U.S. SECURITIES AND EXCHANGE COMMISSION

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WASHINGTON, D.C. 20549

FORM 10-K

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Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required)

For
the fiscal year ended December 31, 2003

Commission
file number: 0-23090

Carrollton
Bancorp

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(Name
of Issuer in Its Charter)

|Maryland(State or Other Jurisdiction of Incorporation or Organization)                          |  | 52-1660951(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|344 North Charles Street, Suite 300
Baltimore, Maryland(Address of Principal Executive Offices) |  | 21201-4301(Zip Code)                          
|(410) 536-4600(Issuer's Telephone Number)                                                       |  |                                               
|Securities registered under Section 12(b) of the Exchange Act:                                 
|Title of Each Class
None                                                                        |  | Name of Each Exchange
on Which Registered
None

Securities registered under Section 12(g) of the Exchange Act:

Common
Stock

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(Title
of Class)

Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.

Yes ý    No o

Indicate
by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    o

Indicate
by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

As
of February 27, 2004, the aggregate market value of the voting stock held by non-directors and executive officers: $40,538,147.

State
the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 2,828,078 shares as of March 5, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to shareholders in connection with the 2004 Annual Meeting of Shareholders scheduled to be held on April 20, 2004 are
incorporated by reference into Part III.

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PART I

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ITEM 1: DESCRIPTION OF BUSINESS

General. Carrollton Bancorp (the "Company") is a bank holding company registered under
the Bank Holding Company Act of 1956, as amended, and was organized on January 11, 1990. Carrollton Bank (the "Bank") is a commercial bank and the principal subsidiary of the Company. The Bank
was chartered by an act of the General Assembly of Maryland (Chapter 727) approved April 10, 1900. The Bank is engaged in a general commercial and retail banking business.

Service Area. The service area for the Bank is defined principally by geographic area.
The Bank's ten branches are located in Baltimore City, Baltimore County, Anne Arundel County, and Howard County, Maryland. The Bank attracts deposits and generates loan activity throughout this area
primarily through its branch network. In addition, the Bank has made loans in Harford County, Howard County and Prince George's County, Maryland, and in southern Pennsylvania. The Bank also has
deposit customers who live in Harford County, Howard County, and Montgomery County, Maryland. The Bank operates a network of ATMs in Maryland, Virginia, and West Virginia. The Bank sponsors national
retailers in various electronic networks operating as regional switches for electronic transactions throughout the country.

Description of Services. The Bank provides a broad range of consumer and commercial
banking products and services to individuals, businesses, professionals and governments. The services and products have been designed in such a manner as to appeal to consumers and business
principals.

The
following is a partial listing of the types of services and products that the Bank offers:



Customer
service hours for the Bank are fully competitive with other institutions in the market area. The Bank also acts as a reseller of services purchased from third party vendors for
customers requiring services not offered directly by the Bank.

Lending Activities. The Bank makes various types of loans to borrowers based on, among
other things, an evaluation of the borrowers' net asset value, cash flow, security and ability to repay. Loans to consumers include home equity lines of credit, home improvement loans, overdraft lines
of credit, and installment loans for automobiles, boats and recreational vehicles. The Bank also makes loans secured by deposit accounts and common stocks. The Bank's commercial loan product line
includes first mortgage loans, time and demand loans, lines and letters of credit, and asset based financing. The Notes to the Consolidated Financial Statements contained in Part II, Item 8
report the classification by type of loan for the whole portfolio.

First
and second residential mortgage loans, made principally through a subsidiary of the Bank, Carrollton Mortgage Services Inc., ("CMSI") enable customers to purchase or
refinance residential properties. These loans are secured by liens on the residential property. All first mortgage loans with a loan to value greater then 80% have private mortgage insurance coverage
equal to or greater than the amount required under the Federal National Mortgage Association guidelines. Residential loans are considered low risk based on the type of collateral (residential
property) and the underwriting standards used. The Bank experienced losses of $8,709 and recoveries of $0 on residential mortgage loans in 2003. The Bank experienced losses of $0 and recoveries of $0
on residential mortgage loans in 2002. The Bank experienced $50,460 in losses in 2001 and $20,574 in recoveries in 2001. There were $375,896 of residential mortgage loans delinquent more than
90 days at December 31, 2003. There are no discernible delinquency or loss trends relating to residential mortgage loans known to management.

Home
equity lines of credit are typically second mortgage loans (sometimes first mortgages) secured by the borrower's primary residence structured as a revolving borrowing line with a
maximum loan amount. Customers write checks to access the line. Generally, the Bank has a second lien on the property behind the first mortgage lien holder. The Bank has a number of different equity
loan

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products
that it offers. Borrowers can choose between fixed rate loans or loans tied to the prime rate with margins ranging from 0% to 1.5%. The Bank will finance up to 90% of the value of the home in
combination with the first mortgage loan balance, depending on the rate and program. As with first mortgage residential loans, borrowers are required to meet certain income to debt ratios. The Bank
maintains in its portfolio loans financed under a program that financed up to 125% of the value of the home, subject to stricter income and debt ratios, with a maximum loan amount of $25,000. Home
equity loans carry a higher level of risk than first mortgage residential loans because of the second lien position on the property, and because a higher loan to value ratio is used in the
underwriting of the loan. However, the overall risk of loss on home equity loans is also considered low due to the underlying values of the collateral. The Bank experienced losses on home equity loans
during 2003 of $8,189 and recoveries of $0. The Bank experienced losses on home equity loans during 2002 of $160,591 and recoveries of $67,705. There were losses of $67,122 and recoveries of $2,228 in
2001. There were $283,806 of home equity loans delinquent more than 90 days at December 31, 2003. There are no discernible delinquency or loss trends relating to home equity loans known
to management.

Commercial
and investment mortgage loans are first mortgage loans made to individuals or to businesses to finance acquisitions of plant or earning assets, such as rental property. These
loans are secured by a first mortgage lien on the commercial property, and may be further secured by other property or other assets depending on the value of the mortgaged property. In most instances,
these loans are guaranteed personally by the principals. The Bank typically looks for cash flow from the business at least equal to 100% coverage of the business debt service, and to income-producing
property to be self-supporting, generally, with a minimum debt service coverage ratio of 120% to 125%. Commercial mortgage loans carry more risk than residential real estate loans.
Commercial mortgage loans tend to be larger in size, and the properties tend to exhibit more fluctuation in value. The repayment of the loan is primarily dependent on the success of the business
itself, or the tenants in the case of income producing property. Economic cycles can affect the success of a business. The Bank experienced net losses of $0, $112,718, and $0 on commercial mortgage
loans during 2003, 2002, and 2001, respectively. There were $899,081 of commercial mortgage loans past due more than 90 days at December 31, 2003. There are no known discernible
delinquency or loss trends relating to commercial mortgage loans.

Construction
and land development loans are loans to finance the acquisition and development of parcels of land and to construct residential housing or commercial property. The Bank
typically will finance 70% to 75% of the discounted future value of these projects, or 80% of value or 90% of cost, whichever is less, on a single-family detached home. The loan is collateralized by
the project or real estate itself, and other assets or guarantees of the principals in most cases. Repayment to the Bank is anticipated from the proceeds of sale of the final units, or permanent
mortgage financing on a residential construction loan for a single borrower. These types of loans carry a higher degree of risk than a commercial mortgage loan. Interest rates, buyer preferences, and
desired locations are all subject to change during the period from the time of the loan commitment to final delivery of the final unit, all of which can change the economics of the project. In
addition, real estate developers to whom these loans are typically made are subject to the business risk of operating a business in a competitive environment. The Bank did not experience any losses or
recoveries on construction and land development loans during 2003, 2002, or 2001. There were no construction and land development loans past due more than 90 days at December 31, 2003.
There are no discernible delinquency or loss trends relating to construction and land development loans known to management.

Time
and demand loans and lines of credit are loans to businesses for relatively short periods of time, usually not more than one year. These loans are made for any valid business
purpose. These loans may be secured by assets of the borrower or guarantor, but may be unsecured based on the personal guarantee of the principal. If secured, loans may be made for up to 100% of the
value of the collateral. Time and demand loans and lines of credit are more risky than secured commercial real estate lending transactions. The businesses to which these loans are made are subject to
normal business risk, and cash flows of the business may be subject to economic cycles. In addition, the value of the collateral may fluctuate, or the collateral may be used for other purposes if
not subject to Uniform Commercial Code filings. If guaranteed by the principal, the net worth and assets of the principal may be dissipated by demands of the business, or due to other factors. The
Bank had losses of $200,173 and recoveries of $58,034 on time and demand loans in 2003. The Bank had losses of $21,904 and recoveries of $2,475 on time and demand loans in 2002 and recoveries of
$17,269 in 2001. There were $789,262 of time and demand and line of credit loans delinquent more than 90 days at December 31, 2003. There are no discernible delinquency or loss trends
relating to time and demand loans or lines of credit known to management.

Home
improvement loans are loans made to borrowers to complete improvements to their homes including such projects as room additions, swimming pool installations or new roofs. Home
improvement loans include those made directly to customers and those made indirectly or originated

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through
an approved home improvement dealer. The Bank makes unsecured home improvement loans to a maximum amount of $15,000. Any loan above that limit is secured by a deed of trust. Borrowers are
required to own their home, and to meet certain income and debt ratio requirements. The Bank also reviews the credit history of all applicants. Because they are unsecured or secured by a deed of
trust, these loans are more risky than first mortgage residential lending. This risk is mitigated somewhat based on the fact that the loans are used to improve the borrower's home, typically a
borrower's most significant asset. In addition, the income-to-debt-ratio requirement helps determine the borrower's current ability to repay the loan. The Bank had
charge-offs of home improvement loans of approximately $3,170, $24,472, and $30,251 in 2003, 2002, and 2001. There were recoveries of $21,922, $10,912, and $11,388 in 2003, 2002, and 2001.
There were no home improvement loans delinquent more than 90 days at December 31, 2003. There are no discernible loss or delinquency trends relating to home improvement loans known to
management.

The
remainder of the consumer loan portfolio is composed of installment loans for automobiles, boats and recreational vehicles, overdraft protection lines, and loans secured by deposit
accounts or stocks. The largest portion of this group is installment loans for automobiles and other vehicles. The Bank will finance 90% of the cost of a new car purchase, or the maximum loan amount
as determined by the National Automobile Dealers Association (NADA) publication for used cars. The Bank will finance 85% of the cost of a new boat or RV, or the maximum loan amount determined by the
NADA Boat/RV Guide for used Boats and RVs. These loans are secured by the vehicle purchased. Borrowers must meet certain income and debt ratio requirements, and a credit review is performed on each
applicant. These types of loans are subject to the risk that the value of the vehicle will decline faster than the amount due on the loan. However, the income-to-debt ratio
requirement helps determine the borrower's current ability to repay. The Bank had losses on automobile loans in 2003, 2002, and 2001 of $0, $0, and $21,933, respectively, and recoveries of $369,
$1,400, and $208 in 2003, 2002 and 2001, respectively. There were no automobile or other vehicle loans past due more than 90 days at December 31, 2003. There are no discernible
delinquency or loss trends relating to automobile or other vehicle loans known to management.

Overdraft
lines and other personal loans are unsecured lending arrangements. These loans or lines of credit are made to allow customers to easily make purchases of consumer goods. If the
lines are handled as agreed, they will typically be automatically renewed each year. Because they are unsecured, these loans carry a higher level of risk than secured lending transactions. The Bank
attempts to mitigate significant risk by establishing fairly low credit limits. Net charge-offs in 2003, 2002, and 2001 were approximately $34,000, $59,000, and $114,000, respectively.
There were $67,533 of overdraft loans and other personal loans past due more than 90 days at December 31, 2003. There are no discernible delinquency or loss trends relating to overdraft
lines and other personal loans known to management.

Loans
secured by savings accounts and stock and bond certificates are secured lending arrangements. The Bank will advance funds for up to 95% of balances in savings or certificate of
deposit accounts. The Bank will advance funds up to 60% of the market value of actively traded stock certificates and bonds or 50% of the market value of listed but not actively traded stocks and
bonds. Loans secured by stocks and bonds are subject to margin calls to maintain the loan to value ratio. Collateral is not released until the loan is repaid, and the
borrower is generally required to pay interest monthly. There were no losses on loans secured by savings accounts or stock and bond certificates during 2003, 2002, or 2001. There were no loans secured
by savings accounts or stock and bond certificates past due more than 90 days at December 31, 2003. There are no discernible delinquency or loss trends relating to loans secured by
savings accounts or stock and bond certificates known to management.

Reference
is also made to Note 4 of the Notes to Consolidated Financial Statements included in this Report for the composition of the loan portfolio by type of loan. This Note
indicates the relative size of the various types of loans to the portfolio in total. Reference is made to the Statistical Disclosures in this Report for an allocation of the allowance for loan losses
by type of loan, which also indicates management's assessment of the degree of risk that each type of loan carries.

The
Bank is the principal originator of the loans it makes, at this time. In prior periods, residential mortgage loans and home equity loans and lines of credit were predominantly
purchased from a network of brokers or other types of originators with whom the Bank does business. The Bank has sold some loans in the secondary market and therefore derives a small amount of
noninterest income from serviced loans. These income amounts are not significant to the amounts of noninterest income derived from other sources.

Reference
is made to Note 4 of the Notes to Consolidated Financial Statements which contains the amounts of nonaccrual, restructured, and delinquent loans at December 31,
2003.

Carrollton
Mortgage Services, Inc. (CMSI), a 100% owned subsidiary of Carrollton Bank originates and sells residential mortgage loans. CMSI originates adjustable and
fixed-rate residential mortgage loans at terms and conditions and with documentation that permit their sale in the secondary mortgage market. CMSI's practice is to immediately sell
substantially all residential

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mortgage
loans in the secondary market with servicing released.

Carrollton
Community Development Corporation (CCDC), a 96.4% owned subsidiary of Carrollton Bank, was established in 1995 for the purpose of promoting, developing, and improving the
housing and economic conditions of people in Maryland with particular emphasis in the Metropolitan Baltimore area. CCDC promotes through loans, investments, and other transactions, efforts to increase
housing for low and moderate-income individuals.

Investment Activities. The Company maintains a portfolio of investment securities to
provide liquidity and income. The current portfolio amounts to about 21% of total assets, and is invested primarily in U.S. government agency securities, state and municipal bonds, corporate bonds,
and mortgage-backed securities with maturities varying from 2004 to 2033, as well as equity securities. Reference is made to Note 3 of the Notes to Consolidated Financial Statements included in
this Report and Statistical Disclosures for additional information concerning the investment portfolio.

Deposit Services. The Bank offers a wide range of both personal and commercial types of
deposit accounts and services as a means of gathering funds. Deposit accounts available include noninterest-bearing demand checking, interest- bearing checking (NOW accounts), savings, money market,
certificates of deposit, and individual retirement accounts. Deposit accounts carry varying fee structures depending on the level of services desired by the customer. Interest rates vary depending on
the balance in the account maintained by the customer. Commercial deposit customers may also choose an overnight investment account
which automatically invests excess balances available in demand accounts on a daily basis in repurchase agreements. The Bank's customer base for deposits is primarily retail in nature. The Bank also
offers certificates of deposit over $100,000 to its retail and commercial customers. The Bank has used deposit brokers in the past and may do so in the future to meet liquidity needs. The balance of
accounts over $100,000 is not significant, and these accounts are offered principally as accommodations to existing customers.

Reference
is also made to Note 8 of the Notes to Consolidated Financial Statements included in this Report for additional information concerning deposits of the Bank.

Brokerage Activities. Carrollton Financial Services, Inc., a 100% owned subsidiary
of the Bank, provides full service brokerage services for stocks, bonds, mutual funds and annuities. For 2003, commission income totaled $793,572 and net income was $176,694.

Sources of Business. The major focus of the Bank's marketing efforts is on individual
consumers and on small to medium-sized businesses and professionals in the Bank's service area. The Bank's ability to generate deposits, loans and service income is dependent upon the growth of its
market and the development and execution of a marketing strategy. Marketing primarily involves the print, television and radio media, and sponsorships of various prominent events in the Bank's market
area. Direct mail is used on a sporadic basis, and direct calling on business customers is performed by branch and commercial lending personnel. The Bank's customers also promote the Bank through word
of mouth referral. In its marketing efforts, the Bank emphasizes the advantages of dealing with a locally-owned institution that provides personalized service and is sensitive to the particular needs
of consumers and businesses.

Competition. The Bank faces strong competition in all areas of its operations. This
competition comes from entities operating in Baltimore City, Baltimore County, Anne Arundel County and Carroll County, and includes branches of some of the largest banks in Maryland. Its most direct
competition for deposits historically has come from other commercial banks, savings banks, savings and loan associations and credit unions. The Bank also competes for deposits with money market funds,
mutual funds and corporate and government securities. The Bank competes with the same banking entities for loans, as well as mortgage banking companies and other institutional lenders. The competition
for loans varies from time to time depending on certain factors, including, among others, the general availability of lendable funds and credit, general and local economic conditions, current interest
rate levels, conditions in the mortgage market and other factors which are not readily predictable. Some of the Bank's competitors have greater assets and operating capacity than the Bank.

Asset Management. The Bank makes available several types of loan services to its
customers as described above, depending on customer needs. Recent emphasis has been made on originating short-term (one year or less), variable rate commercial loans and variable rate home
equity lines of credit, with the balance of its funds invested in consumer/installment loans and real estate loans, both commercial and residential. In addition, a portion of the Bank's assets is
invested in high-grade securities and other investments in order to provide income, liquidity and safety. Such investments include U.S. government agency securities, corporate bonds,
mortgage-backed securities and collateralized mortgage obligations, as well as advances of federal funds to other member banks of the Federal Reserve System. Subject to the effects of taxes, the Bank
also invests in tax-exempt state and municipal securities with a minimum rating of "A" by a recognized ratings agency. The Bank's primary source of funds is customer deposits.

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The
risk of non-repayment (or deferred payment) of loans is inherent in the business of commercial banking, regardless of the type of loan or borrower. The Bank's efforts to
expand its loan portfolio
to small and medium-sized businesses may result in the Bank undertaking certain lending risks which are somewhat different from those involved in loans made to larger businesses. The Bank's management
evaluates all loan applications and seeks to minimize the exposure to credit risks through the use of thorough loan application, approval and monitoring procedures. However, there can be no assurance
that such procedures significantly reduce all risks.

Employees. As of December 31, 2003, the Bank and its subsidiaries had 136 full
time equivalent employees, 38 of whom were officers. Each officer generally has responsibility for one or more loan, banking, customer contact, operations, or subsidiary functions.
Non-officer employees are employed in a variety of administrative capacities. Management does not anticipate any inordinate difficulty in recruiting and training such additional officers
and employees as it may need in the future. Management believes that relations with its employees are good.

CRITICAL ACCOUNTING POLICIES

The Company's financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When
applying accounting policies in areas that are subjective in nature, management must use its best judgment to arrive at the carrying value of certain assets. One of the most critical accounting
policies applied is related to the valuation of the loan portfolio.

A
variety of estimates impact carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral and the timing of loan
charge-offs.

The
allowance for loan losses is one of the most difficult and subjective judgments. The allowance is established and maintained at a level that management believes is adequate to cover
losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio.
Current trends in delinquencies and charge-offs, the views of Bank regulators, changes in the size and composition of the loan portfolio and peer comparisons are also factors. The analysis
also requires consideration of the economic climate and direction and change in the interest rate environment, which may impact a borrower's ability to pay, legislation impacting the banking industry
and economic conditions specific to the Bank's service area. Because the calculation of the allowance for loan losses relies on estimates and judgments relating to inherently uncertain events, results
may differ from our estimates.

SUPERVISION AND REGULATION

Supervision and Regulation of the Company. As a bank holding company, the Company is
subject to the Bank Holding Company Act of 1956, as amended (the "BHCA"). The BHCA is administered by the Board of Governors of the Federal Reserve System (the "Board of Governors"), and the Company
is required to file with the Board of Governors such reports and information as may be required pursuant to the BHCA. The Board of Governors also may examine the Corporation and any of its nonbank
subsidiaries. The BHCA requires every bank holding company to obtain the prior approval of the Board of Governors before: (i) it or any of its subsidiaries (other than a bank) acquires
substantially all of the assets of any bank; (ii) it acquires ownership or control of any voting shares of any bank if after such acquisition it would own or control, directly
or indirectly, more than five percent of the voting shares of such bank; or (iii) it merges or consolidates with any other bank holding company.

Under
the BHCA, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than five percent of the voting shares of any company
engaged in non-banking activities. A major exception to this prohibition is for activities the Board of Governors finds, by order or regulation, to be so closely related to banking or
managing or controlling banks. Some of the activities that the Board of Governors has determined by regulation to be properly incident to the business of a bank holding company are: making or
servicing loans and certain types of leases; engaging in certain investment advisory and discount brokerage activities; performing certain data processing services; acting in certain circumstances as
a fiduciary or as an investment or financial advisor; ownership of certain types of savings associations; engaging in certain insurance activities; and making investments in certain corporations or
projects designed primarily to promote community welfare.

Certain
provisions of the Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA") also may impact the operations of the Company. FDICIA requires that the Board of
Governors adopt regulations establishing safety and soundness standards for bank holding companies relating to: (i) internal controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; and (vi) compensation and benefit standards for officers,
directors, employees and principal shareholders. FDICIA also requires any bank holding company which controls an undercapitalized insured bank to act as a "source of strength" to such bank. Finally,
FDICIA permits the appropriate federal bank regulatory agency to require a bank holding company to divest itself of a bank subsidiary in certain circumstances.

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The
Company is an "affiliate" of the Bank under the Federal Reserve Act, which imposes certain restrictions on: (i) loans by the Bank to the Company; (ii) investments in
the stock or securities of the Company; and (iii) the Bank taking stock or securities of the Company as collateral for loans by it to a borrower.

The
Company also is an affiliate of the Bank under the Maryland Financial Institutions Article of the Annotated Code of Maryland (the "Financial Institutions Article"). As such, the
Commissioner of Financial Regulation for the State of Maryland (the "Commissioner") has the same authority to examine the business of the Company that it has to examine the business of the Bank.

Supervision and Regulation of the Bank. The Bank is the only direct subsidiary of the
Company. The Bank operates as a banking institution incorporated under the laws of the State of Maryland and is subject to examination by the Commissioner. The Bank is not a member of the Federal
Reserve System (an "insured nonmember bank") and as such, its primary federal regulator is the Federal Deposit Insurance Corporation (the "FDIC"). Deposits in the Bank are insured by the FDIC. The
Commissioner and the FDIC regulate or monitor all areas of the Bank's operations, including reserves, loans, loans to directors, officers or principal shareholders, loans to one borrower, capital,
investments, borrowings, deposits, mergers, issuance of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches,
corporate reorganizations and maintenance of books and records.

Examinations. Pursuant to FDICIA, and subsequent amendments thereto, examinations of
insured nonmember banks having assets of $250,000,000 or more must be conducted no less frequently than every 12 months. The Bank is subject to assessments by the FDIC to cover the costs of
such examinations. As a result of such examinations, the FDIC may revalue assets of the Bank and require establishment of specific reserves in amounts equal to the difference between such revaluation
and the book value of the assets.

