U.S. SECURITIES AND EXCHANGE COMMISSION

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WASHINGTON,
D.C. 20549

FORM
10-K

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

For
the fiscal year ended December 31, 2002

Commission
file number: 0-23090

Carrollton
Bancorp

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(Name
of Issuer in Its Charter)

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

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

Common
Stock

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(Title
of Class)

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

Yes  X              No

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

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

As
of February 28, 2003, the aggregate market value of the voting stock held by non-directors and executive officers: $32,118,536.

State
the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 2,821,757 shares as of March 7, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to shareholders in connection with the 2003 Annual Meeting of Shareholders scheduled to be held on April 22, 2003 are
incorporated by reference into Part III.

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PART I

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ITEM 1: DESCRIPTION OF BUSINESS

General. Carrollton Bancorp (the "Company") is a bank holding company registered 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 ten 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 152 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 that the Bank offers:



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

Lending Activities. The Bank makes various types of loans to borrowers based on, among other things, an
evaluation of the borrowers' net asset value, cash flow, security and indicated ability to repay. Loans to consumers include 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 report the classification by type
of loan for the whole portfolio.

First
and second residential mortgage loans, made principally through a subsidiary of the Bank, Carrollton Mortgage Services Inc., ("CMSI") 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 than 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 $0 and net recoveries of $0 on residential mortgage loans in 2002. The Bank experienced $50,460 in net losses in 2001
and $20,574 in net recoveries in 2001. In 2000, the bank experienced $96,961 in net losses and $30,317 in net recoveries. There was $535,080 of residential mortgage loans delinquent more than
90 days at December 31, 2002. There are no discernible delinquency or loss trends relating to residential mortgage loans known to management. It has been noted that due to current
economic conditions, bankruptcy filings and foreclosures have risen.

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.

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Generally, the Bank has a second lien on the property behind the first mortgage lien holder. The Bank has a number of different equity loan products that it offers. Borrowers can choose between fixed
rate loans or loans tied to the prime rate with margins ranging from 0% to 1.5%. The Bank will finance up to 90% of the value of the home in combination with the first mortgage loan balance, depending
on the rate and program. As with first mortgage residential loans, borrowers are required to meet certain income to debt ratios. The Bank maintains in its portfolio loans financed under a program that
financed up to 125% of the value of the home, subject to stricter income and debt ratios, with a maximum loan amount of $25,000. Home equity loans carry a higher level of risk than first mortgage
residential loans because of the second lien position on the property, and because a higher loan to value ratio is used in the underwriting of the loan. However, the overall risk of loss on home
equity loans is also considered low due to the underlying values of the collateral. The Bank experienced net losses on home equity loans during 2002 of $160,591 and recoveries of $67,705. There were
net losses of $67,122 and net recoveries of $2,228 in 2001. There were net losses of $104,226 and $0 net recoveries on home equity loans during 2000. There was approximately $226,305 of home equity
loans delinquent more than 90 days at December 31, 2002. There is no discernible delinquency or loss trends relating to home equity loans known to management.

Commercial
and investment mortgage loans are first mortgage loans made to individuals or to businesses to finance acquisitions of plant or earning assets, such as rental property. These
loans are secured by a first mortgage lien on the commercial property, and may be further secured by other property or other assets depending on the value of the mortgaged property. In most instances,
these loans are guaranteed personally by the principals. The Bank typically looks for cash flow from the business at least equal to 100% coverage of the business debt service, and to income-producing
property to be self-supporting, generally, with a minimum debt service coverage ratio of 120% to 125%. Commercial mortgage loans carry more risk than residential real
estate loans. Commercial mortgage loans tend to be larger in size, and the properties tend to exhibit more fluctuation in value. The repayment of the loan is primarily dependent on the success of the
business itself, or the tenants in the case of income producing property. Economic cycles can affect the success of a business. The Bank experienced losses of $112,718, $0, and $0 on commercial
mortgage loans during 2002, 2001, and 2000, respectively. There were $996,202 of commercial mortgage loans past due more than 90 days at December 31, 2002. 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 2002, 2001, or 2000. There were no construction and land development loans past due more than 90 days at December 31, 2002. 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 losses of $21,904 and net recoveries of $2,475 on time and demand loans in 2002, net recoveries of $17,269 in 2001 and net losses of $30,015 and net recoveries of $51,115 in 2000. There were
$486,855 of time and demand and line of credit loans delinquent more than 90 days at December 31, 2002. There is 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

