<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  FORM 10-KSB

(Mark One)
  X           ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-----         ACT OF 1934


                  For the fiscal year ended: December 31, 1997
                                             -----------------
-----         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934

              For the transition period from ________ to ________

                         Commission File No.: 33-43317
                                             ---------

                              EASTON BANCORP, INC.
           ---------------------------------------------------------
          (Name of small business issuer as specified in its charter)

          Maryland                                   52-1745344
------------------------------                    -------------------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                    Identification No.)


  501 Idlewild Avenue, Easton, Maryland                  21601
-----------------------------------------              ----------
(Address of principal executive offices)               (Zip Code)

         Issuer's telephone number, including area code: (410) 819-0300
                                                         --------------
         Securities registered under Section 12(b) of the Exchange Act:
                                                        Name of each exchange
   Title of each class                                  on which registered
   -------------------                                  -------------------
         None                                                   None

         Securities registered under Section 12(g) of the Exchange Act:
                                  Common Stock
                        --------------------------------
                                (Title of Class)

Check whether the small business issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the small business issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X  NO
                                      ---   ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the small business issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

State the small business issuer's revenues for its most recent fiscal year:
$3,373,398.

The aggregate market value of the Common Stock held by non-affiliates of the
small business issuer on March 16, 1998, was $4,614,513. This calculation is
based upon an estimation by the Company's Board of Directors of fair market
value of the Common Stock of $12.50 per share. There is not an active trading
market for the Common Stock and it is not possible to identify precisely the
market value of the Common Stock.

On March 16, 1998, 559,478 shares of the small business issuer's Common Stock
were issued and outstanding.

Transitional Small Business Disclosure Format:      YES          NO  X
                                                       -----       -----

                      DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report to Stockholders for the year ended December 31,
1997, is incorporated by reference in this Form 10-KSB in Part II Item 5, Item
6, and Item 7. The Company's Proxy Statement for Annual Meeting of Stockholders
to be held on May 20, 1998, is incorporated by reference in this Form 10-KSB in
Part III Item 9, Item 10, Item 11, and Item 12.


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         This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in
a number of places in this Report and include all statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) the Company's financing
plans; (ii) trends affecting the Company's financial condition or results of
operations; (iii) the Company's growth strategy and operating strategy; and
(iv) the declaration and payment of dividends. Investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors discussed herein and those factors discussed in detail in the Company's
filings with the Securities and Exchange Commission.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

         Easton Bancorp, Inc. (the "Company") was incorporated as a Maryland
corporation on July 19, 1991, primarily to own and control all of the capital
stock of Easton Bank & Trust Company (the "Bank") upon its formation. On
December 31, 1992, the Company completed the initial public offering (the
"Offering") of its Common Stock, par value $0.10 per share (the "Common
Stock"), in which it sold 559,328 shares of Common Stock at a price of $10.00
per share. Out of the proceeds of the Offering, the Company paid $5.0 million
to the Bank in exchange for all of its outstanding capital stock and retained
approximately $600,000 to cover expenses of the Company and to provide
additional capital to the Bank if required. The Bank commenced business on July
1, 1993, and the only activity of the Company since then has been the ownership
and operation of the Bank.

         The Bank was organized as a nonmember state bank under the laws of the
State of Maryland. The Bank is engaged in a general commercial banking business
from its main office location in its primary service area, Talbot County,
Maryland.

