<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, 2001.

/ / 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.   $20,046,213

     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. $8,348,819 based on the average of the bid and asked on the
National Association of Securities Dealers Automated Quotation System on March
26, 2002.*

     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 26,
2002.

     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 2002 Annual Meeting of Shareholders are incorporated by reference into
Part III hereof.

----------

*    Excluded from such market value computation are the approximately 786,817
issued and outstanding shares of common stock held by executive officers,
directors and affiliates of the Issuer.

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

                                PAGE 2 OF 53
<Page>

                         MADISON BANCSHARES GROUP, LTD.

                                   Form 10-KSB

                                      INDEX

<Table>
<Caption>
                                                                           PAGE
<S>          <C>                                                            <C>
PART 1

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..........................  50

PART III

Item 9       Director, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act............  50
Item 10      Executive Compensation.......................................  50
Item 11      Security Ownership of Certain Beneficial Owners and
             Management...................................................  50
Item 12      Certain Relationships and Related Transactions...............  50
Item 13      Exhibits and Reports on Form 8-K   ..........................  50
</Table>

                                     - 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 110
          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, 625 West
          Ridge Pike, Suite 600, 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.
          The Bank offers a broad range of consumer and commercial banking
          services. The Bank has been adding branches since 1991, and added its
          newest branch in Jenkintown, PA, in January 2001. As of December 31,
          2001 and 2000, the Bank held deposits totaling $164,769,017 and
          $151,396,140, respectively, excluding deposits of the Company. As of
          the same dates, the Bank had gross loans receivable of $157,991,980
          and $145,813,912 (inclusive of residential loans held for sale),
          respectively. The majority of such loans were made for commercial
          purposes.

          The Bank's branch offices are in an eight mile radius serving
          primarily Montgomery and Bucks Counties. These offices expand the
          Bank's presence within the five county regions. The Bank currently
          offers services to residents of approximately 109 Townships/Boroughs.

          As of December 31, 2001 and 2000, the Company had total assets of
          $182,381,974 and $176,458,304 and total shareholders' equity of
          $11,249,628 and $11,695,071, respectively. Investments amounted to
          $5,794,008 at year end 2001, of which $5,224,008 were classified as
          available for sale with the remaining balance classified as held to
          maturity. Investments amounted to $19,206,142 at the end of 2000, of
          which $18,636,115 were classified as available for sale and the
          remaining balance classified as held to maturity.

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

                                     - 4 -
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          personal services include travelers checks, safe deposit boxes, VISA
          debit cards and automated teller network access.

          In 2000, the Bank began offering its Internet banking product to
          consumer customers. This banking product allows accountholders to pay
          bills, transfer funds and gather account information from the
          convenience of a home computer. In 2001, the Bank expanded this
          service to accommodate small businesses.

          The Bank also 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.

          In addition to the broad range of services and products that the Bank
          offers, the Bank began to offer investment products through its
          agreement with W.S. Griffith Securities, Inc. as of February, 2002.
          These products include mutual funds, fixed and variable rate annuities
          and various life insurance products.

          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 laws extensively regulate various aspects of the
          banking business, including, but not limited to, permissible types and
          amounts of loans, investments 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 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 borrower 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 19,098 total square feet for main office
          operations, branch and mortgage department of the Madison Bank
          Building, 1767 Sentry Parkway West, Blue Bell, PA (the "Building")
          under three leases with terms that will expire between 2004 and 2006.
          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. Beginning January 1, 2000, base rental
          payments under this lease arrangement is $164,700 per annum. In
          addition, 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 2001, the amount of such expenses was $48,072. The
          maximum allocable portion to the Company of the Building's operating
          costs will be approximately $52,000 for 2002.

          The Bank also leased space in 2001 for branch banking facilities at
          the following locations and through the years indicated in
          parentheses: (I) 5,000 square feet for new lease space in
          Conshohocken, Pennsylvania (2011); (ii) 3,620 square feet in Centre
          Square, Pennsylvania (2005); (iii) 3,000 square feet in Strafford,
          Pennsylvania (2006); (iv) 3,965 square feet in Lansdale, Pennsylvania
          (2007); (v) 2,800 square feet in Horsham, Pennsylvania (2009); (vi)
          2,400 square feet in Langhorne, Pennsylvania (2009); (vii) 2,524
          square feet in Jenkintown, Pennsylvania (2009); and (viii) 3,250
          square feet in Oaks, Pennsylvania (2010). The aggregate annual rent
          for the space leased for branch banking facilities is $1,038,797 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 -
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                 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 26, 2002, there were 232 shareholders 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:

<Table>
<Caption>
                                                               2001
                                                               ----
                                          1st Qtr      2nd Qtr       3rd Qtr      4th Qtr
                                          -------      -------       -------      -------
                 <S>                        <C>        <C>             <C>         <C>
                 High Bid                   6-1/8       7-1/2          6-3/8       5-15/16

                 Low Bid                    5-7/8      7-5/16              6         5-1/2

<Caption>
                                                               2000
                                                               ----
                                          1st Qtr      2nd Qtr       3rd Qtr      4th Qtr
                                          -------      -------       -------      -------
                 <S>                          <C>       <C>           <C>           <C>
                 High Bid                     6         8-3/8          7-7/8        5-7/16

                 Low Bid                      5         5-3/4         6-3/16             4
</Table>

          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 Company has not paid any cash dividends. The Board of Directors
          does not intend to declare cash dividends in the immediate future. The
          Company has declared and paid stock dividends from time to time, the
          latest payment occurring in September 1999.

                                  RISK FACTORS

          You should consider carefully the following risks in the Company's
          business which could 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 risks the Company faces. Additional risks and
          uncertainties not presently known to the Company or that the Company
          currently deems immaterial may also impair its financial condition
          and/or results of 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. Additionally,
          new competitors and competitive factors are likely to emerge,
          particularly in light of the rapid development of 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.

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

                                     - 8 -
<Page>

                -  price competition for deposits and borrowings;
                -  introduction of new products by us and our competitors;
                -  changes in the mix of products and services it offers.

          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 users. Computer break-ins could jeopardize the security of
          information stored in and transmitted through its computer systems and
          network, which could likely adversely affect its ability to retain or
          attract customers, could damage its reputation and could be subject 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 continues 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 affect 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 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 the market in a timely manner, it 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 service 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 from third-party vendors. If one of its
          third-party service providers terminates its agreement with the
          Company and 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.

                                     - 9 -
<Page>

          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 of one or more of its existing executive
          officers, including Vito A. DeLisi, President and 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 the Company lose the services of Messers.
          DeLisi or Coletti or Ms. Hinkle, or if the Company is 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 it 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 net interest income.
          Changes in interest rates could adversely affect:

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

          INCREASES IN THE COMPANY'S ALLOWANCE 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-offs. 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

                                     - 10 -
<Page>

          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 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, 2001, the allowance for loan losses amounted to
          .83% 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 in order to
          maintain an adequate allowance for loan losses. The Company believes
          that such allowance is adequate; however, future provision to the
          allowance 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 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. The Company 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 the
          Company 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 shareholders 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. Government 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 increase 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
          the regulations are keeping pace. Any proposed laws, rules or
          regulations could force the Company to comply with more complex and
          perhaps more burdensome

                                     - 11 -
<Page>

          regulatory requirements, which could materially adversely affect its
          business, financial condition, results of operations and cash flows.

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.

          RESULTS OF OPERATIONS

          LOANS - As of December 31, 2001, the Bank had loans outstanding,
          totaling $135,914,472, excluding residential mortgage loans held for
          sale. The Bank originates 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, 2001, the Bank's allowance
          for loan losses equaled .83% of outstanding loans receivable,
          including non-accrual loans. As of December 31, 2000, the allowance
          for loan losses equaled 1.00% of outstanding loans, including
          non-accrual loans. As of December 31, 1999, the Bank's allowance for
          loan losses equaled 1.02% 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, 2001, 2000 and 1999.
          Management believes, based upon current economic conditions, that the
          allowance for loan losses is adequate to absorb risk and loss in the
          portfolio.

                                     - 12 -
<Page>

          ANALYSIS OF THE BANK'S ALLOWANCE FOR LOAN LOSSES

<Table>
<Caption>
                                                                    December 31,
                                                                    ------------
                                                          2001               2000          1999
                                                          ----               ----          ----
          <S>                                         <C>                <C>            <C>
          Balance at beginning of period              $1,360,901         $1,262,256     $1,111,817
                                                      ----------         ----------     ----------

          Additions charged to operations                972,000            320,000        470,000
                                                      ----------         ----------     ----------
            Charge-offs:
              Commercial                              (1,122,670)          (192,117)      (216,480)
              Installment                                (34,305)           (20,022)      (104,880)
              Real estate                                (61,286)           (23,717)
                                                      ----------         ----------     ----------
                 Total                                (1,218,261)          (235,856)      (321,360)

          Recoveries:
            Commercial                                     5,087              7,700
            Consumer                                       5,454                996          1,799
            Real estate                                                       5,805
                                                      ----------         ----------     ----------

          Net Charge-Offs                             (1,207,720)          (221,355)      (319,561)
                                                      ----------         ----------     ----------

                 Balance at the end of period         $1,125,181         $1,360,901     $1,262,256
                                                      ==========         ==========     ==========

          Ratio of  net charge-offs to average
                loans outstanding during the period          .90%               .16%           .26%
                                                      ==========         ==========     ==========
</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 the allowance
          for loan losses is 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) the loan is more than 90 days delinquent, unless the
          obligation is both well secured and in the process of collection; or
          (3) when a borrower declares bankruptcy and current payment ceases.