Safety and Soundness. The FDIC is authorized to promulgate regulations to ensure the safe
and sound operations of insured nonmember banks and may impose various requirements and restrictions on the activities of insured nonmember banks. Additionally, under FDICIA, the FDIC was required to
prescribe safety and soundness regulations relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate exposure; (v) asset growth; and (vi) compensation and benefit standards for officers, directors, employees and principal shareholders.

Loans and Deposit Products. Interest and certain other charges collected or contracted
for by the Bank are subject to state usury and consumer protection laws and certain federal laws concerning interest rates. The Bank's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the Truth-in-Lending Act (governing disclosures of credit terms to consumer borrowers), the Equal Credit Opportunity Act (prohibiting
discrimination on the basis of race, creed or other prohibited factors in extending credit), the Fair Credit Reporting Act (governing the use of information from and provision of information to credit
reporting agencies and others), the Fair Debt Collection Practices Act (governing the manner in which consumer debts may be collected), and the rules and regulations of the various federal agencies
charged with the responsibility of implementing such federal laws. The deposit operations of the Bank also are subject to the Electronic Funds Transfer Act (governing automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services), the
Truth-in-Savings Act (governing disclosures of terms applicable to deposit accounts), the Expedited Funds Availability Act (governing the availability of certain funds
deposited into transaction accounts), and the rules and regulations of the Board of Governors implementing such acts.

Pursuant
to FDICIA, the FDIC has adopted regulations prescribing standards for extensions of credit by insured nonmember banks secured by liens on or interests in real estate and made
for the purpose of financing the construction of a building or other improvements to real estate. The FDIC regulations require insured nonmember banks to establish and maintain written internal real
estate lending policies consistent with safe and sound banking practices and appropriate to the size of the bank. These policies must include loan portfolio diversification standards, prudent
underwriting standards (including clear and measurable loan-to-value limits), loan administration procedures, and documentation, approval and reporting requirements to monitor
compliance with the policies. Finally, the regulations require insured nonmember banks to monitor conditions in its real estate market to ensure that its lending policies continue to be appropriately
based on current market conditions.

Capital Requirements. Under regulations promulgated by the FDIC, insured nonmember banks
currently are required to maintain "core" or "tier 1" capital of at least 4% (5% to be "well-capitalized") of total assets (the "Leverage Ratio"). Tier 1 capital consists of:
(i) common shareholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries; (ii) minus intangible assets (other than certain purchased
mortgage and credit card servicing rights); (iii) minus certain losses, and minus investments in certain securities subsidiaries.

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In
addition, each insured nonmember bank also must maintain a "tier 1 risk-based capital ratio" of 4% (6% to be "well-capitalized"). The "tier 1
risk-based capital ratio" is defined in FDIC regulations as the ratio of tier 1 capital to risk-weighted assets. A bank's total risk-weighted assets are determined
by: (i) converting each of its off-balance sheet items to a balance sheet credit equivalent amount; (ii) assigning each balance sheet asset and the credit equivalent amount
of each off-balance sheet item to one of the five risk categories established in the FDIC's regulations; and (iii) multiplying the amounts in each category by the risk factor
assigned to that category. The sum of the resulting amounts constitutes total risk-weighted assets.

Each
insured nonmember bank is required to maintain a "total risk-based capital ratio" of at least 8% (10% to be "well-capitalized"). The "total
risk-based capital ratio" is defined in FDIC regulations as the ratio of total qualifying capital to risk-weighted assets (as defined above). Total capital, for purposes of the
risk-based capital requirement, consists of the sum of tier 1 capital (as defined for purposes of the Leverage Ratio) and supplementary capital. Supplementary capital includes such items
as cumulative perpetual preferred stock, long-term and intermediate-term preferred stock, term subordinated debt and general valuation loan and lease loss allowances (but only
in an amount of up to 1.25% of total risk-weighted assets). The maximum amount of supplementary capital that may be counted towards satisfaction of the total capital requirement is limited
to 100% of core capital. Additionally, term subordinated debt and intermediate-term preferred stock may only be included in supplementary capital up to 50% of tier 1 capital.

Capital
requirements higher than the generally applicable minimum requirements may be established for a particular insured nonmember bank if the FDIC determines that the bank's capital
is or may become inadequate in view of its particular circumstances. Individual minimum capital requirements may be imposed where a bank is receiving special supervisory attention, has a high degree
of exposure to interest rate risk, or poses other safety or soundness concerns. Deficient capital may result in the suspension of an institution's deposit insurance.

Prompt Corrective Action. Under FDIC regulations, any insured nonmember bank that
receives notice from the FDIC that it is undercapitalized, must file a capital restoration plan with the FDIC addressing, among other things, the manner in which the bank will increase its
capital to comply with all applicable capital standards. Under the prompt corrective action regulation adopted by the FDIC, an institution will be considered "well capitalized" if the institution has
a total risk-based capital ratio of 10% or greater, a tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater (provided the institution is not
subject to an order, written agreement, capital directive or prompt corrective action to meet and maintain a specified capital level for any capital measure). At December 31, 2003, the Company
and Bank were considered "well-capitalized."

Brokered and Other Deposits. Under applicable FDIC regulations, only
well-capitalized depository institutions may solicit, accept, renew or roll over any brokered deposit. Adequately-capitalized depository institutions may accept, renew or roll over
brokered deposits only after obtaining a waiver from the FDIC. Adequately-capitalized institutions are subject to limits on rates of interest they may pay on brokered deposits. Undercapitalized
institutions are subject to limits on rates of interest they may pay on deposits in general. As of December 31, 2003, the Bank had $0 in brokered deposits.

Limitation on Bank Activities. The scope of activities in which an insured nonmember bank
may engage and the permissible investments which an insured nonmember bank may make are subject to federal and Maryland law. An insured nonmember bank may engage only in those activities, and make
only those investments, as are permissible for national banks. National banks generally are permitted to engage in certain enumerated banking functions and all such activities as are incidental
thereto. Further, national banks and, as a result of FDICIA, insured nonmember banks are severely limited as to the types of debt and equity securities in which such banks may invest.

Transactions with Affiliates. Transactions engaged in by an insured nonmember bank or one
of its subsidiaries with affiliates of such bank are subject to the affiliate transactions restrictions contained in Section 23A and 23B of the Federal Reserve Act in the same manner and to the
same extent as such restrictions apply to transactions engaged in by a Federal Reserve System member bank or one of its subsidiaries with affiliates of that member bank. Section 23A of the
Federal Reserve Act imposes both quantitative and qualitative restrictions on transactions engaged in by a member bank or one of its subsidiaries with an affiliate. Section 23B of the Federal
Reserve Act requires, among other things, that all transactions with affiliates be on terms substantially the same, or at least as favorable to the member bank or the subsidiary, as the terms that
would apply, or would be offered in, a comparable transaction with an unaffiliated party.

Loans
made by an insured nonmember bank to its directors, executive officers and principal shareholders, to the directors, executive officers and principal shareholders of its
affiliates, or to the related interests of any of the foregoing (collectively, "insiders") must comply with Maryland law and the requirements of Sections 22(g) and

8

---

22(h)
of the Federal Reserve Act and certain of the regulations of the Board of Governors, except to the extent more stringent requirements are established by the FDIC. Among other things, Sections
22(g) and 22(h) of the Federal Reserve Act require that all loans to insiders be made on substantially the same terms as those prevailing at the time for comparable transactions with unaffiliated
borrowers and not involve more than the normal risk of repayment or present other unfavorable features. Maryland law further requires that such loans, with limited exceptions, be approved by the board
of directors or executive committee and be reviewed every six months by the board. Additionally, the aggregate amount of loans or extensions of credit outstanding to any insider may not exceed the
loans to one borrower limitation applicable to national banks. Further, FDICIA limits the aggregate amount of loans or extensions of credit outstanding to all insiders to 100% of the amount of
unimpaired capital and unimpaired surplus of the institution.

Regulatory Restrictions on the Payment of Dividends by the Bank to the Company. FDICIA
restricts the ability of federally-insured banks to pay any dividend (other than a dividend in the form of additional shares, or options to purchase additional shares) if, after paying the dividend,
the bank would be undercapitalized.

Community Reinvestment. The Community Reinvestment Act (the "CRA") and the regulations of
the FDIC require each insured nonmember bank to delineate its local community, adopt a CRA statement listing the local community and the types of credit the bank is prepared to extend in that
community and to make its CRA statement available for public inspection. The FDIC periodically evaluates performance and compliance with the CRA statement. The failure to adequately perform community
reinvestment activities could result in the denial of applications to acquire banking and non-banking institutions, establish branches, obtain deposit insurance for newly-chartered banks,
or to relocate the main office or a branch office of a bank.

Deposit Insurance. The Bank's deposits are insured by the FDIC through the Bank Insurance
Fund (the "BIF") up to a maximum of $100,000 for each insured depositor. The insurance premium payable by each BIF member is based on the institution's assessment base (generally total deposit
accounts subject to certain adjustments). The premiums are paid in quarterly assessments. The FDIC promulgated regulations establishing a risk-based assessment system commencing in 1993.

Deposit
insurance may be terminated by the FDIC after notice and hearing, upon a finding by the FDIC that an insured nonmember bank has engaged in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any applicable law, rule, regulation, order or condition imposed by, or written agreement with, the FDIC. Additionally, the FDIC may
temporarily suspend insurance on new deposits received by an insured nonmember bank that has no tangible capital and no goodwill includible in core capital.

Income Taxes. The Company and its subsidiaries are required to file annual income tax
returns with both the Internal Revenue Service (the "IRS") and the taxing authorities in any state in which they are qualified to do business. Because the Bank is under $500 million in asset
size, it is permitted to use the reserve method of tax accounting for determining bad debt deductions for income tax purposes. At December 31, 2003, the Bank had a tax bad debt reserve of
$609 thousand and a book bad debt reserve of $3.7 million. The Bank has provided a deferred tax asset on its books for the difference between its tax and book bad debt reserves. If the
Bank were to grow to a size of $500 million or greater, it would be required to recapture its tax bad debt reserve over a four year period and pay taxes on that amount. For financial accounting
purposes, the
payment of these taxes would be offset by an increase in the deferred tax asset related to the difference between tax and book bad debt reserves, potentially subject to a total deferred tax asset
limitation based on reasonable recovery under current accounting literature.

Although
the Company currently pays income taxes based on current marginal rates, the Bank has a portfolio of state and municipal securities which earn interest that is not taxed for
federal income tax purposes. For that reason, the Bank may be subject to the Alternative Minimum Tax ("AMT") provisions of the Internal Revenue Code. The AMT provisions in general limit the benefit
available from investing in tax free obligations, and require companies to pay the higher of taxes computed at 34% of income less the tax free income, or 20% of total income. Any amounts paid under
the AMT are carried over and are available as a credit in future years.

Securities Laws. The Company and certain of its directors, officers and shareholders are
subject to the Securities Act of 1934 and a broad range of both federal and state securities laws including the obligation to file annual, quarterly and other periodic reports with the appropriate
authorities, soliciting proxies and conducting shareholders' meetings in accordance with the 1934 Act's proxy rules, and complying with the reporting and "short-swing" profit recovery provisions
imposed by 1934 Act Section 16.

Monetary Policies. Banking is a business that depends on interest rate differentials. In
general, the differences between the interest paid by a bank on its deposits and other borrowings, the interest received by the bank on loans extended to its customers, and securities held in its
investment portfolio constitute the major portion of a bank's earnings. Consequently, the earnings growth of the

9

---

Bank
is influenced by economic conditions, both domestic and foreign, and also on the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board, which
regulates the supply of money through various means. The nature and timing of changes in such policies and their impact on the Bank cannot be predicted. This instrument of monetary policy may cause
volatile fluctuations in short term interest rates, and can have a direct, adverse effect on the operating results of financial institutions. Consequently, Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

During
the last several years, federal legislation and actions by various federal regulatory authorities have significantly increased competition among commercial banks, savings and loan
associations, savings banks, and other financial institutions through, among other things, the elimination of virtually all rate ceilings on interest-bearing deposits.

ITEM 2: DESCRIPTION OF PROPERTY

Both the Bank's main branch and certain of the Company's executive and administrative offices are located in the Bank's headquarters building which it owns in downtown Baltimore, Maryland. The Bank
owns buildings for three of its other branch office locations as well. The Bank leases space for the remaining six branches, two of its CMSI locations, and for its operations center which primarily
houses support functions. As a result of the sale of one of the Bank's branches in 2002, it remains responsible for a lease of the facility, currently subleased
by the acquiring bank, which expires in 2005. Current lease terms expire in 2004 through 2013 and contain renewal options ranging from 3 to 23 years.

The
Bank has purchased the furniture and fixtures required for its headquarters, operations center and branch network. The Bank has purchased the computer/teller equipment in its branch
network and the equipment used for administrative functions.

ITEM 3: LEGAL PROCEEDINGS

A proper person plaintiff, Charles A. Allen, filed a negligence lawsuit against Carrollton Bank on October 24, 2002 in the Circuit Court of Baltimore City. The case was also filed against an
employee of the Bank, the FDIC, and an employee of the FDIC. Counsel for the Bank filed an answer to Mr. Allen's complaint on December 20, 2002 to protect the Bank's interest.
Mr. Allen sought damages of the Bank in excess of $50,000,000.

Counsel
for the Bank filed a motion for summary judgment in the court in October of 2003. The plaintiff Allen did not respond to the Bank's motion. The court granted the Bank's motion
and dismissed Mr. Allen's lawsuit against the Bank.

In
a separate action, Carrollton Bank has been sued for damages by the personal representative of a deceased customer, in the Circuit Court for Anne Arundel County, Maryland. The
complaint alleges causes of action against the Bank for negligence, breach of contract and breach of fiduciary duty and seeks damages of $132,000. Counsel for the Bank has filed an Answer and
Cross/Claim in the case to protect the Bank's interest.

In
December of 2003, the Bank filed a motion for summary judgment in the case seeking a dismissal of the lawsuit filed against the Bank. The plaintiff also filed motions for summary
judgment. On February 4, 2004, the court denied all of the summary judgment motions filed by all parties in the case. A pre-trial conference is scheduled in the case for
April 6, 2004. The Bank will likely re-file its summary judgment motion once again to seek dismissal of the case against it prior to a full trial on the merits.

It
does not appear to counsel that the Bank has any material liability exposure in this case. Counsel has advised the Bank's insurance carrier of the lawsuit. Counsel feels the claims
made in the lawsuit are "covered claims," under the Bank's insurance policy, for which defense costs and indemnity are available to the Bank.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

Not applicable.

10

---



PART II

---

ITEM 5: MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

TRADING AND DIVIDENDS

As of December 31, 2003, there were 455 shareholders of record of the Company. Since May 1994, the Company's Common Stock has traded on the NASDAQ
National Market Tier of The NASDAQ Stock Market under the symbol "CRRB." Currently, there are two broker-dealers who make a market in the Common Stock.

The
table below sets forth the high and low sales price for each quarter in the last two years, and cash dividends paid per share.

The
ability of the Company to pay dividends in the future will be dependent on the earnings, if any, financial condition and business of the Company, as well as other relevant factors,
such as regulatory requirements. No assurance can be given either that the Company's future earnings, if any, will be sufficient to enable it to pay dividends, or that if such earnings are sufficient,
that the Company will not decide to retain such earnings for general working capital and other funding needs. In addition, the Company is highly dependent on dividends received from the Bank to enable
it to pay dividends to shareholders. No assurance can be given that the Bank will continue to generate sufficient earnings to enable it to pay dividends to the Company, or that it will continue to
meet regulatory capital requirements which, if not met, could prohibit payment of dividends to the Company.

|Period      |  | Price per Share (a) |       | Cash Dividends Paid
per Share(a)
|----------- |  | ------------------- | ----- | --------------------------------
|
|
|           
|1st Quarter |  | $                   | 15.55 |                                 
|2nd Quarter |  |                     | 17.99 |                                 
|3rd Quarter |  |                     | 18.10 |                                 
|4th Quarter |  |                     | 18.40 |                                 

---

The following table provides information about the Company's outstanding options, warrants and rights under equity compensation plans:

|Plan Category                                              |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a) |  | Weighted-average exercise
price of outstanding options,
warrants and rights
(b) |       | Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities reflected
in column (a))
(c)
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |  | 174,785                                                                                         |  | $                                                                               | 13.88 |                                                                                                                                                
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                 |      |                                                                                                                                                
|
|Total                                                      |  | 174,785                                                                                         |  | $                                                                               | 13.88 |                                                                                                                                                
|

ITEM 6: SELECTED FINANCIAL DATA

The following information should be read in conjunction with the Audited Consolidated Financial Statements contained in Item 8 of this document and Management's Discussion and Analysis of Financial
Condition and Results of Operations. The following information contained herein is presented to help the reader gain additional insight to information and discussion presented in the Audited
Consolidated Financial Statements and in Management's Discussion and Analysis.

ITEM 6A: DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

AVERAGE BALANCES, INTEREST AND YIELDS

The following chart contains average balance sheet information for 2003, 2002, and 2001, and indicates the related interest income or expense and calculated yield.
Nonaccruing loans are included in the average balance amounts of the applicable portfolio, but only the amount of interest actually recorded as income on nonaccrual loans is included in the interest
income column.

11

---

SELECTED FINANCIAL DATA

|                                             |                                                                             | 2003                                           |   | 2002        |        | 2001 |             | 2000   |   | 1999        |       
|-------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------- | - | ----------- | ------ | ---- | ----------- | ------ | - | ----------- | ------
|                                             |                                                                            
|CONSOLIDATED INCOME STATEMENT DATA:          |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Interest income                                                             |                                                | $ | 15,935,691  |        | $    | 18,985,364  |        | $ | 23,832,624  |       
|                                             | Interest expense                                                            |                                                |   | 6,639,734   |        |      | 8,692,320   |        |   | 12,872,355  |       
|                                             |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Net interest income                                                         |                                                |   | 9,295,957   |        |      | 10,293,044  |        |   | 10,960,269  |       
|                                             | Provision for loan losses                                                   |                                                |   | 243,000     |        |      | 526,000     |        |   | 550,000     |       
|                                             |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Net interest income after provision for loan losses                         |                                                |   | 9,052,957   |        |      | 9,767,044   |        |   | 10,410,269  |       
|                                             | Noninterest income                                                          |                                                |   | 8,268,612   |        |      | 7,534,802   |        |   | 7,156,444   |       
|                                             | Noninterest expense                                                         |                                                |   | 16,058,355  |        |      | 14,536,958  |        |   | 14,817,504  |       
|                                             |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Income before income taxes                                                  |                                                |   | 1,263,214   |        |      | 2,764,888   |        |   | 2,749,209   |       
|                                             | Income taxes                                                                |                                                |   | 338,500     |        |      | 847,630     |        |   | 816,132     |       
|                                             |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Net income                                                                  |                                                | $ | 924,714     |        | $    | 1,917,258   |        | $ | 1,933,077   |       
|                                             |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|CONSOLIDATED BALANCE SHEET DATA, AT YEAR END |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Assets                                                                      |                                                | $ | 302,409,975 |        | $    | 324,221,615 |        | $ | 356,907,181 |       
|                                             | Gross loans                                                                 |                                                |   | 199,296,561 |        |      | 205,220,126 |        |   | 220,177,983 |       
|                                             | Deposits                                                                    |                                                |   | 207,056,100 |        |      | 230,264,108 |        |   | 265,528,720 |       
|                                             | Shareholders' equity                                                        |                                                |   | 34,124,882  |        |      | 33,691,079  |        |   | 32,458,383  |       
|PER SHARE DATA:(a)                           |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Number of shares of Common Stock outstanding, at year-end                   |                                                |   | 2,828,078   |        |      | 2,821,757   |        |   | 2,836,317   |       
|                                             | Net income:                                                                 |                                                |   |             |        |      |             |        |   |             |       
|                                             |                                                                             | Basic                                          |   | $           | 0.33   |      | $           | 0.68   |   | $           | 0.68  
|                                             |                                                                             | Diluted                                        |   |             | 0.32   |      |             | 0.68   |   |             | 0.68  
|                                             | Cash dividends declared                                                     |                                                |   | 0.360       |        |      | 0.342       |        |   | 0.342       |       
|                                             | Book value, at year end                                                     |                                                |   | 12.07       |        |      | 11.94       |        |   | 11.44       |       
|Performance and Capital Ratios:              |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Return on average assets                                                    |                                                |   | 0.29        | %      |      | 0.57        | %      |   | 0.52        | %     
|                                             | Return on average shareholders' equity                                      |                                                |   | 2.71        | %      |      | 5.70        | %      |   | 6.05        | %     
|                                             | Net yield on interest earning assets (b)                                    |                                                |   | 3.36        | %      |      | 3.47        | %      |   | 3.32        | %     
|                                             | Average shareholders' equity to average total assets                        |                                                |   | 10.83       | %      |      | 9.99        | %      |   | 8.52        | %     
|                                             | Year-end capital to year-end risk-weighted assets:                          |                                                |   |             |        |      |             |        |   |             |       
|                                             |                                                                             | Tier 1                                         |   |             | 13.75  | %    |             | 13.57  | % |             | 12.88 
|                                             |                                                                             | Total                                          |   |             | 15.51  | %    |             | 15.07  | % |             | 14.26 
|                                             | Year-end Tier 1 leverage ratio                                              |                                                |   | 10.35       | %      |      | 9.54        | %      |   | 8.61        | %     
|                                             | Cash dividend declared to net income                                        |                                                |   | 109.96      | %      |      | 50.80       | %      |   | 50.43       | %     
|ASSETS QUALITY RATIOS:                       |                                                                             |                                                |   |             |        |      |             |        |   |             |       
|                                             | Allowance for loan losses, at year-end to:                                  |                                                |   |             |        |      |             |        |   |             |       
|                                             |                                                                             | Gross loans                                    |   |             | 1.83   | %    |             | 1.74   | % |             | 1.52  
|                                             |                                                                             | Nonperforming, restructured and past-due loans |   |             | 151.37 |      |             | 111.68 |   |             | 276.13
|                                             | Net charge-offs to average gross loans                                      |                                                |   | 0.09        |        |      | 0.13        |        |   | 0.10        |       
|                                             | Nonperforming assets as a percent of period-end loans and other real estate |                                                |   | 1.26        |        |      | 1.67        |        |   | 0.55        |       

---

12

---

2003 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                       |  | 2003 |            
|------------------------------------------------------ |  | ---- | -----------
|
|                                                       | 
|ASSETS                                                 |  |      |            
|Federal funds sold and Federal Home Loan Bank deposit  |  | $    | 18,044,257 
|Federal Home Loan Bank stock                           |  |      | 2,352,030  
|Investment securities                                  |  |      |            
|U.S. government agency                                 |  |      | 39,007,166 
|State and municipal                                    |  |      | 5,064,139  
|Mortgage-backed securities                             |  |      | 12,605,968 
|Corporate bonds                                        |  |      | 7,504,350  
|Other                                                  |  |      | 3,765,420  
|                                                       |  |      |            
|                                                       |  |      | 67,947,043 
|                                                       |  |      |            
|Loans                                                  |  |      |            
|Demand and time                                        |  |      | 36,937,606 
|Residential mortgage                                   |  |      | 66,966,298 
|Commercial mortgage and construction                   |  |      | 85,645,620 
|Installment                                            |  |      | 2,745,494  
|Lease financing                                        |  |      | 4,201,261  
|                                                       |  |      |            
|                                                       |  |      | 196,496,279
|                                                       |  |      |            
|Total interest-earning assets                          |  |      | 284,839,609
|Noninterest-bearing cash                               |  |      | 19,662,376 
|Premises and equipment                                 |  |      | 5,173,405  
|Other assets                                           |  |      | 6,062,058  
|Allowance for loan losses                              |  |      | (3,692,349 
|Unrealized gains on available for sale securities, net |  |      | 3,306,853  
|                                                       |  |      |            
|                                                       |  | $    | 315,351,952
|                                                       |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                   |  |      |            
|Interest-bearing deposits                              |  |      |            
|Savings and NOW                                        |  | $    | 72,624,598 
|Money market                                           |  |      | 28,266,591 
|Other time                                             |  |      | 77,496,371 
|                                                       |  |      |            
|                                                       |  |      | 178,387,560
|Borrowed funds                                         |  |      | 58,234,600 
|                                                       |  |      |            
|Total interest-bearing liabilities                     |  |      | 236,622,160
|Noninterest-bearing deposits                           |  |      | 42,449,945 
|Other liabilities                                      |  |      | 2,132,959  
|Shareholders' equity                                   |  |      | 34,146,888 
|                                                       |  |      |            
|Total liabilities and shareholders' equity             |  | $    | 315,351,952
|                                                       |  |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                   |  | $    | 284,839,609
|                                                       |  |      |            

Interest on investments and loans is presented on a fully taxable equivalent basis, using regular income tax rates.