         The Company's holding company structure can assist the Bank in
maintaining its required capital ratios because the Company may, subject to
compliance with debt guidelines implemented by the Board of Governors of the
Federal Reserve System (the "Board of Governors" or the "Federal Reserve"),
borrow money and contribute the proceeds to the Bank as primary capital. The
holding company structure also permits greater flexibility in issuing stock for
cash, property or services and in reorganization transactions. Moreover,
subject to certain regulatory limitations, a holding company can purchase
shares of its own stock, which the Bank may not do. A holding company may also
engage in certain non-banking activities which the Board of Governors has
deemed to be closely related to banking and proper incidents to the business of
a bank holding company. These activities include making or servicing loans and
certain types of leases; performing certain data processing services; acting as
a fiduciary or investment or financial advisor; acting as a management
consultant for other depository institutions; providing courier, appraisal, and
consumer financial counseling services; providing tax planning and preparation
services; providing check guaranty and collection agency services; engaging in
limited real estate investment activities; underwriting, brokering, and selling
credit life and disability insurance; engaging in certain other limited
insurance activities; providing discount brokerage services; underwriting and
dealing in certain government obligations and money market instruments and
providing portfolio investment advice; acting as a futures commission merchant
with respect to certain financial instrument transactions; providing foreign
exchange advisory and transactional services; making investments in certain
corporations for projects designed primarily to promote community welfare; and
owning and operating certain healthy savings and loan associations. Although
the Company has no present intention of engaging in any of these activities, if
circumstances should lead the Company's management to believe that there is a
need for these services in the Bank's marketing area and that such activities
could be profitably conducted, the management of the Company would have the
flexibility of commencing these activities upon filing notice thereof with the
Board of Governors.

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LOCATION AND SERVICE AREA

         The Bank conducts a general commercial banking business in its primary
service area, emphasizing the banking needs of individuals and small to
medium-sized businesses and professional concerns. The Bank operates from a
main office located at 501 Idlewild Avenue in Easton, Maryland, and from a
branch office in the William Hill Manor located on Dutchman Lane in Easton. See
"Facilities" below. The Bank draws most of its customer deposits and conducts
most of its lending transactions from within its primary service area which
encompasses Talbot County, Maryland.

         Talbot County is centrally located on the eastern shore of the
Chesapeake Bay in eastern Maryland. Easton, the county seat, is approximately
59 miles southeast of Baltimore and 73 miles east of Washington, D.C. The City
of Easton and Talbot County have experienced growth in population in recent
years. The population of Easton increased from approximately 7,500 in 1980 to
approximately 9,000 in 1990, while the population of Talbot County increased
from approximately 25,000 to 30,000 during this period.

         The principal components of the economy of Talbot County are
manufacturing (which accounts for approximately 30% of the economic activity),
agriculture, and tourism. Easton also has a strong component of health-care
related businesses. The largest employers in the county include Memorial
Hospital, Black & Decker, Allen Family Foods, a poultry producer, Cadmus
Journal Services, a printing company, and William Hill Manor, Inc., a
continuing care retirement community. The county has had a significant boating
industry since colonial days. At present, this industry is made up of over a
dozen builders, numerous supply companies, dealers and charter companies, and
approximately 20 marinas. Talbot County's colonial homes and historical sites
and boating, hunting, and fishing opportunities have resulted in tourism
constituting a significant segment of the economy.

BANKING SERVICES

         The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's principal market area at rates competitive to those offered in the area.
In addition, the Bank offers certain retirement account services, such as
Individual Retirement Accounts ("IRAs"). All deposit accounts are insured by
the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
allowed by law (generally, $100,000 per depositor subject to aggregation
rules). The Bank solicits these accounts from individuals, businesses,
associations and organizations, and governmental authorities.

         The Bank also offers a full range of short- to medium-term commercial
and personal loans. Commercial loans include both secured and unsecured loans
for working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), and purchase of
equipment and machinery. Consumer loans include secured and unsecured loans for
financing automobiles, home improvements, education, and personal investments.
The Bank also originates and holds or sells into the secondary market fixed and
variable rate mortgage loans and real estate construction and acquisition
loans. The Bank's lending activities are subject to a variety of lending limits
imposed by state and federal law. The Bank may not make any loans to any
director, officer, or employee of the Bank (except for commercial loans to
directors who are not officers or employees) unless the loan is approved by the
Board of Directors of the Bank. Any such loan must be reviewed every six months
by the Board of Directors.

         Other bank services include cash management services, safe deposit
boxes, travelers checks, direct deposit of payroll and social security checks,
and automatic drafts for various accounts. The Bank is associated with the MOST
network of automated teller machines that may be used by Bank customers
throughout Maryland and other regions. The Bank also offers MasterCard and VISA
credit card services through a correspondent bank as an agent for the Bank.

