U.S. SECURITIES AND EXCHANGE COMMISSION

---

WASHINGTON, D.C. 20549
FORM 10-K

---

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

For
the fiscal year ended December 31, 2001

Commission
file number: 0-23090

| |  | Carrollton Bancorp(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(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.    ý

Issuer's
revenues for its most recent fiscal year. $30,989,068.

As
of February 26, 2002, the aggregate market value of the voting stock held by non-directors and executive officers: $27,035,472.

State
the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 2,700,337 shares as of March 8 2002.

DOCUMENTS INCORPORATED BY REFERENCENone.

---



PART I

---

ITEM 1: DESCRIPTION OF BUSINESS

General. Carrollton Bancorp (the "Company") is a bank holding company registered as such 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 eleven bank
branches are located in Baltimore City, Baltimore County and Anne Arundel 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 and Howard County, Maryland. The Bank also operates an ATM network of 130 machines in Maryland, Virginia, West Virginia, and Delaware. The Bank also 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 which 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 indicated ability to repay. Loans to consumers include residential mortgages, home equity loans, home improvement loans, overdraft
loans, 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 show 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") enabled 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 net losses of $50,460 and net recoveries of $20,574 on residential mortgage loans in 2001. The Bank experienced $96,961 in net
losses in 2000 and $30,317 in net recoveries in 2000 and no losses or recoveries on residential mortgage loans during 1999. There were $92,636 of residential mortgage loans delinquent more than
90 days at December 31, 2001. 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

2

---

Bank has a number of different equity loan 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 and debt ratios. The Bank maintains in its portfolio loans financed under a program which would finance 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 net losses on home equity loans during 2001 of $67,122 and recoveries of $2,228. There were net losses of $104,226 and net recoveries of $0 in 2000. There were net losses of $44,000
and $12,000 net recoveries on home equity loans during 1999. There were approximately $272,383 of home equity loans delinquent more than 90 days at December 31, 2001. 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 did not experience any losses on commercial mortgage loans during 2001,
2000, or 1999. There were
$598,644 of commercial mortgage loans past due more than 90 days at December 31, 2001. 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 on
construction and land development loans during 2001, 2000, or1999. There were no construction and land development loans past due more than 90 days at December 31, 2001. 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 net recoveries of $12,750 on time and demand loans in 2001 and net losses of $30,000, and $71,000 in 2000, and 1999, respectively. There were $66,000 of time and demand and line of credit loans
delinquent more than 90 days at December 31, 2001. 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 through an approved home improvement dealer.

3

---

The Bank makes unsecured home improvement loans to a maximum amount of $12,500. 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-and-debt-ratio requirement helps determine the borrower's current ability to repay the loan. The Bank had net charge-offs of home improvement
loans of approximately $30,251, $22,000, and $0 in 2001, 2000, and 1999. There were net recoveries of $11,388, $39,000 and $5,000 in 2001, 2000 and 1999. There were no home improvement loans
delinquent more than 90 days at December 31, 2001. 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 85% 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 net losses on automobile loans in 2001, 2000, and 1999 of $21,933, $208,
and $0, respectively, and recoveries of $208 in 2001. There were no automobile or other vehicle loans past due more than 90 days at December 31, 2001. 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 2001, 2000, and 1999 were approximately $114,000, $122,000, and $60,000, respectively.
There were $55,548 of overdraft loans and other personal loans past due more than 90 days at December 31, 2001. There are no discernible delinquency or loss trends relating to overdraft
lines and other personal loans known to management, however, the increased losses for the three year period relate primarily to a higher level of personal bankruptcy filings.

Loans
secured by savings accounts in the Bank and stock and bond certificates are secured lending arrangements. The Bank will advance funds for up to 100% of balances in savings or
certificates of deposit accounts in the Bank. The Bank will advance funds up to 70% of the market value of actively traded stock certificates and bonds or 60% 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 2001, 2000, or 1999. There were no loans secured
by savings accounts or stock and bond certificates past due more than 90 days at December 31, 2001. 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
will indicate 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, with the exception of residential mortgage loans and home equity loans and lines of credit. These types of loans are
predominately loans purchased from a network of brokers or other types of originators with whom the Bank does business. The Bank sells 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,
2001.

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,

4

---

investments, and other transactions, 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 30% of total assets, and is invested primarily in U.S. Government Agencies, state and municipal bonds, corporate bonds, and mortgage backed securities
with maturities varying from 2002 to 2017. 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. These accounts carry varying fee structures depending on the level of services desired by the customer and varying interest rates 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 does offer 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 subsidiary of the Bank, provides full
service brokerage services for stocks, bonds, mutual funds and annuities. For 2001, commission and other income totaled $1,015,720 and income after taxes was $235,352.

Sources of Business. The major focus of the Bank's marketing efforts is both 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 which 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. The addition of a mortgage subsidiary in late 1997 resulted in growth in
residential mortgage lending during 1998 and 1999. The Company made a decision to place the mortgage subsidiary in an inactive status in 2000. 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. Increased usage of wholesale funding sources in recent years has been necessary to support growth in the
loan portfolio.

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

5

---

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, 2001, the Bank and its subsidiaries had 136 full time equivalent employees,
41 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.

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 as to be a proper incident thereto. 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. The Board of Governors proposed regulations to
implement this requirement in April 1993. 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.

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.

Federal
law generally prohibits the current acquisition of banks or bank holding companies in Maryland by out-of-state banks or bank holding companies, although
the Financial Institutions Article allows regional interstate banking by permitting banking organizations in certain states to acquire Maryland banking organizations if Maryland banking associations
are allowed to acquire banking organizations in their states. As a result of this provision, banking organizations in other states, most significantly North Carolina, Pennsylvania and Virginia, have
entered the Maryland market through acquisitions of Maryland institutions. Those acquisitions are subject to federal and Maryland approval. The so-called "Douglas Amendment" to the Bank
Holding Company Act was amended effective September 29, 1995 to allow an "adequately capitalized and adequately managed" bank holding company to acquire a bank or substantially all of its
assets

6

---

located in any other state regardless of whether the acquisition is expressly authorized under state law.

President
Clinton also signed into law a bill on June 1, 1997, which among other things, allows interstate branching by banking organizations subject to each states' separate
decision to allow interstate branch banking within the state. As a result of such legislation, it is anticipated that competition by financial institutions within Maryland may increase due to entrance
into the market place by branches of out-of-state banks. Such legislation could also spur increased acquisition activity of Maryland institutions by
out-of-state organizations. During the 1995 legislative session, the State of Maryland passed legislation to allow interstate branch banking within Maryland.

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 3% of total assets (the "Leverage Ratio"). For all but the most highly rated banks, the minimum Leverage Ratio requirement will be 4% to 5% of total
assets. Tier 1 capital consists of: (i) common shareholders' equity, noncumulative perpetual preferred stock and minority interests in consolidated subsidiaries;

7

---

(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.

In
addition, each insured nonmember bank also must maintain a "tier 1 risk-based capital ratio" of 4%. 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 an on-balance sheet credit equivalent amount; (ii) assigning each on-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%. 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 only may 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.

Under
FDICIA, the FDIC was required to revise its risk-based capital standard to ensure that such standard takes adequate account of: (i) interest rate risk;
(ii) concentration of credit risk; and (iii) the risk of nontraditional activities and to adequately reflect the actual performance and expected risk of loss on multifamily mortgages.
Although the FDIC, together with the Office of the Comptroller of the Currency and the Board of Governors published a joint notice of proposed rule making addressing the interest rate risk issue, no
final action has occurred with respect thereto nor has the FDIC taken any action to date with respect to concentration of credit risk, the risk of nontraditional activities or the expected risk on
multifamily mortgages.

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).

Holding Company Guaranty. FDICIA and the regulations promulgated by the FDIC pursuant thereto also require any
company that has control of an "undercapitalized" insured nonmember bank, in conjunction with the submission of a capital restoration plan by the bank, to guarantee that the bank will comply with the
plan and provide appropriate assurances of performance. The aggregate liability of any such controlling company under such guaranty is limited to the lesser of: (i) 5% of the bank's assets at
the time it became undercapitalized; or (ii) the amount necessary to bring the bank into capital compliance at the time the bank fails to comply with the terms of its capital plan.

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.

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. Further, pursuant to FDICIA and the regulations of the FDIC promulgated pursuant thereto, 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

8

---

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, while 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 22(h) of the Federal Reserve Act and
certain of the regulations of the Board of Governors promulgated pursuant thereto, 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 extension 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, of the bank) 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.

Insurance of Deposits.  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.

Insurance
of deposits 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, 2001, the Bank had a tax bad debt reserve of $609 thousand and a book bad
debt reserve of $3.3 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

9

---

a portfolio of state and municipal securities which earn interest which 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, by way of example, 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 which depends on interest rate differentials. In general, the
differences between the interest paid by a bank on its deposits and other borrowings and 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 Bank is influenced by economic conditions generally, 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, although this instrument of monetary policy may cause volatile fluctuations in short term interest rates, and it 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 the 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 seven branches, and for its operations center which primarily houses support functions.
Current lease terms expire in 2004 through 2009 and contain renewal options ranging from 4 to 24 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

There are no pending legal proceedings in which the Company or any of its subsidiaries is a defendant for claims or damages which exceed $50,000.

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, 2001, there were approximately 488 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 |        | Cash Dividends Paid
per Share
|----------- |  | --------------- | ------ | -----------------------------
|
|
|           
|1st Quarter |  | $               | 12.000 |                              
|2nd Quarter |  |                 | 11.700 |                              
|3rd Quarter |  |                 | 13.000 |                              
|4th Quarter |  |                 | 13.500 |                              

ITEM 6: SELECTED FINANCIAL DATA

The following statistical 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 statistical 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 2001, 2000, and 1999, and indicates the related interest income or expense and calculated yield.
Non-accruing loans are included in the average balance amounts of the applicable portfolio, but only the amount of interest actually recorded as income on non-accrual loans is
included in the interest income column.

11

---



2001 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                         |  | 2001 |            
|-------------------------------------------------------- |  | ---- | -----------
|
|                                                         | 
|ASSETS                                                   |  |      |            
|Federal funds sold                                       |  | $    | 9,631,537  
|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                                                |  |      | 6,443,265  
|Other                                                    |  |      | 7,237,982  
|                                                         |  |      |            
|                                                         |  |      | 97,233,610 
|                                                         |  |      |            
|Loans                                                    |  |      |            
|Demand and time                                          |  |      | 31,224,350 
|Residential mortgage                                     |  |      | 145,005,914
|Commercial mortgage and construction                     |  |      | 54,797,755 
|Installment and credit card                              |  |      | 4,918,974  
|Lease financing                                          |  |      | 1,586,061  
|                                                         |  |      |            
|                                                         |  |      | 237,533,054
|                                                         |  |      |            
|Total interest-earning assets                            |  |      | 344,398,201
|Non-interest-bearing cash                                |  |      | 19,962,053 
|Premises and equipment                                   |  |      | 7,554,159  
|Other assets                                             |  |      | 5,295,745  
|Allowance for loan losses                                |  |      | (3,146,369 
|Unrealized gains/losses of available for sale securities |  |      | 1,405,193  
|                                                         |  |      |            
|                                                         |  | $    | 375,468,982
|                                                         |  |      |            
|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 
|                                                         |  |      |            
|                                                         |  |      | 301,862,581
|Non-interest bearing deposits                            |  |      | 38,867,266 
|Other liabilities                                        |  |      | 2,589,605  
|Shareholders' equity                                     |  |      | 32,149,530 
|                                                         |  |      |            
|Total liabilities and shareholders' equity               |  | $    | 375,468,982
|                                                         |  |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                     |  | $    | 344,398,201
|                                                         |  |      |            

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

12

---

2000 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                         |  | 2000 |            
|-------------------------------------------------------- |  | ---- | -----------
|
|                                                         | 
|ASSETS                                                   |  |      |            
|Federal funds sold                                       |  | $    | 7,133,152  
|Investment securities                                    |  |      |            
|U.S. Treasury                                            |  |      | 922,791    
|U.S. Government agency                                   |  |      | 43,411,997 
|State and municipal                                      |  |      | 12,519,336 
|Mortgage-backed securities                               |  |      | 4,018,020  
|Other                                                    |  |      | 6,545,933  
|                                                         |  |      |            
|                                                         |  |      | 67,418,077 
|                                                         |  |      |            
|Loans                                                    |  |      |            
|Demand and time                                          |  |      | 26,519,768 
|Residential mortgage                                     |  |      | 192,901,840
|Commercial mortgage and construction                     |  |      | 47,172,991 
|Installment and credit card                              |  |      | 5,814,850  
|Lease financing                                          |  |      | 2,402,565  
|                                                         |  |      |            
|                                                         |  |      | 274,812,014
|                                                         |  |      |            
|Total interest-earning assets                            |  |      | 349,363,243
|Non-interest-bearing cash                                |  |      | 21,169,927 
|Premises and equipment                                   |  |      | 8,348,640  
|Other assets                                             |  |      | 4,751,394  
|Allowance for loan losses                                |  |      | (2,942,829 
|Unrealized gains/losses of available for sale securities |  |      | (1,719,865 
|                                                         |  |      |            
|                                                         |  | $    | 378,970,510
|                                                         |  |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                     |  |      |            
|Interest-bearing deposits                                |  |      |            
|Savings and NOW                                          |  | $    | 81,124,906 
|Money market                                             |  |      | 47,198,465 
|Other time                                               |  |      | 108,823,949
|                                                         |  |      |            
|                                                         |  |      | 237,147,320
|Borrowed funds                                           |  |      | 71,810,671 
|                                                         |  |      |            
|                                                         |  |      | 308,957,991
|Non-interest bearing deposits                            |  |      | 39,350,269 
|Other liabilities                                        |  |      | 896,285    
|Shareholders' equity                                     |  |      | 29,765,965 
|                                                         |  |      |            
|Total liabilities and shareholders' equity               |  | $    | 378,970,510
|                                                         |  |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                     |  | $    | 349,363,243
|                                                         |  |      |            

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

13

---



1999 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                  |                                            | 1999 |            
|------------------------------------------------- | ------------------------------------------ | ---- | -----------
|
|                                                  |                                           
|ASSETS                                            |                                            |      |            
|Federal funds sold                                |                                            | $    | 1,828,582  
|Investment securities                             |                                            |      |            
|U.S. Treasury                                     |                                            |      | 1,566,850  
|U.S. Government agency                            |                                            |      | 33,942,948 
|State and municipal                               |                                            |      | 25,626,795 
|Mortgage-backed securities                        |                                            |      | 7,944,031  
|Other                                             |                                            |      | 6,397,245  
|                                                  |                                            |      |            
|                                                  |                                            |      | 75,477,869 
|                                                  |                                            |      |            
|LOANS                                             |                                            |      |            
|Demand and time                                   |                                            |      | 26,641,534 
|Residential mortgage                              |                                            |      | 144,647,615
|Commercial mortgage and construction              |                                            |      | 42,565,422 
|Installment and credit card                       |                                            |      | 7,071,784  
|Lease financing                                   |                                            |      | 3,664,060  
|                                                  |                                            |      |            
|                                                  |                                            |      | 224,590,415
|                                                  |                                            |      |            
|Total interest-earning assets                     |                                            |      | 301,896,866
|Non-interest-bearing cash                         |                                            |      | 22,658,844 
|Premises and equipment                            |                                            |      | 7,709,859  
|Other assets                                      |                                            |      | 5,084,922  
|Allowance for loan losses                         |                                            |      | (2,633,176 
|Unrealized gains on available for sale securities |                                            |      | 978,015    
|                                                  |                                            |      |            
|                                                  |                                            | $    | 335,695,330
|                                                  |                                            |      |            
|LIABILITIES AND SHAREHOLDERS' EQUITY              |                                            |      |            
|Interest-bearing deposits                         |                                            |      |            
|Savings and NOW                                   |                                            | $    | 75,424,807 
|Money Market                                      |                                            |      | 52,409,615 
|Other time                                        |                                            |      | 78,044,054 
|                                                  |                                            |      |            
|                                                  |                                            |      | 205,878,476
|Borrowed funds                                    |                                            |      | 58,298,888 
|                                                  |                                            |      |            
|                                                  |                                            |      | 264,177,364
|Non-interest-bearing deposits                     |                                            |      | 38,549,704 
|Other liabilities                                 |                                            |      | 1,873,242  
|Shareholders' equity                              |                                            |      | 31,095,020 
|                                                  |                                            |      |            
|                                                  | Total liabilities and shareholders' equity |      | $          
|                                                  |                                            |      |            
|NET YIELD ON INTEREST-EARNING ASSETS              |                                            | $    | 301,896,866
|                                                  |                                            |      |            

