-5         5 Years
                                              days            days             days           years        and over         Total
                                              ----            ----             ----           -----        --------         -----
<S>                                         <C>             <C>             <C>             <C>            <C>            <C>
Interest-Sensitive Assets
Federal Funds Sold                          $       0       $       0       $       0       $       0      $       0      $       0
Loans                                          64,007           3,564           9,375          48,177         20,691        145,814
Interest-Bearing Balances                           0               0               0               0              0              0
Investment Securities Held
   For Sale                                       999           1,500           1,000           8,555          7,668         19,722
Investment Securities Held
   For Maturity                                     0               0               0             400            170            570
                                            ---------       ---------       ---------       ---------      ---------      ---------

Totals                                      $  65,006       $   5,064       $  10,375       $  57,132      $  28,529      $ 166,106

Cumulative Total                            $  65,006       $  70,070       $  80,445       $ 137,577      $ 166,106      $ 166,106

Interest-Sensitive Liabilities
Demand-Interest-bearing                     $  15,859       $       0       $       0       $       0      $       0      $  15,859
Savings Accounts                                8,654               0               0               0              0          8,654
Money Market Accounts                          17,355               0               0               0              0         17,355
Time Deposits                                  21,025          27,299          16,675          15,771          4,687         85,457
Borrowed Funds                                  7,000               0               0               0              0          7,000
Trust                                               0               0               0               0          5,000          5,000
                                            ---------       ---------       ---------       ---------      ---------      ---------

Totals                                      $  69,893       $  27,299       $  16,675       $  15,771      $   9,687      $ 139,325

Cumulative Totals                           $  69,893       $  97,192       $ 113,867       $ 129,638      $ 139,325      $ 139,325

Gap                                         $  (4,887)      $ (22,235)      $  (6,300)      $  41,361      $  18,842      $  26,781

Cumulative Gap                              $  (4,887)      $ (27,122)      $ (33,422)      $   7,939      $  26,781      $  26,781

Interest-sensitive assets/
Interest-sensitive liabilities
   (cumulative)                                  0.93            0.72            0.71            1.06           1.19           1.19

Cumulative Gap/total earning
   assets                                          (3%)           (16%)           (20%)             5%            16%            16%

Total Earning Assets                                        $ 166,106
</TABLE>

      Liquidity management allows a financial institution to meet its potential
      cash need, at reasonable rates from a variety of sources. Management
      monitors projected and current cash flows to maintain adequate


                                       17
<PAGE>

      levels of liquidity. Management believes that the utilization of core
      deposits, maturing existing earning assets, such as securities, and
      relatively short-term borrowings are the most appropriate approach to meet
      the Bank's liquidity needs. As a result of such liability repricing,
      management has been able to adjust for such slight declines during the
      first 90 days from which interest rates changed, with little effect on net
      interest income. During 2000, the Company's net interest spread was
      maintained at approximately 4.57%, as compared to 4.36% in 1999.

      RESULTS OF OPERATIONS

      LOANS - As of December 31, 2000, the Bank had loans outstanding, totaling
      $135,908,413, excluding residential mortgage loans held for sale. The Bank
      grants loans to customers in its local market area. The ultimate repayment
      of these loans is dependent to a certain degree on the local economy and
      real estate market.

      The Bank manages asset quality through diversification in its loan
      portfolio and adherence to its credit policy. Management strives to
      identify loans experiencing difficulty to recognize non-performing loans
      in a timely manner, to record charge-offs promptly based on realistic
      assessments of current collateral values and the borrower's ability to
      repay, and to maintain adequate reserves to cover any inherent losses in
      the loan portfolio.

      ALLOWANCE FOR LOAN LOSSES - At December 31, 2000, the Bank's allowance for
      loan losses equaled approximately 1.00% of outstanding loans receivable,
      including non-accrual loans. As of December 31, 1999, the allowance for
      loan loss equaled approximately 1.02% of outstanding loans, including
      non-accrual loans. As of December 31, 1998, the Bank's allowance for loan
      losses equaled approximately .96% of outstanding loans receivable,
      including non-accrual loans. The chart below shows an analysis of the
      allowance for loan losses for the years ended December 31, 2000, 1999 and
      1998. Management believes, based upon current economic conditions that the
      reserve is adequate to absorb risk and loss in the portfolio.


                                       18
<PAGE>

      Analysis of the Bank's Allowances for Loan Losses

<TABLE>
<CAPTION>
                                                                       December 31,
                                                    2000                   1999                   1998
                                                    ----                   ----                   ----
<S>                                             <C>                    <C>                    <C>
Balance at beginning of period:                 $ 1,262,256            $ 1,111,817            $   936,974
                                                -----------            -----------            -----------

Additions charged to operations                     320,000                470,000                440,000
                                                -----------            -----------            -----------
  Charge-offs:
    Commercial                                     (192,117)              (216,480)              (214,952)
     Installment                                    (20,022)              (104,880)               (61,675)
     Real Estate                                    (23,717)
                                                -----------            -----------            -----------
       Total                                       (235,856)              (321,360)              (276,627)
Recoveries:
  Commercial                                          7,700                                         9,740
  Installment                                           996                  1,799                  1,730
  Real Estate                                         5,805
                                                -----------            -----------            -----------

Net Charge-Offs                                    (221,355)              (319,561)              (265,157)
                                                -----------            -----------            -----------

Balance at the end of period                    $ 1,360,901            $ 1,262,256            $ 1,111,817
                                                ===========            ===========            ===========
Ratio of  net charge-offs to average
      loans outstanding during the period               .16%                   .26%                   .24%
                                                        ===                    ===                    ===
</TABLE>

      Management continues to utilize a blended general portfolio allocation
      with segregated pools of loans and a specific loan-by-loan allocation
      mirroring bank regulatory classifications. Each classified credit is
      assigned a specific reserve allocation based upon the severity of its
      classification and its specific characteristics (i.e., industry, type of
      project, nature of collateral). General reserve allocations are also
      established against the unclassified major segments of the loan portfolio,
      as well as against unfunded commitments and exposures resulting from the
      issuance of letters of credit. Each quarter a comprehensive loan portfolio
      analysis is performed, and reserves are adjusted at such times to more
      adequately reflect the Bank's exposure in its loan portfolio.
      Additionally, the evaluation considers past loss experience, current
      economic conditions, the results of the most recent regulatory
      examination, and other relevant factors.

      The provision for loan losses represents the charge against earnings that
      is required to fund the allowance for loan losses. The level of the
      allowance is determined by inherent risks within the Bank's loan
      portfolio. Management's policy is to maintain the allowance for loan
      losses at a level sufficient to absorb all estimated losses inherent in
      the loan portfolio. The allowance for loan losses is increased by the
      provision for loan losses and recoveries and is decreased by charged-off
      loans.

      The Bank places loans on non-accrual status when, (1) in the opinion of
      management, the principal or interest is deemed to be not collectible due
      to a deterioration in the financial position of the borrower; or (2) when
      the loan is more than 90 days delinquent, unless the obligation is both
      well secured and in the process of collection; or (3) when borrower
      declares bankruptcy and current payment ceases.

      Additions to the Bank's provision for loan losses for the year ended
      December 31, 2000, totaled $320,000. Loans charged off against the reserve
      in 2000 amounted to $235,856 and recoveries were $14,501, which resulted
      in net charged-off loans of $221,355. The principal amount of non-accrual
      loans at December 31, 2000 was $1,431,156, a decrease of 8.52% over 1999.
      A substantial portion of the non-accrual loans are partially or fully
      secured.


                                       19
<PAGE>

      Additions to the Bank's provision for loan losses for the year ended
      December 31, 1999, totaled $470,000. Loans charged-off against the reserve
      in 1999 amounted to $321,360. Recoveries amounted to $1,799 which resulted
      in $319,561 in net charged-off loans. The principal amount of nonaccrual
      loans at December 31, 1999 totaled $1,564,493. This was an increase of
      $475,547 over 1998.

      Additions to the Bank's provisions for possible loan losses for the period
      ended December 31, 1998 totaled $440,000. Loans charged off against the
      reserve in 1998 amounted to $276,627. Loans on non-accrual status as of
      December 31, 1998 amounted to $1,088,946.

      An analysis of the Bank's loan portfolio is presented in Note 4, "Loans
      and Allowance for Loan Losses", to the consolidated financial statements.
      The primary lending activity of the Bank is to originate loans to
      individuals and business entities for business related purposes. The
      Bank's loans receivable earn interest at either fixed rates or rates that
      vary overnight with changes in the Bank's prime rate. Certain loans
      receivable earn interest at rates that are fixed to a specific spread over
      the rate being paid on certificates of deposit which are pledged as
      collateral on the loans.

      REAL ESTATE OWNED - Other real estate owned at December 31, 2000 totaled
      $552,497 as compared to $577,039 at December 31, 1999. This consists of
      two properties acquired at sheriff's sale. One property in West Chester
      subsequently was sold and resulted in a loss of approximately $20,000
      which had been previously allocated for in the reserve. The other property
      is up for sale and a specific allocation of $60,000 has been reserved for
      the loan.

      DEPOSITS - At December 31, 2000, the Bank held deposits aggregating
      $151,396,140, of which $24,071,605, or approximately 16%, were
      non-interest-bearing deposits, (exclusive of $74,949 deposits of the
      Company). To the best of the Company's knowledge, none of such deposits
      were brokered deposits. As of the same date, outstanding loans receivable
      in connection with loans made to 1,882 loan customers totaled
      approximately $135,908,413 (exclusive of residential mortgage loans held
      for sale), resulting in an average loan size of approximately $72,215.

      At December 31, 1999, the Bank held deposits aggregating $130,338,463, of
      which $20,540,071, or approximately 16%, were non-interest-bearing
      deposits, (exclusive of $84,714 deposits held by the Company). To the best
      of the Company's knowledge, none of such deposits were brokered deposits.
      As of the same date, outstanding loans receivable made to 1,762 loan
      customers totaled approximately $124,233,606, resulting in an average loan
      size of approximately $70,507.

      At December 31, 1998, the Bank held deposits aggregating $132,594,518, of
      which $23,423,200, or approximately 18%, were non-interest-bearing
      deposits (exclusive of the $50,223 deposits of the Company). To the best
      of the Company's knowledge, none of such deposits were brokered deposits.
      As of the same date, outstanding receivables in connection with loans made
      to 1,718 loan customers totaled approximately $115,404,086, (exclusive of
      residential mortgage loans held for sale) resulting in an average loan
      size of approximately $67,174.