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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. The Bank makes unsecured home improvement loans to a maximum amount of $15,000. Any loan above that limit is secured by a deed of trust. Borrowers are required to own
their home, and to meet certain income and debt ratio requirements. The Bank also reviews the credit history of all applicants. Because they are unsecured or secured by a deed of trust, these loans
are more risky than first mortgage residential lending. This risk is mitigated somewhat based on the fact that the loans are used to improve the borrower's home, typically a borrower's most
significant asset. In addition, the debt-to-income-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 $24,472, $30,251, and $22,000 in 2002, 2001, and 2000. There were net recoveries of $10,912, $11,388, and $39,000 in 2002, 2001, and 2000. There were no home
improvement loans delinquent more than 90 days at December 31, 2002. There are no discernible loss or delinquency trends relating to home improvement loans known to management.

The
remainder of the consumer loan portfolio is composed of installment loans for automobiles, boats and recreational vehicles, overdraft protection lines, and loans secured by deposit
accounts or stocks. The largest portion of this group is installment loans for automobiles and other vehicles. The Bank will finance 90% of the cost of a new car purchase, or the maximum loan amount
as determined by the National Automobile Dealers
Association (NADA) publication for used cars. The Bank will finance 85% of the cost of a new boat or RV, or the maximum loan amount determined by the NADA Boat/RV Guide for used Boats and RVs. These
loans are secured by the vehicle purchased. Borrowers must meet certain income and debt ratio requirements, and a credit review is performed on each applicant. These types of loans are subject to the
risk that the value of the vehicle will decline faster than the amount due on the loan. However, the debt-to-income ratio requirement helps determine the borrower's current ability to repay. The Bank
had net losses on automobile loans in 2002, 2001, and 2000 of $0, $21,933, and $208, respectively, and recoveries of $1,400, $208, and $0 in 2002, 2001 and 2000, respectively. There were no automobile
or other vehicle loans past due more than 90 days at December 31, 2002. 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 2002, 2001, and 2000 were approximately $59,096, $114,000, and $122,000, respectively.
There were $1,850 of overdraft loans and other personal loans past due more than 90 days at December 31, 2002. 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 95% of balances in savings or
certificates of deposit accounts in the Bank. The Bank will advance funds up to 60% of the market value of actively traded stock certificates and bonds or 50% of the market value of listed but not
actively traded stocks and bonds. Loans secured by stocks and bonds are subject to margin calls to maintain the loan to value ratio. Collateral is not released until the loan is repaid, and the
borrower is generally required to pay interest monthly. There were no losses on loans secured by savings accounts or stock and bond certificates during 2002, 2001, or 2000. There were no loans secured
by savings accounts or stock and bond certificates past due more than 90 days at December 31, 2002. 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 5 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, at this time. In prior periods, residential mortgage loans and home equity loans and lines of credit were predominantly
purchased from a network of brokers or other types of originators with whom the Bank does business. The Bank has sold some loans in the secondary market and therefore derives a small amount of
noninterest income from serviced loans. These income amounts are not significant to the amounts of noninterest income derived from other sources.

Reference
is made to Note 5 of the Notes to Consolidated Financial Statements which contains the amounts of nonaccrual, restructured, and delinquent loans at December 31,
2002.

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

Investment Activities. The Company maintains a portfolio of investment securities to provide liquidity and
income. The current portfolio amounts to about 24% of total assets, and is invested primarily in U.S. government agency securities, state and municipal bonds, corporate bonds, and mortgage backed
securities with maturities varying from 2003 to 2017. Reference is made to Note 4 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 9 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 2002, commission and other income totaled $670,952 and income after taxes was $85,901.

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. 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

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

Employees. As of December 31, 2002, the Bank and its subsidiaries had 116 full time equivalent employees,
45 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. 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.

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.

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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; (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 a balance sheet credit equivalent amount; (ii) assigning each balance sheet asset and the credit equivalent amount of each off-balance sheet
item to one of the five risk categories established in the FDIC's regulations; and (iii) multiplying the amounts in each category by the risk factor assigned to that category. The sum of the
resulting amounts constitutes total risk-weighted assets.

Each
insured nonmember bank is required to maintain a "total risk-based capital ratio" of at least 8%. 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

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included in supplementary capital up to 50% of tier 1 capital.

