##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



(Mark One)



|x |  | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- |  | ---------------------------------------------------------------------------------



For the quarterly period ended June 30, 2003



| ̈ |  | Transition report under Section 13 or 15(d) of the Exchange Act
|- |  | ---------------------------------------------------------------



For the transition period from             to



Commission file number 0-32867



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MADISON BANCSHARES, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)



|Florida                                                        |  | 59-3720289                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



2122 Palm Harbor
Boulevard

Palm Harbor, Florida 34683

(Address of Principal Executive Offices)



(727) 786-3888

(Issuers Telephone Number, Including Area Code)



(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)



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



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



|Common stock, par value $.008 per share |  | 2,047,865 shares             
|--------------------------------------- |  | -----------------------------
|(class)                                 |  | Outstanding at August 6, 2003



Transitional Small
Business Format (Check One): YES ̈NO x



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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



INDEX



|                                 |  |                                                                                                                          |  | Page 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | -----
|                                 | 
|PART I.    FINANCIAL INFORMATION |  |                                                                                                                         
|                                 |  |                                                                                                                         
|Item 1.                          |  | Financial Statements                                                                                                     |  |      
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Balance SheetsAt June 30, 2003 (unaudited) and At December 31, 2002                              |  | 2    
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statements of EarningsThree and Six Months ended June 30, 2003 and 2002 (unaudited)              |  | 3    
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statements of Changes in Stockholders Equity Six Months Ended June 30, 2003 and 2002 (unaudited) |  | 4    
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statements of Cash FlowsSix Months Ended June 30, 2003 and 2002 (unaudited)                      |  | 5    
|                                 |  |                                                                                                                         
|                                 |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                         |  | 6-10 
|                                 |  |                                                                                                                         
|                                 |  | Review by Independent Certified Public Accountants                                                                       |  | 11   
|                                 |  |                                                                                                                         
|                                 |  | Independent Accountants Report                                                                                          |  | 12   
|                                 |  |                                                                                                                         
|Item 2.                          |  | Managements Discussion and Analysis or Plan of Operation                                                                |  | 13-18
|                                 |  |                                                                                                                         
|Item 3.                          |  | Controls and Procedures                                                                                                  |  | 19   
|                                 | 
|PART II.    OTHER INFORMATION    |  |                                                                                                                         
|                                 |  |                                                                                                                         
|Item 1.                          |  | Legal Proceedings                                                                                                        |  | 19   
|                                 |  |                                                                                                                         
|Item 4.                          |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 19   
|                                 |  |                                                                                                                         
|Item 6.                          |  | Exhibits and Reports on Form 8-K                                                                                         |  | 20   
|                                 | 
|SIGNATURES                       |  | 21                                                                                                                      





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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



PART I. FINANCIAL INFORMATION



Item 1.    Financial Statements



Condensed Consolidated Balance Sheets

(Dollars in thousands, except share amounts)



|                                                                                                                             |  | June 30,2003 |         | December 31,2002
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ----------------
|                                                                                                                             |  | (Unaudited)  |         |                 
|Assets                                                                                                                       |  |              |         |                 
|Cash and due from banks                                                                                                      |  | $            | 3,083   |                 
|Interest-bearing deposits with banks                                                                                         |  |              | 34      |                 
|Federal funds sold                                                                                                           |  |              | 306     |                 
|                                                                                                                             |  |              |         |                 
|Cash and cash equivalents                                                                                                    |  |              | 3,423   |                 
|                                                                                                                             |  |             
|Securities available for sale                                                                                                |  |              | 18,791  |                 
|Loans, net of allowance for loan losses of $2,306 in 2003 and $2,058 in 2002                                                 |  |              | 163,494 |                 
|Accrued interest receivable                                                                                                  |  |              | 630     |                 
|Foreclosed real estate                                                                                                       |  |              | 3,053   |                 
|Premises and equipment, net                                                                                                  |  |              | 5,070   |                 
|Federal Home Loan Bank stock, at cost                                                                                        |  |              | 926     |                 
|Deferred tax asset                                                                                                           |  |              | 396     |                 
|Other assets                                                                                                                 |  |              | 1,059   |                 
|                                                                                                                             |  |              |         |                 
|                                                                                                                             |  | $            | 196,842 |                 
|                                                                                                                             |  |              |         |                 
|Liabilities and Stockholders Equity                                                                                         |  |              |         |                 
|Liabilities:                                                                                                                 |  |              |         |                 
|Noninterest-bearing demand deposits                                                                                          |  |              | 18,018  |                 
|Savings, NOW and money-market deposits                                                                                       |  |              | 64,559  |                 
|Time deposits                                                                                                                |  |              | 72,020  |                 
|                                                                                                                             |  |              |         |                 
|Total deposits                                                                                                               |  |              | 154,597 |                 
|                                                                                                                             |  |             
|Federal Home Loan Bank advances                                                                                              |  |              | 18,300  |                 
|Other borrowings                                                                                                             |  |              | 3,770   |                 
|Official checks                                                                                                              |  |              | 2,307   |                 
|Accrued expenses and other liabilities                                                                                       |  |              | 2,288   |                 
|                                                                                                                             |  |              |         |                 
|Total liabilities                                                                                                            |  |              | 181,262 |                 
|                                                                                                                             |  |              |         |                 
|Stockholders equity:                                                                                                        |  |              |         |                 
|Preferred stock, $0.01 par value, authorized 1,000,000 shares; none issued or outstanding                                    |  |              |        |                 
|Common stock, $0.008 par value, authorized 5,000,000 shares; issued and outstanding 2,041,788 and 1,613,028 in 2003 and
2002 |  |              | 16      |                 
|Additional paid-in capital                                                                                                   |  |              | 14,273  |                 
|Retained earnings                                                                                                            |  |              | 1,033   |                 
|Accumulated other comprehensive income                                                                                       |  |              | 258     |                 
|                                                                                                                             |  |              |         |                 
|Total stockholders equity                                                                                                   |  |              | 15,580  |                 
|                                                                                                                             |  |              |         |                 
|                                                                                                                             |  | $            | 196,842 |                 
|                                                                                                                             |  |              |         |                 



See Accompanying Notes
to Condensed Consolidated Financial Statements.