13

---

2002 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                       |  | 2002 |            
|------------------------------------------------------ |  | ---- | -----------
|
|                                                       | 
|ASSETS                                                 |  |      |            
|Federal funds sold and Federal Home Loan Bank deposit  |  | $    | 10,563,830 
|Federal Home Loan Bank stock                           |  |      | 3,060,959  
|Investment securities                                  |  |      |            
|U.S. Treasury                                          |  |      | 700,723    
|U.S. government agency                                 |  |      | 43,244,998 
|State and municipal                                    |  |      | 5,577,528  
|Mortgage-backed securities                             |  |      | 19,122,373 
|Corporate bonds                                        |  |      | 7,682,596  
|Other                                                  |  |      | 4,111,271  
|                                                       |  |      |            
|                                                       |  |      | 80,439,489 
|                                                       |  |      |            
|Loans                                                  |  |      |            
|Demand and time                                        |  |      | 35,702,734 
|Residential mortgage                                   |  |      | 98,056,690 
|Commercial mortgage and construction                   |  |      | 75,290,582 
|Installment                                            |  |      | 3,737,614  
|Lease financing                                        |  |      | 2,985,485  
|                                                       |  |      |            
|                                                       |  |      | 215,773,105
|                                                       |  |      |            
|Total interest-earning assets                          |  |      | 309,837,383
|Noninterest-bearing cash                               |  |      | 17,385,072 
|Premises and equipment                                 |  |      | 6,394,921  
|Other assets                                           |  |      | 4,058,345  
|Allowance for loan losses                              |  |      | (3,530,286 
|Unrealized gains on available for sale securities, net |  |      | 2,551,816  
|                                                       |  |      |            
|                                                       |  | $    | 336,697,251
|                                                       |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                   |  |      |            
|Interest-bearing deposits                              |  |      |            
|Savings and NOW                                        |  | $    | 76,375,342 
|Money market                                           |  |      | 31,474,273 
|Other time                                             |  |      | 93,558,972 
|                                                       |  |      |            
|                                                       |  |      | 201,408,587
|Borrowed funds                                         |  |      | 57,578,163 
|                                                       |  |      |            
|Total interest-bearing liabilities                     |  |      | 258,986,750
|Noninterest-bearing deposits                           |  |      | 42,139,426 
|Other liabilities                                      |  |      | 1,919,529  
|Shareholders' equity                                   |  |      | 33,651,546 
|                                                       |  |      |            
|Total liabilities and shareholders' equity             |  | $    | 336,697,251
|                                                       |  |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                   |  | $    | 309,837,383
|                                                       |  |      |            

Interest on investments and loans is presented on a fully taxable equivalent basis, using regular income tax rates.

14

---

2001 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                       |  | 2001 |            
|------------------------------------------------------ |  | ---- | -----------
|
|                                                       | 
|ASSETS                                                 |  |      |            
|Federal funds sold and Federal Home Loan Bank deposit  |  | $    | 10,562,893 
|Federal Home Loan Bank stock                           |  |      | 3,250,000  
|Investment securities                                  |  |      |            
|U.S. Treasury                                          |  |      | 157,969    
|U.S. government agency                                 |  |      | 58,176,745 
|State and municipal                                    |  |      | 6,097,110  
|Mortgage-backed securities                             |  |      | 19,120,539 
|Corporate bonds                                        |  |      | 6,443,265  
|Other                                                  |  |      | 3,987,982  
|                                                       |  |      |            
|                                                       |  |      | 93,983,610 
|                                                       |  |      |            
|Loans                                                  |  |      |            
|Demand and time                                        |  |      | 31,224,350 
|Residential mortgage                                   |  |      | 145,005,914
|Commercial mortgage and construction                   |  |      | 54,797,755 
|Installment                                            |  |      | 4,918,974  
|Lease financing                                        |  |      | 1,586,061  
|                                                       |  |      |            
|                                                       |  |      | 237,533,054
|                                                       |  |      |            
|Total interest-earning assets                          |  |      | 345,329,557
|Noninterest-bearing cash                               |  |      | 18,742,938 
|Premises and equipment                                 |  |      | 7,554,159  
|Other assets                                           |  |      | 5,295,745  
|Allowance for loan losses                              |  |      | (3,146,369 
|Unrealized gains on available for sale securities, net |  |      | 1,405,193  
|                                                       |  |      |            
|                                                       |  | $    | 375,181,223
|                                                       |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                   |  |      |            
|Interest-bearing deposits                              |  |      |            
|Savings and NOW                                        |  | $    | 83,980,457 
|Money market                                           |  |      | 42,466,305 
|Other time                                             |  |      | 115,777,381
|                                                       |  |      |            
|                                                       |  |      | 242,224,143
|Borrowed funds                                         |  |      | 59,638,438 
|                                                       |  |      |            
|Total interest-bearing liabilities                     |  |      | 301,862,581
|Noninterest-bearing deposits                           |  |      | 38,867,266 
|Other liabilities                                      |  |      | 2,491,767  
|Shareholders' equity                                   |  |      | 31,959,609 
|                                                       |  |      |            
|Total liabilities and shareholders' equity             |  | $    | 375,181,223
|                                                       |  |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                   |  | $    | 345,329,557
|                                                       |  |      |            

Interest on investments and loans is presented on a fully taxable equivalent basis, using regular income tax rates.

15

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RATE AND VOLUME VARIANCE

The following chart shows the changes in interest income and interest expense for the last two years resulting from changes in volume and changes in rates.

|                                                      |  | 2003 Compared to 2002 |            | 2002 Compared to 2001 |  
|----------------------------------------------------- |  | --------------------- | ---------- | --------------------- | -
|
|
|                                                      | 
|INTEREST EARNED ON                                    |  |                       |            |                       |  
|Federal funds sold and Federal Home Loan Bank deposit |  | $                     | (85,433    | )                     | $
|Federal Home Loan Bank stock                          |  |                       | (35,275    | )                     |  
|INVESTMENT SECURITIES                                 |  |                       |            |                       |  
|U.S. Treasury                                         |  |                       |           |                       |  
|U.S. government agency                                |  |                       | (627,391   | )                     |  
|State and municipal                                   |  |                       | (5,981     | )                     |  
|Mortgage-backed securities                            |  |                       | (28,392    | )                     |  
|Corporate bonds                                       |  |                       | (2,097     | )                     |  
|Other                                                 |  |                       | (13,064    | )                     |  
|                                                      |  |                       |            |                       |  
|                                                      |  |                       | (676,925   | )                     |  
|                                                      |  |                       |            |                       |  
|LOANS                                                 |  |                       |            |                       |  
|Demand and time                                       |  |                       | (129,177   | )                     |  
|Residential mortgage                                  |  |                       | (38,846    | )                     |  
|Commercial mortgage and construction                  |  |                       | (487,415   | )                     |  
|Installment and credit card                           |  |                       | 1,118      |                       |  
|Lease financing                                       |  |                       | (11,006    | )                     |  
|                                                      |  |                       |            |                       |  
|                                                      |  |                       | (665,326   | )                     |  
|                                                      |  |                       |            |                       |  
|TOTAL INTEREST EARNED                                 |  |                       | (1,462,959 | )                     |  
|                                                      |  |                       |            |                       |  
|INTEREST EXPENSE ON DEPOSITS                          |  |                       |            |                       |  
|Savings and NOW                                       |  |                       | (170,409   | )                     |  
|Money market                                          |  |                       | (146,538   | )                     |  
|Other time                                            |  |                       | (850,665   | )                     |  
|Borrowed funds                                        |  |                       | (61,705    | )                     |  
|                                                      |  |                       |            |                       |  
|TOTAL INTEREST EXPENSE                                |  |                       | (1,229,317 | )                     |  
|                                                      |  |                       |            |                       |  
|NET INTEREST INCOME                                   |  | $                     | (233,642   | )                     | $
|                                                      |  |                       |            |                       |  

Interest on investments and loans is presented on a fully taxable equivalent basis, using regular income tax rates.

16

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ITEM 6B: INVESTMENT PORTFOLIO

AMORTIZED COST OF INVESTMENTS

Reference is made to Note 3 of Notes to Consolidated Financial Statements for the amortized cost of investments at the end of 2003 and 2002. The amortized
cost of investments at the end of 2001 was as follows:

|AVAILABLE FOR SALE                  |  |   |            
|----------------------------------- |  | - | -----------
|U.S. Government agency              |  | $ | 64,711,849 
|Mortgage-backed securities          |  |   | 19,758,761 
|State and municipal Corporate bonds |  |   | 5,891,946  
|                                    |  |   | 7,739,978  
|                                    |  |  
|                                    |  |   | 98,102,534 
|Equity securities                   |  |   | 4,299,478  
|                                    |  |  
|                                    |  | $ | 102,402,012
|                                    |  |  
|HELD TO MATURITY                    |  |   |            
|Foreign bonds                       |  | $ | 25,000     
|                                    |  |  

---

Note:  Investments
classified as available for sale are carried at market value whereas investments classified as held to maturity are carried at amortized cost.

MATURITY AND WEIGHTED AVERAGE YIELDS

The following charts show the maturity distribution for amortized cost and weighted average yields of debt securities in the Company's investment portfolio at
December 31, 2003. Separate charts are presented for securities classified as available for sale and held to maturity. Because the amortized cost is shown and not market value, the totals of
the available for sale securities will not agree with the amount shown on the Consolidated Balance Sheet for 2003 in Part II, Item 8.

MATURITY DISTRIBUTIONAMORTIZED COST

|                               |  | Available for Sale
|------------------------------ |  | ------------------
|
|                              
|U.S. Government agency         |  | $                 
|Mortgage-backed securities (1) |  |                   
|State and municipal            |  |                   
|Corporate bonds                |  |                   
|                               |  |                   
|                               |  | $                 
|                               |  |                   

|        |  | Held to Maturity
|------- |  | ----------------
|
|       
|Foreign |  | $               
|        |  |                 

---

17

---

WEIGHTED AVERAGE YIELD

|                           |  | Available for Sale |  
|-------------------------- |  | ------------------ | -
|
|                           | 
|U.S. Government agency     |  | 5.00               | %
|Mortgage-backed securities |  | 7.01               | %
|State and municipal (1)    |  | 2.49               | %
|Corporate bonds            |  | 5.68               | %
|                           |  |                    |  
|                           |  | 5.19               | %
|                           |  |                    |  

|        |  | Held to Maturity |  
|------- |  | ---------------- | -
|
|        | 
|Foreign |  | 5.50             | %

---

ITEM 6C: LOAN PORTFOLIO

CLASSIFICATION OF LOANS

Reference is made to Note 4 of Notes to Consolidated Financial Statements for the classification of loans at the end of 2003 and 2002. In addition to that
information, the following information concerning loans is presented.

|                          |                                   | 2001 |             | 2000        |   | 1999       
|------------------------- | --------------------------------- | ---- | ----------- | ----------- | - | -----------
|                         
|Real Estate:              |                                   |      |             |             |   |            
|                          | Residential                       |      | $           | 117,617,158 |   | $          
|                          | Commercial                        |      |             | 52,675,033  |   |            
|                          | Construction and land development |      |             | 10,116,583  |   |            
|Demand and time           |                                   |      | 33,982,346  |             |   | 28,981,256 
|Lease financing           |                                   |      | 1,328,828   |             |   | 2,242,679  
|Installment               |                                   |      | 4,458,035   |             |   | 5,561,307  
|                          |                                   |      |             |             |   |            
|                          |                                   |      | 220,177,983 |             |   | 276,367,035
|Allowance for loan losses |                                   |      | 3,338,807   |             |   | 3,024,290  
|                          |                                   |      |             |             |   |            
|Loans, net                |                                   | $    | 216,839,176 |             | $ | 273,342,745
|                          |                                   |      |             |             |   |            

MATURITIES AND INTEREST RATE SENSITIVITIES

The maturities and sensitivities to changes in interest rates for commercial demand and time loans and real estateconstruction loans at
December 31, 2003 is presented below:

|                                  |  | Contractually Due |            | 
|--------------------------------- |  | ----------------- | ---------- | 
|
|
|                                 
|Construction and land development |  | $                 | 11,702,402 | 
|Commercial demand and time        |  |                   | 22,656,660 | 

18

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RISK ELEMENTS

Reference is made to Note 4 of Notes to Consolidated Financial Statements for nonaccrual, past due and restructured loans at the end of 2003, 2002, and
2001. In addition to that information, the following information concerning risk elements is presented.

|                                          |  | 2000 |           | 1999
|----------------------------------------- |  | ---- | --------- | ----
|                                         
|Nonaccrual                                |  | $    | 622,392   |     
|Restructured                              |  |      | 633,302   |     
|                                          |  |      |           |     
|                                          |  | $    | 1,255,694 |     
|                                          |  |      |           |     
|Accruing loans past due more than 90 days |  | $    | 1,281,706 |     
|                                          |  |      |           |     

There are no other interest-bearing assets that would be required to be reported under this section if such assets were loans.

ITEM 6D: SUMMARY OF LOAN LOSS EXPERIENCE

The following charts show the level of loan losses recorded by the Company for the past five years, management's allocation of the allowance for loan losses by
type of loan as of the end of each year, and other statistical information. The allocation of the allowance reflects management's analysis of economic risk potential by type of loan, and is not
intended as a forecast of loan losses.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

|                                                      |                 | Years ended December 31 |          
|----------------------------------------------------- | --------------- | ----------------------- | ---------
|
|                                                      |                
|Balance at beginning of year                          |                 | $                       | 3,578,762
|Charge-offs                                           |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 265,028  
|                                                      |                 |                         |          
|Recoveries                                            |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 91,511   
|                                                      |                 |                         |          
|Net charge-offs                                       |                 |                         | 173,517  
|                                                      |                 |                         |          
|Provision charged to operations                       |                 |                         | 243,000  
|                                                      |                 |                         |          
|Balance at end of the year                            |                 | $                       | 3,648,245
|                                                      |                 |                         |          
|Ratio of net charge-offs to average loans outstanding |                 |                         | .09      

The provision charged to operations for 2003, 2002, and 2001 is discussed in the section on Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's
provisions in 2000 and 1999 related to the level of net losses incurred and to loan portfolio growth in each year.

19

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ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Allocated Amount of the AllowanceYears Ended December 31

|PORTFOLIO                      |              | 2003 |           | 2002      |   | 2001      |         | 2000 |           | 1999   
|------------------------------ | ------------ | ---- | --------- | --------- | - | --------- | ------- | ---- | --------- | -------
|                              
|Commercial and lease financing |              | $    | 1,226,447 |           | $ | 733,560   |         | $    | 607,323   |        
|Real estate:                   |              |      |           |           |   |           |         |      |           |        
|                               | Residential  |      |           | 831,173   |   |           | 754,979 |      |           | 707,061
|                               | Commercial   |      |           | 1,041,834 |   |           | 876,243 |      |           | 775,321
|                               | Construction |      |           |          |   |           |        |      |           |       
|Installment                    |              |      | 133,865   |           |   | 94,162    |         |      | 173,166   |        
|Unallocated                    |              |      | 414,926   |           |   | 1,119,818 |         |      | 1,075,936 |        
|                               |              |      |           |           |   |           |         |      |           |        
|                               |              | $    | 3,648,245 |           | $ | 3,578,762 |         | $    | 3,338,807 |        
|                               |              |      |           |           |   |           |         |      |           |        

Percent of Loans in Each Category to Total LoansYears Ended December 31

|Portfolio                      |              | 2003  |      | 2002  |      | 2001  |      | 2000  |      | 1999  |     
|------------------------------ | ------------ | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ----
|                               |             
|Commercial and lease financing |              | 20.2  | %    | 17.9  | %    | 16.0  | %    | 10.5  | %    | 12.2  | %   
|Real estate:                   |              |       |      |       |      |       |      |       |      |       |     
|                               | Residential  |       | 28.9 |       | 38.8 |       | 53.5 |       | 70.0 |       | 68.8
|                               | Commercial   |       | 41.6 |       | 38.2 |       | 23.9 |       | 17.0 |       | 15.7
|                               | Construction |       | 8.2  |       | 3.8  |       | 4.6  |       | 0.3  |       | 0.7 
|Installment                    |              | 1.1   |      | 1.3   |      | 2.0   |      | 2.2   |      | 2.6   |     
|                               |              |       |      |       |      |       |      |       |      |       |     
|                               |              | 100.0 | %    | 100.0 | %    | 100.0 | %    | 100.0 | %    | 100.0 | %   
|                               |              |       |      |       |      |       |      |       |      |       |     

ITEM 6E: DEPOSITS

Reference is made to the tables for Average Balances, Interest and Yields under Item 6A of this section. Reference is made to Note 8 of Notes to
Consolidated Financial Statements for additional information concerning deposits.

ITEM 6F: RETURN ON EQUITY AND ASSETS

|DESCRIPTION                      |  | 2003    |  | 2002   |  | 2001  
|-------------------------------- |  | ------- |  | ------ |  | ------
|                                
|Return on average assets         |  | 0.29%   |  | 0.57%  |  | 0.52% 
|Return on average equity         |  | 2.71%   |  | 5.70%  |  | 6.05% 
|Dividend payout ratio            |  | 109.96% |  | 50.80% |  | 50.43%
|Average equity to average assets |  | 10.83%  |  | 9.99%  |  | 8.52% 

ITEM 6G: SHORT-TERM BORROWINGS

Reference is made to Note 9 of Notes to Consolidated Financial Statements for a description of the general terms of short-term borrowings, and
for information related to repurchase agreements.

Other short-term borrowings, consisting of Notes Payable-U.S. Treasury, are as follows.

|OTHER SHORT-TERM BORROWINGS:                  |  | 2003 |           | 2002 |   | 2001      |  
|--------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                              | 
|Total outstanding at period-end               |  | $    | 2,025,339 |      | $ | 2,045,237 |  
|Average amount outstanding during period      |  |      | 910,061   |      |   | 838,491   |  
|Maximum amount outstanding at any period-end  |  |      | 2,032,502 |      |   | 2,119,117 |  
|Weighted average interest rate at period-end  |  |      | .73       | %    |   | 1.21      | %
|Weighted average interest rate for the period |  |      | 1.04      | %    |   | 1.40      | %

ITEM 6H: LONG-TERM BORROWINGS

Reference is made to Note 9 of Notes to Consolidated Financial Statements for a description of the general terms of long-term borrowings.

20

---



ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS 2003 COMPARED TO 2002

SUMMARY

Carrollton Bancorp reported net income for 2003 of $925,000, or $0.33 per share, representing a 51.8% decrease from 2002 net income of $1,917,000, or $0.68 per
share. Included in the 2003 results was a $486,000 gain on the sale of securities. The loan portfolio decreased 2.9% to $199,297,000 as a result of loan payoffs and refinancing in 2003. The loan
portfolio contraction, as well as the lower interest rates, contributed to a decrease in interest income from 2002. Noninterest income from fees increased by 14.1% compared to 2002. Fees generated by
the ATM network of 155 machines and income from national point of sale sponsorships grew during 2003. Commissions from brokerage operations of $597,000 were an 11% decrease compared to $671,000 in
2002. In 2003, the Company reactivated CMSI and as a result, generated mortgage banking revenue of $666,000.

NET INTEREST INCOME

Net interest income is the principal source of earnings for a banking company. It represents the difference between the interest income earned on loans and other
investments, and the interest paid on deposits and borrowed funds. For analysis, net interest income is measured on a fully taxable equivalent basis. To determine the taxable equivalent basis, an
adjustment is made to income from state and municipal securities, dividends from equity stocks which achieve a dividend exclusion, and to certain loans which are tax exempt. In 2003, net interest income on a taxable equivalent
basis decreased by $1.2 million to $9.6 million as a result of decreases in both the volume
and yields on earning assets. On average, the loan portfolio decreased 8.9% from 2002 while the investment portfolio decreased by 15.5%. The yield on the loan portfolio decreased from 6.92% in 2002 to
6.64% in 2003. Changes in loan portfolio mix, the prime rate changes, and a very competitive loan market caused the loan yield to decline. The yield on investment securities also declined to 4.23% in
2003 from 5.21% in 2002. The reduction in the loan and investment portfolios and decreased yields, caused total interest income on a tax equivalent basis to fall from $19.5 million in 2002 to
$16.2 million in 2003.
Interest expense decreased $2.1 million to $6.6 million in 2003 from $8.7 million in 2002. Interest expense decreased due to a decrease in both interest bearing liabilities and
rates. Interest expense on deposits decreased in 2003 from 2002 due to decreased cost of interest-bearing deposits, from 2.73% in 2002 to 1.94% in 2003. The table for Rate and Volume Variance Analysis
included in this report shows the decrease in interest expense resulted from decreased volume and rate on deposits and borrowings. The decline in interest bearing liabilities corresponded with a
decline in the loan portfolio.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $243,000 for 2003 compared to $526,000 for 2002. Nonaccrual, restructured, and delinquent loans over 90 days to total
loans decreased to 1.21% at the end of 2003 compared to 1.56% in 2002. This decrease was due to the 2003 change in status of certain loans that were on nonaccrual in 2002, but had performed for a
sufficient amount of time in 2003 to warrant their change in status to performing. The ratio of loan losses to average loans decreased in 2003 to 0.09% compared to 0.13% for 2002. On a monthly basis, management reviews all loan
portfolios to determine trends and monitor asset quality. For consumer loan portfolios, this review generally
consists of reviewing delinquency levels on an aggregate basis with timely follow-up on accounts that become delinquent. In commercial loan portfolios, delinquency information is monitored
and periodic reviews of business and property leasing operations are performed on an individual loan basis to determine potential collection and repayment problems.

NONINTEREST INCOME

For 2003, noninterest income excluding securities gains, gains on branch divestitures, and gains or losses on loan sales increased by 7.2% compared to 2002.
Brokerage commissions decreased $74,000 or 11.0% in 2003 due to the economic slowdown and investor concerns over the stock market. Electronic Banking fee income increased $456,000 primarily due to the
growth of national point of sale sponsorships and increased ATM traffic. The Company reactivated its mortgage banking subsidiary in 2003. Noninterest income for 2003 includes $666,000 in mortgage
banking revenue. Net securities gains in 2003 were $486,000 compared to $210,000 in 2002.
At December 31, 2003, the Company serviced loans for others totaling $3,423,249.

