EXHIBIT 13


                          ANNUAL REPORT TO STOCKHOLDERS
                      FOR THE YEAR ENDED DECEMBER 31, 2002


<PAGE>



                          ANNUAL REPORT TO STOCKHOLDERS
                                DECEMBER 31, 2002






                              EASTON BANCORP, INC.



<PAGE>
                              EASTON BANCORP, INC.

                                   March 2003

Dear Stockholders:

It  seems  that  every  year  of  the  new  millennium  brings  unbelievable new
challenges  to the nation.  We survived the Y2K millennium bug.  We survived the
traumatic  events  of  9/11.  We  survived  the  new  geo-political realities of
Afghanistan,  Pakistan,  India  and  Korea.  We contemplate the uncertainties of
Iraq  and  nations  at  war.

Notwithstanding  these  troubled  times, Easton Bancorp produced record earnings
and  sustained positive balance sheet growth in 2002.  Easton Bank and Trust and
its  divisions,  Denton  Bank and Trust and Oxford Bank and Trust, all delivered
superior  personal service to generate the attached financial results.   We will
open  our Marlboro Avenue banking center in April of 2003.  In addition, we will
introduce  alternative  financial products such as fixed rate annuities in April
of  2003.  We  will  continue  to  focus  our  energies  on  the  delivery  of
relationship-based  community  banking  products  and  service.  We will seek to
continue  to  create  value  for  all  of  our  stakeholders.

On behalf of the entire Board of Directors, we thank you for your confidence and
support.


/s/  William  David  Hill                             /s/ R. Michael S. Menzies
William  David  Hill,  DDS                            R. Michael S. Menzies, Sr.
Chairman of the Board/Chief Executive Officer         President




              501 Idlewild Avenue, P.O. Box 629, Easton, MD 21601
                        410/819-0300     FAX 410/819-8091


<PAGE>
                              EASTON BANCORP, INC.
                           EASTON BANK & TRUST COMPANY


                                   OUR VISION
                                   ----------

Easton  Bank  and  Trust  will  grow  to  be recognized as the premier community
banking solution for the markets we serve.  First-class customer-driven personal
service  will  be  the  foundation  of  our  success.


                                   OUR MISSION
                                   -----------

The  Mission  of  Easton Bank and Trust is to be the Community Bank of Choice in
the  markets  we  serve:

     -  For our Customers
     -  For our Stakeholders
     -  For our Associates


                                   CORE VALUES
                                   -----------

At  Easton  Bank  &  Trust,  we  believe  our success is founded upon these core
values:

     -    TEAMWORK:  As  a  team  we will work together to produce a profitable,
          healthy,  and  fun  work  environment.

     -    INTEGRITY:  We  will always treat customers, prospects, and associates
          with  respect  and  confidentiality.

     -    PROFESSIONALISM:  As  Professionals  we  are  committed  to  lifelong
          learning,  quality service to others, personal "I"countability, mutual
          trust,  honesty  and  respect,  and  the  courage  to  seek  ambitious
          aspirations.

     -    EXCELLENCE:  Whatever  you  do,  do  it  well.


                                        2
<PAGE>
     This  Annual  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 Annual 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.

                             BUSINESS OF THE COMPANY

     Easton  Bancorp,  Inc.  (the  "Company")  was  incorporated  as  a Maryland
corporation  on July 19, 1991, to become a one-bank holding company by acquiring
all  of  the  capital stock of Easton Bank & Trust Company (the "Bank") upon its
formation.  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,
emphasizing in its marketing the Bank's local management and ownership, from its
main  office  location  in  its  primary  service area, Talbot County, Maryland.
During  1999,  the Bank opened a full-service branch office in Denton, Maryland,
which  is  in  Caroline  County.  In  addition,  during  2001  the Bank opened a
full-service  branch office in Oxford, Maryland, which is in Talbot County.  The
Bank  is  in  the  process  of  opening  a second full-service branch in Easton,
Maryland,  which  the Bank anticipates opening in April 2003.  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.  In addition, the
Bank  offers  certain retirement account services, such as Individual Retirement
Accounts.  The  Bank offers a full range of short- to medium-term commercial and
personal  loans.  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.  Other  bank services include cash management services, safe
deposit  boxes,  travelers  checks,  debit  cards, direct deposit of payroll and
social  security  checks,  and  automatic  drafts  for  various  accounts.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The  following  discussion of the Company's financial condition and results
of  operations  should  be  read  in  conjunction  with  the Company's financial
statements  and  related  notes  and  other  statistical  information  included
elsewhere  herein.

OVERVIEW

     Consolidated  income of the Company is derived primarily from operations of
the  Bank.  Net  income for 2002 increased to $549,801 from $454,957 in 2001 due
to increases in net interest income and other revenue in excess of the increases
in the provision for loan losses and other operating expenses.  Return on equity
increased  to  9.28%  for  2002  from  8.15%  in  2001.

RESULTS  OF  OPERATIONS

     The  Company  reported  net  income of $549,801, or $.98 per share, for the
year  ended  December 31, 2002, which represents an increase of $94,844, or $.17
per  share,  from  $454,957,  or $.81 per share, for the year ended December 31,
2001.  Increases  in net interest income of $411,524 and other operating revenue
of  $26,480 were offset by increases in the provision for loan losses of $77,487
and  other  operating  expenses  of  $209,877.


                                        3
<PAGE>
     Net  interest  income  increased $411,524, or 14.83%, to $3,185,942 in 2002
from $2,774,418 in 2001.  This increase in net interest income was the result of
a  $675,035 decrease in interest expense offset by a decrease in interest income
of  $263,511.  During  2002,  the Company experienced an increasing net interest
spread  to  4.15% in 2002 from 4.07% in 2001.  The net interest margin increased
to  4.18%  in  2002 from 4.15% in 2001.  The interest spread and interest margin
increased  as  bank  deposit  rates  were  lowered  quicker  than  loan  rates.

     During  2002,  the  Company  recorded net loan loss charge-offs of $116,342
compared  to  the  2001  net  loan loss charge-offs of $107,679.  As a result of
these  net  loan  charge-offs,  the  increase  in  nonperforming  loans, and the
increase  in  total  outstanding  loans, the Company increased its provision for
loan losses by $77,487 to $290,433 during 2002, compared to a provision for loan
losses  of  $212,946  in  2001.

     The  Company  had loans over ninety days delinquent on which the accrual of
interest had been discontinued totaling $326,289 and $219,070 as of December 31,
2002  and  2001, respectively.  As of December 31, 2002, the accrual of interest
had  been discontinued on loans totaling $197,821 where the loans were less than
ninety days delinquent compared to $133,976 as of December 31, 2001.  Loans over
ninety days delinquent but still accruing interest decreased from $747,907 as of
December  31,  2001, to $1,000 as of December 31, 2002.  The Company's allowance
for  loan losses as a percentage of its year-end loans was 1.28% at December 31,
2002  compared  to  1.18%  at  December  31, 2001.  Net loan loss charge-offs of
$116,342  during 2002 resulted in a ratio of net charge-offs to average loans of
..17%.  During  2001, the Company had net charge-offs of $107,679, which was .18%
of  average  loans.

     Noninterest  income  increased  $26,480, or 4.48%, to $617,081 in 2002 from
$590,601  in  2001.  Return  check  and overdraft fees increased $42,541 and ATM
network  fees  and  VISA  fees  increased $17,623, both due to increased account
volume.  During much of 2001, the Company had two mortgage originators, compared
to  one  originator  during  2002, which contributed to the decrease in mortgage
income  of  $45,156.

     Noninterest  expense  increased $209,877, or 8.56%, from $2,451,604 in 2001
to  $2,661,481 in 2002. The increase was the result of an increase of $95,094 in
compensation  and  related expenses, an increase of $32,836 for data processing,
an  increase of $28,600 for directors fees, an increase of $19,567 for furniture
and equipment, an increase of $9,446 for training, and an increase of $8,136 for
maintenance  contracts.  These increases were offset by a decrease of $18,626 in
the  provision  for  loan  commitments.

     The  Company's  efficiency  ratio,  which  is  noninterest  expense  as  a
percentage  of  the sum of net interest income and noninterest income, decreased
to  69.98%  in 2002, compared to 72.86% in 2001.  This improvement is the result
of  faster  growth  in  net  interest  income  than  in  operating  expenses.

NET  INTEREST  INCOME

     The  primary source of income for the Company is net interest income, which
is the difference between revenue on interest-earning assets, such as investment
securities  and  loans,  and  interest  incurred  on interest-bearing sources of
funds,  such  as  deposits  and borrowings.  The level of net interest income is
determined  primarily  by  the  average  balances of interest-earning assets and
funding sources and the various rate spreads between the interest-earning assets
and  the  Company's  funding  sources.  The  table "Average Balances, Income and
Expenses,  and  Rates"  which  follows  shows  the  Company's  average volume of
interest-earning  assets  and interest-bearing liabilities for 2002 and 2001 and
related interest income/expense and yields.  Changes in net interest income from
period  to  period  result  from  increases  or  decreases  in  the  volume  of
interest-earning  assets  and  interest-bearing  liabilities,  and  increases or
decreases  in  the average rates earned and paid on such assets and liabilities.
The  volume  of  interest-earning  assets  and  interest-bearing  liabilities is
affected  by  the  ability to manage the earning-asset portfolio (which includes
loans)  and the availability of particular sources of funds, such as noninterest
bearing  deposits.  The table "Analysis of Changes in Net Interest Income" shows
the  amount  of  net  interest income change from rate changes and from activity
changes.

     The  following  table depicts interest income on earning assets and related
average  yields  as well as interest expense on interest-bearing liabilities and
related  average  rates  paid  for  2002  and  2001.


                                        4
<PAGE>
<TABLE>
<CAPTION>
                  AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES

                                              For the Year Ended                For the Year Ended
                                              December 31, 2002                 December 31, 2001
                                       --------------------------------  --------------------------------

                                         Average     Income/    Yield/     Average     Income/    Yield/
ASSETS                                   Balance     Expenses    Rate      Balance     Expenses    Rate
                                       -----------  ----------  -------  -----------  ----------  -------
<S>                                    <C>          <C>         <C>      <C>          <C>         <C>
Federal funds sold                     $ 3,133,360  $   51,816    1.65%  $ 2,954,612  $  111,011    3.76%
Interest-bearing deposits                        -           -       -        14,185         520    3.67%
Investment securities:
  U.S. government agency                 5,255,854     241,177    4.59%    4,340,131     247,076    5.69%
  State and municipal                       99,684       6,181    6.20%            -           -       -
  Other                                    431,500      24,024    5.57%      407,241      28,726    7.05%
                                       -----------  ----------  -------  -----------  ----------  -------
    Total investment securities          5,787,038     271,382    4.69%    4,747,372     275,802    5.81%
                                       -----------  ----------  -------  -----------  ----------  -------
Loans:
  Demand and time                       16,758,375   1,067,587    6.37%   14,348,935   1,156,761    8.06%
  Mortgage                              48,093,350   3,468,875    7.21%   41,727,127   3,538,811    8.48%
  Installment                            3,717,123     340,985    9.17%    3,921,552     370,998    9.46%
                                       -----------  ----------  -------  -----------  ----------  -------
    Total loans                         68,568,848   4,877,447    7.11%   59,997,614   5,066,570    8.44%
Allowance for loan losses                  830,372                           692,655
                                       -----------                       -----------
    Total loans, net of allowance       67,738,476   4,877,447    7.20%   59,304,959   5,066,570    8.54%
                                       -----------  ----------  -------  -----------  ----------  -------
Total interest-earning assets           76,658,874   5,200,645    6.78%   67,021,128   5,453,903    8.14%
                                       -----------  ----------  -------  -----------  ----------  -------
Noninterest-bearing cash                 2,093,216                         1,242,388
Bank premises and equipment              1,594,570                         1,644,342
Other assets                             1,870,535                         1,747,942
                                       -----------                       -----------
      Total assets                     $82,217,195                       $71,655,800
                                       ===========                       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
  Savings and NOW deposits             $15,225,692  $  167,992    1.10%  $10,714,080  $  203,333    1.90%
  Money market deposits                  7,054,689      95,885    1.36%    9,278,602     226,973    2.45%
  Other time deposits                   42,768,276   1,609,468    3.76%   38,091,737   2,139,492    5.62%
                                       -----------  ----------  -------  -----------  ----------  -------
    Total interest-bearing deposits     65,048,657   1,873,345    2.88%   58,084,419   2,569,798    4.42%
Noninterest-bearing deposits             7,981,612           -       -     5,625,745           -       -
                                       -----------  ----------  -------  -----------  ----------  -------
    Total deposits                      73,030,269   1,873,345    2.57%   63,710,164   2,569,798    4.03%
Borrowed funds                           2,958,155     123,125    4.16%    1,987,899     101,707    5.12%
                                       -----------  ----------  -------  -----------  ----------  -------
                                        75,988,424   1,996,470    2.63%   65,698,063   2,671,505    4.07%
                                                    ----------  -------               ----------  -------
Other liabilities                          305,658                           373,538
Stockholders' equity                     5,923,113                         5,584,199
                                       -----------                       -----------
      Total liabilities and
      stockholders equity              $82,217,195                       $71,655,800
                                       ===========                       ===========

Net interest spread                                               4.15%                             4.07%
                                                                =======                           =======
Net interest income                                 $3,204,175                        $2,782,398
                                                    ==========                        ==========
Net margin on interest-earning assets                             4.18%                             4.15%
                                                                =======                           =======

<FN>
-------------------------------
Interest on tax-favored investments and loans are reported on a fully taxable
equivalent basis.
</TABLE>

     The  key  performance measure for net interest income is the "net margin on
interest-bearing  assets,"  or  net  interest  income  divided  by  average
interest-earning  assets.  The Company's net interest margin for 2002 was 4.18%,
compared  to  4.15%  for  2001.  The  increase  is due primarily to management's
repricing of deposits.  Although the Bank has a significant amount of fixed rate
loans,  a  large portion of the portfolio reprices within 12 months.  Management
of  the  Company expects to maintain this net margin on interest-earning assets.
Although  such  expectations  are based on management's judgment, actual results
will  depend on a number of factors that cannot be predicted with certainty, and
fulfillment  of  management's  expectations  cannot  be  assured.