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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)



|                                                    |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|--------------------------------------------------- |  | -------------------------- | ----- | ------------------------
|                                                    |  | 2003                       |       | 2002                    
|Interest income:                                    |  |                            |       |                         
|Loans                                               |  | $                          | 2,837 |                         
|Securities available for sale                       |  |                            | 191   |                         
|Other interest-earning assets                       |  |                            | 18    |                         
|                                                    |  |                            |       |                         
|Total interest income                               |  |                            | 3,046 |                         
|                                                    |  |                            |       |                         
|Interest expense:                                   |  |                            |       |                         
|Deposits                                            |  |                            | 810   |                         
|Borrowed funds                                      |  |                            | 148   |                         
|                                                    |  |                            |       |                         
|Total interest expense                              |  |                            | 958   |                         
|                                                    |  |                            |       |                         
|Net interest income                                 |  |                            | 2,088 |                         
|Provision for loan losses                           |  |                            | 121   |                         
|                                                    |  |                            |       |                         
|Net interest income after provision for loan losses |  |                            | 1,967 |                         
|                                                    |  |                            |       |                         
|Noninterest income:                                 |  |                            |       |                         
|Service charges on deposit accounts                 |  |                            | 176   |                         
|Other service charges and fees                      |  |                            | 73    |                         
|Gain on sale of deposit accounts                    |  |                            |      |                         
|Gain on sale of securities                          |  |                            |      |                         
|Other                                               |  |                            | 89    |                         
|                                                    |  |                            |       |                         
|Total noninterest income                            |  |                            | 338   |                         
|                                                    |  |                            |       |                         
|Noninterest expenses:                               |  |                            |       |                         
|Employee compensation and benefits                  |  |                            | 886   |                         
|Occupancy and equipment                             |  |                            | 265   |                         
|Data processing expense                             |  |                            | 82    |                         
|Professional fees                                   |  |                            | 45    |                         
|Federal deposit insurance premium                   |  |                            | 7     |                         
|Other expense                                       |  |                            | 284   |                         
|                                                    |  |                            |       |                         
|Total noninterest expenses                          |  |                            | 1,569 |                         
|                                                    |  |                            |       |                         
|Earnings before income taxes                        |  |                            | 736   |                         
|Income taxes                                        |  |                            | 279   |                         
|                                                    |  |                            |       |                         
|Net earnings                                        |  | $                          | 457   |                         
|                                                    |  |                            |       |                         
|Earnings per share:                                 |  |                            |       |                         
|Basic earnings per share                            |  | $                          | .22   |                         
|                                                    |  |                            |       |                         
|Diluted earnings per share                          |  | $                          | .21   |                         
|                                                    |  |                            |       |                         
|Dividends per share                                 |  | $                          | .06   |                         
|                                                    |  |                            |       |                         



See Accompanying Notes
to Condensed Consolidated Financial Statements.



3



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Changes in Stockholders Equity



Six Months Ended June 30, 2003 and 2002

(Dollars in thousands)

|                                                                                                |  | CommonStock |    | AdditionalPaid-inCapital |        | RetainedEarnings(AccumulatedDeficit) |       |   | AccumulatedOther ComprehensiveIncome (Loss) |     |   | Total |       
|----------------------------------------------------------------------------------------------- |  | ----------- | -- | ------------------------ | ------ | ------------------------------------ | ----- | - | ------------------------------------------- | --- | - | ----- | ------
|Balance at December 31, 2001                                                                    |  | $           | 15 |                          | 12,653 |                                      | (355  | ) |                                             | (60 | ) |       | 12,253
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Comprehensive income:                                                                           |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Net earnings (unaudited)                                                                        |  |             |   |                          |       |                                      | 743   |   |                                             |    |   |       | 743   
|Net change in unrealized loss on securities available for sale, net of taxes of $97 (unaudited) |  |             |   |                          |       |                                      |      |   |                                             | 159 |   |       | 159   
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Comprehensive income (unaudited)                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       | 902   
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Sale of common stock (15,333 shares) (unaudited)                                                |  |             |   |                          | 180    |                                      |      |   |                                             |    |   |       | 180   
|Cash dividend paid (unaudited)                                                                  |  |             |   |                          |       |                                      | (91   | ) |                                             |    |   |       | (91   
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Balance at June 30, 2002 (unaudited)                                                            |  | $           | 15 |                          | 12,833 |                                      | 297   |   |                                             | 99  |   |       | 13,244
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Balance at December 31, 2002                                                                    |  | $           | 16 |                          | 14,148 |                                      | 149   |   |                                             | 245 |   |       | 14,558
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Comprehensive income:                                                                           |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Net earnings (unaudited)                                                                        |  |             |   |                          |       |                                      | 1,008 |   |                                             |    |   |       | 1,008 
|Net change in unrealized gain on securities available for sale, net of taxes of $9 (unaudited)  |  |             |   |                          |       |                                      |      |   |                                             | 13  |   |       | 13    
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Comprehensive income (unaudited)                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       | 1,021 
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Exercise of common stock options (19,075 shares) (unaudited)                                    |  |             |   |                          | 93     |                                      |      |   |                                             |    |   |       | 93    
|Common stock issued as compensation (2,000 shares) (unaudited)                                  |  |             |   |                          | 32     |                                      |      |   |                                             |    |   |       | 32    
|Cash dividend paid (unaudited)                                                                  |  |             |   |                          |       |                                      | (123  | ) |                                             |    |   |       | (123  
|Stock split five-for-four (cash paid for fractional shares) (unaudited)                         |  |             |   |                          |       |                                      | (1    | ) |                                             |    |   |       | (1    
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       
|Balance at June 30, 2003 (unaudited)                                                            |  | $           | 16 |                          | 14,273 |                                      | 1,033 |   |                                             | 258 |   |       | 15,580
|                                                                                                |  |             |    |                          |        |                                      |       |   |                                             |     |   |       |       



See Accompanying Notes
to Condensed Consolidated Financial Statements.





