##### 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 September 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)



---



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 October 21, 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 September 30, 2003 (unaudited) and At December 31, 2002                             |  | 2    
|                                                                                                                               | 
|Condensed Consolidated Statements of Earnings - Three and Nine Months ended September 30, 2003 and 2002 (unaudited)            |  | 3    
|                                                                                                                               | 
|Condensed Consolidated Statements of Changes in Stockholders Equity Nine Months Ended September 30, 2003 and 2002 (unaudited) |  | 4    
|                                                                                                                               | 
|Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2003 and 2002 (unaudited)                    |  | 5-6  
|                                                                                                                               | 
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                               |  | 7-11 
|                                                                                                                               | 
|Review by Independent Certified Public Accountants                                                                             |  | 12   
|                                                                                                                               | 
|Independent Accountants Report                                                                                                |  | 13   
|                                                                                                                               | 
|Item 2. Managements Discussion and Analysis or Plan of Operation                                                              |  | 14-20
|                                                                                                                               | 
|Item 3. Controls and Procedures                                                                                                |  | 21   
|                                                                                                                               | 
|PART II. OTHER INFORMATION                                                                                                     |  |      
|                                                                                                                               | 
|Item 1. Legal Proceedings                                                                                                      |  | 21   
|                                                                                                                               | 
|Item 6. Exhibits and Reports on Form 8-K                                                                                       |  | 22   
|                                                                                                                               | 
|SIGNATURES                                                                                                                     |  | 23   



1



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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 per share amounts)



|                                                                                                                             |  | September 30,2003 |         | December 31,2002
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------
|                                                                                                                             |  | (Unaudited)       |         |                 
|Assets                                                                                                                       |  |                   |         |                 
|Cash and due from banks                                                                                                      |  | $                 | 3,504   |                 
|Interest-bearing deposits with banks                                                                                         |  |                   | 60      |                 
|Federal funds sold                                                                                                           |  |                   | 81      |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  |                  
|Cash and cash equivalents                                                                                                    |  |                   | 3,645   |                 
|                                                                                                                             |  |                  
|Securities available for sale                                                                                                |  |                   | 19,009  |                 
|Loans, net of allowance for loan losses of $2,420 in 2003 and $2,058 in 2002                                                 |  |                   | 166,483 |                 
|Accrued interest receivable                                                                                                  |  |                   | 689     |                 
|Premises and equipment, net                                                                                                  |  |                   | 5,120   |                 
|Federal Home Loan Bank stock, at cost                                                                                        |  |                   | 979     |                 
|Deferred tax asset                                                                                                           |  |                   | 438     |                 
|Other assets                                                                                                                 |  |                   | 1,066   |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  | $                 | 197,429 |                 
|                                                                                                                             |  |                   |         |                 
|Liabilities and Stockholders Equity                                                                                         |  |                   |         |                 
|                                                                                                                             |  |                  
|Liabilities:                                                                                                                 |  |                   |         |                 
|Noninterest-bearing demand deposits                                                                                          |  |                   | 19,347  |                 
|Savings, NOW and money-market deposits                                                                                       |  |                   | 64,593  |                 
|Time deposits                                                                                                                |  |                   | 70,485  |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  |                  
|Total deposits                                                                                                               |  |                   | 154,425 |                 
|                                                                                                                             |  |                  
|Federal Home Loan Bank advances                                                                                              |  |                   | 17,700  |                 
|Other borrowings                                                                                                             |  |                   | 5,027   |                 
|Official checks                                                                                                              |  |                   | 1,536   |                 
|Accrued expenses and other liabilities                                                                                       |  |                   | 2,665   |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  |                  
|Total liabilities                                                                                                            |  |                   | 181,353 |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  |                  
|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 2,047,865 and 1,613,028 in 2003 and
2002 |  |                   | 16      |                 
|Additional paid-in capital                                                                                                   |  |                   | 14,295  |                 
|Retained earnings                                                                                                            |  |                   | 1,594   |                 
|Accumulated other comprehensive income                                                                                       |  |                   | 171     |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  |                  
|Total stockholders equity                                                                                                   |  |                   | 16,076  |                 
|                                                                                                                             |  |                   |         |                 
|                                                                                                                             |  | $                 | 197,429 |                 
|                                                                                                                             |  |                   |         |                 



See
Accompanying Notes to Condensed Consolidated Financial Statements.