          Additions to the Bank's provision for loan losses for the year ended
          December 31, 2001 totaled $972,000. The bank added an additional
          $262,000 in the fourth quarter of 2001. This was the result of a
          deterioration of a specific commercial loan which is in the early
          stages of a collection effort. Loans charged-off against the reserve
          in 2001 amounted to $1,218,261 and recoveries were $10,541, which

                                     - 13 -
<Page>

          resulted in net charged-off loans of $1,207,720. The increase in
          charged-off loans in 2001 was related to a further deterioration of a
          few commercial loans which altered their collection status from
          substandard and doubtful to loss. The principal amount of non-accrual
          loans at December 31, 2001 was $1,086,183, a decrease of 24% in
          comparison to 2000. A substantial portion of the non-accrual loans are
          partially or fully secured.

          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. Recoveries amounted to $14,501,
          which resulted in $221,355 in net charged-off loans. The principal
          amount of nonaccrual loans at December 31, 2000 totaled $1,431,156.
          This was a decrease of $133,338 from 1999.

          Additions to the Bank's provisions for possible loan losses for the
          period ended December 31, 1999 totaled $470,000. Loans charged-off
          against the reserve in 1999 amounted to $321,360. Loans on non-accrual
          status as of December 31, 1999 amounted to $1,564,494.

          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 loan receivables earn interest at either fixed
          rates or rates that vary overnight with changes in the Bank's prime
          rate. Certain loan receivables 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.

          OTHER REAL ESTATE OWNED - Other real estate owned at December 31, 2001
          consisted of two properties totaling $350,393 as compared to $552,497
          at December 31, 2000. Both properties are up for sale with third party
          real estate agents at a combined value which is greater than the
          current carrying value.

          DEPOSITS - At December 31, 2001, the Bank held deposits aggregating
          $164,769,017, of which $30,026,869, or 18%, were non-interest bearing
          deposits, (exclusive of $35,355 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 loan receivables in
          connection with loans made to 1,846 loan customers totaled
          $135,914,472 (exclusive of residential mortgage loans held for sale),
          resulting in an average loan size of approximately $74,000.

          At December 31, 2000, the Bank held deposits aggregating $151,396,140,
          of which $24,071,605, or 16%, were non-interest bearing deposits,
          (exclusive of $74,949 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 loan receivables made to 1,882 loan
          customers totaled $135,908,413, resulting in an average loan size of
          approximately $72,000.

          At December 31, 1999, the Bank held deposits aggregating $130,338,463,
          of which $20,540,071, or 16%, were non-interest bearing deposits
          (exclusive of the $84,714 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 1,762 loan customers totaled $124,233,606, (exclusive of
          residential mortgage loans held for sale) resulting in an average loan
          size of approximately $71,000.

                                     - 14 -
<Page>

<Table>
<Caption>
                                             2001                    2000                     1999
                                             ----                    ----                     ----
                                                 % Of                      % of                   % Of
          Type of Account          Balance     Portfolio        Balance    Portfolio   Balance    Portfolio
          ---------------          -------     ---------        -------    ---------   -------    ---------
          <S>                    <C>             <C>       <C>              <C>       <C>             <C>
          Non-Interest Bearing   $   30,026,869   18.00%   $   24,071,605    16.00%   $  20,540,071    16.00%
          Interest-Bearing           17,105,710   10.00        15,858,837    10.00       12,704,649    10.00
          Money Market               19,635,229   12.00        17,354,621    12.00       15,205,159    12.00
          Savings                    10,180,956    6.00         8,654,241     6.00        8,150,269     6.00
          CDs Over $100,000          42,651,314   26.00        38,005,162    25.00       33,239,808    25.00
          CDs Under $100,000         45,168,939   28.00        47,451,674    31.00       40,498,507    31.00
                                 --------------  -------   --------------   -------   -------------   -------
              Total Deposits     $  164,769,017  100.00%   $  151,396,140   100.00%   $ 130,338,463   100.00%
                                 ==============  =======   ==============   =======   =============   =======
</Table>

          INCOME AND EXPENSE

          For the year ended December 31, 2001, the Company's total income was
          $19,646,213 (inclusive of the income tax benefit of $255,000) and
          total expenses were $20,416,094, resulting in a net loss for the year
          of $769,881. The decrease in net income for the year ended December
          31, 2001 was due to the partial write down of a debt security due to
          other-than-temporary impairment, which resulted in a charge to
          operations in the amount of $400,000, and the $1.2 million in loans
          charged-off, resulting in additions to be added to the Bank's
          allowance for loan losses. 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 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).
          BankZip.Com 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.

          INTEREST AND FEES ON LOANS - Interest and fees on loans were
          $13,517,915 in 2001, 94% of total interest income, as compared to
          $13,546,511, or 90% of total interest income in 2000. The average loan
          portfolio grew 9% while the Bank's average yield on loans outstanding
          decreased from 10.07% in 2000 to 9.25% in 2001. Interest and fees on
          loans were $13,546,511 in 2000, 90% of total interest income as
          compared to $12,037,116, or 91% in 1999. The average loan portfolio
          grew 9% while the Bank's average yield increased from 9.74% to 10.07%.

          INTEREST INCOME - Interest income on investment securities relates
          primarily to interest on U.S. Government Obligations ("government
          obligations"). Interest income of $442,983 for the year ended December
          31, 2001 decreased 61% from $1,126,894 for the year ended December 31,
          2000. The decrease is a result of investments called in 2001 due to
          the sudden rate drops. The average balance of government obligations
          decreased from $18,387,000 in 2000 to $8,467,000 in 2001. 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
          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 Bank and
          Federal Home Loan Bank stock. For the years ended December 31, 2001,
          2000 and 1999, interest income on other investments was $256,468,
          $290,992 and $244,517, respectively. The fluctuation from year to year
          is due to changes in the amounts of Federal Home Loan Bank dividend
          payments as Federal Reserve Bank stock has not changed. The Bank did
          not invest in any new municipal bonds in 2001, 2000 or 1999.

          Interest income on temporary investments represents federal funds
          sold. For the year ended December 31, 2001, interest income on federal
          funds sold was $224,341, as compared to $43,336 at December 31, 2000,
          a 418% increase. The increase is a direct result of the Bank investing
          in federal funds sold when its investment securities were called as
          interest rates declined. For the year ended December 31, 2000,
          interest income on federal funds sold was $43,336, as compared to
          $370,274 for the year ended December

                                     - 15 -
<Page>

          31, 1999, an 88% decrease. 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 $6,259,953 represented 43% of
          total interest income in 2001. Interest expense decreased by 8% from
          2000. The decrease in interest expense is due to a decline in the
          Bank's borrowings and eleven Federal Reserve discount rate declines.

          Interest expense of $6,767,118, represented 45% of total interest
          income in 2000. Interest expense increased 25% from 1999. This
          increase was due to growth in interest-bearing deposits and increased
          borrowed funds.

          SALARY AND EMPLOYEE BENEFITS - Salary and employee benefits of
          $7,551,923 in 2001 represented 57% of total non-interest expenses and
          38% of total Bank expenses as compared to $6,034,807 in 2000. The
          increase in salary and employee benefits of $1,517,116, or 25%, was
          due to the unusually high volume in the mortgage department for
          refinancings and home sales, which resulted in higher salaries paid to
          the commissioned employees and some staff additions.

          Salary and employee benefits of $6,034,807 represented 56% of total
          non-interest expenses, or 34% of total Bank expenses, at December 31,
          2000. The increase in salary and employee benefits of $729,412 or 14%
          from 1999 was reflective of hiring 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.

          OCCUPANCY AND EQUIPMENT - Occupancy and equipment expenses totaled
          $2,276,106 for the year ended December 31, 2001, as compared to
          $1,823,847 at December 31, 2000. The 25% increase represented an
          increase in maintenance costs and equipment leases reflective of the
          Bank's branch expansion.

          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 is representative of continued increased rents to
          accommodate the growth of the Bank.

          OTHER OPERATING - Other operating expenses in 2001, exclusive of
          occupancy and equipment and salary and employee benefits totaled
          $3,356,112 as compared to $2,875,168 in 2000. The increase in these
          operating expenses was primarily related to asset growth and increased
          expenses for the volume incurred with the mortgage department.
          Computer expenses increased from $446,637 to $613,744, a 37% increase
          over 2000. This increase was due to the increased deposit and loan
          accounts processed in conjunction with the asset growth and mortgage
          volume of the Bank. Deposit insurance premiums increased from $28,054
          in 2000 to $31,333 in 2001. The Bank pays premiums in accordance with
          the deposit size of its portfolio and its insurance category rating.
          Legal expenses decreased $9,853 or 4% from 2000. Business development
          expenses were $349,346 in 2001 as compared to $320,901 in 2000.
          Advertising expense decreased from $126,650 in 2000 to $46,421 in 2001
          due to ad campaigns being stopped as a result of the falling interest
          rate environment.