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MADISON BANCSHARES, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



|                                                                                                                   |  | Six Months EndedJune 30, |        
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | -------
|                                                                                                                   |  | 2003                     |        
|Cash flows from operating activities:                                                                              |  |                          |        
|Net earnings                                                                                                       |  | $                        | 1,008  
|Adjustments to reconcile net earnings to net cash provided by operating activities:                                |  |                          |        
|Provision for loan losses                                                                                          |  |                          | 243    
|Depreciation and amortization                                                                                      |  |                          | 201    
|Amortization of discounts and premiums on securities and deferred loan fees, net                                   |  |                          | 68     
|Common stock issued as compensation                                                                                |  |                          | 32     
|Gain on sale of deposit accounts                                                                                   |  |                          | (200   
|Credit for deferred income taxes                                                                                   |  |                          | (73    
|Decrease (increase) in accrued interest receivable                                                                 |  |                          | 76     
|Increase in other assets                                                                                           |  |                          | (144   
|Increase (decrease) in official checks, accrued expenses and other liabilities                                     |  |                          | 1,603  
|Gain on sale of securities available for sale                                                                      |  |                          |       
|                                                                                                                   |  |                          |        
|Net cash provided by operating activities                                                                          |  |                          | 2,814  
|                                                                                                                   |  |                          |        
|Cash flows from investing activities:                                                                              |  |                          |        
|Net increase in loans                                                                                              |  |                          | (13,835
|Purchase of securities available for sale                                                                          |  |                          |       
|Securities available for sale principle repayments                                                                 |  |                          | 5,076  
|Net proceeds from sales of securities available for sale                                                           |  |                          |       
|Net purchase of premises and equipment                                                                             |  |                          | (1,311 
|Purchase of Federal Home Loan Bank stock                                                                           |  |                          | (167   
|Capitalized cost to acquire foreclosed real estate                                                                 |  |                          | (321   
|                                                                                                                   |  |                          |        
|Net cash used in investing activities                                                                              |  |                          | (10,558
|                                                                                                                   |  |                          |        
|Cash flows from financing activities:                                                                              |  |                          |        
|Cash paid in connection with sale of deposit accounts                                                              |  |                          | (11,497
|Net increase in deposits                                                                                           |  |                          | 2,899  
|Net increase (decrease) in Federal Home Loan Bank advances                                                         |  |                          | 8,300  
|Net increase in other borrowings                                                                                   |  |                          | 606    
|Proceeds from sale of common stock                                                                                 |  |                          |       
|Proceeds from exercise of common stock options                                                                     |  |                          | 93     
|Cash dividends paid                                                                                                |  |                          | (123   
|Cash paid for fractional shares due to the five-for-four stock split                                               |  |                          | (1     
|                                                                                                                   |  |                          |        
|Net cash provided by financing activities                                                                          |  |                          | 277    
|                                                                                                                   |  |                          |        
|Net (decrease) increase in cash and cash equivalents                                                               |  |                          | (7,467 
|                                                                                                                   |  |                         
|Cash and cash equivalents at beginning of period                                                                   |  |                          | 10,890 
|                                                                                                                   |  |                          |        
|Cash and cash equivalents at end of period                                                                         |  | $                        | 3,423  
|                                                                                                                   |  |                          |        
|Supplemental disclosure of cash flow information:                                                                  |  |                          |        
|Cash paid during the period for:                                                                                   |  |                          |        
|Interest                                                                                                           |  | $                        | 2,005  
|                                                                                                                   |  |                          |        
|Income taxes                                                                                                       |  | $                        | 765    
|                                                                                                                   |  |                          |        
|Noncash transactions:                                                                                              |  |                          |        
|Accumulated other comprehensive income, net change in unrealized gain on securities available for sale, net of tax |  | $                        | 13     
|                                                                                                                   |  |                          |        
|Transfer of loans to foreclosed real estate                                                                        |  | $                        | 2,732  
|                                                                                                                   |  |                          |        



See Accompanying Notes
to Condensed Consolidated Financial Statements.





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MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited)



|1. |  | General. Madison BancShares, Inc. (the Holding Company) owns 100% of the outstanding common stock of Madison Bank (the Bank) (collectively, the
Company). The only significant activity of the Holding Company is the operation of the Bank. The Bank is a state-chartered commercial bank incorporated under the laws of the State of Florida. The deposits of the Bank are insured by the
Federal Deposit Insurance Corporation. The Bank currently provides a variety of banking services to small and middle-market businesses and individuals through its two banking offices located in Pinellas County, Florida and one banking office in
Pasco County, Florida.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the opinion of the
management of the Company, the accompanying condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at June 30, 2003, the results of
operations for the three- and six-month periods ended June 30, 2003 and 2002 and cash flows for the six-month periods ended June 30, 2003 and 2002. The results of operations and other data for the three- and six-month periods ended June 30, 2003 are
not necessarily indicative of results that may be expected for the year ending December 31, 2003.



|2. |  | Loan Impairment and Loan Losses.There were no loans identified as impaired at June 30, 2003. Loans identified as impaired at June 30, 2002 and for the three- and
six-month periods ended June 30, 2003 and 2002 are as follows (in thousands):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                       |  | At June 30, |  
|------------------------------------------------------ |  | ----------- | -
|                                                       |  | 2003        |  
|Gross loans with related allowance for losses recorded |  | $           | 
|Less: Allowance on these loans                         |  |             | 
|                                                       |  |             |  
|Net investment in impaired loans                       |  | $           | 
|                                                       |  |             |  



|                                             |  | Three Months EndedJune 30, |       |      |       | Six Months EndedJune 30,
|-------------------------------------------- |  | -------------------------- | ----- | ---- | ----- | ------------------------
|                                             |  | 2003                       |       | 2002 |       |                         
|Average net investment in impaired loans     |  | $                          | 2,555 |      | 2,316 |                         
|                                             |  |                            |       |      |       |                         
|Interest income recognized on impaired loans |  | $                          | 18    |      |      |                         
|                                             |  |                            |       |      |       |                         
|Interest income received on impaired loans   |  | $                          | 18    |      |      |                         
|                                             |  |                            |       |      |       |                         



On June 27, 2003, an
impaired loan with a balance of approximately $2.7 million was transferred to foreclosed real estate. On July 24, 2003 this property was sold for a pretax gain of approximately $188,000.