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         The Bank does not presently exercise trust powers. The Bank may in the
future offer a full-service trust department, but cannot do so without the
prior approval of the Maryland State Bank Commissioner (the "Commissioner").

COMPETITION

         The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds operating in Talbot
County and elsewhere. As of December 31, 1997, there were seven commercial
banks operating a total of twenty offices in Talbot County, Maryland. Of these
institutions, only The Talbot Bank of Easton is locally owned and operated. The
Talbot Bank has a main office in Easton and three branches: two located in
Easton and one in St. Michaels. St. Michaels Bank, while locally chartered, is
controlled by a holding company in Baltimore. It operates a main office and
four branches in Talbot County. NationsBank, Signet Bank Maryland, First
National Bank of Maryland, and Crestar Bank, all of which are based in
Baltimore, operate four, two, two, and two branches in Talbot County,
respectively. One credit union operates in the county; however, it has only
nominal deposits. Financial service companies, such as Legg Mason Wood Walker,
Inc., Ferris Baker Watts, Inc., Merrill Lynch, A.G. Edwards & Sons, Inc. and
H.C. Wainwright, Inc. also operate offices in Talbot County.

FACILITIES

         The Bank's main office is located at 501 Idlewild Avenue, Easton,
Maryland on approximately 53,000 square feet of land at the corner of Idlewild
Avenue and Caulk Lane. The Bank also operates a branch facility at William Hill
Manor located on Dutchman's Lane in Easton with approximately 72 square feet of
leased space. This branch is limited to accepting deposits and cashing checks
and is open only for limited hours each business day. See Item 12. "Certain
Relationships and Related Transactions." The Company will investigate branching
possibilities during 1998, but currently has no definite plans to branch.

         The Bank acquired the site for the main office for $281,000 and spent
approximately $1,081,000 for construction of the building, landscaping, paving,
and sidewalks. Construction of the main office was completed in June 1993. The
main office building is a two story building consisting of approximately 14,000
square feet. The Bank presently occupies only approximately 6,500 square feet
for housing the main branch of the Bank, the operations center of the Bank, and
the executive offices of the Company and the Bank. In July 1997, the Bank
completed improvements to the second floor of the main office building at a
cost of $243,792. The improvements provided approximately 5,100 additional
square feet of office space, of which the Bank occupies approximately 1,500
square feet. The remaining additional space has been leased to two third
parties.

         One of the third party leases consists of 1,820 square feet with an
initial lease term of eight years and it commenced August 1, 1997. The first
year's annual rent for this lease is $20,020. The other third party lease
consists of 1,800 square feet with an initial lease term of five years and it
commenced on July 1, 1997. The first year's annual rent for this lease is
$18,000. The annual rent on both leases is subject to adjustment at the
beginning of the second year and at the beginning of each year thereafter
during the initial term and during the renewal term, if any; provided, however,
the annual rent shall only be increased.

         The William Hill Manor branch office space is leased pursuant to a
five year lease dated July 1, 1995. Rent is fixed at $3,600 annually. At the
end of the current term, the lease provides an option to extend with rent
increases contingent on the performance of the Bank and based on the consumer
price index.

EMPLOYEES

         As of March 16, 1998, the Bank had fifteen full-time employees and
three part-time employees. The Company's operations are conducted through the
Bank. Consequently, the Company does not have any separate employees. None of
the employees of the Bank are represented by any collective bargaining unit.
The Bank considers its relations with its employees to be good.

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                           SUPERVISION AND REGULATION

         The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on, and
provide for general regulatory oversight with respect to, virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not stockholders. The following is a brief summary of certain
statutes, rules and regulations affecting the Company and the Bank. To the
extent that the following summary describes statutory or regulatory provisions,
it is qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in applicable laws or regulations may have a
material adverse effect on the business and prospects of the Company. Beginning
with the enactment of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and following with the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), numerous additional
regulatory requirements have been placed on the banking industry in the past
five years, and additional changes have been proposed. The banking industry is
also likely to change significantly as a result of the passage of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The operations of the Company and the Bank may be
affected by legislative changes and the policies of various regulatory
authorities. The Company is unable to predict the nature or the extent of the
effect on its business and earnings that fiscal or monetary policies, economic
control, or new federal or state legislation may have in the future.