<TABLE>
<CAPTION>
                                         2000                        1999                          1998
                                               % of                         % of                          % of
Type of Account                Balance       Portfolio      Balance       Portfolio      Balance        Portfolio
-----------------------------------------------------------------------------------------------------------------
<S>                         <C>               <C>        <C>                <C>        <C>               <C>
Non-Int.  Bearing           $ 24,071,605       16.00%    $ 20,540,071        16.00%    $ 23,423,200       18.00%
Interest-Bearing              15,858,837       10.00       12,704,649        10.00       11,785,117        9.00
Money Market                  17,354,621       12.00       15,205,159        12.00       17,109,125       13.00
Savings                        8,654,241        6.00        8,150,269         6.00       11,089,034        8.00
CDs over $100,000             38,005,162       25.00       33,239,808        25.00       31,052,033       23.00
CDs under $100,000            47,451,674       31.00       40,498,507        31.00       38,136,009       29.00
                            ------------      ------     ------------       ------     ------------      ------
Total Deposits              $151,396,140      100.00%    $130,338,463       100.00%    $132,594,518      100.00%
                            ============      ======     ============       ======     ============      ======
</TABLE>


                                       20
<PAGE>

      INCOME AND EXPENSE

      For the year ended December 31, 2000, the Company's total income was
      $17,378,166 (inclusive of the income tax benefit of $139,910) and its
      total expenses were $17,820,940, resulting in a net loss of ($442,774).
      The decrease in net income for the year ended December 31, 2000 as
      compared to December 31, 1999 was due to the $1,000,000 write-off of a
      loan investment that the Company had entered into with an internet
      facility called Zipfinancial (BankZip.Com). Zipfinancial was a start up
      internet Company that was to provide community banks with an outsourced
      internet service. BankZip. Com suddenly closed in February, 2001, once it
      unexpectedly determined that it could not continue as a going concern. For
      the year ended December 31, 1999, the Company's total income was
      $16,443,137 and its total expenses were $15,517,362, resulting in a net
      profit for the year of $925,775. The increase in net income for the year
      ended December 31, 1999 was due to increased interest income from the
      Bank's earning assets and gain on sale of mortgage loans. For the year
      ended December 31, 1998, the Company's total income was $12,586,029 and
      its total expenses were $12,139,667, resulting in a net profit for the
      year of $446,362.

      INTEREST AND FEES ON LOANS - Interest and fees on loans were $13,546,511
      in 2000, 90% of gross interest income, as compared to $12,037,116, or 91%
      of gross interest income in 1999. The average loan portfolio grew 9% while
      the Bank's average yield on loans outstanding increased from 9.74% in 1999
      to 10.07% in 2000. Interest and fees on loans were $12,037,116 in 1999,
      91% of gross interest income as compared to $10,506,782, or 95% in 1998.
      The average loan portfolio grew 12% while the Bank's average yield
      increased from 9.49% to 9.74%. Interest and fees on loans were $10,506,782
      in 1998, 95% of gross interest income.

      INTEREST INCOME - Interest income on investment securities relates
      primarily to interest on U.S. Government Obligations. Interest income of
      $1,126,894 for the year ended December 31, 2000 increased 122% from
      $507,834 for the year ended December 31, 1999. The increase is a direct
      result of employing borrowed funds and Federal Funds Sold to invest in
      such securities. The average balance of government obligations increased
      from $9,859,000 in 1999 to $18,387,000 in 2000. Interest income of
      $507,834 for the year ended December 31, 1999, increased 256% from
      $142,652 for the year ended December 31, 1998. The decrease was a direct
      result of the change in liquidity position of the Company.

      Interest income on other investments represent the Bank's investments in
      municipal securities and dividends paid on Federal Reserve and Federal
      Home Loan Bank Stocks. For the years ended December 31, 2000, 1999 and
      1998, interest income on other investments was $290,992, $244,517 and
      $93,490, respectively. The fluctuation from year to year is due to changes
      in the amounts of Federal Home Loan Bank dividend payments. The Bank did
      not invest in any new municipal bonds in 2000, 1999 or 1998.

      Interest income on temporary investments represents Federal Funds sold.
      For the year ended December 31, 2000, interest income on Federal Funds
      sold was $43,336, as compared to $370,274 at December 31, 1999, an 88%
      decrease. The decrease is a direct result of the Bank investing its funds
      in U.S. Government Obligations instead of Federal Funds Sold. For the year
      ended December 31, 1999, interest income on Federal Funds sold was
      $370,274, as compared to $352,432 for the year ended December 31, 1998, a
      5% increase. The deposit growth of the Bank provided for an improved
      liquidity position as well as growth in federal funds, to better prepare
      the Bank for potential loan demand.

      INTEREST EXPENSE - Interest expense of $6,767,118 represented 45% of gross
      interest income in 2000. Interest expense increased by 25% over 1999. The
      increase in interest expense is due to interest bearing liabilities
      increasing from an average of $118,944, in 1999 to $132,941,000 in 2000,
      an average increase of 12% and the additional 1/2% increase in cost of
      funds.

      Interest expense of $5,401,780, represented 41% of gross interest income
      in 1999. Interest expense increased 9% over 1998. This increase was due to
      growth in interest-bearing deposits and increased borrowed funds.


                                       21
<PAGE>

      Interest expense of $4,973,136, represented 45% of gross interest income
      in 1998. Interest expense increased 14% over 1997. This increased expense
      was due to an increase in interest-bearing deposits to $102,679,000 in
      1998 from $88,171,006 in 1997 offset by a decrease in the average cost of
      funds from 4.98% in 1997 to 4.84% in 1998.

      SALARY AND EMPLOYEE BENEFITS - Salary and employee benefits of $6,034,807
      in 2000 represented 56% of total non-interest expense and 32% of total
      bank expenses as compared to $5,305,395 in 1999. The increase in salary
      and employee benefits of $729,412, or 15%, was attributable to the hiring
      of additional employees for the Bank's branch openings as well as
      administrative personnel to establish the legal, human resource and
      compliance departments at the main office.

      Salary and employee benefits of $5,305,395 represented 58% of total
      non-interest expenses, or 34% of total Bank expenses, at December 31,
      1999. The increase in salary and employee benefits of $1,986,765 or 60%
      over 1998 is reflective of hiring additional employees and increased
      benefits expense related to the opening of the Bank's seventh branch in
      Horsham, PA.

      OCCUPANCY AND EQUIPMENT - Occupancy and equipment expenses totaled
      $1,823,847 for the year ended December 31, 2000, as compared to $1,414,580
      at December 31, 1999. The 29% increase represented an increase in
      maintenance costs and equipment leases reflective of the Bank's branch
      expansion.

      Occupancy and equipment expenses totaled $1,414,580 for the year ended
      December 31, 1999, as compared to $1,169,651 at December 31, 1998. The 21%
      increase is representative of continued increased rents to accommodate the
      growth of the Bank.

      OTHER OPERATING - Other operating expenses in 2000, exclusive of occupancy
      and equipment and salary and employee benefits totaled $3,875,168 as
      compared to $2,376,821 in 1999. The increase in these operating expenses
      was primarily related to the continued increase in branch expansion and
      asset growth. Computer expenses increased from $339,649 to $446,637, a 31%
      increase over 1999. This increase was due to the increased deposit and
      loan accounts processed in conjunction with the asset growth of the Bank
      and enhanced online banking capabilities as well as an upgrade to the
      Bank's platform system. Deposit insurance premiums decreased from $43,217
      in 1999 to $28,054 in 2000. The Bank pays premiums in accordance with the
      deposit size of its portfolio and its insurance category rating. Legal
      expenses increased $83,122 or 58% from 1999. This was a result of
      collection issues and corporate matters arising in the normal course of
      the Bank's business. Business development expenses were $320,901 in 2000
      as compared to $323,216 in 1999. The increase in advertising expense from
      $86,375 in 1999 to $97,531 in 2000 was due to additional advertising in
      the communities of our new branches.

      Other operating expenses in 1999, exclusive of occupancy and equipment and
      salary and employee benefits totaled $2,376,821 as compared to $1,911,095
      at December 31, 1998. This increase of 24% for the 1999 year is a result
      of branch expansion and asset growth. Legal expenses increased from
      $115,013 to $143,211, a 25% increase over 1998. This increase was due to
      loan and collection expenses on certain non-accrual loans and loan
      closings on new loan originations. Professional fees decreased from
      $84,775 in 1998 to $64,410 in 1999. The 24% decrease was related to a
      decrease in outside service fees. The $2,169,200 in other operating
      expenses was comprised primarily of increases of 55% in telephone expense,
      61% in postage and freight and 28% in business related auto and travel and
      miscellaneous expenses. Other components of other operating expenses also
      include insurance expense, shares tax expense and accounting and audit
      fees. These expenses increased 65% over 1998 and were directly related to
      branch expansion and marketing efforts to increase business. Deposit
      insurance premium expense increased by 90% in 1999 from $22,773 at
      December 31, 1998, to $43,217 at December 31, 1999. The Bank pays premiums
      in accordance with the deposit size of its portfolio and its insurance
      category rating.

      Other operating expenses in 1998, exclusive of occupancy and equipment and
      salary and employee benefits totaled $1,911,095 as compared to $1,257,479
      in 1997. The increase in these operating expenses was primarily related to
      computer expense, supplies, telephone, postage, loans expense, and outside
      service fees,


                                       22
<PAGE>

      for the opening of our sixth branch in Philadelphia and our newly formed
      mortgage department in June of 1998. Computer expenses increased from
      $253,196 to $288,378, a 14% increase over 1997. This increase was due to
      the increased deposit and loan accounts processed in conjunction with the
      asset growth of the Bank. Deposit insurance premiums increased from
      $13,768 in 1997 to $22,773 in 1998. The Bank pays premiums in accordance
      with the deposit size of its portfolio and its insurance category rating.
      Legal expenses increased $64,682 or 129% from 1997 due to the Bank setting
      up a mortgage department and increased legal and collection services.
      Business development expenses were $214,773 in 1998 as compared to
      $176,770 in 1997. This 22% increase was a direct result of the Bank's
      efforts to develop business and to become increasingly visible in its
      branch location communities. The decrease in advertising expense from
      $56,352 in 1997 to $43,846 in 1998 was a result of more monies being
      allocated to business development rather than advertising.

      RECENT ACCOUNTING PRONOUNCEMENTS

      In 2000, the Bank adopted SFAS No. 140, Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities. This
      statement replaces SFAS No. 125, Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities. SFAS No. 140 is
      effective for transfers and servicing of financial assets and
      extinguishments of liabilities occurring after March 31, 2001 and for
      recognition and reclassification of collateral and for disclosures
      relating to securitization transactions and collateral for fiscal years
      ending after December 15, 2000. The adoption of this statement did not
      have any impact on the Bank's financial position or results of operations.

      In 2000, the Company adopted FASB No. 44, Accounting for Certain
      Transactions Involving Compensation. An interpretation of APB Opinion No.
      25. This interpretation clarifies application of APB 25, Accounting for
      Stock Issued to Employees, for certain issues. The adoption of this
      statement did not have any impact on the Bank's financial position or
      results of operations.

      In June, 1999, SFAS No. 133, Accounting for Derivative Instruments and
      Hedging Activities, was issued. This statement requires an entity to
      recognize all derivatives as either assets or liabilities in the statement
      of financial position and measure those instruments at fair value. The
      accounting for changes in the fair value of a derivative depends on the
      intended use of the derivative and the resulting designation. This
      statement, as amended by SFAS No. 137, Accounting for Derivative
      Instruments and Hedging Activities - Deferral of the Effective Date of
      FASB Statement No. 133, and SFAS No. 138, Accounting for Certain
      Derivative Instruments and Certain Hedging Activities - an amendment of
      FASB Statement No. 133 is effective for all fiscal quarters of fiscal
      years beginning after June 15, 2000, and should not be applied
      retroactively to financial statements of prior periods. The Company
      adopted SFAS No. 133 as of January 1, 2001. The adoption did not have any
      impact on the Company's financial position or results of operations.