(continued)





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MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited),
Continued



|2. |  | Loan Impairment and Loan Losses, Continued.The activity in the allowance for loan losses is as follows (in thousands):
|-- |  | ----------------------------------------------------------------------------------------------------------------------



|                               |  | Three Months EndedJune 30, |       |      |       | Six Months EndedJune 30, | 
|------------------------------ |  | -------------------------- | ----- | ---- | ----- | ------------------------ | 
|                               |  | 2003                       |       | 2002 |       |                          | 
|Balance at beginning of period |  | $                          | 2,185 |      | 1,571 |                          | 
|Provision for loan losses      |  |                            | 121   |      | 290   |                          | 
|Charge-offs                    |  |                            |      |      |      |                          | 
|Recoveries                     |  |                            |      |      | 7     |                          | 
|                               |  |                            |       |      |       |                          | 
|Balance at end of period       |  | $                          | 2,306 |      | 1,868 |                          | 
|                               |  |                            |       |      |       |                          | 



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



|                                                 |  | At June 30,
|------------------------------------------------ |  | -----------
|                                                 |  | 2003       
|Nonaccrual loans                                 |  | $          
|Past due ninety days or more, but still accruing |  |            
|                                                 |  |            
|                                                 |  | $          
|                                                 |  |            



|3. |  | Stock Options. The Company has stock option plans for certain officers and directors of the Company. The options vest over a five year period from date of grant and
are then exercisable for up to an eight year period. All per share amounts reflect the 5% stock dividend declared on December 23, 2002 and the five-for-four stock split declared on April 22, 2003. A summary of stock option transactions follows ($ in
thousands, except per share amounts):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                         |  | Numberof Shares |   |  | Range of Per Share Option Price |             |   | Weighted Average Per Share Price |       |   | Aggregate Option Price |      
|---------------------------------------- |  | --------------- | - |  | ------------------------------- | ----------- | - | -------------------------------- | ----- | - | ---------------------- | -----
|Options outstanding at December 31, 2001 |  | 218,823         |   |  | $                               | 3.75-5.68   |   |                                  | 4.62  |   |                        | 1,011
|Options granted                          |  | 43,210          |   |  |                                 | 7.74-7.93   |   |                                  | 7.84  |   |                        | 339  
|Options terminated                       |  | (7,598          | ) |  |                                 | (5.68       | ) |                                  | (5.68 | ) |                        | (43  
|                                         |  |                 |   |  |                                 |             |   |                                  |       |   |                        |      
|Options outstanding at June 30, 2002     |  | 254,435         |   |  | $                               | 3.75-7.93   |   |                                  | 5.14  |   |                        | 1,307
|                                         |  |                 |   |  |                                 |             |   |                                  |       |   |                        |      
|Options outstanding at December 31, 2002 |  | 233,554         |   |  |                                 | 3.75-11.09  |   |                                  | 5.79  |   |                        | 1,353
|Options granted                          |  | 7,215           |   |  |                                 | 12.82-12.92 |   |                                  | 12.90 |   |                        | 93   
|Options exercised                        |  | (19,075         | ) |  |                                 | (6.38       | ) |                                  | (4.88 | ) |                        | (93  
|                                         |  |                 |   |  |                                 |             |   |                                  |       |   |                        |      
|Options outstanding at June 30, 2003     |  | 221,694         |   |  | $                               | 3.75-12.92  |   |                                  | 6.10  |   |                        | 1,353
|                                         |  |                 |   |  |                                 |             |   |                                  |       |   |                        |      



(continued)



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited),
Continued



|3. |  | Stock Options, Continued. The Company accounts for their stock option plans under the recognition and measurement principles of APB No. 25. No stock-based employee
compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings
if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation ($ in thousands, except per share amounts).
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



|                                                                                                                                       |  | Three Months Ended June 30, |      |   | Six Months EndedJune 30, |     
|-------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---- | - | ------------------------ | ----
|                                                                                                                                       |  | 2003                        |      |   | 2002                     |     
|Net earnings, as reported                                                                                                              |  | $                           | 457  |   |                          | 390 
|Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax
effect |  |                             | (15  | ) |                          | (17 
|                                                                                                                                       |  |                             |      |   |                          |     
|Proforma net earnings                                                                                                                  |  | $                           | 442  |   |                          | 373 
|                                                                                                                                       |  |                             |      |   |                          |     
|Earnings per share:                                                                                                                    |  |                             |      |   |                          |     
|Basic, as reported                                                                                                                     |  | $                           | 0.22 |   |                          | 0.20
|                                                                                                                                       |  |                             |      |   |                          |     
|Basic, proforma                                                                                                                        |  | $                           | 0.22 |   |                          | 0.19
|                                                                                                                                       |  |                             |      |   |                          |     
|Diluted, as reported                                                                                                                   |  | $                           | 0.21 |   |                          | 0.18
|                                                                                                                                       |  |                             |      |   |                          |     
|Diluted, proforma                                                                                                                      |  | $                           | 0.20 |   |                          | 0.18
|                                                                                                                                       |  |                             |      |   |                          |     



The fair value of each
option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions, there were no options granted during the three months ended June 30, 2002:

|
|



|                                                                           |  | Three Months Ended June 30, |       |   | Six Months EndedJune 30, |  
|-------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ------------------------ | -
|                                                                           |  | 2003                        |       |   | 2002                     |  
|Weighted-average risk-free interest rate                                   |  |                             | 4.33  | % |                          | 
|Dividend yield                                                             |  |                             | 2.00  | % |                          | 
|Volatility                                                                 |  |                             | 29.00 | % |                          | 
|Expected life in years                                                     |  |                             | 10    |   |                          | 
|Weighted-average grant date fair value of options issued during the period |  | $                           | 2.46  |   |                          | 
|                                                                           |  |                             |       |   |                          |  