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

14

---



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.

|                                     |  | 2001 Compared to 2000 |            | 2000 Compared to 1999 |  
|------------------------------------ |  | --------------------- | ---------- | --------------------- | -
|
|
|                                     | 
|INTEREST EARNED ON                   |  |                       |            |                       |  
|Federal funds sold                   |  | $                     | (303,283   | )                     | $
|INVESTMENT SECURITIES                |  |                       |            |                       |  
|U.S. Treasury                        |  |                       | (409       | )                     |  
|U.S. Government agency               |  |                       | (560,819   | )                     |  
|State and municipal                  |  |                       | (10,426    | )                     |  
|Mortgage-backed securities           |  |                       | (199,740   | )                     |  
|Corporate                            |  |                       | 388,839    |                       |  
|Other                                |  |                       | 55,594     |                       |  
|                                     |  |                       |            |                       |  
|                                     |  |                       | (326,961   | )                     |  
|                                     |  |                       |            |                       |  
|LOANS                                |  |                       |            |                       |  
|Demand and time                      |  |                       | (480,771   | )                     |  
|Residential mortgage                 |  |                       | (326,994   | )                     |  
|Commercial mortgage and construction |  |                       | (530,737   | )                     |  
|Installment and credit card          |  |                       | 15,780     |                       |  
|Lease financing                      |  |                       | (14,484    | )                     |  
|                                     |  |                       |            |                       |  
|                                     |  |                       | (1,337,206 | )                     |  
|                                     |  |                       |            |                       |  
|TOTAL INTEREST EARNED                |  |                       | (1,967,450 | )                     |  
|                                     |  |                       |            |                       |  
|INTEREST EXPENSE ON DEPOSITS         |  |                       |            |                       |  
|Savings and NOW                      |  |                       | (1,073,899 | )                     |  
|Money market                         |  |                       | (785,393   | )                     |  
|Other time                           |  |                       | (526,181   | )                     |  
|BORROWED FUNDS                       |  |                       | (181,253   | )                     |  
|                                     |  |                       |            |                       |  
|TOTAL INTEREST EXPENSE               |  |                       | (2,566,726 | )                     |  
|                                     |  |                       |            |                       |  
|NET INTEREST INCOME                  |  | $                     | 599,276    |                       | $
|                                     |  |                       |            |                       |  

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

15

---



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 2001 and 2000. The carrying
value of investments at the end of 1999 was as follows:

|AVAILABLE FOR SALE           |  |   |           
|---------------------------- |  | - | ----------
|U.S. Treasury                |  | $ | 1,299,778 
|U.S. Government agency       |  |   | 40,552,503
|Mortgage backed securities   |  |   | 6,355,114 
|State and municipal          |  |   | 21,519,116
|Federal Home Loan Bank stock |  |   | 3,300,000 
|Equity securities            |  |   | 4,113,427 
|                             |  |  
|                             |  | $ | 77,139.938
|                             |  |  
|HELD TO MATURITY             |  |   |           
|Foreign bonds                |  | $ | 50,000    
|                             |  |  

---

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, 2001. 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 2001 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 |  | $               
|        |  |                 

---

16

---

WEIGHTED AVERAGE YIELD

|                           |  | Available for Sale |  
|-------------------------- |  | ------------------ | -
|
|                           | 
|U.S. Government agency     |  | 2.06               | %
|Mortgage backed securities |  |                   |  
|State and municipal (1)    |  |                   |  
|Corporate bonds            |  |                   |  
|                           |  |                    |  
|                           |  | 2.06               | %
|                           |  |                    |  

|        |  | Held to Maturity
|------- |  | ----------------
|
|       
|Foreign |  |                
|        |  |                 

---

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 2001 and 2000. In addition to that
information, the following information concerning loans is presented.

|                            |                                   | 1999 |             | 1998        |   | 1997       
|--------------------------- | --------------------------------- | ---- | ----------- | ----------- | - | -----------
|                           
|Real Estate:                |                                   |      |             |             |   |            
|                            | Residential                       |      | $           | 176,291,571 |   | $          
|                            | Commercial                        |      |             | 37,091,072  |   |            
|                            | Construction and land development |      |             | 5,575,105   |   |            
|Demand and time             |                                   |      | 28,514,699  |             |   | 20,957,194 
|Lease financing             |                                   |      | 3,150,917   |             |   | 3,233,883  
|Installment and credit card |                                   |      | 6,823,971   |             |   | 8,014,130  
|                            |                                   |      |             |             |   |            
|                            |                                   |      | 257,447,335 |             |   | 207,306,887
|Allowance for loan losses   |                                   |      | 2,836,291   |             |   | 2,387,732  
|                            |                                   |      |             |             |   |            
|Loans, net                  |                                   | $    | 254,611,044 |             | $ | 204,919,155
|                            |                                   |      |             |             |   |            

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, 2001 is presented below:

|                                  |  | Contractually Due |            | 
|--------------------------------- |  | ----------------- | ---------- | 
|
|
|                                 
|Construction and land development |  | $                 | 4,513,136  | 
|Commercial demand and time        |  |                   | 19,627,995 | 

17

---

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 2001, 2000 and 1999.
In addition to that information, the following information concerning risk elements is presented.

|                                          |  | 1998 |           | 1997
|----------------------------------------- |  | ---- | --------- | ----
|                                         
|Nonaccrual                                |  | $    | 205,074   |     
|Restructured                              |  |      | 408,565   |     
|                                          |  |      |           |     
|                                          |  | $    | 613,639   |     
|                                          |  |      |           |     
|Accruing loans past due more than 90 days |  | $    | 1,536,802 |     
|                                          |  |      |           |     

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                          |                 | $                       | 3,024,290
|Charge-offs:                                          |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real Estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 302,141  
|                                                      |                 |                         |          
|Recoveries:                                           |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real Estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 66,658   
|                                                      |                 |                         |          
|Net charge-offs                                       |                 |                         | 235,483  
|                                                      |                 |                         |          
|Provision charged to operations                       |                 |                         | 550,000  
|                                                      |                 |                         |          
|Balance at end of the year                            |                 | $                       | 3,338,807
|                                                      |                 |                         |          
|Ratio of net charge-offs to average loans outstanding |                 |                         | .10      

The provision charged to operations for 2001, 2000, and1999 is discussed in the section on Management's Discussion and Analysis of Financial
Condition and Results of Operations. The Company's provisions in 1998 and 1997 related to the level of net losses incurred and to loan portfolio growth in each year.

18

---

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Allocated Amount of the AllowanceYears Ended December 31

|PORTFOLIO     |              | 2001 |           | 2000    |   | 1999      |         | 1998 |           | 1997   
|------------- | ------------ | ---- | --------- | ------- | - | --------- | ------- | ---- | --------- | -------
|             
|Commercial(a) |              | $    | 607,323   |         | $ | 910,445   |         | $    | 565,474   |        
|Real Estate:  |              |      |           |         |   |           |         |      |           |        
|              | Residential  |      |           | 707,061 |   |           | 763,017 |      |           | 434,500
|              | Commercial   |      |           | 775,321 |   |           | 349,594 |      |           | 356,711
|              | Construction |      |           |        |   |           |        |      |           |       
|Installment   |              |      | 173,166   |         |   | 207,061   |         |      | 341,190   |        
|Unallocated   |              |      | 1,075,936 |         |   | 794,173   |         |      | 1,138,416 |        
|              |              |      |           |         |   |           |         |      |           |        
|              |              | $    | 3,338,807 |         | $ | 3,024,290 |         | $    | 2,836,291 |        
|              |              |      |           |         |   |           |         |      |           |        

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

|PORTFOLIO      |              | 2001  |      | 2000  |      | 1999  |      | 1998  |      | 1997  |     
|-------------- | ------------ | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ----
|               |             
|Commercial (a) |              | 16.0  | %    | 10.5  | %    | 12.2  | %    | 14.7  | %    | 15.5  | %   
|Real Estate:   |              |       |      |       |      |       |      |       |      |       |     
|               | Residential  |       | 53.5 |       | 70.0 |       | 68.8 |       | 63.0 |       | 57.2
|               | Commercial   |       | 28.5 |       | 17.0 |       | 15.7 |       | 16.0 |       | 20.0
|               | Construction |       | 0    |       | 0.3  |       | 0.7  |       | 0.6  |       | 1.1 
|Installment    |              | 2.0   |      | 2.2   |      | 2.6   |      | 5.7   |      | 6.2   |     
|               |              |       |      |       |      |       |      |       |      |       |     
|               |              | 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                      |  | 2001  |   | 2000  |   | 1999  |  
|-------------------------------- |  | ----- | - | ----- | - | ----- | -
|                                 | 
|Return on average assets         |  | 0.51  | % | 0.46  | % | 0.85  | %
|Return on average equity         |  | 6.01  | % | 5.87  | % | 9.15  | %
|Dividend payout ratio            |  | 50.43 | % | 55.58 | % | 30.37 | %
|Average equity to average assets |  | 8.56  | % | 7.85  | % | 9.26  | %

ITEM 6G: SHORT-TERM BORROWINGS

Reference is made to Note 10 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 the combined amounts for Advances from the Federal Home Loan Bank and Notes Payable-U.S. Treasury, are as follows.

|OTHER SHORT-TERM BORROWINGS:                  |  | 2001 |            | 2000 |   | 1999       |  
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                              | 
|Total outstanding at period-end               |  | $    | 45,657,726 |      | $ | 50,984,859 |  
|Average amount outstanding during period      |  |      | 46,574,541 |      |   | 56,867,533 |  
|Maximum amount outstanding at any period-end  |  |      | 51,370,409 |      |   | 65,129,886 |  
|Weighted average interest rate at period-end  |  |      | 6.76       | %    |   | 6.61       | %
|Weighted average interest rate for the period |  |      | 6.73       | %    |   | 6.44       | %

19

---



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

EARNINGS 2001 COMPARED TO 2000

SUMMARY

Carrollton Bancorp reported net income for 2001 of $1,933,000, or $0.71 per share, representing an 11% increase from 2000 net income of $1,748,000, or $0.64 per
share. Included in the 2001 results was a $254,000 loss on the sale of $37 million of residential loans of as part of the Company's plan to address asset/liability sensitivity. The loan
portfolio decreased 21% to $220,539,000 as a result of residential loan sales in 2001 and the number of loans refinancing. The loan portfolio contraction, as well as the lowering of interest rates by
the Federal Reserve 11 times, contributed to a decrease in interest income over 2000. Non-interest income from fees, decreased by 3% compared to 2000. Fees generated by the ATM network of
130 machines and income from national point of sale sponsorships grew during 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 2001, net interest income on a taxable equivalent basis increased by $174,000 to $11.4 million as a net result of a decrease in the rates
paid on deposit accounts exceeding the reduction in rates on earning assets. On average, the loan portfolio decreased 14% from 2000 while the investment portfolio increased by 44%. The yield on the
loan portfolio decreased from 8.09% in 2000 to 7.67% in 2001. 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 5.87% in 2001 from 6.61% in 2000. The reduction in the loan portfolio and decreased yields, caused total interest income on a tax equivalent basis to fall from
$27.2 million in 2000 to $24.3 million in 2001.

Interest
expense decreased $3.0 million to $12.9 million in 2001 from $15.9 million in 2000. Interest expense decreased due to a decrease in both interest bearing
liabilities and rates. Interest expense on deposits decreased in 2001 from 2000 even with higher deposit levels due to decreased cost of interest-bearing deposits, which decreased from 4.83% in 2000
to 3.86% in 2001. The cost of borrowed funds decreased to 5.91% due to changes in the composition of funding sources in 2001 from 6.22% in 2000. 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 growth in interest-bearing liabilities supported loan portfolio
growth.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $550,000 for 2001 compared to $448,000 for 2000. Non-accrual, restructured, and delinquent loans over 90 days
to total loans decreased to 0.55% at the end of 2001 compared to 0.91% in 2000. This decrease was due to decreased delinquencies. As of December 31, 2001, there was a decrease of loan
delinquencies of $445,000 and impaired loans remained constant. The ratio of loan losses to average loans increased in 2001 to 0.10% compared to 0.09% for 2000.

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.

NON-INTEREST INCOME

For 2001, non-interest income excluding securities gains and gains or losses on loan sales decreased by 3% compared to 2000. Brokerage commissions
decreased $258,000 or 20% in 2001 due to the economic slowdown and investor concerns over the stock market. Other fees and commissions increased $100,000 principally as a result of increases in
national point of sale revenue. ATM fee income declined due to the discontinuation of the Target relationship in July of 2001.

Net securities losses in 2001 were $3,000 compared to gains of $256,000 in 2000.

The
Company continued to sell loans generated by its mortgage unit, which was inactivated during the second quarter of 2000, as well as other loans held in its portfolio. These
transactions generated losses of $254,000 in 2001 compared to a gain of $18,000 in 2000. At December 31, 2001, the Company serviced loans for others totaling $13,107,093.

20

---

NON-INTEREST EXPENSES

In 2001, non-interest expenses decreased by $1.1 million or 7%. Salaries and benefits decreased by $430,000, or 6%. In certain areas of the
Company, staff reductions occurred through attrition and the positions were eliminated. Full time equivalent staff decreased from 149 positions at the end of 2000 to 136 positions at
December 31, 2001. Occupancy expenses decreased $158,000 to $1,547,000 in 2001, due to a write-down of premises of approximately $190,000 in 2000. Furniture and equipment expense
increased a net $41,000, Management's decision to accelerate the depreciation on its ATMs was largely offset by the variable cost component of the ATM machines placed in storage at the
discontinuation of the Target relationship. Other operating expenses decreased $580,000, or 10%. A significant portion of this decrease relates to ATM transactions costs.

INCOME TAX PROVISION

For 2001, the effective tax rate for the Company increased to 30% compared to 25% for 2000.

FINANCIAL CONDITION

SUMMARY

Total assets of the Company decreased by 8% to $357.2 million at December 31, 2001 versus $387.9 million at the end of 2000.
Investment securities increased to $107.7 million at December 31, 2001. Total loans at December 31, 2001 declined 21% to $220.5 million compared to $278.0 million at
the end of 2000. Interest earning assets decreased to $327.6 million but were 91.7% of total assets at December 31, 2001.

INVESTMENT SECURITIES

Securities increased to $107.7 million at December 31, 2001 from $73.4 million at December 31, 2000. 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 sales 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 $58 million or 20% from 2000 to $220.5 million at December 31, 2001. The decrease in loans was primarily in real estate
lending, due to $37 million in loan sales in 2001, equity loans and lines of credit with other consumer products declining during the year due to the heavy volume of refinancing. Both the
residential mortgage and equity loan units are principally wholesale operations. Commercial loans equaled 44% of total loans at the end of the year and amounted to $98 million. Consumer loans
amounted to $122 million and were 56% of total loans.

ALLOWANCE FOR LOAN LOSSES

At December 31, 2001, the allowance for loan losses was $3.3 million, a 10% increase from the end of 2000. The ratio of the allowance to total loans
was 1.51% at December 31, 2001 and 1.09% at December 31, 2000. The ratio of net loan losses to average loans outstanding for 2001 was 0.10% compared to 0.09% for 2000. The ratio of
non-accrual loans, restructured loans, and loans delinquent more than 90 days to total loans decreased to 0.55% at December 31, 2001 from .91% at the end of 2000. The ratio
of real estate secured loans to total loans decreased to 82% at the end of 2001 from 87% at the end of 2000.

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 $1,126,700 and $1,007,408 as of December 31, 2001 and 2000, 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

21

---

or risks associated with particular loan types. Historic trend analysis is utilized to obtain the factors to be applied. The general allowance was $1,136,171 and $1,222,709 as of December 31,
2001 and 2000, 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. The unallocated portion of allowance was higher at December 31, 2001, than it was at
December 31, 2000. The weak economy and an increase in commercial loans warrant a larger unallocated reserve. If the Bank were to incur a loss on one of its larger loans, it could decrease the
unallocated reserve significantly.