          Other operating expenses in 2000, exclusive of occupancy and equipment
          and salary and employee benefits totaled $2,875,168 as compared to
          $2,376,821 at December 31, 1999. This increase of 21% for the 2000
          year is a result of branch expansion and asset growth. Legal expenses
          increased from $143,211 to $226,333, a 58% increase from 1999. This
          increase was due to loan and collection expenses on certain
          non-accrual loans and loan closings on new loan originations. Computer
          expense increased from $339,649 in 1999 to $446,637 in 2000. The 31%
          increase was related branch expansion. The $2,202,198 in other
          operating expenses was comprised primarily of increases of telephone
          expense, postage and freight, business related auto and travel,
          insurance expense, shares tax expense and accounting and audit fees.
          These expenses increased 31% over 1999 and were directly related to
          branch expansion and marketing efforts to increase business. Deposit
          insurance premium expense decreased by 35% in 2000 from $43,217

                                     - 16 -
<Page>

          at December 31, 1999, to $28,054 at December 31, 2000. The Bank pays
          premiums in accordance with the deposit size of its portfolio and its
          insurance category rating.

          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 in 1998. The increase in these operating expenses was
          primarily related to computer expense, supplies, telephone, postage,
          loans expense, and outside service fees, for the opening of its
          seventh branch in Horsham. Computer expenses increased from $339,649
          to $253,196, a 34% increase over 1998. 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
          $22,773 in 1998 to $43,217 in 1999. The Bank pays premiums in
          accordance with the deposit size of its portfolio and its insurance
          category rating.

          LIQUIDITY

          The Bank's Asset/Liability Management Committee, comprised of the
          members of the Bank's Board of Directors, Chief Lending Officer and
          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, 2001, 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 $23,000. If
          rates fell 200 basis points, monthly revenues a year from now would
          increase approximately $26,000, and a rise in rates by 200 basis
          points would represent a monthly loss in revenues of approximately
          $22,000.

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

          The following table represents the interest rate sensitivity of the
          Company as of December 31, 2001 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.

                                     - 17 -
<Page>

                        Interest Ratio Sensitivity Report
                             As of December 31, 2001

<Table>
<Caption>
                                                           (Dollars in Thousands)

                                          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              $   1,000                                                   $    1,000
       Loans                              61,048    $  3,252   $    6,912   $  46,382  $  38,785      156,379
       Interest-Bearing Balances
       Investment Securities Held
          For Sale                           501         766        1,534         823      1,600        5,224
       Investment Securities Held
          For Maturity                                   570                                              570
                                       ---------    --------   ----------   ---------  ---------   ----------
       Totals                          $  62,549    $  4,588   $    8,446   $  47,205  $  40,385   $  163,173

       Cumulative Total                $  62,549    $ 67,137   $   75,583   $ 122,788  $ 163,173   $  163,173

       Interest-Sensitive Liabilities
       Demand-Interest-bearing         $  17,106                                                   $   17,106
       Savings Accounts                   10,181                                                       10,181
       Money Market Accounts              19,635                                                       19,635
       Time Deposits                      27,881    $ 22,388   $   19,741   $  15,981  $   1,829       87,820
       Borrowed Funds
       Trust Preferred                                                                     5,000        5,000
                                       ---------    --------   ----------   ---------  ---------   ----------

       Totals                          $  74,803    $ 22,388   $   19,741   $  15,981  $   6,829   $  139,742

       Cumulative Totals               $  74,803    $ 97,191   $  116,932   $ 132,913  $ 139,742   $  139,742

       Gap                             $ (12,254)   $(17,800)  $  (11,295)  $  31,224  $  33,556   $   23,431

       Cumulative Gap                  $ (12,254)   $(30,054)  $  (41,349)  $ (10,125) $  23,431   $   23,431

       Interest-sensitive assets/
       Interest-sensitive liabilities
          (Cumulative)                      0.84        0.69         0.65        0.92       1.17         1.17

       Cumulative Gap/total earning
          assets                              (8%)       (18%)        (25%)        (6%)       14%          14%

       Total Earning Assets                         $163,173
</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 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 2001,
          the Company's net interest spread was maintained at 4.32%, as compared
          to 4.57% in 2000.

                                     - 18 -
<Page>

                 CAPITAL RESOURCES

          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. At December 31,
          2001, the Company had 2,091,320 issued and outstanding shares of
          Common Stock.

          The book value per share of the Company's common stock at December 31,
          2001, 2000, and 1999 was $5.38, $5.59 and $4.91, 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, 2001, which exceeded the levels required
          to be "well capitalized" under applicable FDIC regulations.

                                     - 19 -
<Page>

<Table>
<Caption>
                                               RISK-WEIGHTED CATEGORY
                                               ----------------------
         RISK-WEIGHTED ASSETS                0%         20%        50%          100%       TOTAL
         -----------------------------------------------------------------------------------------
         <S>                              <C>        <C>          <C>         <C>         <C>
         Loans                                                    $74,384     $83,120     $157,504
         Securities available for sale    $  1,254   $ 2,296                    2,000        5,550
         Securities held to maturity                     570                                   570
         Federal funds sold                            1,000                                 1,000
         Cash and due from banks            12,774       560                                13,334
         Other assets                                                           5,875        5,875
                                          --------------------------------------------------------
         Category totals                    14,028     4,426       74,384      90,995      183,833
         -----------------------------------------------------------------------------------------
         Off-balance sheet items (risk-
           weighted)                                     132
         -----------------------------------------------------------------------------------------
         Total risk-weighted assets       $      0   $   912      $37,192     $90,995     $129,099
         =========================================================================================

         Average total assets             $179,797
</Table>

<Table>
<Caption>
         CAPITAL                                          TIER 1         TIER 2       TOTAL
         --------------------------------------------------------------------------------------
         <S>                                              <C>            <C>            <C>
         Shareholders' equity (inclusive of  trust
            preferred securities eligible for Tier 1)     $14,935                       $14,935
          Allowance for loan losses and trust
            preferred                                                    $ 2,391          2,391
         --------------------------------------------------------------------------------------
         Total capital                                    $14,935        $ 2,391        $17,326
         ======================================================================================
</Table>

<Table>
<Caption>
                                                       Regulatory
                                                         Minimum         Actual          Actual
                 Ratio                                   12/31/01       12/31/01        12/31/00
                 -----                                -------------     --------        --------
                 <S>                                      <C>            <C>              <C>
                 Qualifying Total Capital
                 to Risk-weighted Assets                  8.0%           13.42%           14.57%

                 Tier 1 Capital to Risk-weighted
                 Assets                                   4.0%           11.57%           12.69%

                 Tier 1 Ratio to
                 Total Adjusted Average Assets            4.0%            8.31%            9.02%
</Table>

                                     - 20 -
<Page>

          Included in the Tier 1 capital ratio is one-third of the Company's $5
          million of guaranteed preferred beneficial interest in subordinated
          debt which is acceptable under current banking regulations.

          The Company's capital-to-assets ratio decreased from 6.17% as of
          December 31, 2000 to 6.63% at December 31, 2001. The slight decrease
          in the capital-to-assets ratio was due to the Company's net loss at
          December 31, 2001. The Company's return on average equity for 2001 was
          (6.70)% and for 2000 was (4.22)%; and its return on average assets was
          (0.43)% for 2001 as compared to (0.27)% for 2000. The decrease in the
          Company's return on equity and return on assets from 2000 to 2001 was
          directly attributable to decreased net income. (See "Management's
          Discussion and Results of Operations.") For information concerning the
          Bank's capital ratios, see Note 17 of the Company's consolidated
          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, 2001 and 2000. 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.

                                     - 21 -
<Page>

<Table>
<Caption>
                                                          2001                          2000
                                                          ----                          ----
                                                      (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:
              Loan receivables (includes
              Mortgage loans held for sale)    $ 146,164  $ 13,518     9.25%  $ 134,483   $13,547      10.07%
              Other investments                    9,587       699     7.29      20,195     1,418       7.02
              Federal funds sold                   6,593       225     3.41         733        43       5.87
                                               ---------  --------     ----   ---------   -------      -----
          Total interest-earning assets        $ 162,344  $ 14,442     8.90   $ 155,411   $15,008       9.66
          Non-interest-earning assets             17,096                         11,052
                                               ---------                      ---------

                 Total Assets                  $ 179,440                      $ 166,463
                                               =========                      =========

          Liabilities and Shareholders' Equity:
          Interest-bearing liabilities:
              Demand Interest-bearing          $  15,635  $    184     1.17   $  14,167   $   245       1.73
              Money market and savings            28,644       673     2.35      25,424       762       3.00
              Other time deposits                 86,912     4,905     5.64      82,312     4,939       6.00
              Borrowed funds                         734        48     6.54       6,038       371       6.14
              Preferred trust                      5,000       450     9.00       5,000       450       9.00
                                               ---------  --------     ----   ---------   -------      -----
          Total interest-bearing liabilities     136,925     6,260     4.57     132,941     6,767       5.09
          Other liabilities                       31,022                         23,033
                                               ---------                      ---------
          Total liabilities                      167,947                        155,974
          Shareholders' equity                    11,493                         10,489
                                               ---------                      ---------
          Total liabilities and shareholders'
             equity                            $ 179,440                      $ 166,463
                                               =========                      =========
          Net interest income/rate spread                 $  8,182     4.32%              $ 8,241       4.57%
                                                          ========     ====               =======      =====

          Net interest margin                                          5.04%                            5.30%
                                                                       ====                            =====
</Table>

        The following table analyzes the rate/volume variances between the
        Bank's interest-earning assets and interest-bearing liabilities for
        fiscal years 2001 compared to 2000 and 2000 compared to 1999. 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.