(continued)



|
|



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited), Continued



|4. |  | Earnings Per Share (EPS).Earnings per share (EPS) of common stock has been computed on the basis of the weighted-average number of shares of
common stock outstanding. Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which is computed using the treasury stock method. All per share amounts reflect the 5% stock dividend declared on
December 23, 2002 and the five-for-four stock split declared on April 22, 2003. The following tables present the calculations of EPS (dollars in thousands, except per share amounts).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



|                                                                      |  | 2003     |       | 2002                  
|--------------------------------------------------------------------- |  | -------- | ----- | ----------------------
|                                                                      |  | Earnings |       | Weighted-AverageShares
|Three Months Ended June 30:                                           |  |          |       |                       
|Basic EPS:                                                            |  |          |       |                       
|Net earnings available to common stockholders                         |  | $        | 457   |                       
|                                                                      |  |          |       |                       
|Effect of dilutive securities-                                        |  |          |       |                       
|Incremental shares from assumed conversion of options                 |  |          |      |                       
|                                                                      |  |          |       |                       
|Diluted EPS:                                                          |  |          |       |                       
|Net earnings available to common stockholders and assumed conversions |  | $        | 457   |                       
|                                                                      |  |          |       |                       
|Six Months Ended June 30:                                             |  |          |       |                       
|Basic EPS:                                                            |  |          |       |                       
|Net earnings available to common stockholders                         |  | $        | 1,008 |                       
|                                                                      |  |          |       |                       
|Effect of dilutive securities-                                        |  |          |       |                       
|Incremental shares from assumed conversion of options                 |  |          |      |                       
|                                                                      |  |          |       |                       
|Diluted EPS:                                                          |  |          |       |                       
|Net earnings available to common stockholders and assumed conversions |  | $        | 1,008 |                       
|                                                                      |  |          |       |                       



(continued)





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MADISON BANCSHARES, INC. AND SUBSIDIARY



Notes to Condensed Consolidated Financial Statements (Unaudited),
Continued



|5. |  | Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at June 30, 2003 of the regulatory
capital requirements and the Banks actual capital on a percentage basis:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                              |  | Actual |   |  | RegulatoryRequirement |  
|--------------------------------------------- |  | ------ | - |  | --------------------- | -
|Total capital to risk-weighted assets         |  | 11.01  | % |  | 8.00                  | %
|Tier I capital to risk-weighted assets        |  | 9.75   | % |  | 4.00                  | %
|Tier I capital to total assetsleverage ratio |  | 8.87   | % |  | 4.00                  | %



|6. |  | Sale of Deposit Accounts. On February 7, 2003, the Company sold the deposit accounts at one of the banking offices in Pinellas County. Total deposits at this office
were $11.7 million and the Company realized a net pretax gain of $200,000. The office was closed effective with the closing of this transaction.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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MADISON BANCSHARES, INC. AND SUBSIDIARY



Review by Independent Certified Public Accountants



Hacker, Johnson & Smith PA, independent certified public accountants, have made a limited review of the financial data as of June 30, 2003, and for the three- and six- month periods ended June 30, 2003 and 2002
presented in this document, in accordance with standards established by the American Institute of Certified Public Accountants.



Their report furnished pursuant to Article 10 of Regulation S-X is included herein.







11



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##### Table of Contents

Independent Accountants Report



The Board of
Directors

Madison BancShares, Inc. and Subsidiary

Palm
Harbor, Florida:



We have reviewed the accompanying condensed
consolidated balance sheet of Madison BancShares, Inc. and Subsidiary (the Company) as of June 30, 2003, the related condensed consolidated statements of earnings for the three- and six- month periods ended June 30, 2003 and 2002 and the
related condensed consolidated statements of changes in stockholders equity and cash flows for the six-month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.



Based
on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States
of America.



We have previously audited, in accordance with
auditing standards generally accepted in the United States of America, the consolidated balance sheet of the Company as of December 31, 2002, and the related consolidated statements of earnings, changes in stockholders equity and cash flows
for the year then ended (not presented herein); and in our report dated January 31, 2003 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ Hacker, Johnson & Smith, PA



HACKER, JOHNSON & SMITH PA

Tampa, Florida

July 11, 2003



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Item 2.     Managements Discussion and Analysis

Or Plan of Operation



General



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



Liquidity and Capital Resources



The Companys primary source of cash during the six months ended June 30, 2003, was from net deposit inflows of approximately $3.0
million, a net increase in Federal Home Loan Bank advances of approximately $8.3 million and principle repayments of securities available for sale of approximately $5.1 million. Cash was used primarily to originate net loans of approximately $13.8
million and to fund the sale of approximately $11.7 million in deposit accounts. At June 30, 2003, the Bank exceeded its regulatory liquidity requirements.



Off-Balance Sheet Arrangements and Aggregate Contractual Obligations



The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend credit, unused lines of credit and construction loans and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk
in excess of the amounts recognized in the condensed consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Companys involvement in particular classes of financial instruments.



The Companys exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for commitments to extend credit, unused lines of credit and construction loans and standby letters of credit is represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments as it does for on-balance-sheet instruments.



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



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





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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



A summary of the amounts of the Companys financial
instruments, which approximates fair value, with off-balance sheet risk at June 30, 2003, follows (in thousands):



|                                              |  | ContractAmount
|--------------------------------------------- |  | --------------
|Commitments to extend credit                  |  | $             
|                                              |  |               
|Unused lines of credit and construction loans |  | $             
|                                              |  |               
|Standby letters of credit                     |  | $             
|                                              |  |               



Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded in 2003.