                                       23
<PAGE>

ITEM 7 - Financial Statements and Supplementary Data

      Independent Auditors' Report dated March 2, 2001.
      Consolidated Statements of Financial Condition as of December 31, 2000 and
      1999.
      Consolidated Statements of Income for the years ended December 31, 2000,
      1999 and 1998.
      Consolidated Statements of Changes in Shareholders' Equity for the years
      ended December 31, 2000, 1999 and 1998.
      Consolidated Statements of Cash Flows for the years ended December 31,
      2000, 1999 and 1998.
      Notes to Consolidated Financial Statements.

      The remainder of this page is intentionally left blank. The financial
statements of the Company begin on the following page.


                                       24
<PAGE>

Madison Bancshares
Group, Ltd.
and Subsidiary

Consolidated Financial Statements as of
December 31, 2000 and 1999 and for Each
of the Three Years in the Period Ended
December 31, 2000, and Independent
Auditors' Report


                                       25
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Madison Bancshares Group, Ltd.
Blue Bell, Pennsylvania

We have audited the accompanying consolidated statements of financial condition
of Madison Bancshares Group, Ltd. and subsidiary (the "Company") as of December
31, 2000 and 1999, and the related consolidated statements of operation, changes
in shareholders' equity and comprehensive income (loss) and cash flows for each
of the three years in the period ended December 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Madison Bancshares
Group, Ltd. and subsidiary as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.

/s/ Deloitte & Touche LLP


Philadelphia, Pennsylvania
March 2, 2001


                                       26
<PAGE>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                      2000                 1999
<S>                                                                                              <C>                  <C>
ASSETS

CASH AND CASH EQUIVALENTS:
  Cash and amounts due from banks                                                                $   6,886,426        $   2,588,835
  Federal funds sold                                                                                      0000              500,000
                                                                                                 -------------        -------------

        Total cash and cash equivalents                                                              6,886,426            3,088,835

INVESTMENT SECURITIES:
  Held to maturity (fair value - 2000, $571,313; 1999, $2,567,857)                                     570,027            2,570,106
  Available for sale (amortized cost - 2000, $19,053,947; 1999, $17,055,709)                        18,636,115           16,749,747
  Federal Home Loan Bank Stock                                                                         762,700              750,000
  Federal Reserve Bank Stock                                                                           323,400              323,400

LOANS (Net of allowance for loan losses - 2000, $1,360,901; 1999, $1,262,256)                      134,219,465          122,635,380

MORTGAGE LOANS HELD FOR SALE                                                                         9,905,499            5,418,972

REAL ESTATE OWNED                                                                                      552,497              577,039

FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET                                                 1,966,440            1,661,814

ACCRUED INTEREST RECEIVABLE                                                                          1,348,415            1,281,928

OTHER ASSETS                                                                                           783,972              377,687

DEFERRED INCOME TAXES                                                                                  503,348              407,502
                                                                                                 -------------        -------------

TOTAL ASSETS                                                                                     $ 176,458,304        $ 155,842,410
                                                                                                 =============        =============

LIABILITIES AND SHAREHOLDERS' EQUITY

DEPOSITS:
  Noninterest-bearing demand deposits                                                            $  24,071,605        $  20,540,071
  Interest-bearing demand deposits                                                                  15,858,837           12,704,649
  Savings deposits                                                                                   8,654,241            8,150,269
  Money market deposits                                                                             17,354,621           15,205,159
  Time deposits                                                                                     85,456,836           73,738,315
                                                                                                 -------------        -------------

        Total deposits                                                                             151,396,140          130,338,463

BORROWED FUNDS                                                                                       7,000,000            9,000,000

GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT                                        5,000,000            5,000,000

ACCRUED INTEREST PAYABLE                                                                             1,196,253              960,268

ACCRUED EXPENSES AND OTHER LIABILITIES                                                                 170,840              261,148
                                                                                                 -------------        -------------

        Total liabilities                                                                          164,763,233          145,559,879
                                                                                                 -------------        -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, $5 par value - authorized, 5,000,000 shares; issued and
  outstanding, 0 shares Common stock, $1 par value - authorized, 20,000,000
  shares;
    issued and outstanding - 2000, 2,091,320; 1999, 1,747,947 shares)                                2,091,320            1,747,947
  Capital surplus                                                                                   10,331,332            8,745,557
  Accumulated deficit                                                                                 (451,812)              (9,038)
  Accumulated other comprehensive loss                                                                (275,769)            (201,935)
                                                                                                 -------------        -------------

        Total shareholders' equity                                                                  11,695,071           10,282,531
                                                                                                 -------------        -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                       $ 176,458,304        $ 155,842,410
                                                                                                 =============        =============
</TABLE>

See notes to consolidated financial statements.


                                       27
<PAGE>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                       2000               1999              1998
<S>                                                                                <C>                <C>               <C>
INTEREST INCOME:
  Interest and fees on loans                                                       $ 13,546,511       $ 12,037,116      $ 10,506,782
  Interest and dividends on investment securities:
    U.S. Government obligations                                                       1,126,894            507,834           142,652
    Other securities                                                                    290,992            244,517            93,490
    Interest on temporary investments                                                    43,336            370,274           352,432
                                                                                   ------------       ------------      ------------

           Total interest income                                                     15,007,733         13,159,741        11,095,356
                                                                                   ------------       ------------      ------------

INTEREST EXPENSE:
  Interest on:
    Demand deposits                                                                     244,529            248,507           188,770
    Savings and money market deposits                                                   762,256            754,109           637,589
    Time deposits                                                                     4,938,995          3,809,686         3,918,856
    Guaranteed preferred beneficial interest in subordinated debt                       450,000            450,000           225,000
    Other interest                                                                      371,338            139,478             2,921
                                                                                   ------------       ------------      ------------

           Total interest expense                                                     6,767,118          5,401,780         4,973,136
                                                                                   ------------       ------------      ------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                                  8,240,615          7,757,961         6,122,220

PROVISION FOR LOAN LOSSES                                                               320,000            470,000           440,000
                                                                                   ------------       ------------      ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                   7,920,615          7,287,961         5,682,220
                                                                                   ------------       ------------      ------------

OTHER INCOME (EXPENSE):
  Service charges on deposit accounts                                                   745,328            577,953           719,541
  Gain on the sale of mortgage loans                                                  2,296,083          2,582,212           599,065
  Other                                                                                 189,112            123,231           172,067
  Writedown of investment                                                            (1,000,000)
                                                                                   ------------       ------------      ------------

           Total other income                                                         2,230,523          3,283,396         1,490,673
                                                                                   ------------       ------------      ------------

OTHER NONINTEREST EXPENSES:
  Salaries and employee benefits                                                      6,034,807          5,305,395         3,318,630
  Occupancy                                                                           1,254,248            976,081           842,264
  Equipment                                                                             569,599            438,499           327,387
  Computer processing                                                                   446,637            339,649           288,378
  Deposit insurance                                                                      28,054             43,217            22,773
  Legal                                                                                 226,333            143,211           115,013
  Professional fees                                                                      67,775             64,410            84,775
  Business development                                                                  320,901            323,216           214,773
  Office and stationery supplies                                                        197,413            186,880           167,244
  Advertising                                                                            97,531             86,375            43,846
  Director's fees                                                                       126,650            138,375           154,975
  Amortization expense                                                                   50,520             50,519            21,050
  Other operating                                                                     1,313,354          1,000,969           798,268
                                                                                   ------------       ------------      ------------

           Total other noninterest expenses                                          10,733,822          9,096,796         6,399,376
                                                                                   ------------       ------------      ------------

INCOME (LOSS) BEFORE TAXES                                                             (582,684)         1,474,561           773,517

PROVISION (BENEFIT) FOR INCOME TAXES                                                   (139,910)           548,786           327,155
                                                                                   ------------       ------------      ------------

NET INCOME (LOSS)                                                                  $   (442,774)      $    925,775      $    446,362
                                                                                   ============       ============      ============

BASIC EARNINGS PER SHARE                                                           $      (0.23)      $       0.54      $       0.26
                                                                                   ============       ============      ============

DILUTED EARNINGS PER SHARE                                                         $      (0.23)      $       0.51      $       0.25
                                                                                   ============       ============      ============
</TABLE>

See notes to consolidated financial statements.


                                       28
<PAGE>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME (LOSS) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                                                         Other
                                                                       Accumulated   Comprehensive
                                          Common         Capital        Earnings         Income                      Comprehensive
                                           Stock         Surplus        (Deficit)        (Loss)           Total      Income (Loss)

<S>                                    <C>            <C>             <C>             <C>             <C>            <C>
BALANCE, JANUARY 1, 1998               $  1,252,773   $  7,612,835    $   (127,991)   $        601    $  8,738,218

  Exercise of stock options
    and stock warrants                       50,205        209,638                                         259,843

    Issuance of 20% stock dividend          259,040       (259,040)

  Comprehensive income:
    Net income                                                             446,362                         446,362    $    446,362

    Net change in unrealized
      gain on securities
      available for sale net of
      taxes of $(3,214)                                                                      5,969           5,969           5,969
                                                                                                                      ------------

  Comprehensive income                                                                                                $    452,331
                                       ------------   ------------    ------------    ------------    ------------    ------------

BALANCE, DECEMBER 31, 1998                1,562,018      7,563,433         318,371           6,570       9,450,392

  Exercise of stock warrants                 29,281         85,588                                         114,869

  Issuance of 10% stock dividend            156,648      1,096,536      (1,253,184)

  Comprehensive income:
    Net income                                                             925,775                         925,775    $    925,775

    Net change in unrealized
      loss on securities
      available for sale net
      of tax benefit of $106,971                                                          (208,505)       (208,505)       (208,505)
                                                                                                                      ------------

  Comprehensive income                                                                                                $    717,270
                                       ------------   ------------    ------------    ------------    ------------    ------------

BALANCE, DECEMBER 31, 1999                1,747,947      8,745,557          (9,038)       (201,935)     10,282,531

  Exercise of stock warrants                  8,373         23,779                                          32,152

  Private placement of common stock         335,000      1,561,996                                       1,896,996

  Comprehensive income (loss):
    Net loss                                                              (442,774)                       (442,774)   $   (442,774)

    Net change in unrealized loss
      on securities available for sale
      net of tax benefit of $38,036                                                        (73,834)        (73,834)        (73,834)
                                                                                                                      ------------

  Comprehensive loss                                                                                                  $   (516,608)
                                       ============   ============    ============    ============    ============    ============

BALANCE, DECEMBER 31, 2000             $  2,091,320   $ 10,331,332    $   (451,812)   $   (275,769)   $ 11,695,071
                                       ============   ============    ============    ============    ============
</TABLE>


See notes to consolidated financial statements.