                                        5
<PAGE>
     The  following table reflects the amount of net interest income change from
rate  changes  and  from activity changes for 2002 compared to 2001 and for 2001
compared  to  2000.

<TABLE>
<CAPTION>
                             ANALYSIS OF CHANGES IN NET INTEREST INCOME

                                        Year Ended December 31, 2002        Year Ended December 31, 2001
                                            Compared with 2001                  Compared with 2000
                                              Variance due to                    Variance due to
                                   -----------------------------------  ---------------------------------

EARNING ASSETS                       Total       Rate(1)      Volume      Total      Rate(1)     Volume
                                   ----------  ------------  ---------  ----------  ----------  ---------
<S>                                <C>         <C>           <C>        <C>         <C>         <C>
   Interest-bearing deposits       $    (520)  $         -   $   (520)  $     (12)  $    (269)  $    257
   Federal funds sold                (59,195)      (65,916)     6,721     (21,712)    (76,229)    54,517
   Investment Securities:
      U.S. government agency          (5,899)      (58,004)    52,105     (44,597)    (18,398)   (26,199)
      State and municipal              6,181             -      6,181
      Other                           (4,702)       (6,412)     1,710      12,888      (4,375)    17,263
   Loans:
      Demand and time                (89,174)     (283,375)   194,201     120,433    (162,327)   282,760
      Mortgage                       (69,936)     (609,792)   539,856     212,532    (242,972)   455,504
      Installment                    (30,013)      (10,674)   (19,339)      3,460     (27,189)    30,649
                                   ----------  ------------  ---------  ----------  ----------  ---------
         Total interest income      (253,258)   (1,034,173)   780,915     282,992    (531,759)   814,751
                                   ----------  ------------  ---------  ----------  ----------  ---------

INTEREST-BEARING LIABILITIES
   Savings and NOW deposits          (35,341)     (121,062)    85,721      (2,521)    (26,210)    23,689
   Money market deposits            (131,088)      (76,602)   (54,486)   (182,998)   (212,333)    29,335
   Other time deposits              (530,024)     (792,845)   262,821     390,428        (363)   390,791
   Federal funds purchased and
      short-term borrowings           21,418       (28,259)    49,677      (1,801)     (6,327)     4,526
                                   ----------  ------------  ---------  ----------  ----------  ---------
         Total interest expense     (675,035)   (1,018,768)   343,733     203,108    (245,233)   448,341
                                   ----------  ------------  ---------  ----------  ----------  ---------

Net interest income                $ 421,777   $   (15,405)  $437,182   $  79,884   $(286,526)  $366,410
                                   ==========  ============  =========  ==========  ==========  =========

<FN>
-------------------------------
(1)  The variance that is both rate/volume related is included in the rate variance.
</TABLE>

FOURTH QUARTER RESULTS

     Net  income  for  the Company for the three months ended December 31, 2002,
was  $141,364, compared to $185,175 for the corresponding period in 2001.  Fully
diluted  earnings  per  share for the fourth quarters of 2002 and 2001 were $.24
and  $.32,  respectively.  Increases  in  the  provision  for  loan  losses  and
operating  expense for the three months ended December 31, 2002, compared to the
corresponding  period  in  2001,  were  offset by increased net interest income.
Income  taxes decreased during the fourth quarter of 2002 compared to the fourth
quarter  of  2001  as  a  result  of  lower  taxable  income.

     The increase in net interest income during the fourth quarter of 2002, when
compared  to  the corresponding period of 2001, of $118,580 was due primarily to
the  maturity  of  higher yielding deposits that were renewed at lower rates and
from  the  lowering  of  savings  and  interest-bearing checking interest rates.
Yields  for  loans,  securities  and  deposits declined throughout the year, but
during  2002 the decline in deposit rates was greater than the decline in yields
on  earning  assets.

     Noninterest  income  increased $3,330 to $177,465 for the fourth quarter of
2002,  from  $174,135  for  the  fourth  quarter  of 2001. This increase was due
primarily  to  the  increase  in  service  charges  from  deposit  growth.


                                        6
<PAGE>
     Total  operating  expenses  increased  $73,227  to $710,643 for the quarter
ended  December 31, 2002, from $637,416 for the quarter ended December 31, 2001.
The  increase  was primarily related to the increase in salaries and benefits of
approximately  $50,000.  During the third quarter of 2002, the Bank hired both a
commercial  lender and a consumer lender. Additional employees were hired during
2002  to  support  the asset growth of the Bank.  Approximate increases in other
expenses  included  an increase of $5,000 for postage, an increase of $6,700 for
Board  and  committee  fees  and  an  increase  of  $9,500 for collection costs.

     The  Company  recorded  fourth quarter loan loss provisions of $131,442 and
$28,744 during 2002 and 2001, respectively.  These provisions were the result of
an analysis of the loan portfolios at the end of each year. The Company recorded
a  charge-off of approximately $70,000 during the fourth quarter of 2002 for one
borrower  in  bankruptcy.

COMPOSITION  OF  LOAN  PORTFOLIO

     Because  loans  are  expected  to  produce  higher  yields  than investment
securities  and other interest-earning assets (assuming that loan losses are not
excessive), the absolute volume of loans and the volume as a percentage of total
earning  assets  is  an  important  determinant of net interest margin.  Average
loans,  net  of  the allowance for loan losses, were $67,738,476 and $59,304,959
during  2002  and  2001,  respectively,  which  constituted  88.36%  and 88.49%,
respectively,  of  average interest-earning assets for the periods.  At December
31,  2002, the Company's loan to deposit ratio was 96.39%, compared to 88.23% at
December 31, 2001.  The Bank extends loans primarily to customers located in and
near  Talbot and Caroline Counties.  There are no industry concentrations in the
Bank's  loan  portfolio.  The  Bank does, however, have a substantial portion of
its  loans  in  real  estate.  Performance  may be influenced by the real estate
market  in  the  region.

     The  following  table  sets  forth  the  composition  of the Company's loan
portfolio as of December 31, 2002 and 2001, respectively.

<TABLE>
<CAPTION>
                          COMPOSITION OF LOAN PORTFOLIO

                                                         December 31,
                                     ----------------------------------------------------
                                              2002                          2001
                                     ----------------------        ----------------------
                                                   Percent                       Percent
                                       Amount     of Total           Amount     of Total
                                     -----------  ---------        -----------  ---------
<S>                                  <C>          <C>              <C>          <C>
Commercial                           $14,062,135     19.42%        $13,231,859     20.74%
Real estate - residential             21,158,996     29.23%         18,287,644     28.67%
Real estate - commercial              19,191,931     26.51%         16,054,944     25.16%
Construction                           7,319,229     10.11%          7,573,805     11.87%
Home equity                            5,505,157      7.60%          3,412,440      5.35%
Consumer                               5,161,789      7.13%          5,239,150      8.21%
                                     -----------  ---------        -----------  ---------
   Total loans                        72,399,237    100.00%         63,799,842    100.00%
                                                  =========                     =========
Less deferred loan origination fees        8,597                         4,167
Less allowance for credit losses         924,859                       750,768
                                     -----------                   -----------
Net loans                            $71,465,781                   $63,044,907
                                     ===========                   ===========
</TABLE>

     The  following  table  sets  forth  the  maturity  distribution, classified
according  to  sensitivity to changes in interest rates, for selected components
of  the  Company's  loan  portfolio  as  of  December  31,  2002.


                                        7
<PAGE>
<TABLE>
<CAPTION>
      LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES

                                           December 31, 2002
                           -------------------------------------------------
                                         Over One
                             One Year     Through    Over Five
                             Or Less    Five Years     Years        Total
                           -----------  -----------  ----------  -----------
<S>                        <C>          <C>          <C>         <C>
Commercial                 $10,868,983  $ 2,616,983  $  576,169  $14,062,135
Real estate - residential    8,302,108   12,331,676     525,212   21,158,996
Real estate - commercial     6,616,801   10,357,307   2,217,823   19,191,931
Construction                 7,319,229            -           -    7,319,229
Home equity                  5,505,157            -           -    5,505,157
Consumer                     1,946,115    2,901,630     314,044    5,161,789
                           -----------  -----------  ----------  -----------
   Total                   $40,558,393  $28,207,596  $3,633,248  $72,399,237
                           ===========  ===========  ==========  ===========

Fixed interest rate        $25,204,730  $26,568,893  $3,543,024  $55,316,647
Variable interest rate      15,353,663    1,638,703      90,224   17,082,590
                           -----------  -----------  ----------  -----------
   Total                   $40,558,393  $28,207,596  $3,633,248  $72,399,237
                           ===========  ===========  ==========  ===========
</TABLE>

     As  of  December  31, 2002, $55,316,647, or 76.41%, of the total loans were
fixed  rate loans.  The significant amount of fixed rate loans was the result of
the  market  demand  of  the  Bank. With such a significant amount of fixed rate
loans,  the  Bank's  net interest income will decrease in a rising interest rate
environment,  but  will  increase in a falling interest rate environment, unless
the  loans  are  renegotiated.

     The  Company has the following commitments, lines of credit, and letters of
credit outstanding as of December 31, 2002 and 2001, respectively.

<TABLE>
<CAPTION>
                                    2002         2001
                                 -----------  -----------
<S>                              <C>          <C>
     Construction loans          $ 4,634,213  $ 3,757,443
     Lines of credit               6,543,075    5,675,616
     Overdraft protection lines      371,753      364,390
     Standby letters of credit     1,053,583      725,018
                                 -----------  -----------
     Total                       $12,602,624  $10,522,467
                                 ===========  ===========
</TABLE>

     Loan  commitments  and lines of credit are agreements to lend to a customer
as  long  as  there  is  no  violation  of  any condition to the contract.  Loan
commitments  may  have  interest fixed at current rates, fixed expiration dates,
and  may  require the payment of a fee.  Lines of credit generally have variable
interest rates.  Such lines do not represent future cash requirements because it
is  unlikely  that all customers will draw upon their lines in full at any time.
Letters  of  credit  are  commitments  issued  to guarantee the performance of a
customer to a third party.  Loan commitments and lines and letters of credit are
made  on  the  same  terms,  including  collateral,  as  outstanding loans.  The
Company's exposure to credit loss in the event of nonperformance by the borrower
is  represented  by  the  contract  amount  of  the  commitment.  Management has
included  a  provision  for  potential  losses  from  funding these loans in the
noninterest  expense.

LOAN  QUALITY

     The  allowance for loan losses represents a reserve for potential losses in
the  loan portfolio.  The adequacy of the allowance for loan losses is evaluated
periodically  based  on  a  review  of  all significant loans, with a particular
emphasis  on  non-accruing,  past  due, and other loans that management believes
require  attention.  The  determination  of  the  reserve  level  rests  upon
management's judgment about factors affecting loan quality and assumptions about
the  economy.  Management  considers  the  year-end  allowance  appropriate  and
adequate  to  cover possible losses in the loan portfolio; however, management's
judgment  is  based  upon a number of assumptions about future events, which are
believed  to  be  reasonable, but which may or may not prove valid.  Thus, there
can  be  no  assurance  that  charge-offs  in future periods will not exceed the
allowance  for loan loss or that additional increases in the loan loss allowance
will  not  be  required.


                                        8
<PAGE>
     For  significant  problem  loans,  management's  review  consists  of  an
evaluation  of  the  financial  strengths  of  the borrowers and guarantors, the
related  collateral,  and  the  effects of economic conditions.  The Bank uses a
loan  grading system where all loans are graded based on management's evaluation
of  the  risk associated with each loan.  Based on the loan grading, a factor is
applied  to  the  loan  balance  to  reserve  for  potential losses. The overall
evaluation of the adequacy of the total allowance for loan losses is based on an
analysis  of  historical loan loss ratios, loan charge-offs, delinquency trends,
and  previous  collection experience, along with an assessment of the effects of
external  economic  conditions.  The  Bank's  current  policy  is to maintain an
allowance  equal  to  the  greater  of approximately 1.15% of gross loans or the
results  of management's evaluation of the risk associated with each loan.  This
allowance is increased for reserves for specific loans identified as substandard
during  management's  loan  review.

     The table "Allocation of Allowance for Loan Losses" which follows shows the
specific  reserves  applied by loan type and also the general allowance included
in  the  December  31,  2002  and  2001,  allowance  for  loan  losses.

     The provision for loan losses is a charge to earnings in the current period
to  replenish the allowance and maintain it at a level management has determined
to  be  adequate.  The  allowance  for  loan  losses  was  1.28%  and  1.18%  of
outstanding  loans  as  of  December  31,  2002  and  2001,  respectively.