Selected Financial Information



The following are presented for the dates and periods indicated:



|                                                                                                |  | Six MonthsEndedJune 30,2003 |       |      | Year EndedDecember 31,2002 |   |       | Six MonthsEndedJune 30,2002 | 
|----------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | ---- | -------------------------- | - | ----- | --------------------------- | 
|Average equity as a percentage of average assets                                                |  |                             | 7.88  | %    |                            |   | 7.20  | %                           | 
|Equity to total assets at end of period                                                         |  |                             | 7.91  | %    |                            |   | 7.50  | %                           | 
|Book value per share (2)                                                                        |  | $                           | 7.63  |      |                            | $ | 7.22  |                             | 
|Return on average assets (1)                                                                    |  |                             | 1.05  | %(3) |                            |   | .92   | %                           | 
|Return on average equity (1)                                                                    |  |                             | 13.32 | %(3) |                            |   | 12.78 | %                           | 
|Noninterest expenses to average assets (1)                                                      |  |                             | 3.24  | %    |                            |   | 2.86  | %                           | 
|Nonperforming loans and foreclosed real estate as a percentage of total assets at end of period |  |                             | 1.55  | %    |                            |   | 1.40  | %                           | 

| | 
| | 



| | (1) |  | Annualized for the six months ended June 30.
| | --- |  | --------------------------------------------

| | (2) |  | Adjusted for stock dividend and stock split.
| | --- |  | --------------------------------------------

| | (3) |  | Excluding the after tax gain on sale of deposit accounts during the period, return on average assets was .92% and the return of average equity was 11.68%.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Results of Operations



The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income
of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; and
(v) net interest margin.



|                                                                                 |  |                |         | Three Months Ended June 30, |  
|-------------------------------------------------------------------------------- |  | -------------- | ------- | --------------------------- | -
|                                                                                 |  |                |         | 2003                        |  
|                                                                                 |  | AverageBalance |         | InterestandDividends        |  
|                                                                                 |  |                |         |                             |  
|Interest-earning assets:                                                         |  |                |         |                             |  
|Loans (1)                                                                        |  | $              | 159,177 |                             |  
|Securities                                                                       |  |                | 20,518  |                             |  
|Other interest-earning assets (2)                                                |  |                | 3,275   |                             |  
|                                                                                 |  |                |         |                             |  
|Total interest-earning assets                                                    |  |                | 182,970 |                             |  
|                                                                                 |  |                |         |                             |  
|Noninterest-earning assets                                                       |  |                | 9,672   |                             |  
|                                                                                 |  |                |         |                             |  
|Total assets                                                                     |  | $              | 192,642 |                             |  
|                                                                                 |  |                |         |                             |  
|Interest-bearing liabilities:                                                    |  |                |         |                             |  
|Savings, NOW, money-market deposit accounts                                      |  |                | 66,094  |                             |  
|Time deposits                                                                    |  |                | 72,469  |                             |  
|Other interest-bearing liabilities (3)                                           |  |                | 16,847  |                             |  
|                                                                                 |  |                |         |                             |  
|Total interest-bearing liabilities                                               |  |                | 155,410 |                             |  
|                                                                                 |  |                |         |                             |  
|Noninterest-bearing liabilities                                                  |  |                | 21,833  |                             |  
|Stockholders equity                                                             |  |                | 15,399  |                             |  
|                                                                                 |  |                |         |                             |  
|Total liabilities and stockholders equity                                       |  | $              | 192,642 |                             |  
|                                                                                 |  |                |         |                             |  
|Net interest income                                                              |  |                |         |                             | $
|                                                                                 |  |                |         |                             |  
|Interest-rate spread (4)                                                         |  |                |         |                             |  
|                                                                                 |  |                |         |                             |  
|Net interest margin (5)                                                          |  |                |         |                             |  
|                                                                                 |  |                |         |                             |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                | 1.18    |                             |  
|                                                                                 |  |                |         |                             |  



|(1) |  | Includes loans on nonaccrual status.
|--- |  | ------------------------------------

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

|(3) |  | Includes securities sold under agreements to repurchase, Federal Home Loan Bank advances and other borrowings.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(4) |  | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Net interest margin is net interest income divided by average interest-earning assets.
|--- |  | --------------------------------------------------------------------------------------



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MADISON BANCSHARES, INC. AND SUBSIDIARY



The following table sets forth, for the periods indicated, information regarding (i) the
total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii)
net interest income; (iv) interest-rate spread; and (v) net interest margin.



|                                                                                 |  |                 |         | Six Months Ended June 30, |  
|-------------------------------------------------------------------------------- |  | --------------- | ------- | ------------------------- | -
|                                                                                 |  |                 |         | 2003                      |  
|                                                                                 |  | Average Balance |         | Interest and Dividends    |  
|                                                                                 |  |                 |         |                           |  
|Interest-earning assets:                                                         |  |                 |         |                           |  
|Loans (1)                                                                        |  | $               | 157,728 |                           |  
|Securities                                                                       |  |                 | 20,486  |                           |  
|Other interest-earning assets (2)                                                |  |                 | 3,617   |                           |  
|                                                                                 |  |                 |         |                           |  
|Total interest-earning assets                                                    |  |                 | 181,831 |                           |  
|                                                                                 |  |                 |         |                           |  
|Noninterest-earning assets                                                       |  |                 | 10,301  |                           |  
|                                                                                 |  |                 |         |                           |  
|Total assets                                                                     |  | $               | 192,132 |                           |  
|                                                                                 |  |                 |         |                           |  
|Interest-bearing liabilities:                                                    |  |                 |         |                           |  
|Savings, NOW, money-market deposit accounts                                      |  |                 | 65,888  |                           |  
|Time deposits                                                                    |  |                 | 73,574  |                           |  
|Other interest-bearing liabilities (3)                                           |  |                 | 16,886  |                           |  
|                                                                                 |  |                 |         |                           |  
|Total interest-bearing liabilities                                               |  |                 | 156,348 |                           |  
|                                                                                 |  |                 |         |                           |  
|Noninterest-bearing liabilities                                                  |  |                 | 20,645  |                           |  
|Stockholders equity                                                             |  |                 | 15,139  |                           |  
|                                                                                 |  |                 |         |                           |  
|Total liabilities and stockholders equity                                       |  | $               | 192,132 |                           |  
|                                                                                 |  |                 |         |                           |  
|Net interest income                                                              |  |                 |         |                           | $
|                                                                                 |  |                 |         |                           |  
|Interest-rate spread (4)                                                         |  |                 |         |                           |  
|                                                                                 |  |                 |         |                           |  
|Net interest margin (5)                                                          |  |                 |         |                           |  
|                                                                                 |  |                 |         |                           |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                 | 1.16    |                           |  
|                                                                                 |  |                 |         |                           |  



|(1) |  | Includes loans on nonaccrual status.
|--- |  | ------------------------------------