                                       29
<PAGE>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2000             1999             1998
<S>                                                                        <C>              <C>              <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                        $    (442,774)   $     925,775    $     446,362
  Adjustments to reconcile net (loss) income to net cash
    (used in) provided by operating activities:
    Depreciation                                                                 460,987          317,639          245,048
    Provision for loan losses                                                    320,000          470,000          440,000
    Net amortization of bond premium/discount                                      1,841            3,413            2,204
    Gain on sale of mortgage loans held for sale                              (2,296,083)      (2,582,212)        (599,065)
    Writedown of investment                                                    1,000,000
    Loss on sale of real estate owned                                             23,718           30,416
    Originations of loans held for sale                                     (126,042,087)    (143,306,366)     (41,628,024)
    Proceeds from sale of loans                                              123,851,643      152,063,244       30,924,351
  Changes in assets and liabilities which (used) provided cash:
    Accrued interest receivable                                                  (66,487)        (205,246)        (370,234)
    Other assets                                                                (464,095)        (276,200)        (271,790)
    Accrued interest payable                                                     235,985          156,046          (34,291)
    Accrued expenses and other liabilities                                       (90,308)         184,417          (20,942)
    Deferred loan fees                                                             7,923          136,982          129,976
                                                                           -------------    -------------    -------------
        Net cash (used in) provided by operating activities                   (3,499,737)       7,917,908      (10,736,405)
                                                                           -------------    -------------    -------------
INVESTING ACTIVITIES:
  Purchase of investment securities held to maturity                                           (2,000,000)
  Purchase of investment securities available for sale                        (1,000,000)     (17,056,249)
  Purchase of Federal Reserve Stock                                                              (147,000)
  Purchase of Federal Home Loan Bank Stock                                       (12,700)        (222,700)         (47,500)
  Proceeds from maturities of investment securities held to maturity                            1,030,000
  Proceeds from maturities of investment securities available for sale                          1,000,000        2,000,000
  Proceeds from sale of furniture, equipment and leasehold improvements                             3,500
  Loans purchased and originated, net of principal repayments                (12,167,935)      (9,808,086)     (12,457,404)
  Cost capitalized for real estate owned                                         (23,600)          (1,008)         (20,108)
  Additions to furniture, equipment and leasehold improvements                  (765,613)        (399,480)        (912,037)
  Proceeds on sale of real estate owned                                          280,351          619,652
                                                                           -------------    -------------    -------------
        Net cash used in investing activities                                (13,689,497)     (26,981,371)     (11,437,049)
                                                                           -------------    -------------    -------------
FINANCING ACTIVITIES:
  Net increase (decrease) in demand, savings and time deposits                21,057,677       (2,256,055)      17,762,109
  Exercise of stock warrants and options                                          32,152          114,869          258,845
  Proceeds from issuance of capital securities                                                                   5,000,000
  Proceeds from private placement                                              1,896,996
  Advances of borrowed funds                                                  30,000,000        9,000,000
  Repayments of borrowed funds                                               (32,000,000)                       (9,000,000)
                                                                           -------------    -------------    -------------
        Net cash provided by financing activities                             20,986,825        6,858,814       14,021,952
                                                                           -------------    -------------    -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                                         3,797,591      (12,204,649)      (8,151,502)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   3,088,835       15,293,484       23,444,986
                                                                           -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                     $   6,886,426    $   3,088,835    $  15,293,484
                                                                           =============    =============    =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Cash paid during the year for:
    Interest                                                               $   6,531,133    $   5,245,734    $   4,503,465
                                                                           =============    =============    =============
    Income taxes                                                           $     180,000    $     745,210    $     357,000
                                                                           =============    =============    =============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
  Stock dividends:
    Common stock                                                                  $         $     156,648    $     259,040
                                                                           =============    =============    =============
    Capital surplus                                                               $         $   1,096,536    $    (259,040)
                                                                           =============    =============    =============
    Accumulated deficit                                                           $         $  (1,253,184)         $
                                                                           =============    =============    =============
  Transfers from loans to real estate owned                                $     255,926    $     492,010    $     248,669
                                                                           =============    =============    =============
  Transfer of investment security held to maturity to available for sale   $   2,000,000    $                $
                                                                           =============    =============    =============
</TABLE>

See notes to consolidated financial statements.


                                       30
<PAGE>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------

1.    ORGANIZATION AND NATURE OF OPERATIONS

      Madison Bancshares Group, Ltd. (the "Company") is a one-bank holding
      company formed pursuant to Section 3 (a) (1) of the Bank Holding Company
      Act of 1956, as amended. The Company was incorporated under the laws of
      the Commonwealth of Pennsylvania (the "Commonwealth") on May 31, 1988, to
      engage in the business of commercial banking through its wholly owned
      subsidiary, The Madison Bank (the "Bank"). The Bank is a commercial bank
      chartered under the applicable laws of the Commonwealth and is regulated
      under the Federal Reserve System by the Federal Reserve Bank. The Bank
      offers a variety of services to individuals and businesses through its
      offices in Blue Bell, Conshohocken, Center Square, Strafford, Lansdale,
      Northeast Philadelphia, Horsham, Newtown and its ninth branch location in
      Jenkintown, which opened in 2001. The Bank commenced its operations on
      August 16, 1989 after receiving the necessary regulatory approval.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Principles of Consolidation - The consolidated financial statements
      include the accounts of the Company and its wholly owned subsidiary, the
      Bank. All significant intercompany balances and transactions have been
      eliminated in consolidation.

      Use of Estimates in the Preparation of Financial Statements - The
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of income and expenses during the reporting period. The most
      significant of these estimates is the allowance for loan losses. Actual
      results could differ from those estimates.

      Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
      cash equivalents include cash on hand, amounts due from banks and federal
      funds sold. Generally, federal funds are purchased and sold for one-day
      periods. Cash maintained in vaults on premises of $1,349,010 and
      $1,124,506 at December 31, 2000 and 1999, respectively, is sufficient to
      currently meet average reserve balances under federal requirements.

      Investment Securities - The Bank classifies and accounts for debt and
      equity securities as follows:

      o     Securities Held to Maturity - Securities held to maturity are stated
            at cost adjusted for unamortized purchase premiums and discounts
            based on management's positive intent and the Bank's ability to hold
            such investments until maturity considering all reasonably
            foreseeable conditions and events. Purchase premiums and discounts
            are amortized to income over the life of the related security. The
            adjusted cost of a specific security sold is the basis for
            determining the gain or loss on the sale.


                                       31
<PAGE>

      o     Securities Available for Sale - Securities available for sale,
            carried at approximate fair value, are those management might sell
            in response to changes in market interest rates, increases in loan
            demand, changes in liquidity needs and other conditions. Unrealized
            gains and losses are excluded from earnings and are reported net of
            tax as a separate component of shareholders' equity until realized.
            Realized gains and losses on the sale of investment securities are
            reported in the consolidated statement of operations and are
            determined using the adjusted cost of the specific security sold.

      Loans - Loans are stated at the principal amount outstanding, net of any
      deferred loan fees. Interest income on commercial and mortgage loans is
      recorded on the outstanding balance method, using actual interest rates
      applied to daily principal balances. Accrual of interest income on loans
      will cease when collectibility of interest and/or principal is uncertain.
      If it is determined that the collection of interest previously accrued is
      uncertain, the accrued interest is reversed and charged to current
      earnings; thereafter, income is recognized as payments are received.

      Allowance for Loan Losses - An allowance for loan losses is maintained at
      a level that management considers adequate to provide for estimated losses
      based upon an evaluation of known and inherent risk in the loan portfolio.
      Allowances for loan losses are based on estimated net realizable value
      unless it is probable that loans will be foreclosed, in which case
      allowances for loan losses are based on fair value. Management's periodic
      evaluation is based upon evaluation of the portfolio, past loss
      experience, current economic conditions, and other relevant factors. While
      management uses the best information available to make such evaluations,
      future adjustments to the allowance may be necessary if economic
      conditions differ substantially from the assumptions used in making the
      evaluations.

      Impaired loans are measured based on the present value of expected future
      cash flows discounted at the loan's effective interest rate, observable
      market price, or the fair value of the collateral if the loan is
      collateral dependent.

      Deferred Origination Fees - Nonrefundable fees and certain direct costs
      associated with originating and acquiring loans are deferred. For loans
      held for investment, the net amount of fees and costs are amortized using
      a method which approximates the interest method as a yield adjustment over
      the life of the loan. For loans held for sale, the net amount is deferred
      and recognized as part of the gain or loss on the sale of the loans.

      Mortgage Loans Held for Sale - The Company originates residential mortgage
      loans for portfolio investment or for sale in the secondary market with
      servicing released to provide additional funds for lending. Loans held for
      sale are carried at the lower of cost or market value, determined on a net
      aggregate basis.

      Real Estate Owned - Real estate owned consists of three properties
      acquired by foreclosure. These assets are carried at the lower of cost or
      estimated fair value less the costs to dispose. Write-downs, if any, at
      the time of foreclosure are charged against the allowance for loan losses.
      Subsequent losses in value are charged directly to operations. Costs
      relating to the development and improvement of real estate owned are
      capitalized, and those relating to the holding of the properties are
      charged to expense.

      Furniture, Equipment and Leasehold Improvements, Net - Furniture,
      equipment and leasehold improvements are stated at cost less accumulated
      depreciation and amortization. Depreciation is computed by the
      straight-line method and charged to operating expenses over the estimated
      useful lives of the related assets. Buildings are depreciated over 40
      years. The average life for furniture and equipment is 7 years. Leasehold
      improvements are amortized over the shorter of the estimated useful life
      or the term of the lease.


                                       32
<PAGE>

      Cash Surrender Value of Life Insurance - The Company is the beneficiary of
      insurance policies on the lives of certain officers of the Bank. The
      Company has recognized the cash surrender value amount that could be
      realized under the insurance policies as an asset in the statement of
      financial condition.

      Income Taxes - Deferred income taxes are recognized for the tax
      consequences of "temporary differences" by applying enacted statutory tax
      rates applicable to future years to differences between the financial
      statement carrying amounts and the tax bases of existing assets and
      liabilities. The effect on deferred taxes of a change in tax rates is
      recognized in income in the period that includes the enactment date.

      Earnings Per Share - Basic net income per share is based on the weighted
      average number of common shares outstanding, while diluted net income per
      share is based on the weighted average number of common shares outstanding
      and common share equivalents that would arise from the exercise of
      dilutive securities. The average common shares outstanding have been
      retroactively restated to reflect the effect of the 10% stock dividend
      issued in 1999, and the 20% stock dividend issued in 1998. The calculation
      of the weighted average shares, after giving effect to the stock split,
      was as follows:

<TABLE>
<CAPTION>
                                                      2000        1999        1998
<S>                                                <C>         <C>         <C>
Average common shares outstanding                  1,890,514   1,724,225   1,694,498
Increase in shares due to options and warrants -
  diluted basis                                       73,553      86,358      97,765
                                                   ---------   ---------   ---------

Adjusted shares outstanding - diluted              1,964,067   1,810,583   1,792,263
                                                   =========   =========   =========
</TABLE>

      Accounting for Stock Options and Warrants - The Company accounts for stock
      options and warrants using the intrinsic value method. The pro forma net
      income and earnings per share, calculated using the fair value method for
      measuring compensation at the grant date of options and warrants is also
      disclosed. The Company has not recognized any compensation expense under
      the intrinsic value method.