NONINTEREST EXPENSES

In 2003, noninterest expenses increased by $1.5 million or 10.5%. Salaries and benefits increased by $1.2 million, or 19.7%. Full time equivalent
staff increased from 116 positions at the end of 2002 to 136 positions at December 31, 2003 mostly due to increased personnel at the Company's

21

---

mortgage
banking subsidiary. Occupancy expenses increased $21,000 to $1,453,000 in 2003, due to additional locations for the Company's mortgage-banking operations. This increase was slightly offset by
reimbursement from the Company's insurance carrier in excess of costs to repair flood damage at the Company's main headquarters. Furniture and equipment expense decreased by $275,000, mostly due to
decreased depreciation in 2003. Other operating expenses increased $539,000, or 11.3%. A significant portion of this increase is due to increased operations at the mortgage-banking subsidiary. In
addition, the Bank incurred significant costs in the 2003 conversion of its main processing systems.

INCOME TAX PROVISION

For 2003, the effective tax rate for the Company decreased to 26.8% compared to 30.7% for 2002.

FINANCIAL CONDITION

SUMMARY

Total assets of the Company decreased by 6.7% to $302.4 million at December 31, 2003 versus $324.2 million at the end of 2002. Investment
securities decreased 20.7% to $62.5 million at December 31, 2003. Total loans declined 2.9% to $199.3 million at December 31, 2003 compared to $205.2 million at the
end of 2002. Interest earning assets decreased to $270.2 million but were 89.4% of total assets at December 31, 2003.

INVESTMENT SECURITIES

Securities decreased to $62.5 million at December 31, 2003 from $78.8 million at December 31, 2002. The portfolio consists primarily of
U.S. Government agency securities, mortgage-backed securities, corporate bonds, state and municipal obligations, and equity securities. The income from state and municipal obligations is exempt from
federal income tax. Certain agency securities are exempt from state income taxes. The Company uses its investment portfolio as a source of both liquidity and earnings. The Company reinvested the proceeds of the loan payoffs
during the year into the investment portfolio, structured in a manner as to provide liquidity for
funding future loan growth, as well as for the runoff of higher cost funding sources. These transactions were principally undertaken to increase liquidity and reduce interest rate risk.

LOANS

Total loans decreased $5.9 million or 2.9% from 2002 to $199.3 million at December 31, 2003. The decrease in loans was primarily in real
estate lending, due to the heavy volume of refinancing. Commercial loans equaled 70% of total loans at the end of the year and amounted to $139.6 million. Consumer loans amounted to
$59.7 million and were 30% of total loans.

ALLOWANCE FOR LOAN LOSSES

At December 31, 2003, the allowance for loan losses was $3.7 million, a 1.9% increase from the end of 2002. The ratio of the allowance to total loans
was 1.83% at December 31, 2003 and 1.74% at December 31, 2002. The ratio of net loan losses to average loans outstanding for 2003 was .09% compared to 0.13% for 2002. The ratio of
nonaccrual loans, restructured loans, and loans delinquent more than 90 days to total loans decreased to 1.21% at December 31, 2003 from 1.56% at the end of 2002. The ratio of real
estate secured loans to total loans decreased to 78.6% at the end of 2003 from 80.7% at the end of 2002. An allowance for loan losses is maintained to absorb losses in the existing loan portfolio. The allowance is a function of
specific loan allowances, general
loan allowances based on historical loan loss experience and current trends, and allowances based on general economic conditions that affect the collectibility of the loan portfolio. These can
include, but are not limited to exposure to an industry experiencing problems, changes in the nature or volume of the portfolio and delinquency and nonaccrual trends. The portfolio review and
calculation of the allowance is performed by management on a continuing basis.
All loan reserves are subject to regulatory examinations and determination as to the appropriateness of the methodology and adequacy on an annual basis.
The specific allowance is based on regular analysis of the loan portfolio and is determined by analysis of collateral value, cash flow and guarantor capacity, as applicable. The specific allowance
was $134,190 and $1,312,020 as of December 31, 2003 and 2002, respectively.
The general allowance is calculated using internal loan grading results and appropriate allowance factors on approximately 10 classes of loans. This process is reviewed on a regular basis. The
allowance factors may be revised whenever necessary to address current credit quality trends or risks associated with particular loan types. Historic trend analysis is utilized to obtain the factors
to be applied. The general allowance was $3,099,129 and $1,146,924 as of December 31, 2003 and 2002, respectively.
Allocation of a portion of the allowance does not preclude its availability to absorb losses in other categories. An unallocated reserve is maintained to recognize the imprecision in estimating and

22

---

measuring
loss when evaluating the allowance for individual loans or pools of loans.
During the years ended December 31, 2000 through 2003, the unallocated portion of the allowance for loan losses has fluctuated with the specific and general allowances so that the total
allowance for loan losses would be at a level that management believes is the best estimate of possible
future loan losses at the balance sheet date. The specific allowance may fluctuate from period to period if the balance of what management considers problem loans changes. The general allowance will
fluctuate with changes in the mix of the Company's loan portfolio, economic conditions, or specific industry conditions. The requirements of the Company's federal regulators are a consideration in
determining the required total allowance.
Management believes that it has adequately assessed the risk of loss in the loan portfolios based on a subjective evaluation and has provided an allowance which is appropriate based on that
assessment. Because the allowance is an estimate based on current conditions, any change in the economic conditions of the Company's market area or change within a borrower's business could result in
a revised evaluation, which could alter the Company's earnings.

FUNDING SOURCES

Total deposits at December 31, 2003 decreased by $23.2 million to $207.1 million from the end of 2002. Interest bearing accounts decreased by
$24.4 million and noninterest bearing deposits increased by $1.2 million. Overall deposit contraction is a result of the Company's efforts to reduce interest rate risk on its balance
sheet. The Company made a concerted effort to reduce the level of high-yield deposits. Advances from the Federal Home Loan Bank remained at the same level of $45 million at the end of 2003 compared to the end of 2002.
Borrowings for
federal funds purchased, securities sold under agreements to repurchase and notes payable to the US Treasury increased by $396,000 from December 31, 2002 to 2003.

CAPITAL

At December 31, 2003, shareholders' equity was $34.1 million, an increase of $434,000 from 2002. A part of the increase in Shareholders' equity was
due to a $449,000 fair market value adjustment of the investment portfolio as required by Statement No. 115 of the Financial Accounting Standards Board. The Company paid shareholders dividends
totaling $1,017,000, and net income for 2003 was $925,000. In addition, proceeds from the exercise of stock options were $77,000 in 2003. Shareholders' equity amounted to 11.3% of total assets at
December 31, 2003 compared to 10.4% at the end of 2002. Bank holding companies and banks are required by the Federal Reserve and FDIC to maintain minimum levels of Tier 1 (or Core) and Tier 2 capital measured as a
percentage of assets on a risk-weighted basis. Capital is primarily represented by shareholders' equity, adjusted for the allowance for loan losses and certain issues of preferred stock,
convertible securities, and subordinated debt, depending on the capital level being measured. Assets and certain off-balance sheet transactions are assigned to one of five different
risk-weighting factors for purposes of determining the risk-adjusted asset base. The minimum levels of Tier 1 and Tier 2 capital to risk-adjusted assets are 4% and
8%, respectively, under the regulations.
In addition, the Federal Reserve and the FDIC require that bank holding companies and banks maintain a minimum level of Tier 1 (or Core) capital to average total assets excluding intangibles for the
current quarter. This measure is known as the leverage ratio. The current regulatory minimum for the leverage ratio for institutions to be considered adequately capitalized is 4%, but could be
required to be maintained at a higher level based on the regulator's assessment of an institution's risk profile. The following chart shows the regulatory capital levels for the Company and Bank at
December 31, 2003 and 2002. The Company's subsidiary bank also exceeded the FDIC required minimum capital levels at those dates by a substantial margin. Based on the levels of capital, the
Company and the Bank are well capitalized.

|                    |                |   |       |       | At December 31 |       |      |      
|------------------- | -------------- | - | ----- | ----- | -------------- | ----- | ---- | -----
|
|
|                    |               
|Leverage Ratio      | 4              | % | 10.35 | %     | 9.54           | %     | 9.75 | %    
|Risk-based Capital: |                |   |       |       |                |       |      |      
|                    | Tier 1 (Core)  | 4 | %     | 13.75 | %              | 13.57 | %    | 12.86
|                    | Tier 2 (Total) | 8 | %     | 15.51 | %              | 15.07 | %    | 14.12

LIQUIDITY

Liquidity management ensures that funds are available when required to meet deposit withdrawals, loan commitments, and operating expenses. These funds are supplied
by deposits, loan repayments, security maturities, and can be raised by liquidating assets or through additional borrowings. Securities

23

---

classified
as available for sale can be liquidated or pledged to secure borrowed funds to provide necessary liquidity. In addition, the Company has unsecured lines of credit outstanding under which it
could borrow $7 million, and has borrowing capacity with the Federal Home Loan Bank of $76 million, which is collateralized by a security interest in the Company's residential first
mortgage and commercial real estate loans, as well as pledged investment securities. At December 31, 2003, the Company had outstanding loan commitments and unused lines of credit totaling $108.2 million. Of this total,
 management
places a high probability for funding within 1 year on approximately $41.1 million. The remaining amount is mainly unused home equity lines of credit on which management places a low
probability for required funding.

INTEREST RATE RISK

The level of income of a financial institution can be affected by the repricing characteristics of its assets and liabilities due to changes in interest rates.
This is referred to as interest rate risk. Financial institutions allocate significant time and resources to managing interest rate risk because of the impact that interest rate changes can have on
the net interest margin and earnings. Management continues to seek reasonable ways to reduce its exposure to interest rate shifts. A static gap analysis is used by the Company as one tool to monitor
interest rate risk. A static gap analysis measures the difference, or the gap, between the amount of assets and liabilities repricing within a given time period. The Company also performs rate shock
analyses which estimate changes in the net interest margin for parallel rising and falling interest rate environments. Management also calculates and monitors other ratios on a monthly basis that
provide additional information relating to certain aspects of asset/liability management. This information, together with information about forecasted future interest rate trends, is used to manage
the Company's asset and liability positions. Management uses this information as a factor in decisions made about maturities for investment of cash flows, classification of investment securities
purchases as available for sale or held to maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to
alter asset and liability repricing characteristics. At December 31, 2003, the Company was in an asset sensitive position amounting to 11.4% of assets within a one-year time horizon. This is
within the targets as established by the Asset/Liability Management Policy approved by the Board of Directors. Although the Company was at a positive asset/liability position at December 31,
2003, the Company can experience significant volatility in its asset/liability position by virtue of its funding of longer term mortgage loans with relatively short repricing borrowings while it works
to sell the loans. Management continues to work to structure borrowing terms that more closely match asset repricing characteristics, keeping in mind the overall balance sheet strategy of the Company.
Theoretically, a liability sensitive position is preferable in a falling interest rate climate since more liabilities will reprice downward as interest rates fall than will assets, and an asset
sensitive position is preferable in a rising rate environment.
The following chart shows the static gap position for interest sensitive assets and liabilities of the Company as of December 31, 2003. The chart is as of a point in time, and reflects only
the contractual terms of the loan or deposit accounts in assigning assets and liabilities to the various repricing periods except that deposit accounts with no contractual maturity, such as money
market, NOW and savings accounts, have been allocated evenly over a five-year period. In addition, the maturities of investments shown in the gap table will differ from contractual
maturities due to anticipated calls of certain securities based on current interest rates. While this chart indicates the opportunity to reprice assets and liabilities within certain time frames, it
does not reflect the fact that interest rate changes occur in disproportionate increments for various assets and liabilities.

24

---

Period
from December 31, 2003 in which assets and liabilities reprice

|($'s in 000's)                                                 |             | 0 to 90
days |        | 91 to 365
days |   | 1 to 2
years |         | 2 to 5
years |        | > 5
year |  
|-------------------------------------------------------------- | ----------- | ------------ | ------ | -------------- | - | ------------ | ------- | ------------ | ------ | -------- | -
|                                                               |            
|ASSETS:                                                        |             |              |        |                |   |              |         |              |        |          |  
|Short term investments                                         |             | $            | 7,589  |                | $ |             |         | $            |       |          | $
|Securities                                                     |             |              | 9,677  |                |   | 14,220       |         |              | 22,412 |          |  
|Loans                                                          |             |              | 74,791 |                |   | 11,534       |         |              | 11,029 |          |  
|                                                               |             |              |        |                |   |              |         |              |        |          |  
|                                                               |             | $            | 92,057 |                | $ | 25,754       |         | $            | 33,441 |          | $
|                                                               |             |              |        |                |   |              |         |              |        |          |  
|LIABILITIES:                                                   |             |              |        |                |   |              |         |              |        |          |  
|Deposits                                                       |             | $            | 21,180 |                | $ | 48,194       |         | $            | 26,771 |          | $
|Borrowings                                                     |             |              | 13,977 |                |   |             |         |              |       |          |  
|                                                               |             |              |        |                |   |              |         |              |        |          |  
|                                                               |             | $            | 35,157 |                | $ | 48,194       |         | $            | 26,771 |          | $
|                                                               |             |              |        |                |   |              |         |              |        |          |  
|Gap position:                                                  |             |              |        |                |   |              |         |              |        |          |  
|                                                               | Period      |              | $      | 56,900         |   | $            | (22,440 | )            | $      | 6,670    |  
|                                                               | % of Assets |              |        | 18.8           | % |              | (7.4    | )%           |        | 2.2      | %
|                                                               | Cumulative  |              | $      | 56,900         |   | $            | 34,460  |              | $      | 41,130   |  
|                                                               | % of Assets |              |        | 18.8           | % |              | 11.4    | %            |        | 13.6     | %
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 2.62   | %              |   | 1.41         | %       |              | 1.37   | %        |  

OFF-BALANCE SHEET ARRANGEMENTS

The Company enters into off-balance sheet arrangements in the normal course of business. These arrangements consist primarily of commitments to extend
credit, lines of credit and letters of credit. In addition, the Company has certain operating lease obligations. Credit commitments are agreements to lend to a customer as long as there is no violation of any condition to the
contract. Loan commitments generally have
interest 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.
The Company's exposure to credit loss in the event of nonperformance by the borrower is the contract amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on
the same terms, including collateral, as outstanding loans. The Company is not aware of any accounting loss it would incur by funding its commitments.
Outstanding loan commitments, unused lines of credit and letters of credit were as follows at December 31, 2003:

|Loan commitments       |  | $ | 33,624,154
|---------------------- |  | - | ----------
|Unused lines of credit |  | $ | 74,600,420
|Letters of credit      |  | $ | 2,795,649 

The Company leases various branch and general office facilities to conduct its operations. The leases have remaining terms which range from a period of one year to 11 years. Most leases contain
renewal options which are generally exercisable at increased rates. Some of the leases provide for increases in the rental rates at specified times during the lease terms, prior to the expiration
dates.
The following table shows information relating to the Company's off-balance sheet obligations at December 31, 2003 (dollars in thousands):

|Contractual
Obligations     |  | Total |       | Less
than
1 year |   | One to
three
years |  | Three
to
five
years |     | More
than
five
years
|--------------------------- |  | ----- | ----- | ---------------- | - | ------------------ |  | ------------------- | --- | --------------------
|                           
|Operating lease obligations |  | $     | 2,616 |                  | $ | 547                |  | $                   | 864 |                     

25

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NEW ACCOUNTING PRONOUNCEMENTS

FASB Statement No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities,amends
Statement 133 by (1) clarifying under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (2) clarifying when a derivative contains a
financing component, (3) amending the definition of an underlying, (4) amending certain other existing pronouncements. This Statement is effective for contracts entered into or modified
after June 30, 2003 with certain exceptions.

FASB
Statement No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,establishes
standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify the following financial
instruments as a liability or an asset in some circumstances.

This
statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.

FASB
Statement No. 132,Employers' Disclosures about Pensions and Other Postretirement Benefitsan amendment of FASB Statements No. 87,
88, and 106,was revised in 2003 requiring additional disclosures, including information describing the types of plan assets, investment strategy, measurement date(s), plan
obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This Statement is effective for financial statements with fiscal years ending after
December 15, 2003, with interim-period disclosures required by this Statement effective for interim periods beginning after December 15, 2003. Certain disclosure provisions of the
Statement are effective for fiscal years ending after June 15, 2004.

FASB
Interpretation No. 46,Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51, requires
consolidation of variable interest entities by the primary beneficiary. This interpretation is effective for the first interim period or fiscal year beginning after June 15, 2003, for variable
interest entities created before February 1, 2003. For entities created after January 31, 2003, the effective date was immediate.

AICPA
Statement of Position (SOP) 03-3,Accounting for Certain Loans or Debt Securities Acquired in a Transfer,prohibits the
"carrying over" of valuation allowances in loans and securities acquired in a transfer. At transfer, the assets are to be recorded at the total cash flows expected to be collected. The SOP is
effective for loans acquired in fiscal years beginning after December 15, 2004.

Management
does not expect these statements to have any material effect on the Company's financial position or results of operation.

EARNINGS 2002 COMPARED TO 2001

SUMMARY

Carrollton Bancorp reported net income for 2002 of $1,917,000, or $0.68 per share, representing a 0.8% decrease from 2001 net income of $1,933,000, or $0.68 per
share. Included in the 2002 results was a $210,000 gain on the sale of securities, and a $688,000 gain on the sale of a branch, as part of the Company's plan to address asset/liability sensitivity.
The loan portfolio decreased 7% to $205,220,000 as a result of home equity payoffs in 2002 and loan refinancing. The loan portfolio contraction, as well as the lower interest rates, contributed to a
decrease in interest income over 2001. Noninterest income from fees decreased by 8% compared to 2001. Fees generated by the ATM network of 152 machines and income from national point of sale
sponsorships grew during 2002. Commissions from brokerage operations of $671,000 were a 34% decrease compared to $1,016,000 in 2001.

NET INTEREST INCOME

Net interest income is the principal source of earnings for a banking company. It represents the difference between the interest income earned on loans and other
investments, and the interest paid on deposits and borrowed funds. For analysis, net interest income is measured on a fully taxable equivalent basis. To determine the taxable equivalent basis, an
adjustment is made to income from investments in state and municipal securities which achieve a federal or state tax benefit, to dividends from equity stocks which achieve a dividend exclusion, and to
certain loans which are tax exempt.

In
2002, net interest income on a taxable equivalent basis decreased by $695,000 to $10.8 million as a result of decreases in the yields on earning assets. On average, the loan
portfolio decreased 9% from 2001 while the investment portfolio decreased by 14%. The yield on the loan portfolio decreased from 7.67% in 2001 to 6.92% in 2002. Changes in loan portfolio mix, the
prime rate changes, and a very competitive loan market caused the loan yield to decline. The yield on investment securities also declined to 5.21% in 2002 from 5.80% in 2001. The reduction in the loan
and investment portfolios and decreased yields caused total interest income on a tax equivalent basis to fall from $24.3 million in 2001 to $19.4 million in 2002.

Interest
expense decreased $4.2 million to $8.7 million in 2002 from $12.9 million in 2001. Interest expense decreased due to a decrease in both interest bearing
liabilities and rates. Interest expense on deposits decreased in 2002 from 2001 due to decreased cost of interest-bearing deposits, which decreased from 3.86% in 2001 to 2.73% in 2002. The table for
Rate and Volume Variance Analysis included in this report shows the decrease

26

---

in
interest expense resulted from decreased volume and rate on deposits and borrowings. The decline in interest bearing liabilities corresponded with a decline in the loan portfolio.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $526,000 for 2002 compared to $550,000 for 2001. Nonaccrual, restructured, and delinquent loans over 90 days to total
loans increased to 1.56% at the end of 2002 compared to 0.55% in 2001. This increase was due to increased delinquencies. As of December 31, 2002, there was an increase of loan delinquencies of
$1,196,970. The ratio of loan losses to average loans increased in 2002 to 0.13% compared to 0.10% for 2001.

On
a monthly basis, management reviews all loan portfolios to determine trends and monitor asset quality. For consumer loan portfolios, this review generally consists of reviewing
delinquency levels on an aggregate basis with timely follow-up on accounts that become delinquent. In commercial loan portfolios, delinquency information is monitored and periodic reviews
of business and property leasing operations are performed on an individual loan basis to determine potential collection and repayment problems.

NONINTEREST INCOME

For 2002, noninterest income excluding securities gains, gains on branch divestitures, and gains or losses on loan sales decreased by 10.5% compared to 2001.
Brokerage commissions decreased $345,000 or 34% in 2002 due to the economic slowdown and investor concerns over the stock market. ATM fee income declined $410,000 primarily due to the discontinuation
of the Target relationship in July of 2001, and a reduced average number of active ATM machines. Other fees and commissions decreased by $405,000 from 2001.

Net
securities gains in 2002 were $210,000 compared to losses of $3,000 in 2001. The Company also had a gain of $688,000 as a result of the divesture of one of its branches.

The
Company did not sell any loans during 2002. At December 31, 2002, the Company serviced loans for others totaling $7,448,000.

NONINTEREST EXPENSES

In 2002, noninterest expenses decreased by $281,000 or 2%. Salaries and benefits decreased by $59,000, or 1%. In certain areas of the Company, staff reductions
occurred through attrition and the positions were eliminated. Full time equivalent staff decreased from 136 positions at the end of 2001 to 116 positions at December 31, 2002. Occupancy
expenses decreased $152,000 to $1,395,000 in 2002, due to the branch divestiture and the sale of a building no longer being utilized. Furniture and equipment expense increased by $284,000 in 2002 in
part as a result of Management's decision to accelerate the depreciation on its ATMs in 2001. Other operating expenses decreased $353,000, or 7%. A significant portion of this decrease relates
to ATM transactions costs.

INCOME TAX PROVISION

For 2002, the effective tax rate for the Company increased to 31% compared to 30% for 2001.

FINANCIAL CONDITION

SUMMARY

Total assets of the Company decreased by 9% to $324.2 million at December 31, 2002 versus $356.9 million at the end of 2001. Investment
securities decreased to $78.8 million at December 31, 2002. Total loans declined 7% to $205.2 million at December 31, 2002 compared to $220.2 million at the end of
2001. Interest earning assets decreased to $297.6 million but were 91.8% of total assets at December 31, 2002.

INVESTMENT SECURITIES

Securities decreased to $78.8 million at December 31, 2002 from $104.5 million at December 31, 2001. The portfolio consists primarily
of U.S. Government agency securities, mortgage-backed securities, corporate bonds, and state and municipal obligations. The income from state and municipal obligations is exempt from federal income
tax. Certain agency securities are exempt from state income taxes. The Company uses its investment portfolio as a source of both liquidity and earnings.

The
Company reinvested the proceeds of the loan payoffs during the year into the investment portfolio, structured in a manner as to provide liquidity for funding future loan growth, as
well as for the runoff of higher cost funding sources. These transactions were principally undertaken to increase liquidity and reduce interest rate risk.

LOANS

Total loans decreased $15.0 million or 7% from 2001 to $205.2 million at December 31, 2002. The decrease in loans was primarily in real estate
lending, due to the heavy volume of refinancing. Commercial loans equaled 60% of total loans at the end of the year and amounted to $123 million. Consumer loans amounted to $82 million
and were 40% of total loans.