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

|(3) |  | Includes securities sold under agreements to repurchase, Federal Home Loan Bank advances and other borrowings.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(4) |  | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Net interest margin is net interest income divided by average interest-earning assets.
|--- |  | --------------------------------------------------------------------------------------



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Comparison of the Three-Month Periods Ended June 30, 2003 and 2002



General. Net earnings for the three-months ended June 30,
2003, were $457,000 or $.22 per basic and $.21 per diluted share compared to $390,000 or $.20 per basic and $.18 per diluted share for 2002. The increase in net earnings was due to an increase in net interest income after provision for loan losses
and noninterest income, partially offset by an increase in noninterest expenses and the provision for income taxes.



Interest Income and Expense. Interest income decreased to $3.0 million for the three-month period ended June 30, 2003 from $3.1 million for the three
months ended June 30, 2002. Interest on loans increased to $2.8 million for the three-months ended June 30, 2003 compared to $2.7 million in 2002 due to an increase in the average loan portfolio balance to $159.2 million from $145.4 million
which was partially offset by a decrease in the weighted-average yield earned in 2003 to 7.13% from 7.45% in 2002. Interest on securities decreased for the three months ended June 30, 2003 to $191,000 from $349,000 in 2002. The decrease was due to a
decrease in the weighted-average yield earned in 2003 to 3.72% from 4.70% in 2002 and a decrease in the average portfolio balance to $20.5 million in 2003 from $29.7 million in 2002, due to principal repayments on securities. Interest on other
interest-earning assets decreased from $20,000 in 2002 to $18,000 in 2003.



Interest expense on deposits decreased to $810,000 for the three-months ended June 30, 2003 from $1,006,000 in 2002. The decrease is due to a decrease in the average rate paid on interest-bearing deposits in 2003 to 2.34% from 2.86% in
2002, and a decrease in the average deposits in 2003 to $138.6 million compared to $140.8 million in 2002. The decrease in the average deposits balance in 2003 was due to the sale of $11.7 million in deposits on February 7, 2003.



Interest expense on other borrowings increased to $148,000 for the three-months ended June
30, 2003 from $138,000 for the three-months ended June 30, 2002. The increase is due to an increase in average other borrowings to $16.8 million in 2003 from $13.9 million in 2002, partially offset by a decrease in the weighted rate paid to
3.51% in 2003 from 3.98% in 2002.



Provision for Loan Losses. The
provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amount
of nonperforming loans, general economic conditions, particularly as they relate to the Banks market areas, and other factors related to the collectibility of the Banks loan portfolio. The provision for loan losses was $121,000 for the
three-month period ended June 30, 2003 compared to $290,000 for the same period in 2002. The allowance for loan losses is $2,306,000 at June 30, 2003. While management believes that its allowance for loan losses is adequate as of June 30, 2003,
future adjustments to the Banks allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.



Noninterest Income. Noninterest income increased to $338,000 in 2003 from $209,000 for the three- months ended June 30, 2002.
The increase is primarily due to an increase in service charges on deposit accounts and mortgage lending fees.



Noninterest Expense. Total noninterest expense increased to $1,569,000 for the three months ended June 30, 2003 from $1,225,000 for the comparable period ended June 30, 2002, primarily due to an increase
in employee compensation and benefits of $172,000.



Income Taxes.
Income taxes for the three months ended June 30, 2003, was $279,000 or 37.9% of earnings before income taxes compared to $238,000 or 37.9% for the period ended June 30, 2002.



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Comparison of the Six-Month Periods Ended June 30, 2003 and 2002



General. Net earnings for the six-months ended June 30,
2003, were $1,008,000 or $.50 per basic and $.47 per diluted share compared to $743,000 or $.37 per basic and $.35 per diluted share for 2002. Excluding the net after tax gain on the sale of deposit accounts, net earnings were $884,000 or $.44 per
basic and $.41 per diluted share. The increase in net earnings was due to an increase in net interest income and noninterest income including the gain on sale of deposit accounts, partially offset by an increase in noninterest expenses and the
provision for income taxes.



Interest Income and Expense.
Interest income increased to $6.1 million for the six-month period ended June 30, 2003 from $6.0 million for the six months ended June 30, 2002. Interest on loans increased to $5.7 million for the six-months ended June 30, 2003 compared to $5.3
million in 2002 due to an increase in the average loan portfolio balance to $157.7 million from $141.0 million which was partially offset by a decrease in the weighted-average yield earned in 2003 to 7.19% from 7.55% in 2002. Interest on securities
decreased for the six months ended June 30, 2003 to $411,000 from $599,000 in 2002. The decrease was due to a decrease in the weighted-average yield earned in 2003 to 4.01% from 4.71% in 2002 and a decrease in the average portfolio balance to $20.5
million in 2003 from $25.4 million in 2002, due to principal repayments on securities. Interest on other interest-earning assets decreased from $64,000 in 2002 to $37,000 in 2003.



Interest expense on deposits decreased to $1,685,000 for the six-months ended June 30, 2003 from $2,056,000 in 2002. The decrease is due to
a decrease in the average rate paid on interest-bearing deposits in 2003 to 2.42% from 2.99% in 2002, which was partially offset by an increase in the average deposits in 2003 to $139.5 million compared to $137.5 million in 2002. The increase in
average interest bearing deposits was partially offset by the sale of $11.7 million in deposits on February 7, 2003.