      Comprehensive Income - The amounts from transactions and other events
      which currently are excluded from the statement of income and are recorded
      directly to shareholders' equity are presented as a component of
      comprehensive income.

      Accounting Pronouncements Issued and Adopted - In June 1999, SFAS No. 133,
      Accounting for Derivative Instruments and Hedging Activities, was issued.
      This statement requires an entity to recognize all derivatives as either
      assets or liabilities in the statement of financial position and measure
      those instruments at fair value. The accounting for changes in the fair
      value of a derivative depends on the intended use of the derivative and
      the resulting designation. This statement, as amended by SFAS No. 137,
      Accounting for Derivative Instruments and Hedging Activities - Deferral of
      the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting
      for Certain Derivative Instruments and Certain Hedging Activities - an
      amendment of FASB Statement No. 133 is effective for all fiscal quarters
      of fiscal years beginning after June 15, 2000, and should not be applied
      retroactively to financial statements of prior periods. The Company
      adopted SFAS No. 133 as of January 1, 2001. The adoption did not have any
      impact on the Company's financial position or results of operations.


                                       33
<PAGE>

      Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities - In 2000, the Bank adopted SFAS No. 140,
      Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities. This statement replaces SFAS No. 125,
      Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities. SFAS No. 140 is effective for transfers
      and servicing of financial assets and extinguishments of liabilities
      occurring after March 31, 2001 and for recognition and reclassification of
      collateral and for disclosures relating to securitization transactions and
      collateral for fiscal years ending after December 15, 2000. The adoption
      of this statement did not have any impact on the Bank's financial position
      or results of operations.

      Accounting for Certain Transactions Involving Stock Compensation - In
      2000, the Company adopted FASB Interpretation No. 44, Accounting for
      Certain Transactions Involving Compensation - An Interpretation of APB
      Opinion No. 25. This interpretation clarifies application of APB 25,
      Accounting for Stock Issued to Employees, for certain issues. The adoption
      of this interpretation did not have any impact on the Bank's financial
      position or results of operations.

      Reclassifications - Certain items in the 1998 and 1999 consolidated
      financial statements have been reclassified to conform with the
      presentation in the 2000 consolidated financial statements.

3.    INVESTMENT SECURITIES

      A summary of investment securities and their expected maturities, as well
      as estimated fair values at December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                             Gross          Gross
                                             Amortized     Unrealized     Unrealized       Fair
                                                Cost          Gains         Losses         Value
<S>                                          <C>           <C>            <C>            <C>
December 31, 2000:
  Securities to be held to maturity:
    Debt securities -
      Municipal and State Government bonds   $   570,027   $      1,286   $              $   571,313
                                             ===========   ============   ===========    ===========

  Securities available for sale:
    Debt securities - U.S. Government
      and Federal Agencies                   $17,053,947   $              $   (17,832)   $17,036,115
    Corporate security                         2,000,000                     (400,000)     1,600,000
                                             -----------   ------------   -----------    -----------

Total                                        $19,053,947   $              $  (417,832)   $18,636,115
                                             ===========   ============   ===========    ===========

December 31, 1999:
  Securities to be held to maturity:
    Debt securities:
    Corporate security                       $ 2,000,000                                 $ 2,000,000
      Municipal and State Government bonds       570,106   $        248   $    (2,497)       567,857
                                             -----------   ------------   -----------    -----------

Total                                        $ 2,570,106   $        248   $    (2,497)   $ 2,567,857
                                             ===========   ============   ===========    ===========

  Securities available for sale:
    Debt securities - U.S. Government
      and Federal Agencies                   $17,055,709   $              $  (305,962)   $16,749,747
                                             ===========   ============   ===========    ===========
</TABLE>


                                       34
<PAGE>

      The scheduled maturities of debt securities to be held to maturity and
      debt securities available for sale at December 31, 2000 were as follows:

                              Securities to be              Securities
                              Held to Maturity          Available for Sale
                         -------------------------   -------------------------
                          Amortized       Fair        Amortized       Fair
                            Cost          Value         Cost          Value

Due from 1 to 5 years    $   400,000   $   401,035   $12,053,947   $12,036,115
Due from 5 to 10 years       170,027       170,278     7,000,000     6,600,000
                         -----------   -----------   -----------   -----------

Total                    $   570,027   $   571,313   $19,053,947   $18,636,115
                         ===========   ===========   ===========   ===========

      There were no sales of investment securities in 2000, 1999 or 1998.

      Due to evidence of a significant deterioration in the issuer's
      creditworthiness, the Bank transferred an investment security to be held
      to maturity with an amortized cost of $2,000,000 to available for sale
      during the year ended December 31, 2000.

      During early 2000, the Company invested approximately $1.0 million in a
      start-up internet banking company. At December 31, 2000, the Company wrote
      down its investment and recognized a loss of $1.0 million in the statement
      of operations.

4.    LOANS AND ALLOWANCE FOR LOAN LOSSES

      Loans outstanding are summarized as follows:

                                                         December 31,
                                               --------------------------------
                                                    2000               1999

Real estate mortgage loans                     $  22,514,871      $  24,652,775
Commercial loans                                 101,520,054         89,988,247
Consumer loans                                    11,873,488          9,592,584
                                               -------------      -------------

  Total                                          135,908,413        124,233,606
Less:
  Allowance for loan losses                       (1,360,901)        (1,262,256)
  Deferred origination fees, net                    (328,047)          (335,970)
                                               -------------      -------------

                                               $ 134,219,465      $ 122,635,380
                                               =============      =============

      The Bank grants loans to customers in its local market area which consists
      primarily of Montgomery County, Pennsylvania. The ultimate repayment of
      these loans is dependent to a certain degree on the local economy and real
      estate market.

      At December 31, 2000, commercial loans have maturities ranging from six
      months to five years. Further, these loans are granted at both fixed and
      adjustable rates. Fixed rates range from 6.76% to 9.56% with adjustable
      rates ranging from the Bank's prime rate to 2% in excess of prime.


                                       35
<PAGE>

The composition of fixed and adjustable rate loans as of December 31, 2000
was as follows:

                         Fixed Rate
-------------------------------------------------------------
Term to Maturity                                   Book Value

1 month - 1 year                                  $18,632,047
1 year - 3 years                                   24,465,645
3 years - 5 years                                  23,711,462
5 years - 30 years                                 20,691,261
                                                  -----------

                                                  $87,500,415
                                                  ===========

                       Adjustable Rate
-------------------------------------------------------------
Term to Rate
Adjustment                                         Book Value

Less than 1 month                                 $48,407,998
1 month to 1 year
1 year - 3 years
3 years - 30 years
                                                  -----------

                                                  $48,407,998
                                                  ===========

      An analysis of the activity in the allowance for loan losses is as
      follows:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                             -----------------------------------------
                                                 2000           1999           1998
<S>                                          <C>            <C>            <C>
Balance, beginning of year                   $ 1,262,256    $ 1,111,817    $   936,974
                                             -----------    -----------    -----------

Provision charged to operations                  320,000        470,000        440,000
                                             -----------    -----------    -----------
Loans charged off:
  Commercial loans                              (192,117)      (216,480)      (214,952)
  Consumer loans                                 (43,739)      (104,880)       (61,675)
                                             -----------    -----------    -----------

                                                (235,856)      (321,360)      (276,627)
                                             -----------    -----------    -----------

Recoveries - commercial and consumer loans        14,501          1,799         11,470
                                             -----------    -----------    -----------

Balance, end of year                         $ 1,360,901    $ 1,262,256    $ 1,111,817
                                             ===========    ===========    ===========
</TABLE>

The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of losses in the current loan portfolio,
including the evaluation of impaired loans. A loan is considered to be impaired
when, based upon current information and events, it is probable that the Bank
will be unable to collect all amounts due according to the contractual terms of
the loan. An insignificant delay or insignificant shortfall in amount of
payments does not necessarily result in the loan being identified as impaired.
For this purpose, delays less than 90 days are considered to be insignificant.
As of December 31, 2000 and 1999, 100% of the impaired loan balance was measured
for impairment based on the fair value of the loans' collateral. Impairment
losses are included in the provision for loan losses. Loans collectively
evaluated for impairment include consumer loans and residential real estate
loans, and are not included in the data that follows.


                                       36
<PAGE>

      The following table summarizes impaired loan information.

                                                             December 31,
                                                      -------------------------
                                                          2000          1999

Impaired loans with related reserve for loan losses   $ 1,666,831   $ 2,138,635
                                                      ===========   ===========

                                                                Year Ended
                                                               December 31,
                                                         -----------------------
                                                            2000          1999

Average impaired loans                                   $1,902,733   $2,140,450
Interest income recognized on impaired loans                             233,646
Cash basis interest income recognized on impaired loans      13,280       19,319

      At December 31, 2000, all of the Bank's nonaccrual loans were considered
      to be impaired loans.

      Interest payments on impaired loans are typically applied to principal
      unless collectibility of the principal amount is fully assured, in which
      case interest is recognized on the cash basis.

      Commercial loans and commercial real estate loans are placed on nonaccrual
      at the time the loan is 90 days delinquent unless the credit is well
      secured and in the process of collection. Generally, commercial loans are
      charged off no later than 120 days delinquent unless the loan is well
      secured and in the process of collection, or other extenuating
      circumstances support collection. Residential real estate loans are
      typically placed on nonaccrual at the time the loan is 90 days delinquent.
      Other consumer loans are typically charged off at 90 days delinquent. In
      all cases, loans must be placed on nonaccrual or charged off at an earlier
      date if collection of principal or interest is considered doubtful.

      The principal amount of nonaccrual loans at December 31, 2000 and 1999
      totaled $1,431,156 and $1,564,493, respectively. Additional interest
      income that would have been recorded in 2000 and 1999 under the original
      terms of nonaccrual loans totaled approximately $138,686 and $151,000,
      respectively.

      Accruing loans which are contractually past due 90 days or more totaled
      $700,180 and $1,196,854 at December 31, 2000 and 1999, respectively.
      Interest due on these loans totaled $63,088 and $117,362 at December 31,
      2000 and 1999, respectively.


                                       37
<PAGE>

5.    FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

      A summary of furniture, equipment and leasehold improvements is as
      follows:

                                                           December 31,
                                                   ----------------------------
                                                       2000             1999

Building and land                                  $   681,436      $   681,436
Furniture and equipment                              2,400,980        1,791,173
Leasehold improvements                                 641,338          485,531
                                                   -----------      -----------

  Total                                              3,723,754        2,958,140
Accumulated depreciation and amortization           (1,757,314)      (1,296,326)
                                                   -----------      -----------

                                                   $ 1,966,440      $ 1,661,814
                                                   ===========      ===========

6.    DEPOSITS

      Interest-bearing deposits have stated rates ranging from 1.76% to 6.59%
      with a weighted average cost on all deposits of 5.09% at December 31, 2000
      and from 2.02% to 6.08% with a weighted average cost on all deposits of
      4.41% at December 31, 1999.