2



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Earnings (Unaudited)

(In thousands, except per share amounts)



|                                                    |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|--------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------
|                                                    |  | 2003                            |       | 2002                          
|Interest income:                                    |  |                                 |       |                               
|Loans                                               |  | $                               | 2,846 |                               
|Securities available for sale                       |  |                                 | 178   |                               
|Other interest-earning assets                       |  |                                 | 8     |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Total interest income                               |  |                                 | 3,032 |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Interest expense:                                   |  |                                 |       |                               
|Deposits                                            |  |                                 | 754   |                               
|Borrowed funds                                      |  |                                 | 176   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Total interest expense                              |  |                                 | 930   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Net interest income                                 |  |                                 | 2,102 |                               
|                                                    |  |                                 |       |                               
|Provision for loan losses                           |  |                                 | 121   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Net interest income after provision for loan losses |  |                                 | 1,981 |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Noninterest income:                                 |  |                                 |       |                               
|Service charges on deposit accounts                 |  |                                 | 176   |                               
|Other service charges and fees                      |  |                                 | 61    |                               
|Gain on sale of deposit accounts                    |  |                                 |      |                               
|Gain on sale of securities                          |  |                                 |      |                               
|Gain on sale of foreclosed real estate              |  |                                 | 188   |                               
|Other                                               |  |                                 | 85    |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Total noninterest income                            |  |                                 | 510   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Noninterest expenses:                               |  |                                 |       |                               
|Employee compensation and benefits                  |  |                                 | 927   |                               
|Occupancy and equipment                             |  |                                 | 230   |                               
|Data processing expense                             |  |                                 | 71    |                               
|Professional fees                                   |  |                                 | 38    |                               
|Federal deposit insurance premium                   |  |                                 | 6     |                               
|Other expense                                       |  |                                 | 314   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Total noninterest expenses                          |  |                                 | 1,586 |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Earnings before income taxes                        |  |                                 | 905   |                               
|                                                    |  |                                 |       |                               
|Income taxes                                        |  |                                 | 344   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Net earnings                                        |  | $                               | 561   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Earnings per share:                                 |  |                                 |       |                               
|Basic earnings per share                            |  | $                               | .27   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Diluted earnings per share                          |  | $                               | .26   |                               
|                                                    |  |                                 |       |                               
|                                                    |  |                                 |       |                               
|Dividends per share                                 |  | $                               |      |                               
|                                                    |  |                                 |       |                               



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



Nine Months Ended September 30, 2003 and 2002

(Dollars in thousands)



|                                                                                                 |  | CommonStock |    | AdditionalPaid-inCapital |        | RetainedEarnings(AccumulatedDeficit) |       |   | AccumulatedOtherCompre-hensiveIncome(Loss) |     |   | Total |       
|------------------------------------------------------------------------------------------------ |  | ----------- | -- | ------------------------ | ------ | ------------------------------------ | ----- | - | ------------------------------------------ | --- | - | ----- | ------
|Balance at December 31, 2001                                                                     |  | $           | 15 |                          | 12,653 |                                      | (355  | ) |                                            | (60 | ) |       | 12,253
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Comprehensive income:                                                                            |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|Net earnings (unaudited)                                                                         |  |             |   |                          |       |                                      | 1,226 |   |                                            |    |   |       | 1,226 
|                                                                                                 |  |             |    |                          |       
|Net change in unrealized loss on securities available for sale, net of taxes of $177 (unaudited) |  |             |   |                          |       |                                      |      |   |                                            | 291 |   |       | 291   
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Comprehensive income (unaudited)                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       | 1,517 
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Stock options exercised (19,680 shares) (unaudited)                                              |  |             |   |                          | 97     |                                      |      |   |                                            |    |   |       | 97    
|                                                                                                 |  |             |    |                          |       
|Sale of common stock (20,353 shares) (unaudited)                                                 |  |             |   |                          | 251    |                                      |      |   |                                            |    |   |       | 251   
|                                                                                                 |  |             |    |                          |       
|Cash dividend paid (unaudited)                                                                   |  |             |   |                          |       |                                      | (91   | ) |                                            |    |   |       | (91   
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Balance at September 30, 2002 (unaudited)                                                        |  | $           | 15 |                          | 13,001 |                                      | 780   |   |                                            | 231 |   |       | 14,027
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Balance at December 31, 2002                                                                     |  | $           | 16 |                          | 14,148 |                                      | 149   |   |                                            | 245 |   |       | 14,558
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Comprehensive income:                                                                            |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|Net earnings (unaudited)                                                                         |  |             |   |                          |       |                                      | 1,569 |   |                                            |    |   |       | 1,569 
|                                                                                                 |  |             |    |                          |       
|Net change in unrealized gain on securities available for sale, net of taxes of $42 (unaudited)  |  |             |   |                          |       |                                      |      |   |                                            | (74 | ) |       | (74   
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Comprehensive income (unaudited)                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       | 1,495 
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       
|                                                                                                 |  |             |    |                          |       
|Exercise of common stock options (29,159 shares) (unaudited)                                     |  |             |   |                          | 115    |                                      |      |   |                                            |    |   |       | 115   
|                                                                                                 |  |             |    |                          |       
|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 September 30, 2003 (unaudited)                                                        |  | $           | 16 |                          | 14,295 |                                      | 1,594 |   |                                            | 171 |   |       | 16,076
|                                                                                                 |  |             |    |                          |        |                                      |       |   |                                            |     |   |       |       