ALLOWANCE FOR LOAN LOSSES

At December 31, 2002, the allowance for loan losses was $3.6 million, a 7% increase from the end of 2001. The ratio of the allowance to total loans
was 1.74% at December 31, 2002 and 1.51% at December 31, 2001. The ratio of net loan losses to average loans outstanding for 2002 was 0.13% compared to 0.10% for 2001. The ratio of
nonaccrual loans, restructured loans, and loans delinquent more than 90 days to total loans increased to 1.56% at December 31, 2002 from 0.55% at the end of 2001. The ratio of real
estate secured loans to total loans decreased to 81% at the end of 2002 from 82% at the end of 2001.

27

---

An
allowance for loan losses is maintained to absorb losses in the existing loan portfolio. The allowance is a function of specific loan allowances, general loan allowances based on
historical loan loss experience and current trends, and allowances based on general economic conditions that affect the collectibility of the loan portfolio. These can include, but are not limited to
exposure to an industry experiencing problems, changes in the nature or volume of the portfolio and delinquency and nonaccrual trends. The portfolio review and calculation of the allowance is
performed by management on a continuing basis.

All
loan reserves are subject to regulatory examinations and determination as to the appropriateness of the methodology and adequacy on an annual basis.

The
specific allowance is based on regular analysis of the loan portfolio and is determined by analysis of collateral value, cash flow and guarantor capacity, as applicable. The specific
allowance was $1,312,020 and $1,126,700 as of December 31, 2002 and 2001, respectively.

The
general allowance is calculated using internal loan grading results and appropriate allowance factors on approximately 10 classes of loans. This process is reviewed on a regular
basis. The allowance factors may be revised whenever necessary to address current credit quality trends or risks associated with particular loan types. Historic trend analysis is utilized to obtain
the factors to be applied. The general allowance was $1,150,239 and $1,136,171 as of December 31, 2002 and 2001, respectively.

Allocation
of a portion of the allowance does not preclude its availability to absorb losses in other categories. An unallocated reserve is maintained to recognize the imprecision in
estimating and measuring loss when evaluating the allowance for individual loans or pools of loans.

During
the years ended December 31, 1999 through 2002, the unallocated portion of the allowance for loan losses has fluctuated with the specific and general allowances so that the
total allowance for loan losses would be at a level that management believes is the best estimate of possible future loan losses at the balance sheet date. The specific allowance may fluctuate from
period to period if the balance of what management considers problem loans changes. The general allowance will fluctuate with changes in the mix of the Company's loan portfolio, economic conditions,
or specific industry conditions. The requirements of the Company's federal regulators are a consideration in determining the required total allowance.

Management
believes that it has adequately assessed the risk of loss in the loan portfolios based on a subjective evaluation and has provided an allowance which is appropriate based on
that assessment. Because the allowance is an estimate based on current conditions, any change in the economic conditions of the Company's market area or change within a borrower's business could
result in a revised evaluation, which could alter the Company's earnings.

FUNDING SOURCES

Total deposits at December 31, 2002 decreased by $35.3 million to $230.3 million from the end of 2001. Interest bearing accounts decreased by
$36.5 million and noninterest bearing deposits increased by $1.3 million. Overall deposit contraction is a result of the Company's efforts to reduce interest rate risk on its balance
sheet, including the sale of its Liberty Road branch. The Company made a concerted effort to reduce the level of high-yield deposits.

Advances
from the Federal Home Loan Bank remained at the same level of $45 million at the end of 2002 compared to the end of 2001. Borrowings for federal funds purchased,
securities sold under agreements to repurchase and notes payable to the US Treasury increased by $1.7 million from December 31, 2001 to 2002.

CAPITAL

At December 31, 2002, shareholders' equity was $33.7 million, an increase of $1.2 million from 2001. The increase in Shareholders' equity was
largely due to a $489,000 fair market value adjustment of the investment portfolio as required by Statement No. 115 of the Financial Accounting Standards Board. The Company paid shareholders
dividends totaling $974,000, and net income for 2002 was $1.9 million. In addition, the Company purchased and retired common stock for $199,000 in 2002. Shareholders' equity amounted to 10% of
total assets at December 31, 2002 compared to 9% at the end of 2001.

Bank
holding companies and banks are required by the Federal Reserve and FDIC to maintain minimum levels of Tier 1 (or Core) and Tier 2 capital measured as a percentage of assets on a
risk-weighted basis. Capital is primarily represented by shareholders' equity, adjusted for the allowance for loan losses and certain issues of preferred stock, convertible securities, and
subordinated debt, depending on the capital level being measured. Assets and certain off-balance sheet transactions are assigned to one of five different risk-weighting factors
for purposes of determining the risk-adjusted asset base. The minimum levels of Tier 1 and Tier 2 capital to risk-adjusted assets are 4% and 8%, respectively, under the
regulations.

In
addition, the Federal Reserve and the FDIC require that bank holding companies and banks maintain a minimum level of Tier 1 (or Core) capital to average total assets excluding
intangibles for the current quarter. This measure is known as the leverage ratio. The current regulatory minimum for the leverage ratio for institutions to be considered adequately capitalized is 4%,
but could be required to be maintained at a higher level based on the regulator's assessment of an institution's risk profile. The following chart shows the regulatory

28

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capital
levels for the Company and Bank at December 31, 2002 and 2001. The Company's subsidiary bank also exceeded the FDIC required minimum capital levels at those dates by a substantial
margin. Based on the levels of capital, the Company and the Bank are well capitalized.

|                    |                |    |    | At December 31
|------------------- | -------------- | -- | -- | --------------
|
|
|                   
|Leverage Ratio      |                | 4% |    | 9.54%         
|Risk-based Capital: |                |    |    |               
|                    | Tier 1 (Core)  |    | 4% |               
|                    | Tier 2 (Total) |    | 8% |               

LIQUIDITY

Liquidity management ensures that funds are available when required to meet deposit withdrawals, loan commitments, and operating expenses. These funds are supplied
by deposits, loan repayments, security maturities, and can be raised by liquidating assets or through additional borrowings. Securities classified as available for sale can be liquidated or pledged to
secure borrowed funds to provide necessary liquidity. In addition, the Company has unsecured lines of credit outstanding under which it could borrow $7 million, and has borrowing capacity with
the Federal Home Loan Bank of $52 million, which is collateralized by a security interest in the Company's residential first mortgage and commercial real estate loans, as well as pledged
investment securities.

At
December 31, 2002, the Company had outstanding loan commitments and unused lines of credit totaling $86.3 million. Of this total, management places a high probability
for funding within 1 year on approximately $20.0 million. The remaining amount is mainly unused home equity lines of credit on which management places a low probability for required
funding.

INTEREST RATE RISK

The level of income of a financial institution can be affected by the repricing characteristics of its assets and liabilities due to changes in interest rates.
This is referred to as interest rate risk. Financial institutions allocate significant time and resources to managing interest rate risk because of the impact that interest rate changes can have on
the net interest margin and earnings. Management continues to seek reasonable ways to reduce its exposure to interest rate shifts. A static gap analysis is used by the Company as one tool to monitor
interest rate risk. A static gap analysis measures the difference, or the gap, between the amount of assets and liabilities repricing within a given time period. The Company also performs rate shock
analyses which estimate changes in the net interest margin for parallel rising and falling interest rate environments. Management also calculates and monitors other ratios on a monthly basis that
provide additional information relating to certain aspects of asset/liability management. This information, together with information about forecasted future interest rate trends, is used to manage
the Company's asset and liability positions. Management uses this information as a factor in decisions made about maturities for investment of cash flows, classification of investment securities
purchases as available for sale or held to maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to
alter asset and liability repricing characteristics.

At
December 31, 2002, the Company was in an asset sensitive position amounting to 10.9% of assets within a one-year time horizon. This is within the targets as
established by the Asset/Liability Management Policy approved by the Board of Directors. Although the Company was at a positive asset/liability position at December 31, 2002, the Company can
experience significant volatility in its asset/liability position by virtue of its funding of longer term mortgage loans with relatively short repricing borrowings while it works to sell the loans.
Management continues to work to structure borrowing terms that more closely match asset repricing characteristics, keeping in mind the overall balance sheet strategy of the Company. Theoretically, a
liability sensitive position is preferable in a falling interest rate climate since more liabilities will reprice downward as interest rates fall than will assets, and an asset sensitive position is
preferable in a rising rate environment.

The
following chart shows the static gap position for interest sensitive assets and liabilities of the Company as of December 31, 2002. The chart is as of a point in time, and
reflects only the contractual terms of the loan or deposit accounts in assigning assets and liabilities to the various repricing periods except that deposit accounts with no contractual maturity, such
as money market, NOW and savings accounts, have been allocated evenly over a five-year period. In addition, the maturities of investments shown in the gap table will differ from
contractual maturities due to anticipated calls of certain securities based on current interest rates. While this chart indicates the opportunity to reprice assets and liabilities within certain time
frames, it does not reflect the fact that interest rate changes occur in disproportionate increments for various assets and liabilities.

29

---

Period from December 31, 2002 in which assets and liabilities reprice

|($'s in 000's)                                                 |             | 0 to 90
days |         | 91 to 365
days |   | 1 to 2
years |         | 2 to 5
years |        | > 5
year |   
|-------------------------------------------------------------- | ----------- | ------------ | ------- | -------------- | - | ------------ | ------- | ------------ | ------ | -------- | --
|                                                               |            
|ASSETS                                                         |             |              |         |                |   |              |         |              |        |          |   
|Short term investments                                         |             | $            | 11,067  |                | $ |             |         | $            |       |          | $ 
|Securities                                                     |             |              | 27,588  |                |   | 12,313       |         |              | 6,586  |          |   
|Loans                                                          |             |              | 86,245  |                |   | 13,400       |         |              | 16,267 |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|                                                               |             | $            | 124,900 |                | $ | 25,713       |         | $            | 22,853 |          | $ 
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|LIABILITIES:                                                   |             |              |         |                |   |              |         |              |        |          |   
|Deposits                                                       |             | $            | 20,877  |                | $ | 75,686       |         | $            | 26,627 |          | $ 
|Borrowings                                                     |             |              | 18,580  |                |   |             |         |              |       |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|                                                               |             | $            | 39,457  |                | $ | 75,686       |         | $            | 26,627 |          | $ 
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|Gap position:                                                  |             |              |         |                |   |              |         |              |        |          |   
|                                                               | Period      |              | $       | 85,443         |   | $            | (49,973 | )            | $      | (3,774   | ) 
|                                                               | % of Assets |              |         | 26.4           | % |              | (15.4   | )%           |        | (1.2     | )%
|                                                               | Cumulative  |              | $       | 85,443         |   | $            | 35,470  |              | $      | 31,696   |   
|                                                               | % of Assets |              |         | 26.4           | % |              | 10.9    | %            |        | 9.8      | % 
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 3.17    | %              |   | 1.31         | %       |              | 1.22   | %        |   

ITEM 7: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the market risk of the Company's financial instruments, see "Management's Discussion and AnalysisInterest Rate Risk" in
Item 7.

30

---



ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
Carrollton Bancorp and Subsidiary
Baltimore, Maryland

We have audited the accompanying consolidated balance sheets of Carrollton Bancorp and Subsidiary as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in shareholders' equity, and cash flows for the three years ended December 31, 2003. 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 Carrollton Bancorp and Subsidiary as of
December 31, 2003 and 2002, and the results of their operations and their cash flows for the three years ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

Rowles & Company, LLP

SIGNATURE

Baltimore,
Maryland
February 24, 2004

31

---

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                |                     | December 31,
|------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------
|
|                                                                                                                               
|ASSETS                                                                                                                          |                     |             
|Cash and due from banks                                                                                                         |                     | $           
|Federal funds sold and Federal Home Loan Bank deposit                                                                           |                     |             
|Federal Home Loan Bank stock, at cost                                                                                           |                     |             
|Investment securities                                                                                                           |                     |             
|                                                                                                                                | Available for sale  |             
|                                                                                                                                | Held to maturity    |             
|Loans held for sale                                                                                                             |                     |             
|Loans, less allowance for loan losses of $3,648,245 and $3,578,762                                                              |                     |             
|Premises and equipment                                                                                                          |                     |             
|Accrued interest receivable                                                                                                     |                     |             
|Foreclosed real estate                                                                                                          |                     |             
|Prepaid income taxes                                                                                                            |                     |             
|Other assets                                                                                                                    |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     | $           
|                                                                                                                                |                     |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                            |                     |             
|Deposits                                                                                                                        |                     |             
|                                                                                                                                | Noninterest-bearing |             
|                                                                                                                                | Interest-bearing    |             
|                                                                                                                                |                     |             
|Total deposits                                                                                                                  |                     |             
|Federal funds purchased and securities sold under agreement to repurchase                                                       |                     |             
|Notes payable  U.S. Treasury                                                                                                   |                     |             
|Advances from the Federal Home Loan Bank                                                                                        |                     |             
|Accrued interest payable                                                                                                        |                     |             
|Deferred income taxes                                                                                                           |                     |             
|Other liabilities                                                                                                               |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     |             
|Shareholders' equity                                                                                                            |                     |             
|Common stock, par $1.00 per share; authorized 10,000,000 shares; issued and outstanding 2,828,078 in 2003 and 2,821,757 in 2002 |                     |             
|Surplus                                                                                                                         |                     |             
|Retained earnings                                                                                                               |                     |             
|Accumulated other comprehensive income                                                                                          |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     |             
|                                                                                                                                |                     | $           
|                                                                                                                                |                     |             

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

32

---

CONSOLIDATED STATEMENTS OF INCOME

|                                                         |                            | Years Ended December 31, |           
|-------------------------------------------------------- | -------------------------- | ------------------------ | ----------
|
|                                                         |                           
|INTEREST INCOME                                          |                            |                          |           
|Interest and fees on loans                               |                            | $                        | 13,034,872
|Interest and dividends on securities                     |                            |                          |           
|                                                         | Taxable interest income    |                          |           
|                                                         | Nontaxable interest income |                          |           
|                                                         | Dividends                  |                          |           
|Interest on federal funds sold and other interest income |                            |                          | 224,755   
|                                                         |                            |                          |           
|Total interest income                                    |                            |                          | 15,935,691
|                                                         |                            |                          |           
|INTEREST EXPENSE                                         |                            |                          |           
|Deposits                                                 |                            |                          | 3,469,039 
|Borrowings                                               |                            |                          | 3,170,695 
|                                                         |                            |                          |           
|Total interest expense                                   |                            |                          | 6,639,734 
|                                                         |                            |                          |           
|Net interest income                                      |                            |                          | 9,295,957 
|PROVISION FOR LOAN LOSSES                                |                            |                          | 243,000   
|                                                         |                            |                          |           
|Net interest income after provision for loan losses      |                            |                          | 9,052,957 
|                                                         |                            |                          |           
|NONINTEREST INCOME                                       |                            |                          |           
|Service charges on deposit accounts                      |                            |                          | 987,582   
|Brokerage commissions                                    |                            |                          | 597,247   
|Mortgage banking fees and gains                          |                            |                          | 665,948   
|Other fees and commissions                               |                            |                          | 5,531,726 
|Gains (losses) on security sales                         |                            |                          | 486,109   
|Gain on branch divestiture                               |                            |                          |          
|Losses on loan sales                                     |                            |                          |          
|                                                         |                            |                          |           
|Total noninterest income                                 |                            |                          | 8,268,612 
|                                                         |                            |                          |           
|NONINTEREST EXPENSES                                     |                            |                          |           
|Salaries                                                 |                            |                          | 5,996,496 
|Employee benefits                                        |                            |                          | 1,499,002 
|Occupancy                                                |                            |                          | 1,452,624 
|Furniture and equipment                                  |                            |                          | 1,784,787 
|Other operating expenses                                 |                            |                          | 5,325,446 
|                                                         |                            |                          |           
|Total noninterest expenses                               |                            |                          | 16,058,355
|                                                         |                            |                          |           
|Income before income taxes                               |                            |                          | 1,263,214 
|INCOME TAXES                                             |                            |                          | 338,500   
|                                                         |                            |                          |           
|NET INCOME                                               |                            | $                        | 924,714   
|                                                         |                            |                          |           
|NET INCOME PER SHAREBASIC                               |                            | $                        | 0.33      
|                                                         |                            |                          |           
|NET INCOME PER SHAREDILUTED                             |                            | $                        | 0.32      
|                                                         |                            |                          |           

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

33

---

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                                      |  | Common Stock |   |   |           |   |   | Accumulated
Other
Comprehensive
Income |   |  
|------------------------------------------------------------------------------------- |  | ------------ | - | - | --------- | - | - | -------------------------------------- | - | -
|
|
|                                                                                      |  |             
|BALANCE, DECEMBER 31, 2000                                                            |  | 2,707,733    |   | $ | 2,707,733 |   | $ | 17,090,011                             |   | $
|Net Income                                                                            |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized gains (losses) on available for sale securities, net of tax |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                  |  |              |   |   |           |   |   |                                        |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Shares acquired and cancelled                                                         |  | (6,479       | ) |   | (6,479    | ) |   | (72,565                                | ) |  
|Cash dividends, $0.342                                                                |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2001                                                            |  | 2,701,254    |   |   | 2,701,254 |   |   | 17,017,446                             |   |  
|Net Income                                                                            |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized gains (losses) on available for sale securities, net of tax |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                  |  |              |   |   |           |   |   |                                        |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Shares acquired and cancelled                                                         |  | (14,044      | ) |   | (14,044   | ) |   | (185,277                               | ) |  
|Stock dividend, 5%                                                                    |  | 134,547      |   |   | 134,547   |   |   | 1,785,439                              |   |  
|Cash dividends, $0.342                                                                |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2002                                                            |  | 2,821,757    |   |   | 2,821,757 |   |   | 18,617,608                             |   |  
|Net Income                                                                            |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized gains (losses) on available for sale securities, net of tax |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                  |  |              |   |   |           |   |   |                                        |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|Stock options exercised                                                               |  | 6,715        |   |   | 6,715     |   |   | 70,007                                 |   |  
|Adjustment to 2002 stock dividend                                                     |  | (394         | ) |   | (394      | ) |   | (5,228                                 | ) |  
|Cash dividends, $0.36                                                                 |  |              |   |   |          |   |   |                                       |   |  
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2003                                                            |  | 2,828,078    |   | $ | 2,828,078 |   | $ | 18,682,387                             |   | $
|                                                                                      |  |              |   |   |           |   |   |                                        |   |  

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

34

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                       |  | Years Ended December 31, |             
|-------------------------------------------------------------------------------------- |  | ------------------------ | ------------
|
|                                                                                       | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |  |                          |             
|Interest received                                                                      |  | $                        | 16,262,131  
|Fees and commissions received                                                          |  |                          | 7,468,463   
|Interest paid                                                                          |  |                          | (6,702,037  
|Cash paid to suppliers and employees                                                   |  |                          | (18,569,724 
|Proceeds from sale of loans held for sale                                              |  |                          | 30,933,244  
|Origination of loans held for sale, net of principal reduction                         |  |                          | (31,842,931 
|Income taxes paid                                                                      |  |                          | (191,024    
|                                                                                       |  |                          |             
|                                                                                       |  |                          | (2,641,878  
|                                                                                       |  |                          |             
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |  |                          |             
|Proceeds from maturities of securities held to maturity                                |  |                          |            
|Proceeds from sales of securities available for sale                                   |  |                          | 1,724,217   
|Proceeds from maturities of securities available for sale                              |  |                          | 115,149,964 
|Proceeds from redemption of Federal Home Loan Bank stock                               |  |                          | 250,000     
|Purchase of securities available for sale                                              |  |                          | (100,048,513
|Loans made, net of principal collected                                                 |  |                          | 5,637,979   
|Purchase of loans, net of principal collected                                          |  |                          |            
|Proceeds from sale of loans                                                            |  |                          |            
|Purchase of premises and equipment                                                     |  |                          | (923,640    
|Proceeds from sale of premises and equipment                                           |  |                          | 269,198     
|Purchase of foreclosed real estate                                                     |  |                          |            
|Net proceeds from branch divestiture                                                   |  |                          |            
|Proceeds from sale of foreclosed real estate                                           |  |                          | 235,590     
|                                                                                       |  |                          |             
|                                                                                       |  |                          | 22,294,795  
|                                                                                       |  |                          |             
|CASH FLOWS FROM FINANCING ACTIVITIES                                                   |  |                          |             
|Net decrease in time deposits                                                          |  |                          | (26,481,138 
|Net increase (decrease) in other deposits                                              |  |                          | 3,273,130   
|Net increase (decrease) in other borrowed funds                                        |  |                          | 396,324     
|Common stock repurchase and retirement                                                 |  |                          |            
|Stock options exercised                                                                |  |                          | 76,722      
|Dividends paid                                                                         |  |                          | (1,016,785  
|                                                                                       |  |                          |             
|                                                                                       |  |                          | (23,751,747 
|                                                                                       |  |                          |             
|Net increase (decrease) in cash and cash equivalents                                   |  |                          | (4,098,830  
|Cash and cash equivalents at beginning of year                                         |  |                          | 31,399,756  
|                                                                                       |  |                          |             
|Cash and cash equivalents at end of year                                               |  | $                        | 27,300,926  
|                                                                                       |  |                          |             
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITES        |  |                          |             
|Net income                                                                             |  | $                        | 924,714     
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITES |  |                          |             
|Provision for loan losses                                                              |  |                          | 243,000     
|Deprecation and amortization                                                           |  |                          | 1,440,603   
|Deferred income taxes                                                                  |  |                          | (253,808    
|Amortization of premiums and discounts                                                 |  |                          | 436,783     
|(Gains) losses on disposal of securities                                               |  |                          | (486,109    
|Loans held for sale made, net of principal sold                                        |  |                          | (1,575,635  
|(Gains) losses on sale of loans                                                        |  |                          | (665,948    
|Gain on branch divestiture                                                             |  |                          |            
|(Gains) losses on sale and write-down of premises and equipment                        |  |                          | (90,006     
|(Gains) losses on sale of foreclosed real estate                                       |  |                          | (14,309     
|Write-down of foreclosed real estate                                                   |  |                          | 9,442       
|(Increase) decrease in                                                                 |  |                          |             
|Accrued interest receivable                                                            |  |                          | 326,440     
|Prepaid income taxes                                                                   |  |                          | 118,681     
|Other assets                                                                           |  |                          | (3,875,775  
|Increase (decrease) in                                                                 |  |                          |             
|Accrued interest payable                                                               |  |                          | (62,303     
|Income taxes payable                                                                   |  |                          |            
|Other liabilities                                                                      |  |                          | 882,352     
|                                                                                       |  |                          |             
|                                                                                       |  | $                        | (2,641,878  
|                                                                                       |  |                          |             
|NONCASH INVESTING ACTIVITY                                                             |  |                          |             
|Transfer of loans to foreclosed real estate                                            |  | $                        | 112,069     
|                                                                                       |  |                          |             

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

35

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies reflected 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 disclosures of commitments and contingent liabilities
at the date of the financial statements and revenues and expenses during the year. Actual results could differ from those estimates.

Business The Company provides commercial banking and brokerage services to businesses and
individuals in Baltimore and surrounding areas of central Maryland, and also makes residential mortgage loans in Virginia, Pennsylvania and Delaware.

Principles Of Consolidation The consolidated financial statements include the accounts of
Carrollton Bancorp (the Company) and its subsidiary Carrollton Bank (the Bank). Intercompany balances and transactions have been eliminated.