THE COMPANY

         Because it owns the outstanding common stock of the Bank, the Company
is a bank holding company within the meaning of the federal Bank Holding
Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to
periodic examination by the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the Federal
Reserve may require. The Company's and the Bank's activities are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.

         Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve before (i) acquiring substantially all the assets of any
bank, (ii) acquiring direct or indirect ownership or control of any voting
shares of any bank if after such acquisition it would own or control more than
5% of the voting shares of such bank (unless it already owns or controls the
majority of such shares), or (iii) merging or consolidating with another bank
holding company.

         In addition, and subject to certain exceptions, the BHCA and the
Change in Bank Control Act, together with regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Because the Company's Common Stock is
registered under the Securities Exchange Act of 1934, under Federal Reserve
regulations control will be rebuttably presumed to exist if a person acquires
at least 10% of the outstanding shares of any class of voting securities of the
Company. The regulations provide a procedure for challenge of the rebuttable
control presumption.

         Under the BHCA, the Company is generally prohibited from engaging in,
or acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in nonbanking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation to
be proper incidents to the business of banking include making or servicing
loans and certain types of leases, engaging in certain insurance and discount
brokerage activities, performing certain data processing services, acting in
certain circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or
projects designed primarily to promote community welfare.

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         Source of Strength; Cross-Guarantee. In accordance with Federal
Reserve policy, the Company is expected to act as a source of financial
strength to the Bank and to commit resources to support the Bank in
circumstances in which the Company might not otherwise do so. Under the BHCA,
the Federal Reserve may require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the financial soundness or
stability of any subsidiary depository institution of the bank holding company.
Further, federal bank regulatory authorities have additional discretion to
require a bank holding company to divest itself of any bank or nonbank
subsidiary if the agency determines that divestiture may aid the depository
institution's financial condition. The Bank may be required to indemnify, or
cross-guarantee, the FDIC against losses it incurs with respect to any other
Bank controlled by the Company, which in effect makes the Company's equity
investments in healthy bank subsidiaries available to the FDIC to assist any
failing or failed bank subsidiary of the Company.

THE BANK

         General. The Bank operates as a state nonmember banking association
incorporated under the laws of the State of Maryland and is subject to
examination by the FDIC and the Commissioner. Deposits in the Bank are insured
by the FDIC up to a maximum amount (generally $100,000 per depositor, subject
to aggregation rules). The Commissioner and the FDIC regulate or monitor all
areas of the Bank's operations, including security devices and procedures,
adequacy of capitalization and loss reserves, loans, investments, borrowings,
deposits, mergers, issuances of securities, payment of dividends, interest
rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, corporate reorganizations, maintenance of books and
records, and adequacy of staff training to carry on safe lending and deposit
gathering practices. The FDIC requires the Bank to maintain certain capital
ratios and imposes limitations on the Bank's aggregate investment in real
estate, bank premises, and furniture and fixtures. The Bank is required by the
FDIC and the Commissioner to prepare quarterly reports on the Bank's financial
condition and to conduct an annual audit of its financial affairs in compliance
with minimum standards and procedures prescribed by the Commissioner.

         Under FDICIA, all insured institutions must undergo periodic on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a
method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition, or other report of any insured depository institution. FDICIA also
requires the federal banking regulatory agencies to prescribe, by regulation,
standards for all insured depository institutions and depository institution
holding companies relating, among other things, to: (i) internal controls,
information systems, and audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; and (v) asset quality.