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

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

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 banks, and as a result of FDICIA, insured nonmember banks are severely limited as to the types of debt
and equity securities in which such banks may invest.

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

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

8

---

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, 2002, the Bank had a tax bad debt reserve of $609 thousand and a
book bad debt reserve of $3.6 million. The Bank has provided a deferred tax asset on its books for the difference between its tax and book bad debt reserves. If the Bank were to grow to a size
of $500 million or greater, it would be required to recapture its tax bad debt reserve over a four year period and pay taxes on that amount. For financial accounting purposes, the payment of
these taxes would be offset by an increase in the deferred tax asset related to the difference between tax and book bad debt reserves, potentially subject to a total deferred tax asset limitation
based on reasonable recovery under current accounting literature.

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

Securities Laws. The Company and certain of its directors, officers and shareholders are subject to the
Securities Act of 1934 and a broad range of both federal and state securities laws including, 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 that 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.

9

---

ITEM 2: DESCRIPTION OF PROPERTY

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

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

The
FDIC removed the case to the federal court in Baltimore on December 20, 2002. Counsel for the Bank has tendered the defense of this case to the Bank's insurance carrier on
January 31, 2003. While Mr. Allen seeks damages of the Bank in excess of $50,000,000, counsel's evaluation of the case is that it is a frivolous suit and will likely be dismissed on
motion as to the Bank and its employee.

Counsel
feels that Mr. Allen's claim is a "covered claim" under the Bank's Errors and Omissions insurance policy which should cover the defense and indemnification of the Bank for
said claim.

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, 2002, there were approximately 689 shareholders of record of the Company. Since May 1994, the Company's Common Stock has traded on
the NASDAQ National Market Tier of The NASDAQ Stock Market under the symbol "CRRB". Currently, there are two broker-dealers who make a market in the Common Stock.

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

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

|Period      |  | Price per Share (a) |        | Cash Dividends Paid
per Share(a)
|----------- |  | ------------------- | ------ | --------------------------------
|
|
|           
|1st Quarter |  | $                   | 12.018 |                                 
|2nd Quarter |  |                     | 12.880 |                                 
|3rd Quarter |  |                     | 13.107 |                                 
|4th Quarter |  |                     | 14.250 |                                 

---

|Plan Category                                              |  | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a) |  | Weighted-average exercise
price of outstanding options,
warrants and rights
(b) |       | Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a)
(c)
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |  | 179,025                                                                                         |  | $                                                                               | 13.68 |                                                                                                                                               
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                 |      |                                                                                                                                               
|
|Total                                                      |  | 179,025                                                                                         |  | $                                                                               | 13.68 |                                                                                                                                               
|

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.