<TABLE>
<CAPTION>
          ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

                           2002               2001
                   ------------------  ------------------
                    Amount   Percent    Amount   Percent
                   --------  --------  --------  --------
<S>                <C>       <C>       <C>       <C>
     Commercial    $195,959    21.19%  $195,112    25.99%
     Real estate    456,395    49.35%   375,240    49.98%
     Construction    54,894     5.93%    37,869     5.04%
     Home equity     41,289     4.46%    19,286     2.57%
     Consumer       123,827    13.39%    62,912     8.38%
     General         52,495     5.68%    60,349     8.04%
                   --------  --------  --------  --------
         Total     $924,859   100.00%  $750,768   100.00%
                   ========  ========  ========  ========
</TABLE>


                                        9
<PAGE>
<TABLE>
<CAPTION>
                       ALLOWANCE FOR LOAN LOSSES

                                                       2002       2001
                                                     ---------  ---------
<S>                                                  <C>        <C>
     Balance at beginning of year                    $750,768   $645,501

     Loan losses:
          Commercial                                  125,187     19,537
          Real Estate                                   8,000     71,492
          Consumer                                     19,050    104,442
                                                     ---------  ---------
               Total loan losses                      152,237    195,471
                                                     ---------  ---------

     Recoveries on loans previously charged off
          Commercial                                    3,975        200
          Real Estate                                       -     64,550
          Consumer                                     31,920     23,042
                                                     ---------  ---------
               Total loan recoveries                   35,895     87,792
                                                     ---------  ---------

     Net loan losses                                  116,342    107,679
     Provision for loan losses charged to expense     290,433    212,946
                                                     ---------  ---------
     Balance at end of year                          $924,859   $750,768
                                                     =========  =========

     Allowance for loan losses to loans outstanding
          at end of year                                 1.28%      1.18%

     Net charge-offs/(recoveries) to average loans       0.17%      0.18%
</TABLE>

     As a result of management's ongoing review of the loan portfolio, loans are
classified  as  nonaccrual  when  it  is  not reasonable to expect collection of
interest  under  the  original  terms.  These loans are classified as nonaccrual
even  though the presence of collateral or the borrower's financial strength may
be  sufficient  to provide for ultimate repayment.  Interest on nonaccrual loans
is  recognized  only  when  received.  A  delinquent loan is generally placed in
nonaccrual  status when it becomes ninety days or more past due.  When a loan is
placed  in nonaccrual status, all interest that has been accrued on the loan but
remains unpaid is reversed and deducted from earnings as a reduction of reported
interest  income.  No  additional  interest is accrued on the loan balance until
the  collection of both principal and interest becomes reasonably certain.  When
a  problem loan is finally resolved, there ultimately may be an actual writedown
or  charge-off  of  the  principal  balance  of the loan which would necessitate
additional  charges  to  earnings.

     The  Company had nonperforming loans totaling $525,110 and $1,100,953 as of
December  31,  2002  and  2001,  respectively.   Where  real  estate acquired by
foreclosure  and  held for sale is included with nonperforming loans, the result
comprises  nonperforming  assets.  Loans  are  classified  as  impaired when the
collection  of  contractual  obligations,  including  principal and interest, is
doubtful.  Management  has  identified  impaired  loans  totaling $161,182 as of
December  31,  2002  compared  to  $158,002  as  of  December  31,  2001.

     A  potential  problem  loan  is  one in which management has serious doubts
about  the  borrower's  future performance under the terms of the loan contract.
These  loans are current as to principal and interest and, accordingly, they are
not  included in the nonperforming assets categories.  Management monitors these
loans closely in order to ensure that the Company's interests are protected.  At
December  31, 2002, the Company had twenty-eight borrowers with loans considered
by  management  to be potential problem loans totaling approximately $1,737,369.
The  level  of potential problem loans is factored into the determination of the
adequacy  of  the  allowance  for  loan  losses.


                                       10
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY

     The primary objective of asset/liability management is to ensure the steady
growth  of  the  Company's primary source of earnings, net interest income.  Net
interest  income  can  fluctuate  with  significant interest rate movements.  To
lessen the impact of these margin swings, the balance sheet should be structured
so that repricing opportunities exist for both assets and liabilities in roughly
equivalent  amounts  at  approximately  the  same time intervals.  Imbalances in
these  repricing  opportunities  at  any  point in time constitute interest rate
sensitivity.

     Liquidity  represents  the  ability  to provide steady sources of funds for
loan  commitments  and  investment  activities, as well as to provide sufficient
funds  to  cover  deposit  withdrawals  and  payment  of  debt  and  operating
obligations.  These  funds  can  be  obtained by converting assets to cash or by
attracting  new  deposits.

     Average  liquid  assets  (cash and amounts due from banks, interest-bearing
deposits  in  other  banks,  federal  funds sold and investment securities) were
15.08%  of average deposits for 2002, compared to 14.06% of average deposits for
2001.  The  Company  considers  its  loan  portfolio  as  an alternate source of
liquidity  since  it  has available third parties who will buy participations in
loans.  In  addition,  the  Bank  has maintained unused lines of credit with the
Federal  Home  Loan  Bank  in  excess  of  $4,000,000.

     Interest  rate  sensitivity may be controlled on either side of the balance
sheet.  On  the  asset side, management can exercise some control on maturities.
Also,  loans  may  be  structured with rate floors and ceilings on variable rate
notes  and  by  providing  for repricing opportunities on fixed rate notes.  The
Company's  investment portfolio, including federal funds sold, probably provides
the  most  flexible and fastest control over rate sensitivity since it generally
can  be  restructured  more  quickly  than  the  loan  portfolio.

     On  the liability side, deposit products can be restructured so as to offer
incentives  to  attain  the  maturity distribution desired.  Competitive factors
sometimes  make  control  over  deposits  more  difficult  and  less  effective.

     Interest  rate sensitivity refers to the responsiveness of interest-bearing
assets  and liabilities to changes in market interest rates.  The rate-sensitive
position,  or  gap, is the difference in the volume of rate-sensitive assets and
liabilities  at  a given time interval.  The general objective of gap management
is to actively manage rate-sensitive assets and liabilities to reduce the impact
of  interest rate fluctuations on the net interest margin.  Management generally
attempts  to maintain a balance between rate-sensitive assets and liabilities as
the  exposure period is lengthened to minimize the overall interest rate risk to
the  Company.

     The  asset  mix  of  the balance sheet is continually evaluated in terms of
several  variables;  yield,  credit  quality,  appropriate  funding sources, and
liquidity.  Management  of  the  liability  mix  of the balance sheet focuses on
expanding  the  various  funding  sources.

     The  interest  rate sensitivity position at December 31, 2002, is presented
in  the  table  "Interest  Sensitivity  Analysis."  The  difference  between
rate-sensitive  assets  and  rate-sensitive  liabilities,  or  the interest rate
sensitivity  gap,  is  shown  at  the  bottom  of  the  table.  The  Company was
asset-sensitive  through  the  one-year  period  and  longer time horizons.  For
asset-sensitive  institutions,  if  interest  rates  should  decrease,  the  net
interest  margins  should  decline.  Since  all interest rates and yields do not
adjust  at  the  same  velocity,  the  gap  is  only a general indicator of rate
sensitivity.


                                       11
<PAGE>
<TABLE>
<CAPTION>
                                INTEREST SENSITIVITY ANALYSIS

                                                           December 31, 2002
                                    -------------------------------------------------------------------
                                                     After
                                                   Three but
                                       Within        Within      After One
                                       Three         Twelve      but Within   After Five
                                       Months        Months      Five Years      Years        Total
                                    ------------  ------------  ------------  -----------  ------------
<S>                                 <C>           <C>           <C>           <C>          <C>
ASSETS
Earning assets:
  Federal funds sold                $ 1,233,376   $         -   $         -   $        -   $ 1,233,376
  Investment securities
   available for sale                   502,033     1,328,162     1,947,622    1,262,549     5,040,366
  Loans held for sale                 4,193,610             -             -            -     4,193,610
  Loans                              33,801,098     6,757,295    28,207,596    3,633,248    72,399,237
                                    ------------  ------------  ------------  -----------  ------------
Total earning assets                $39,730,117   $ 8,085,457   $30,155,218   $4,895,797   $82,866,589
                                    ============  ============  ============  ===========  ============

LIABILITIES
Interest-bearing liabilities:
  Money market and NOW              $17,041,812   $         -   $         -   $        -   $17,041,812
  Savings deposits                    6,390,813             -             -            -     6,390,813
  Club accounts                               -        50,706             -            -        50,706
  Certificates $100,000 and over      3,948,398     4,753,107     8,814,176            -    17,515,681
  Certificates under $100,000         4,295,022     8,411,889    12,618,973       14,213    25,340,097
  Securities sold under
   agreements to repurchase              60,964             -             -            -        60,964
  Federal Home Loan Bank Note                 -     2,600,000     2,695,000    2,215,135     7,510,135
                                    ------------  ------------  ------------  -----------  ------------
Total interest-bearing liabilities  $31,737,009   $15,815,702   $24,128,149   $2,229,348   $73,910,208
                                    ============  ============  ============  ===========  ============

Period gap                          $ 7,993,108   $(7,730,245)  $ 6,027,069   $2,666,449   $ 8,956,381

Cumulative gap                      $ 7,993,108   $   262,863   $ 6,289,932   $8,956,381   $ 8,956,381

Ratio of cumulative gap to total
  earning assets                           9.65%         0.32%         7.59%       10.81%        10.81%
</TABLE>

     As  noted  in the table "Composition of Loan Portfolio," as of December 31,
2002  approximately  $40,573,295,  or 56.04%, of the loan portfolio consisted of
commercial  loans,  commercial  real  estate loans, and real estate construction
loans.  Of  this  amount,  $24,805,013,  or  61.14%,  matures  within  one year.

     The  table  "Investment  Securities Maturity Distribution and Yields" shows
that  as  of December 31, 2002, the majority of the investment portfolio matures
within  five  years.  All debt securities of the Company have been classified as
"available-for-sale."   Another  source  of  liquidity  is  the $500,000 line of
credit  the  Company  has from correspondent banks. The Company may borrow up to
$12,367,700  from the Federal Home Loan Bank. Based on current outstanding notes
to  the  Federal Home Loan Bank, the Company has $4,857,565 available under this
credit  facility.


                                       12
<PAGE>
<TABLE>
<CAPTION>
             INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS

                                       December 31, 2002     December 31, 2001
                                     --------------------  --------------------
                                                 Year-end              Year-end
                                     Book Value   Yields   Book Value   Yields
                                     -----------  -------  -----------  -------
<S>                                  <C>          <C>      <C>          <C>
U.S. government agencies
  One year or less                   $ 1,830,195    3.33%  $   163,200    6.08%
  Over one through five years          1,947,622    4.03%    4,165,095    4.10%
  Over five years through ten years      110,774    5.80%      145,583    5.77%
  Over ten years                         938,907    6.37%    1,457,993    6.64%
                                     -----------  -------  -----------  -------
Total U.S. government agencies       $ 4,827,498    4.26%  $ 5,931,871    4.82%
                                     -----------  -------  -----------  -------
State and municipal
  Over five years through ten years  $   109,872    5.70%            -       -
  Over ten years                         102,996    5.70%            -       -
                                     -----------  -------  -----------  -------
Total state and municipal            $   212,868    5.70%            -       -
                                     -----------  -------  -----------  -------

Total all securities                 $ 5,040,366    4.32%  $ 5,931,871    4.82%
                                     ===========  =======  ===========  =======
</TABLE>

DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES

     Average  interest-bearing liabilities increased $7,934,494, or 13.21%, from
$60,072,318  in 2001, to $68,006,812 in 2002.  Average interest-bearing deposits
increased  $6,964,238,  or  11.99%,  to $65,048,657 in 2002, from $58,084,419 in
2001.  These  increases in interest-bearing deposits are the result of continued
promotional  efforts  by  management  to  increase the deposits and loans of the
Bank,  as  well  as  a  loss of confidence in the stock market by customers.  At
December  31,  2002, total deposits were $74,143,566, compared to $71,455,256 at
December  31,  2001,  an  increase  of  3.76%.

     The  following  table sets forth the deposits of the Company by category as
of  December  31,  2002  and  2001,  respectively.

<TABLE>
<CAPTION>
                                    DEPOSITS

                                              December 31,
                           --------------------------------------------------
                                     2002                      2001
                           ------------------------  ------------------------
                                        Percent of                Percent of
                             Amount      Deposits      Amount      Deposits
                           -----------  -----------  -----------  -----------
<S>                        <C>          <C>          <C>          <C>
Demand deposit accounts    $ 7,804,457       10.53%  $ 6,600,971        9.24%
NOW accounts                10,342,700       13.95%   11,184,109       15.65%
Money market accounts        6,699,112        9.04%   10,066,760       14.09%
Savings accounts             6,441,519        8.69%    5,249,411        7.35%
Time deposits less than
   $100,000                 25,340,097       34.17%   24,159,233       33.81%
Time deposits of $100,000
   or over                  17,515,681       23.62%   14,194,772       19.86%
                           -----------  -----------  -----------  -----------
      Total deposits       $74,143,566      100.00%  $71,455,256      100.00%
                           ===========  ===========  ===========  ===========
</TABLE>

     Core  deposits,  which exclude certificates of deposit of $100,000 or more,
provide  a relatively stable funding source for the Company's loan portfolio and
other  earning  assets.  The  Company's  core deposits decreased $632,599 during
2002.  Deposits, and particularly core deposits, have been the Company's primary
source  of  funding and have enabled the Company to meet both its short-term and
long-term  liquidity  needs.  Management  anticipates  that  such  deposits will
continue  to  be  the  Company's  primary  source  of funding in the future, but


                                       13
<PAGE>
management  anticipates  more  borrowings  from  the Federal Home Loan Bank as a
secondary  funding  source.  The  Company's  loan-to-deposit  ratio  was  96.39%
December  31,  2002  and 88.23% at the end of 2001, with a 2002 ratio of average
loans to average deposits of 92.75%.  The maturity distribution of the Company's
time  deposits  over  $100,000  at  December 31, 2002, is shown in the following
table.