                                     - 22 -
<Page>

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31
                                                                 ----------------------

                                                           2001 vs. 2000                    2000 vs. 1999
                                                           -------------                    -------------
                                                           (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)                      $    1,127    $    (1,156)   $    (29)  $    1,117  $    393   $    1,510
          Other investments                           (776)            57        (719)         368       748        1,116
          Federal funds sold                           207            (25)        182         (401)       74         (327)
                                                ----------    -----------    --------   ----------  --------   ----------

       Total interest earning assets                   558         (1,124)       (566)       1,084     1,215        2,299
                                                ----------    -----------    --------   ----------  --------   ----------

       Interest expense:
          Demand interest-bearing                       29            (90)        (61)         488      (492)          (4)

          Money market and savings                      89           (178)        (89)         (44)       52            8
          Other time deposits                          268           (302)        (34)       1,473      (344)       1,129
          Borrowed funds                              (323)                      (323)         232                    232
          Preferred trust                          101,111       (101,111)                 101,111  (101,111)
                                                ----------    -----------    --------   ----------  --------   ----------
       Total Interest-bearing liabilities          101,174       (101,681)       (507)     103,260   101,895        1,365
                                                ----------    -----------    --------   ----------  --------   ----------

       Net change in net interest income        $ (100,616)   $   100,557    $    (59)  $ (102,176) $103,110   $      934
                                                ==========    ===========    =========  ==========  =========  ==========
</Table>

          RECENT ACCOUNTING PRONOUNCEMENTS

          In June, 2001, the Financial Accounting Standards Board ("FASB")
          issued two new pronouncements: SFAS No. 141, Business Combinations,
          and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
          is effective as follows: a) use of the pooling-of-interest method is
          prohibited for business combinations initiated after June 30, 2001 and
          b) the provisions of SFAS No. 141 also apply to all business
          combinations accounted for by the purchase method that are completed
          after June 30, 2001. SFAS No. 142 is effective for fiscal years
          beginning after December 15, 2001 to all goodwill and other intangible
          assets recognized in an entity's statement of financial position at
          that date, regardless of when those assets were initially recognized.
          The adoption of these statements did not have an impact on the
          Company's financial condition or results of operations.

          In August, 2001, the FASB issued SFAS No. 144, Accounting for the
          Impairment or Disposal of Long-Lived Assets. This statement addressed
          financial accounting and reporting for the impairment or disposal of
          long-lived assets. This statement supersedes SFAS No. 121, Accounting
          for the Impairment of Long-Lived Assets and for Long-Lived Assets to
          Be Disposed Of, and the accounting and reporting provisions of the APB
          No. 30, Reporting of Operations-Reporting the Effects of Disposal of a
          Segment of a Business and Extraordinary, Unusual and Infrequently
          Occurring Events and Transactions. This statement is effective for
          fiscal years beginning after December 15, 2001. The adoption of this
          statement did not have an impact on the Company's financial condition
          or results of operations.

                                     - 23 -
<Page>

          CRITICAL ACCOUNTING POLICIES

          In management's opinion, the most critical accounting policy impacting
          the Bank's financial statements is the evaluation of the allowance for
          loan losses. Management carefully monitors the credit quality of the
          loan portfolio and makes estimates about the amount of credit losses
          that have been incurred at each financial statement date. Management
          evaluates the fair value of collateral supporting the impaired loans
          using independent appraisals and other measures of fair value. This
          process involves subjective judgments and assumptions and is subject
          to change based on factors that may be outside the control of the
          Bank.

ITEM 7            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    Independent Auditors' Report dated March 1, 2002.
                    Consolidated Statements of Financial Condition as of
                    December 31, 2001 and 2000.
                    Consolidated Statements of Operations for the years ended
                    December 31, 2001, 2000 and 1999.
                    Consolidated Statements of Changes in Shareholders' Equity
                    for the years ended December 31, 2001, 2000 and 1999.
                    Consolidated Statements of Cash Flows for the years ended
                    December 31, 2001, 2000 and 1999.
                    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, 2001 AND 2000 AND FOR
     EACH OF THE THREE YEARS IN THE PERIOD
     ENDED DECEMBER 31, 2001, 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, 2001 and 2000, and the related consolidated statements
     of operations, changes in shareholders' equity and comprehensive income
     (loss) and cash flows for each of the three years in the period ended
     December 31, 2001. 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, 2001 and 2000, and
     the results of their operations and their cash flows for each of the three
     years in the period ended December 31, 2001 in conformity with accounting
     principles generally accepted in the United States of America.

     Philadelphia, Pennsylvania
     March 1, 2002

                                     - 26 -
<Page>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND 2000
--------------------------------------------------------------------------------

<Table>
<Caption>
ASSETS                                                                                          2001           2000

<S>                                                                                        <C>             <C>
CASH AND CASH EQUIVALENTS:
  Cash and amounts due from banks                                                          $  13,333,676   $   6,886,426
  Federal funds sold                                                                           1,000,000
                                                                                           -------------   -------------

        Total cash and cash equivalents                                                       14,333,676       6,886,426

INVESTMENT SECURITIES:
  Held to maturity (fair value - 2001, $570,433; 2000, $571,313)                                 570,000         570,027
  Available for sale (amortized cost - 2001, $5,150,265; 2000, $19,053,947)                    5,224,008      18,636,115
  Federal Home Loan Bank Stock                                                                   897,000         762,700
  Federal Reserve Bank Stock                                                                     323,400         323,400

LOANS (Net of allowance for loan losses - 2001, $1,125,181; 2000, $1,360,901)                134,302,135     134,219,465

MORTGAGE LOANS HELD FOR SALE                                                                  22,077,508       9,905,499

REAL ESTATE OWNED                                                                                350,393         552,497

FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET                                           2,151,507       1,966,440

ACCRUED INTEREST RECEIVABLE                                                                      939,148       1,348,415

OTHER ASSETS                                                                                     767,997         783,972

DEFERRED INCOME TAXES                                                                            445,202         503,348
                                                                                           -------------   -------------

TOTAL ASSETS                                                                               $ 182,381,974   $ 176,458,304
                                                                                           =============   =============

LIABILITIES AND SHAREHOLDERS' EQUITY

DEPOSITS:
  Noninterest-bearing demand deposits                                                      $  30,026,869   $  24,071,605
  Interest-bearing demand deposits                                                            17,105,710      15,858,837
  Savings deposits                                                                            10,180,956       8,654,241
  Money market deposits                                                                       19,635,229      17,354,621
  Time deposits                                                                               87,820,253      85,456,836
                                                                                           -------------   -------------

        Total deposits                                                                       164,769,017     151,396,140

BORROWED FUNDS                                                                                                 7,000,000

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

ACCRUED INTEREST PAYABLE                                                                         880,328       1,196,253

ACCRUED EXPENSES AND OTHER LIABILITIES                                                           483,001         170,840
                                                                                           -------------   -------------

        Total liabilities                                                                    171,132,346     164,763,233
                                                                                           -------------   -------------

COMMITMENTS AND CONTINGENT LIABILITIES

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 - 2001, 2,091,320; 2000, 2,091,320 shares)                          2,091,320       2,091,320
  Capital surplus                                                                             10,331,332      10,331,332
  Accumulated deficit                                                                         (1,221,693)       (451,812)
  Accumulated other comprehensive income (loss)                                                   48,669        (275,769)
                                                                                           -------------   -------------

        Total shareholders' equity                                                            11,249,628      11,695,071
                                                                                           -------------   -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                 $ 182,381,974   $ 176,458,304
                                                                                           =============   =============
</Table>

See notes to consolidated financial statements.