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)



|                                                                                    |  | Nine Months EndedSeptember 30, |        
|----------------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                                    |  | 2003                           |        
|Cash flows from operating activities:                                               |  |                                |        
|Net earnings                                                                        |  | $                              | 1,569  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                                |        
|Provision for loan losses                                                           |  |                                | 364    
|Depreciation and amortization                                                       |  |                                | 412    
|Amortization of discounts and premiums on securities and deferred loan fees, net    |  |                                | 23     
|Credit for deferred income taxes                                                    |  |                                | (64    
|Decrease (increase) in accrued interest receivable                                  |  |                                | 17     
|Increase in other assets                                                            |  |                                | (151   
|Increase (decrease) in official checks, accrued expenses and other liabilities      |  |                                | 1,209  
|Gain on sale of deposit accounts                                                    |  |                                | (200   
|Gain on sale of securities available for sale                                       |  |                                |       
|Gain on sale of foreclosed real estate                                              |  |                                | (188   
|Common stock issued as compensation                                                 |  |                                | 32     
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Net cash provided by operating activities                                           |  |                                | 3,023  
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Cash flows from investing activities:                                               |  |                                |        
|Net increase in loans                                                               |  |                                | (14,481
|Purchase of securities available for sale                                           |  |                                | (2,013 
|Securities available for sale principle repayments                                  |  |                                | 6,814  
|Net proceeds from sales of securities available for sale                            |  |                                |       
|Net purchase of premises and equipment                                              |  |                                | (1,572 
|Purchase of Federal Home Loan Bank stock                                            |  |                                | (220   
|Net proceeds from sale of foreclosed real estate                                    |  |                                | 741    
|Capitalized costs to acquire foreclosed real estate                                 |  |                                | (321   
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Net cash used in investing activities                                               |  |                                | (11,052
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Cash flows from financing activities:                                               |  |                                |        
|Cash paid in connection with sale of deposit accounts                               |  |                                | (11,497
|Net increase in deposits                                                            |  |                                | 2,727  
|Net increase (decrease) in Federal Home Loan Bank advances                          |  |                                | 7,700  
|Net increase in other borrowings                                                    |  |                                | 1,863  
|Cash dividends paid                                                                 |  |                                | (123   
|Proceeds from sale of common stock                                                  |  |                                |       
|Proceeds from exercise of common stock options                                      |  |                                | 115    
|Cash paid for fractional shares due to the five-for-four stock split                |  |                                | (1     
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Net cash provided by financing activities                                           |  |                                | 784    
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Net (decrease) increase in cash and cash equivalents                                |  |                                | (7,245 
|                                                                                    |  |                               
|Cash and cash equivalents at beginning of period                                    |  |                                | 10,890 
|                                                                                    |  |                                |        
|                                                                                    |  |                               
|Cash and cash equivalents at end of period                                          |  | $                              | 3,645  
|                                                                                    |  |                                |        



(continued)