During
the years ended December 31, 1997 through 2001, 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 credit 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 is 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, 2001 decreased by $26.5 million to $265.5 million from the end of 2000. Interest-bearing accounts decreased by
$28.5 million and non-interest bearing deposits increased by $2.0 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.

Due to the loan sales, a significant decline in higher costing deposits, and other borrowings was accomplished. Advances from the Federal Home Loan
Bank decreased to $45 million at the end of 2001 compared to $50 million at the end of 2000. Borrowings for federal funds purchased, securities sold under agreements to repurchase and
notes payable to the US Treasury decreased by $1.5 million from December 31, 2000 to 2001.

CAPITAL

At December 31, 2001, shareholders' equity was $32.6 million, an increase of $2.1 million from 2000. The increase in stockholders' equity was
largely due to a $1.3 million 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 $974,784, and net income for 2001 was $1.9 million. In addition, the Company purchased and retired common stock for $79,044 in 2001. Stockholders' equity
amounted to 9.14% of total assets at December 31, 2001 compared to 7.86% at the end of 2000. The decrease in this ratio was caused by asset growth, but remains at a very strong level.

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, 2001 and 2000. The Company's subsidiary bank also exceeded the FDIC required minimum capital levels at those dates by a

22

---

substantial margin. Based on the levels of capital, the Company and the Bank are well capitalized.

|                    |                |   |   | At December 31 |     
|------------------- | -------------- | - | - | -------------- | ----
|
|
|                    |               
|Leverage Ratio      |                | 4 | % | 8.9            | %   
|Risk-based Capital: |                |   |   |                |     
|                    | Tier 1 (Core)  |   | 4 | %              | 13.2
|                    | Tier 2 (Total) |   | 8 | %              | 14.6

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 $4 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 loans as well as pledged investment securities.

At December 31, 2001, the Company had outstanding loan commitments and unused lines of credit totaling $93.8 million. Of this total,
management places a high probability for funding within 1 year on approximately $30.0 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, 2001, the Company was in a liability sensitive position amounting to 5.0% 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 negative asset/liability position at
December 31, 2001, 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, 2001. 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.

23

---

Period from December 31, 2001 in which assets and
liabilities reprice

|                                                               |             | 0 to 90
days |         | 91 to 365
days |   | 1 to 2
years |         | 2 to 5
years |        | > 5
year |   
|-------------------------------------------------------------- | ----------- | ------------ | ------- | -------------- | - | ------------ | ------- | ------------ | ------ | -------- | --
|                                                               |            
|ASSETS:                                                        |             |              |         |                |   |              |         |              |        |          |   
|Short term investments                                         |             | $            | 1,381   |                | $ |             |         | $            |       |          | $ 
|Securities                                                     |             |              | 44,427  |                |   | 16,731       |         |              | 20,213 |          |   
|Loans                                                          |             |              | 83,778  |                |   | 5,157        |         |              | 11,775 |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|                                                               |             |              | 129,586 |                |   | 21,888       |         |              | 31,988 |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|LIABILITIES:                                                   |             |              |         |                |   |              |         |              |        |          |   
|Deposits                                                       |             |              | 28,383  |                |   | 61,360       |         |              | 72,629 |          |   
|Borrowings                                                     |             |              | 11,890  |                |   |             |         |              |       |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|                                                               |             |              | 40,273  |                |   | 61,360       |         |              | 72,629 |          |   
|                                                               |             |              |         |                |   |              |         |              |        |          |   
|Gap position:                                                  |             |              |         |                |   |              |         |              |        |          |   
|                                                               | Period      |              |         | 89,313         |   |              | (39,472 | )            |        | (40,641  | ) 
|                                                               | % of Assets |              |         | 23.0           | % |              | (10.2   | )%           |        | (10.5    | )%
|                                                               | Cumulative  |              |         | 89,313         |   |              | 49,841  |              |        | 9,200    |   
|                                                               | % of Assets |              |         | 23.0           | % |              | 12.8    | %            |        | 2.4      | % 
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 3.22    |                |   | 1.49         |         |              | 1.05   |          |   

NEW ACCOUNTING PRONOUNCEMENTS

FASB Statement No. 141,Business Combinationsrequires that business combinations be accounted for using the
purchase method. The popular pooling-of-interest method is no longer permitted. This Statement applies to business combinations initiated after June 30, 2001.

FASB
Statement No. 142,Goodwill and Other Intangible Assetschanges the accounting for acquired goodwill and other
intangibles. Annually, management should review these items to determine if they should be reduced due to impairment. Systematic amortization is no longer permitted. The effective date of the
Statement is for fiscal years beginning after December 15, 2001. Core deposit intangibles are not goodwill and are still amortizable. The Company has no goodwill on its balance sheet. It does
have a core deposit intangible. The Company complies with the provisions of the Statement.

FASB
Statement No. 143,Accounting for Asset Retirement Obligationsapplies to legal obligations associated with retirement of a
tangible long-lived asset. The statement requires that management recognize the fair value of an asset retirement obligation in the period incurred, adding capitalization of this cost to
the cost of the asset. Annually the asset, including the capitalized cost, should be reviewed for impairment. The effective date of the Statement is for years beginning after June 15, 2002.

EARNINGS 2000 AS COMPARED TO 1999

SUMMARY

Carrollton Bancorp reported net income for 2000 of $1,748,000, or $0.64 per share, representing a 39% decrease from 1999 net income of $2,846,000, or $1.01 per
share. Part of the earnings decrease was due to nonrecurring gains. In 1999, a non-recurring gain on the sale of the merchant services unit amounted to $823,000 or $0.29 per share on an
after tax basis. The loan portfolio grew 7% to $278,020,000 as a result of residential and commercial loan production. The loan portfolio growth contributed to a 20% increase in interest income over
1999. Non-interest income from fees, decreased by 14% compared to 1999. Fees generated by the ATM network of 174 machines and income from national point of sale sponsorships grew
significantly during 2000, however, total fee income decreased due to the sale of the merchant services unit in 1999. Included in expense were the variable cost components of fee income which grew in
relation to fee growth, but saw a reduction due to the elimination of the merchant services processing costs.

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

24

---

dividends from equity stocks which achieve a dividend exclusion, and to certain loans which are tax exempt.

In 2000, net interest income on a taxable equivalent basis decreased by $847,000 to $11.3 million as a net result of increased volume in the
loan portfolio and an increase in the rates paid on deposit accounts. On average, the loan portfolio increased 22% over 1999 while the investment portfolio decreased by 11%. The yield on the loan
portfolio increased from 8.01% in 1999 to 8.09% in 2000. Changes in loan portfolio mix and a very competitive loan market caused the loan yield to remain steady. The yield on investment securities
also increased slightly to 6.61% in 2000 from 6.60% in 1999. The growth in the loan portfolio and increased yields, caused total interest income on a tax equivalent basis to rise from
$23.1 million in 1999 to $27.2 million in 2000.

Interest
expense increased $4.9 million to $15.9 million in 2000 from $11.0 million in 1999. Interest expense increased due to an increase in both interest bearing
liabilities and rates. Interest expense on deposits increased in 2000 from 1999 due to higher deposit levels and the increased cost of interest-bearing deposits, which increased from 3.88% in 1999 to
4.83% in 2000. The cost of borrowed funds increased due to changes in the composition of funding sources to 6.22% in 2000 from 5.09% in 1999. The table for Rate and Volume Variance Analysis included
in this report shows the increase in interest expense resulted from increased volume and rate on deposits and borrowings. The growth in interest-bearing liabilities supported loan portfolio growth.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $448,000 for 2000 compared to $597,840 for 1999. Non accrual, restructured, and delinquent loans over 90 days to total
loans increased to 0.91% at the end of 2000 compared to 0.54% in 1999. This increase was due to increased delinquencies. As of December 31, 2000, there was an increase of loan delinquencies of
$445,000 and an increase of impaired loans of $302,000. The Company elected to buy a participation back on a commercial loan, classified as impaired, at a discount. The loan continues to pay in
accordance with the restructured terms, and the bank expects no loss on the borrowing. The ratio of loan losses to average loans also increased in 2000 to 0.09% compared to 0.07% for 1999.

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.

NON-INTEREST INCOME

For 2000, non-interest income excluding securities gains, gains on the sale of a business unit, and gains on loan sales decreased by 14% compared to
1999, due to the sale of the merchant services in 1999. Brokerage commissions increased $261,000 or 26% in 2000 due to increased sales. Other fees and commissions decreased $1.4 million
principally as a result of the sale of merchant services. ATM fee income growth came through additional machines placed in service.

During the third quarter of 1999, the Company sold the contracts to process merchant credit card transactions for business customers, and a small
amount of related equipment, for a gain of $1,554,526. The merchant services unit was part of the Company's Electronic Banking segment that management felt was becoming less profitable due to
competitive pressures in the business of offering merchant credit card discount services.

Net
securities gains in 2000 were $256,000 compared to $240,000 in 1999.

The
Company continued to sell loans generated by its mortgage unit, which was inactivated during the second quarter of 2000, as well as other loans held in its portfolio. These
transactions generated gains of $18,000 in 2000 compared to $250,000 in 1999. At December 31, 2000, the Company serviced loans for others totaling $13,107,093.

NON-INTEREST EXPENSES

In 2000, non-interest expenses decreased by $1.9 million or 11%. Salaries and benefits decreased by $134,000, or 2%. In certain areas of the
Company, staff reductions occurred through attrition and the positions were eliminated. Full time equivalent staff decreased from 155 positions at the end of 1999 to 149 positions at
December 31, 2000. Occupancy expenses increased $115,000 to $1,705,000 in 2000, due to a write-down of premises approximately $190,000 in 2000. Furniture and equipment expense
increased primarily due to the depreciation of ATM machines purchased plus the related maintenance contracts expense. Other operating expenses decreased $2.1 million, or 27%. A significant
portion of this decrease relates to merchant services and ATM transactions costs.

INCOME TAX PROVISION

For 2000, the effective tax rate for the Company increased to 25% compared to 24% for 1999. This increase was primarily due to a decrease in tax exempt income
associated with the investment portfolio.

25

---

FINANCIAL CONDITION

SUMMARY

Total assets of the Company increased by 3% to $388.0 million at December 31, 2000 versus $375.6 million at the end of 1999. Investment
securities decreased to $73.4 million at December 31, 2000. Total loans at
December 31, 2000 grew 7% to $278.0 million compared to $260.0 million at the end of 1999. Interest earning assets increased to $351.8 million and were 90.4% of total
assets at December 31, 2000.

INVESTMENT SECURITIES

Securities decreased to $73.4 million at December 31, 2000 from $75.8 million at December 31, 1999. The portfolio consists primarily of
U.S. Treasury securities, U.S. Government agency securities, mortgage-backed securities, 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 liquidated $22.9 million of available for sale securities during 2000. These transactions were principally undertaken to
increase liquidity and reduce interest rate risk.

LOANS

Total loans increased $18 million or 7% from 1999 to $278.0 million at December 31, 2000. Loan growth was primarily in real estate lending,
equity loans and lines of credit with other consumer products declining during the year. Both the residential mortgage and equity loan units are principally wholesale operations. Commercial loans
equaled 30% of total loans at the end of the year and amounted to $82 million. Consumer loans amounted to $196 million and were 70% of total loans.

ALLOWANCE FOR LOAN LOSSES

At December 31, 2000, the allowance for loan losses was $3.0 million, a 7% increase from the end of 1999. The ratio of the allowance to total loans
was 1.09% at December 31, 2000 and 1999. The ratio of net loan losses to average loans outstanding for 2000 was 0.09% compared to 0.07% for 1999. The ratio of non-accrual loans,
restructured loans, and loans delinquent more than 90 days to total loans increased to 0.91% at December 31, 2000 from .54% at the end of 1999. The ratio of real estate secured loans to
total loans increased to 87% at the end of 2000 from 85% at the end of 1999.

An allowance for loan losses is maintained sufficient 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 $1,007,408 and $721,717 as of December 31, 2000 and 1999, 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 $1,222,709 and $976,158 as of December 31, 2000 and 1999, 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. The unallocated portion of allowance was lower at December 31, 2000, than it was at
December 31, 1999. This was due to an increase in the ratio of non-accrual loans, restructured loans, and loans delinquent more than 90 days from December 31, 1999 to
December 31, 2000. As that ratio increased, the unallocated portion of the allowance decreased.

During
the years ended December 31, 1996 through 2000, 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 credit 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, or infrequent

26

---

situations such as potential effects of the Year 2000 conversion on its borrowers, are considerations in determining the required total allowance.

The
lower level of loan charge-offs in 2000 and 1999 compared to 1998, was due to two commercial loans that the Company charged-off in 1998 totaling approximately
$328,000.

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, 2000 increased by $29.6 million to $292.0 million from the end of 1999. Interest-bearing accounts increased by
$33.6 million and non-interest bearing deposits decreased by $4.0 million. Overall deposit growth is attributed primarily to new account relationships within the existing
market area.

Due to significant growth in deposits, as noted above, accompanied by security sales, other borrowings were reduced. Advances from the Federal Home
Loan Bank decreased to $50 million at the end of 2000 compared
to $66 million at the end of 1999. Borrowings for federal funds purchased, securities sold under agreements to repurchase and notes payable to the US Treasury decreased by $2.1 million
from December 31, 1999 to 2000.

CAPITAL

At December 31, 2000, shareholders' equity was $30.5 million, an increase of $0.6 million from 1999. The increase in stockholders' equity was
largely due to the 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 $971,347, and net income for 2000 was $1.7 million. In addition, the Company purchased and retired common stock for $1.0 million in 2000. The company declared a 2 for 1 stock
split in 1999 and restructured the par value of the stock from $10 to $1. Stockholders' equity amounted to 7.86% of total assets at December 31, 2000 compared to 7.96% at the end of 1999. The
decrease in this ratio was caused by asset growth, but remains at a very strong level.

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, 2000 and 1999. 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 | % | 7.8            | %   
|Risk-based Capital: |                |   |   |                |     
|                    | Tier 1 (Core)  |   | 4 | %              | 11.0
|                    | Tier 2 (Total) |   | 8 | %              | 12.2

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 $4 million, and has borrowing capacity with
the Federal Home Loan Bank of $61 million which is collateralized by a blanket security interest in the Company's residential first mortgage loans.

At December 31, 2000, the Company had outstanding loan commitments and unused lines of credit totaling $95.6 million. Of this total,
management places a high probability for funding

27

---

within 1 year on approximately $23.0 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, 2000, the Company was in a liability sensitive position amounting to 5.0% 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 negative asset/liability position at December 31,
2000, 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, 2000. 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.

28

---

Period from December 31, 2000 in which assets and liabilities reprice

|                                                               |             | 0 to 90
days |        | 91 to 365
days |   | 1 to 2
years |         | 2 to 5
years |        | > 5
year |   
|-------------------------------------------------------------- | ----------- | ------------ | ------ | -------------- | - | ------------ | ------- | ------------ | ------ | -------- | --
|                                                               |            
|ASSETS:                                                        |             |              |        |                |   |              |         |              |        |          |   
|Short term investments                                         |             | $            | 309    |                | $ |             |         | $            |       |          | $ 
|Securities                                                     |             |              | 13,540 |                |   | 713          |         |              | 4,450  |          |   
|Loans                                                          |             |              | 72,765 |                |   | 24,820       |         |              | 13,714 |          |   
|                                                               |             |              |        |                |   |              |         |              |        |          |   
|                                                               |             |              | 86,614 |                |   | 25,533       |         |              | 18,164 |          |   
|                                                               |             |              |        |                |   |              |         |              |        |          |   
|LIABILITIES:                                                   |             |              |        |                |   |              |         |              |        |          |   
|Deposits                                                       |             |              | 27,299 |                |   | 85,816       |         |              | 39,878 |          |   
|Borrowings                                                     |             |              | 18,357 |                |   |             |         |              |       |          |   
|                                                               |             |              |        |                |   |              |         |              |        |          |   
|                                                               |             |              | 45,656 |                |   | 85,816       |         |              | 39,878 |          |   
|                                                               |             |              |        |                |   |              |         |              |        |          |   
|Gap position:                                                  |             |              |        |                |   |              |         |              |        |          |   
|                                                               | Period      |              |        | 40,958         |   |              | (60,283 | )            |        | (21,714  | ) 
|                                                               | % of Assets |              |        | 10.6           | % |              | (15.5   | )%           |        | (5.6     | )%
|                                                               | Cumulative  |              |        | 40,958         |   |              | (19,325 | )            |        | (41,039  | ) 
|                                                               | % of Assets |              |        | 10.6           | % |              | (5.0    | )%           |        | (10.6    | )%
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 1.90   |                |   | 0.85         |         |              | 0.76   |          |   

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued three standards and one interpretation during 2000. FASB Statement No. 137, Accounting for Derivative Instruments and Hedging
ActivitiesDeferral of the Effective Date of FASB Statement No. 133,is an amendment
of FASB Statement No. 133. FASB Statement No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities,is also an
amendment of FASB Statement No. 133. Both were effective in the first quarter of the fiscal year beginning after June 15, 2000. The Company does not own or trade derivative instruments.
The Company does not transact in hedging activities.