      Time deposit accounts outstanding at December 31, 2000 and 1999 mature as
      follows:

                                                     2000                1999

Three months or less                             $21,024,642         $21,047,542
Four to twelve months                             43,974,208          32,167,264
Over twelve months                                20,457,986          20,523,509
                                                 -----------         -----------

                                                 $85,456,836         $73,738,315
                                                 ===========         ===========

      The aggregate amount of certificates of deposit in denominations of
      $100,000 or more at December 31, 2000 and 1999 was $36,614,847 and
      $33,239,808, respectively. Interest expense attributable to certificates
      of deposit in denominations of $100,000 or more for the years ended
      December 31, 2000, 1999 and 1998 amounted to $2,065,226, $1,532,485 and
      $1,593,915, respectively. These certificates and their remaining
      maturities are as follows:

Three months or less                                                 $13,416,953
Four to twelve months                                                 19,200,983
Over twelve months                                                     3,996,911
                                                                     -----------

                                                                     $36,614,847
                                                                     ===========


                                       38
<PAGE>

7.    BORROWED FUNDS

      At December 31, 2000, the Bank purchased federal funds in the amount of
      $7,000,000 from a correspondent bank on secured overnight lines of credit
      at an interest rate of 6.72%. The federal funds purchased are
      collateralized by the Bank's investment securities. The Bank had no
      federal funds purchased at December 31, 1999.

      Borrowed funds at December 31, 1999 consisted of FHLB Advances as follows:

                                                Interest
Date                                              Rate

January 2000                                      5.80 %      $5,000,000
February 2000                                     5.75         1,000,000
May 2000                                          5.84         1,000,000
August 2000                                       5.96         2,000,000
                                                              ----------

                                                              $9,000,000
                                                              ==========

      The advances were collateralized by FHLB stock and substantially all first
      mortgage loans.

8.    GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT

      On June 26, 1999, Madison Capital Trust I (the "Trust"), a statutory
      business trust created under Delaware law that is a subsidiary of the
      Company, issued $5,000,000, 9.00% Capital Securities ("Capital
      Securities") with a stated value and liquidation preference of $1,000 per
      share. The Trust's obligations under the Capital Securities issued are
      fully and unconditionally guaranteed by the Company. The proceeds from the
      sale of the Capital Securities of the Trust were utilized by the Trust to
      invest in $5,000,000, 9.00% Junior Subordinated Debentures (the
      "Debentures") of the Company. The Debentures are unsecured and rank
      subordinate and junior in right of payment to all indebtedness,
      liabilities and obligations of the Company. The Debentures represent the
      sole assets of the Trust. Interest on the Capital Securities is cumulative
      and payable semi-annually in arrears. The Company has the right to
      optionally redeem the Debentures prior to the maturity date of June 30,
      2028, on or after June 30, 2003, at 100% of the stated liquidation amount,
      plus accrued and unpaid distributions, if any, to the redemption date.
      Under the occurrence of certain events, the Company may redeem in whole,
      but not in part, the Debentures prior to June 30, 2003. Proceeds from any
      redemption of the Debentures would cause a mandatory redemption of the
      Capital Securities having an aggregate liquidation amount equal to the
      principal amount of the Debentures redeemed.

      The Trust is a wholly owned subsidiary of the Company, has no independent
      operations and issued securities that contained the full and unconditional
      guarantee of its parent, the Company.


                                       39
<PAGE>

9.    INCOME TAXES

      The Bank's provision for income taxes differs from the amounts determined
      by applying the statutory federal income tax rate to income before income
      taxes for the following reasons:

<TABLE>
<CAPTION>
                                                                     December 31,
                                      ---------------------------------------------------------------------------
                                               2000                       1999                     1998
                                        Amount    Percentage       Amount    Percentage      Amount    Percentage
<S>                                   <C>              <C>       <C>             <C>       <C>             <C>
Tax at federal tax rate               $(204,252)       (35.0)%   $ 516,096       35.0 %    $ 270,731       35.0 %

Increase (decrease) resulting from:
  Benefit of surtax exemptions            5,836          1.0       (14,746)      (1.0)        (7,735)      (1.0)
  Meals and entertainment
    disallowed                           54,553          9.3        54,947        3.7         36,512        4.7
  Tax exempt income                     (12,167)        (2.1)      (12,020)      (0.8)       (18,653)      (2.4)
  Other                                  16,120          2.8         4,509        0.3         46,300        6.0
                                      ---------    ---------     ---------    ---------    ---------    ---------

Provision (benefit)                   $(139,910)       (24.0)%   $ 548,786       37.2 %    $ 327,155       42.3 %
                                      =========    =========     =========    =========    =========    =========
</TABLE>

      Items that give rise to significant portions of the Company's deferred tax
      asset, calculated at 35%, are as follows:

                                                                 December 31,
                                                             -------------------
                                                              2000       1999

Deferred tax assets:
  Allowance for loan losses                                  $353,689   $298,063
  Deferred fees                                                            4,710
  Other                                                         7,596     36,071
  Unrealized loss on securities available for sale            142,063     68,658
                                                             --------   --------

Net deferred tax asset                                       $503,348   $407,502
                                                             ========   ========

      The provision (benefit) for income taxes for the years ended December 31,
      2000, 1999 and 1998 includes the following:

                                      2000             1999             1998

Current taxes                       $(117,469)       $ 569,773        $ 419,400
Deferred taxes                        (22,441)         (20,987)         (92,245)
                                    ---------        ---------        ---------

Total                               $(139,910)       $ 548,786        $ 327,155
                                    =========        =========        =========


                                       40
<PAGE>

10.   COMMITMENTS

      Letters of Credit and Commitments to Lend - In the normal course of
      business, the Bank had commitments to advance funds under outstanding
      letters of credit of $533,169 and $910,932 and unadvanced loan commitments
      of $18,770,573 and $20,678,746 at December 31, 2000 and 1999,
      respectively. The unadvanced loan commitments at December 31, 2000 and
      1999 were primarily at variable rates. In addition, the Bank had
      commitments to sell fixed rate residential mortgages of $9,905,499 and
      $5,418,972 at December 31, 2000 and 1999, respectively. Commitments are
      issued in accordance with the same loan policies and underwriting
      standards as settled loans and represent credit risk should the borrowers
      fail to repay the amounts extended.

      Leasing Arrangements - The Company leases branch offices and certain
      equipment under noncancelable agreements requiring various minimum annual
      rentals. In addition to the minimum rents, the Company pays its pro rata
      share of the building's operating costs. Total operating lease expense for
      2000, 1999 and 1998 was $814,041, $629,652 and $541,901, respectively.

      Future minimum lease payments under noncancelable leases are as follows:

                                                        Year Ending
                                                        December 31,
                                                           2000

2001                                                    $  972,444
2002                                                       911,356
2003                                                       895,681
2004                                                       743,063
2005                                                       419,735
Thereafter                                                 873,653
                                                        ----------

Total                                                   $4,815,932
                                                        ==========

11.   STOCK OPTION PLANS

      In 1989, the Company's shareholders adopted a Stock Incentive Plan (the
      "1989 Plan") providing for the issuance of qualified and non-qualified
      stock options to the officers and key executives of the Company. Options
      are granted at the fair market value on the date of grant and are approved
      by a special committee. All options expire ten years after issuance.

      In 1996, the Board of Directors approved the adjustment of the exercise
      price to reflect stock dividends issued.

      In 1998, the Company's shareholders adopted the 1998 Stock Option Plan
      (the "1998 Plan") providing for the issuance of qualified and
      non-qualified stock options to the officers and key executives of the
      Company. The purpose of the 1998 Plan is to promote the interests of the
      Company by providing incentives to (i) designated officers and other key
      employees of the Company and (ii) nonemployee members of the Company's
      Board of Directors, to attract and retain such persons and to encourage
      them to acquire or increase their proprietary interest in the Company and
      to maximize the Company's performance during the term of their employment
      or period of service with the Company. The 1998 Plan replaced the 1989
      Plan which was due to expire in 2000. A total of 774,633 shares of common
      stock have been reserved for issuance pursuant to the 1998 Plan including
      options which remained issuable under the 1989 Plan. The price at which
      such options may be issued is determined by a special committee.


                                       41
<PAGE>

      At December 31, 2000, a total of 500,099 options were available for grant
      under the 1998 Plan. The per share price of exercisable options at
      December 31, 2000 reflects the adjusted exercise price resulting from
      stock dividends.

      Transactions during each of the last three years, adjusted for stock
      dividends, are as follows:

<TABLE>
<CAPTION>
                                                       Exercise Price      Weighted
                                                          Per Share    Average Exercise
                                             Shares         Price       Price Per Share
<S>                                          <C>         <C>             <C>
Exercisable, January 1, 1998                 67,665      $4.31 - $6.50        $4.72

Issued                                        7,920      $9.36

Exercised                                    (2,351)     $4.45 - $4.62
                                            -------

Exercisable, December 31, 1998               73,234      $3.45 - $9.36        $4.45

Issued                                      183,800      $7.08
                                            -------

Exercisable, December 31, 1999              257,034      $3.45 - $9.36        $6.33

Issued                                       17,500      $4.25
                                            -------

Exercisable, December 31, 2000              274,534      $3.45 - $7.31        $5.80
                                            =======
</TABLE>

      At December 31, 2000, the options exercisable had a weighted average
      remaining contractual life of 6.37 years.

      The Company accounts for stock-based compensation in accordance with SFAS
      No. 123, Accounting for Stock-Based Compensation, which permits the use of
      the intrinsic value method described in APB Opinion No. 25, Accounting for
      Stock Issued to Employees, and requires the Company to disclose the pro
      forma effects of accounting for stock-based compensation using the fair
      value method as described in the optional accounting requirements of SFAS
      No. 123. As permitted by SFAS No. 123, the Company will continue to
      account for stock-based compensation under APB Opinion No. 25, under which
      the Company has recognized no compensation expense.

      Had compensation cost for the Company's stock option plan been determined
      based on the fair value at the dates of awards under the fair value method
      of SFAS No. 123, the Company's net income and income per share would have
      been reduced to the pro forma amounts indicated below:

                                                     2000               1999

Net (loss) income:               As reported     $ (442,774)         $ 925,775
                                 Pro forma         (475,414)           157,958

Diluted earnings per share:      As reported     $    (0.23)         $    0.51
                                 Pro forma            (0.25)              0.09


                                       42
<PAGE>

      Significant assumptions used to calculate the above fair value of the
      awards are as follows:

                                                       2000             1999

Risk free interest rate of return                      5.75 %           6.00 %
Expected option life                                 120 months       120 months
Expected dividends                                       $0               $0
Expected volatility                                   57.26 %          35.00 %

12.   WARRANTS AUTHORIZED

      In connection with the initial offering of the Company's common stock, the
      Company's directors received warrants to purchase shares of common stock.
      These offering warrants are nontransferable and expire in 2009. The
      warrants had an initial exercise price of $10 per share. As a result of
      stock dividends issued by the Company, the exercise price was adjusted by
      the Board of Directors. At December 31, 2000, warrants have an exercise
      price of $3.84 per share. As of December 31, 2000, there were 54,634
      warrants outstanding, and 8,373 were exercised in 2000. Warrants
      outstanding have been adjusted to reflect stock dividends.