11

---

SELECTED FINANCIAL HIGHLIGHTS

|                                             |                                                                             | 2002                                           |   | 2001
(As Restated) (c) |        | 2000
(As Restated) (c) |             | 1999
(As Restated) (c) |   | 1998
(As Restated) (c) |       
|-------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------- | - | ---------------------- | ------ | ---------------------- | ----------- | ---------------------- | - | ---------------------- | ------
|                                             |                                                                            
|CONSOLIDATED INCOME STATEMENT DATA:          |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Interest income                                                             |                                                | $ | 18,985,364             |        | $                      | 23,832,624  |                        | $ | 26,726,048             |       
|                                             | Interest expense                                                            |                                                |   | 8,692,320              |        |                        | 12,872,355  |                        |   | 15,921,684             |       
|                                             |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Net interest income                                                         |                                                |   | 10,293,044             |        |                        | 10,960,269  |                        |   | 10,804,364             |       
|                                             | Provision for loan losses                                                   |                                                |   | 526,000                |        |                        | 550,000     |                        |   | 448,000                |       
|                                             |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Net interest income after provision for loan losses                         |                                                |   | 9,767,044              |        |                        | 10,410,269  |                        |   | 10,356,364             |       
|                                             | Noninterest income                                                          |                                                |   | 7,534,802              |        |                        | 7,156,444   |                        |   | 7,913,046              |       
|                                             | Noninterest expense                                                         |                                                |   | 14,536,958             |        |                        | 14,817,504  |                        |   | 15,945,347             |       
|                                             |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Income before income taxes                                                  |                                                |   | 2,764,888              |        |                        | 2,749,209   |                        |   | 2,324,063              |       
|                                             | Income tax provision                                                        |                                                |   | 847,630                |        |                        | 816,132     |                        |   | 576,531                |       
|                                             |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Net income                                                                  |                                                | $ | 1,917,258              |        | $                      | 1,933,077   |                        | $ | 1,747,532              |       
|                                             |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|CONSOLIDATED BALANCE SHEET DATA, AT YEAR END |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Assets                                                                      |                                                | $ | 324,221,615            |        | $                      | 356,907,181 |                        | $ | 387,658,811            |       
|                                             | Loans, net of unearned income                                               |                                                |   | 205,220,126            |        |                        | 220,539,017 |                        |   | 278,019,898            |       
|                                             | Deposits                                                                    |                                                |   | 230,264,108            |        |                        | 265,528,720 |                        |   | 292,024,141            |       
|                                             | Shareholders' equity                                                        |                                                |   | 33,691,079             |        |                        | 32,458,383  |                        |   | 30,292,083             |       
|PER SHARE DATA:(a)                           |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Number of shares of Common Stock outstanding, at year-end                   |                                                |   | 2,821,757              |        |                        | 2,836,317   |                        |   | 2,843,120              |       
|                                             | Net income:                                                                 |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             |                                                                             | Basic                                          |   | $                      | 0.68   |                        | $           | 0.68                   |   | $                      | 0.61  
|                                             |                                                                             | Diluted                                        |   |                        | 0.68   |                        |             | 0.68                   |   |                        | 0.61  
|                                             | Cash dividends declared                                                     |                                                |   | 0.342                  |        |                        | 0.342       |                        |   | 0.337                  |       
|                                             | Book value, at year end                                                     |                                                |   | 11.94                  |        |                        | 11.44       |                        |   | 10.65                  |       
|Performance and Capital Ratios:              |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Return on average assets                                                    |                                                |   | 0.57                   | %      |                        | 0.52        | %                      |   | 0.46                   | %     
|                                             | Return on average shareholders' equity                                      |                                                |   | 5.70                   | %      |                        | 6.05        | %                      |   | 5.91                   | %     
|                                             | Net yield on interest earning assets (b)                                    |                                                |   | 3.47                   | %      |                        | 3.32        | %                      |   | 3.22                   | %     
|                                             | Average shareholders' equity to average total assets                        |                                                |   | 9.99                   | %      |                        | 8.52        | %                      |   | 7.81                   | %     
|                                             | Year-end capital to year-end risk-weighted assets:                          |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             |                                                                             | Tier 1                                         |   |                        | 13.57  | %                      |             | 12.88                  | % |                        | 10.99 
|                                             |                                                                             | Total                                          |   |                        | 15.07  | %                      |             | 14.26                  | % |                        | 12.13 
|                                             | Year-end Tier 1 leverage ratio                                              |                                                |   | 9.54                   | %      |                        | 8.61        | %                      |   | 7.74                   | %     
|                                             | Cash dividend declared to net income                                        |                                                |   | 50.80                  | %      |                        | 50.43       | %                      |   | 55.58                  | %     
|ASSETS QUALITY RATIOS:                       |                                                                             |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             | Allowance for loan losses, at year-end to:                                  |                                                |   |                        |        |                        |             |                        |   |                        |       
|                                             |                                                                             | Total loans, net of unearned income            |   |                        | 1.74   | %                      |             | 1.51                   | % |                        | 1.09  
|                                             |                                                                             | Nonperforming, restructured and past-due loans |   |                        | 111.68 |                        |             | 276.13                 |   |                        | 119.19
|                                             | Net charge-offs to average total loans, net of unearned income              |                                                |   | 0.13                   |        |                        | 0.10        |                        |   | 0.09                   |       
|                                             | Nonperforming assets as a percent of period-end loans and other real estate |                                                |   | 1.67                   |        |                        | 0.55        |                        |   | 0.91                   |       

12

---

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 2002, 2001, and 2000, and indicates the related interest income or expense and calculated yield.
Nonaccruing loans are included in the average balance amounts of the applicable portfolio, but only the amount of interest actually recorded as income on nonaccrual loans is included in the interest
income column.