FASB
Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,is a replacement of FASB Statement No. 125. It is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The
Statement is intended to develop standards to aid in resolving existing financial accounting and reporting issues when transfers of financial assets occur. The Company complies with the provisions of
the Statement.

FASB
Interpretation No. 44,Accounting for Certain Transactions Involving Stock Compensation,clarifies the application of APB
Opinion No. 25. Among other items, the Statement clarifies that in issues involving stock compensation awards, a director of an organization is treated in a similar manner to an employee. It
was effective July 1, 2000. The Company complies with the provisions of the interpretation.

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

29

---



ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

LOGO

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, 2001 and 2000, and the
related consolidated statements of income, changes in shareholders' equity, and cash flows for the three years ended December 31, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for the three years ended December 31, 2001, in conformity with accounting principals generally
accepted in the United States of America.

Rowles & Company, LLP

SIGNATURE

Baltimore,
Maryland
February 26, 2002

30

---



CONSOLIDATED BALANCE SHEETS

|                                                                                                                                 |                     | December 31 |            
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ----------- | -----------
|
|                                                                                                                                 |                    
|ASSETS                                                                                                                           |                     |             |            
|Cash and due from bank                                                                                                           |                     | $           | 19,276,101 
|Federal funds sold                                                                                                               |                     |             | 1,380,865  
|Investment securities:                                                                                                           |                     |             |            
|                                                                                                                                 | Available for sale  |             |            
|                                                                                                                                 | Held to maturity    |             |            
|Loans held for sale                                                                                                              |                     |             | 361,034    
|Loans, less allowance for loan losses of $3,338,807 and $3,024,290                                                               |                     |             | 216,839,176
|Premises and equipment                                                                                                           |                     |             | 7,121,828  
|Accrued interest receivable                                                                                                      |                     |             | 2,240,990  
|Deferred income taxes                                                                                                            |                     |             |           
|Other assets                                                                                                                     |                     |             | 2,262,777  
|                                                                                                                                 |                     |             |            
|                                                                                                                                 |                     | $           | 357,194,940
|                                                                                                                                 |                     |             |            
|LIABILITES AND SHAREHOLDERS' EQUITY                                                                                              |                    
|Deposits                                                                                                                         |                     |             |            
|                                                                                                                                 | Noninterest bearing |             | $          
|                                                                                                                                 | Interest-bearing    |             |            
|                                                                                                                                 |                     |             |            
|Total deposits                                                                                                                   |                     |             | 265,528,720
|Federal funds purchased and securities sold under agreement to repurchase                                                        |                     |             | 11,232,829 
|Advances from the Federal Home Loan Bank                                                                                         |                     |             | 45,000,000 
|Notes payable  U.S. Treasury                                                                                                    |                     |             | 657,726    
|Accrued interest payable                                                                                                         |                     |             | 550,753    
|Deferred income taxes                                                                                                            |                     |             | 335,855    
|Accrued income taxes                                                                                                             |                     |             | 280,785    
|Other liabilities                                                                                                                |                     |             | 959,968    
|                                                                                                                                 |                     |             |            
|                                                                                                                                 |                     |             | 324,546,636
|                                                                                                                                 |                     |             |            
|Shareholders' equity                                                                                                             |                     |             |            
|Common stock, par $1.00 per share; authorized 10,000,000 shares; issued and outstanding 2,701,254 in 2001 and 2,707,733 in 2000. |                     |             | 2,701,254  
|Surplus                                                                                                                          |                     |             | 17,017,446 
|Retained earnings                                                                                                                |                     |             | 11,680,425 
|Accumulated other comprehensive income                                                                                           |                     |             | 1,249,179  
|                                                                                                                                 |                     |             |            
|                                                                                                                                 |                     |             | 32,648,304 
|                                                                                                                                 |                     |             |            
|                                                                                                                                 |                     | $           | 357,194,940
|                                                                                                                                 |                     |             |            

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

31

---



CONSOLIDATED STATEMENTS OF INCOME

|                                                         |                            | Years Ended December 31
|-------------------------------------------------------- | -------------------------- | -----------------------
|
|                                                        
|INTEREST INCOME                                          |                            |                        
|Interest and fees on loans                               |                            | $                      
|Interest and dividends on securities:                    |                            |                        
|                                                         | Taxable interest income    |                        
|                                                         | Nontaxable interest income |                        
|                                                         | Dividends                  |                        
|Interest on federal funds sold and other interest income |                            |                        
|                                                         |                            |                        
|Total interest income                                    |                            |                        
|                                                         |                            |                        
|INTEREST EXPENSE                                         |                            |                        
|Deposits                                                 |                            |                        
|Borrowings                                               |                            |                        
|                                                         |                            |                        
|Total interest expense                                   |                            |                        
|                                                         |                            |                        
|Net interest income                                      |                            |                        
|PROVISION FOR LOAN LOSSES                                |                            |                        
|                                                         |                            |                        
|Net interest income after provision for loan losses      |                            |                        
|                                                         |                            |                        
|NONINTEREST INCOME                                       |                            |                        
|Service charges on deposit accounts                      |                            |                        
|Brokerage commissions                                    |                            |                        
|Other fees and commissions                               |                            |                        
|Gain on sale of merchant services unit                   |                            |                        
|Gains (losses) on security sales                         |                            |                        
|Gains (losses) on loan sales                             |                            |                        
|                                                         |                            |                        
|Total noninterest income                                 |                            |                        
|                                                         |                            |                        
|NONINTEREST EXPENSES                                     |                            |                        
|Salaries                                                 |                            |                        
|Employee benefits                                        |                            |                        
|Occupancy                                                |                            |                        
|Furniture and equipment                                  |                            |                        
|Other operating expenses                                 |                            |                        
|                                                         |                            |                        
|Total noninterest expenses                               |                            |                        
|                                                         |                            |                        
|Income before income taxes                               |                            |                        
|INCOME TAXES                                             |                            |                        
|                                                         |                            |                        
|NET INCOME                                               |                            | $                      
|                                                         |                            |                        
|NET INCOME PER SHARE-BASIC                               |                            | $                      
|                                                         |                            |                        
|NET INCOME PER SHARE-DILUTED                             |                            | $                      
|                                                         |                            |                        

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

32

---



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                                              |  | Common Stock |   |   |             |   |   | Accumulated Other
Comprehensive
Income |   |   |           
|--------------------------------------------------------------------------------------------- |  | ------------ | - | - | ----------- | - | - | -------------------------------------- | - | - | ----------
|
|
|                                                                                              | 
|BALANCE, DECEMBER 31, 1998                                                                    |  | 1,414,744    |   | $ | 14,147,440  |   | $ | 7,559,137                              |   | $ | 7,964,293 
|Net Income                                                                                    |  |              |   |   |            |   |   |                                       |   |   | 2,846,047 
|Changes in net unrealized holding gains (losses) on available for sale securities, net of tax |  |              |   |   |            |   |   |                                       |   |   |          
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Comprehensive Income                                                                          |  |              |   |   |             |   |   |                                        |   |   |           
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Shares acquired and cancelled                                                                 |  | (47,334      | ) |   | (101,406    | ) |   | (811,848                               | ) |   |          
|Stock split in the form of a 100% stock dividend                                              |  | 1,409,494    |   |   | 14,094,940  |   |   | (14,094,940                            | ) |   |          
|Change Par Value from $10 to $1                                                               |  |              |   |   | (25,364,070 | ) |   | 25,364,070                             |   |   |          
|Cash dividends, $0.3075                                                                       |  |              |   |   |            |   |   |                                       |   |   | (864,393  
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|BALANCE, DECEMBER 31, 1999                                                                    |  | 2,776,904    |   |   | 2,776,904   |   |   | 18,016,419                             |   |   | 9,945,947 
|Net Income                                                                                    |  |              |   |   |            |   |   |                                       |   |   | 1,747,532 
|Changes in net unrealized holding gains (loses) on available for sale securities, net of tax  |  |              |   |   |            |   |   |                                       |   |   |          
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Comprehensive Income                                                                          |  |              |   |   |             |   |   |                                        |   |   |           
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Shares acquired and cancelled                                                                 |  | (69,171      | ) |   | (69,171     | ) |   | (926,408                               | ) |   |          
|Cash dividends, $0.355                                                                        |  |              |   |   |             |   |   |                                       |   |   | (971,347  
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|BALANCE, DECEMBER 31, 2000                                                                    |  | 2,707,733    |   |   | 2,707,733   |   |   | 17,090,011                             |   |   | 10,722,132
|Net Income                                                                                    |  |              |   |   |            |   |   |                                       |   |   | 1,933,077 
|Changes in net unrealized holding gains (losses) on available for sale securities, net of tax |  |              |   |   |            |   |   |                                       |   |   |          
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Comprehensive Income                                                                          |  |              |   |   |             |   |   |                                        |   |   |           
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|Shares acquired and cancelled                                                                 |  | (6,479       | ) |   | (6,479      | ) |   | (72,565                                | ) |   |          
|Cash dividends, $0.36                                                                         |  |              |   |   |            |   |   |                                       |   |   | (974,784  
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           
|BALANCE, DECEMBER 31, 2001                                                                    |  | 2,701,254    |   | $ | 2,701,254   |   | $ | 17,017,446                             |   | $ | 11,680,425
|                                                                                              |  |              |   |   |             |   |   |                                        |   |   |           

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

33

---



CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                |  | Year Ended December 31, |             
|------------------------------------------------------------------------------- |  | ----------------------- | ------------
|
|                                                                                | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                            |  |                         |             
|Interest received                                                               |  | $                       | 24,351,974  
|Fees and commissions received                                                   |  |                         | 6,972,424   
|Interest paid                                                                   |  |                         | (13,019,872 
|Cash paid to suppliers and employees                                            |  |                         | (13,329,307 
|Proceeds from sale of loans held for sale                                       |  |                         | 1,126,288   
|Origination of loans held for sale, net of principal reduction                  |  |                         | 165,541     
|Income taxes paid                                                               |  |                         | (803,760    
|                                                                                |  |                         |             
|                                                                                |  |                         | 5,463,288   
|                                                                                |  |                         |             
|CASH FLOWS FROM INVESTING ACTIVITIES                                            |  |                         |             
|Proceeds from maturities of securities held to maturity                         |  |                         | 25,000      
|Proceeds from sales of securities available for sale                            |  |                         | 3,298,320   
|Proceeds from maturities of securities available for sale                       |  |                         | 156,221,001 
|Purchase of securities available for sale                                       |  |                         | (191,938,361
|Loans made, net of principal collected                                          |  |                         | 2,612,239   
|Purchase of loans, net of principal collected                                   |  |                         | 17,791,957  
|Proceeds from sale of loans                                                     |  |                         | 35,294,964  
|Purchase of premises and equipment                                              |  |                         | (668,039    
|Proceeds of sale of premises and equipment                                      |  |                         | 13,841      
|                                                                                |  |                         |             
|                                                                                |  |                         | 22,650,922  
|                                                                                |  |                         |             
|CASH FLOWS FROM FINANCING ACTIVITIES                                            |  |                         |             
|Net increase (decrease) in time deposits                                        |  |                         | (25,043,765 
|Net increase (decrease) in other deposits                                       |  |                         | (1,451,656  
|Net increase (decrease) in other borrowed funds                                 |  |                         | (6,466,823  
|Common stock repurchase and retirement                                          |  |                         | (79,044     
|Dividends paid                                                                  |  |                         | (974,784    
|                                                                                |  |                         |             
|                                                                                |  |                         | (34,016,072 
|                                                                                |  |                         |             
|Net increase (decrease) in cash and cash equivalents                            |  |                         | (5,901,862  
|Cash and cash equivalents at beginning of year                                  |  |                         | 26,558,828  
|                                                                                |  |                         |             
|Cash and cash equivalents at end of year                                        |  | $                       | 20,656,966  
|                                                                                |  |                         |             
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITES        |  |                         |             
|Net income                                                                      |  | $                       | 1,933,077   
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITES |  |                         |             
|Provision for loan losses                                                       |  |                         | 550,000     
|Deprecation and amortization                                                    |  |                         | 1,598,037   
|Deferred income taxes                                                           |  |                         | (157,515    
|Amortization of premiums and discounts                                          |  |                         | 158,190     
|(Gains) losses on disposal of securities                                        |  |                         | 2,725       
|Loans held for sale made, net of principal sold                                 |  |                         | 1,291,829   
|(Gains) losses on sale of loans                                                 |  |                         | 254,409     
|Loss on sale and write-down of premises and equipment                           |  |                         | 25,307      
|(Increase) decrease in:                                                         |  |                         |             
|Accrued interest receivable                                                     |  |                         | 361,161     
|Prepaid income taxes                                                            |  |                         |            
|Other assets                                                                    |  |                         | (262,391    
|Increase (decrease) in:                                                         |  |                         |             
|Accrued interest payable                                                        |  |                         | (147,517    
|Income taxes payable                                                            |  |                         | 197,393     
|Other liabilities                                                               |  |                         | (341,417    
|                                                                                |  |                         |             
|                                                                                |  | $                       | 5,463,288   
|                                                                                |  |                         |             

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

34

---



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 in the portfolio 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 holding 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.

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.

In
accordance with Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114), 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 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.

Premises and Equipment Premises and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation and

35

---

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. Accumulated depreciation includes provisions for declines in the value of land and buildings.

Intangible Assets The premium paid for deposits acquired is being amortized to expense on the straight line
basis over 15 years. 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. The
amortization period is adjusted quarterly for changes in the prepayment speed of the loans serviced. Intangible assets are included in other assets on the Consolidated Balance Sheets.

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. Deferred tax assets may also include tax credit carryovers that the Company expects to offset against future tax obligations.

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 The Company adopted Statement No. 130 of the Financial Accounting Standards Board, Reporting Comprehensive
Income, in 1998. Comprehensive income includes net income and the unrealized gain (loss) on investment securities available for
sale, net of income taxes.

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 $13.7 million and $14.8 million during 2001 and 2000 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 2001 and 2000, the Company maintained average compensating balances of approximately $1,000,000 which was maintained at the
Federal Reserve Bank. In addition, the Company paid $63,423, $50,058, and $63,667, respectively, in bank account charges in 2001, 2000, and 1999.