13.   PROFIT SHARING

      Effective March 1, 1993, the Bank adopted a 401(k) profit sharing plan to
      provide eligible employees with additional income upon their retirement.
      Participants may contribute up to 15% of their annual compensation to the
      plan subject to Internal Revenue Service limitations. The Bank contributes
      an amount equal to 50% of each participant's contribution, up to 2% of the
      participant's compensation. Contributions made by the Bank during the
      years ended December 31, 2000, 1999 and 1998 were approximately $70,137,
      $52,915 and $41,881, respectively.

14.   SHAREHOLDERS' EQUITY

      On May 19, 1999, the Board of Directors declared a 20% stock dividend
      payable to all shareholders of record on June 3, 1999.

      On August 17, 2000, the Board of Directors declared a 10% stock dividend
      payment to all shareholders of record on September 16, 2000.

      On June 28, 2000 and September 18, 2000, the Company issued 175,000 and
      160,000 shares of common stock, respectively, at a market price of $5.75
      per share in connection with a private placement offering. These offerings
      resulted in an increase of $1,896,996 in total shareholders' equity.

15.   RELATED PARTY TRANSACTIONS

      Loans to directors, officers, employees, and their affiliates and/or
      business interests must be made on substantially the same terms, including
      interest rates, as those prevailing at the time for other non-related
      party transactions and must not involve more than the normal risk of
      repayment.


                                       43
<PAGE>

      A summary of unpaid principal balances of loans outstanding to directors,
      officers, employees and their business interests is as follows:

                                                          December 31,
                                                 ------------------------------
                                                    2000                1999

Beginning of period                              $8,788,229         $ 7,830,641
Borrowings                                        2,690,707           4,264,622
Principal repayments                              2,453,419          (3,307,034)
                                                 ----------         -----------

End of period                                    $9,025,518         $ 8,788,229
                                                 ==========         ===========

      Certain directors of the Company are partners in an entity from which the
      Bank leases office space (see Note 10). Rental payments for the office
      space were approximately $275,000, $316,000 and $284,000 for the years
      ended December 31, 2000, 1999 and 1998, respectively. In the opinion of
      management, all aspects of this transaction, including the lease and
      amendments thereto, have been negotiated on an arms-length basis and the
      resultant terms are no less favorable than those that could be obtained
      from third parties.

16.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair value amounts have been determined by the Company using
      available market information and appropriate valuation methodologies.
      However, considerable judgment is necessarily required to interpret market
      data to develop the estimates of fair value. Accordingly, the estimates
      presented herein are not necessarily indicative of amounts the Company
      could realize in a current market exchange. The use of different market
      assumptions and/or estimation methodologies may have a material effect on
      the estimated fair value amounts.


                                       44
<PAGE>

<TABLE>
<CAPTION>
                                                    2000                   1999
                                             -------------------   --------------------
                                                       Estimated              Estimated
                                             Carrying    Fair     Carrying      Fair
                                              Amount     Value     Amount       Value
                                               (In Thousands)        (In Thousands)
<S>                                          <C>        <C>        <C>        <C>
Assets:
  Cash and cash equivalents                  $  6,886   $  6,886   $  3,089   $  3,089
  Investment securities held to maturity          570        571      2,570      2,568
  Investment securities available for sale     18,636     18,636     16,750     16,750
  Federal Home Loan Bank stock                    763        763        750        750
  Federal Reserve Bank stock                      323        323        323        323
  Loans, net                                  134,219    132,358    122,635    121,851
  Mortgage loans held for sale                  9,905      9,905      5,419      5,419

Liabilities:
  Deposits:
    Noninterest-bearing deposits               24,072     24,072     20,540     20,540
    Interest-bearing deposits                  15,859     15,859     12,705     12,705
    Savings deposits                            8,654      8,654      8,150      8,150
    Money market deposits                      17,355     17,355     15,205     15,205
    Time deposits                              85,457     86,702     73,738     74,230
  Borrowed funds                                7,000      7,000      9,000      9,000
  Guaranteed preferred beneficial
    interest in subordinated debt               5,000      5,000      5,000      5,000
</TABLE>

      Cash and Cash Equivalents - For cash and cash equivalents, the carrying
      amount is a reasonable estimate of fair value.

      Investment Securities - For investment securities, fair values are based
      on quoted market prices or dealer quotes.

      Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock -
      Although FHLB and FRB stock is an equity interest in an FHLB or FRB, it is
      carried at cost because it does not have a readily determinable fair value
      as its ownership is restricted and it lacks a market. The estimated fair
      value approximates the carrying amount.

      Loans - The fair value was estimated based on quoted market prices and
      current rates.

      Mortgage Loans Held for Sale - The carrying amount is a reasonable
      estimate of fair value.

      Deposits - The fair value of all deposit accounts except time deposits is
      the amount payable on demand at the reporting date. The fair value of time
      deposits is estimated using rates currently offered for deposits of
      similar remaining maturities.

      Borrowed Funds - The fair value of borrowed funds is the amount payable on
      demand at the reporting date.

      Guaranteed Preferred Beneficial Interest in Subordinated Debt - The fair
      value is based on a present value estimate using rates currently offered
      for instruments of similar remaining maturity.


                                       45
<PAGE>

      Commitments to Extend Credit and Letters of Credit - The majority of the
      Company's commitments to extend credit and letters of credit carry current
      market interest rates if converted to loans. Because commitments to extend
      credit and letters of credit are generally unassignable by either the
      Company or the borrower, they only have value to the Company and the
      borrower. The estimated fair value approximates the recorded deferred fee
      amounts, which are not significant.

      The fair value estimates presented herein are based on pertinent
      information available to management as of December 31, 2000 and 1999.
      Although management is not aware of any factors that would significantly
      affect the fair value amounts, such amounts have not been comprehensively
      revalued for purposes of these consolidated financial statements since
      that date and, therefore, current estimates of fair value may differ
      significantly from the amounts presented herein.

17.   REGULATORY MATTERS

      The Company and the Bank are subject to various regulatory capital
      requirements administered by the federal 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 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 the Company's and
      the Bank's assets, liabilities, and certain off-balance sheet items as
      calculated under regulatory accounting practices. The Company's and the
      Bank's capital amounts and classifications are also subject to qualitative
      judgments by the regulators about components, risk weightings, and other
      factors.

      Quantitative measures established by regulation to ensure capital adequacy
      require the Company and the Bank to maintain minimum amounts and ratios
      (set forth in the table below) of total and Tier 1 capital (as defined in
      the regulations) to risk-weighted assets (as defined), and of Tier 1
      capital (as defined) to average assets (as defined). Management believes,
      as of December 31, 2000, that the Company and the Bank meet all capital
      adequacy requirements to which it is subject.

      The most recent notification from the Commonwealth of Pennsylvania
      Department of Banking (as of June 30, 1999) categorized the Bank as
      adequately capitalized under the regulatory framework for prompt
      corrective action. To be categorized as adequately capitalized, the Bank
      must maintain minimum Tier 1 Capital, Total Risk-Based Capital and
      Leverage Ratios as set forth in the table.


                                       46
<PAGE>

      The Bank's actual capital amounts and ratios are presented in the table
      below:

<TABLE>
<CAPTION>
                                                                                                               To be Considered
                                                                                                               Well Capitalized
                                                                                       Required for              Under Prompt
                                                                                     Capital Adequacy         Corrective Action
                                                                  Actual                 Purposes                 Provisions
                                                         ----------------------    ----------------------  ----------------------
                                                          Amount        Ratio       Amount        Ratio       Amount        Ratio
<S>                                                      <C>            <C>        <C>             <C>       <C>             <C>
At December 31, 2000:
  Tier 1 capital (to risk-
    weighted assets)                                     $16,155        12.61 %    $ 5,125         4.00 %    $ 7,688         6.00 %
  Total capital (to risk-
    weighted assets)                                      17,516        13.67       10,250         8.00       12,813        10.00
  Tier 1 capital (to average
    assets)                                               16,155         9.40        6,876         4.00        8,597         5.00

At December 31, 1999:
  Tier 1 capital (to risk-
    weighted assets)                                     $13,687        11.92 %    $ 4,591         4.00 %    $ 6,886         6.00 %
  Total capital (to risk-
    weighted assets)                                      14,949        13.02        9,182         8.00       11,477        10.00
  Tier 1 capital (to average
    assets)                                               13,687         9.06        6,043         4.00        7,554         5.00
</TABLE>

      The Company's Tier 1 capital (to risk-weighted assets), total capital (to
      risk-weighted assets) and Tier 1 capital (to average assets) ratios were
      12.69%, 14.57% and 9.02% at December 31, 2000, and 12.16%, 14.57% and
      8.96% at December 31, 1999, respectively.


                                       47
<PAGE>

18.   PARENT COMPANY CONDENSED FINANCIAL INFORMATION

      The condensed financial statements of Madison Bancshares Group, Ltd.
      (Parent Only) as of December 31, 2000 and 1999 and for each of the three
      years in the period ended December 31, 2000 are presented herein.

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                         ------------------------------------
                                                                              2000                    1999
<S>                                                                      <C>                     <C>
BALANCE SHEETS

ASSETS:
  Cash                                                                   $     74,949            $     84,714
  Investment in subsidiary                                                 15,958,507              15,016,301
  Other assets                                                                130,995                 181,516
  Investment available for sale                                               480,000
  Accrued interest receivable                                                  30,855
  Deferred tax asset                                                           40,800
                                                                         ------------            ------------

TOTAL                                                                    $ 16,716,106            $ 15,282,531
                                                                         ============            ============

LIABILITIES:
  Guaranteed preferred beneficial interest in subordinated debt          $  5,000,000            $  5,000,000
  Accrued expenses                                                             21,035
                                                                         ------------            ------------

           Total liabilities                                                5,021,035               5,000,000
                                                                         ------------            ------------

SHAREHOLDERS' EQUITY:
  Common stock                                                              2,091,320               1,747,947
  Capital surplus                                                          10,331,332               8,745,557
  Accumulated deficit                                                        (451,812)                 (9,038)
  Accumulated other comprehensive loss                                       (275,769)               (201,935)
                                                                         ------------            ------------

           Total shareholders' equity                                      11,695,071              10,282,531
                                                                         ------------            ------------

  TOTAL                                                                  $ 16,716,106            $ 15,282,531
                                                                         ============            ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                  --------------------------------------------------
                                                                                      2000                1999              1998
<S>                                                                               <C>                 <C>                 <C>
STATEMENTS OF OPERATIONS

Interest income                                                                   $    25,901         $       725         $  25,512
Operating expenses                                                                   (630,514)           (606,622)         (335,163)
Writedown of investment                                                            (1,000,000)
                                                                                  -----------         -----------         ---------

Loss before equity in undistributed income from subsidiary                         (1,604,615)           (605,897)         (309,651)

Equity in undistributed income of subsidiary, Madison Bank                          1,161,841           1,531,672           756,013
                                                                                  -----------         -----------         ---------