The
Parent Only financial statements of the Company account for the Bank using the equity method of accounting.

Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.

Investment Securities Investment securities are classified as either available for sale
or held to maturity. The Company does not currently conduct short-term purchase and sale transactions of investment securities which would be classified as trading securities.

The
Company classifies investments as available for sale based principally on the Company's asset/liability position and potential liquidity needs. These securities are available for
sale in response to changes in market interest rates or in the event the Company needs funds to meet loan demand or deposit withdrawals. Securities classified as available for sale are carried at
market value. The unrealized gain or loss, net of taxes, related to securities classified as available for sale is reflected as a component of shareholders' equity. Gains or losses on securities sales
are determined by the specific-identification method.

The
remaining securities in the investment portfolio are classified as held to maturity. These securities are carried at amortized cost. The Company has the ability and the intent to
hold these securities to maturity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of securities.

Loans Held for Sale Loans held for sale are carried at the lower of aggregate cost or
market value. Market value is determined based on outstanding investor commitments or, in the absence of such commitments, based on current investor yield requirements. Gains and losses on loan sales
are determined using the specific-identification method.

Loans and Allowance For Loan Losses Loans are stated at face value, plus deferred
origination costs, less unearned discount, deferred origination fees, and the allowance for loan losses. Interest on loans is credited to income based on the principal amounts outstanding. Origination
fees and costs are deferred and amortized to income over the estimated terms of the loans. Accrual of interest is discontinued generally when the collection of principal or interest reaches
90 days past due, or earlier if collection becomes uncertain based upon the financial weakness of the borrower or the realizable value of the collateral. Management may grant a waiver from
nonaccrual status for a 90 day past due loan that is well secured or in the process of collection. Nonaccrual loans are returned to accrual status when all past due principal and interest has
been collected, and the remainder of the loan is judged to be fully collectible. 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. If collection of
principal is evaluated as doubtful, all payments are applied to principal.

The
Company measures impaired loans (1) at the observable market price; (2) at the present value of expected cash flows discounted at the loan's effective interest rate; or
(3) at the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, an impairment is recognized
through a valuation allowance and corresponding provision for loan losses.

The
allowance for loan losses represents an estimate which, in management's judgment, will be adequate to absorb probable losses on existing loans and other extensions of credit that may
become uncollectible. Management's judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans. These evaluations take into consideration such factors
as historical loss experience, changes in the nature and volume of the loan portfolio, current economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality, and review of specific problem areas. Actual loan performance may differ from estimates used by management.

36

---

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 leases or the estimated useful lives of the improvements, whichever is shorter.

Foreclosed Real Estate Real estate acquired through foreclosure is recorded at the lower
of cost or fair market value on the date acquired. Losses incurred at the time of acquisition of the property are charged to the allowance for loan losses. Subsequent reductions in the estimated
carrying value of the property and other expenses of owning the property are included in noninterest expense.

Intangible Assets A deposit intangible asset of $1,847,700, relating to a branch
acquisition, is being amortized using the straight-line method over 15 years. The remaining unamortized balance at December 31, 2003 and 2002 was $800,633 and $923,813,
respectively. Amortization expense was $123,180 for 2003, 2002, and 2001.

The
Company capitalizes the value of loan servicing retained on loan sales, and amortizes the value over the estimated life of the portfolio of loans serviced.

Intangible
assets are included in other assets on the Consolidated Balance Sheets. Management evaluates intangible assets for impairment quarterly.

Income Taxes The provision for income taxes includes taxes payable for the current year
and deferred income taxes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax
returns. Under this method, 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.

Per Share Data Basic net income per common share is determined by dividing net income by
the weighted average shares of common stock outstanding giving retroactive effect to any stock dividends and splits declared. Diluted earnings per share is determined by adjusting average shares of
common stock outstanding by the potentially dilutive effects of stock options outstanding. The dilutive effects of stock options are computed using the treasury stock method.

Comprehensive Income Comprehensive income includes net income and the unrealized gain
(loss) on investment securities available for sale, net of income taxes.

Stock options The Company uses the intrinsic value method to account for stock based
compensation plans. Because the option price of stock options granted was equal to the market price of the common stock at the date of grant for all options granted, no compensation expense related to
the options was recognized. If the Company had applied a fair value based method to recognize compensation cost for the options granted, net income and net income per share would have been changed to
the following pro forma amounts for the years ended December 31, 2003, 2002, and 2001.

|                            |                                                   | 2003 |   | 2002    |   | 2001 |          
|--------------------------- | ------------------------------------------------- | ---- | - | ------- | - | ---- | ---------
|                            |                                                  
|Net Income:                 |                                                   |      |   |         |   |      |          
|                            | As Reported                                       |      | $ | 924,714 |   | $    | 1,917,258
|                            | Additional compensation net of related income tax |      |   | (22,727 | ) |      | (41,824  
|                            |                                                   |      |   |         |   |      |          
|                            | Pro forma                                         |      | $ | 901,987 |   | $    | 1,875,434
|                            |                                                   |      |   |         |   |      |          
|Basic Earnings Per Share:   |                                                   |      |   |         |   |      |          
|                            | As Reported                                       |      | $ | 0.33    |   | $    | 0.68     
|                            | Pro forma                                         |      | $ | 0.32    |   | $    | 0.66     
|Diluted Earnings Per Share: |                                                   |      |   |         |   |      |          
|                            | As reported                                       |      | $ | 0.32    |   | $    | 0.68     
|                            | Pro forma                                         |      | $ | 0.32    |   | $    | 0.66     

The value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 2003, 2002, and 2001.

|                    |  | 2003           |  | 2002           |  | 2001          
|------------------- |  | -------------- |  | -------------- |  | --------------
|                   
|Dividend yield      |  | 2.48% to 2.84% |  | 2.84% to 2.97% |  | 3.13% to 3.53%
|Expected volatility |  | 20.88%         |  | 19.55%         |  | 23.52%        
|Risk free rate      |  | 4.25% to 4.67% |  | 4.70% to 5.56% |  | 5.18% to 5.67%
|Estimated life      |  | 10 years       |  | 10 years       |  | 10 years      

37

---

2. RESTRICTIONS ON CASH AND DUE FROM BANKS

Banks are required to carry cash reserves with the Federal Reserve Bank or maintain cash on hand of specified percentages of deposit balances. The
Bank's normal amount of cash on hand, which averaged $20 million and $17 million during 2003 and 2002, respectively, is sufficient to satisfy the reserve requirements.

In
order to cover the costs of services provided by correspondent banks, the Company maintains compensating balances at these correspondent banks, or pays fees in the event the credit
earned on balances is not sufficient to cover activity charges. During 2003 and 2002, the Company maintained average compensating balances of approximately $1,000,000 which was maintained at the
Federal Reserve Bank.

3. INVESTMENT SECURITIES

Investment securities are summarized as follows:

|                           |  | Amortized
cost |            | Unrealized
gains |   | Unrealized
losses |  | Fair
value
|-------------------------- |  | -------------- | ---------- | ---------------- | - | ----------------- |  | ----------
|                          
|December 31, 2003          |  |                |            |                  |   |                   |  |           
|AVAILABLE FOR SALE         |  |                |            |                  |   |                   |  |           
|U.S. government agency     |  | $              | 34,536,818 |                  | $ | 70,616            |  | $         
|Mortgage-backed securities |  |                | 9,086,362  |                  |   | 541,905           |  |           
|State and municipal        |  |                | 5,041,536  |                  |   | 159,588           |  |           
|Corporate bonds            |  |                | 6,578,815  |                  |   | 241,525           |  |           
|                           |  |                |            |                  |   |                   |  |           
|                           |  |                | 55,243,531 |                  |   | 1,013,634         |  |           
|Equity securities          |  |                | 3,652,390  |                  |   | 2,996,026         |  |           
|                           |  |                |            |                  |   |                   |  |           
|                           |  | $              | 58,895,921 |                  | $ | 4,009,660         |  | $         
|                           |  |                |            |                  |   |                   |  |           
|HELD TO MATURITY           |  |                |            |                  |   |                   |  |           
|Foreign Bond               |  | $              | 25,000     |                  | $ |                  |  | $         
|                           |  |                |            |                  |   |                   |  |           

|                           |  | Amortized
cost |            | Unrealized
gains |   | Unrealized
losses |  | Fair
value
|-------------------------- |  | -------------- | ---------- | ---------------- | - | ----------------- |  | ----------
|                          
|December 31, 2002          |  |                |            |                  |   |                   |  |           
|AVAILABLE FOR SALE         |  |                |            |                  |   |                   |  |           
|U.S. government agency     |  | $              | 44,699,756 |                  | $ | 406,539           |  | $         
|Mortgage-backed securities |  |                | 16,243,917 |                  |   | 764,811           |  |           
|State and municipal        |  |                | 5,307,488  |                  |   | 140,168           |  |           
|Corporate bonds            |  |                | 7,664,442  |                  |   | 298,363           |  |           
|                           |  |                |            |                  |   |                   |  |           
|                           |  |                | 73,915,603 |                  |   | 1,609,881         |  |           
|Equity securities          |  |                | 2,039,262  |                  |   | 1,593,832         |  |           
|                           |  |                |            |                  |   |                   |  |           
|                           |  | $              | 75,954,865 |                  | $ | 3,203,713         |  | $         
|                           |  |                |            |                  |   |                   |  |           
|HELD TO MATURITY           |  |                |            |                  |   |                   |  |           
|Foreign Bond               |  | $              | 25,000     |                  | $ |                  |  | $         
|                           |  |                |            |                  |   |                   |  |           

38

---

Information related to unrealized losses in the portfolio follows:

|                           |  | December 31, 2003
|-------------------------- |  | -----------------
|
|
|                          
|U.S. government agency     |  | $                
|Mortgage-backed securities |  |                  
|State and municipal        |  |                  
|Corporate bonds            |  |                  
|Equity securities          |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

|                           |  | December 31, 2002
|-------------------------- |  | -----------------
|
|
|                          
|U.S. government agency     |  | $                
|Mortgage-backed securities |  |                  
|State and municipal        |  |                  
|Corporate bonds            |  |                  
|Equity securities          |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when
economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value.

At
December 31, 2003, four marketable equity securities have unrealized losses with aggregate depreciation of 17% from the Company's cost basis. No credit issues have been
identified that cause management to believe the declines in market value are other than temporary. In analyzing the issuer's financial condition, management considers industry analysis reports,
financial performance and projected target prices of investment analysts within a one-year time frame. Unrealized losses on marketable equity securities that are in excess of 50% of cost,
and that have been sustained for more than 24 months, are generally recognized by management as being other than temporary and charged to earnings, unless evidence exists to support a
realizable value equal to or greater than the Company's carrying value of the investment.

All
unrealized losses on U.S. government agency and state and municipal securities as of December 31, 2003 are considered to be temporary losses, because each security will be
redeemed at face value at, or prior to maturity. In most cases, the temporary impairment in value is caused by market interest rate fluctuations.

Contractual
maturities of debt securities at December 31, 2003 and 2002 are shown below. Actual maturities may differ from contractual maturities because borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.

39

---

|                           |  | December 31, 2003
|-------------------------- |  | -----------------
|
|
|                          
|Within one year            |  | $                
|Over one to five years     |  |                  
|Over five to ten years     |  |                  
|Mortgage-backed securities |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

|                           |  | December 31, 2002
|-------------------------- |  | -----------------
|
|
|                          
|Within one year            |  | $                
|Over one to five years     |  |                  
|Over five to ten years     |  |                  
|Over ten years             |  |                  
|Mortgage-backed securities |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

At December 31, 2003 and 2002, securities with an amortized cost of $30,077,878 (Market value of $30,610,239), and $24,968,799 (market value
of $25,773,673), respectively, were pledged as collateral for government deposits, securities sold under repurchase agreements, and advances from the Federal Home Loan Bank.

In
2003, 2002, and 2001, the Company realized gross gains on sales of securities of $486,109, $209,880, and $0, respectively, and losses of $0, $0, and $2,725, respectively. Income taxes
on net security gains were $187,735, $81,056, and $(1,052) in 2003, 2002, and 2001, respectively.

4. LOANS

Major classifications of loans at December 31 are as follows:

|                          |                                   | 2003 |             | 2002      
|------------------------- | --------------------------------- | ---- | ----------- | ----------
|                         
|Real estate               |                                   |      |             |           
|                          | Residential                       |      | $           | 57,586,028
|                          | Commercial                        |      |             | 82,856,038
|                          | Construction and land development |      |             | 16,275,828
|Demand and time           |                                   |      | 35,978,633  |           
|Lease financing           |                                   |      | 4,449,408   |           
|Installment               |                                   |      | 2,150,626   |           
|                          |                                   |      |             |           
|                          |                                   |      | 199,296,561 |           
|Allowance for loan losses |                                   |      | 3,648,245   |           
|                          |                                   |      |             |           
|Loans, net                |                                   | $    | 195,648,316 |           
|                          |                                   |      |             |           

The Bank makes loans to customers located in Maryland, Virginia, Pennsylvania and Delaware. Although the loan portfolio is diversified, its
performance will be influenced by the regional economy.

The
maturity and rate repricing distribution of the loan portfolio at December 31 is as follows:

|Repricing or maturing within one year |  | $ | 79,048,922  |  | $ | 99,240,344 
|------------------------------------- |  | - | ----------- |  | - | -----------
|Maturing over one to five years       |  |   | 64,465,542  |  |   | 69,640,641 
|Maturing over five years              |  |   | 55,782,097  |  |   | 36,339,141 
|                                      |  |   |             | 
|                                      |  | $ | 199,296,561 |  | $ | 205,220,126
|                                      |  |   |             | 

40

---

Loan balances have been adjusted by the following deferred amounts as of December 31:

|                                                 |  | 2003 |          | 2002 |  
|------------------------------------------------ |  | ---- | -------- | ---- | -
|                                                 | 
|Deferred origination costs and premiums          |  | $    | 466,708  |      | $
|Deferred origination fees and unearned discounts |  |      | (537,019 | )    |  
|                                                 |  |      |          |      |  
|Net deferred costs (fees)                        |  | $    | (70,311  | )    | $
|                                                 |  |      |          |      |  

Transactions in the allowance for loan losses for the years ended December 31 were as follows:

|                                |  | 2003 |           | 2002 |   | 2001     
|------------------------------- |  | ---- | --------- | ---- | - | ---------
|                               
|Beginning balance               |  | $    | 3,578,762 |      | $ | 3,338,807
|Provision charged to operations |  |      | 243,000   |      |   | 526,000  
|Recoveries                      |  |      | 91,511    |      |   | 94,561   
|                                |  |      |           |      |   |          
|                                |  |      | 3,913,273 |      |   | 3,959,368
|Loans charged off               |  |      | 265,028   |      |   | 380,606  
|                                |  |      |           |      |   |          
|Ending balance                  |  | $    | 3,648,245 |      | $ | 3,578,762
|                                |  |      |           |      |   |          

At December 31, 2003, 2002, and 2001, the accrual of interest has been discontinued on loans of $712,116, $734,879, and $387,037,
respectively. The amount of interest income that would have been recorded in 2003, 2002, and 2001 on non-accrual loans if those loans had been handled in accordance with their contractual
terms totaled $54,857, $30,938, and $16,109, respectively. The amount of interest income actually recorded on nonaccrual loans totaled $30,660, $22,878, and $1,239 for 2003, 2002, and 2001,
respectively.

At
December 31, 2003, 2002, and 2001, the Company had one impaired loan to the same borrower amounting to $661,974, $568,969, and $598,644, respectively, which was classified as
impaired because it had been restructured to accept interest only payments for a period of time. The average balance of impaired loans amounted to $615,021, $576,577, and $616,358 in 2003, 2002, and
2001, respectively. During 2003, 2002, and 2001, the Company received total payments on impaired loans of $34,650, $85,189, and $99,868, respectively. Of these amounts, $34,650, $54,614, and $65,210
were recorded as interest income for 2003, 2002, and 2001, respectively. The remainder was applied to reduce principal.

There
is no specific allowance for this loan since the fair value of the collateral securing the loan is considered adequate to cover all principal and interest due. The Company also
continues to accrue interest on this loan due to the adequacy of the collateral value.

Amounts
past due 90 days or more, excluding restructured and nonaccrual loans as of December 31 are as follows:

|                |  | 2003 |           | 2002 |   | 2001     
|--------------- |  | ---- | --------- | ---- | - | ---------
|               
|Mortgage        |  | $    | 637,137   |      | $ | 498,029  
|Demand and time |  |      | 398,881   |      |   | 1,402,634
|                |  |      |           |      |   |          
|                |  | $    | 1,036,018 |      | $ | 1,900,663
|                |  |      |           |      |   |          

Total loans past due 90 days or more were $2,410,108, $2,282,176, and $1,085,206 at December 31, 2003, 2002, and 2001 respectively.

The
Company continues to accrue interest on these loans since the fair value of the collateral is considered adequate to assure collection of all principal and interest amounts due and
the loan is in the process of collection.

Loans
with a balance of $49,827,528 and $55,638,248 were pledged as collateral to the Federal Home Loan Bank of Atlanta as of December 31, 2003 and 2002, respectively.

41

---

5. CREDIT COMMITMENTS

Outstanding loan commitments, unused lines of credit, and letters of credit were as follows as of December 31:

|                       |                                   | 2003 |            | 2002       |   | 2001      
|---------------------- | --------------------------------- | ---- | ---------- | ---------- | - | ----------
|                      
|LOAN COMMITMENTS       |                                   |      |            |            |   |           
|                       | Mortgage loans                    |      | $          | 9,744,958  |   | $         
|                       | Construction and land development |      |            | 4,290,726  |   |           
|                       | Commercial loans                  |      |            | 19,588,470 |   |           
|                       | Installment loans                 |      |            |           |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 33,624,154 |            | $ | 16,347,889
|                       |                                   |      |            |            |   |           
|UNUSED LINES OF CREDIT |                                   |      |            |            |   |           
|                       | Home equity lines                 |      | $          | 48,536,491 |   | $         
|                       | Commercial lines                  |      |            | 24,667,060 |   |           
|                       | Unsecured consumer lines          |      |            | 1,396,869  |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 74,600,420 |            | $ | 69,922,615
|                       |                                   |      |            |            |   |           
|LETTERS OF CREDIT      |                                   | $    | 2,795,649  |            | $ | 3,166,123 
|                       |                                   |      |            |            |   |           

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 generally have interest 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.

The
Company's exposure to credit loss in the event of nonperformance by the borrower is the contract amount of the commitment. Loan commitments, lines of credit, and letters of credit
are made on the same terms, including collateral, as outstanding loans. The Company is not aware of any accounting loss it would incur by funding the above commitments.

6. RELATED PARTY TRANSACTIONS

The Company's executive officers and directors, or other entities to which they are related, 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 and do not involve more than normal risk of
collectibility. During the years ended December 31, 2003, 2002 and 2001, transactions in related party loans were as follows:

|                                            |  | 2003 |            | 2002 |   | 2001       |  
|------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                            | 
|Beginning balance                           |  | $    | 4,421,030  |      | $ | 5,264,386  |  
|Additions                                   |  |      | 648,991    |      |   | 1,184,451  |  
|Repayments                                  |  |      | (1,860,821 | )    |   | (2,027,807 | )
|Changes in executive officers and directors |  |      |           |      |   |           |  
|                                            |  |      |            |      |   |            |  
|Ending balance                              |  | $    | 3,209,200  |      | $ | 4,421,030  |  
|                                            |  |      |            |      |   |            |  

A director of the Company is a partner in a law firm that provides legal services to the Company and the Bank. During the years ended
December 31, 2003, 2002, and 2001, amounts paid to the law firm in connection with those services were $259,502, $224,138, and $173,737, respectively.

A
director of the Company is President of an insurance brokerage through which the Company and the Bank place various insurance policies. During the years ended December 31, 2003,
2002, and 2001, amounts paid to the insurance brokerage for insurance premiums were $244,721, $153,656, and $249,889, respectively. Related commissions amounted to $32,528, $17,724, and $22,582 during
the years ended December 31, 2003, 2002, and 2001, respectively.

A
director of the Company is President of an electrical company through which the Company and the Bank contracted for electrical services amounting to $3,341 in 2003, $4,623 in 2002 and
$26,730 in 2001.

A
director of the Company is the Executive Vice President for a commercial real estate services company, through which the Company and the Bank contracted for appraisal and management
services amounting to $100,949 in 2003, $3,744 in 2002 and $5,021 in 2001.

42

---

7. PREMISES AND EQUIPMENT

A summary of premises and equipment is as follows as of December 31:

|                                          |  | 2003 |            | 2002
|----------------------------------------- |  | ---- | ---------- | ----
|                                         
|Land and improvements                     |  | $    | 909,544    |     
|Buildings                                 |  |      | 2,730,050  |     
|Leasehold improvements                    |  |      | 2,146,153  |     
|Equipment and fixtures                    |  |      | 7,821,438  |     
|                                          |  |      |            |     
|                                          |  |      | 13,607,185 |     
|Accumulated depreciation and amortization |  |      | 8,527,634  |     
|                                          |  |      |            |     
|                                          |  | $    | 5,079,551  |     
|                                          |  |      |            |     

Depreciation and amortization of premises and equipment was $1,275,612, $1,481,612, and $1,365,767 for 2003, 2002, and 2001 respectively.
Amortization of intangible assets, excluding amortization of deposit premiums, was $41,811, $45,756, and $109,090 for 2003, 2002, and 2001, respectively.

During
the year ended December 31, 2002, the Company sold its Baltimore Street property for $200,000. The Bank also sold deposits, along with all assets located within its Liberty
Road branch.

8. DEPOSITS

Major classifications of interest-bearing deposits are as follows as of December 31:

|                                            |  | 2003 |             | 2002
|------------------------------------------- |  | ---- | ----------- | ----
|                                           
|NOW and Super NOW                           |  | $    | 37,515,591  |     
|Money market                                |  |      | 27,957,320  |     
|Savings                                     |  |      | 36,754,460  |     
|Certificates of deposit of $100,000 or more |  |      | 9,225,093   |     
|Other time deposits                         |  |      | 53,118,800  |     
|                                            |  |      |             |     
|                                            |  | $    | 164,571,264 |     
|                                            |  |      |             |     

Interest expense associated with certificates of deposit of $100,000 or more was $868,347, $1,198,018, and $1,910,347 for the years ended
December 31, 2003, 2002, and 2001, respectively.

Time
deposits mature as follows:

|                                  |  | December 31,
|--------------------------------- |  | ------------
|
|                                 
|Maturing within one year          |  | $           
|Maturing over one to two years    |  |             
|Maturing over two to three years  |  |             
|Maturing over three to four years |  |             
|Maturing over four to five years  |  |             
|Maturing over five years          |  |             
|                                  |  |             
|                                  |  | $           
|                                  |  |             

43

---

9. BORROWED FUNDS

Federal funds purchased and securities sold under agreements to repurchase represent transactions with customers for correspondent or commercial
account cash management services, and borrowings by the Company under lines of credit with other institutions. The transactions with customers are overnight borrowing arrangements with interest rates
discounted from the federal funds sold rate. Securities underlying the customer repurchase agreements are maintained in the Company's control. Additional information is as follows:

|                                            |  | 2003 |            | 2002 |   | 2001       |  
|------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                            | 
|Total outstanding at year end               |  | $    | 11,951,594 |      | $ | 11,535,372 |  
|Average amount outstanding during year      |  |      | 12,324,539 |      |   | 11,739,672 |  
|Maximum amount outstanding at any month end |  |      | 14,733,180 |      |   | 12,939,282 |  
|Weighted average interest rate at year end  |  |      | 1.22       | %    |   | 0.82       | %
|Weighted average interest rate for the year |  |      | 0.71       | %    |   | 0.92       | %

Notes payable  U.S. Treasury are Federal Treasury Tax and Loan deposits accepted by the Bank from its customers to be
remitted to the Federal Reserve Bank on a periodic basis. The Company pays interest on these deposits at a slight discount to the federal funds rate. The average balances of the notes were $910,061
and $838,491 during 2003 and 2002, respectively.

