<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, 1998
                                                   -----------------
            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)

<TABLE>
<CAPTION>
              <S>                                                                <C>
                               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)
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         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:
$3,663,364.

The aggregate market value of the Common Stock held by non-affiliates of the
small business issuer on March 19, 1999, was $3,371,625. 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 19, 1999, 560,318 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,
1998, 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 26, 1999, is incorporated by reference in this Form 10-KSB in
Part III Item 9, Item 10, Item 11, and Item 12.
<PAGE>   2




         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. In addition, in February 1999 the Bank opened a loan production office
in Denton, Maryland, which is in Caroline County.

         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. In
addition, in February 1999 the Bank opened a loan production office in Denton,
Maryland, which is in Caroline County. 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.
However, with the new loan production office in Caroline County, Maryland, the
Bank hopes to conduct significant lending transactions in Caroline County. The
Bank also recently filed the necessary regulatory applications seeking to
operate a full service branch in Denton. If the applications are ultimately
approved, the Bank intends to act quickly to increase its presence in Caroline
County by opening a full service branch in Denton.

         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.

         Caroline County is centrally located on the eastern shore of the
Chesapeake Bay in eastern Maryland. Denton, the county seat, is situated
approximately 60 miles from Baltimore and 60 miles from Washington, D.C.
Caroline County has experienced growth in its population in recent years. The
population of Caroline County increased from approximately 24,000 in 1990 to
27,000 in 1998, while the population of Denton remained steady with a population
of approximately 3,000 during this period.

         The principal components of the economy of Caroline County are
manufacturing and agriculture. The largest employers in the county include
Preston Trucking, Solo Cup and Choptank Electric Company.

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,


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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 HONOR
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.

         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, 1998, 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.

         As of December 31, 1998, there were five commercial banks operating a
total of twelve offices in Caroline County, Maryland. Of these institutions,
only Provident State Bank of Preston, Maryland is locally owned and operated.
Provident State Bank has a main office in Preston and three branches located in
Caroline County. Peoples Bank of Denton, while locally chartered, is controlled
by a holding company in Baltimore. It operates a main office and three branches
in Caroline County. First National Bank of Maryland, based in Baltimore, and
NationsBank, based in Charlotte, North Carolina, each operate one branch in
Caroline County. First Virginia Bank of Richmond, Virginia, operates two
branches in Caroline 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." In addition, the Bank operates a loan
production office in Denton, Maryland. The Bank recently filed the necessary
applications seeking to operate a full service branch in Denton. The Company
will continue to investigate other branching possibilities during 1999, but
currently has no definite plans for other branches.

         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 8,000 square feet
for housing the main branch of the Bank, the



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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 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 annual rent for this lease is $18,000. The annual rent on both leases
is subject to adjustment each year 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.

         The office space for the loan production office in Denton is leased
pursuant to a six month lease which commenced January 1, 1999. Rent for this
space is $600 per month. The lease provides for a six month extension term at
the discretion of the Bank.

EMPLOYEES

         As of March 19, 1999, the Bank had twenty full-time employees and five
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.

                           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
eight 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.

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         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.

         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


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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 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.

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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 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


                                       7
<PAGE>   9

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 assigned
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 "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, 1998, 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.

                                       8
<PAGE>   10

         Both the Company and the Bank exceeded their respective regulatory
capital requirements at December 31, 1998. 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.

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." In addition, the Bank operates a loan
production office in Denton, Maryland.

         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 8,000 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 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 annual rent for this lease is $18,000. The annual rent on both leases
is subject to adjustment each year during the initial term and during the
renewal term, if any; provided, however, the annual rent shall only be
increased.

                                       9
<PAGE>   11

         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.

         The office space for the loan production office in Denton is leased
pursuant to a six month lease which commenced January 1, 1999. Rent for this
space is $600 per month. This lease provides for a six month extension term at
the discretion of the Bank.

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 1998.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         In response to this Item, the information included on page 18 of the
Company's Annual Report to Stockholders for the year ended December 31, 1998, is
incorporated herein by reference.

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

         In response to this Item, the information included on pages 3 through
18 of the Company's Annual Report to Stockholders for the year ended December
31, 1998, is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

         In response to this Item, the information included on pages 19 through
41 of the Company's Annual Report to Stockholders for the year ended December
31, 1998, 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 8 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 26, 1999, is incorporated herein by reference.

                                       10
<PAGE>   12

ITEM 10.  EXECUTIVE COMPENSATION

         In response to this Item, the information included on pages 5 through 8
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 26, 1999, 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
10 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 26, 1999, is incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In response to this Item, the information included on page 10 of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 26, 1999, is incorporated herein by reference.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

         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).

         10.4     Agreement with Thomas P. McDavid dated March 6, 1998
                  (incorporated by reference to Exhibit 10.4 of the Quarterly
                  Report on Form 10-QSB filed by the Company for the quarter
                  ended March 31, 1998).

         13       Annual Report to Stockholders for the year ended December 31,
                  1998.

         21       Subsidiaries of the Company.

         27       Financial Data Schedule (for SEC use only).

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed by the Company during the fourth
quarter of the year ended December 31, 1998.

                                       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; Chief
                                           Executive Officer
Date:  March 26, 1999

         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 26, 1999
------------------------------
Sheila W. Bateman

/s/ Jack H. Bishop                                    Director                                         March 26, 1999
------------------------------
Jack H. Bishop

                                                      Director
------------------------------
J. Parker Callahan, Jr.

/s/ J. Fredrick Heaton                                Director                                         March 26, 1999
------------------------------
J. Fredrick Heaton

/s/ William C. Hill                                   Director                                         March 26, 1999
------------------------------
William C. Hill
                                                      Director; Chairman of the
/s/ W. David Hill                                     Board; Chief Executive Officer                   March 26, 1999
W. David Hill                                         (principal executive officer)

/s/ David F. Lesperance                               Director                                         March 26, 1999
------------------------------
David F. Lesperance

/s/ Vinodrai Mehta                                    Director                                         March 26, 1999
Vinodrai Mehta

/s/ R. Michael S. Menzies                             Director; President                              March 26, 1999
------------------------------
R. Michael S. Menzies

/s/ Roger A. Orsini                                   Director                                         March 26, 1999
------------------------------
Roger A. Orsini

/s/ Mahmood S. Shariff                                Director                                         March 26, 1999
------------------------------
Mahmood S. Shariff
                                                      Director; Treasurer (principal
/s/ Jerry L. Wilcoxon                                 financial officer and principal                  March 26, 1999
----------------------                                accounting officer)
Jerry L. Wilcoxon
</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).

10.4              Agreement  with  Thomas  P.  McDavid  dated  March  6,  1998  (incorporated  by
                  reference to Exhibit 10.4 of the  Quarterly  Report on Form 10-QSB filed by the
                  Company for the quarter ended March 31, 1998).

13                Annual Report to Stockholders for the year ended December 31, 1998.

21                Subsidiaries of the Company.

27                Financial Data Schedule (for SEC use only).

</TABLE>