13

---



2002 AVERAGE BALANCES, INTEREST, AND YIELDS

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

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

14

---

2001 AVERAGE BALANCES, INTEREST, AND YIELDS

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

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

15

---



2000 AVERAGE BALANCES, INTEREST, AND YIELDS

|                                                         |                                            | 2000 |            
|-------------------------------------------------------- | ------------------------------------------ | ---- | -----------
|
|                                                         |                                           
|ASSETS                                                   |                                            |      |            
|Federal funds sold and Federal Home Loan Bank deposit    |                                            | $    | 7,358,076  
|Federal Home Loan Bank stock                             |                                            |      | 3,248,224  
|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  
|Corporate bonds                                          |                                            |      | 0          
|Other                                                    |                                            |      | 3,297,709  
|                                                         |                                            |      |            
|                                                         |                                            |      | 64,169,853 
|                                                         |                                            |      |            
|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                            |                                            |      | 349,588,167
|Noninterest-bearing cash                                 |                                            |      | 20,657,244 
|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 
|                                                         |                                            |      |            
|                                                         |                                            | $    | 378,682,751
|                                                         |                                            |      |            
|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
|Noninterest-bearing deposits                             |                                            |      | 39,350,269 
|Other liabilities                                        |                                            |      | 798,447    
|Shareholders' equity                                     |                                            |      | 29,576,044 
|                                                         |                                            |      |            
|                                                         | Total liabilities and shareholders' equity |      | $          
|                                                         |                                            |      |            
|NET YIELD ON INTEREST-EARNING ASSETS                     |                                            | $    | 349,588,167
|                                                         |                                            |      |            

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

16

---



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.

|                                                      |  | 2002 Compared to 2001 |            | 2001 Compared to 2000 |  
|----------------------------------------------------- |  | --------------------- | ---------- | --------------------- | -
|
|
|                                                      | 
|INTEREST EARNED ON                                    |  |                       |            |                       |  
|Federal funds sold and Federal Home Loan Bank deposit |  | $                     | (256,423   | )                     | $
|Federal Home Loan Bank stock                          |  |                       | (46,519    | )                     |  
|INVESTMENT SECURITIES                                 |  |                       |            |                       |  
|U.S. Treasury                                         |  |                       | (32,667    | )                     |  
|U.S. government agency                                |  |                       | (408,579   | )                     |  
|State and municipal                                   |  |                       | 4,052      |                       |  
|Mortgage-backed securities                            |  |                       | (59,232    | )                     |  
|Corporate bonds                                       |  |                       | 3,035      |                       |  
|Other                                                 |  |                       | (23,804    | )                     |  
|                                                      |  |                       |            |                       |  
|                                                      |  |                       | (517,195   | )                     |  
|                                                      |  |                       |            |                       |  
|LOANS                                                 |  |                       |            |                       |  
|Demand and time                                       |  |                       | (591,486   | )                     |  
|Residential mortgage                                  |  |                       | (761,926   | )                     |  
|Commercial mortgage and construction                  |  |                       | (441,411   | )                     |  
|Installment and credit card                           |  |                       | (16,508    | )                     |  
|Lease financing                                       |  |                       | (6,515     | )                     |  
|                                                      |  |                       |            |                       |  
|                                                      |  |                       | (1,817,846 | )                     |  
|                                                      |  |                       |            |                       |  
|TOTAL INTEREST EARNED                                 |  |                       | (2,637,983 | )                     |  
|                                                      |  |                       |            |                       |  
|INTEREST EXPENSE ON                                   |  |                       |            |                       |  
|DEPOSITS                                              |  |                       |            |                       |  
|Savings and NOW                                       |  |                       | (634,046   | )                     |  
|Money market                                          |  |                       | (564,942   | )                     |  
|Other time                                            |  |                       | (881,910   | )                     |  
|BORROWED FUNDS                                        |  |                       | (208,822   | )                     |  
|                                                      |  |                       |            |                       |  
|TOTAL INTEREST EXPENSE                                |  |                       | (2,289,720 | )                     |  
|                                                      |  |                       |            |                       |  
|NET INTEREST INCOME                                   |  | $                     | (348,263   | )                     | $
|                                                      |  |                       |            |                       |  