         State nonmember banks which have been newly chartered within the past
two years, and state nonmember banks and their holding companies which have
undergone a change in control within the past two years or which have been
deemed by the FDIC to be troubled institutions, must give the FDIC or the Board
of Governors, respectively, 30 days prior notice of the appointment of any
senior executive officer or director. Within the 30 day period, the FDIC or the
Board of Governors, as the case may be, may disapprove any such appointment.

         Transactions With Affiliates and Insiders. The Bank is subject to
Section 23A of the Federal Reserve Act, which places limits on the amount of
loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. In addition,
most of these loans and certain other transactions must be secured in
prescribed amounts. The Bank is also subject to Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging
in certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution or
its subsidiaries, as those 

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prevailing at the time for comparable transactions with non-affiliated
companies. The Bank is subject to certain restrictions on extensions of credit
to executive officers, directors, certain principal stockholders, and their
related interests. Such extensions of credit (i) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features.

         Community Reinvestment Act. The Community Reinvestment Act requires
that each insured depository institution shall be evaluated by its primary
federal regulator with respect to its record in meeting the credit needs of its
local community, including low and moderate income neighborhoods, consistent
with the safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.

         Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials
to determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit, the Fair Credit Reporting Act of 1978
governing the use and provision of information to credit reporting agencies,
the Fair Debt Collection Act governing the manner in which consumer debts may
be collected by collection agencies, and the rules and regulations of the
various federal agencies charged with the responsibility of implementing such
federal laws. The deposit operations of the Bank also are subject to the Right
to Financial Privacy Act, which imposes a duty to maintain confidentiality of
consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds
Transfer Act and Regulation E issued by the Federal Reserve Board to implement
that act, which governs automatic deposits to and withdrawals from deposit
accounts and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking services.

DEPOSIT INSURANCE

         The FDIC establishes rates for the payment of premiums by federally
insured banks and thrifts for deposit insurance. A separate Bank Insurance Fund
("BIF") and Savings Association Insurance Fund ("SAIF") are maintained for
commercial banks and thrifts, respectively, with insurance premiums from the
industry used to offset losses from insurance payouts when banks and thrifts
fail. Since 1993, insured depository institutions like the Bank have paid for
deposit insurance under a risk-based premium system. Under this system, until
mid-1995 depository institutions paid to BIF or SAIF from $0.23 to $0.31 per
$100 of insured deposits depending on its capital levels and risk profile, as
determined by its primary federal regulator on a semi-annual basis. Once the
BIF reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually to $.00 per $100, with a
minimum semiannual assessment of $1,000. However, in 1996 Congress enacted the
Deposit Insurance Funds Act of 1996, which eliminated this minimum assessment.
It also separated the Financial Corporation (FICO) assessment to service the
interest on its bond obligations. The amount assessed on individual
institutions, including the Bank, by FICO is in addition to the amount paid for
deposit insurance according to the risk-related assessment rate schedule.
Increases in deposit insurance premiums or changes in risk classification will
increase the Bank's cost of funds, and there can be no assurance that such cost
can be passed on to the Bank's customers.

DIVIDENDS

         The principal source of the Company's cash revenues comes from
dividends received from the Bank. The amount of dividends that may be paid by
the Bank to the Company depends on the Bank's earnings and capital position and
is limited by federal and state law, regulations, and policies. The Federal
Reserve has stated that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends



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under circumstances in which the bank holding company fails to meet minimum
capital requirements or in which earnings are impaired.

         The Company's ability to pay any cash dividends to its stockholders in
the future will depend primarily on the Bank's ability to pay dividends to the
Company. In order to pay dividends to the Company, the Bank must comply with
the requirements of all applicable laws and regulations. Under Maryland law,
the Bank may pay a cash dividend only from the following, after providing for
due or accrued expenses, losses, interest, and taxes: (i) its undivided
profits, or (ii) with the prior approval of the Commissioner, its surplus in
excess of 100% of its required capital stock. Under FDICIA, the Bank may not
pay a dividend if, after paying the dividend, the Bank would be
undercapitalized. See "Capital Regulations" below. See Item 5 below for a
discussion of dividends paid by the Bank in the past two years.