Interest expense on other borrowings increased to $293,000 for the six-months ended June 30, 2003 from $264,000 for the six-months ended June 30, 2002. The increase is
due to an increase in average other borrowings to $16.9 million in 2003 from $13.5 million in 2002, partially offset by a decrease in the weighted rate paid to 3.47% in 2003 from 3.90% in 2002.



Provision for Loan Losses. The provision for loan losses is charged to earnings
to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to the Banks market areas, and other factors related to the collectibility of the Banks loan portfolio. The provision for loan losses was $243,000 for the six-month period ended June 30, 2003
compared to $399,000 for the same period in 2002. The allowance for loan losses is $2,306,000 at June 30, 2003. While management believes that its allowance for loan losses is adequate as of June 30, 2003, future adjustments to the Banks
allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.



Noninterest Income. Noninterest income increased to $840,000 in 2003 from $372,000 for the six- months ended June 30, 2002. The increase is primarily due to
an increase in service charges on deposit accounts, mortgage lending fees and a gain recognized on the sale of deposit accounts of $200,000.



Noninterest Expense. Total noninterest expense increased to $3.1 million for the six months ended June 30, 2003 from $2.4 million for the comparable period
ended June 30, 2002, primarily due to an increase in employee compensation and benefits of $364,000.



Income Taxes. Income taxes for the six months ended June 30, 2003, was $617,000 or 38.0% of earnings before income taxes compared to $450,000 or 37.7% for the period ended June 30, 2002.



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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



Item 3.    Controls and Procedures



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



|b. |  | Changes in internal controls.    The Company made no significant changes in its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial officers.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



PART II.    OTHER INFORMATION



Item 1.    Legal Proceedings



There are no material pending legal proceeding to which Madison BancShares, Inc. and Subsidiary is a party or to which any of their property is subject.



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



The Annual Meeting of Shareholders (the Annual Meeting) of Madison BancShares, Inc., was held on April 22, 2003, to consider the election of
seven directors with terms expiring at the 2004 Annual Meeting and the ratification of the independent auditors.



Proposal I



At the Annual Meeting, 1,173,017 shares were present in person or by proxy. Listed below are the directors that were elected at the Annual Meeting with a
summary of the votes cast for each nominee:



|                    |  | Term |  | For       |  | Against |  | Abstain
|------------------- |  | ---- |  | --------- |  | ------- |  | -------
|Robert W. Byrd      |  | 2003 |  | 1,169,708 |  | 2,703   |  | 606    
|George M. Cantonis  |  | 2003 |  | 1,172,411 |  |        |  | 606    
|Thomas A. Castriota |  | 2003 |  | 1,169,708 |  | 2,703   |  | 606    
|Wayne R. Coulter    |  | 2003 |  | 1,172,411 |  |        |  | 606    
|Melvin S. Cutler    |  | 2003 |  | 1,172,411 |  |        |  | 606    
|Robert B. McGivney  |  | 2003 |  | 1,167,291 |  | 2,703   |  | 3,023  
|Paul J. Wikle       |  | 2003 |  | 1,169,708 |  | 2,703   |  | 606    



|Proposal |  | II
|-------- |  | --



|The |  | ratification of the independent auditors with a summary of the vote cast as follows:
|--- |  | ------------------------------------------------------------------------------------



|                                         |  | For       |  | Against |  | Abstain
|---------------------------------------- |  | --------- |  | ------- |  | -------
|Ratification of the independent auditors |  | 1,157,554 |  | 2,703   |  | 12,760 





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##### Table of Contents

MADISON BANCSHARES, INC. AND SUBSIDIARY



PART II. OTHER INFORMATION, CONTINUED



Item 6.    Exhibits and Reports on Form 8-K



|(a) |  | Exhibits. The following exhibits are filed with or incorporated by reference into this report.
|--- |  | ----------------------------------------------------------------------------------------------



|Exhibit No. |  | Description of Exhibit                                                                                                                       
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|*2          |  | Plan of acquisition, reorganization, arrangement, liquidation, or succession                                                                 
|            | 
|*3.1        |  | Articles of Incorporation of Madison BancShares, Inc.                                                                                        
|            | 
|*3.2        |  | Bylaws of Madison BancShares, Inc. and Subsidiary                                                                                            
|            | 
|*4          |  | Sample Stock Certificate for Madison BancShares, Inc.                                                                                        
|            | 
|*10.2       |  | Employment Agreement of Robert McGivney                                                                                                      
|            | 
|*10.3       |  | Employment Agreement of David Paetzold                                                                                                       
|            | 
|*10.5       |  | Madison Bank Amended and Restated 1998 Key Employee Stock Compensation Program                                                               
|            | 
|*10.6       |  | Madison Bank Amended and Restated 1998 Directors Stock Option Plan                                                                          
|            | 
|**10.7      |  | Employment Agreement of Otho B. Young, III                                                                                                   
|            | 
|10.8        |  | Employment Agreement of Martin W. Gladysz                                                                                                    
|            | 
|11          |  | Statement re: Computation of per Share Earnings at Footnote 3 of the Condensed Consolidated Financial Statements                             
|            | 
|31.1        |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|            | 
|31.2        |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                         
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

---

|* |  | These exhibits were filed with Madisons Form 10-SB on June 6, 2001.
|- |  | --------------------------------------------------------------------

|** |  | This exhibits were filed with Madisons Form 10-KSB on March 17, 2003
|-- |  | ---------------------------------------------------------------------



|(b) |  | Reports on Form 8-K.There were no Form 8-Ks filed during the three months ended June 30, 2003.
|--- |  | -----------------------------------------------------------------------------------------------



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MADISON BANCSHARES, INC. AND SUBSIDIARY



SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                     |  |  |  | MADISON BANCSHARES, INC. AND SUBSIDIARY (Registrant)
|-------------------- |  |  |  | ----------------------------------------------------
|                     |  |  | 
|Date: August 8, 2003 |  |  |  | By:                                                 
|                     |  |  |  |                                                     
|                     |  |  |  |                                                     
|                     |  |  | 
|Date: August 8, 2003 |  |  |  | By:                                                 
|                     |  |  |  |                                                     



21