<TABLE>
<CAPTION>
                        MATURITIES OF CERTIFICATES OF DEPOSIT
                     AND OTHER TIME DEPOSITS OF $100,000 OR MORE

                                              December 31, 2002
                         -----------------------------------------------------------
                                    After Three   After Six
                           Within     Through     Through      After
                           Three        Six        Twelve      Twelve
                           Months      Months      Months      Months       Total
                         ----------  ----------  ----------  ----------  -----------
<S>                      <C>         <C>         <C>         <C>         <C>
Certificates of deposit
  of $100,000 or more    $3,948,398  $1,923,736  $2,829,371  $8,814,176  $17,515,681
                         ==========  ==========  ==========  ==========  ===========
</TABLE>

     Large  certificate  of  deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity  planning  purposes  than  core deposits.  Some financial institutions
partially fund their balance sheets using large certificates of deposit obtained
through  brokers.  These  brokered  deposits  are  generally  expensive  and are
unreliable  as  long-term  funding  sources.  The  Company  has limited brokered
deposits  to  less  than  $3,000,000.

     Borrowed  funds  consist  primarily of short-term borrowings in the form of
securities  sold  under agreements to repurchase and notes from the Federal Home
Loan  Bank.  Average  borrowings  were $2,958,155 and $1,987,899 during 2002 and
2001, respectively. As previously noted, the Company's primary funding source is
core  deposits.

NONINTEREST  INCOME

     Noninterest income for 2002 was $617,081, compared to noninterest income in
2001  of  $590,601, an increase of $26,480, or 4.48%.   During much of 2001, the
Company  had  two  mortgage originators, compared to one originator during 2002,
which  contributed  to  the decrease in mortgage income of $46,156. Return check
and  overdraft  fee  income  increased  $42,541  and  ATM  network and VISA fees
increased  $17,623  due  to  increased  account  volume.

     The following table presents the principal components of noninterest income
for  the  years  ended  December  31,  2002  and  2001,  respectively.

<TABLE>
<CAPTION>
                               NONINTEREST INCOME

                                                                   2002       2001
                                                                 ---------  ---------
<S>                                                              <C>        <C>

     Service charges on deposit accounts                         $213,592   $171,384
     Mortgage banking fees                                        258,792    304,953
     Other noninterest income                                     144,697    114,264
                                                                 ---------  ---------
          Total noninterest income                               $617,081   $590,601
                                                                 =========  =========

     Noninterest income as a percentage of average total assets      0.75%      0.82%
                                                                 =========  =========
</TABLE>


                                       14
<PAGE>
NONINTEREST  EXPENSE

     Noninterest  expense  increased  $209,877, or 8.56%, to $2,661,481 in 2002,
from  $2,451,604  in 2001. The increase was the result of an increase of $95,094
in  compensation  and  related  expenses,  an  increase  of  $32,836  for  data
processing,  an  increase  of $28,600 for directors fees, an increase of $19,567
for  furniture  and  equipment,  an increase of $11,521 for collection costs, an
increase  of  $9,446  for  training,  and  an increase of $8,136 for maintenance
contracts.  These  increases  were  offset  by  a  decrease  of  $18,626  in the
provision  for  loan  commitments.  Personnel  costs,  occupancy costs, and data
processing  costs  increased  as  a  result of 2002 being the first full year of
operating  the  Oxford  branch.  Also personnel expenses increased when the Bank
added  a  commercial  lender  and  a  consumer  lender  in  July,  2002.

     As  the  Company  experienced  greater  net  loan  losses, it also incurred
greater  collection costs.  The increased collection costs were more than offset
by  the decrease in the provision for loan commitments.  Management reviewed the
outstanding commitments as of December 31, 2002, determining that the reserve of
$61,892,  or  .49%  of  outstanding  commitments,  was  adequate.   The  Company
reversed  $18,626  of  the  allowance  for  loan  commitment losses during 2002.

     The  following  table  presents  the  principal  components  of noninterest
expense for the years ended December 31, 2002 and 2001, respectively.

<TABLE>
<CAPTION>
                                  NONINTEREST EXPENSE

                                                                     2002         2001
                                                                  -----------  -----------
<S>                                                               <C>          <C>
     Compensation and related expenses                            $1,546,476   $1,451,382
     Occupancy expense                                               158,419      156,775
     Furniture and equipment expense                                 139,821      120,254
     Advertising                                                      70,800       70,848
     Data processing                                                 196,864      164,028
     Deposit assessment                                               12,182       11,154
     Directors fees                                                   39,000       10,400
     Insurance                                                        11,905        9,991
     Loan reports and collection costs                                34,249       27,389
     Postage                                                          52,377       47,590
     Professional fees                                                93,263       94,166
     Provision for loan commitments                                  (18,626)           -
     Proxy and transfer agent costs                                   18,833       22,658
     Software amortization                                            12,947        9,664
     Stationery and supplies                                          72,588       71,651
     Telephone                                                        34,861       30,495
     Training                                                         27,355       17,909
     Travel and entertainment                                         27,082       32,565
     Other                                                           131,085      102,685
                                                                  -----------  -----------
          Total noninterest expense                               $2,661,481   $2,451,604
                                                                  ===========  ===========

     Noninterest expense as a percentage of average total assets        3.24%        3.42%
                                                                  ===========  ===========
</TABLE>


                                       15
<PAGE>
CAPITAL

     Under the capital guidelines of the Federal Reserve Board and the FDIC, the
Company  and  the  Bank  are currently required to maintain a minimum risk-based
total  capital  ratio  of  8%,  with  at  least 4% being Tier 1 capital.  Tier 1
capital  consists of common stockholders' equity, qualifying perpetual preferred
stock,  and  minority interests in equity accounts of consolidated subsidiaries,
less certain intangibles.  In addition, the Company and the Bank must maintain a
minimum  Tier  1 leverage ratio (Tier 1 capital to total assets) of at least 4%.

     At  December  31,  2002, the Company and the Bank exceeded their regulatory
capital  ratios,  as  set  forth  in  the  following  table.

<TABLE>
<CAPTION>
                           ANALYSIS OF CAPITAL

                                                            Required
                                           Company   Bank   Minimums
                                           --------  -----  ---------
<S>                                        <C>       <C>    <C>

          Tier 1 risk-based capital ratio      8.4%   8.3%       4.0%
          Total risk-based capital ratio       9.7%   9.6%       8.0%
          Tier 1 leverage ratio                7.1%   7.0%       4.0%
</TABLE>

ACCOUNTING  RULE  CHANGES

     FASB  Statement No. 148, Accounting for Stock-Based Compensation-Transition
and  Disclosure  amends  FASB  Statement  No.  123,  Accounting  for Stock-Based
Compensation,  to  provide  alternative  methods  of  transition for a voluntary
change  to  the  fair  value based method of accounting for stock-based employee
compensation.  In,  addition,  this Statement amends the disclosure requirements
of  Statement  123  to  require  prominent disclosure in both annual and interim
financial  statements  about  the  method of accounting for stock-based employee
compensation  and  the  effect  of  the  method  used  on reported results.  The
effective  dates  of  parts of the Statement are for years ending after December
15,  2002 and parts for years beginning after December 15, 2002.  This Statement
had no effect on the financial statements of the Company because the Company has
not  granted  any  options  since  the  implementation  of  this  Statement.

IMPACT OF INFLATION

     Unlike  most  industrial companies, the assets and liabilities of financial
institutions,  such  as  the  Company  and  the  Bank, are primarily monetary in
nature.  Therefore,  interest  rates  have  a  more  significant  effect  on the
Company's  performance  than  do  the  effects of changes in the general rate of
inflation and changes in prices.  In addition, interest rates do not necessarily
move  in  the same direction or in the same magnitude as the prices of goods and
services.  As discussed previously, management seeks to manage the relationships
between  interest  sensitive  assets and liabilities in order to protect against
wide  interest rate fluctuations, including those resulting from inflation.  See
"Interest  Rate  Sensitivity"  table  above.

INDUSTRY DEVELOPMENTS

     Certain recently enacted and proposed legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institutions industry.  The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations.

                     MARKET FOR COMPANY'S COMMON EQUITY AND
                           RELATED STOCKHOLDER MATTERS

     The  Company's  Articles  of  Incorporation  authorize  it  to  issue up to
5,000,000  shares  of  its  common stock, par value $0.10 per share (the "Common
Stock").  The  Company  closed  its  initial  public  offering  (the  "Initial
Offering")  of  Common  Stock on December 31, 1992, in which the Company offered
for  sale  a  minimum  of  535,000  shares  and a maximum of 700,000 shares at a
purchase  price  of  $10.00  per  share.  As  a  result of the Initial Offering,
559,328  shares  of  the  Common  Stock  were  issued.


                                       16
<PAGE>
     As of March 19, 2003, there were approximately 445 holders of record of the
Common  Stock  and  565,833  shares  of Common Stock issued and outstanding.  In
addition,  there  were  approximately  224,685  shares  of Common Stock issuable
pursuant to options and warrants which may be issued in the next 60 days.  There
is no established public trading market in the stock, and there is no likelihood
that  a  trading  market  will develop in the near future.  The development of a
trading  market  may  be  inhibited because insiders hold a large portion of the
Company's  shares.  Transactions  in  the  Common  Stock  are infrequent and are
negotiated  privately  between  the  persons  involved  in  those  transactions.

     All outstanding shares of Common Stock of the Company are entitled to share
equally  in dividends from funds legally available, when, as, and if declared by
the  Board  of  Directors.  The  Company  paid  cash dividends of $.05 per share
during  each quarter of 2001.  The total 2001 dividend paid was $112,064. In the
first  quarter  of  2002,  the  Company  paid a cash dividend to stockholders of
record  as  of  January 31, 2002 of $0.05 per share plus an additional $0.20 per
share  as  a  special  one  time  only  dividend.  The  total  dividend paid was
$140,079.50.  For each of the remaining three quarters in 2002, the Company paid
a  cash  dividend  of  $0.05 per share to stockholders of record as of April 30,
2002,  July 31, 2002, and October 31, 2002.  The total dividend paid for each of
the  second, third and fourth quarters was $28,015.90.  The total dividends paid
in  2002  were $224,127.20.  The Company currently has no source of income other
than  dividends  and  other  payments  received from the Bank.  The Company does
intend  to  pay  a  quarterly  cash dividend; however, any future dividends will
depend  upon  the  Company's  financial  performance  and  capital requirements.


                                       17
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



The Board of Directors and Stockholders
Easton Bancorp, Inc. and Subsidiary
Easton, Maryland



     We have audited the consolidated balance sheets of Easton Bancorp, Inc. and
Subsidiary as of December 31, 2002, 2001, and 2000, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Easton
Bancorp, Inc. and Subsidiary as of December 31, 2002, 2001, and 2000, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.




Salisbury, Maryland
January 27, 2003


                                       18
<PAGE>
<TABLE>
<CAPTION>
                             EASTON BANCORP, INC. AND SUBSIDIARY

                                 CONSOLIDATED BALANCE SHEETS


                                                                    December 31,
                                                           2002         2001         2000
                                                       -----------  -----------  ------------
<S>                                                    <C>          <C>          <C>
                                    ASSETS

Cash and due from banks                                $ 2,361,869  $ 1,415,318  $ 1,202,011
Federal funds sold                                       1,233,376    4,831,188    1,325,552
Investment in Federal Home Loan Bank stock                 431,500      431,500      204,200
Investment securities available for sale                 5,040,366    5,931,871    4,978,928
Loans held for sale                                      4,193,610      622,000      353,110
Loans, less allowance for loan losses of
  $924,859, $750,768, and $645,501                      71,465,781   63,044,907   54,249,898
Cash value of life insurance                             1,335,376    1,281,871            -
Premises and equipment                                   1,569,357    1,624,379    1,670,019
Accrued interest receivable                                420,941      432,134      397,492
Other assets                                               131,416      135,173      115,072
Deferred income taxes                                      157,129       70,262       40,211
                                                       -----------  -----------  ------------
     Total assets                                      $88,340,721  $79,820,603  $64,536,493
                                                       ===========  ===========  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
  Noninterest-bearing                                  $ 7,804,457  $ 6,600,971  $ 5,048,604
  Interest-bearing                                      66,339,109   64,854,285   52,069,826
                                                       -----------  -----------  ------------
     Total deposits                                     74,143,566   71,455,256   57,118,430
Accrued interest payable                                   110,480      112,507      138,693
Securities sold under agreements to repurchase              60,964       65,486       69,984
Notes payable                                            7,510,136    2,222,875    1,630,092
Other liabilities                                          280,962      149,775      153,025
                                                       -----------  -----------  ------------
     Total liabilities                                  82,106,108   74,005,899   59,110,224
                                                       -----------  -----------  ------------
Stockholders' equity
  Common stock, par value $.10 per share; authorized
    5,000,000 shares, issued and outstanding 565,833
    shares in 2002 and 560,318 shares in 2001 and 2000      56,583       56,032       56,032
  Additional paid-in capital                             5,282,086    5,227,487    5,227,487
  Retained earnings                                        821,778      496,104      153,211
                                                       -----------  -----------  ------------
                                                         6,160,447    5,779,623    5,436,730
  Accumulated other comprehensive income                    74,166       35,081      (10,461)
                                                       -----------  -----------  ------------
     Total stockholders' equity                          6,234,613    5,814,704    5,426,269
                                                       -----------  -----------  ------------
     Total liabilities and stockholders' equity        $88,340,721  $79,820,603  $64,536,493
                                                       ===========  ===========  ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       19
<PAGE>
<TABLE>
<CAPTION>
                               EASTON BANCORP, INC. AND SUBSIDIARY