3. INVESTMENT SECURITIES

Investment securities are summarized as follows:

|                             |  | Amortized
cost |             | Unrealized gains |   | Unrealized losses |  | Market value
|---------------------------- |  | -------------- | ----------- | ---------------- | - | ----------------- |  | ------------
|                            
|December 31, 2001            |  |                |             |                  |   |                   |  |             
|AVAILABLE FOR SALE           |  |                |             |                  |   |                   |  |             
|U.S. Government agency       |  | $              | 64,711,849  |                  | $ | 549,052           |  | $           
|Mortgage backed securities   |  |                | 19,758,761  |                  |   | 256,125           |  |             
|State and municipal          |  |                | 5,891,946   |                  |   | 16,571            |  |             
|Corporate bonds              |  |                | 7,739,978   |                  |   | 167,823           |  |             
|Federal Home Loan Bank stock |  |                | 3,250,000   |                  |   |                  |  |             
|Equity securities            |  |                | 4,299,478   |                  |   | 1,264,180         |  |             
|                             |  |                |             |                  |   |                   |  |             
|                             |  | $              | 105,652,012 |                  | $ | 2,253,751         |  | $           
|                             |  |                |             |                  |   |                   |  |             
|HELD TO MATURITY             |  |                |             |                  |   |                   |  |             
|Foreign Bonds                |  | $              | 25,000      |                  | $ |                  |  | $           
|                             |  |                |             |                  |   |                   |  |             

36

---

|December 31, 2000            |  |   |            |  |   |         |  |   |         |  |   |           
|---------------------------- |  | - | ---------- |  | - | ------- |  | - | ------- |  | - | ----------
|AVAILABLE FOR SALE           |  |   |            |  |   |         |  |   |         |  |   |           
|U.S. Treasury                |  | $ | 799,959    |  | $ | 416     |  | $ | 625     |  | $ | 799,750   
|U.S. Government agency       |  |   | 55,414,430 |  |   | 13,035  |  |   | 439,980 |  |   | 54,987,485
|Mortgage backed securities   |  |   | 5,242,307  |  |   | 76,835  |  |   | 10,885  |  |   | 5,308,257 
|State and municipal          |  |   | 6,206,170  |  |   | 5,129   |  |   | 83,475  |  |   | 6,127,824 
|Federal Home Loan Bank stock |  |   | 3,250,000  |  |   |        |  |   |        |  |   | 3,250,000 
|Equity securities            |  |   | 2,481,021  |  |   | 553,509 |  |   | 175,660 |  |   | 2,858,870 
|                             |  |   |            |  |   |         |  |  
|                             |  | $ | 73,393,887 |  | $ | 648,924 |  | $ | 710,625 |  | $ | 73,332,186
|                             |  |   |            |  |   |         |  |  
|HELD TO MATURITY             |  |   |            |  |   |         |  |   |         |  |   |           
|Foreign Bonds                |  | $ | 50,000     |  | $ |        |  | $ |        |  | $ | 50,000    
|                             |  |   |            |  |   |         |  |  

Contractual maturities of debt securities at December 31, 2001 and 2000 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.

|                           |  | December 31, 2001
|-------------------------- |  | -----------------
|
|
|                          
|Within one year            |  | $                
|Over one to five years     |  |                  
|Over five to ten years     |  |                  
|Over ten years             |  |                  
|Mortgage backed securities |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

|                           |  | December 31, 2000
|-------------------------- |  | -----------------
|
|
|                          
|Within one year            |  | $                
|Over one to five years     |  |                  
|Over five to ten years     |  |                  
|Over ten years             |  |                  
|Mortgage backed securities |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

At December 31, 2001 and 2000, securities with a cost basis of $34,268,569 (market value of $34,760,967), and $20,415,830 (market value of
$20,175,840) were pledged as collateral for government deposits, securities sold under repurchase agreements, and advances from the Federal Home Loan Bank.

In
2001, 2000, and 1999, the Company realized gains on sales of securities of $0, $491,480, and $478,820, respectively, and losses of $2,725, $235,228, and $239,151. Income taxes on net
security gains were ($1,052) $99,356, and $92,560 in 2001, 2000, and 1999, respectively.

37

---

4. LOANS

Major classifications of loans are as follows:

|                                                                                                                                                                                                    |                                   | 2001 |             | 2000        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---- | ----------- | ----------- | -
|                                                                                                                                                                                                    |                                  
|Real estate                                                                                                                                                                                         |                                   |      |             |             |  
|                                                                                                                                                                                                    | Residential                       |      | $           | 117,617,158 |  
|                                                                                                                                                                                                    | Commercial                        |      |             | 52,675,033  |  
|                                                                                                                                                                                                    | Construction and land development |      |             | 10,116,583  |  
|Demand and time                                                                                                                                                                                     |                                   |      | 33,982,346  |             |  
|Lease financing                                                                                                                                                                                     |                                   |      | 1,328,828   |             |  
|Installment and credit card                                                                                                                                                                         |                                   |      | 4,458,035   |             |  
|                                                                                                                                                                                                    |                                   |      |             |             |  
|                                                                                                                                                                                                    |                                   |      | 220,177,983 |             |  
|Allowance for loan losses                                                                                                                                                                           |                                   |      | 3,338,807   |             |  
|                                                                                                                                                                                                    |                                   |      |             |             |  
|Loans, net                                                                                                                                                                                          |                                   | $    | 216,839,176 |             | $
|                                                                                                                                                                                                    |                                   |      |             |             |  
|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 is as follows:                                                                                                                   |                                  
|Repricing or maturing within one year                                                                                                                                                               |                                   | $    | 88,783,498  |             | $
|Maturing over one to five years                                                                                                                                                                     |                                   |      | 52,341,290  |             |  
|Maturing over five years                                                                                                                                                                            |                                   |      | 79,053,195  |             |  
|                                                                                                                                                                                                    |                                   |      |             |             |  
|                                                                                                                                                                                                    |                                   | $    | 220,177,983 |             | $
|                                                                                                                                                                                                    |                                   |      |             |             |  
|Loan balances have been adjusted by the following deferred amounts:                                                                                                                                 |                                  
|Deferred origination costs and premiums                                                                                                                                                             |                                   | $    | 1,035,380   |             | $
|Deferred origination fees and unearned discounts                                                                                                                                                    |                                   |      | (701,625    | )           |  
|                                                                                                                                                                                                    |                                   |      |             |             |  
|Net deferred costs                                                                                                                                                                                  |                                   | $    | 333,755     |             | $
|                                                                                                                                                                                                    |                                   |      |             |             |  

Transactions in the allowance for loan losses were as follows:

|                                |  | 2001 |           | 2000 |   | 1999     
|------------------------------- |  | ---- | --------- | ---- | - | ---------
|                               
|Beginning balance               |  | $    | 3,024,290 |      | $ | 2,836,291
|Provision charged to operations |  |      | 550,000   |      |   | 448,000  
|Recoveries                      |  |      | 66,658    |      |   | 124,398  
|                                |  |      |           |      |   |          
|                                |  |      | 3,640,948 |      |   | 3,408,689
|Loans charged off               |  |      | 302,141   |      |   | 384,399  
|                                |  |      |           |      |   |          
|Ending balance                  |  | $    | 3,338,807 |      | $ | 3,024,290
|                                |  |      |           |      |   |          

At December 31, 2001, 2000, and 1999, the accrual of interest has been discontinued on loans of $387,037, $622,392, and $240,569,
respectively. The amount of interest income that would have been recorded in 2001, 2000, and 1999 on non-accrual loans if those loans had been handled in accordance with their contractual
terms totaled $16,109, $28,689, and $12,880, respectively. The amount of interest income actually recorded on non-accrual loans totaled $1,239, $3,892, and $5,549 for 2001, 2000, and 1999,
respectively.

At
December 31, 2001, 2000, and 1999, the Company had one impaired loan to the same borrower amounting to $598,644, $633,302, and $330,987, respectively that 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 $616, 358, $342,416, and $369,776, in 2001, 2000, and
1999, respectively. During 2001, 2000, and 1999, the Company received total payments on impaired loans of $99,868, $42,153, and $100,837,
respectively. Of these amounts, $65,210, $27,817, and $23,259, were recorded as interest income for 2001, 2000, and 1999, respectively. The remainder was applied to reduce principal.

This
loan is the Company's only restructured loan. During the year-ended December 31, 2000 the Bank repurchased, at a discount, a portion of this loan that had been
sold to another financial institution. The discount will be accreted over the remaining life of the loan. There is not a 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.

38

---

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

|                            |  | 2001 |         | 2000 |   | 1999     
|--------------------------- |  | ---- | ------- | ---- | - | ---------
|                           
|Mortgage                    |  | $    | 108,596 |      | $ | 434,346  
|Demand and time             |  |      | 114,863 |      |   | 847,360  
|Installment and credit card |  |      |        |      |   |         
|                            |  |      |         |      |   |          
|                            |  | $    | 223,459 |      | $ | 1,281,706
|                            |  |      |         |      |   |          

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 $33,527,799 and $81,961,376 were pledged as collateral to the Federal Home Loan Bank of Atlanta
as of December 31, 2001 and 2000, respectively.

5. CREDIT COMMITMENTS

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

|                       |                                   | 2001 |            | 2000       |   | 1999      
|---------------------- | --------------------------------- | ---- | ---------- | ---------- | - | ----------
|                      
|LOAN COMMITMENTS       |                                   |      |            |            |   |           
|                       | Mortgage loans                    |      | $          |           |   | $         
|                       | Construction and land development |      |            | 10,275,089 |   |           
|                       | Commercial loans                  |      |            | 17,608,000 |   |           
|                       | Installment loans                 |      |            | 579,682    |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 28,462,771 |            | $ | 16,849,235
|                       |                                   |      |            |            |   |           
|UNUSED LINES OF CREDIT |                                   |      |            |            |   |           
|                       | Home equity lines                 |      | $          | 54,798,129 |   | $         
|                       | Commercial lines                  |      |            | 10,057,019 |   |           
|                       | Unsecured consumer lines          |      |            | 525,714    |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 65,380,862 |            | $ | 70,788,299
|                       |                                   |      |            |            |   |           
|                       |                                   |      |            |            |   |           
|LETTERS OF CREDIT      |                                   | $    | 2,871,588  |            | $ | 1,392,352 
|                       |                                   |      |            |            |   |           

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, 2001, 2000 and 1999, transactions in related party loans were as follows:

|                                                                                    |  | 2001 |           | 2000 |   | 1999      |  
|----------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                                    | 
|Beginning balance                                                                   |  | $    | 1,915,984 |      | $ | 2,031,292 |  
|Additions                                                                           |  |      | 664,183   |      |   | 197,290   |  
|Repayments                                                                          |  |      | (179,367  | )    |   | (312,598  | )
|Changes in executive officers and directors                                         |  |      | 2,863,586 |      |   |          |  
|Adjustment to treat loans guaranteed by multiple directors as a single indebtedness |  |      |          |      |   |          |  
|                                                                                    |  |      |           |      |   |           |  
|                                                                                    |  | $    | 5,264,386 |      | $ | 1,915,984 |  
|                                                                                    |  |      |           |      |   |           |  

39

---

A director of the Company is a partner in a law firm that provides legal services to the Company and its subsidiary. During the years ended
December 31, 2001, 2000, and 1999, amounts paid to the law firm in connection with those services were $173,737, $166,522, and $146,250, respectively.

A
director of the Company is President of an insurance brokerage through which the Company and its subsidiary place various insurance policies. During the years ended December 31,
2001, 2000, and 1999, amounts paid to the insurance brokerage for insurance premiums were $249,889, $57,656, and $110,528, respectively.

A
first year director of the Company is the Executive Vice President for a commercial real estate services company, through which the Company and its subsidiaries contracted for
appraisal and management services amounting to $5,021 in 2001.

7. PREMISES AND EQUIPMENT

A summary of premises and equipment is as follows:

|                                          |  | 2001 |            | 2000
|----------------------------------------- |  | ---- | ---------- | ----
|                                         
|Land and improvements                     |  | $    | 864,474    |     
|Buildings                                 |  |      | 3,428,461  |     
|Leasehold improvements                    |  |      | 2,209,352  |     
|Equipment and fixtures                    |  |      | 10,133,419 |     
|                                          |  |      |            |     
|                                          |  |      | 16,635,706 |     
|Accumulated depreciation and amortization |  |      | 9,513,878  |     
|                                          |  |      |            |     
|                                          |  | $    | 7,121,828  |     
|                                          |  |      |            |     

Depreciation and amortization of premises and equipment was $1,365,767, $1,136,243, and $1,128,263, for 2001, 2000, and 1999, respectively.
Amortization of intangible assets, excluding amortization of deposit premiums, was $109,090, $124,134, and $110,110 for 2001, 2000, and 1999, respectively. The Company decreased the depreciable life
of ATM machines in May 2001, based on its evaluation of the useful lives of the machines. This change increased depreciation expense that would have been recorded in 2001 on ATM machines by
$261,000.

During
the year-ended December 31, 2000, the Company reduced the book value of its Baltimore Street branch to its estimated fair value of $140,000. The
write-down of $189,745 is included in occupancy expense on the Consolidated Statements of Income. The fair value of the property represents the amount of a recent offer for the property.

8. DEPOSITS

Major
classifications of interest-bearing deposits are as follows:

|                                                               |  | 2001 |             | 2000
|-------------------------------------------------------------- |  | ---- | ----------- | ----
|                                                              
|NOW and SuperNOW                                               |  | $    | 41,444,543  |     
|Money market                                                   |  |      | 38,884,811  |     
|Savings                                                        |  |      | 43,457,591  |     
|Certificates of deposit of $100,000 or more                    |  |      | 23,429,810  |     
|Other time deposits                                            |  |      | 78,325,791  |     
|                                                               |  |      |             |     
|                                                               |  | $    | 225,542,546 |     
|                                                               |  |      |             |     
|Certificates of deposit of $100,000 or more mature as follows:
|Three months or less                                           |  | $    | 6,887,393   |     
|Over three through twelve months                               |  |      | 2,016,441   |     
|Over one to five years                                         |  |      | 14,525,976  |     
|                                                               |  |      |             |     
|                                                               |  | $    | 23,429,810  |     
|                                                               |  |      |             |     

Interest expense associated with certificates of deposit of $100,000 or more was $1,910,347, $1,756,939, and $795,285, for the years ended
December 31, 2001, 2000, and 1999, respectively.

40

---

Other
time deposits mature as follows:

|                                |  | 2001 |            | 2000
|------------------------------- |  | ---- | ---------- | ----
|                               
|Maturing within one year        |  | $    | 49,600,440 |     
|Maturing over one to five years |  |      | 28,697,507 |     
|Maturing over five years        |  |      | 27,844     |     
|                                |  |      |            |     
|                                |  | $    | 78,325,791 |     
|                                |  |      |            |     

9. BRANCH ACQUISITION

On
June 23, 1995, the Company acquired a branch office from First Union National Bank of Maryland. This branch had total deposits at the date of acquisition of $22,765,077. The Company also
acquired related real estate and equipment of $530,000 and loans of $17,303. The deposit premium of $1,847,663 is being amortized using the straight line method over 15 years. Amortization
expense was $123,180 for 2001, 2000, and 1999, respectively. The remaining unamortized balance at December 31, 2001 and 2000 was $1,046,993 and $1,170,173, respectively. This amount is included
in other assets in the Consolidated Balance Sheets.

10. BORROWINGS

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:

|                                              |  | 2001 |            | 2000 |   | 1999      
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                             
|Total outstanding at period end               |  | $    | 11,232,829 |      | $ | 12,372,519
|Average amount outstanding during period      |  |      | 13,058,607 |      |   | 14,943,138
|Maximum amount outstanding at any month end   |  |      | 14,765,870 |      |   | 20,116,442
|Weighted average interest rate at period end  |  |      | 0.83%      |      |   | 5.47%     
|Weighted average interest rate for the period |  |      | 2.91%      |      |   | 5.37%     

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 sold rate.

Advances
from the Federal Home Loan Bank (FHLB) of Atlanta amounted to $45,000,000 and $50,000,000 at December 31, 2001 and 2000, respectively. Advances averaged $46,054,795 and
$56,191,257 for 2001 and 2000, respectively, with weighted average costs of 6.80% for 2001 and 6.45% for 2000. At December 31, 2001, the advances carried a weighted average interest rate of
6.83%, and matured at dates ranging from March 26, 2008 to May 24, 2010. At December 31, 2000, the advances carried a weighted average interest rate of 6.58%, and matured at dates
ranging from March 19, 2001 through May 24, 2010. The Bank has a total secured line of $52 million with the FHLB for which the Bank granted the FHLB a security interest in its
residential first mortgage loans, as well as pledged investment securities.

As
noted above, the Company borrows under available unsecured federal funds lines of credit of $4 million with other institutions. The balance outstanding under these lines was
$1,000,000 and $700,000 at
December 31, 2001 and 2000, respectively. These lines bear interest at the then current federal funds rate of the correspondent bank.