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)



|                                                                                                                   |  | Nine Months EndedSeptember 30,
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------
|                                                                                                                   |  | 2003                          
|Supplemental disclosure of cash flow information:                                                                  |  |                               
|Cash paid during the period for:                                                                                   |  |                               
|Interest                                                                                                           |  | $                             
|                                                                                                                   |  |                               
|                                                                                                                   |  |                               
|Income taxes                                                                                                       |  | $                             
|                                                                                                                   |  |                               
|                                                                                                                   |  |                               
|Noncash transactions:                                                                                              |  |                               
|Transfer of loans to foreclosed real estate                                                                        |  | $                             
|                                                                                                                   |  |                               
|                                                                                                                   |  |                               
|Foreclosed real estate transfered to loans                                                                         |  | $                             
|                                                                                                                   |  |                               
|                                                                                                                   |  |                               
|Accumulated other comprehensive income, net change in unrealized gain on securities available for sale, net of tax |  | $                             
|                                                                                                                   |  |                               



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 September 30, 2003, the
results of operations for the three- and nine-month periods ended September 30, 2003 and 2002 and cash flows for the nine-month periods ended September 30, 2003 and 2002. The results of operations and other data for the three- and nine-month periods
ended September 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.Loans identified as impaired at September 30, 2003 and 2002 and for the three- and nine-month periods ended September 30, 2003 and
2002 are as follows (in thousands):
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                       |  | AtSeptember 30, |    
|------------------------------------------------------ |  | --------------- | ---
|                                                       |  | 2003            |    
|Gross loans with related allowance for losses recorded |  | $               | 328
|                                                       |  |                
|Less: Allowance on these loans                         |  |                 | (33
|                                                       |  |                 |    
|                                                       |  |                
|Net investment in impaired loans                       |  | $               | 295
|                                                       |  |                 |    



|                                             |  | Three MonthsEndedSeptember 30, |     | Nine MonthsEndedSeptember 30,
|-------------------------------------------- |  | ------------------------------ | --- | -----------------------------
|                                             |  | 2003                           |     | 2002                         
|Average net investment in impaired loans     |  | $                              | 123 |                              
|                                             |  |                                |     |                              
|                                             |  |                                |     |                              
|Interest income recognized on impaired loans |  | $                              |    |                              
|                                             |  |                                |     |                              
|                                             |  |                                |     |                              
|Interest income received on impaired loans   |  | $                              |    |                              
|                                             |  |                                |     |                              



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 MonthsEndedSeptember 30, |       |   | Nine MonthsEndedSeptember 30, |      
|------------------------------ |  | ------------------------------ | ----- | - | ----------------------------- | -----
|                               |  | 2003                           |       |   | 2002                          |      
|Balance at beginning of period |  | $                              | 2,306 |   |                               | 1,868
|Provision for loan losses      |  |                                | 121   |   |                               | 110  
|Net (charge-offs) recoveries   |  |                                | (7    | ) |                               | (30  
|                               |  |                                |       |   |                               |      
|                               |  |                                |       |  
|Balance at end of period       |  | $                              | 2,420 |   |                               | 1,948
|                               |  |                                |       |   |                               |      



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



|                                                 |  | AtSeptember 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 paid on December 23, 2002 and the five-for-four stock split paid on May 15, 2003. A summary of stock option transactions follows ($ in
thousands, except per share amounts):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                          |  | Numberof Shares |   |  | Range of PerShare OptionPrice |             |   | WeightedAveragePer SharePrice |       |   | AggregateOption Price |      
|----------------------------------------- |  | --------------- | - |  | ----------------------------- | ----------- | - | ----------------------------- | ----- | - | --------------------- | -----
|Options outstanding at December 31, 2002  |  | 235,596         |   |  | $                             | 3.75-11.09  |   |                               | 5.78  |   |                       | 1,361
|Options granted                           |  | 12,715          |   |  |                               | 8.82-13.14  |   |                               | 12.43 |   |                       | 158  
|Options exercised                         |  | (29,159         | ) |  |                               | (3.75-5.11  | ) |                               | (3.98 | ) |                       | (115 
|Options terminated                        |  | (23,751         | ) |  |                               | (7.10-12.01 | ) |                               | (8.06 | ) |                       | (192 
|                                          |  |                 |   |  |                               |             |   |                               |       |   |                       |      
|Options outstanding at September 30, 2003 |  | 195,401         |   |  | $                             | 3.75-13.14  |   |                               | 6.20  |   |                       | 1,212
|                                          |  |                 |   |  |                               |             |   |                               |       |   |                       |      