Advances
from the Federal Home Loan Bank (FHLB) of Atlanta amounted to $45,000,000 at December 31, 2003 and 2002. Advances averaged $45,000,000 and $45,008,219 for 2003 and 2002,
respectively, with weighted average costs of 6.83% for 2003 and 2002. At both December 31, 2003 and 2002, the advances carried a weighted average interest rate of 6.74%, and matured at dates
ranging from March 26, 2008 to May 24, 2010. The Bank has a total secured line of $76 million with the FHLB for which the Bank granted the FHLB a security interest in certain
residential first mortgage loans and commercial mortgage loans, as well as pledged investment securities (see notes 3 and 4).

The
Company borrows under available unsecured federal funds lines of credit of $7 million with other institutions. There was no balance outstanding under these lines at
December 31, 2003 and 2002. These lines bear interest at the current federal funds rate of the correspondent bank.

10. OTHER OPERATING EXPENSES

Other operating expenses include the following for the years ended December 31:

|                                   |  | 2003 |           | 2002 |   | 2001     
|---------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                  
|ATM services                       |  | $    | 1,458,647 |      | $ | 1,474,497
|Data processing services           |  |      | 1,025,536 |      |   | 809,215  
|Professional services              |  |      | 573,684   |      |   | 406,946  
|Telephone                          |  |      | 221,363   |      |   | 240,999  
|Postage and freight                |  |      | 208,914   |      |   | 176,675  
|Printing, stationery, and supplies |  |      | 193,616   |      |   | 217,188  
|Marketing                          |  |      | 187,172   |      |   | 85,849   
|Liability insurance                |  |      | 181,657   |      |   | 135,656  
|Directors' fees                    |  |      | 139,950   |      |   | 141,150  
|Deposit premium amortization       |  |      | 123,180   |      |   | 123,180  
|Software amortization              |  |      | 41,811    |      |   | 45,756   
|Other                              |  |      | 969,916   |      |   | 929,095  
|                                   |  |      |           |      |   |          
|                                   |  | $    | 5,325,446 |      | $ | 4,786,206
|                                   |  |      |           |      |   |          

44

---

11. STOCK OPTIONS

The Company adopted a stock option incentive plan in 1998, which provides for the granting of common stock options to directors and key employees.
These stock option awards contain a serial feature whereby one third of the options granted vest and can be exercised after each year. Option prices are equal to the estimated fair market value of the
common stock at the date of the grant. Options expire ten years after the date of grant if not exercised.

Information
with respect to options outstanding is as follows for the years ended December 31:

|                                 |  |         |   |                  |  |         |   |                  |  | 2001   
|-------------------------------- |  | ------- | - | ---------------- |  | ------- | - | ---------------- |  | -------
|
|
|
|                                
|Outstanding at beginning of year |  | 179,025 |   |                  |  | 162,434 |   |                  |  | 114,134
|Granted                          |  | 9,930   |   | $14.50 to $17.75 |  | 39,690  |   | $12.11 to $12.67 |  | 48,300 
|Exercised                        |  | (6,085  | ) | $9.71 to $13.45  |  |        |   |                  |  |       
|Expired/Canceled                 |  | (8,085  | ) | $10.94 to $18.10 |  | (23,099 | ) | $9.71 to $18.10  |  |       
|                                 |  |         |   |                  |  |         |   |                  |  |        
|Outstanding at end of year       |  | 174,785 |   | $9.71 to $18.10  |  | 179,025 |   | $9.71 to $18.10  |  | 162,434
|                                 |  |         |   |                  |  |         |   |                  |  |        
|Exercisable at December 31       |  | 137,580 |   |                  |  | 100,135 |   |                  |  | 82,761 
|                                 |  |         |   |                  |  |         |   |                  |  |        

12. NET INCOME PER SHARE

The calculation of net income per common share as restated giving retroactive effect to any stock dividends and splits is as follows for the years
ended December 31:

|         |                                           | 2003 |   | 2002      |  | 2001
|-------- | ----------------------------------------- | ---- | - | --------- |  | ----
|        
|BASIC:   |                                           |      |   |           |  |     
|         | Net income (applicable to common stock)   |      | $ | 924,714   |  | $   
|         | Average common shares outstanding         |      |   | 2,825,077 |  |     
|         | Basic net income per share                |      | $ | 0.33      |  | $   
|DILUTED: |                                           |      |   |           |  |     
|         | Net income (applicable to common stock)   |      | $ | 924,714   |  | $   
|         | Average common shares outstanding         |      |   | 2,825,077 |  |     
|         | Stock option adjustment                   |      |   | 27,810    |  |     
|         |                                           |      |   |           |  |     
|         | Average common shares outstanding-diluted |      |   | 2,852,887 |  |     
|         |                                           |      |   |           |  |     
|         | Diluted net income per share              |      | $ | 0.32      |  | $   
|         |                                           |      |   |           |  |     

13. COMPREHENSIVE INCOME

Comprehensive income is defined as net income plus transactions and other occurrences which are the result of nonowner changes in equity. For the
Company, nonowner equity changes are comprised of unrealized gains or losses on available for sale securities that will be accumulated with net income in determining comprehensive income. Presented
below is a reconcilement of net income to comprehensive income for the years ended December 31:

|                                             |  | 2003 |           | 2002 |   | 2001      |  
|-------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                             | 
|Net Income                                   |  | $    | 924,714   |      | $ | 1,917,258 |  
|                                             |  |      |           |      |   |           |  
|Other comprehensive income:                  |  |      |           |      |   |           |  
|Unrealized holding gains during the period   |  |      | 1,217,864 |      |   | 1,006,004 |  
|Less: Adjustment for security (gains) losses |  |      | (486,109  | )    |   | (209,880  | )
|                                             |  |      |           |      |   |           |  
|Other comprehensive income before tax        |  |      | 731,755   |      |   | 796,124   |  
|Income taxes on comprehensive income         |  |      | (282,603  | )    |   | (307,463  | )
|                                             |  |      |           |      |   |           |  
|Other comprehensive income after tax         |  |      | 449,152   |      |   | 488,661   |  
|                                             |  |      |           |      |   |           |  
|Comprehensive income                         |  | $    | 1,373,866 |      | $ | 2,405,919 |  
|                                             |  |      |           |      |   |           |  

45

---

14. CAPITAL STANDARDS

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) 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. As of December 31, 2003 and 2002, the capital ratios and minimum capital requirements are as follows.

|                                         |  | Actual |            | Minimum Capital Adequacy |        | To be Well Capitalized
|---------------------------------------- |  | ------ | ---------- | ------------------------ | ------ | ----------------------
|
|                                        
|DECEMBER 31, 2003                        |  |        |            |                          |        |                       
|Total Capital (to risk-weighted assets)  |  |        |            |                          |        |                       
|Consolidated                             |  | $      | 34,998,000 |                          | 15.51% |                       
|Carrollton Bank                          |  |        | 31,581,000 |                          | 14.12% |                       
|Tier 1 Capital (to risk-weighted assets) |  |        |            |                          |        |                       
|Consolidated                             |  |        | 31,014,000 |                          | 13.75% |                       
|Carrollton Bank                          |  |        | 28,774,000 |                          | 12.86% |                       
|Tier 1 Capital (to average assets)       |  |        |            |                          |        |                       
|Consolidated                             |  |        | 31,014,000 |                          | 10.35% |                       
|Carrollton Bank                          |  |        | 28,774,000 |                          | 9.75%  |                       
|DECEMBER 31, 2002                        |  |        |            |                          |        |                       
|Total Capital (to risk-weighted assets)  |  |        |            |                          |        |                       
|Consolidated                             |  | $      | 34,342,000 |                          | 15.07% |                       
|Carrollton Bank                          |  |        | 31,306,000 |                          | 13.92% |                       
|Tier 1 Capital (to risk-weighted assets) |  |        |            |                          |        |                       
|Consolidated                             |  |        | 30,929,000 |                          | 13.57% |                       
|Carrollton Bank                          |  |        | 28,484,000 |                          | 12.66% |                       
|Tier 1 Capital (to average assets)       |  |        |            |                          |        |                       
|Consolidated                             |  |        | 30,929,000 |                          | 9.54%  |                       
|Carrollton Bank                          |  |        | 28,484,000 |                          | 8.87%  |                       

Tier 1 capital consists of common stock, surplus, and retained earnings. 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 Company's ability to pay dividends and accept deposits and may significantly affect the operations of the Company.

As
of December 31, 2003, the most recent notification from the Federal Reserve and the FDIC categorized the Company and the Bank as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company's or Bank's category.

46

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15. RETIREMENT PLANS

The Company has a defined benefit pension plan covering substantially all of the employees. Benefits are based on years of service and the
employee's highest average rate of earnings for the three consecutive years during the last five full years before retirement. The Company's funding policy is to contribute annually the amount
recommended by the Plan's independent actuarial consultants. Assets of the plan are held in a trust fund managed by an insurance company.

The
following table sets forth the financial status of the plan as of and for the year ended December 31:

|                                                                                                                |                                                | 2003 |           | 2002       |   | 2001      |           
|--------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---- | --------- | ---------- | - | --------- | ----------
|                                                                                                                |                                               
|CHANGE IN BENEFIT OBLIGATION:                                                                                   |                                                |      |           |            |   |           |           
|                                                                                                                | Benefit obligation at beginning of year        |      | $         | 8,201,071  |   | $         | 7,225,216 
|                                                                                                                | Service cost                                   |      |           | 434,987    |   |           | 391,125   
|                                                                                                                | Interest cost                                  |      |           | 544,400    |   |           | 496,375   
|                                                                                                                | Actuarial gain                                 |      |           | 21,234     |   |           | 409,288   
|                                                                                                                | Benefits paid                                  |      |           | (381,109   | ) |           | (320,933  
|                                                                                                                |                                                |      |           |            |   |           |           
|                                                                                                                | Benefit obligation at end of year              |      |           | 8,820,583  |   |           | 8,201,071 
|                                                                                                                |                                                |      |           |            |   |           |           
|CHANGE IN PLAN ASSETS:                                                                                          |                                                |      |           |            |   |           |           
|                                                                                                                | Fair value of plan assets at beginning of year |      |           | 6,161,247  |   |           | 6,735,251 
|                                                                                                                | Actual return on plan assets                   |      |           | 1,152,983  |   |           | (581,876  
|                                                                                                                | Employer contribution                          |      |           | 466,625    |   |           | 328,805   
|                                                                                                                | Benefits paid                                  |      |           | (381,109   | ) |           | (320,933  
|                                                                                                                |                                                |      |           |            |   |           |           
|                                                                                                                | Fair value of plan assets at end of year       |      |           | 7,399,746  |   |           | 6,161,247 
|                                                                                                                |                                                |      |           |            |   |           |           
|                                                                                                                | Funded status                                  |      |           | (1,420,837 | ) |           | (2,039,824
|                                                                                                                | Unrecognized net actuarial loss                |      |           | 1,537,550  |   |           | 2,244,035 
|                                                                                                                | Unrecognized prior service cost                |      |           | 73,501     |   |           | 126,928   
|                                                                                                                |                                                |      |           |            |   |           |           
|                                                                                                                | Prepaid benefit cost                           |      | $         | 190,214    |   | $         | 331,139   
|                                                                                                                |                                                |      |           |            |   |           |           
|ASSUMPTIONS USED IN MEASURING THE PROJECTED BENEFIT OBLIGATION WERE AS FOLLOWS FOR THE YEARS ENDED DECEMBER 31: |                                                |      |           |            |   |           |           
|                                                                                                                | Discount rates                                 |      |           | 6.25       | % |           | 6.75      
|                                                                                                                | Rates of increase in compensation levels       |      |           | 4.25       | % |           | 5.50      
|                                                                                                                | Long-term rate of return on assets             |      |           | 8.00       | % |           | 9.00      
|NET PENSION EXPENSE INCLUDES THE FOLLOWING COMPONENTS:                                                          |                                                |      |           |            |   |           |           
|                                                                                                                | Service cost                                   |      | $         | 434,987    |   | $         | 391,125   
|                                                                                                                | Interest cost                                  |      |           | 544,400    |   |           | 496,375   
|                                                                                                                | Estimated return on assets                     |      |           | (538,297   | ) |           | (605,295  
|                                                                                                                | Net amortization and deferral                  |      |           | 166,460    |   |           | 51,065    
|                                                                                                                |                                                |      |           |            |   |           |           
|Net pension expense                                                                                             |                                                | $    | 607,550   |            | $ | 333,270   |           
|                                                                                                                |                                                |      |           |            |   |           |           
|ACCUMULATED BENEFIT OBLIGATION AT YEAR END                                                                      |                                                | $    | 7,089,425 |            | $ | 6,180,465 |           
|                                                                                                                |                                                |      |           |            |   |           |           
|ALLOCATION OF ASSETS                                                                                            |                                                |      |           |            |   |           |           
|Domestic equity-large cap growth fund                                                                           |                                                | $    | 1,291,449 |            |   |           |           
|Domestic equity-large cap value                                                                                 |                                                |      | 1,445,766 |            |   |           |           
|Domestic equity-small cap growth fund                                                                           |                                                |      | 414,398   |            |   |           |           
|Domestic equity-small cap value fund                                                                            |                                                |      | 209,622   |            |   |           |           
|Fixed income-guaranteed fund                                                                                    |                                                |      | 4,038,511 |            |   |           |           
|                                                                                                                |                                                |      |           |            |   |           |           
|                                                                                                                |                                                | $    | 7,399,746 |            |   |           |           
|                                                                                                                |                                                |      |           |            |   |           |           

47

---

The Plan's investment strategy is predicated on its investment objectives and the risk and return expectations of asset classes appropriate for the
Plan. Investment objectives have been established by considering the Plan's liquidity needs and time horizon and the fiduciary standards under ERISA. The asset allocation strategy is developed to meet
the Plan's long term needs in a manner designed to control volatility and to reflect the Company's risk tolerance.

In
determining the long-term rate of return on pension plan assets assumption, the target asset allocation is first reviewed. An expected long-term rate of return
is assumed for each asset class, and an underlying inflation rate assumption is also made. The effects of asset diversification and periodic fund rebalancing are also considered.

The
Company estimates it will contribute approximately $400,000 to the Plan for 2004.

The
Company has a contributory thrift plan qualifying under Section 401(k) of the Internal Revenue Code. Employees with one year of service are eligible for participation in the
plan. The Company's contributions to this plan, included in employee benefit expenses, were $70,678, $88,866, and $89,125 for 2003, 2002, and 2001, respectively.

16. CONTINGENCIES

Carrollton Bank has been sued for damages by the personal representative of a deceased customer, in the Circuit court for Anne Arundel County,
Maryland. The complaint alleges causes of action against the Bank for negligence, breach of contract and breach of fiduciary duty and seeks damages of $132,000. Counsel for the Bank has filed an
Answer and Cross/Claim in the case to protect the Bank's interest.

In
December of 2003, Carrollton Bank filed a motion for summary judgment in the case seeking a dismissal of the lawsuit filed against the Bank. The plaintiff also filed motions for
summary judgment. On February 4, 2004, the court denied all of the summary judgment motions filed by all parties in the case. A pre-trial conference is scheduled in the case for
April 6, 2004. Carrollton Bank will likely re-file its summary judgment motion, once again to seek dismissal of the case against it prior to a full trial on the merits.

The
Company is involved in various other legal actions arising from normal business activities. Management believes that the ultimate liability or risk of loss resulting from these
actions will not materially affect the Company's financial position.

48

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17. INCOME TAXES

The components of income tax expense are as follows for the years ended December 31:

|         |  | 2003 |          | 2002 |   | 2001      |  
|-------- |  | ---- | -------- | ---- | - | --------- | -
|         | 
|CURRENT  |  |      |          |      |   |           |  
|Federal  |  | $    | 577,840  |      | $ | 988,868   |  
|State    |  |      | 14,468   |      |   | 50,939    |  
|         |  |      |          |      |   |           |  
|         |  |      | 592,308  |      |   | 1,039,807 |  
|DEFERRED |  |      | (253,808 | )    |   | (192,177  | )
|         |  |      |          |      |   |           |  
|         |  | $    | 338,500  |      | $ | 847,630   |  
|         |  |      |          |      |   |           |  

The components of the deferred tax benefits were as follows for the years ended December 31:

|Provision for loan losses  |  | $ | (26,244  | ) | $ | (125,757 | ) | $ | (121,621 | )
|-------------------------- |  | - | -------- | - | - | -------- | - | - | -------- | -
|Deferred origination costs |  |   | (39,382  | ) |   | (112,822 | ) |   | (95,921  | )
|Deferred compensation plan |  |   | 4,099    |   |   | 892      |   |   | (9,404   | )
|Depreciation               |  |   | (136,195 | ) |   | (29,292  | ) |   | 15,705   |  
|Discount accretion         |  |   | (1,661   | ) |   | 3,246    |   |   | (2,951   | )
|Retirement benefits        |  |   | (54,425  | ) |   | (1,724   | ) |   | 4,540    |  
|Write-down of building     |  |   |         |   |   | 73,280   |   |   |         |  
|Early retirement benefits  |  |   |         |   |   |         |   |   | 52,137   |  
|                           |  |   |          |   |   |          |  
|                           |  | $ | (253,808 | ) | $ | (192,177 | ) | $ | (157,515 | )
|                           |  |   |          |   |   |          |  

The components of the net deferred tax liability were as follows for the years ended December 31:

|DEFERRED TAX ASSETS                                          |  |   |           |   |   |           |   |   |           |  
|------------------------------------------------------------ |  | - | --------- | - | - | --------- | - | - | --------- | -
|Allowance for loan losses                                    |  | $ | 1,173,227 |   | $ | 1,146,983 |   | $ | 1,054,312 |  
|Deferred compensation plan                                   |  |   | 209,793   |   |   | 213,892   |   |   | 214,784   |  
|Allowance for loss on building                               |  |   |          |   |   |          |   |   | 73,280    |  
|                                                             |  |   |           |   |   |           |  
|                                                             |  |   | 1,383,020 |   |   | 1,360,875 |   |   | 1,342,376 |  
|                                                             |  |   |           |   |   |           |  
|DEFERRED TAX LIABILITIES                                     |  |   |           |   |   |           |   |   |           |  
|Accrued retirement benefits                                  |  |   | 74,562    |   |   | 128,987   |   |   | 130,711   |  
|Deferred origination costs                                   |  |   | 125,090   |   |   | 164,472   |   |   | 277,304   |  
|Unrealized gains on available for sale investment securities |  |   | 1,376,044 |   |   | 1,093,441 |   |   | 785,978   |  
|Depreciation                                                 |  |   | 85,808    |   |   | 222,003   |   |   | 477,832   |  
|Discount accretion                                           |  |   | 5,972     |   |   | 7,633     |   |   | 4,387     |  
|FHLB Stock dividends                                         |  |   | 2,019     |   |   | 2,019     |   |   | 2,019     |  
|                                                             |  |   |           |   |   |           |  
|                                                             |  |   | 1,669,495 |   |   | 1,618,555 |   |   | 1,678,231 |  
|                                                             |  |   |           |   |   |           |  
|NET DEFERRED TAX LIABILITY                                   |  | $ | (286,475  | ) | $ | (257,680  | ) | $ | (335,855  | )
|                                                             |  |   |           |   |   |           |  

The differences between the federal income tax rate of 34 percent and the effective tax rate for the Company are reconciled as follows:

|                                                      |  | 2003  |   | 2002  |   | 2001  |  
|----------------------------------------------------- |  | ----- | - | ----- | - | ----- | -
|                                                      | 
|Statutory federal income tax rate                     |  | 34.0  | % | 34.0  | % | 34.0  | %
|INCREASE (DECREASE) RESULTING FROM:                   |  |       |   |       |   |       |  
|Tax-exempt income                                     |  | (20.1 | ) | (11.1 | ) | (13.2 | )
|State income taxes, net of federal income tax benefit |  | 1.2   |   | 1.8   |   | 1.3   |  
|Other                                                 |  | 11.7  |   | 6.0   |   | 7.6   |  
|                                                      |  |       |   |       |   |       |  
|                                                      |  | 26.8  | % | 30.7  | % | 29.7  | %
|                                                      |  |       |   |       |   |       |  

49

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18. LEASE COMMITMENTS

The Company leases various branch and general office facilities to conduct its operations. The leases have remaining terms which range from a
period of 1 year to 11 years. Most leases contain renewal options which are generally exercisable at increased rates. Some of the leases provide for increases in the rental rates at
specified times during the lease terms, prior to the expiration dates.

The
leases generally provide for payment of property taxes, insurance, and maintenance costs by the Company. The total rental expense for all real property leases amounted to $615,032,
$569,703, and $642,218 for 2003, 2002, and 2001, respectively.