41

---

11. OTHER OPERATING EXPENSES

Other operating expenses include the following:

|                                   |  | 2001 |           | 2000 |   | 1999     
|---------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                  
|ATM services                       |  | $    | 1,539,670 |      | $ | 2,039,858
|Data processing services           |  |      | 725,179   |      |   | 745,849  
|Professional services              |  |      | 398,553   |      |   | 374,330  
|Telephone                          |  |      | 288,710   |      |   | 234,371  
|Marketing                          |  |      | 190,787   |      |   | 584,446  
|Postage and freight                |  |      | 163,929   |      |   | 153,807  
|Directors' fees                    |  |      | 149,775   |      |   | 124,893  
|Printing, stationery, and supplies |  |      | 147,118   |      |   | 214,406  
|Liability insurance                |  |      | 140,230   |      |   | 130,550  
|Deposit premium amortization       |  |      | 123,180   |      |   | 123,180  
|Software amortization              |  |      | 109,090   |      |   | 124,134  
|Merchant credit card services      |  |      | 16,813    |      |   | 22,036   
|Other                              |  |      | 1,182,951 |      |   | 884,813  
|                                   |  |      |           |      |   |          
|                                   |  | $    | 5,175,985 |      | $ | 5,756,673
|                                   |  |      |           |      |   |          

12. 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    |        | 2000             |                  | 1999   
|-------------------------------- | ---------------- | ------- | ------ | ---------------- | ---------------- | -------
|
|                                
|Outstanding at beginning of year |                  | 108,699 |        |                  |                  | 104,600
|                                 | Granted          |         | 46,000 |                  | $10.20 to $11.49 |        
|                                 | Exercised        |         |       |                  |                  |        
|                                 | Expired/Canceled |         |       |                  |                  |        
|                                 |                  |         |        |                  |                  |        
|Outstanding at end of year       |                  | 154,699 |        | $10.20 to $19.00 |                  | 108,699
|                                 |                  |         |        |                  |                  |        
|Exercisable at December 31       |                  | 78,820  |        |                  |                  | 47,928 
|                                 |                  |         |        |                  |                  |        

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, 2001, 2000 and 1999.

|                    |  | 2001           |  | 2000           |  | 1999          
|------------------- |  | -------------- |  | -------------- |  | --------------
|                   
|Dividend yield      |  | 3.13% to 3.53% |  | 2.51%          |  | 1.97% to 1.98%
|Expected volatility |  | 23.52%         |  | 30.83%         |  | 25.47%        
|Risk free rate      |  | 5.18% to 5.67% |  | 5.76% to 6.35% |  | 5.68 to 6.42% 
|Expected lives      |  | 10 years       |  | 10 years       |  | 10 years      

42

---



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, 2001, 2000, and 1999.

|                            |             | 2001 |   | 2000      |  | 1999
|--------------------------- | ----------- | ---- | - | --------- |  | ----
|                           
|Net Income:                 |             |      |   |           |  |     
|                            | As Reported |      | $ | 1,933,077 |  | $   
|                            | Pro forma   |      | $ | 1,878,547 |  | $   
|Basic Earnings Per Share:   |             |      |   |           |  |     
|                            | As Reported |      | $ | 0.71      |  | $   
|                            | Pro forma   |      | $ | 0.69      |  | $   
|Diluted Earnings Per Share: |             |      |   |           |  |     
|                            | As reported |      | $ | 0.71      |  | $   
|                            | Pro forma   |      | $ | 0.69      |  | $   

13. 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:

|                                          |  | 2001 |           | 2000 |   | 1999     
|----------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                         
|BASIC:                                    |  |      |           |      |   |          
|Net income (applicable to common stock)   |  | $    | 1,933,077 |      | $ | 1,747,532
|Average common shares outstanding         |  |      | 2,707,165 |      |   | 2,736,263
|Basic net income per share                |  | $    | 0.71      |      | $ | 0.64     
|DILUTED:                                  |  |      |           |      |   |          
|Average common shares outstanding         |  |      | 2,707,165 |      |   | 2,736,263
|Stock option adjustment                   |  |      | 907       |      |   |         
|                                          |  |      |           |      |   |          
|Average common shares outstanding-diluted |  |      | 2,708,072 |      |   | 2,736,263
|                                          |  |      |           |      |   |          
|Diluted net income per share              |  | $    | 0.71      |      | $ | 0.64     

14. 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:

|                                                    |  | 2001 |           | 2000 |   | 1999      |  
|--------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                    | 
|Net Income                                          |  | $    | 1,933,077 |      | $ | 1,747,532 |  
|                                                    |  |      |           |      |   |           |  
|OTHER COMPREHENSIVE INCOME:                         |  |      |           |      |   |           |  
|Unrealized holding gains (losses) during the period |  |      | 2,094,132 |      |   | 1,587,011 |  
|Less: Adjustment for security (gains) losses        |  |      | 2,725     |      |   | (256,252  | )
|                                                    |  |      |           |      |   |           |  
|Other comprehensive income before tax               |  |      | 2,096,857 |      |   | 1,330,759 |  
|Income taxes on comprehensive income                |  |      | (809,806  | )    |   | (513,938  | )
|                                                    |  |      |           |      |   |           |  
|Other comprehensive income after tax                |  |      | 1,287,051 |      |   | 816,821   |  
|                                                    |  |      |           |      |   |           |  
|Comprehensive income                                |  | $    | 3,220,128 |      | $ | 2,564,353 |  
|                                                    |  |      |           |      |   |           |  

43

---

15. 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, 2001 and 2000, the capital ratios and
minimum capital requirements are as follows.

|                                         |  | Actual |            | Minimum
    Capital
    Adequacy |       | To be Well
    Capitalized |  
|---------------------------------------- |  | ------ | ---------- | -------------------------------- | ----- | -------------------------- | -
|
|                                         | 
|DECEMBER 31, 2001                        |  |        |            |                                  |       |                            |  
|Total Capital (to risk-weighted assets)  |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 35,081,699 |                                  | 14.59 | %                          | $
|Carrollton Bank                          |  | $      | 30,271,520 |                                  | 12.69 | %                          | $
|Tier 1 Capital
(to risk-weighted assets) |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 31,773,207 |                                  | 13.22 | %                          | $
|Carrollton Bank                          |  | $      | 27,281,943 |                                  | 11.43 | %                          | $
|Tier 1 Capital
(to average assets)       |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 31,773,207 |                                  | 8.85  | %                          | $
|Carrollton Bank                          |  | $      | 27,281,943 |                                  | 7.67  | %                          | $
|DECEMBER 31, 2000                        |  |        |            |                                  |       |                            |  
|Total Capital
(to risk-weighted assets)  |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 32,328,465 |                                  | 12.17 | %                          | $
|Carrollton Bank                          |  | $      | 28,590,100 |                                  | 10.79 | %                          | $
|Tier 1 Capital
(to risk-weighted assets) |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 29,311,831 |                                  | 11.03 | %                          | $
|Carrollton Bank                          |  | $      | 25,565,811 |                                  | 9.65  | %                          | $
|Tier 1 Capital
(to average assets)       |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 29,311,831 |                                  | 7.75  | %                          | $
|Carrollton Bank                          |  | $      | 25,565,811 |                                  | 7.40  | %                          | $

Tier 1 capital consists of capital 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, 2001, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.

44

---

16. PENSION 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. Approximately 50% of the trust assets are invested in an immediate participation guarantee fund, and the balance is
invested in equity funds.

The
following table sets forth the financial status of the plan:

|                                                                                |                                                | 2001 |         | 2000      |   | 1999    |          
|------------------------------------------------------------------------------- | ---------------------------------------------- | ---- | ------- | --------- | - | ------- | ---------
|                                                                                |                                               
|CHANGE IN BENEFIT OBLIGATION:                                                   |                                                |      |         |           |   |         |          
|                                                                                | Benefit obligation at beginning of year        |      | $       | 6,759,948 |   | $       | 6,105,017
|                                                                                | Service cost                                   |      |         | 387,560   |   |         | 368,350  
|                                                                                | Interest cost                                  |      |         | 473,302   |   |         | 452,403  
|                                                                                | Actuarial gain                                 |      |         | (103,963  | ) |         | 136,939  
|                                                                                | Benefits paid                                  |      |         | (291,631  | ) |         | (302,761 
|                                                                                |                                                |      |         |           |   |         |          
|                                                                                | Benefit obligation at end of year              |      |         | 7,225,216 |   |         | 6,759,948
|                                                                                |                                                |      |         |           |   |         |          
|CHANGE IN PLAN ASSETS:                                                          |                                                |      |         |           |   |         |          
|                                                                                | Fair value of plan assets at beginning of year |      | $       | 6,990,732 |   | $       | 6,666,006
|                                                                                | Actual return on plan assets                   |      |         | (255,939  | ) |         | (26,632  
|                                                                                | Employer contribution                          |      |         | 292,089   |   |         | 654,119  
|                                                                                | Benefits paid                                  |      |         | (291,631  | ) |         | (302,761 
|                                                                                |                                                |      |         |           |   |         |          
|                                                                                | Fair value of plan assets at end of year       |      |         | 6,735,251 |   |         | 6,990,732
|                                                                                |                                                |      |         |           |   |         |          
|                                                                                | Funded status                                  |      |         | (489,965  | ) |         | 230,784  
|                                                                                | Unrecognized net actuarial loss (gain)         |      |         | 675,944   |   |         | (106,226 
|                                                                                | Unrecognized prior service cost                |      |         | 149,625   |   |         | 200,690  
|                                                                                | Unrecognized net transition (asset)            |      |         |          |   |         |         
|                                                                                |                                                |      |         |           |   |         |          
|                                                                                | Prepaid (accrued) benefit cost                 |      | $       | 335,604   |   | $       | 325,248  
|                                                                                |                                                |      |         |           |   |         |          
|ASSUMPTIONS USED IN MEASURING THE PROJECTED BENEFIT OBLIGATION WERE AS FOLLOWS: |                                                |      |         |           |   |         |          
|                                                                                | Discount rates                                 |      |         | 7.25      | % |         | 7.50     
|                                                                                | Rates of increase in compensation levels       |      |         | 5.50      | % |         | 5.50     
|                                                                                | Long-term rate of return on assets             |      |         | 9.00      | % |         | 9.00     
|NET PENSION EXPENSE INCLUDES THE FOLLOWING COMPONENTS:                          |                                                |      |         |           |   |         |          
|                                                                                | Service cost                                   |      | $       | 387,560   |   | $       | 368,350  
|                                                                                | Interest cost                                  |      |         | 473,302   |   |         | 452,403  
|                                                                                | Estimated return on assets                     |      |         | (630,194  | ) |         | (617,835 
|                                                                                | Net amortization and deferral                  |      |         | 51,065    |   |         | 17,146   
|                                                                                |                                                |      |         |           |   |         |          
|Net pension expense                                                             |                                                | $    | 281,733 |           | $ | 220,064 |          
|                                                                                |                                                |      |         |           |   |         |          

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 expenses, were $280,333, $94,143, and $83,872 for 2001, 2000 and 1999, respectively.

17. CONTINGENCIES

During
2001, the Company brought legal action against Fujitsu-ICL. Systems, Inc. seeking recovery of $472,480. This represents funds held by a subcontractor of
Fujitsu-ICL Systems, Inc. which was the party provider of ATM replenishment services for the Company. While the subcontractor has filed for bankruptcy protection from its creditors,
the Company's claim is against Fujitsu-ICL Systems, Inc. The subcontractor provided armoured car
services for Fujitsu-ICL Systems, Inc. in connection with the ATM maintenance services Fujitsu-ICL Systems, Inc. offered. Neither the Company, nor its legal counsel,
anticipate loss on this matter. Management is also working with its insurance carrier to assure the maximum protection available to the Company from the exposure. As of December 31, 2001, this
amount is classified in Other Assets on the Company's balance sheet.

On
March 8, 2002, the United States District Court for the District of Maryland entered a summary judgement in favor of the Bank and against the Defendant Fujitsu-ICL Systems,
Inc. in the total amount of $515,821. This judgement represents a

45

---

full award to the Bank of its ATM losses, 9% pre-judgement interest, and court costs claimed in its initial complaint. The judgement entered by the court is a
final judgement, but is subject to an appeal by the defendant within a 30-day time period following the entry thereof. Absent reversal of appeal, the Bank's judgement should be fully collectible as
the defendant is highly solvent.

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.

18. INCOME TAXES

The
components of income tax expense are as follows:

|                                                                          |  | 2001 |           | 2000 |   | 1999      |  
|------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                          | 
|CURRENT                                                                   |  |      |           |      |   |           |  
|Federal                                                                   |  | $    | 908,494   |      | $ | 488,351   |  
|State                                                                     |  |      | 65,153    |      |   | 38,546    |  
|                                                                          |  |      |           |      |   |           |  
|                                                                          |  |      | 973,647   |      |   | 526,897   |  
|DEFERRED                                                                  |  |      | (157,515  | )    |   | 49,634    |  
|                                                                          |  |      |           |      |   |           |  
|                                                                          |  | $    | 816,132   |      | $ | 576,531   |  
|                                                                          |  |      |           |      |   |           |  
|The components of the deferred tax charge (benefits) were as follows:     | 
|Provision for loan losses                                                 |  | $    | (121,621  | )    | $ | (72,450   | )
|Deferred origination costs                                                |  |      | (95,921   | )    |   | (100,027  | )
|Deferred compensation plan                                                |  |      | (9,404    | )    |   | (11,116   | )
|Depreciation                                                              |  |      | 15,705    |      |   | 141,486   |  
|Discount accretion                                                        |  |      | (2,951    | )    |   | (3,917    | )
|Retirement benefits                                                       |  |      | 4,540     |      |   | 167,632   |  
|Ground rent losses                                                        |  |      |          |      |   | 53,443    |  
|Write-down of building                                                    |  |      |          |      |   | (73,280   | )
|Early retirement benefits                                                 |  |      | 52,137    |      |   | (52,137   | )
|                                                                          |  |      |           |      |   |           |  
|                                                                          |  | $    | (157,515  | )    | $ | 49,634    |  
|                                                                          |  |      |           |      |   |           |  
|The components of the net deferred tax asset (liability) were as follows: | 
|DEFERRED TAX ASSETS                                                       |  |      |           |      |   |           |  
|Allowance for loan losses                                                 |  | $    | 1,054,312 |      | $ | 932,691   |  
|Accrued retirement benefits                                               |  |      |          |      |   |          |  
|Deferred compensation plan                                                |  |      | 214,784   |      |   | 205,380   |  
|Unrealized losses on available for sale investment securities             |  |      |          |      |   | 23,828    |  
|Allowance for loss on building                                            |  |      | 73,280    |      |   | 73,280    |  
|Allowance for ground rent losses                                          |  |      |          |      |   |          |  
|Early retirement benefits                                                 |  |      |          |      |   | 52,137    |  
|                                                                          |  |      |           |      |   |           |  
|                                                                          |  |      | 1,342,376 |      |   | 1,287,316 |  
|                                                                          |  |      |           |      |   |           |  
|DEFERRED TAX LIABILITIES                                                  |  |      |           |      |   |           |  
|Accrued retirement benefits                                               |  |      | 130,711   |      |   | 126,171   |  
|Deferred origination costs                                                |  |      | 277,304   |      |   | 373,225   |  
|Unrealized gains on available for sale investment securities              |  |      | 785,978   |      |   |          |  
|Depreciation                                                              |  |      | 477,832   |      |   | 462,127   |  
|Discount accretion                                                        |  |      | 4,387     |      |   | 7,338     |  
|FHLB Stock dividends                                                      |  |      | 2,019     |      |   | 2,019     |  
|                                                                          |  |      |           |      |   |           |  
|                                                                          |  |      | 1,678,231 |      |   | 970,880   |  
|                                                                          |  |      |           |      |   |           |  
|NET DEFERRED TAX ASSET (LIABILITY)                                        |  | $    | (335,855  | )    | $ | 316,436   |  
|                                                                          |  |      |           |      |   |           |  

46

---

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

|                                                      |  | 2001  |   | 2000  |   | 1999  |  
|----------------------------------------------------- |  | ----- | - | ----- | - | ----- | -
|                                                      | 
|Statutory federal income tax rate                     |  | 34.0  | % | 34.0  | % | 34.0  | %
|INCREASE (DECREASE) RESULTING FROM:                   |  |       |   |       |   |       |  
|Tax-exempt income                                     |  | (13.2 | ) | (13.9 | ) | (12.4 | )
|State income taxes, net of federal income tax benefit |  | 1.3   |   | 3.1   |   | 2.0   |  
|Other                                                 |  | 7.6   |   | 1.6   |   | 0.5   |  
|                                                      |  |       |   |       |   |       |  
|                                                      |  | 29.7  | % | 24.8  | % | 24.1  | %
|                                                      |  |       |   |       |   |       |  

19. 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 2 years to 7 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 $642.218,
$631,618, and $570,502, for 2001, 2000, and 1999, respectively.