(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 MonthsEndedSeptember 30, |     |   | Nine MonthsEndedSeptember 30, |    
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | --- | - | ----------------------------- | ---
|                                                                                                                                       |  | 2003                           |     |   | 2002                          |    
|Net earnings, as reported                                                                                                              |  | $                              | 561 |   |                               | 483
|                                                                                                                                       |  |                                |     |  
|Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax
effect |  |                                | (18 | ) |                               | (15
|                                                                                                                                       |  |                                |     |   |                               |    
|                                                                                                                                       |  |                                |     |  
|Proforma net earnings                                                                                                                  |  | $                              | 543 |   |                               | 468
|                                                                                                                                       |  |                                |     |   |                               |    
|                                                                                                                                       |  |                                |     |  
|Earnings per share:                                                                                                                    |  |                                |     |   |                               |    
|Basic, as reported                                                                                                                     |  | $                              | .27 |   |                               | .24
|                                                                                                                                       |  |                                |     |   |                               |    
|                                                                                                                                       |  |                                |     |  
|Basic, proforma                                                                                                                        |  | $                              | .27 |   |                               | .23
|                                                                                                                                       |  |                                |     |   |                               |    
|                                                                                                                                       |  |                                |     |  
|Diluted, as reported                                                                                                                   |  | $                              | .26 |   |                               | .23
|                                                                                                                                       |  |                                |     |   |                               |    
|                                                                                                                                       |  |                                |     |  
|Diluted, proforma                                                                                                                      |  | $                              | .25 |   |                               | .22
|                                                                                                                                       |  |                                |     |   |                               |    



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:



|                                                                           |  | Three MonthsEndedSeptember 30, |       |   | Nine MonthsEndedSeptember 30, |      
|-------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ----------------------------- | -----
|                                                                           |  | 2003                           |       |   | 2002                          |      
|Weighted-average risk-free interest rate                                   |  |                                | 4.50  | % |                               | 3.99 
|Dividend yield                                                             |  |                                | 2.00  | % |                               | 2.00 
|Volatility                                                                 |  |                                | 31.00 | % |                               | 28.00
|Expected life in years                                                     |  |                                | 10    |   |                               | 10   
|Weighted-average grant date fair value of options issued during the period |  | $                              | 5.04  |   |                               | 2.16 
|                                                                           |  |                                |       |   |                               |      



(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 paid on December
23, 2002 and the five-for-four stock split paid on May 15, 2003. The following tables present the calculations of EPS (dollars in thousands, except per share amounts).
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  | 2003     |       | 2002                  
|------------------------------------------------------------------------------------ |  | -------- | ----- | ----------------------
|                                                                                     |  | Earnings |       | Weighted-AverageShares
|Three Months Ended September 30:                                                     |  |          |       |                       
|Basic EPS: Net earnings available to common stockholders                             |  | $        | 561   |                       
|                                                                                     |  |          |       |                       
|                                                                                     |  |          |       |                       
|Effect of dilutive securities- Incremental shares from assumed conversion of options |  |          |       |                       
|                                                                                     |  |          |       |                       
|                                                                                     |  |          |       |                       
|Diluted EPS: Net earnings available to common stockholders and assumed conversions   |  | $        | 561   |                       
|                                                                                     |  |          |       |                       
|                                                                                     |  |          |       |                       
|Nine Months Ended September 30:                                                      |  |          |       |                       
|Basic EPS: Net earnings available to common stockholders                             |  | $        | 1,569 |                       
|                                                                                     |  |          |       |                       
|                                                                                     |  |          |       |                       
|Effect of dilutive securities- Incremental shares from assumed conversion of options |  |          |       |                       
|                                                                                     |  |          |       |                       
|                                                                                     |  |          |       |                       
|Diluted EPS: Net earnings available to common stockholders and assumed conversions   |  | $        | 1,569 |                       
|                                                                                     |  |          |       |                       



Shares not included in
the computations of diluted earnings per share because the option exercise price was not less than the average market price are as follows:



|                                              |  | Number ofShares |  | Price Range |             | YearIssued |      | YearExpires
|--------------------------------------------- |  | --------------- |  | ----------- | ----------- | ---------- | ---- | -----------
|For the three-months ended September 30, 2003 |  | 3,535           |  |             | 13.14       |            | 2003 |            
|For the nine-months ended September 30, 2002  |  | 4,190           |  | $           | 10.99-11.02 |            | 2002 |            



(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 September 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           |  | 11.12  | % |  | 8.00                  | %
|Tier I capital to risk-weighted assets          |  | 9.87   | % |  | 4.00                  | %
|Tier I capital to total assets - leverage ratio |  | 8.90   | % |  | 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.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. | Reclassifications.Certain amounts in the 2002 condensed consolidated financial statements have been reclassified to conform to the 2003 presentation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------



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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 September 30, 2003, and for the three- and nine- month periods ended September 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.