Lease
obligations will require minimum rent payments as follows:

|Period          |  | Minimum rentals
|--------------- |  | ---------------
|               
|2004            |  | $              
|2005            |  |                
|2006            |  |                
|2007            |  |                
|2008            |  |                
|Remaining years |  |                
|                |  |                
|                |  | $              
|                |  |                

19. PARENT COMPANY FINANCIAL INFORMATION

The balance sheets for 2003 and 2002 and statements of income and cash flows for Carrollton Bancorp (Parent Only) for 2003, 2002, and 2001, are
presented below:

BALANCE SHEETS

|                                         |  | December 31,
|---------------------------------------- |  | ------------
|
|                                        
|ASSETS                                   |  |             
|Cash                                     |  | $           
|Interest bearing deposits in subsidiary  |  |             
|Investment in subsidiary                 |  |             
|Investment securities available for sale |  |             
|Other assets                             |  |             
|                                         |  |             
|                                         |  | $           
|                                         |  |             
|LIABILITIES AND SHAREHOLDERS' EQUITY     |  |             
|Liabilities                              |  | $           
|                                         |  |             
|SHAREHOLDERS' EQUITY                     |  |             
|Common Stock                             |  |             
|Surplus                                  |  |             
|Retained earnings                        |  |             
|Accumulated other comprehensive income   |  |             
|                                         |  |             
|                                         |  |             
|                                         |  |             
|                                         |  | $           
|                                         |  |             

50

---

STATEMENTS OF INCOME

|                                                                                |  | Years ended December 31, |        
|------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|                                                                                | 
|INCOME                                                                          |  |                          |        
|Dividends from subsidiary                                                       |  | $                        | 258,840
|Interest and dividends                                                          |  |                          | 157,236
|Security gains (losses)                                                         |  |                          | 462,778
|                                                                                |  |                          |        
|                                                                                |  |                          | 878,854
|EXPENSES                                                                        |  |                          | 86,855 
|                                                                                |  |                          |        
|Income before income taxes and equity in undistributed net income of subsidiary |  |                          | 791,999
|Income tax expense                                                              |  |                          | 171,968
|                                                                                |  |                          |        
|                                                                                |  |                          | 620,031
|Equity in undistributed net income of subsidiary                                |  |                          | 304,683
|                                                                                |  |                          |        
|NET INCOME                                                                      |  | $                        | 924,714
|                                                                                |  |                          |        

STATEMENTS OF CASH FLOWS

|                                                                                 |  | Years ended December 31, |           
|-------------------------------------------------------------------------------- |  | ------------------------ | ----------
|
|                                                                                 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |  |                          |           
|Cash dividends from subsidiary                                                   |  | $                        | 258,840   
|Interest and dividends received                                                  |  |                          | 130,835   
|Cash paid to suppliers                                                           |  |                          | (116,795  
|Income taxes paid, net of cash received from subsidiaries                        |  |                          | 147,417   
|                                                                                 |  |                          |           
|                                                                                 |  |                          | 420,297   
|                                                                                 |  |                          |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |  |                          |           
|Net (increase) decrease in interest-bearing deposits                             |  |                          | (156,691  
|Proceeds from sales of securities available for sale                             |  |                          | 719,381   
|                                                                                 |  |                          |           
|                                                                                 |  |                          | 562,690   
|                                                                                 |  |                          |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |  |                          |           
|Dividends paid                                                                   |  |                          | (1,016,785
|Common stock repurchase and retirement                                           |  |                          |          
|Stock options exercised                                                          |  |                          | 76,722    
|                                                                                 |  |                          |           
|                                                                                 |  |                          | (940,063  
|                                                                                 |  |                          |           
|Net (decrease) increase in cash                                                  |  |                          | 42,924    
|Cash at beginning of year                                                        |  |                          | 10,075    
|                                                                                 |  |                          |           
|Cash at end of year                                                              |  | $                        | 52,999    
|                                                                                 |  |                          |           
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES        |  |                          |           
|Net income                                                                       |  | $                        | 924,714   
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES |  |                          |           
|Equity in undistributed income of subsidiary                                     |  |                          | (304,683  
|Security (gains) losses                                                          |  |                          | (462,778  
|Decrease (increase) in accounts receivable                                       |  |                          | (26,401   
|Increase (decrease) in accounts payable                                          |  |                          | 289,445   
|                                                                                 |  |                          |           
|                                                                                 |  | $                        | 420,297   
|                                                                                 |  |                          |           

51

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20. 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 prescribed by the FASB 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.

|                                               |  | December 31, 2003 |             | December 31, 2002
|---------------------------------------------- |  | ----------------- | ----------- | -----------------
|
|                                              
|FINANCIAL ASSETS                               |  |                   |             |                  
|Cash and cash equivalents                      |  | $                 | 27,300,926  |                  
|Investment securities (total)                  |  |                   | 62,483,957  |                  
|Federal Home Loan Bank stock                   |  |                   | 2,250,000   |                  
|Loans held for sale                            |  |                   | 2,241,583   |                  
|Loans, net                                     |  |                   | 195,648,316 |                  
|Accrued interest receivable                    |  |                   | 1,421,554   |                  
|FINANCIAL LIABILITIES                          |  |                   |             |                  
|Noninterest-bearing deposits                   |  | $                 | 42,484,836  |                  
|Interest-bearing deposits                      |  |                   | 164,571,264 |                  
|Federal funds purchased                        |  |                   | 3,507,348   |                  
|Securities sold under agreements to repurchase |  |                   | 8,444,246   |                  
|Notes payable-U.S. Treasury                    |  |                   | 2,025,339   |                  
|Advances from the Federal Home Loan Bank       |  |                   | 45,000,000  |                  
|Accrued interest payable                       |  |                   | 451,055     |                  

The fair values of U.S. Treasury and government agency securities, corporate bonds, mortgage-backed securities, and listed equity securities are
determined using market quotations. For state and municipal securities, the fair values are estimated using a matrix that considers yield to maturity, credit quality, and marketability.

The
fair value of fixed-term loans is estimated to be the present value of scheduled payments, and anticipated prepayments in the case of residential mortgages, discounted
using interest rates currently in effect for loans of the same class and term. The fair value of variable-rate loans is estimated to equal the carrying amount. The valuations of
fixed-term and variable-rate loans are 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.

Generally,
the Company charges fees for commitments to extend credit. Interest rates on commitments to extend credit are normally committed for periods of less than one month. Fees
charged on standby letters of credit are deemed to be immaterial and these guarantees are expected to be settled at face amount or expire unused. It is impractical to assign any fair value to these
commitments.

21. SEGMENT INFORMATION

The Company has reportable segments that are strategic business units offering complimentary products and services to the core business of banking.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company provides the accounting for all segments and charges a management
fee for this service to the other segments. The Company has also lent money to various segments with terms similar to those offered third parties.

The
Commercial/Retail Bank segment provides full service retail and business banking services, including lending and deposit services, investment activities and other customary services
associated with a bank.

The
Electronic Banking segment provides off-site ATM services, national point of sale transaction originations, home banking, and debit card transaction processing.

The
Brokerage segment provides full service brokerage services for stocks, bonds, mutual funds and annuities.

The
Mortgage Unit segment provides residential mortgage lending products and services.

52

---

Segment
information for the Company for 2003 is as follows:

|                                                                       |  | Commercial/
Retail Bank |             | Electronic
Banking |   | Brokerage  |   | Mortgage Unit |          | Segment Totals |   | Eliminations |   | Consolidated |            
|---------------------------------------------------------------------- |  | ----------------------- | ----------- | ------------------ | - | ---------- | - | ------------- | -------- | -------------- | - | ------------ | - | ------------ | -----------
|                                                                       | 
|Interest income                                                        |  | $                       | 15,065,256  |                    | $ |           |   | $             | 3,962    |                | $ | 579,609      |   | $            | 15,648,827 
|Interest expense                                                       |  |                         | (5,901,928  | )                  |   | (177,442   | ) |               |         |                |   | (273,500     | ) |              | (6,352,870 
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Net interest income                                                    |  |                         | 9,163,328   |                    |   | (177,442   | ) |               | 3,962    |                |   | 306,109      |   |              | 9,295,957  
|Provision for loan losses                                              |  |                         | (231,000    | )                  |   |           |   |               |         |                |   | (12,000      | ) |              | (243,000   
|Noninterest income                                                     |  |                         | 2,076,622   |                    |   | 4,734,112  |   |               | 793,572  |                |   | 664,306      |   |              | 8,268,612  
|Intersegment income                                                    |  |                         | 100,724     |                    |   |           |   |               |         |                |   |             |   |              | 100,724    
|Noninterest expenses                                                   |  |                         | (10,944,649 | )                  |   | (3,821,983 | ) |               | (509,665 | )              |   | (882,782     | ) |              | (16,159,079
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Income before income taxes                                             |  |                         | 165,025     |                    |   | 734,687    |   |               | 287,869  |                |   | 75,633       |   |              | 1,263,214  
|Income taxes                                                           |  |                         | 85,622      |                    |   | (283,736   | ) |               | (111,175 | )              |   | (29,211      | ) |              | (338,500   
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Net income                                                             |  | $                       | 250,647     |                    | $ | 450,951    |   | $             | 176,694  |                | $ | 46,422       |   | $            | 924,714    
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Segment assets                                                         |  | $                       | 296,158,289 |                    | $ | 6,571,225  |   | $             | 340,094  |                | $ | 5,383,870    |   | $            | 308,453,478
|Expenditures for segment purchases of premises, equipment and software |  | $                       | 787,225     |                    | $ | 74,423     |   | $             |         |                | $ | 61,992       |   | $            | 923,640    

A reconciliation of total segment assets to consolidated total assets follows as of December 31, 2003:

|Total segment assets                         |  | $ | 308,453,478 |  
|-------------------------------------------- |  | - | ----------- | -
|Elimination of intersegment loans            |  |   | (4,518,191  | )
|Elimination of intersegment deposit accounts |  |   | (1,525,312  | )
|                                             |  |   |            
|                                             |  | $ | 302,409,975 |  
|                                             |  |   |            

Segment information for the Company for 2002 is as follows:

|                                                                       |  | Commercial/
Retail Bank |             | Electronic
Banking |   | Brokerage  |   | Mortgage Unit |          | Segment Totals |   | Eliminations |   | Consolidated |            
|---------------------------------------------------------------------- |  | ----------------------- | ----------- | ------------------ | - | ---------- | - | ------------- | -------- | -------------- | - | ------------ | - | ------------ | -----------
|                                                                       | 
|Interest income                                                        |  | $                       | 16,880,426  |                    | $ |           |   | $             | 3,826    |                | $ | 1,285,642    |   | $            | 18,169,894 
|Interest expense                                                       |  |                         | (6,797,663  | )                  |   | (278,423   | ) |               |         |                |   | (800,764     | ) |              | (7,876,850 
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Net interest income                                                    |  |                         | 10,082,763  |                    |   | (278,423   | ) |               | 3,826    |                |   | 484,878      |   |              | 10,293,044 
|Provision for loan losses                                              |  |                         | (502,000    | )                  |   |           |   |               |         |                |   | (24,000      | ) |              | (526,000   
|Noninterest income                                                     |  |                         | 2,640,874   |                    |   | 4,222,976  |   |               | 670,952  |                |   |             |   |              | 7,534,802  
|Intersegment income                                                    |  |                         | 65,119      |                    |   |           |   |               |         |                |   |             |   |              | 65,119     
|Noninterest expenses                                                   |  |                         | (10,372,136 | )                  |   | (3,621,027 | ) |               | (535,204 | )              |   | (73,710      | ) |              | (14,602,077
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Income before income taxes                                             |  |                         | 1,914,620   |                    |   | 323,526    |   |               | 139,574  |                |   | 387,168      |   |              | 2,764,888  
|Income taxes                                                           |  |                         | (519,487    | )                  |   | (124,946   | ) |               | (53,673  | )              |   | (149,524     | ) |              | (847,630   
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Net income                                                             |  | $                       | 1,395,133   |                    | $ | 198,580    |   | $             | 85,901   |                | $ | 237,644      |   | $            | 1,917,258  
|                                                                       |  |                         |             |                    |   |            |   |               |          |                |   |              |   |              |            
|Segment assets                                                         |  | $                       | 311,072,820 |                    | $ | 12,714,617 |   | $             | 237,172  |                | $ | 12,279,240   |   | $            | 336,303,849
|Expenditures for segment purchases of premises, equipment and software |  | $                       | 305,036     |                    | $ | 62,124     |   | $             |         |                | $ |             |   | $            | 367,160    

53

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A reconciliation of total segment assets to consolidated total assets follows as of December 31, 2002:

|Total segment assets                         |  | $ | 336,303,849 |  
|-------------------------------------------- |  | - | ----------- | -
|Elimination of intersegment loans            |  |   | (11,072,112 | )
|Elimination of intersegment deposit accounts |  |   | (1,010,122  | )
|                                             |  |   |            
|                                             |  | $ | 324,221,615 |  
|                                             |  |   |            

Segment information for the Company for 2001 is as follows:

|                                                                       |  | Commercial/
Retail Bank |             | Electronic
Banking |   | Brokerage  |   | Mortgage Unit |           | Segment Totals |   | Eliminations |   | Consolidated |            
|---------------------------------------------------------------------- |  | ----------------------- | ----------- | ------------------ | - | ---------- | - | ------------- | --------- | -------------- | - | ------------ | - | ------------ | -----------
|                                                                       | 
|Interest income                                                        |  | $                       | 19,122,477  |                    | $ |           |   | $             | 12,015    |                | $ | 2,599,228    |   | $            | 21,733,720 
|Interest expense                                                       |  |                         | (8,394,419  | )                  |   | (311,599   | ) |               |          |                |   | (2,067,433   | ) |              | (10,773,451
|                                                                       |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net interest income                                                    |  |                         | 10,728,058  |                    |   | (311,599   | ) |               | 12,015    |                |   | 531,795      |   |              | 10,960,269 
|Provision for loan losses                                              |  |                         | (502,000    | )                  |   |           |   |               |          |                |   | (48,000      | ) |              | (550,000   
|Noninterest income                                                     |  |                         | 1,708,480   |                    |   | 4,686,653  |   |               | 1,015,720 |                |   | (254,409     | ) |              | 7,156,444  
|Intersegment income                                                    |  |                         | 67,285      |                    |   |           |   |               |          |                |   |             |   |              | 67,285     
|Noninterest expenses                                                   |  |                         | (10,457,180 | )                  |   | (3,678,429 | ) |               | (648,380  | )              |   | (100,800     | ) |              | (14,884,789
|                                                                       |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Income before income taxes                                             |  |                         | 1,544,643   |                    |   | 696,625    |   |               | 379,355   |                |   | 128,586      |   |              | 2,749,209  
|Income taxes                                                           |  |                         | (353,432    | )                  |   | (269,037   | ) |               | (144,003  | )              |   | (49,660      | ) |              | (816,132   
|                                                                       |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net income                                                             |  | $                       | 1,191,211   |                    | $ | 427,588    |   | $             | 235,352   |                | $ | 78,926       |   | $            | 1,933,077  
|                                                                       |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Segment assets                                                         |  | $                       | 345,072,034 |                    | $ | 11,245,455 |   | $             | 569,059   |                | $ | 22,773,491   |   | $            | 379,660,039
|Expenditures for segment purchases of premises, equipment and software |  | $                       | 552,223     |                    | $ | 76,206     |   | $             | 39,610    |                | $ |             |   | $            | 668,039    

A reconciliation of total segment assets to consolidated total assets follows as of December 31, 2001:

|Total segment assets                         |  | $ | 379,660,039 |  
|-------------------------------------------- |  | - | ----------- | -
|Elimination of intersegment loans            |  |   | (21,346,400 | )
|Elimination of intersegment deposit accounts |  |   | (1,406,458  | )
|                                             |  |   |            
|                                             |  | $ | 356,907,181 |  
|                                             |  |   |            

54

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22. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

|                           |  | Year Ended December 31, 2003 |           
|-------------------------- |  | ---------------------------- | ----------
|
|                           | 
|Interest income            |  | $                            | 4,241,869 
|Interest expense           |  |                              | (1,943,872
|                           |  |                              |           
|Net interest income        |  |                              | 2,297,997 
|Provision for loan losses  |  |                              | (121,500  
|Security gains             |  |                              | 154,118   
|Other income               |  |                              | 1,759,179 
|Operating expenses         |  |                              | (3,532,988
|                           |  |                              |           
|Income (loss) before taxes |  |                              | 556,806   
|Income taxes               |  |                              | (207,561  
|                           |  |                              |           
|Net income (loss)          |  | $                            | 349,245   
|                           |  |                              |           
|Earnings (loss) per share  |  | $                            | 0.12      
|                           |  |                              |           
|Cash dividends per share   |  | $                            | 0.09      
|                           |  |                              |           
|Market prices: high        |  | $                            | 15.55     
|                           |  |                              |           
|low                        |  | $                            | 12.82     
|                           |  |                              |           

|                           |  | Year Ended December 31, 2002 |           
|-------------------------- |  | ---------------------------- | ----------
|
|                           | 
|Interest income            |  | $                            | 4,913,172 
|Interest expense           |  |                              | (2,345,141
|                           |  |                              |           
|Net interest income        |  |                              | 2,568,031 
|Provision for loan losses  |  |                              | (131,500  
|Security gains             |  |                              | 103,005   
|Gain on branch divestiture |  |                              |          
|Other income               |  |                              | 1,524,190 
|Operating expenses         |  |                              | (3,605,742
|                           |  |                              |           
|Income before income taxes |  |                              | 457,984   
|Income taxes               |  |                              | (132,462  
|                           |  |                              |           
|Net income                 |  | $                            | 325,522   
|                           |  |                              |           
|Earnings per share         |  | $                            | 0.11      
|                           |  |                              |           
|Cash dividends per share   |  | $                            | 0.085     
|                           |  |                              |           
|Market prices: high        |  | $                            | 12.02     
|                           |  |                              |           
|low                        |  | $                            | 11.20     
|                           |  |                              |           

55

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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

At no time whatsoever during the Company's two most recent fiscal years or any subsequent interim period, has an independent accountant who was previously engaged
as the principal accountant to audit the Company's financial statements, or an independent accountant who was previously engaged to audit a significant subsidiary and on whom the principal accountant
expressed reliance in its report, resigned, declined to stand for reelection or been dismissed.

PART III

---

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

There is hereby incorporated by reference into this Item 10 the information appearing under the captions "Election of Directors," "Other Executive Officers and
Directors of the Bank" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement relating to its Annual meeting of Shareholders to be held on
April 20, 2004.

ITEM 11: EXECUTIVE COMPENSATION

There is hereby incorporated by reference into this Item 11 the information appearing under the captions "Executive Compensation" and "Long-Term
Incentive Plan" in the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on April 20, 2004.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by reference into this Item 12 the information appearing under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on April 20, 2004.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference into this Item 13 the information appearing under the caption "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement relating to its Annual meeting of Shareholders to be held on April 20, 2004.

ITEM 14: CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. The
design of any system of controls is based in part upon certain assumption about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.

In
addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or other factors that could significantly affect those controls
subsequent to the date of their last evaluation.

PART IV

---

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



|Exhibit Number |  | Description                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------
|3(i)           |  | Articles of Incorporation of Carrollton Bancorp*                                                                    
|3(ii)          |  | By-Laws of Carrollton Bancorp*                                                                                      
|10.1           |  | Lease dated January 24, 1989 by and between Hill Management Services, Inc. and The Carrollton Bank of Baltimore.*   
|10.2           |  | Lease dated July 21, 1989 by and between Hill Management Services, Inc. and The Carrollton Bank of Baltimore.*      
|10.3           |  | Lease dated October 30, 1959 between Arbutus Shopping Plaza, Inc. and The Carrollton Bank of Baltimore, as amended.*
|10.4           |  | Lease dated August 3, 1976 between Arbutus Shopping Plaza, Inc. and The Carrollton Bank of Baltimore.*              
|10.5           |  | Lease dated May 20, 1971 by and between Home Mutual Life Insurance Company and The Carrollton Bank of Baltimore.*   
|10.6           |  | Lease dated April 17, 1974 by and between Liberty Plaza Enterprises, Inc. and The Carrollton Bank of Baltimore.*    
|10.7           |  | Lease dated July 19, 1988 by and between Northway Limited Partnership and The Carrollton Bank of Baltimore.*        
|10.8           |  | Lease dated August 11, 1994 by and between Kensington Associates Limited Partnership and Carrollton Bank.**         
|10.9           |  | Lease dated October 11, 1994 by and between Ridgeview Associates Limited Partnership and Carrollton Bank.**         
|21.1           |  | Subsidiaries of Carrollton Bancorp                                                                                  
|23.0           |  | Consent of Accountant                                                                                               
|               |  |                                                                                                                     

56

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|31(a) |  | Certification of Robert A. Altieri, President and Chief Executive Officer              
|----- |  | ---------------------------------------------------------------------------------------
|31(b) |  | Certification of Randall M. Robey, Executive Vice President and Chief Financial Officer
|32(a) |  | Certification of Robert A. Altieri, President and Chief Executive Officer              
|32(b) |  | Certification of Randall M. Robey, Executive Vice President and Chief Financial Officer

Notice of press release related to earnings for the quarter ended June 30, 2003 filed on August 11, 2003

Notice
of press release related to earnings for the quarter ended September 30, 2003 filed on October 30, 2003

SIGNATURES

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

CARROLLTON BANCORP

March 19, 2004  By:
/s/ Robert A. Altieri

---

Robert
A. Altieri
President and Chief Executive Officer

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

PRINCIPAL EXECUTIVE OFFICER

|March 19, 2004 |  | By: /s/ Robert A. AltieriRobert A. Altieri
President and Chief Executive
Officer
|-------------- |  | --------------------------------------------------------------------------------

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

|March 19, 2004 |  | By: /s/ Randall M. RobeyRandall M. Robey
Executive Vice President and Treasurer
|-------------- |  | -------------------------------------------------------------------------------
|               |  | Board of Directors                                                             
|March 19, 2004 |  | /s/ Robert J. AumillerRobert J. Aumiller
Director                              
|March 19, 2004 |  | /s/ Steven K. BreedenSteven K. Breeden
Director                                
|March 19, 2004 |  | /s/ Albert R. CounselmanAlbert R. Counselman
Director                          
|March 19, 2004 |  | /s/ Harold I. HackermanHarold I. Hackerman
Director                            
|March 19, 2004 |  | /s/ John P. HauswaldJohn P. Hauswald
Director                                  
|March 19, 2004 |  | /s/ David P. HesslerDavid P. Hessler
Director                                  
|March 19, 2004 |  | /s/ Howard S. KleinHoward S. Klein
Director                                    
|March 19, 2004 |  | /s/ Ben F. MasonBen F. Mason
Director                                          
|March 19, 2004 |  | /s/ Charles E. Moore, Jr.Charles E. Moore, Jr.
Director                        
|March 19, 2004 |  | /s/ John Paul RogersJohn Paul Rogers
Director                                  
|March 19, 2004 |  | /s/ William C. Rogers, Jr.William C. Rogers, Jr.
Director                      

57

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EXHIBIT INDEX

|Exhibit
Number |  | Description                                                                                                         |  | Sequentially
Numbered Page
|-------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------------------------
|              
|3(i)           |  | Articles of Incorporation of Carrollton Bancorp                                                                     |  | *                         
|3(ii)          |  | By-Laws of Carrollton Bancorp                                                                                       |  | *                         
|10.1           |  | Lease dated January 24, 1989 by and between Hill Management Services, Inc. and The Carrollton Bank of Baltimore.    |  | *                         
|10.2           |  | Lease dated July 21, 1989 by and between Hill Management Services, Inc. and The Carrollton Bank of Baltimore.       |  | *                         
|10.3           |  | Lease dated October 30, 1959 between Arbutus Shopping Plaza, Inc. and The Carrollton Bank of Baltimore, as amended. |  | *                         
|10.4           |  | Lease dated August 3, 1976 between Arbutus Shopping Plaza, Inc. and The Carrollton Bank of Baltimore.               |  | *                         
|10.5           |  | Lease dated May 20, 1971 by and between Home Mutual Life Insurance Company and The Carrollton Bank of Baltimore.    |  | *                         
|10.6           |  | Lease dated April 17, 1974 by and between Liberty Plaza Enterprises, Inc. and The Carrollton Bank of Baltimore.     |  | *                         
|10.7           |  | Lease dated July 19, 1988 by and between Northway Limited Partnership and The Carrollton Bank of Baltimore.         |  | *                         
|10.8           |  | Lease dated August 11, 1994 by and between Kensington Associates Limited Partnership and Carrollton Bank.           |  | **                        
|10.9           |  | Lease dated October 11, 1994 by and between Ridgeview Associates Limited Partnership and Carrollton Bank.           |  | **                        
|21.1           |  | Subsidiaries of Carrollton Bancorp                                                                                  |  |                           
|23.0           |  | Consent of Accountant                                                                                               |  |                           
|31(a)          |  | Certification of Robert A. Altieri, President and Chief Executive Officer                                           |  |                           
|31(b)          |  | Certification of Randall M. Robey, Executive Vice President and Chief Financial Officer                             |  |                           
|32(a)          |  | Certification of Robert A. Altieri, President and Chief Executive Officer                                           |  |                           
|32(b)          |  | Certification of Randall M. Robey, Executive Vice President and Chief Financial Officer                             |  |                           

58

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