                                     - 27 -
<Page>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                             2001            2000           1999

<S>                                                                      <C>             <C>             <C>
INTEREST INCOME:
  Interest and fees on loans                                             $ 13,517,915    $ 13,546,511    $ 12,037,116
  Interest and dividends on investment securities:
    U.S. Government obligations                                               442,983       1,126,894         507,834
    Other securities                                                          256,468         290,992         244,517
    Interest on temporary investments                                         224,341          43,336         370,274
                                                                         ------------    ------------    ------------

           Total interest income                                           14,441,707      15,007,733      13,159,741
                                                                         ------------    ------------    ------------

INTEREST EXPENSE:
  Interest on:
    Demand deposits                                                           183,441         244,529         248,507
    Savings and money market deposits                                         673,352         762,256         754,109
    Time deposits                                                           4,905,386       4,938,995       3,809,686
    Guaranteed preferred beneficial interest in subordinated debt             450,000         450,000         450,000
    Other interest                                                             47,774         371,338         139,478
                                                                         ------------    ------------    ------------

           Total interest expense                                           6,259,953       6,767,118       5,401,780
                                                                         ------------    ------------    ------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                        8,181,754       8,240,615       7,757,961

PROVISION FOR LOAN LOSSES                                                     972,000         320,000         470,000
                                                                         ------------    ------------    ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                         7,209,754       7,920,615       7,287,961
                                                                         ------------    ------------    ------------

OTHER INCOME (EXPENSE):
  Service charges on deposit accounts                                         806,938         745,328         577,953
  Gain on the sale of mortgage loans                                        4,228,100       2,296,083       2,582,212
  Other                                                                       314,468         189,112         123,231
  Writedown of investment                                                    (400,000)     (1,000,000)
                                                                         ------------    ------------    ------------

           Total other income                                               4,949,506       2,230,523       3,283,396
                                                                         ------------    ------------    ------------

OTHER NONINTEREST EXPENSES:
  Salaries and employee benefits                                            7,551,923       6,034,807       5,305,395
  Occupancy                                                                 1,668,969       1,254,248         976,081
  Equipment                                                                   607,137         569,599         438,499
  Computer processing                                                         613,744         446,637         339,649
  Deposit insurance                                                            31,333          28,054          43,217
  Legal                                                                       216,480         226,333         143,211
  Professional fees                                                           101,587          67,775          64,410
  Business development                                                        349,346         320,901         323,216
  Office and stationery supplies                                              230,761         197,413         186,880
  Advertising                                                                  46,421          97,531          86,375
  Directors' fees                                                             114,525         126,650         138,375
  Amortization expense                                                         50,520          50,520          50,519
  Other operating                                                           1,601,395       1,313,354       1,000,969
                                                                         ------------    ------------    ------------

           Total other noninterest expenses                                13,184,141      10,733,822       9,096,796
                                                                         ------------    ------------    ------------

(LOSS) INCOME BEFORE TAXES                                                 (1,024,881)       (582,684)      1,474,561

PROVISION (BENEFIT) FOR INCOME TAXES                                         (255,000)       (139,910)        548,786
                                                                         ------------    ------------    ------------

NET (LOSS) INCOME                                                        $   (769,881)   $   (442,774)   $    925,775
                                                                         ============    ============    ============

BASIC (LOSS) EARNINGS PER SHARE                                          $      (0.37)   $      (0.23)   $       0.54
                                                                         ============    ============    ============

DILUTED (LOSS) EARNINGS PER SHARE                                        $      (0.37)   $      (0.23)   $       0.51
                                                                         ============    ============    ============
</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, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

<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, 1999            $ 1,562,018   $ 7,563,433   $   318,371   $       6,570   $  9,450,392

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

    Issuance of 20% 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
      taxes 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 (loss) income:
    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

  Comprehensive (loss) income:
    Net loss                                                       (769,881)                      (769,881)  $   (769,881)

    Net change in unrealized gain
      on securities available for
      sale net of tax benefit
      of $167,136                                                                   324,438        324,438        324,438
                                                                                                             ------------

  Comprehensive loss                                                                                         $  (445,443)
                                    -----------   -----------   -----------   -------------   ------------   ============

BALANCE, DECEMBER 31, 2001          $ 2,091,320   $10,331,332   $(1,221,693)    $    48,669   $ 11,249,628
                                    ===========   ===========   ===========   =============   ============
</Table>

See notes to consolidated financial statements.

                                     - 29 -
<Page>

MADISON BANCSHARES GROUP, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                             2001             2000            1999

<S>                                                                      <C>              <C>             <C>
OPERATING ACTIVITIES:
  Net (loss) income                                                      $   (769,881)    $   (442,774)   $    925,775
  Adjustments to reconcile net (loss) income to net cash
    (used in) provided by operating activities:
    Depreciation                                                              574,083          460,987         317,639
    Provision for loan losses                                                 972,000          320,000         470,000
    Net amortization of premiums                                                3,710            1,841           3,413
    Gain on sale of mortgage loans held for sale                           (4,228,100)      (2,296,083)     (2,582,212)
    Writedown of investment                                                   400,000        1,000,000
    Loss on sale of real estate owned                                         116,288           23,718          30,416
    Originations of loans held for sale                                  (953,447,786)    (126,042,087)   (143,306,366)
    Proceeds from sale of loans                                           945,503,875      123,851,643     152,063,244
  Changes in assets and liabilities which (used) provided cash:
    Accrued interest receivable                                               409,267          (66,487)       (205,246)
    Other assets                                                              (93,015)        (464,095)       (276,200)
    Accrued interest payable                                                 (315,925)         235,985         156,046
    Accrued expenses and other liabilities                                    312,161          (90,308)        184,417
    Deferred loan fees                                                       (159,108)           7,923         136,982
                                                                         ------------     ------------    ------------

        Net cash (used in) provided by operating activities               (10,722,431)      (3,499,737)      7,917,908
                                                                         ------------     ------------    ------------

INVESTING ACTIVITIES:
  Purchase of investment securities held to maturity                                                        (2,000,000)
  Purchase of investment securities available for sale                     (1,500,000)      (1,000,000)    (17,056,249)
  Purchase of Federal Reserve Stock                                                                           (147,000)
  Purchase of Federal Home Loan Bank Stock                                   (134,300)         (12,700)       (222,700)
  Proceeds from maturities of investment securities held to maturity                                         1,030,000
  Proceeds from maturities of investment securities available for sale     15,000,000                        1,000,000
  Proceeds from sale of furniture, equipment and leasehold improvements                                          3,500
  Loans purchased and originated, net of principal repayments              (1,058,957)     (12,167,935)     (9,808,086)
  Cost capitalized for real estate owned                                         (436)         (23,600)         (1,008)
  Additions to furniture, equipment and leasehold improvements               (759,150)        (765,613)       (399,480)
  Proceeds on sale of real estate owned                                       249,647          280,351         619,652
                                                                         ------------     ------------    ------------

        Net cash provided by (used in) investing activities                11,796,804      (13,689,497)    (26,981,371)
                                                                         ------------     ------------    ------------

FINANCING ACTIVITIES:
  Net increase (decrease) in demand, savings and time deposits             13,372,877       21,057,677      (2,256,055)
  Exercise of stock warrants and options                                                        32,152         114,869
  Proceeds from private placement                                                            1,896,996
  Advances of borrowed funds                                                                30,000,000       9,000,000
  Repayments of borrowed funds                                             (7,000,000)     (32,000,000)
                                                                         ------------     ------------    ------------

        Net cash provided by financing activities                           6,372,877       20,986,825       6,858,814
                                                                         ------------     ------------    ------------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                                      7,447,250        3,797,591     (12,204,649)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                6,886,426        3,088,835      15,293,484
                                                                         ------------     ------------    ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                   $ 14,333,676     $  6,886,426    $  3,088,835
                                                                         ============     ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Cash paid during the year for:
    Interest                                                             $  6,575,894     $  6,531,133    $  5,245,734
                                                                         ============     ============    ============

    Income taxes                                                         $    103,714     $    180,000    $    745,210
                                                                         ============     ============    ============

SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
  Stock dividends:
    Common stock                                                         $                $               $    156,648
                                                                         ============     ============    ============

    Capital surplus                                                      $                $               $  1,096,536
                                                                         ============     ============    ============

    Accumulated deficit                                                  $                $               $ (1,253,184)
                                                                         ============     ============    ============

  Transfers from loans to real estate owned                              $    163,395     $    255,926    $    492,010
                                                                         ============     ============    ============

  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, 2001, 2000 AND 1999
--------------------------------------------------------------------------------


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 $1,413,431 and $1,349,010
     at December 31, 2001 and 2000, 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:

     -    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.

     -    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.

                                     - 31 -
<Page>

     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.

     In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
     Accounting Bulletin ("SAB") No. 102, Selected Loss Allowance Methodology
     and Documentation Issues. SAB No. 102 expresses the SEC staff's views on
     the development and application of a systematic methodology for determining
     the allowance for loan losses in accordance with accounting principles
     generally accepted in the United States of America. Also in July 2001, the
     federal banking agencies issued guidance on this topic through the Federal
     Financial Institutions Examination Council interagency guidance, Policy
     Statement on Allowance for Loan and Lease Losses Methodologies and
     Documentation for Banks and Savings Institutions. In management's opinion,
     the Company's methodology and documentation of the allowance for loan
     losses meets the guidance issued.