                                CONSOLIDATED STATEMENTS OF INCOME


                                                                    Years Ended December 31,
                                                                  2002        2001        2000
                                                               ----------  ----------  ----------
<S>                                                            <C>         <C>         <C>
INTEREST REVENUE
  Loans, including fees                                        $4,870,004  $5,063,793  $4,730,145
  U.S. government agency securities                               234,226     243,224     283,626
  State and municipal securities                                    3,982           -           -
  Federal funds sold                                               51,286     111,011     132,723
  Deposits in banks                                                     -         496         508
  Dividends                                                        22,914      27,399      15,106
                                                               ----------  ----------  ----------
     Total interest revenue                                     5,182,412   5,445,923   5,162,108
                                                               ----------  ----------  ----------
INTEREST EXPENSE
  Interest on deposits                                          1,873,345   2,569,798   2,364,889
  Interest on borrowed funds                                      123,125     101,707     103,508
                                                               ----------  ----------  ----------
     Total interest expense                                     1,996,470   2,671,505   2,468,397
                                                               ----------  ----------  ----------

     Net interest income                                        3,185,942   2,774,418   2,693,711

PROVISION FOR LOAN LOSSES                                         290,433     212,946     147,643
                                                               ----------  ----------  ----------
     Net interest income after provision for loan losses        2,895,509   2,561,472   2,546,068
                                                               ----------  ----------  ----------

NONINTEREST REVENUE
  Service charges on deposit accounts                             213,592     171,384     165,874
  Mortgage banking fees                                           258,792     304,953      87,391
  Other noninterest revenue                                       144,697     114,264      39,939
                                                               ----------  ----------  ----------
     Total noninterest revenue                                    617,081     590,601     293,204
                                                               ----------  ----------  ----------

NONINTEREST EXPENSE
  Compensation and related expenses                             1,546,476   1,451,382   1,170,847
  Occupancy                                                       158,419     156,775     114,246
  Furniture and equipment                                         139,821     120,254     103,043
  Other operating                                                 816,765     723,193     640,132
                                                               ----------  ----------  ----------
     Total noninterest expense                                  2,661,481   2,451,604   2,028,268
                                                               ----------  ----------  ----------

Income before income taxes                                        851,109     700,469     811,004

Income tax expense                                                301,308     245,512     307,259
                                                               ----------  ----------  ----------

NET INCOME                                                     $  549,801  $  454,957  $  503,745
                                                               ==========  ==========  ==========

Earnings per common share
  Basic                                                        $     0.98  $     0.81  $     0.90
  Diluted                                                      $     0.95  $     0.80  $     0.87
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       20
<PAGE>
<TABLE>
<CAPTION>
                                EASTON BANCORP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


                                                                               Accumulated
                                                        Additional   Retained     other
                                      Common stock       paid-in     earnings comprehensive Comprehensive
                                   Shares   Par value    capital     (deficit)    income      income
                                  --------  ----------  ----------  ----------  -----------  --------
<S>                               <C>       <C>         <C>         <C>         <C>          <C>
Balance, December 31, 1999         560,318  $   56,032  $5,227,487  $(322,518)  $(77,371)

Net income                               -           -           -    503,745            -   $503,745
Unrealized gain on investment
  securities available for sale
  net of income taxes of $34,470         -           -           -          -       66,910     66,910
                                                                                             --------
Comprehensive income                                                                         $570,655
                                                                                             ========
Cash dividend, $.05 per share            -           -           -    (28,016)           -
                                  --------  ----------  ----------  ----------  -----------
Balance, December 31, 2000         560,318      56,032   5,227,487    153,211      (10,461)

Net income                               -           -           -    454,957            -   $454,957
Unrealized gain on investment
  securities available for sale
  net of income taxes of $23,461         -           -           -          -       45,542     45,542
                                                                                             --------
Comprehensive income                                                                         $500,499
                                                                                             ========
Cash dividend, $.20 per share            -           -           -   (112,064)           -
                                  --------  ----------  ----------  ----------  -----------
Balance, December 31, 2001         560,318      56,032   5,227,487    496,104       35,081

Net income                               -           -           -    549,801            -   $549,801
Unrealized gain on investment
  securities available for sale
  net of income taxes of $20,134         -           -           -          -       39,085     39,085
                                                                                             --------
Comprehensive income                                                                         $588,886
                                                                                             ========
Stock warrants exercised             5,515         551      54,599          -            -
Cash dividend, $.40 per share            -           -           -   (224,127)           -
                                  --------  ----------  ----------  ----------  -----------
Balance, December 31, 2002         565,833  $   56,583  $5,282,086  $ 821,778     $ 74,166
                                  ========  ==========  ==========  ==========  ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                          EASTON BANCORP, INC. AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                     Years Ended December 31,
                                                                                2002           2001           2000
                                                                            -------------  -------------  ------------
<S>                                                                         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Interest received                                                         $  5,237,596   $  5,416,584   $ 5,032,585
  Proceeds from loan sales                                                    11,114,608     17,181,217     5,591,940
  Fees, commissions, and rent received                                           632,203        538,465       298,503
  Loans originated for sale                                                  (14,686,218)   (17,450,107)   (5,875,050)
  Interest paid                                                               (2,052,002)    (2,754,562)   (2,438,592)
  Payments to suppliers and employees                                         (2,495,830)    (2,298,145)   (1,902,206)
  Income taxes paid                                                             (307,638)      (289,286)     (206,100)
                                                                            -------------  -------------  ------------
                                                                              (2,557,281)       344,166       501,080
                                                                            -------------  -------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Loans originated, net of principal repayments                               (8,707,140)    (9,002,995)   (8,395,862)
  Purchase of investment securities available for sale                        (1,475,984)    (5,584,603)   (4,102,849)
  Proceeds from calls and maturities of investment securities
    available for sale                                                         2,378,549      4,690,401     2,167,738
  Proceeds from sales of investment securities available for sale                      -              -     1,263,844
  Purchase of Federal Home Loan Bank stock                                             -       (227,300)      (25,200)
  Investment in life insurance contract                                                -     (1,225,000)            -
  Proceeds from sale of other real estate and repossessions                            -         18,505             -
  Purchase of premises, equipment, and software                                  (91,477)      (107,278)      (85,804)
  Purchase of other real estate                                                        -              -        (1,330)
                                                                            -------------  -------------  ------------
                                                                              (7,896,052)   (11,438,270)   (9,179,463)
                                                                            -------------  -------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (decrease) in
    Time deposits                                                              4,451,067      5,079,934     5,706,197
    Other deposits                                                            (1,762,757)     9,256,892     4,285,787
    Securities sold under agreements to repurchase                                (4,522)        (4,498)     (210,683)
  Advances under notes payable, net of repayments                              5,287,261        592,783    (1,948,401)
  Proceeds from warrants exercised                                                55,150              -             -
  Dividends paid                                                                (224,127)      (112,064)      (28,016)
                                                                            -------------  -------------  ------------
                                                                               7,802,072     14,813,047     7,804,884
                                                                            -------------  -------------  ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          (2,651,261)     3,718,943      (873,499)

Cash and cash equivalents at beginning of year                                 6,246,506      2,527,563     3,401,062
                                                                            -------------  -------------  ------------
Cash and cash equivalents at end of year                                    $  3,595,245   $  6,246,506   $ 2,527,563
                                                                            =============  =============  ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                               EASTON BANCORP, INC. AND SUBSIDIARY

                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (Continued)

                                                                    Years Ended December 31,
                                                                 2002         2001        2000
                                                             ------------  ----------  ----------
<S>                                                          <C>           <C>         <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
  OPERATING ACTIVITIES
    Net income                                               $   549,801   $ 454,957   $ 503,745

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
    OPERATING ACTIVITIES
    Provisions for loan and commitment losses                    271,807     212,946     172,893
    Depreciation and amortizaton                                 143,286     131,405     116,593
    Securities amortization, net of accretion                     48,158      10,263     (12,792)
    Deferred income taxes                                       (107,000)    (53,513)    102,337
    Increase in cash surrender value of life insurance           (53,505)    (56,871)          -
    Loss (gain) on sale of other real estate owned
      and repossessions                                                -       1,495           -
    Loss on sales and calls of securities                              -           -      10,338
    Net loans originated for sale                             (3,571,610)   (268,890)   (283,110)
    Decrease (increase) in
      Accrued interest receivable                                 11,193     (34,642)    (96,956)
      Other assets                                                 6,970     (34,865)    (21,926)
    Increase (decrease) in
      Deferred loan origination fees                              (4,167)     (4,960)    (30,113)
      Accrued interest payable                                    (2,027)    (26,186)     29,805
      Accrued income taxes, net of prepaid taxes                 100,670       9,739      (1,178)
      Other liabilities                                           49,143       3,288      11,444
                                                             ------------  ----------  ----------
                                                             $(2,557,281)  $ 344,166   $ 501,080
                                                             ============  ==========  ==========



Noncash financing and investing activities
  Other assets acquired through repossession                 $         -   $       -   $  20,000
                                                             ============  ==========  ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       23
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          The accounting and reporting policies in the financial statements
     conform to generally accepted accounting principles and to general
     practices within the banking industry. Management makes estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements. These estimates and assumptions may affect the
     reported amounts of revenues and expenses during the reporting period.
     Actual results could differ from these estimates.

     Business
     --------
          Easton Bancorp, Inc. is a one-bank holding company. Easton Bank &
     Trust Company is a financial institution operating primarily in Talbot and
     Caroline Counties on the Eastern Shore of Maryland. The Bank offers deposit
     services and loans to individuals, small businesses, associations, and
     government entities. Other services include direct deposit of payroll and
     social security checks, automatic drafts from accounts, automated teller
     machine services, cash management services, safe deposit boxes, money
     orders, and travelers cheques. The Bank also offers credit and debit card
     services and discount brokerage services through a correspondent.

     Principles of consolidation
     ---------------------------
          The consolidated financial statements of Easton Bancorp, Inc. include
     the accounts of its wholly owned subsidiary, Easton Bank & Trust Company.
     Intercompany accounts and transactions have been eliminated.

     Cash and cash equivalents
     -------------------------
          For purposes of reporting cash flows, cash and cash equivalents
     include cash on hand, amounts due from banks, and federal funds sold.

     Investment securities
     ---------------------
          As securities are purchased, management determines if the securities
     should be classified as held to maturity or available for sale. Securities
     which management has the intent and ability to hold to maturity are
     recorded at amortized cost which is cost adjusted for amortization of
     premiums and accretion of discounts to maturity. Securities which may be
     sold before maturity are classified as available for sale and carried at
     fair value with unrealized gains and losses included in stockholders'
     equity on an after tax basis.

     Loans held for sale
     -------------------
          The Company originates loans that are sold to investors. Because of
     the short holding period, these loans are carried at cost, which
     approximates market value.

     Loans and allowance for loan losses
     -----------------------------------
          Loans are stated at face value, plus deferred origination costs, less
     deferred origination fees and the allowance for loan losses. Interest on
     loans is credited to income based on the principal amounts outstanding.
     Origination fees are recorded as income over the contractual life of the
     related loans as an adjustment of yield. The accrual of interest is
     discontinued when any portion of the principal or interest is ninety days
     past due and collateral is insufficient to discharge the debt in full.


                                       24
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Loans and allowance for loan losses (continued)
     -----------------------------------------------
          The Bank maintains an allowance for loan losses that is adequate to
     provide for potential loan losses based on management's review and analysis
     of the loan portfolio. For significant problem loans, management's review
     consists of an evaluation of the financial strengths of the borrowers and
     guarantors, the related collateral, and the effects of economic conditions.
     The Bank uses a loan grading system where all loans are graded based on
     management's evaluation of the risk associated with each loan. Based on the
     loan grading, a factor is applied to the loan balance to provide for
     potential losses. The overall evaluation of the adequacy of the total
     allowance for loan losses is based on an analysis of historical loan loss
     ratios, loan charge-offs, delinquency trends, and previous collection
     experience, along with an assessment of the effects of external economic
     conditions.

          If the current economy or real estate market were to suffer a severe
     downturn, the estimate for uncollectible accounts would need to be
     increased. Loan losses are charged to the allowance when management
     believes that collectibility is unlikely. Collections of loans previously
     charged off are added to the allowance at the time of recovery.

          Loans are considered impaired when, based on current information,
     management considers it unlikely that the collection of principal and
     interest payments will be made according to contractual terms. Generally,
     loans are not reviewed for impairment until the accrual of interest has
     been discontinued.

     Premises and equipment
     ----------------------
          Premises and equipment are recorded at cost less accumulated
     depreciation and amortization. Depreciation and amortization are computed
     over the estimated useful lives using the straight-line method. Leasehold
     improvements are amortized over the terms of the lease or the estimated
     useful lives of the improvements, whichever is shorter.

     Advertising
     -----------
          Advertising costs are expensed over the life of ad campaigns. General
     purpose advertising is charged to expense as incurred.

     Income taxes
     ------------
          The provision for income taxes includes taxes payable for the current
     year and deferred income taxes. Deferred income taxes are provided for the
     temporary differences between financial and taxable income.

          Deferred tax assets and liabilities are determined based on the
     difference between the financial statement and tax bases of assets and
     liabilities using enacted tax rates in effect for the year in which the
     differences are expected to reverse.

     Earnings per share
     ------------------
          Basic earnings per common share are determined by dividing net income
     by the weighted average number of shares of common stock outstanding.
     Diluted earnings per share are calculated including the average dilutive
     common stock equivalents outstanding during the period.

          Dilutive common equivalent shares consist of stock options and
     warrants, calculated using the treasury stock method. In loss periods,
     dilutive common equivalent shares are excluded since the effect would be
     antidilutive.


                                       25
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Stock options
     -------------
          The Company accounts for stock options under Accounting Principles
     Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No.
     25").

2.   CASH AND DUE FROM BANKS

          The Bank normally carries balances with other banks that exceed the
     federally insured limit. The average balances carried in excess of the
     limit, including unsecured federal funds sold to the same banks, were
     $3,133,360, $2,968,797, and $2,094,348 for 2002, 2001, and 2000,
     respectively.