Lease
obligations will require rent payments as follows:

Period

Minimum rentals2002

$
514,8872003


519,3012004


416,0422005


276,7582006


210,213Remaining years


331,915$
2,269,116


20. PARENT COMPANY FINANCIAL INFORMATION

The balance sheets for 2001 and 2000 and statements of income and cash flows for Carrollton Bancorp (Parent Only) for 2001, 2000, and 1999, are
presented below:

Balance Sheets

|                                         |  | December 31 |           
|---------------------------------------- |  | ----------- | ----------
|
|                                         | 
|ASSETS                                   |  |             |           
|Cash                                     |  | $           | 251,786   
|Interest-bearing deposits in subsidiary  |  |             | 472,894   
|Investment in subsidiary                 |  |             | 28,875,143
|Investment securities available for sale |  |             | 3,584,589 
|Other assets                             |  |             |          
|                                         |  |             |           
|                                         |  | $           | 33,184,412
|                                         |  |             |           
|LIABILITIES AND SHAREHOLDERS' EQUITY     |  |             |           
|Liabilities                              |  | $           | 536,108   
|                                         |  |             |           
|SHAREHOLDERS' EQUITY                     |  |             |           
|Common Stock                             |  |             | 2,701,254 
|Surplus                                  |  |             | 17,017,446
|Retained earnings                        |  |             | 11,680,425
|Accumulated other comprehensive income   |  |             | 1,249,179 
|                                         |  |             |           
|                                         |  |             | 32,648,304
|                                         |  |             |           
|                                         |  | $           | 33,184,412
|                                         |  |             |           

47

---

Statements of Income

|                                                                                |  | 2001 |           | 2000 |   | 1999     
|------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                               
|INCOME                                                                          |  |      |           |      |   |          
|Dividends from subsidiary                                                       |  | $    | 235,309   |      | $ | 1,300,082
|Interest and dividends                                                          |  |      | 142,874   |      |   | 158,643  
|Security gains                                                                  |  |      | (2,725    | )    |   | 324,645  
|                                                                                |  |      |           |      |   |          
|                                                                                |  |      | 375,458   |      |   | 1,783,370
|EXPENSES                                                                        |  |      | 22,034    |      |   | 183,218  
|                                                                                |  |      |           |      |   |          
|Income before income taxes and equity in undistributed net income of subsidiary |  |      | 353,424   |      |   | 1,600,152
|Income tax expense                                                              |  |      | 10,922    |      |   | 70,860   
|                                                                                |  |      |           |      |   |          
|                                                                                |  |      | 342,502   |      |   | 1,529,292
|Equity in undistributed net income of subsidiary                                |  |      | 1,590,575 |      |   | 218,240  
|                                                                                |  |      |           |      |   |          
|NET INCOME                                                                      |  | $    | 1,933,077 |      | $ | 1,747,532
|                                                                                |  |      |           |      |   |          

Statements of Cash Flows

|                                                                                 |  | 2001 |            | 2000 |   | 1999       |  
|-------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |  |      |            |      |   |            |  
|Cash dividends from subsidiary                                                   |  | $    | 235,309    |      | $ | 1,300,082  |  
|Interest and dividends received                                                  |  |      | 128,333    |      |   | 133,942    |  
|Cash paid to suppliers                                                           |  |      | (32,206    | )    |   | (125,687   | )
|Income taxes paid                                                                |  |      | (25,256    | )    |   | (1,619     | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | 306,180    |      |   | 1,306,718  |  
|                                                                                 |  |      |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |  |      |            |      |   |            |  
|Net (increase) decrease in interest-bearing deposits                             |  |      | 398,884    |      |   | (680,858   | )
|Proceeds from sales of securities available for sale                             |  |      | 48,318     |      |   | 2,120,158  |  
|Purchases of securities available for sale                                       |  |      |           |      |   | (240,727   | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | 447,202    |      |   | 1,198,573  |  
|                                                                                 |  |      |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |  |      |            |      |   |            |  
|Dividends paid                                                                   |  |      | (974,784   | )    |   | (971,347   | )
|Common stock repurchase and retirement                                           |  |      | (79,044    | )    |   | (995,579   | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | (1,053,828 | )    |   | (1,966,926 | )
|                                                                                 |  |      |            |      |   |            |  
|Net (decrease) increase in cash                                                  |  |      | (300,446   | )    |   | 538,365    |  
|Cash at beginning of year                                                        |  |      | 552,232    |      |   | 13,867     |  
|                                                                                 |  |      |            |      |   |            |  
|Cash at end of year                                                              |  | $    | 251,786    |      | $ | 552,232    |  
|                                                                                 |  |      |            |      |   |            |  
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES        |  |      |            |      |   |            |  
|Net income                                                                       |  | $    | 1,933,077  |      | $ | 1,747,532  |  
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES |  |      |            |      |   |            |  
|Equity in undistributed income of subsidiary                                     |  |      | (1,590,575 | )    |   | (218,240   | )
|Security gains                                                                   |  |      | 2,725      |      |   | (324,646   | )
|Decrease (increase) in accounts receivable                                       |  |      | 28,175     |      |   | (24,701    | )
|Increase (decrease) in accounts payable                                          |  |      | (67,222    | )    |   | 126,773    |  
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  | $    | 306,180    |      | $ | 1,306,718  |  
|                                                                                 |  |      |            |      |   |            |  

48

---

21. 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, 2001 |             | December 31, 2000
|---------------------------------------------- |  | ----------------- | ----------- | -----------------
|
|                                              
|FINANCIAL ASSETS                               |  |                   |             |                  
|Cash and due from banks                        |  | $                 | 19,276,101  |                  
|Federal funds sold                             |  |                   | 1,380,865   |                  
|Investment securities (total)                  |  |                   | 107,712,169 |                  
|Loans held for sale                            |  |                   | 361,034     |                  
|Loans, net                                     |  |                   | 216,839,176 |                  
|Accrued interest receivable                    |  |                   | 2,240,990   |                  
|FINANCIAL LIABILITIES                          |  |                   |             |                  
|Noninterest-bearing deposits                   |  | $                 | 39,986,174  |                  
|Interest-bearing deposits                      |  |                   | 225,542,546 |                  
|Federal funds purchased                        |  |                   | 1,667,060   |                  
|Notes payable-U.S. Treasury                    |  |                   | 657,726     |                  
|Securities sold under agreements to repurchase |  |                   | 9,565,769   |                  
|Advances from the Federal Home Loan Bank       |  |                   | 45,000,000  |                  
|Accrued interest payable                       |  |                   | 550,753     |                  

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.

22. 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 provided residential mortgage lending products and services.

49

---

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                                                                 |  | $                       | 345,359,793 |                    | $ | 11,245,455 |   | $             | 569,059   |                | $ | 22,773,491   |   | $            | 379,947,798
|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: |  |                         |             |                   
|Total segment assets                                                           |  |                         |             |                    |   |            |   |               |           |                | $ | 379,947,798  |  
|Elimination of intersegment loans                                              |  |                         |             |                    |   |            |   |               |           |                |   | (21,346,400  | )
|Elimination of intersegment deposit accounts                                   |  |                         |             |                    |   |            |   |               |           |                |   | (1,406,458   | )
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            

50

---

Segment information for the Company for 2000 is as follows:

|                                                                               |  | Commercial/
Retail Bank |             | Electronic
Banking |   | Brokerage  |   | Mortgage
Unit |           | Segment
Totals |   | Eliminations |   | Consolidated |            
|------------------------------------------------------------------------------ |  | ----------------------- | ----------- | ------------------ | - | ---------- | - | ------------- | --------- | -------------- | - | ------------ | - | ------------ | -----------
|                                                                               | 
|Interest income                                                                |  | $                       | 26,026,119  |                    | $ |           |   | $             | 8,363     |                | $ | 5,289,780    |   | $            | 31,324,262 
|Interest expense                                                               |  |                         | (15,623,101 | )                  |   | (333,697   | ) |               |          |                |   | (4,563,100   | ) |              | (20,519,898
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net interest income                                                            |  |                         | 10,403,018  |                    |   | (333,697   | ) |               | 8,363     |                |   | 726,680      |   |              | 10,804,364 
|Provision for loan losses                                                      |  |                         | (400,000    | )                  |   |           |   |               |          |                |   | (48,000      | ) |              | (448,000   
|Noninterest income                                                             |  |                         | 2,018,257   |                    |   | 4,602,722  |   |               | 1,273,855 |                |   | 18,212       |   |              | 7,913,046  
|Intersegment income                                                            |  |                         | 67,742      |                    |   |           |   |               |          |                |   |             |   |              | 67,742     
|Non-interest expenses                                                          |  |                         | (10,675,168 | )                  |   | (4,168,422 | ) |               | (816,975  | )              |   | (352,524     | ) |              | (16,013,089
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Income before income taxes                                                     |  |                         | 1,413,849   |                    |   | 100,603    |   |               | 465,243   |                |   | 344,368      |   |              | 2,324,063  
|Income taxes                                                                   |  |                         | (225,006    | )                  |   | (38,853    | ) |               | (179,677  | )              |   | (132,995     | ) |              | (576,531   
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net income                                                                     |  | $                       | 1,188,843   |                    | $ | 61,750     |   | $             | 285,566   |                | $ | 211,373      |   | $            | 1,747,532  
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Segment assets                                                                 |  | $                       | 370,404,020 |                    | $ | 18,136,079 |   | $             | 576,273   |                | $ | 70,937,014   |   | $            | 460,053,386
|Expenditures for segment purchases of premises, equipment and software         |  | $                       | 496,814     |                    | $ | 364,171    |   | $             | 23,140    |                | $ |             |   | $            | 884,125    
|A reconciliation of total segment assets to consolidated total assets follows: |  |                         |             |                   
|Total segment assets                                                           |  |                         |             |                    |   |            |   |               |           |                | $ | 460,053,386  |  
|Elimination of intersegment loans                                              |  |                         |             |                    |   |            |   |               |           |                |   | (69,830,054  | )
|Elimination of intersegment deposit accounts                                   |  |                         |             |                    |   |            |   |               |           |                |   | (2,276,762   | )
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                               |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            

51

---

Segment information for the Company for 1999 is as follows:

|                                                                                            |  | Commercial/
Retail Bank |             | Electronic
Banking |   | Brokerage  |   | Mortgage
Unit |           | Segment
Totals |   | Eliminations |   | Consolidated |            
|------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | ------------------ | - | ---------- | - | ------------- | --------- | -------------- | - | ------------ | - | ------------ | -----------
|                                                                                            | 
|Interest income                                                                             |  | $                       | 22,017,371  |                    | $ | 9,595      |   | $             | 5,088     |                | $ | 3,518,639    |   | $            | 25,550,693 
|Interest expense                                                                            |  |                         | (10,919,058 | )                  |   | (519,375   | ) |               |          |                |   | (2,810,013   | ) |              | (14,248,446
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net interest income                                                                         |  |                         | 11,098,313  |                    |   | (509,780   | ) |               | 5,088     |                |   | 708,626      |   |              | 11,302,247 
|Provision for loan losses                                                                   |  |                         | (501,240    | )                  |   |           |   |               |          |                |   | (96,600      | ) |              | (597,840   
|Noninterest income                                                                          |  |                         | 2,330,386   |                    |   | 7,417,913  |   |               | 1,013,251 |                |   | 149,893      |   |              | 10,911,443 
|Intersegment income                                                                         |  |                         | 65,985      |                    |   |           |   |               |          |                |   |             |   |              | 65,985     
|Noninterest expenses                                                                        |  |                         | (11,566,639 | )                  |   | (5,297,546 | ) |               | (696,778  | )              |   | (369,576     | ) |              | (17,930,539
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Income before income taxes                                                                  |  |                         | 1,426,805   |                    |   | 1,610,587  |   |               | 321,561   |                |   | 392,343      |   |              | 3,751,296  
|Income taxes                                                                                |  |                         | (295,761    | )                  |   | (333,821   | ) |               | (124,187  | )              |   | (151,480     | ) |              | (905,249   
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Net income (loss)                                                                           |  | $                       | 1,131,044   |                    | $ | 1,276,766  |   | $             | 197,374   |                | $ | 240,863      |   | $            | 2,846,047  
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|Segment assets                                                                              |  | $                       | 363,418,659 |                    | $ | 12,466,038 |   | $             | 302,127   |                | $ | 69,737,134   |   | $            | 445,923,958
|Expenditures for segment purchases of premises, equipment and software                      |  | $                       | 1,759,022   |                    | $ | 1,088,819  |   | $             | 2,719     |                | $ | 9,378        |   | $            | 2,859,938  
|Other income for the commercial/retail bank includes $2,404,348 in gains on security sales. |  |                         |             |                   
|A reconciliation of total segment assets to consolidated total assets follows:              |  |                         |             |                   
|Total segment assets                                                                        |  |                         |             |                    |   |            |   |               |           |                | $ | 361,323,480  |  
|Elimination of intersegment loans                                                           |  |                         |             |                    |   |            |   |               |           |                |   | (42,025,412  | )
|Elimination of intersegment deposit accounts                                                |  |                         |             |                    |   |            |   |               |           |                |   | (1,444,079   | )
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            
|                                                                                            |  |                         |             |                    |   |            |   |               |           |                |   |              |   |              |            

52

---

23. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

|                             |  | Year Ended December 31, 2001 |           
|---------------------------- |  | ---------------------------- | ----------
|
|                             | 
|Interest income              |  | $                            | 6,830,352 
|Interest expense             |  |                              | (3,928,960
|                             |  |                              |           
|Net interest income          |  |                              | 2,901,392 
|Provision for loan losses    |  |                              | (137,500  
|Security gains (losses)      |  |                              |          
|Gains (losses) on loan sales |  |                              | (254,324  
|Other non-interest income    |  |                              | 1,933,921 
|Non-interest expenses        |  |                              | (3,699,772
|                             |  |                              |           
|Income before income taxes   |  |                              | 743,717   
|Income taxes                 |  |                              | (238,546  
|                             |  |                              |           
|Net income                   |  | $                            | 505,171   
|                             |  |                              |           
|Earnings per share           |  | $                            | 0.19      
|                             |  |                              |           
|Cash dividends per share     |  | $                            | 0.09      
|                             |  |                              |           
|Market prices:  high         |  | $                            | 12.00     
|                             |  |                              |           
|low                          |  | $                            | 10.00     
|                             |  |                              |           

|                           |  | Year Ended December 31, 2000 |           
|-------------------------- |  | ---------------------------- | ----------
|
|                           | 
|Interest income            |  | $                            | 6,457,036 
|Interest expense           |  |                              | (3,616,351
|                           |  |                              |           
|Net interest income        |  |                              | 2,840,685 
|Provision for loan losses  |  |                              | (112,000  
|Security gains             |  |                              | 53,959    
|Gains on loan sales        |  |                              | 15,621    
|Other income               |  |                              | 1,801,599 
|Operating expenses         |  |                              | (4,101,810
|                           |  |                              |           
|Income before income taxes |  |                              | 498,054   
|Income taxes               |  |                              | (72,492   
|                           |  |                              |           
|Net income                 |  | $                            | 425,562   
|                           |  |                              |           
|Earnings per share         |  | $                            | 0.15      
|                           |  |                              |           
|Cash dividends per share   |  | $                            | 0.085     
|                           |  |                              |           
|Market prices:  high       |  | $                            | 15.88     
|                           |  |                              |           
|low                        |  | $                            | 13.50     
|                           |  |                              |           

53

---



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

The Directors and Executive Officers of the Corporation are as follows:

Directors whose terms expire in 2002

Steven K. Breeden Mr. Breeden, age 43, has served as a director of the Bank, since
June 1994, and of the Company since October 1995. Mr. Breeden is currently Vice President and Secretary of Security Development Corporation, a real estate development company, a
position he has held since 1980. (2)

---

(2)  Member of the Compensation Committee

Thelma T. Daley Dr. Daley, age 70, has served as a director of the Bank since
November 1995, and of the Company since May 1998. Dr. Daley retired as the Coordinator of Counseling and Guidance for The Baltimore County Board of Education.