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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 September 30, 2003, the related condensed consolidated statements of earnings for the three- and nine- month periods ended September 30, 2003 and
2002 and the related condensed consolidated statements of changes in stockholders equity and cash flows for the nine-month periods ended September 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

October 10, 2003



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Item 2. Managements Discussion and Analysis

or Plan of Operation



Forward Looking Statements



This document contains forward-looking statements as defined by Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve substantial risks and uncertainties. When used in this document, or in the documents incorporated by reference, the words
anticipate, believe, estimate, may, intend and expect and similar expressions are some of the forward-looking statements used in these documents. Actual results, performance, or
achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements. Factors which may cause results to change materially include competition, inflation, general economic conditions, changes in
interest rates, and changes in the value of collateral securing loans Madison Bank has made, among other things.



General



Madison BancShares, Inc. (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 nine months ended September 30, 2003,
was from net deposit inflows of approximately $2.7 million, a net increase in Federal Home Loan Bank advances of approximately $7.7 million, principle repayments of securities available for sale of approximately $6.8 million and cash flows from
operations of approximately $3.0 million. Cash was used primarily to originate net loans of approximately $14.5 million and to fund the sale of approximately $11.7 million in deposit accounts. At September 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 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.



14



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MADISON BANCSHARES, INC. AND SUBSIDIARY



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.



A summary of the amounts of the
Companys financial instruments, which approximates fair value, with off-balance sheet risk at September 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 within the next twelve months.



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Selected Financial Information



The following are presented for the dates and periods indicated:



|                                                                                                |  | Nine MonthsEndedSeptember 30,2003 |       |      | Year EndedDecember 31,2002 |   |       | Nine MonthsEndedSeptember 30,2002 | 
|----------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | ---- | -------------------------- | - | ----- | --------------------------------- | 
|Average equity as a percentage of average assets                                                |  |                                   | 7.90  | %    |                            |   | 7.20  | %                                 | 
|                                                                                                |  |                                   |      
|Equity to total assets at end of period                                                         |  |                                   | 8.14  | %    |                            |   | 7.50  | %                                 | 
|                                                                                                |  |                                   |      
|Book value per share(2)                                                                         |  | $                                 | 7.85  |      |                            | $ | 7.22  |                                   | 
|                                                                                                |  |                                   |      
|Return on average assets(1)                                                                     |  |                                   | 1.08  | %(3) |                            |   | .92   | %                                 | 
|                                                                                                |  |                                   |      
|Return on average equity(1)                                                                     |  |                                   | 13.63 | %(3) |                            |   | 12.78 | %                                 | 
|                                                                                                |  |                                   |      
|Noninterest expenses to average assets(1)                                                       |  |                                   | 3.23  | %    |                            |   | 2.86  | %                                 | 
|                                                                                                |  |                                   |      
|Nonperforming loans and foreclosed real estate as a percentage of total assets at end of period |  |                                   | 0.17  | %    |                            |   | 1.40  | %                                 | 

---

|(1) | Annualized for the nine months ended September 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 .99% and the return of average equity was 12.55%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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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 September 30, |        
|-------------------------------------------------------------------------------- |  | -------------------------------- | -------
|                                                                                 |  | 2003                             |        
|                                                                                 |  | AverageBalance                   |        
|                                                                                 |  | (Dollars in thousands)           |        
|Interest-earning assets:                                                         |  |                                  |        
|Loans(1)                                                                         |  | $                                | 166,857
|Securities                                                                       |  |                                  | 18,434 
|Other interest-earning assets(2)                                                 |  |                                  | 1,592  
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Total interest-earning assets                                                    |  |                                  | 186,883
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Noninterest-earning assets                                                       |  |                                  | 11,403 
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Total assets                                                                     |  | $                                | 198,286
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Interest-bearing liabilities:                                                    |  |                                  |        
|Savings, NOW, money-market deposit accounts                                      |  |                                  | 65,151 
|Time deposits                                                                    |  |                                  | 71,446 
|Other interest-bearing liabilities(3)                                            |  |                                  | 22,856 
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Total interest-bearing liabilities                                               |  |                                  | 159,453
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Noninterest-bearing liabilities                                                  |  |                                  | 22,924 
|Stockholders equity                                                             |  |                                  | 15,909 
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Total liabilities and stockholders equity                                       |  | $                                | 198,286
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Net interest income                                                              |  |                                  |        
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Interest-rate spread(4)                                                          |  |                                  |        
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Net interest margin(5)                                                           |  |                                  |        
|                                                                                 |  |                                  |        
|                                                                                 |  |                                  |        
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                  | 1.17   
|                                                                                 |  |                                  |        



|(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.