          Banks are required to carry noninterest-bearing cash reserves at
     specified percentages of deposit balances. The Bank's normal amount of cash
     on hand and on deposit with other banks is sufficient to satisfy the
     reserve requirements.

3.   EARNINGS PER SHARE

          Basic earnings per share is computed by dividing net income by the
     weighted average number of common shares outstanding for the period.
     Diluted earnings per share reflects the potential dilution of earnings per
     share under the treasury stock method which could occur if options or
     warrants representing contracts to issue common stock were exercised.

          Earnings per share (EPS) are calculated as follows:

                                        2002     2001     2000
                                       -------  -------  -------

     Weighted average basic shares     560,333  560,318  560,318
     Weighted average dilutive shares   17,487    8,427   15,634
                                       -------  -------  -------
         Total                         577,820  568,745  575,952
                                       =======  =======  =======

4.   PROFIT SHARING AND RETIREMENT PLANS

          In 1996, the Bank adopted a defined contribution profit sharing plan
     under Section 401(k) of the Internal Revenue Code. The plan covers
     substantially all of the employees and allows discretionary Bank
     contributions. During 2002, 2001, and 2000, the Board of Directors approved
     contributions that totaled $12,308, $11,575, and $9,492, respectively,
     matching 25% of employee contributions.

          In February 2001, the Bank purchased life insurance to fund
     supplemental retirement benefits for an executive officer of the Bank.
     Vesting occurs at the rate of 10% per year. During 2002 and 2001 the Bank
     incurred expenses related to this benefit of $18,657 and $10,621,
     respectively.


                                       26
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


5.   INVESTMENT SECURITIES

          Investment securities are summarized as follows:

<TABLE>
<CAPTION>
                                 Amortized       Unrealized   Unrealized     Market
     DECEMBER 31, 2002              cost            gains       losses       value
---------------------------  ------------------  -----------  -----------  ----------
<S>                          <C>                 <C>          <C>          <C>
  Available for sale
    U. S. government agency  $        4,719,640  $   107,858  $         -  $4,827,498
    State and municipal                 208,353        5,418          903     212,868
                             ------------------  -----------  -----------  ----------
                             $        4,927,993  $   113,276  $       903  $5,040,366
                             ==================  ===========  ===========  ==========


    December 31, 2001
---------------------------
    U. S. government agency  $        5,878,717  $    63,727  $    10,573  $5,931,871
                             ==================  ===========  ===========  ==========

    December 31, 2000
---------------------------
    U. S. government agency  $        4,994,778  $    16,747  $    32,597  $4,978,928
                             ==================  ===========  ===========  ==========
</TABLE>

          Proceeds from the sale of investments available for sale in 2000 were
     $1,263,844. Gross gains of $10,338 were recorded on these sales.

          Contractual maturities and the amount of pledged securities are shown
     below. Actual maturities may differ from contractual maturities because
     borrowers may have the right to call or prepay obligations. Mortgage-backed
     securities are due in monthly installments.

<TABLE>
<CAPTION>
                                   2002                    2001                   2000
                          ======================  ======================  ======================
                          Amortized     Market    Amortized     Market    Amortized     Market
                             cost       value        cost       value        cost       value
                          ----------  ----------  ----------  ----------  ----------  ----------
<S>                       <C>         <C>         <C>         <C>         <C>         <C>
Due
    One year or less      $1,812,820  $1,830,195  $  159,966  $  163,200  $  250,000  $  247,930
    After one year
      through five years   1,568,179   1,595,924   3,910,516   3,932,301   3,205,948   3,182,139
    After five years
      through ten years      104,454     109,871           -           -           -           -
    After ten years          103,899     102,996           -           -           -           -
    Mortgage-backed
      securities           1,338,641   1,401,380   1,808,235   1,836,370   1,538,830   1,548,859
                          ----------  ----------  ----------  ----------  ----------  ----------
                          $4,927,993  $5,040,366  $5,878,717  $5,931,871  $4,994,778  $4,978,928
                          ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

          Securities with a carrying value of $1,852,194 were pledged as
     collateral for repurchase agreements and to secure government deposits as
     of December 31, 2002


                                       27
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


6.   LOANS AND ALLOWANCE FOR LOAN LOSSES

          Major classifications of loans are as follows:

<TABLE>
<CAPTION>
                                                           2002         2001         2000
                                                        -----------  -----------  -----------
<S>                                                     <C>          <C>          <C>
  Commercial                                            $14,062,135  $13,231,859  $10,032,250
  Real estate                                            40,350,927   34,342,588   32,573,488
  Construction                                            7,319,229    7,573,805    5,096,238
  Home equity                                             5,505,157    3,412,440    2,727,880
  Consumer                                                5,161,789    5,239,150    4,474,671
                                                        -----------  -----------  -----------
                                                         72,399,237   63,799,842   54,904,527
  Less deferred loan origination fees, net of deferred
    origination costs                                         8,597        4,167        9,128
  Less allowance for loan losses                            924,859      750,768      645,501
                                                        -----------  -----------  -----------
  Loans, net                                            $71,465,781  $63,044,907  $54,249,898
                                                        ===========  ===========  ===========
</TABLE>

          The residential mortgage portfolio is pledged as collateral under
     lines of credit from the Federal Home Loan Bank.

          The rate repricing distribution of the loan portfolio follows:

<TABLE>
<CAPTION>
<S>                                                     <C>          <C>          <C>
  Immediately                                           $29,763,093  $17,857,739  $11,846,512
  Within one year                                        10,795,300   12,246,033   11,460,593
  Over one to five years                                 28,207,596   30,507,558   27,440,510
  Over five years                                         3,633,248    3,188,512    4,156,912
                                                        -----------  -----------  -----------
                                                        $72,399,237  $63,799,842  $54,904,527
                                                        ===========  ===========  ===========
</TABLE>

          Transactions in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
<S>                                                     <C>          <C>          <C>
  Beginning balance                                     $   750,768  $   645,501  $   555,129
  Provision charged to operations                           290,433      212,946      147,643
  Recoveries                                                 35,895       87,792       15,403
                                                        -----------  -----------  -----------
                                                          1,077,096      946,239      718,175
  Charge-offs                                               152,237      195,471       72,674
                                                        -----------  -----------  -----------
  Ending balance                                        $   924,859  $   750,768  $   645,501
                                                        ===========  ===========  ===========
</TABLE>


                                       28
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


6.   LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

          Nonaccrual loans and loans past due 90 days or more are as follows:

<TABLE>
<CAPTION>
                                                    2002         2001        2000
                                                -----------  -----------  ----------
<S>                                             <C>          <C>          <C>
  Nonaccrual
    Commercial                                  $    33,073  $   116,106  $   88,886
    Mortgage                                        482,822      213,355     228,499
    Installment                                       8,215       23,585      39,510
                                                -----------  -----------  ----------
                                                $   524,110  $   353,046  $  356,895
                                                ===========  ===========  ==========

  Interest not accrued                          $    14,750  $    19,654  $   28,931
                                                ===========  ===========  ==========
  Loans past due ninety days or more,
    still accruing interest                     $     1,000  $   747,907  $   97,984
                                                ===========  ===========  ==========
</TABLE>

          Included in nonaccrual loans at December 31, 2002 and 2001, are
     impaired loans totaling $161,182 and $158,002, respectively. Average
     impaired loans for years ending 2002 and 2001 were $178,882 and $179,538.
     Management allocated $23,463 of the 2002 allowance and $52,578 of the 2001
     allowance for loan losses to impaired loans and recognized related
     charged-off loans of $164,469 in 2002 and $29,492 in 2001. No interest was
     recognized on these loans in 2002 or 2001.

          The following commitments, lines of credit, and letters of credit are
     outstanding as of December 31:

<TABLE>
<CAPTION>
<S>                                             <C>          <C>          <C>
  Construction loans                            $ 4,634,213  $ 3,757,443  $3,438,181
  Lines of credit, including home equity lines    6,543,075    5,675,616   4,912,511
  Overdraft protection lines                        371,753      364,390     306,314
  Standby letters of credit                       1,053,583      725,018     410,636
                                                -----------  -----------  ----------
                                                $12,602,624  $10,522,467  $9,067,642
                                                ===========  ===========  ==========
</TABLE>

     Loan commitments and lines of credit are agreements to lend to a customer
as long as there is no violation of any condition to the contract. Loan
commitments may have rates fixed at current market amounts, fixed expiration
dates, and may require payment of a fee. Lines of credit generally have variable
interest rates. Such lines do not represent future cash requirements because it
is unlikely that all customers will draw upon their lines in full at any time.

     Letters of credit are commitments issued to guarantee the performance of a
customer to a third party.

     Loan commitments, lines of credit and letters of credit are made on the
same terms, including collateral, as outstanding loans. The Company's exposure
to credit loss in the event of nonperformance by the borrower is represented by
the contract amount of the commitment. Management includes a provision for
potential loss from funding these commitments in other operating expenses.


                                       29
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


7.   PREMISES AND EQUIPMENT

          A summary of premises and equipment and the related depreciation
     expense is as follows:

<TABLE>
<CAPTION>
                                       Estimated
                                      useful lives     2002        2001        2000
                                      ------------  ----------  ----------  ----------
<S>                                   <C>           <C>         <C>         <C>
  Land                                           -  $  295,211  $  295,211  $  295,211
  Land improvements                       20 years      40,512      40,512      40,512
  Building                             10-40 years   1,304,503   1,304,503   1,304,503
  Furniture, fixtures, and equipment    5-10 years     825,252     749,934     703,428
                                                    ----------  ----------  ----------
                                                     2,465,478   2,390,160   2,343,654
  Accumulated depreciation                             896,121     765,781     673,635
                                                    ----------  ----------  ----------
  Net premises and equipment                        $1,569,357  $1,624,379  $1,670,019
                                                    ==========  ==========  ==========

  Depreciation expense                              $  130,339  $  121,742  $  110,437
                                                    ==========  ==========  ==========
</TABLE>

8.   LEASE COMMITMENTS

          The Company is currently leasing branch facilities from a related
     party. The lease term, for a period of five years, began July 1, 2000. Rent
     is fixed at $300 per month. The landlord is responsible for real estate
     taxes.

          The Company leases retail property in which the Denton branch is
     located. The lease, dated June 4, 1999, expires August 31, 2004. The lease
     has three 5-year renewal options with rent increases of 10% for each
     renewal period. The Company is responsible for real estate taxes. If the
     landlord decides to sell the building in which the Company's branch is
     located, the lease provides the Company the right to purchase the building
     at terms comparable to third party offers.

          The Company has signed a lease for a new branch in Easton. The lease
     becomes effective upon completion of renovations by the landlord. The
     5-year lease has one 5-year renewal option. In addition to the base rent,
     the tenant will reimburse the landlord for improvements plus fifteen
     percent during the original lease term. The table assumes the Company takes
     possession of the property March 1, 2003.

          Lease obligations will require payments as follows:

                                         Minimum
                               Period    rentals
                              --------  --------
                                2003    $ 47,595
                                2004      43,070
                                2005      24,604
                                2006      23,488
                                2007      24,193
                             remaining     4,052
                                        --------

                             Total      $167,002
                                        ========

          Rent expense was $46,395 for 2002, $32,022 for 2001, and $29,595 for
     2000.


                                       30
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


9.   DEPOSITS

          Major classifications of interest-bearing deposits are as follows:

<TABLE>
<CAPTION>
                                                2002         2001         2000
                                             -----------  -----------  -----------
<S>                                          <C>          <C>          <C>
Money market and NOW                         $17,041,812  $21,250,869  $15,424,518
Savings                                        6,441,519    5,249,411    3,371,237
Certificates of deposit of $100,000 or more   17,515,681   14,194,772   11,520,354
Other time                                    25,340,097   24,159,233   21,753,717
                                             -----------  -----------  -----------
                                             $66,339,109  $64,854,285  $52,069,826
                                             ===========  ===========  ===========
</TABLE>

          Interest expense on certificates of deposit issued in denominations of
     $100,000 or more was $636,215, $809,945 and $659,468 for the years ending
     December 31, 2002, 2001, and 2000, respectively.

          The maturities of time deposits follow:

<TABLE>
<CAPTION>
                                               2002         2001
                                             -----------  -----------
<S>                                          <C>          <C>
One year or less                             $21,408,416  $28,020,695
Over one to two years                          4,149,185    5,031,945
Over two to three years                        6,772,796    2,168,862
Over three to five years                      10,511,168    3,064,640
Over five years                                   14,213       67,863
                                             -----------  -----------
                                             $42,855,778  $38,354,005
                                             ===========  ===========
</TABLE>

          At December 31, 2001, one NOW account had a balance representing 5.06%
     of total deposits.

10.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     Securities sold under agreements to repurchase represent overnight
borrowings from customers. The government agency securities that are the
collateral for these agreements are owned by the Company and maintained in the
custody of a nonaffiliated bank designated by the Company. Additional
information is as follows:

<TABLE>
<CAPTION>
                                                 2002         2001        2000
                                             -----------  -----------  ----------
<S>                                          <C>          <C>          <C>
  Maximum amount outstanding                 $   99,039    $  79,999   $  77,808
  Average amount outstanding                     68,358       62,059      50,836
  Average rate paid during the year                4.01%        4.01%       3.99%
  Investment securities underlying the
  agreements at year end
    Carrying value                           $   52,360    $ 163,200   $  99,875
    Estimated fair value                         52,360      163,200      99,875
</TABLE>


                                       31
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

11.  NOTES PAYABLE AND LINES OF CREDIT

     The Company may borrow up to 14% of total Bank assets from the Federal Home
Loan Bank (FHLB) through any combination of notes or line of credit advances.
The line of credit interest rate is a variable rate set daily by the lender.
Both the notes payable and the line of credit are secured by a floating lien on
all of the Company's residential first mortgage loans. The Company was required
to purchase shares of capital stock in the FHLB as a condition to obtaining the
line of credit.