     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.
     The calculation of the weighted average shares, after giving effect to the
     stock split, was as follows:

<Table>
<Caption>
                                                          2001           2000          1999

<S>                                                     <C>            <C>            <C>
     Average common shares outstanding                  2,091,320      1,890,514      1,724,225
     Increase in shares due to options and warrants -
       diluted basis                                       51,561         73,553         86,358
                                                        ---------      ---------      ---------

     Adjusted shares outstanding - diluted              2,142,881      1,964,067      1,810,583
                                                        =========      =========      =========
</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 FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Under
     Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING
     FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS Nos.
     137 and 138 and interpreted by the FASB and the Derivatives Implementation
     Group through "STATEMENT 133 IMPLEMENTATION ISSUES," the Company is
     required 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. The
     Company adopted SFAS No. 133 as of January 1, 2001. The adoption did not
     have any impact on the Company's financial condition or results of
     operations. Currently, no embedded derivatives require bifurcation. The
     Company does not employ hedging activities that require designation as
     either fair value or cash flow hedges, or hedges of a net investment in a
     foreign operation.

                                     - 33 -
<Page>

     ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
     EXTINGUISHMENTS OF LIABILITIES - In 2000, the Company 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 Company's financial condition or
     results of operations.

     ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION - In 2000,
     the Company adopted FASB Interpretation ("FIN") 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 Company's financial
     condition or results of operations.

     Since the issuance of FIN No. 44, the FASB staff has received a number of
     questions related to accounting for stock compensation under APB No. 25 and
     FIN No. 44. The Emerging Issues Task Force ("EITF") in EITF 00-23 has
     reached consensuses on a number of questions, although some issues and
     questions are still being considered. The Company monitors the status of
     EITF 00-23.

     ACCOUNTING PRONOUNCEMENTS ISSUED - In June 2001, the Financial Accounting
     Standards Board ("FASB") issued two new pronouncements: SFAS No. 141,
     BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
     ASSETS. SFAS No. 141 is effective as follows: a) use of the
     pooling-of-interest method is prohibited for business combinations
     initiated after June 30, 2001 and b) the provisions of SFAS No. 141 also
     apply to all business combinations accounted for by the purchase method
     that are completed after June 30, 2001. SFAS No. 142 is effective for
     fiscal years beginning after December 15, 2001 to all goodwill and other
     intangible assets recognized in an entity's statement of financial position
     at that date, regardless of when those assets were initially recognized.
     The adoption of these statements did not have an impact on the Company's
     financial condition or results of operations.

     In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
     OR DISPOSAL OF LONG-LIVED ASSETS. This statement addressed financial
     accounting and reporting for the impairment or disposal of long-lived
     assets. This statement supersedes SFAS No. 121, ACCOUNTING FOR THE
     IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
     OF, and the accounting and reporting provisions of the APB No. 30,
     REPORTING OF OPERATIONS-REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A
     BUSINESS AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
     TRANSACTIONS. This statement is effective for fiscal years beginning after
     December 15, 2001. The adoption of this statement did not have an impact on
     the Company's financial condition or results of operations.

     RECLASSIFICATIONS - Certain items in the 1999 and 2000 consolidated
     financial statements have been reclassified to conform with the
     presentation in the 2001 consolidated financial statements.

                                     - 34 -
<Page>

3.   INVESTMENT SECURITIES

     A summary of investment securities and their expected maturities, as well
     as estimated fair values at December 31, 2001 and 2000 is as follows:

<Table>
<Caption>
                                                                       GROSS         GROSS
                                                     AMORTIZED      UNREALIZED     UNREALIZED       FAIR
                                                       COST            GAINS         LOSSES         VALUE

<S>                                                 <C>             <C>           <C>            <C>
     December 31, 2001:
       Securities to be held to maturity:
         Debt securities -
           Municipal and State Government bonds     $    570,000    $      433    $              $   570,433
                                                    ============    ==========    ============   ===========

       Securities available for sale:
         Debt securities - U.S. Government
           and Federal Agencies                     $  3,550,265    $   73,743                   $ 3,624,008
         Corporate security                            1,600,000                                   1,600,000
                                                    ------------    ----------    ------------   -----------

     Total                                          $  5,150,265    $   73,743    $              $ 5,224,008
                                                    ============    ==========    ============   ===========

     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
                                                    ============    ==========    ============   ===========
</Table>

     The scheduled maturities of debt securities to be held to maturity and debt
     securities available for sale at December 31, 2001 were as follows:

<Table>
<Caption>
                                              SECURITIES TO BE                            SECURITIES
                                              HELD TO MATURITY                        AVAILABLE FOR SALE
                                       ---------------------------------   ---------------------------------------
                                            AMORTIZED         FAIR              AMORTIZED             FAIR
                                              COST            VALUE               COST                VALUE

<S>                                        <C>             <C>               <C>                  <C>
     Due in one year or less                                                 $    1,253,785       $   1,278,908
     Due from 1 to 5 years                 $  400,000      $   398,676            1,296,480           1,324,470
     Due from 5 to 10 years                   170,000          171,757            1,000,000           1,020,630
     Due after 10 years                                                           1,600,000           1,600,000
                                           ----------      -----------       --------------       -------------

     Total                                 $  570,000      $   570,433       $    5,150,265       $   5,224,008
                                           ==========      ===========       ==============       =============
</Table>

     There were no sales of investment securities in 2001, 2000 or 1999.

     Due to evidence of a significant deterioration in the issuer's
     creditworthiness, the Company 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 the fourth quarter of the
     year ended December 31, 2001, the Company recognized an
     other-than-temporary impairment on this investment security resulting in a
     charge to operations of $400,000.

                                     - 35 -
<Page>

     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 statements
     of operations.

4.   LOANS AND ALLOWANCE FOR LOAN LOSSES

     Loans outstanding are summarized as follows:

<Table>
<Caption>
                                                           DECEMBER 31,
                                              ------------------------------------------
                                                    2001                     2000

<S>                                            <C>                     <C>
       Real estate mortgage loans              $   20,451,044          $    22,514,871
       Commercial loans                           103,567,398              101,520,054
       Consumer loans                              11,896,030               11,873,488
                                               --------------          ---------------

         Total                                    135,914,472              135,908,413
       Less:
         Allowance for loan losses                 (1,125,181)              (1,360,901)
         Deferred origination fees, net              (487,156)                (328,047)
                                               --------------          ---------------

                                               $  134,302,135          $   134,219,465
                                               ==============          ===============
</Table>

     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, 2001, 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 8.10% to 8.88% with adjustable
     rates ranging from the Bank's prime rate to 2% in excess of prime.

     The composition of fixed and adjustable rate loans as of December 31, 2001
     was as follows:

<Table>
<Caption>
                       FIXED RATE                                    ADJUSTABLE RATE
     ----------------------------------------------      -------------------------------------
                                                         TERM TO RATE
     TERM TO MATURITY               BOOK VALUE           ADJUSTMENT             BOOK VALUE

<S>                               <C>                    <C>                    <C>
     1 month - 1 year             $    16,351,476        1 month - 1 year       $  59,043,100
     1 year - 3 years                  24,677,085
     3 years - 5 years                 21,705,111
     5 years - 30 years                14,137,700
                                  ---------------                               -------------

                                  $    76,871,372                               $  59,043,100
                                  ===============                               =============
</Table>

                                     - 36 -
<Page>

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

<Table>
<Caption>
                                                                               YEAR ENDED DECEMBER 31,
                                                               --------------------------------------------------------
                                                                       2001               2000               1999

<S>                                                                <C>                <C>                <C>
     Balance, beginning of year                                    $   1,360,901      $   1,262,256      $    1,111,817
                                                                   -------------      -------------      --------------

     Provision charged to operations                                     972,000            320,000             470,000
                                                                   -------------      -------------      --------------
     Loans charged off:
       Commercial loans                                               (1,122,670)          (192,117)           (216,480)
       Consumer loans                                                    (95,591)           (43,739)           (104,880)
                                                                   -------------      -------------      --------------

                                                                      (1,218,261)          (235,856)           (321,360)
                                                                   -------------      -------------      --------------

     Recoveries - commercial and consumer loans                           10,541             14,501               1,799
                                                                   -------------      -------------      --------------

     Balance, end of year                                          $   1,125,181      $   1,360,901      $    1,262,256
                                                                   =============      =============      ==============
</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, 2001
     and 2000, 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.

     The following table summarizes impaired loan information.
<Table>
<Caption>
                                                                                 DECEMBER 31,
                                                                     ------------------------------------
                                                                           2001               2000

<S>                                                                    <C>                <C>
     Impaired loans with related reserve for loan losses               $   3,182,576      $   1,666,831
                                                                       =============      =============

<Caption>
                                                                                 YEAR ENDED
                                                                                 DECEMBER 31,
                                                                     ------------------------------------
                                                                             2001               2000

<S>                                                                     <C>                <C>
     Average impaired loans                                             $   2,424,704      $   1,902,733
     Interest income recognized on impaired loans                                   -                  -
     Cash basis interest income recognized on impaired loans                  132,279             13,280
</Table>

     At December 31, 2001, 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.

                                     - 37 -
<Page>

     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, 2001 and 2000
     totaled $1,086,183 and $1,431,156, respectively. Additional interest income
     that would have been recorded in 2001 and 2000 under the original terms of
     nonaccrual loans totaled $84,928 and $138,686, respectively.

     Accruing loans which are contractually past due 90 days or more totaled
     $1,551,641 and $700,180 at December 31, 2001 and 2000, respectively.
     Interest due on these loans totaled $99,939 and $63,088 at December 31,
     2001 and 2000, respectively.