|                                                                                 |  | Nine Months Ended September 30, |        
|-------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                 |  | 2003                            |        
|                                                                                 |  | AverageBalance                  |        
|                                                                                 |  | (Dollars in thousands)          |        
|Interest-earning assets:                                                         |  |                                 |        
|Loans(1)                                                                         |  | $                               | 160,756
|Securities                                                                       |  |                                 | 20,475 
|Other interest-earning assets(2)                                                 |  |                                 | 2,937  
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Total interest-earning assets                                                    |  |                                 | 184,168
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Noninterest-earning assets                                                       |  |                                 | 10,002 
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Total assets                                                                     |  | $                               | 194,170
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Interest-bearing liabilities:                                                    |  |                                 |        
|Savings, NOW, money-market deposit accounts                                      |  |                                 | 65,633 
|Time deposits                                                                    |  |                                 | 72,855 
|Other interest-bearing liabilities(3)                                            |  |                                 | 16,886 
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Total interest-bearing liabilities                                               |  |                                 | 155,374
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Noninterest-bearing liabilities                                                  |  |                                 | 23,451 
|Stockholders equity                                                             |  |                                 | 15,345 
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Total liabilities and stockholders equity                                       |  | $                               | 194,170
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Net interest income                                                              |  |                                 |        
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Interest-rate spread(4)                                                          |  |                                 |        
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Net interest margin(5)                                                           |  |                                 |        
|                                                                                 |  |                                 |        
|                                                                                 |  |                                 |        
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                 | 1.19   
|                                                                                 |  |                                 |        



|(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 September 30, 2003 and 2002



General. Net earnings for the three-months ended September
30, 2003, were $561,000 or $.27 per basic and $.26 per diluted share compared to $483,000 or $.24 per basic and $.23 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 September 30, 2003 from $3.2 million for the three
months ended September 30, 2002. Interest on loans increased to $2,846,000 for the three-months ended September 30, 2003 compared to $2,838,000 in 2002 due to an increase in the average loan portfolio balance to $166.9 million from $150.7 million
which was partially offset by a decrease in the weighted-average yield earned in 2003 to 6.82% from 7.53% in 2002 due to the lower interest rate environment. Interest on securities decreased for the three months ended September 30, 2003 to $178,000
from $311,000 in 2002. The decrease was due to a decrease in the weighted-average yield earned in 2003 to 3.86% from 4.48% in 2002 and a decrease in the average portfolio balance to $18.4 million in 2003 from $27.7 million in 2002, due to principal
repayments on securities.



Interest expense on deposits decreased to $754,000
for the three-months ended September 30, 2003 from $1,028,000 in 2002. The decrease is due to a decrease in the average rate paid on interest-bearing deposits in 2003 to 2.21% from 2.88% in 2002, and a decrease in the average deposits in 2003 to
$136.6 million compared to $142.9 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 $176,000 for the three-months ended September 30, 2003 from $143,000 for the three-months
ended September 30, 2002. The increase is due to an increase in average other borrowings to $22.9 million in 2003 from $14.9 million in 2002, partially offset by a decrease in the weighted rate paid to 3.08% in 2003 from 3.84% 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 September 30,
2003 compared to $110,000 for the same period in 2002. The allowance for loan losses is $2,420,000 at September 30, 2003. While management believes that its allowance for loan losses is adequate as of September 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 $510,000 in 2003 from $306,000 for the three-months ended September 30,
2002. The increase is primarily due to an increase on gain on sale of foreclosed real estate, an increase in service charges on deposit accounts and an increase in residential mortgage lending fees due to increased loan activity.



Noninterest Expense. Total noninterest expense increased to $1,586,000 for the
three months ended September 30, 2003 from $1,407,000 for the comparable period ended September 30, 2002, primarily due to an increase in employee compensation and benefits of $141,000.