     The Company's borrowings from the Federal Home Loan Bank are summarized:

<TABLE>
<CAPTION>
              Maturity                              Interest
                date            Rate      Balance   frequency
          -----------------  ---------  ----------  ---------
<S>                          <C>        <C>         <C>
            August 4, 2003    variable  $2,000,000  Quarterly
          December 2, 2003       1.99%     600,000  Quarterly
         November 22, 2004       2.56%     100,000  Quarterly
         November 21, 2005       3.11%     200,000  Quarterly
         December 19, 2005       3.02%     725,000  Quarterly
          December 3, 2007       3.36%     425,000  Quarterly
          December 3, 2007       4.04%     650,000  Quarterly
         December 10, 2007       3.75%     270,000  Quarterly
         December 17, 2007       3.81%     325,000  Quarterly
             June 23, 2008       5.51%   1,000,000  Quarterly
         November 23, 2009       3.79%     300,000  Quarterly
          October 17, 2012       4.45%     300,000  Quarterly
         February 11, 2019       5.00%     615,135   Monthly
                                        ----------
                                        $7,510,135
                                        ==========
</TABLE>

          The $1,000,000 note due June 23, 2008 is callable June 23, 2003, but
     reported above based on its final maturity without considering the call
     date.

          In addition to the line of credit available from the FHLB, the Company
     has federal funds lines and other lines of credit from correspondent banks
     totaling $500,000.

12.   INCOME TAXES

          The components of income tax expense, are as follows:

<TABLE>
<CAPTION>
                                    2002       2001       2000
                                 ----------  ---------  --------
<S>                              <C>         <C>        <C>
  Current
    Federal                      $ 342,240   $248,263   $162,724
    State                           66,069     50,762     42,198
                                 ----------  ---------  --------
                                   408,309    299,025    204,922
  Deferred                        (107,001)   (53,513)   102,337
                                 ----------  ---------  --------
                                 $ 301,308   $245,512   $307,259
                                 ==========  =========  ========
</TABLE>


                                       32
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


12.  INCOME TAXES (Continued)

          The components of the deferred tax (benefit) are as follows:

<TABLE>
<CAPTION>
                                             2002       2001       2000
                                          ----------  ---------  ---------
<S>                                       <C>         <C>        <C>
Provision for loan and commitment losses  $ (66,522)  $(82,239)  $(84,280)
Net operating loss carryforward                   -          -    132,369
Pension reserve                              (6,798)    (3,797)         -
Depreciation                                   (204)     6,343     19,226
Cash method of accounting                   (33,477)    26,180     35,022
                                          ----------  ---------  ---------
                                          $(107,001)  $(53,513)  $102,337
                                          ==========  =========  =========
</TABLE>

          The components of the deferred tax assets and liabilities as of
     December 31, are as follows:

<TABLE>
<CAPTION>
Deferred tax assets
<S>                                                 <C>       <C>       <C>
  Allowance for credit losses                       $361,892  $295,370  $213,131
  Pension reserve under life insurance contract       10,595     3,797         -
  Unrealized loss on securities available for sale         -         -     5,388
                                                    --------  --------  --------
                                                     372,487   299,167   218,519
                                                    --------  --------  --------
Deferred tax liabilities
  Depreciation                                        76,721    76,925    70,582
  Cash method of accounting                          100,431   133,908   107,726
  Unrealized gain on securities available for sale    38,206    18,072         -
                                                    --------  --------  --------
                                                     215,358   228,905   178,308
                                                    --------  --------  --------
Net deferred tax asset                              $157,129  $ 70,262  $ 40,211
                                                    ========  ========  ========
</TABLE>

     The statutory federal income tax rate was 34% for 2002, 2001, and 2000. The
provision for income taxes is reconciled as follows:

<TABLE>
<CAPTION>
<S>                                               <C>        <C>        <C>
Income before income taxes                        $851,109   $700,469   $811,004
                                                  ---------  ---------  ---------

Tax provision at statutory rates                  $289,377   $238,159   $275,741
Increase (decrease) resulting from
  State income taxes, less federal benefit          31,044     27,251     33,989
  Nondeductible expenses                             4,843      4,286      4,161
  Tax-exempt income                                (23,402)   (20,712)         -
  Recognize change in expected tax reversal rate         -     (3,472)    (7,751)
  Other                                               (554)         -      1,119
                                                  ---------  ---------  ---------
Provision for income taxes                        $301,308   $245,512   $307,259
                                                  =========  =========  =========
</TABLE>


                                       33
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


13.  OTHER OPERATING EXPENSES

          Other operating expenses are comprised as follows:

<TABLE>
<CAPTION>
                                               2002       2001      2000
                                             ---------  --------  --------
<S>                                          <C>        <C>       <C>
     Advertising                             $ 70,800   $ 70,848  $ 51,713
     Data processing                          196,864    164,028   138,047
     Deposit assessment                        12,182     11,154    10,085
     Directors fees                            39,000     10,400     9,675
     Insurance                                 11,905      9,991    11,891
     Loan reports and collection costs         34,249     27,389    12,517
     Postage                                   52,377     47,590    38,456
     Professional fees                         93,263     94,166    85,258
     Provision for loss on loan commitments   (18,626)         -    25,250
     Proxy and transfer agent costs            18,833     22,658    17,061
     Software amortization                     12,947      9,664     6,155
     Stationery and supplies                   72,588     71,651    72,819
     Telephone                                 34,861     30,495    29,807
     Training                                  27,355     17,909    19,277
     Travel and entertainment                  27,082     32,565    26,967
     Other                                    131,085    102,685    85,154
                                             ---------  --------  --------
                                             $816,765   $723,193  $640,132
                                             =========  ========  ========
</TABLE>

14.  RELATED PARTY TRANSACTIONS

     The executive officers and directors of the Company enter into loan
transactions with the Bank in the ordinary course of business. The terms of
these transactions are similar to the terms provided to other borrowers entering
into similar loan transactions. A summary of the activity of loans to officers
and directors follows:

<TABLE>
<CAPTION>
                           2002         2001          2000
                        -----------  -----------  ------------
<S>                     <C>          <C>          <C>
     Beginning balance  $1,885,513   $1,691,783   $ 1,686,228
     Advances              910,950      407,889     1,059,786
     Repayments           (924,587)    (271,203)   (1,034,124)
     Other changes               -       57,044       (20,107)
                        -----------  -----------  ------------
     Ending balance     $1,871,876   $1,885,513   $ 1,691,783
                        ===========  ===========  ============
</TABLE>

          The Company paid rent to a company that is owned by a director. Annual
     rental payments of $3,600 were paid for each of the three years ended
     December 31, 2002.

          Officers, directors, and employees are depositors of the Bank,
     receiving the same deposit rate and terms as other customers with similar
     deposits. As of December 31, 2002, the deposits of executive officers and
     directors were approximately 4.6% of total deposits.


                                       34
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


14.  RELATED PARTY TRANSACTIONS (CONTINUED)

          During 2002, 2001, and 2000, the Bank leased office space to a
     director for $7,938 each year. A director is a partner in a law firm that
     periodically provides services to the Company or Bank. During 2001 payments
     to that law firm were $3,840. The Company paid $2,825 for other services to
     related parties during 2002.

15.  STOCK OPTION AND STOCK WARRANT PLANS

          During 1999, the Company granted 56,000 nonqualified stock options to
     the chief executive officer of the Bank. The options vest at 10% per year.
     These options, with an exercise price of $10, expire December 31, 2009.

          The Company has adopted a stock option plan, covering 35,000 shares of
     common stock, intended to qualify as incentive stock options under Section
     422 of the Internal Revenue Code. The plan provides for granting options to
     purchase shares of the common stock to the officers and other key employees
     of the Company and the Bank. No options have been granted.

          The organizers of the Company and certain partnerships controlled by
     the organizers purchased 272,574 shares of common stock sold in the initial
     offering and hold warrants to purchase up to 207,800 additional shares of
     common stock. The warrants are exercisable at a price of $10 per share for
     a period of 10 years, expiring June 30, 2003.

          A summary of the status of the Company's performance-based stock
     option plans follows:

<TABLE>
<CAPTION>
                           Shares                       2002    2001    2000
-----------------------------------------------------  ------  ------  ------
<S>                                                    <C>     <C>     <C>
Outstanding, end of year                               56,000  56,000  56,000
                                                       ======  ======  ======

Total vested                                           22,400  16,800  11,200
                                                       ======  ======  ======
</TABLE>

          The Bank applies APB No. 25 in accounting for the stock option plan.
     Accordingly, no compensation expense has been recognized for the stock
     options granted. Statement of Financial Accounting Standards No. 123,
     Accounting for Stock-Based Compensation (SFAS No. 123), was issued in
     October, 1995 to establish accounting and reporting standards for
     stock-based employee compensation plans. SFAS No. 123 requires measurement
     of compensation expense provided by stock-based plans using a fair value
     based method of accounting, and recognition of the compensation expense in
     the statement of income or disclosure in the notes to the financial
     statements.


                                       35
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


16.  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The estimated fair values of the Company's financial instruments are
     summarized below. The fair values of a significant portion of these
     financial instruments are estimates derived using present value techniques
     and may not be indicative of the net realizable or liquidation values.
     Also, the calculation of estimated fair values is based on market
     conditions at a specific point in time and may not reflect current or
     future fair values.

          The fair value of financial instruments equals the carrying value of
     the instruments except for the following:

<TABLE>
<CAPTION>
                                        2002                      2001                      2000
                              ----------------------------------------------------------------------------
                               Carrying       Fair       Carrying       Fair       Carrying       Fair
                                amount        value       amount        value       amount        value
                              ----------------------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>          <C>          <C>
Financial assets
  Loans, net                  $71,465,781  $72,558,326  $63,044,907  $63,963,437  $54,249,898  $54,153,821

Financial liabilities
  Interest-bearing deposits
   and securities sold under
   agreements to repurchase   $66,400,073  $67,752,314  $64,919,771  $65,542,890  $52,139,810  $52,368,199
  Notes payable                 7,510,135    7,623,403    2,222,875    2,238,502    1,630,092    1,579,782
</TABLE>

          The fair values of securities, as disclosed in Note 5, are determined
     using market quotations.

          The fair value of fixed-rate loans is estimated to be the present
     value of scheduled payments discounted using interest rates currently in
     effect. The fair value of variable-rate loans, including loans with a
     demand feature, is estimated to equal the carrying amount. The valuation of
     loans is adjusted for possible loan losses.

          The fair value of interest-bearing checking, savings, and money market
     deposit accounts is equal to the carrying amount. The fair value of
     fixed-maturity time deposits is estimated based on interest rates currently
     offered for deposits of similar remaining maturities.

          It is not practicable to estimate the fair value of outstanding loan
     commitments, unused lines, and letters of credit.


                                       36
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


17.  CAPITAL STANDARDS

          The Federal Reserve Board and the Federal Deposit Insurance
     Corporation have adopted risk-based capital standards for banking
     organizations. These standards require ratios of capital to assets for
     minimum capital adequacy and to be classified as well capitalized under
     prompt corrective action provisions. The capital ratios and minimum capital
     requirements of the Bank are as follows:

<TABLE>
<CAPTION>
                                                                Minimum           To be
                                                Actual      capital adequacy  well capitalized
                                            Amount   Ratio   Amount   Ratio   Amount   Ratio
                                            -------  ------  -------  ------  -------  ------
<S>                                         <C>      <C>     <C>      <C>     <C>      <C>
(in thousands)
DECEMBER 31, 2002
------------------------------------------
  Total capital (to risk-weighted assets)   $ 6,990    9.6%  $ 5,844    8.0%  $ 7,305   10.0%
  Tier 1 capital (to risk-weighted assets)  $ 6,076    8.3%  $ 2,922    4.0%  $ 4,383    6.0%
  Tier 1 capital (to average fourth
    quarter assets)                         $ 6,076    7.0%  $ 3,492    4.0%  $ 4,365    5.0%

December 31, 2001
------------------------------------------
  Total capital (to risk-weighted assets)   $ 6,470   10.1%  $ 5,110    8.0%  $ 6,387   10.0%
  Tier 1 capital (to risk-weighted assets)  $ 5,752    9.0%  $ 2,555    4.0%  $ 3,832    6.0%
  Tier 1 capital (to average fourth
    quarter assets)                         $ 5,752    7.5%  $ 3,061    4.0%  $ 3,826    5.0%

December 31, 2000
------------------------------------------
  Total capital (to risk-weighted assets)   $ 6,016   11.8%  $ 4,075    8.0%  $ 5,094   10.0%
  Tier 1 capital (to risk-weighted assets)  $ 5,379   10.6%  $ 2,038    4.0%  $ 3,056    6.0%
  Tier 1 capital (to average fourth
    quarter assets)                         $ 5,379    8.3%  $ 2,585    4.0%  $ 3,232    5.0%
</TABLE>

          Tier 1 capital consists of capital stock, surplus, and undivided
     profits. Total capital includes a limited amount of the allowance for loan
     losses. In calculating risk-weighted assets, specified risk percentages are
     applied to each category of asset and off-balance sheet items.

          Failure to meet the capital requirements could affect the Bank's
     ability to pay dividends and accept deposits and may significantly affect
     the operations of the Bank.

          In the most recent regulatory report, the Bank was categorized as well
     capitalized under the prompt corrective action regulations.