Howard S. Klein Mr. Klein, age 42, has served as a director of the Bank since March 1999 and of
the Company since April 1999. Mr. Klein has been Vice President and General Counsel for Klein's Super Markets, a family-operated chain of five full serve supermarkets and related
development and operating companies since 1987. (1)

---

(1)  Member of the Audit Committee

Leo A. O'Dea Mr. O'Dea, age 71, has served as a director of the Bank since 1983 and of
the Company since its inception in 1990. Mr. O'Dea was elected Chairman of the Company in February 1994 in which he served until resigning his Chairmanship in January 2002. He was
President of Hamilton & Spiegel, Inc., a sheet metal contractor, from 1979 until his retirement in 1997. (2)

---

(2)  Member of the Compensation Committee

Directors
whose terms expire in 2003

Albert R. Counselman Mr. Counselman, age 53, has served as a director of the Bank since
April 1985, and of the Company since its inception in 1990. Mr. Counselman was elected Chairman of the Board in February 2002. He has been President of Riggs, Counselman,
Michaels & Downes, Inc., an insurance brokerage firm, since September 1987, and served in various executive positions with that firm from 1972 to September 1987. (1)(2)

---

(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee

John P. Hauswald Mr. Hauswald, age 79, has served as a director of the Bank since 1964
and of the Company since its inception in 1990. He was, until his retirement in October 1989, President of The Hauswald Bakery. (2)

---

(2)  Member of the Compensation Committee

David P. Hessler Mr. Hessler, age 45, has served as a director of the Bank since
March 1999, and the Company since May 1999. He has been President and CEO of Eastern Sales & Engineering, an electrical contracting and service maintenance firm, since 1987 and
was Vice president from 1986 to 1987. Mr. Hessler has been Vice President of Advanced Petroleum Equipment, a distributorship, since its inception in 1998. (1)

---

(1)  Member of the Audit Committee

William C. Rogers, Jr. Mr. Rogers, age 75, has served as a director of the Bank since
1955 and of the Company since its inception in 1990. He has been a partner in the law firm of Rogers, Moore and Rogers, counsel to the Bank, since 1970. He has been Chairman of the Board of The
Security Title Guarantee Corporation of Baltimore since 1970 and a director since 1952, and was President from 1970 until March 1989. Mr. Rogers is President of Maryland Mortgage Company
where he has been a director since 1953. He is also President of Moreland Memorial Park Cemetery, Inc. where he has been a director since 1959. He is the brother of John Paul Rogers, a director
of the Bank and the Company.

Directors whose terms expire in 2004

Robert J. Aumiller Mr. Aumiller, age 53, currently is serving as a director of the Bank
and Company beginning with his appointment in 2001. He has been the Executive Vice President of MacKenzie Commercial Real Estate Services,

54

---

involved in brokerage and real estate development of various commercial real estate projects, since 1983.

Ben F. Mason Mr. Mason, age 64, currently is serving as a director of the Bank and Company beginning with
his appointment in 2001. He has been the Executive Director of the Baltimore City Chamber of Commerce, a member business association that promotes business development within Baltimore City, since
1993.

Charles E. Moore, Jr. Mr. Moore, age 52, currently is serving as a director of the Bank and Company
beginning with his appointment in 2001. He has been the Co-Founder, Director, President and CFO of TelAtlantic, a consolidation of rural telephone companies across the United States, since
1999. Mr. Moore has been the Co-Founder, Director, and CFO of GoEbusiness.com, which specialize in the development of customized E-Commerce solutions, since 1998.

John Paul Rogers Mr. Rogers, age 66, has served as director of the Bank since 1970 and of the Company
since its inception in 1990. Mr. Rogers has been Chairman of the Bank since February 1994. He was a partner of the law firm of Rogers, Moore and Rogers, counsel of the Bank, from 1970
until 1992. Mr. Rogers was senior title officer of The Security Title Guarantee Corporation of Baltimore from May 1991 until December 1992, having served as President from
March 1989 until May 1991, and as Executive Vice President from March 1970 until March 1989. He is the brother of William C. Rogers, Jr. a director of the Bank and the
Company.

The Board of Directors of the Company met 6 times and the Board of Directors of the Bank 12 times during the year ended December 31, 2001.
The Board of Directors of the Bank meets 12 times each year. No director attended fewer than 75% of the total number of meetings of both Boards and committees to which they were assigned during the
year ended December 31, 2001.

As
of the date of this Proxy Statement, the Board of Directors does have a standing nominating committee.

The
Audit Committee held 8 meetings during 2001. Its current members are Messrs. Counselman, Hessler, Klein and Moore. Only non-employee directors are eligible to
serve on the Audit Committee. The duties of the Audit Committee include reviewing the annual financial statements of the Company and the scope of the independent annual audit and internal audits. It
also reviews the independent accountant's letter to management concerning the effectiveness of the Company's internal financial and accounting controls and management's response to that letter. In
addition, the Committee reviews and recommends to the Board the firm to be engaged as the Company's independent accountants. The Committee may also examine and consider other matters relating to the
financial affairs of the Company as it determines appropriate.

The
Compensation Committee met 3 times during 2001. Its current members are Messrs. Breeden, Counselman, Hauswald, and O'Dea. The purpose of the Compensation Committee is to
review and approve major compensation and benefit policies of the Company and the Bank. In addition, the committee recommends to the Board the compensation to be paid to all officers, Senior Vice
President and above, of the Bank.

Directors
who are not employees of the Bank receive a monthly fee of $900 for Board meetings, and between $75 and $150 per committee meeting attended. The Chairman of the Board of the
Bank receives a monthly fee of $1,100. Directors do not receive additional fees for their service as directors of the Company.

OTHER EXECUTIVE OFFICERS AND DIRECTORS OF THE BANK

Certain information regarding directors and significant employees of the Bank other than those previously mentioned is set forth below.

Robert A. Altieri Mr. Altieri, age 40, has been President and Chief Executive Officer of both the Bank
and Company since his appointment in February 2001. Mr. Altieri previously was the Senior Vice PresidentLending of the Bank since June 1994, and Vice
PresidentCommercial Lending since September 1991.

Edward R. Bootey Mr. Bootey, age 55, has been Senior Vice PresidentAutomation &
Technology since October, 1995, and was Senior Vice PresidentOperations of the Bank from June 1994 to October 1995. Mr. Bootey previously served as Vice
PresidentOperations from January 1991. He served as Assistant Vice PresidentOperations from December 1987 until January 1991.

Donna D. Dorman Ms. Dorman, age 35, has been Senior Vice President Branch Administration since
September 2001. Prior to joining Carrollton Bank, Ms. Dorman was Sales Manager for First Union Bank from 1997 - 2001. She served as Marketing Manager for First
Union, Baltimore from 1995 - 1997.

John A. Giovanazi Mr. Giovanazi, age 44, has been Senior Vice President and Chief Lending Officer since
his appointment February 2001. Mr. Giovanazi previously was Vice President of Commercial Lending since August 1996. Prior to joining Carrollton Bank, he was a Vice President,

55

---

Commercial Lending, with Citizens Bank of Maryland, from 1992 to 1996.

Gary M. Jewell Mr. Jewell, age 55, has been Senior Vice President and Retail Delivery Group Manager since
July 1998. He was previously Senior Vice President Electronic Banking from March 1996 to July 1998. Prior to joining Carrollton Bank, Mr. Jewell was Director of Product
Management and Point of Sale Services for the MOST EFT network in Reston, Virginia from March 1995 to March 1996 and prior to that Director/Manager of Merchant Services for the Farmers
and Mechanics National Bank from 1993 to March 1995.

Randall M. Robey Mr. Robey, age 44, has been Executive Vice President and Chief Financial Officer of both
the Bank and Company, since November 2000. Previously he had been the Senior Vice President and Chief Financial Officer and Treasurer since October 1999. Prior to joining Carrollton Bank,
Mr. Robey was Vice President of Financial Services of Mercantile Bank & Trust of Baltimore, Maryland from June of 1998 to October 1999, and prior to that Senior Vice President and
Chief Financial Officer of Annapolis Bank & Trust from March of 1989 to June 1998.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than ten percent of the
Company's Common Stock ("a Section 16 Insider") to file monthly and annual reports with both the Securities and Exchange Commission and the National Association of Securities Dealers. Based on
a review of the reports submitted to the Company, the Company believes that all Section 16(a) reporting requirements applicable to the Company's directors, officers and 10% shareholders were
satisfied on a timely basis.

ITEM 11: EXECUTIVE COMPENSATION

The following table sets forth the compensation paid or allocated for services rendered to the Company in all capacities during the years ended December 31,
1999, 2000 and 2001 to the chief executive officer of the Company. The compensation of the other members of executive management does not exceed $100,000.

SUMMARY COMPENSATION TABLE

|Name and Principal Position                                           |  | Year           |  | Salary ($) |                        | Long-Term Incentive Plan
Stock Option Grants
(Shares) |                    | Bonus ($) |     | Other Compensation ($)
|--------------------------------------------------------------------- |  | -------------- |  | ---------- | ---------------------- | ----------------------------------------------------- | ------------------ | --------- | --- | ----------------------
|                                                                     
|Robert A. Altieri
President and Chief Executive Officer               |  | 2001
2000
1999 |  | $$$        | 172,943
102,226
97,908 |                                                       | 10,000
3,000
6,000 |           | $$$ | 0
1,800
5,000         
|Randall M. Robey
Executive Vice President and Chief Financial Officer |  | 2001
2000
1999 |  | $$$        | 119,682
94,807
12,807  |                                                       | 7,000
3,000
1,000  |           | $$$ | 0
1,800
1,000         

The Company had no employment agreements, termination of employment, or change-in-control agreements or understandings with any of its
directors, executive officers or any other parties.

56

---

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 2001, certain information concerning shares of the Common Stock of the Company beneficially owned by
(i) the chief executive officer of the Company; (ii) all directors and nominees for directors of the Company and the Bank; (iii) all directors and officers of the Company and the
Bank as a group; and (iv) other significant shareholders.

|Beneficial Owner(1)(20)                                                     |  | Amount and Nature
of Beneficial
Ownership |              | Percent of Class |  
|--------------------------------------------------------------------------- |  | ----------------------------------------- | ------------ | ---------------- | -
|                                                                            | 
|DIRECTORS:                                                                  |  |                                           |              |                  |  
|Robert J. Aumiller                                                          |  | 500                                       | (3)          | *                |  
|Steven K. Breeden                                                           |  | 8,620                                     | (4)          | *                |  
|Albert R. Counselman                                                        |  | 36,113                                    | (5)          | 1.34             | %
|Thelma T. Daley                                                             |  | 1,910                                     | (6)          | *                |  
|Harold I. Hackerman                                                         |  | 500                                       | (7)          | *                |  
|John P. Hauswald                                                            |  | 14,202                                    | (8)          | *                |  
|David P. Hessler                                                            |  | 1,400                                     | (9)          | *                |  
|Howard S. Klein                                                             |  | 3,800                                     | (10)         | *                |  
|Ben F. Mason                                                                |  | 64,504                                    | (11)         | 2.39             | %
|Charles E. Moore, Jr.                                                       |  | 2,946                                     | (12)         | *                |  
|Leo A. O'Dea                                                                |  | 13,616                                    | (13)         | *                |  
|John Paul Rogers                                                            |  | 195,812                                   | (14)         | 7.26             | %
|William C. Rogers, Jr.                                                      |  | 259,972                                   | (15)(16)(17) | 9.62             | %
|All Directors and Executive
Officers of the Company as a Group (14 persons) |  | 616,727                                   | (2)(19)      | 22.84            | %
|OTHER SIGNIFICANT SHAREHOLDER:                                              |  |                                           |              |                  |  
|Patricia A. Rogers                                                          |  | 224,782                                   | (18)         | 8.32             | %

---

57

---

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the past year the Company has had banking transactions in the ordinary course of its business with: (i) its directors and nominees for directors;
(ii) its executive officers; (iii) its 5% or greater shareholders; (iv) members of the immediate family of its directors, nominees for directors or executive officers and 5%
shareholders; and (v) the associates of such persons on substantially the same terms, including interest rates, collateral, and repayment terms on loans, as those prevailing at the same time
for comparable transactions with others. The extensions of credit by the Company to these persons have not and do not currently involve more than the normal risk of collectibility or present other
unfavorable features. At December 31, 2001, the balance of loans outstanding to directors, executive officers, owners of 5% or more of the outstanding Common Stock, and their associates,
including loans guaranteed by such persons, aggregated $5,264,386 which represented approximately 16.1% of the Company's equity capital accounts.

William C. Rogers, Jr., a director of both the Company and the Bank, is a partner of the law firm of Rogers, Moore and Rogers which performs legal
services for the Company, the Bank, and Bank Subsidiaries. Management believes that the terms of these transactions which totaled $173,737 in 2001 were at least as favorable to the Company as could
have been obtained elsewhere.

Albert
R. Counselman, a director of both the Company and the Bank, is President and Chief Executive Officer of Riggs, Counselman, Michaels & Downes, Inc., an insurance
brokerage firm through which the Company, the Bank, and Bank subsidiaries place various insurance policies. The Company and the Bank paid total premiums for insurance policies placed by Riggs,
Counselman, Michaels & Downes, Inc in 2001 of $249,889. Management believes that the terms of these transactions were at least as favorable to the Company as could have been obtained elsewhere.

Robert
J. Aumiller, a director of both the Company and the Bank is Executive Vice President of MacKenzie Real Estate Services, a brokerage and real estate development firm, through which
the Company and the Bank paid for commercial real estate services of $5,021 for appraisal and property management services provided by MacKenzie Commercial Real Estate Services

58

---

PART IV

---

ITEM 14: EXHIBITS LIST 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             |  | Consent of Accountant                                                                                                

---

No reports on Form 8-K were filed during the last quarter of the period covered by this report.

59

---



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 20, 2002 |  | By: | /s/ROBERT A. ALTIERIRobert 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 20, 2002 |  | By: | /s/ROBERT A. ALTIERIRobert A. Altieri
President and Chief Executive
Officer
|-------------- |  | --- | ---------------------------------------------------------------------------

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

|March 20, 2002 |  | By:                                                      | /s/RANDALL M. ROBEYRandall M. Robey
Executive Vice President and Treasurer
|-------------- |  | -------------------------------------------------------- | --------------------------------------------------------------------------
|               |  | Board of Directors                                      
|March 20, 2002 |  | /s/ROBERT J. AUMILLERRobert J. Aumiller
Director        
|March 20, 2002 |  | /s/STEVEN K. BREEDENSteven K. Breeden
Director          
|March 20, 2002 |  | /s/ALBERT R. COUNSELMANAlbert R. Counselman
Director    
|March 20, 2002 |  | /s/THELMA T. DALEYThelma T. Daley
Director              
|March 20, 2002 |  | /s/HAROLD I. HACKERMANHarold I. Hackerman
Director      
|March 20, 2002 |  | /s/JOHN P. HAUSWALDJohn P. Hauswald
Director            
|March 20, 2002 |  | /s/DAVID P. HESSLERDavid P. Hessler
Director            
|March 20, 2002 |  | /s/HOWARD S. KLEINHoward S. Klein
Director              
|March 20, 2002 |  | /s/BEN F. MASONBen F. Mason
Director                    
|March 20, 2002 |  | /s/CHARLES E. MOORE, JR.Charles E. Moore, Jr.
Director  
|March 20, 2002 |  | /s/LEO A. O'DEALeo A. O'Dea
Director                    
|March 20, 2002 |  | /s/JOHN PAUL ROGERSJohn Paul Rogers
Director            
|March 20, 2002 |  | /s/WILLIAM C. ROGERS, JR.William C. Rogers, Jr.
Director

60

---



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             |  | Consent of Accountant                                                                                               |  |                           

61

---

QuickLinks