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

17

---



ITEM 6B: INVESTMENT PORTFOLIO

AMORTIZED COST OF INVESTMENTS

Reference is made to Note 4 of Notes to Consolidated Financial Statements for the amortized cost of investments at the end of 2002 and 2001. The amortized
cost of investments at the end of 2000 was as follows:

|AVAILABLE FOR SALE         |  |   |           
|-------------------------- |  | - | ----------
|U.S. Treasury              |  | $ | 799,959   
|U.S. Government agency     |  |   | 55,414,430
|Mortgage backed securities |  |   | 5,242,307 
|State and municipal        |  |   | 6,206,170 
|Equity securities          |  |   | 2,481,021 
|                           |  |  
|                           |  | $ | 70,143,887
|                           |  |  
|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, 2002. 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 2002 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 |  | $               
|        |  |                 

---

18

---

WEIGHTED AVERAGE YIELD

|                           |  | Available for Sale |  
|-------------------------- |  | ------------------ | -
|
|                           | 
|U.S. Government agency     |  | 2.62               | %
|Mortgage backed securities |  |                   |  
|State and municipal (1)    |  | 5.70               | %
|Corporate bonds            |  |                   |  
|                           |  |                    |  
|                           |  | 2.65               | %
|                           |  |                    |  

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

---

ITEM 6C: LOAN PORTFOLIO

CLASSIFICATION OF LOANS

Reference is made to Note 5 of Notes to Consolidated Financial Statements for the classification of loans at the end of 2002 and 2001. In addition to that
information, the following information concerning loans is presented.

|                            |                                   | 2000 |             | 1999        |   | 1998       
|--------------------------- | --------------------------------- | ---- | ----------- | ----------- | - | -----------
|                           
|Real Estate:                |                                   |      |             |             |   |            
|                            | Residential                       |      | $           | 188,658,857 |   | $          
|                            | Commercial                        |      |             | 45,963,998  |   |            
|                            | Construction and land development |      |             | 4,958,938   |   |            
|Demand and time             |                                   |      | 28,981,256  |             |   | 28,514,699 
|Lease financing             |                                   |      | 2,242,679   |             |   | 3,150,917  
|Installment and credit card |                                   |      | 5,561,307   |             |   | 6,823,971  
|                            |                                   |      |             |             |   |            
|                            |                                   |      | 276,367,035 |             |   | 257,447,335
|Allowance for loan losses   |                                   |      | 3,024,290   |             |   | 2,836,291  
|                            |                                   |      |             |             |   |            
|Loans, net                  |                                   | $    | 273,342,745 |             | $ | 254,611,044
|                            |                                   |      |             |             |   |            

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, 2002 is presented below:

|                                  |  | Contractually Due |            | 
|--------------------------------- |  | ----------------- | ---------- | 
|
|
|                                 
|Construction and land development |  | $                 | 6,700,399  | 
|Commercial demand and time        |  |                   | 20,978,095 | 

19

---

RISK ELEMENTS

Reference is made to Note 5 of Notes to Consolidated Financial Statements for nonaccrual, past due and restructured loans at the end of 2002, 2001, and
2000. In addition to that information, the following information concerning risk elements is presented.

|                                          |  | 1999 |         | 1998
|----------------------------------------- |  | ---- | ------- | ----
|                                         
|Nonaccrual                                |  | $    | 240,569 |     
|Restructured                              |  |      | 330,987 |     
|                                          |  |      |         |     
|                                          |  | $    | 571,556 |     
|                                          |  |      |         |     
|Accruing loans past due more than 90 days |  | $    | 837,198 |     
|                                          |  |      |         |     

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                          |                 | $                       | 3,338,807
|Charge-offs:                                          |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real Estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 380,606  
|                                                      |                 |                         |          
|Recoveries:                                           |                 |                         |          
|                                                      | Commercial      |                         |          
|                                                      | Lease financing |                         |          
|                                                      | Real Estate:    |                         |          
|                                                      |                 | Residential             |          
|                                                      |                 | Commercial              |          
|                                                      |                 | Construction            |          
|                                                      | Installment     |                         |          
|                                                      |                 |                         |          
|                                                      |                 |                         | 94,561   
|                                                      |                 |                         |          
|Net charge-offs                                       |                 |                         | 286,045  
|                                                      |                 |                         |          
|Provision charged to operations                       |                 |                         | 526,000  
|                                                      |                 |                         |          
|Balance at end of the year                            |                 | $                       | 3,578,762
|                                                      |                 |                         |          
|Ratio of net charge-offs to average loans outstanding |                 |                         | .13      

The provision charged to operations for 2002, 2001, and 2000 is discussed in the section on Management's Discussion and Analysis of Financial
Condition and Results of Operations. The Company's provisions in 1999 and 1998 related to the level of net losses incurred and to loan portfolio growth in each year.