5.   FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                            -----------------------------
                                                              2001              2000

<S>                                                         <C>               <C>
     Building and land                                      $   681,436       $   681,436
     Furniture and equipment                                  2,702,888         2,400,980
     Leasehold improvements                                   1,098,580           641,338
                                                            -----------       -----------

       Total                                                  4,482,904         3,723,754
     Accumulated depreciation and amortization               (2,331,397)       (1,757,314)
                                                            -----------       -----------

                                                            $ 2,151,507       $ 1,966,440
                                                            ===========       ===========
</Table>

6.   DEPOSITS

     Interest-bearing deposits have stated rates ranging from 0.50% to 4.50%
     with a weighted average cost on all deposits of 3.65% at December 31, 2001
     and from 1.76% to 6.59% with a weighted average cost on all deposits of
     5.09% at December 31, 2000.

     Time deposit accounts outstanding at December 31, 2001 and 2000 mature as
     follows:

<Table>
<Caption>
                                               2001               2000

<S>                                         <C>                <C>
     Three months or less                   $  27,880,715      $  21,024,642
     Four to twelve months                     42,129,006         43,974,208
     Over twelve months                        17,810,532         20,457,986
                                            -------------      -------------

                                            $  87,820,253      $  85,456,836
                                            =============      =============
</Table>

                                     - 38 -
<Page>

     The aggregate amount of time certificates in denominations of $100,000 or
     more at December 31, 2001 and 2000 was $42,651,314 and $38,005,162,
     respectively. Interest expense attributable to time certificates in
     denominations of $100,000 or more for the years ended December 31, 2001,
     2000 and 1999 amounted to $2,217,864, $2,159,167 and $1,569,104,
     respectively. These certificates and their remaining maturities are as
     follows:

<Table>
<S>                                     <C>
     Three months or less               $  18,051,783
     Four to twelve months                 21,386,873
     Over twelve months                     3,212,658
                                        -------------

                                        $  42,651,314
                                        =============
</Table>

7.   BORROWED FUNDS

     The Bank had no federal funds purchased or FHLB advances at December 31,
     2001. 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 were
     collateralized by the Bank's investment securities.

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,
                                    ------------------------------------------------------------------------------------
                                                2001                          2000                        1999
                                    ----------------------------  --------------------------   -------------------------
                                       AMOUNT        PERCENTAGE      AMOUNT       PERCENTAGE     AMOUNT      PERCENTAGE

<S>                                   <C>                <C>        <C>               <C>       <C>              <C>
     Tax at federal tax rate          $  (358,708)       (35.0)%    $  (204,252)      (35.0)%   $  516,096       35.0%

     Increase (decrease)
       resulting from:
       Benefit of surtax exemptions        10,249          1.0            5,836         1.0        (14,746)       (1.0)
       Meals and entertainment
         disallowed                        59,389          5.8           54,553         9.3         54,947         3.7
       Tax exempt income                  (10,626)        (1.0)         (12,167)       (2.1)       (12,020)       (0.8)
       Other                               11,379          1.1           16,120         2.8          4,509         0.3
     Officers life insurance               33,317          3.2
                                      -----------       ------      -----------       -----     ----------      ------

     Provision (benefit)              $  (255,000)       (24.9)%    $  (139,910)      (24.0)%   $  548,786        37.2%
                                      -----------       ------      -----------       -----     ----------      ------
</Table>

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

<Table>
<Caption>
                                                                                  DECEMBER 31,
                                                                         --------------------------------
                                                                              2001            2000

<S>                                                                       <C>                <C>
     Deferred tax assets:
       Property                                                           $   104,770        $   49,538
       Allowance for loan losses                                              205,402           353,689
       Allowance for investment losses                                        136,000
       Other                                                                   24,102           (41,942)
       Unrealized (gain) loss on securities available for sale                (25,072)          142,063
                                                                          -----------        ----------

     Net deferred tax asset                                               $   445,202        $  503,348
                                                                          ===========        ==========
</Table>

     The provision (benefit) for income taxes for the years ended December 31,
     2001, 2000 and 1999 includes the following:

<Table>
<Caption>
                                2001            2000            1999

<S>                        <C>              <C>              <C>
     Current taxes         $  (146,011)     $  (117,469)     $  569,773
     Deferred taxes           (108,989)         (22,441)        (20,987)
                           -----------      -----------      ----------

     Total                 $  (255,000)     $  (139,910)     $  548,786
                           ===========      ===========      ==========
</Table>

                                     - 40 -
<Page>

10.  COMMITMENTS AND CONTINGENT LIABILITIES

     The Company is party to various claims and legal proceedings which arise in
     the normal course of business. Management, after consultation with legal
     counsel, does not believe that the resolution of these matters will have a
     material adverse effect on the Company's financial condition or results of
     operations.

     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 $659,980 and $533,169 and unadvanced loan commitments
     of $20,318,162 and $18,770,573 at December 31, 2001 and 2000, respectively.
     The unadvanced loan commitments at December 31, 2001 and 2000 were
     primarily at variable rates. In addition, the Bank had commitments to sell
     fixed rate residential mortgages of $22,077,508 and $9,905,499 at December
     31, 2001 and 2000, 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
     2001, 2000 and 1999 was $1,038,797, $814,041 and $629,652, respectively.

     Future minimum lease payments under noncancelable leases are as follows:

<Table>
<Caption>
                           YEAR ENDING
                           DECEMBER 31,

<S>                      <C>
     2002                $     997,064
     2003                    1,054,694
     2004                    1,017,143
     2005                      899,116
     2006                      569,153
     Thereafter              1,515,949
                         -------------

     Total               $   6,053,119
                         =============
</Table>

11.  STOCK OPTION PLANS

     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 1998
     Plan replaced a prior plan. 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. 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.

     At December 31, 2001, a total of 442,599 options were available for grant
     under the 1998 Plan. The per share price of exercisable options at December
     31, 2001 reflects the adjusted exercise price resulting from stock
     dividends.

                                     - 41 -
<Page>

     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, 1999                   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 - $9.36         $ 5.80

     Issued                                         61,000        $5.51-6.25

     Forfeiture                                     (1,000)       $6.88
                                                   -------

     Exercisable, December 31, 2001                334,534        $3.45 - $9.36         $ 6.13
                                                   =======
</Table>

     At December 31, 2001, the options exercisable had a weighted average
     remaining contractual life of 6.84 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:

<Table>
<Caption>
                                                                    2001             2000

<S>                                      <C>                    <C>              <C>
     Net loss:                           As reported            $ (769,881)      $ (442,774)
                                         Pro forma                (933,699)        (475,414)

     Diluted earnings per share:         As reported            $    (0.37)      $    (0.23)
                                         Pro forma                   (0.44)           (0.25)
</Table>

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

<Table>
<Caption>
                                                  2001             2000

<S>                                            <C>              <C>
     Risk free interest rate of return               5.00%            5.75%
     Expected option life                      120 months       120 months
     Expected dividends                        $        0       $        0
     Expected volatility                            58.99%            57.26%
</Table>

                                     - 42 -
<Page>

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, 2001, warrants had an exercise
     price of $3.84 per share. As of December 31, 2001, there were 54,635
     warrants outstanding, and no warrants were exercised in 2001. 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 3% of the
     participant's compensation. Contributions made by the Bank during the years
     ended December 31, 2001, 2000 and 1999 were $87,839, $70,137 and $52,915,
     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.

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

<Table>
<Caption>
                                                 DECEMBER 31,
                                       ---------------------------------
                                            2001              2000

<S>                                    <C>                 <C>
     Beginning of period               $   9,025,518       $   8,788,229
     Borrowings                            1,559,117           2,690,708
     Principal repayments                 (2,830,820)         (2,453,419)
                                       -------------       -------------

     End of period                     $   7,753,815       $   9,025,518
                                       =============       =============
</Table>

                                     - 43 -
<Page>

     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 $329,000, $275,000 and $316,000 for the years
     ended December 31, 2001, 2000 and 1999, 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.

<Table>
<Caption>
                                                                  2001                              2000
                                                      ------------------------------     ----------------------------
                                                                        ESTIMATED                         ESTIMATED
                                                         CARRYING         FAIR             CARRYING         FAIR
                                                          AMOUNT          VALUE             AMOUNT         VALUE
                                                              (IN THOUSANDS)                     (IN THOUSANDS)

<S>                                                   <C>              <C>                 <C>            <C>
     Assets:
       Cash and cash equivalents                      $  14,334        $  14,334           $  6,886       $  6,886
       Investment securities held to maturity               570              570                570            571
       Investment securities available for sale           5,224            5,224             18,636         18,636
       Federal Home Loan Bank stock                         897              897                763            763
       Federal Reserve Bank stock                           323              323                323            323
       Loans, net                                       134,302          132,465            134,219        132,358
       Mortgage loans held for sale                      22,078           22,078              9,905          9,905

     Liabilities:
       Deposits:
         Noninterest-bearing deposits                    30,027           30,027             24,072         24,072
         Interest-bearing deposits                       17,106           17,106             15,859         15,859
         Savings deposits                                10,181           10,181              8,654          8,654
         Money market deposits                           19,635           19,635             17,355         17,355
         Time deposits                                   87,820           87,993             85,457         86,702
       Borrowed funds                                                                         7,000          7,000
       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.