NET INCOME                                                                        $  (442,774)        $   925,775         $ 446,362
                                                                                  ===========         ===========         =========
</TABLE>


                                       48
<PAGE>

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   Year Ended
                                                                              ------------------------------------------------------
                                                                                  2000                 1999                 1998
<S>                                                                           <C>                  <C>                  <C>
Operating Activities:
  Net (loss) income                                                           $  (442,774)         $   925,775          $   446,362
  Writedown of investment                                                       1,000,000
  Adjustments to reconcile net (loss) income to net
    cash used in operating activities:
    Equity in undistributed income of subsidiary                               (1,161,841)          (1,531,672)            (756,013)
    Increase accrued interest receivable                                          (30,855)
    Increase in accrued expenses and other liabilities                             21,035
    Decrease (increase) in receivable from subsidiary                             225,000              475,000           (4,675,000)
    Decrease (increase) in other assets                                            50,522               50,519             (231,535)
                                                                              -----------          -----------          -----------

           Net cash used in operating activities                                 (338,914)             (80,378)          (5,216,186)
                                                                              -----------          -----------          -----------

Investing Activities -
  Purchase of investment securities available for sale                         (1,600,000)
                                                                              -----------          -----------          -----------

           Net cash used in investing activities                               (1,600,000)
                                                                              -----------          -----------          -----------

Financing Activities:
  Proceeds from issuance of debentures                                                                                    5,000,000
  Exercise of stock options and warrants                                           32,152              114,869              258,998
  Proceeds from private placement                                               1,896,996
                                                                              -----------          -----------          -----------

           Net cash provided by financing activities                            1,929,148              114,869            5,259,843
                                                                              -----------          -----------          -----------

NET (DECREASE) INCREASE IN CASH                                                    (9,765)              34,491               43,657

CASH, BEGINNING OF YEAR                                                            84,714               50,223                6,566
                                                                              -----------          -----------          -----------

CASH, END OF YEAR                                                             $    74,949          $    84,714          $    50,223
                                                                              ===========          ===========          ===========
</TABLE>


                                       49
<PAGE>

19.   QUARTERLY DATA (UNAUDITED)

      The unaudited quarterly results of operations for 2000 and 1999 were as
      follows:

<TABLE>
<CAPTION>
                                                                            Year Ended December 31, 2000
                                                     ------------------------------------------------------------------------------
                                                      March 31        June 30       September 30    December 31          Total
<S>                                                  <C>             <C>             <C>             <C>               <C>
Interest income                                      $3,563,274      $3,795,753      $3,869,853      $ 3,778,853       $ 15,007,733
Interest expense                                      1,499,494       1,639,335       1,793,389        1,834,900          6,767,118
                                                     ----------      ----------      ----------      -----------       ------------

Net interest income                                   2,063,780       2,156,418       2,076,464        1,943,953          8,240,615
Provision for loan losses                               100,000          80,000         100,000           40,000            320,000
                                                     ----------      ----------      ----------      -----------       ------------

  Net                                                 1,963,780       2,076,418       1,976,464        1,903,953          7,920,615

Other noninterest income                                545,434         754,379       1,018,352          (87,642)         2,230,523
Other noninterest expenses                            2,445,834       2,667,966       2,805,964        2,814,058         10,733,822
                                                     ----------      ----------      ----------      -----------       ------------

Net income before income taxes                           63,380         162,831         188,852         (997,747)          (582,684)

Provision (benefit) for income taxes                     34,264          41,106          65,706         (280,986)          (139,910)
                                                     ----------      ----------      ----------      -----------       ------------

Net income                                           $   29,116      $  121,725      $  123,146      $  (716,761)      $   (442,774)
                                                     ==========      ==========      ==========      ===========       ============

Per share data - Diluted earnings
  per share                                          $     0.02      $     0.07      $     0.06      $     (0.38)      $      (0.23)
                                                     ==========      ==========      ==========      ===========       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                             Year Ended December 31, 1999
                                                     ------------------------------------------------------------------------------
                                                      March 31        June 30       September 30    December 31          Total
<S>                                                  <C>             <C>             <C>             <C>               <C>
Interest income                                      $3,080,806       $3,180,462       $3,312,414       $3,586,059       $13,159,741
Interest expense                                      1,271,589        1,317,847        1,334,117        1,478,227         5,401,780
                                                     ----------       ----------       ----------       ----------       -----------

Net interest income                                   1,809,217        1,862,615        1,978,297        2,107,832         7,757,961
Provision for loan losses                               120,000          145,000           95,000          110,000           470,000
                                                     ----------       ----------       ----------       ----------       -----------

  Net                                                 1,689,217        1,717,615        1,883,297        1,997,832         7,287,961

Other noninterest income                                816,958          920,636          766,937          778,865         3,283,396
Other noninterest expenses                            2,230,527        2,265,750        2,253,754        2,346,765         9,096,796
                                                     ----------       ----------       ----------       ----------       -----------

Net income before income taxes                          275,648          372,501          396,480          429,932         1,474,561

Provision for income taxes                              128,900          155,541          116,259          148,086           548,786
                                                     ----------       ----------       ----------       ----------       -----------

Net income                                           $  146,748       $  216,960       $  280,221       $  281,846       $   925,775
                                                     ==========       ==========       ==========       ==========       ===========

Per share data - Diluted earnings
  per share                                          $     0.09       $     0.13       $     0.16       $     0.13       $      0.51
                                                     ==========       ==========       ==========       ==========       ===========
</TABLE>

Notes:      Per share data has been retroactively restated to reflect the effect
            of stock dividends. Net income per common share is computed
            independently for each period presented. Consequently, the sum of
            the quarters may not equal the total net income per common stock.

                                     ******


                                       50
<PAGE>

ITEM 8 - Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

            Not applicable.

                                    PART III

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

            The information required by this Item is incorporated by reference
      from the definitive proxy materials of the Company to be filed with the
      Commission in connection with the Company's 2001 annual meeting of
      Shareholders.

ITEM 10 - Executive Compensation

            The information required by the Item is incorporated by reference
      from the definitive proxy materials of the Company to be filed with the
      Commission in connection with the Company's 2001 annual meeting of the
      shareholders.

ITEM 11 - Security Ownership of Certain Beneficial Owners and Management

            The information required by the Item is incorporated by reference
      from the definitive proxy materials of the Company to be filed with the
      Commission in connection with the Company's 2001 annual meeting of the
      shareholders.

ITEM 12 - Certain Relationships and Related Transactions

            The information required by the Item is incorporated by reference
      from the definitive proxy materials of the Company to be filed with the
      Commission in connection with the Company's 2001 annual meeting of the
      shareholders.

ITEM 13 - Exhibits and Reports on Form 8-K

      (a) Exhibits:

      The following Exhibits are filed as part of this report. (Exhibit numbers
      correspond to the exhibits required by Item 601 of Regulation S-B for an
      Annual Report on Form 10KSB)


                                       51
<PAGE>

<TABLE>
<CAPTION>
                                                                               Page Number in
Exhibit                                                                          Sequential
Number                       Description                                       Numbering System
<S>      <C>                                                                   <C>
3(a)     Amended and Restated Articles of Incorporation of the Company*              N/A

3(b)     Amended and Restated Bylaws of the Company**                                N/A

4(c)     Form of Warrant of the Company***                                           N/A

10(a)    Lease Agreement, dated February 20, 1989, by and between Madison
         Bancshares Group, Ltd. and Blue Bell Office Campus Associates****           N/A

10(b)    Madison Bancshares Group, Ltd.  1997 Stock Option Plan*****                 N/A

10(c)    Amended and Restated Declaration of Trust of Madison Capital
         Trust I dated July 13, 1998.******                                          N/A

10(d)    Indenture between Madison Bancshares Group, Ltd. and Christiana
         Bank and Trust Company, as Trustee, dated July 13, 1998.******              N/A

10(e)    Capital Securities Guarantee between Madison Bancshares Group,
         Ltd. and Christiana Bank and Trust Company, as Trustee, dated
         July 13, 1998.******                                                        N/A

21       Subsidiaries of the Registrant

27       Financial Data Schedule
</TABLE>

----------
*         Incorporated by reference from Exhibit No. 3 to the Registration
          Statement on Form S-1 of the Company, as amended, Registration No.
          33-22492.
**        Incorporated by reference from Exhibit No. 3 to the Registration
          Statement on Form S-1 of the Company, as amended, Registration No.
          33-22492.
***       Incorporated by reference from Exhibit No. 4 to the Registration
          Statement on Form S-1 of the Company, as amended, Registration No.
          33-22492.
****      Incorporated by reference from Exhibit No. 10(d) to the Registration
          Statement on Form S-1 of the Company, as amended, Registration No.
          33-22492.
*****     Incorporated by reference from Exhibit A to the Company's 1997
          Definitive Proxy Statement, dated April 18, 1997. All other schedules
          and exhibits are omitted because they are not applicable or the
          required information is set out in the financial statements or the
          notes thereto.
******    Incorporated by reference from Exhibit No. 10 to the Company's
          Quarterly Report on Form 10-QSB for the quarterly period ended
          September 30, 1998.

      (b) Reports on Form 8-K

            None.


                                       52
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                              MADISON BANCSHARES GROUP, LTD.

                              By:  /s/ Peter DePaul
                                   Chairman of the Board

                              By:  /s/ Vito A. DeLisi
                                   Vito A. DeLisi, President

                              By:  /s/ E. Cheryl Hinkle
                                   E. Cheryl Hinkle
                                   Assistant Secretary and Treasurer
                                   (Principal Accounting and Financial Officer)

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

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the date indicated.

         March 27, 2001             /s/ Vito A. DeLisi
                                   ---------------------------------------
                                   Vito A. DeLisi, President
                                   and Director

         March 27, 2001             /s/ Peter DePaul
                                   ---------------------------------------
                                   Peter DePaul
                                   Chairman of the Board

         March 27, 2001             /s/ Philip E. Hughes, Jr.
                                   ---------------------------------------
                                   Philip E. Hughes, Jr.
                                   Director and Vice Chairman of the Board

         March 27, 2001             /s/ Frank R. Iacobucci
                                   ---------------------------------------
                                   Frank R. Iacobucci, Director

         March 27, 2001             /s/ Arnold M. Katz
                                   ---------------------------------------
                                   Arnold M. Katz, Director

         March 27, 2001             /s/ Lorraine C. King
                                   ---------------------------------------
                                   Lorraine C. King, Director

         March 27, 2001             /s/ Kathleen A. Kucer
                                   ---------------------------------------
                                   Kathleen A. Kucer, Director


                                       53
<PAGE>
         March 27, 2001             /s/ Michael O'Donoghue
                                   ---------------------------------------
                                   Michael O'Donoghue, Director

         March 27, 2001             /s/ Salvatore Paone
                                   ---------------------------------------
                                   Salvatore Paone, Director

         March 27, 2001             /s/ Donald J. Reape
                                   ---------------------------------------
                                   Donald J. Reape, Director

         March 27, 2001             /s/ Blaine W. Scott
                                   ---------------------------------------
                                   Blaine W. Scott, Director


                                       54