20

---

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Allocated Amount of the AllowanceYears Ended December 31

|PORTFOLIO     |              | 2002 |           | 2001    |   | 2000      |         | 1999 |           | 1998   
|------------- | ------------ | ---- | --------- | ------- | - | --------- | ------- | ---- | --------- | -------
|             
|Commercial(a) |              | $    | 733,560   |         | $ | 607,323   |         | $    | 910,445   |        
|Real Estate:  |              |      |           |         |   |           |         |      |           |        
|              | Residential  |      |           | 754,979 |   |           | 707,061 |      |           | 763,017
|              | Commercial   |      |           | 876,243 |   |           | 775,321 |      |           | 349,594
|              | Construction |      |           |        |   |           |        |      |           |       
|Installment   |              |      | 94,162    |         |   | 173,166   |         |      | 207,061   |        
|Unallocated   |              |      | 1,119,818 |         |   | 1,075,936 |         |      | 794,173   |        
|              |              |      |           |         |   |           |         |      |           |        
|              |              | $    | 3,578,762 |         | $ | 3,338,807 |         | $    | 3,024,290 |        
|              |              |      |           |         |   |           |         |      |           |        

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

|PORTFOLIO      |              | 2002  |      | 2001  |      | 2000  |      | 1999  |      | 1998  |     
|-------------- | ------------ | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ----
|               |             
|Commercial (a) |              | 17.9  | %    | 16.0  | %    | 10.5  | %    | 12.2  | %    | 14.7  | %   
|Real Estate:   |              |       |      |       |      |       |      |       |      |       |     
|               | Residential  |       | 38.8 |       | 53.5 |       | 70.0 |       | 68.8 |       | 63.0
|               | Commercial   |       | 38.2 |       | 23.9 |       | 17.0 |       | 15.7 |       | 16.0
|               | Construction |       | 3.8  |       | 4.6  |       | 0.3  |       | 0.7  |       | 0.6 
|Installment    |              | 1.3   |      | 2.0   |      | 2.2   |      | 2.6   |      | 5.7   |     
|               |              |       |      |       |      |       |      |       |      |       |     
|               |              | 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 9 of Notes to
Consolidated Financial Statements for additional information concerning deposits.

ITEM 6F: RETURN ON EQUITY AND ASSETS

|DESCRIPTION                      |  | 2002  |   | 2001  |   | 2000  |  
|-------------------------------- |  | ----- | - | ----- | - | ----- | -
|                                 | 
|Return on average assets         |  | 0.57  | % | 0.52  | % | 0.46  | %
|Return on average equity         |  | 5.70  | % | 6.05  | % | 5.91  | %
|Dividend payout ratio            |  | 50.80 | % | 50.43 | % | 55.58 | %
|Average equity to average assets |  | 9.99  | % | 8.52  | % | 7.81  | %

ITEM 6G: SHORT-TERM BORROWINGS

Reference is made to Note 11 of Notes to Consolidated Financial Statements for a description of the general terms of short-term borrowings,
and for information related to repurchase agreements.

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

|OTHER SHORT-TERM BORROWINGS:                  |  | 2002 |           | 2001 |   | 2000      |  
|--------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                              | 
|Total outstanding at period-end               |  | $    | 2,045,237 |      | $ | 657,726   |  
|Average amount outstanding during period      |  |      | 838,491   |      |   | 519,746   |  
|Maximum amount outstanding at any period-end  |  |      | 2,119,117 |      |   | 1,412,045 |  
|Weighted average interest rate at period-end  |  |      | 1.21      | %    |   | 1.74      | %
|Weighted average interest rate for the period |  |      | 1.40      | %    |   | 4.16      | %

ITEM 6H: LONG-TERM BORROWINGS

Reference is made to Note 11 of Notes to Consolidated Financial Statements for a description of the general terms of long-term borrowings.