                                     - 44 -
<Page>

     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.

     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, 2001 and 2000.
     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, 2001, 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.

                                     - 45 -
<Page>

     The Bank's actual capital amounts in thousands 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, 2001:
       Tier 1 capital (to risk-
         weighted assets)            $ 15,592      12.17%        $  5,126       4.00%        $  7,689      6.00%
       Total capital (to risk-
         weighted assets)              16,717      13.04           10,252       8.00           12,815     10.00
       Tier 1 capital (to average
         assets)                       15,592       8.70            7,165       4.00            8,956      5.00

     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
</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
     11.57%, 13.42% and 8.31% at December 31, 2001, and 12.69%, 14.57% and 9.02%
     at December 31, 2000, respectively.

     Included in the Tier 1 capital ratio is one-third of the Company's $5.0
     million of guaranteed preferred beneficial interest in subordinated debt,
     which is acceptable under current banking regulations.

                                     - 46 -
<Page>

18.  PARENT COMPANY CONDENSED FINANCIAL INFORMATION

     The condensed financial statements of Madison Bancshares Group, Ltd.
     (Parent Only) as of December 31, 2001 and 2000 and for each of the three
     years in the period ended December 31, 2001 are presented herein.

<Table>
<Caption>
                                                                                           DECEMBER 31,
                                                                                  --------------------------------
       STATEMENT OF FINANCIAL CONDITION                                                 2001            2000

<S>                                                                                 <C>              <C>
       ASSETS:
         Cash                                                                       $      35,355    $     74,949
         Investment in subsidiary                                                      15,640,498      15,958,507
         Other assets                                                                      80,475         130,995
         Investment available for sale                                                    480,000         480,000
         Accrued interest receivable                                                       13,300          30,855
         Deferred tax asset                                                                                40,800
                                                                                    -------------    ------------

       TOTAL                                                                        $  16,249,628    $ 16,716,106
                                                                                    =============    ============

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

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

       SHAREHOLDERS' EQUITY:
         Common stock                                                                   2,091,320       2,091,320
         Capital surplus                                                               10,331,332      10,331,332
         Accumulated deficit                                                           (1,221,693)       (451,812)
         Accumulated other comprehensive income (loss)                                     48,669        (275,769)
                                                                                    -------------    ------------

                  Total shareholders' equity                                           11,249,628      11,695,071
                                                                                    -------------    ------------

       TOTAL                                                                        $  16,249,628    $ 16,716,106
                                                                                    =============    ============
</Table>

<Table>
<Caption>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------------
       STATEMENTS OF OPERATIONS                                               2001           2000            1999

<S>                                                                        <C>            <C>              <C>
       Interest income                                                     $   56,613     $    25,899      $      725
       Operating expenses                                                    (618,246)       (630,514)       (606,622)
       Writedown of investment                                               (120,000)     (1,000,000)
                                                                           ----------     -----------      ----------

       Loss before equity in undistributed income from subsidiary            (681,633)     (1,604,615)       (605,897)

       Equity in undistributed (loss) income of subsidiary, Madison Bank      (88,248)      1,161,841       1,531,672
                                                                           ----------     -----------      ----------

       NET (LOSS) INCOME                                                   $ (769,881)    $  (442,774)     $  925,775
                                                                           ==========     ===========      ==========
</Table>

                                     - 47 -
<Page>

     STATEMENTS OF CASH FLOWS
<Table>
<Caption>
                                                                                       YEAR ENDED
                                                                      ------------------------------------------------
                                                                           2001            2000            1999

<S>                                                                       <C>             <C>             <C>
     Operating Activities:
       Net (loss) income                                                  $  (769,881)    $  (442,774)    $   925,775
       Writedown of investment                                                120,000       1,000,000
       Adjustments to reconcile net (loss) income to net
         cash used in operating activities:
         Equity in undistributed (loss) income of subsidiary                   88,248      (1,161,841)     (1,531,672)
         Decrease (increase) in accrued interest receivable                    17,555         (30,855)
         (Decrease) increase in accrued expenses and other liabilities        (21,035)         21,035
         Decrease in receivable from subsidiary                               474,999         225,001         475,000
         Decrease in other assets                                              50,520          50,521          50,519
                                                                          -----------     -----------     -----------

                Net cash used in operating activities                         (39,594)       (338,913)        (80,378)
                                                                          -----------     -----------     -----------

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

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

     Financing Activities:
       Exercise of stock options and warrants                                                  32,152         114,869
       Proceeds from private placement                                                      1,896,996
                                                                          -----------     -----------     -----------

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

     NET (DECREASE) INCREASE IN CASH                                          (39,594)         (9,765)         34,491

     CASH, BEGINNING OF YEAR                                                   74,949          84,714          50,223
                                                                          -----------     -----------     -----------

     CASH, END OF YEAR                                                    $    35,355     $    74,949     $    84,714
                                                                          ===========     ===========     ===========
</Table>

19.  QUARTERLY DATA (UNAUDITED)

     The unaudited quarterly results of operations for 2001 and 2000 were as
     follows:

<Table>
<Caption>
                                                                       YEAR ENDED DECEMBER 31, 2001
                                              -----------------------------------------------------------------------------------
                                                  MARCH 31      JUNE 30        SEPTEMBER 30      DECEMBER 31          TOTAL

<S>                                             <C>            <C>              <C>               <C>              <C>
     Interest income                            $ 3,693,962    $ 3,660,933      $ 3,600,735       $ 3,486,077      $ 14,441,707
     Interest expense                             1,741,724      1,646,104        1,503,052         1,369,073         6,259,953
                                                -----------    -----------      -----------       -----------      ------------

     Net interest income                          1,952,238      2,014,829        2,097,683         2,117,004         8,181,754
     Provision for loan losses                       90,000        620,000                            262,000           972,000
                                                -----------    -----------      -----------       -----------      ------------

       Net                                        1,862,238      1,394,829        2,097,683         1,855,004         7,209,754

     Other noninterest income                     1,003,551      1,242,971        1,313,204         1,389,780         4,949,506
     Other noninterest expenses                   2,884,609      3,122,064        3,421,881         3,755,587        13,184,141
                                                -----------    -----------      -----------       -----------      ------------

     Net loss before income taxes                   (18,820)      (484,264)         (10,994)         (510,803)       (1,024,881)

     Benefit for income taxes                                                                        (255,000)         (255,000)
                                                -----------    -----------      -----------       -----------      ------------

     Net loss                                   $   (18,820)   $  (484,264)     $   (10,994)      $  (255,803)     $   (769,881)
                                                ===========    ===========      ===========       ===========      ============

     Per share data - Diluted (loss) earnings
       per share                                $     (0.01)   $     (0.22)     $     (0.01)      $     (0.13)     $      (0.37)
                                                ===========    ===========      ===========       ===========      ============
</Table>

                                     - 48 -
<Page>

<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 (loss) 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 (loss)                          $     29,116    $   121,725     $    123,146    $  (716,761)    $   (442,774)
                                                ============    ===========     ============    ===========     ============

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

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

                                     ******

                                     - 49 -
<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 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 2002 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 2002 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 2002 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 2002 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 10-KSB)

                                     - 50 -
<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 5, 2002, by and between Madison
         Bancshares Group, Ltd. and 19 Sentry West Partners                          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

23       Consent of Deloitte & Touche, LLP
</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 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.

                                     - 51 -
<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 28, 2002          /s/ Vito A. DeLisi
                                 -----------------------------
                                 Vito A. DeLisi, President
                                 and Director

         March 28, 2002          /s/ Peter DePaul
                                 -----------------------------
                                 Peter DePaul
                                 Chairman of the Board

         March 28, 2002          /s/ Philip E. Hughes, Jr.
                                 -----------------------------
                                 Philip E. Hughes, Jr.
                                 Director and Vice Chairman of the Board

         March 28, 2002          /s/ Frank R. Iacobucci
                                 -----------------------------
                                 Frank R. Iacobucci, Director

         March 28, 2002          /s/ Arnold M. Katz
                                 -----------------------------
                                 Arnold M. Katz, Director

         March 28, 2002          /s/ Lorraine C. King
                                 -----------------------------
                                 Lorraine C. King, Director

         March 28, 2002          /s/ Kathleen A. Kucer
                                 -----------------------------
                                 Kathleen A. Kucer, Director


                                     - 52 -
<Page>

         March 28, 2002          /s/ Michael O'Donoghue
                                 -----------------------------
                                 Michael O'Donoghue, Director

         March 28, 2002          /s/ Salvatore Paone
                                 -----------------------------
                                 Salvatore Paone, Director

         March 28, 2002          /s/ Donald J. Reape
                                 -----------------------------
                                 Donald J. Reape, Director

         March 28, 2002          /s/ Blaine W. Scott
                                 -----------------------------
                                 Blaine W. Scott, Director




                                     - 53 -