         In addition to the availability of funds from the Bank, the future
dividend policy of the Company is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
financial condition, cash needs, and general business conditions. If dividends
should be declared in the future, the amount of such dividends presently cannot
be estimated and it cannot be known whether such dividends would continue for
future periods.

CAPITAL REGULATIONS

         The federal bank regulatory authorities have adopted risk-based
capital guidelines for banks and bank holding companies that are designed to
make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, account for off-balance sheet
exposure, and minimize disincentives for holding liquid assets. The resulting
capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders' equity before the unrealized gains and losses on
securities available for sale, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but
excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred
stock not included in Tier 1 capital, mandatory convertible securities, hybrid
capital instruments, subordinated debt and intermediate term-preferred stock,
and general reserves for loan and lease losses up to 1.25% of risk-weighted
assets.

         Under the guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are signed
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.

         The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least
100 to 200 basis points.

         FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including 


                                       7
<PAGE>   9


"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." To qualify
as a "well capitalized" institution, a bank must have a leverage ratio of no
less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under
any order or directive from the appropriate regulatory agency to meet and
maintain a specific capital level. As of December 31, 1997, the Company and the
Bank were qualified as "well capitalized." See "Item 6. Management's Discussion
and Analysis or Plan of Operation -- Capital."

         Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice.
The degree of regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as it moves
downward through the capital categories. Institutions that fall into one of the
three undercapitalized categories may be required to (i) submit a capital
restoration plan; (ii) raise additional capital; (iii) restrict their growth,
deposit interest rates, and other activities; (iv) improve their management;
(v) eliminate management fees; or (vi) divest themselves of all or part of
their operations. Bank holding companies controlling financial institutions can
be called upon to boost the institutions' capital and to partially guarantee
the institutions' performance under their capital restoration plans.

         These capital guidelines can affect the Company in several ways. If
the Bank begins to grow at a rapid pace, a premature "squeeze" on capital could
occur making a capital infusion necessary. The requirements could impact the
Company's ability to pay dividends. The Company's present capital levels are
more than adequate; however, rapid growth, poor loan portfolio performance, or
poor earnings performance or a combination of these factors could change the
Bank's capital position in a relatively short period of time.

         Effective January 1, 1997, the FDIC amended the risk-based capital
guidelines to incorporate a measure for market risk to cover all positions
located in an institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
or bank holding company with significant exposure to market risk to measure the
risk and hold capital commensurate with that risk. Since the Bank does not
currently engage, nor has any plans to engage, in trading, foreign exchange or
commodity position activities, the rule does not have an effect on the Bank's
required capital levels.

         Both the Company and the Bank exceeded their respective regulatory
capital requirements at December 31, 1997. See "Management's Discussion and
Analysis or Plan of Operation -- Capital."

INTERSTATE BANKING AND BRANCHING RESTRICTIONS

         On September 29, 1994, the federal government enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"). This Act became effective on September 29, 1995, and permits
eligible bank holding companies in any state, with regulatory approval, to
acquire banking organizations in any other state. Effective June 1, 1997, the
Interstate Banking Act allowed banks with different home states to merge,
unless a particular state opts out of the statute. Consistent with the
Interstate Banking Act, Maryland adopted legislation in 1995 which permits
interstate bank mergers beginning September 29, 1995.

         In addition, beginning June 1, 1997, the Interstate Banking Act
permitted national and state banks to establish de novo branches in another
state if there is a law in that state which applies equally to all banks and
expressly permits all out-of-state banks to establish de novo branches. In
1995, Maryland adopted "opt-in" legislation by which Maryland adopted the
federal legislation effective September 29, 1995, before it automatically took
effect on June 1, 1997. The Maryland legislation permits out-of-state banks to
establish branches in Maryland by opening a de novo branch, by acquiring an
existing branch from a Maryland depository institution, or as a result of an
interstate merger with a Maryland banking organization, as long as such states
grant similar privileges for acquiring banking organizations in their states to
banking organizations in Maryland. Under Maryland law, the Bank may open
branches state-wide, subject to the prior approval of the Commissioner and the
FDIC. There are currently no definite plans for the Company to acquire any
bank, but the Company remains open to acquisitions as part of its strategic
growth plan.