Income Taxes. Income taxes for the three months ended September 30, 2003, was $344,000 or 38.0% of earnings before income
taxes compared to $296,000 or 38.0% for the period ended September 30, 2002.



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MADISON BANCSHARES, INC. AND SUBSIDIARY



Comparison of the Nine-Month Periods Ended September 30, 2003 and 2002



General. Net earnings for the nine-months ended September
30, 2003, were $1,569,000 or $.77 per basic and $.73 per diluted share compared to $1,226,000 or $.62 per basic and $.58 per diluted share for 2002. Excluding the net after tax gain on the sale of deposit accounts, net earnings were $1,444,000 or
$.71 per basic and $.67 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 $9,154,000 for the nine-month period ended September 30, 2003 from $9,148,000 for the nine months ended September 30, 2002. Interest on loans increased to $8.5 million for the nine-months ended September 30, 2003
compared to $8.2 million in 2002 due to an increase in the average loan portfolio balance to $160.8 million from $144.3 million which was partially offset by a decrease in the weighted-average yield earned in 2003 to 7.07% from 7.54% in 2002 due to
the lower interest rate environment. Interest on securities decreased for the nine months ended September 30, 2003 to $589,000 from $910,000 in 2002. The decrease was due to a decrease in the weighted-average yield earned in 2003 to 3.84% from 4.63%
in 2002 and a decrease in the average portfolio balance to $20.5 million in 2003 from $26.2 million in 2002, due to principal repayments on securities.



Interest expense on deposits decreased to $2,439,000 for the nine-months ended September 30, 2003 from $3,084,000 in 2002. The decrease is due to a decrease in the
average rate paid on interest-bearing deposits in 2003 to 2.35% from 2.95% in 2002, and a decrease in the average deposits in 2003 to $138.5 million compared to $139.3 million in 2002. The decrease in average interest bearing deposits was due to the
sale of $11.7 million in deposits on February 7, 2003.



Interest expense on
other borrowings increased to $469,000 for the nine-months ended September 30, 2003 from $407,000 for the nine-months ended September 30, 2002. The increase is due to an increase in average other borrowings to $16.9 million in 2003 from $13.8
million in 2002, partially offset by a decrease in the weighted rate paid to 3.70% in 2003 from 3.92% 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 $364,000 for the nine-month period ended September 30, 2003 compared to $509,000 for the same period in 2002. The allowance for loan losses is $2,420,000 at September 30, 2003. While
management believes that its allowance for loan losses is adequate as of September 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 $1,350,000 in 2003 from $678,000 for the nine- months ended September 30, 2002. The increase is primarily due to an increase in gain on sale of foreclosed real estate, an increase in service charges on deposit
accounts, an increase in residential mortgage lending fees due to increased mortgage loan activity and a gain recognized on the sale of deposit accounts of $200,000.



Noninterest Expense. Total noninterest expense increased to $4.7 million for the nine months ended September 30, 2003 from
$3.9 million for the comparable period ended September 30, 2002, primarily due to an increase in employee compensation and benefits of $505,000.



Income Taxes. Income taxes for the nine months ended September 30, 2003, was $961,000 or 38.0% of earnings before income taxes compared to $746,000 or 37.8%
for the period ended September 30, 2002.



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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.



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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 8, 2001.
|- | --------------------------------------------------------------------



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



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



|(b) | Reports on Form 8-K.There were two Form 8-Ks filed during the three months ended September 30, 2003.
|--- | -----------------------------------------------------------------------------------------------------



On July 15, 2003, Madison Bancshares, Inc. released earnings for the three
and six months ended June 30, 2003.



On July 22,2003, Madison
Bancshares, Inc. announced the termination of O.B. Young, its Vice President and the Executive Vice President  Retail Banking of its wholly-owned subsidiary, Madison Bank.



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MADISON BANCSHARES, INC. AND SUBSIDIARY



SIGNATURES



In accordance with the requirements of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  | MADISON BANCSHARES, INC. AND SUBSIDIARY(Registrant)
|---------------------- |  |  |  | ---------------------------------------------------
|                       |  |  | 
|Date: October 27, 2003 |  |  |  | By:                                                
|                       |  |  |  |                                                    
|                       |  |  | 
|Date: October 27, 2003 |  |  |  | By:                                                
|                       |  |  |  |                                                    



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