                                       37
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


18.  PARENT COMPANY FINANCIAL INFORMATION

     The balance sheets and statements of income and cash flows for Easton
Bancorp, Inc. (Parent Only) follow:

<TABLE>
<CAPTION>
                                                                 December 31,
BALANCE SHEETS                                           2002        2001        2000
                                                      ----------  ----------  -----------
<S>                                                   <C>         <C>         <C>
                                Assets

Cash                                                  $   66,886  $   11,986  $   42,843
Investment in subsidiary                               6,149,780   5,787,384   5,368,717
Refundable taxes, net of refund due bank                  17,947      15,334      14,709
                                                      ----------  ----------  -----------
      Total assets                                    $6,234,613  $5,814,704  $5,426,269
                                                      ==========  ==========  ===========

                      Liabilities and Stockholders' Equity

Stockholders' equity
  Common stock                                        $   56,583  $   56,032  $   56,032
  Additional paid-in capital                           5,282,086   5,227,487   5,227,487
  Retained earnings                                      821,778     496,104     153,211
                                                      ----------  ----------  -----------
                                                       6,160,447   5,779,623   5,436,730
Accumulated other comprehensive income                    74,166      35,081     (10,461)
                                                      ----------  ----------  -----------
      Total stockholders' equity                       6,234,613   5,814,704   5,426,269
                                                      ----------  ----------  -----------
      Total liabilities and stockholders' equity      $6,234,613  $5,814,704  $5,426,269
                                                      ==========  ==========  ===========

                                                           Years Ended December 31,
STATEMENTS OF INCOME                                     2002        2001        2000
                                                      ----------  ----------  -----------
Revenue
  Interest revenue                                    $      156  $      643  $    1,955
  Dividends                                              261,627     112,064      28,016
  Equity in undistributed income of subsidiary           323,311     373,125     504,280
                                                      ----------  ----------  -----------
                                                         585,094     485,832     534,251
                                                      ----------  ----------  -----------
Expenses
  Furniture and equipment                                     66          50          54
  Other                                                   53,174      46,159      45,161
                                                      ----------  ----------  -----------
                                                          53,240      46,209      45,215
                                                      ----------  ----------  -----------
Income before income taxes                               531,854     439,623     489,036
Income tax benefit                                        17,947      15,334      14,709
                                                      ----------  ----------  -----------
Net income                                            $  549,801  $  454,957  $  503,745
                                                      ==========  ==========  ===========
</TABLE>


                                       38
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


18.  PARENT COMPANY FINANCIAL INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
STATEMENTS OF CASH FLOWS                                 2002        2001        2001
                                                      ----------  ----------  ----------
<S>                                                   <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Interest received                                   $     156   $     643   $   1,955
  Dividends received                                    261,627     112,064      28,016
  Income taxes refunded                                  15,334      14,709      80,116
  Cash paid for operating expenses                      (53,240)    (46,209)    (45,216)
                                                      ----------  ----------  ----------
                                                        223,877      81,207      64,871
                                                      ----------  ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from warrants exercised                       55,150           -           -
  Dividends paid                                       (224,127)   (112,064)    (28,016)
                                                      ----------  ----------  ----------
                                                       (168,977)   (112,064)    (28,016)
                                                      ----------  ----------  ----------

NET INCREASE (DECREASE) IN CASH                          54,900     (30,857)     36,855
                                                      ----------  ----------  ----------

Cash at beginning of year                                11,986      42,843       5,988
                                                      ----------  ----------  ----------
Cash at end of year                                   $  66,886   $  11,986   $  42,843
                                                      ==========  ==========  ==========

RECONCILIATION OF NET INCOME TO NET CASH
  PROVIDED BY OPERATING ACTIVITIES
   Net income                                         $ 549,801   $ 454,957   $ 503,745
   Adjustments to reconcile net income to net
     cash provided by (used in) operating activities
      Undistributed net income of subsidiary           (323,311)   (373,125)   (504,280)
      Deferred income taxes                                   -           -      80,116
      Increase in other assets                           (2,613)       (625)    (14,710)
                                                      ----------  ----------  ----------
                                                      $ 223,877   $  81,207   $  64,871
                                                      ==========  ==========  ==========
</TABLE>


                                       39
<PAGE>
                       EASTON BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


19.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of
operations:

<TABLE>
<CAPTION>
                                                 Three months ended
                               December 31,   September 30,    June 30,   March 31,
                              --------------  --------------  ----------  ----------
<S>                           <C>             <C>             <C>         <C>
2002
----
Interest revenue                 $1,334,842       $1,313,415  $1,282,805  $1,251,350
Interest expense                    488,550          478,489     502,788     526,643
Net interest income                 846,292          834,926     780,017     724,707
Provision for loan losses           131,442           53,088      53,088      52,815
Net income                          192,210          106,800     138,298     112,493
Comprehensive income                138,214          174,839     185,855      89,978
Earnings per share - basic            $0.25            $0.28       $0.25       $0.20
Earnings per share - diluted          $0.24            $0.27       $0.24       $0.20

2001
----
Interest revenue                 $1,330,409       $1,381,884  $1,384,313  $1,349,317
Interest expense                    602,697          682,549     705,325     680,934
Net interest income                 727,712          699,335     678,988     668,383
Provision for loan losses            28,744           79,814      56,034      48,354
Net income                          185,175           93,648      75,715     100,419
Comprehensive income                166,000          122,220      77,066     135,213
Earnings per share - basic            $0.33            $0.17       $0.14       $0.18
Earnings per share - diluted          $0.32            $0.16       $0.14       $0.18

2000
----
Interest revenue                 $1,379,233   $    1,369,086  $1,259,278  $1,154,511
Interest expense                    691,902          675,368     567,022     534,105
Net interest income                 687,331          693,718     692,256     620,406
Provision for loan losses           (19,291)          47,670      65,331      53,933
Net income                          165,690          136,029     101,633     100,393
Comprehensive income                208,489          163,651     108,796      89,719
Earnings per share - basic            $0.30            $0.24       $0.18       $0.18
Earnings per share - diluted          $0.29            $0.24       $0.17       $0.17
</TABLE>




THE FOLLOWING COMMENT IS REQUIRED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION:

"This statement has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation."


                                       40
<PAGE>
                      DIRECTORS AND EXECUTIVE OFFICERS OF
                              EASTON BANCORP, INC.

W. DAVID HILL, DDS                PRESIDENT, WILLIAM HILL MANOR, INC.
CHAIRMAN/CHIEF EXECUTIVE OFFICER

R. MICHAEL S. MENZIES, SR.        PRESIDENT/CHIEF EXECUTIVE OFFICER
PRESIDENT                         EASTON BANK & TRUST COMPANY

SHEILA A. WAINWRIGHT, CPS         CHIEF ADMINISTRATIVE OFFICER
SECRETARY                         CAULK MANAGEMENT COMPANY

JACK H. BISHOP, DDS               DENTIST, JACK H. BISHOP, DDS

J. PARKER CALLAHAN, JR.           FARMER

CHARLES T. CAPUTE                 ATTORNEY, CHARLES T. CAPUTE, LLC

STEPHEN W. CHITTY                 PRESIDENT, TALBOT CROWN AND BRIDGE DENTAL
                                  LABORATORY

J. FREDRICK HEATON, DMD           ENDODONTIST, J. FREDRICK HEATON, DMDPA

THOMAS E. HILL                    SENIOR VICE PRESIDENT, LEGG MASON WOOD &
                                  WALKER

WILLIAM C. HILL, PD               PRESIDENT, HILL'S DRUG STORE, INC.

WILLIAM R. HOUCK, DDS             PEDIATRIC DENTIST, WILLIAM R. HOUCK, DDS

DAVID F. LESPERANCE               PRESIDENT, LESPERANCE CONSTRUCTION COMPANY

VINODRAI MEHTA, MD                PHYSICIAN, VINODRAI MEHTA, MD

ROGER A. ORSINI, MD               PLASTIC & RECONSTRUCTIVE SURGEON, PRESIDENT,
                                  SHORE AESTHETIC & RECONSTRUCTIVE ASSOCIATES

MAHMOOD S. SHARIFF, MD            CARDIOLOGIST, MAHMOOD S. SHARIFF, MD

JAMES B. SPEAR, SR.               CEO, J.B. SALES COMPANY, INC.

MYRON J. SZCZUKOWSKI, JR., MD     ORTHOPEDIC SURGEON
                                  THE ORTHOPEDIC CENTER

JERRY L. WILCOXON, CPA            CERTIFIED PUBLIC ACCOUNTANT
                                  ANTHONY, WALTER, DUNCAN & WILCOXON, LLP


ALL OF THE PERSONS NOTED ABOVE ARE DIRECTORS OF EASTON BANCORP, INC.


                                       41
<PAGE>
                      DIRECTORS, OFFICERS AND ASSOCIATES OF
                           EASTON BANK & TRUST COMPANY


                                    DIRECTORS
                                    ---------

                               W. DAVID HILL, DDS
                              CHAIRMAN OF THE BOARD

                      SHEILA A. WAINWRIGHT, CPS - SECRETARY


JACK H. BISHOP, DDS                  M. LINDA KILDEA
J. PARKER CALLAHAN, JR.              PAMELA H. LAPPEN
CHARLES T. CAPUTE                    DAVID F. LESPERANCE
WALTER E. CHASE, SR.                 R. MICHAEL S. MENZIES, SR.
DELIA B. DENNY                       MARIAN H. SHANNAHAN
J. FREDRICK HEATON, DMD              MAHMOOD S. SHARIFF, MD
JEFFREY N. HEFLEBOWER                JAMES B. SPEAR, SR.
WILLIAM C. HILL, PD



                                    OFFICERS
                                    --------

R. MICHAEL S. MENZIES, SR.           DELIA B. DENNY
PRESIDENT/CHIEF EXECUTIVE OFFICER    EXECUTIVE VICE PRESIDENT

JEFFREY N. HEFLEBOWER                PAMELA A. MUSSENDEN
EXECUTIVE VICE PRESIDENT             EXECUTIVE VICE PRESIDENT/TREASURER

ROSE K. KLECKNER                     KATHLEEN A. KURTZ
VICE PRESIDENT/CREDIT ADMINISTRATOR  VICE PRESIDENT/MARKETING OFFICER

BRADFORD R. WATTS                    SUSAN D. HASCHEN
VICE PRESIDENT/LOANS                 ASSISTANT VICE PRESIDENT/OPERATIONS

JENNIFER W. LISTER                   ANNE M. RAY
ASSISTANT VICE PRESIDENT             ASSISTANT VICE PRESIDENT/LOANS

JACQUELINE D. WILSON                 TERRI L. BRANNOCK
ASSISTANT VICE PRESIDENT/LOANS       ASSISTANT TREASURER/BRANCH MANAGER

LISA A. IRONS
MORTGAGE LOAN OFFICER


                                       42
<PAGE>
<TABLE>
<CAPTION>
                                       ASSOCIATES
                                       ----------

<S>                                             <C>
WENDY A. BUCKLER, LOAN OVERSIGHT COORDINATOR    CAMILLE A. PECORAK, ADMINISTRATIVE ASSISTANT

    SARAH J. CHANCE, OPERATIONS ASSISTANT        CASEY A. PINDER, PART-TIME CUSTOMER SERVICE
                                                               REPRESENTATIVE
    DEBORAH A. CIMBA, OPERATIONS ASSISTANT
                                                     KIMBERLY D. RADA, COMMUNITY BANKING
   ROCHELLE L. CORKELL, CUSTOMER SERVICE                  MANAGER - MARLBORO AVENUE
        REPRESENTATIVE - MARLBORO AVENUE
                                                  KELLY A. REED, COMMUNITY BANKING MANAGER -
  FLORENCE P. DODGE, ON CALL RECEPTIONIST -                        DENTON
                    DENTON
                                                      LAURA E. RINGGOLD, PART-TIME CREDIT
       BRENDA L. FORBES, LOAN PROCESSOR                    ADMINISTRATIVE ASSISTANT

   BEVERLY A. FORT, SENIOR CUSTOMER SERVICE         KATHLEEN M. ROE, CREDIT ADMINISTRATIVE
                REPRESENTATIVE                                    ASSISTANT

CHRISTINE L. FOXWELL, CREDIT ADMINISTRATIVE         AVONDA N.F. ROUNDS, CUSTOMER SERVICE
                   ASSISTANT                         REPRESENTATIVE ASSISTANT SUPERVISOR

  VERLYNN A. HANEKE, SENIOR CUSTOMER SERVICE    BRIDGET A. SCHETTINI, SENIOR CUSTOMER SERVICE
           REPRESENTATIVE - OXFORD                         REPRESENTATIVE - OXFORD

ERIC L. HONTZ, CREDIT ADMINISTRATIVE ASSISTANT     STACEY L. SLAUGHTER, FINANCIAL SERVICES
                                                            REPRESENTATIVE - DENTON
   ANNE H. HUGHES, MORTGAGE LOAN PROCESSOR
                                                     CASSANDRA L. WEBB, CUSTOMER SERVICE
      LAURA M. KING, INFORMATION MANAGER              REPRESENTATIVE - MARLBORO AVENUE

   JESSICA I. KINNISH, OPERATIONS ASSISTANT         SUZANNE W. WIELAND, CUSTOMER SERVICE
                                                               REPRESENTATIVE
      TRACY T. LEDNUM, CUSTOMER SERVICE
         REPRESENTATIVE SUPERVISOR                  JAMES W. WILLEY, FINANCIAL SERVICES
                                                           REPRESENTATIVE - DENTON
  STEPHEN J. MAYES, DOCUMENT TRANSPORTATION
                  MANAGER                             AMY M. WILLIS, PART-TIME CREDIT
                                                          ADMINISTRATIVE ASSISTANT
     TISSIER A. MOANEY, CUSTOMER SERVICE
                REPRESENTATIVE                     SHERRY L. WINSTEAD, PART-TIME CUSTOMER
                                                           SERVICE REPRESENTATIVE
   JANE A. PAUCIULO, ON CALL RECEPTIONIST
</TABLE>


                                       43
<PAGE>