                                       8
<PAGE>   10


RECENT LEGISLATIVE DEVELOPMENTS

         From time to time, various bills are introduced in the United States
Congress and at the state legislative level with respect to the regulation of
financial institutions. Certain of these proposals, if adopted, could
significantly change the regulation of banks and the financial services
industry. The Company cannot predict whether any such proposals will be adopted
or, if adopted, how such proposals would affect the Company.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Bank's main office is located at 501 Idlewild Avenue, Easton,
Maryland on approximately 53,000 square feet of land at the corner of Idlewild
Avenue and Caulk Lane. The Bank also operates a branch facility at William Hill
Manor located on Dutchman's Lane in Easton with approximately 72 square feet of
leased space. This branch is limited to accepting deposits and cashing checks
and is open only for limited hours each business day. See Item 12.  "Certain
Relationships and Related Transactions."

         The Bank acquired the site for the main office for $281,000 and spent
approximately $1,081,000 for construction of the building, landscaping, paving,
and sidewalks. Construction of the main office was completed in June 1993. The
main office building is a two story building consisting of approximately 14,000
square feet. The Bank presently occupies only approximately 6,500 square feet
for housing the main branch of the Bank, the operations center of the Bank, and
the executive offices of the Company and the Bank. In July 1997, the Bank
completed improvements to the second floor of the main office building at a
cost of $243,792. The improvements provided approximately 5,100 additional
square feet of office space, of which the Bank occupies approximately 1,500
square feet. The remaining additional space has been leased to two third
parties.

         One of the third party leases consists of 1,820 square feet with an
initial lease term of eight years and it commenced August 1, 1997. The first
year's annual rent for this lease is $20,020. The other third party lease
consists of 1,800 square feet with an initial lease term of five years and it
commenced on July 1, 1997. The first year's annual rent for this lease is
$18,000. The annual rent on both leases is subject to adjustment at the
beginning of the second year and at the beginning of each year thereafter
during the initial term and during the renewal term, if any; provided, however,
the annual rent shall only be increased.

         The William Hill Manor branch office space is leased pursuant to a
five year lease dated July 1, 1995. Rent is fixed at $3,600 annually. At the
end of the current term, the lease provides an option to extend with rent
increases contingent on the performance of the Bank and based on the consumer
price index.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material pending legal proceedings to which the Company
or the Bank or any of their properties are subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of the stockholders of the
Company during the fourth quarter of 1997.


                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         In response to this Item, the information included on pages 14 through
15 of the Company's Annual Report to Stockholders for the year ended December
31, 1997, is incorporated herein by reference.


                                       9
<PAGE>   11


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

         In response to this Item, the information included on pages 2 through
14 of the Company's Annual Report to Stockholders for the year ended December
31, 1997, is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         In response to this Item, the information included on pages 16 through
38 of the Company's Annual Report to Stockholders for the year ended December
31, 1997, is incorporated herein by reference.

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

         Not applicable.


                                    PART III

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

         In response to this item, the information included on pages 2 through
5 and page 7 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1998, is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

         In response to this item, the information included on pages 5 through
7 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 20, 1998, is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         In response to this item, the information included on pages 8 through
9 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 20, 1998, is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In response to this item, the information included on pages 9 through
10 of the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 20, 1998, is incorporated herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>


(a)      EXHIBITS.
         ---------
        <S>       <C>        
         3.1      Articles of Incorporation of the Company (incorporated by
                  reference to Exhibit 3.1 of Registration Statement on Form
                  S-18, File No. 33-43317).

         3.2      Bylaws of the Company (incorporated by reference to Exhibit
                  3.2 of Registration Statement on Form S-18, File No.
                  33-43317).

        10.1      Employment Agreement dated July 22, 1991, between the Company
                  and Thomas P. McDavid (incorporated by reference to Exhibit
                  10.1 of Registration Statement on Form S-18, File No.
                  33-43317).
</TABLE>

                                      10
<PAGE>   12


<TABLE>

        <S>       <C>      
        10.2      Easton Bancorp, Inc. 1991 Stock Option Plan (incorporated by
                  reference to Exhibit 10.2 of Registration Statement on Form
                  S-18, File No. 33-43317).

        10.3      Form of Warrant Agreement (incorporated by reference to
                  Exhibit 10.3 of Registration Statement on Form S-18, File No.
                  33-43317).

         13       Annual Report to Stockholders for the year ended December 31,
                  1997.

         21       Subsidiaries of the Company.

         27.1     Financial Data Schedule (for SEC use only).

         27.2     Restated Financial Data Schedule for period ending 
                  December 31, 1996 (for SEC use only).
</TABLE>

 (b)     Reports on Form 8-K

         No reports on Form 8-K were filed during the fourth quarter of the
         year ended December 31, 1997.


                                      11
<PAGE>   13



                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        EASTON BANCORP, INC.
                                        (Registrant)

                                        By:/s/ W. David Hill
                                           -------------------------------------
                                           W. David Hill, Chairman of the Board

Date:  March 25, 1998

         In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

         Signature                         Title                                   Date
         ---------                         -----                                   ----
<S>                                  <C>                                        <C> 
/s/ Sheila W. Bateman                Director; Secretary                        March 25, 1998
------------------------------
Sheila W. Bateman

                                     Director
------------------------------
Jack H. Bishop

/s/ J. Parker Callahan, Jr.          Director                                   March 25, 1998
------------------------------
J. Parker Callahan, Jr.

/s/ J. Fredrick Heaton               Director                                   March 25, 1998
------------------------------
J. Fredrick Heaton

                                     Director
------------------------------
William C. Hill

/s/ W. David Hill                    Director; Chairman of the       
------------------------------       Board; Principal Executive                 March 25, 1998
W. David Hill                        Officer                                    

/s/ David F. Lesperance              Director                                   March 25, 1998
------------------------------
David F. Lesperance

/s/ Vinodrai Mehta                   Director                                   March 25, 1998
------------------------------
Vinodrai Mehta

/s/ Roger A. Orsini                  Director                                   March 25, 1998
------------------------------
Roger A. Orsini

/s/ Mahmood S. Shariff               Director                                   March 25, 1998
------------------------------
Mahmood S. Shariff

/s/ Jerry L. Wilcoxon                Director; Treasurer (principal             March 25, 1998
------------------------------       financial officer and principal
Jerry L. Wilcoxon                    accounting officer)
</TABLE>

                                      12

<PAGE>   14



                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>


Exhibit                                                                              Sequential
Number            Description                                                       Page Number
------            -----------                                                       -----------
<S>               <C>                                                               <C>     
 3.1              Articles of Incorporation of the Company (incorporated by
                  reference to Exhibit 3.1 of Registration Statement on Form
                  S-18, File No.

                  33-43317).

 3.2              Bylaws of the Company (incorporated by reference to Exhibit
                  3.2 of Registration Statement on Form S-18, File No.
                  33-43317).

10.1              Employment Agreement dated July 22, 1991, between the Company
                  and Thomas P. McDavid (incorporated by reference to Exhibit
                  10.1 of Registration Statement on Form S-18, File No.
                  33-43317).

10.2              Easton Bancorp, Inc. 1991 Stock Option Plan (incorporated by
                  reference to Exhibit 10.2 of Registration Statement on Form
                  S-18, File No. 33-43317).

10.3              Form of Warrant Agreement (incorporated by reference to
                  Exhibit 10.3 of Registration Statement on Form S-18, File No.
                  33-43317).

  13              Annual Report to Stockholders for the year ended December 31,
                  1997.                                                                  15

  21              Subsidiaries of the Company.                                           56
                                                                                          
  27.1            Financial Data Schedule (for SEC use only).                            57
  
  27.2            Restated Financial Data Schedule for period ending December 31,
                  1996 (for SEC use only).                                               58
</TABLE>