21

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

EARNINGS 2002 COMPARED TO 2001

SUMMARY

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

NET INTEREST INCOME

Net interest income is the principal source of earnings for a banking company. It represents the difference between the interest income earned on loans and other
investments, and the interest paid on deposits and borrowed funds. For analysis, net interest income is measured on a fully taxable equivalent basis. To determine the taxable equivalent basis, an
adjustment is made to income from investments in state and municipal securities which achieve a federal or state tax benefit, to dividends from equity stocks which achieve a dividend exclusion, and to
certain loans which are tax exempt. In 2002, net interest income on a taxable equivalent basis decreased by $695,000 to $10.8 million as a result of decreases in the yields on earning
assets. On average, the loan portfolio decreased 9% from 2001 while the investment portfolio decreased by 14%. The yield on the loan portfolio decreased from 7.67% in 2001 to 6.92% in 2002. Changes in
loan portfolio mix, the prime rate changes, and a very competitive loan market caused the loan yield to decline. The yield on investment securities also declined to 5.21% in 2002 from 5.80% in 2001.
The reduction in the loan and investment portfolios and decreased yields, caused total interest income on a tax equivalent basis to fall from $24.3 million in 2001 to $19.4 million in
2002.
Interest expense decreased $4.2 million to $8.7 million in 2002 from $12.9 million in 2001. Interest expense decreased due to a decrease in both interest bearing liabilities and
rates. Interest expense on deposits decreased in 2002 from 2001 due to decreased cost of interest-bearing deposits, which decreased from 3.86% in 2001 to 2.73% in 2002. The table for Rate and Volume
Variance Analysis included in this report shows the decrease
in interest expense resulted from decreased volume and rate on deposits and borrowings. The decline in interest bearing liabilities corresponded with a decline in the loan portfolio.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $526,000 for 2002 compared to $550,000 for 2001. Nonaccrual, restructured, and delinquent loans over 90 days to total
loans increased to 1.56% at the end of 2002 compared to 0.55% in 2001. This increase was due to increased delinquencies. As of December 31, 2002, there was an increase of loan delinquencies of
$1,196,970. The ratio of loan losses to average loans increased in 2002 to 0.13% compared to 0.10% for 2001. On a monthly basis, management reviews all loan portfolios to determine trends and monitor asset quality. For consumer
loan portfolios, this review generally
consists of reviewing delinquency levels on an aggregate basis with timely follow-up on accounts that become delinquent. In commercial loan portfolios, delinquency information is monitored
and periodic reviews of business and property leasing operations are performed on an individual loan basis to determine potential collection and repayment problems.

NONINTEREST INCOME

For 2002, noninterest income excluding securities gains, gains on branch divestitures, and gains or losses on loan sales decreased by 10.5% compared to 2001.
Brokerage commissions decreased $345,000 or 34% in 2002 due to the economic slowdown and investor concerns over the stock market. ATM fee income declined $410,000 primarily due to the discontinuation
of the Target relationship in July of 2001, and a reduced average number of active ATM machines. Other fees and commissions decreased by $405,000 from 2001. Net securities gains in 2002 were $210,000 compared to losses of
$3,000 in 2001. The Company also had a gain of $688,000 as a result of the divesture of one of
its branches.
The Company did not sell any loans during 2002. At December 31, 2002, the Company serviced loans for others totaling $7,448,000.

NONINTEREST EXPENSES

In 2002, noninterest expenses decreased by $281,000 or 2%. Salaries and benefits decreased by $59,000, or 1%. In certain areas of the Company, staff reductions
occurred through attrition and the positions were eliminated. Full time equivalent staff decreased from 136 positions at the end of 2001 to 116 positions at December 31, 2002. Occupancy
expenses decreased $152,000 to $1,395,000 in 2002,

22

---

due to the branch divestiture and the sale of a building no longer being utilized. Furniture and equipment expense increased by $284,000 in 2002 in part as a result of Management's decision to
accelerate the depreciation on its ATMs in 2001. Other operating expenses decreased $353,000, or 7%. A significant portion of this decrease relates to ATM transactions costs.

INCOME TAX PROVISION

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

FINANCIAL CONDITION

SUMMARY

Total assets of the Company decreased by 9% to $324.2 million at December 31, 2002 versus $356.9 million at the end of 2001. Investment
securities decreased to $78.8 million at December 31, 2002. Total loans declined 7% to $205.2 million at December 31, 2002 compared to $220.5 million at the end of
2001. Interest earning assets decreased to $297.6 million but were 91.8% of total assets at December 31, 2002.

INVESTMENT SECURITIES

Securities decreased to $78.8 million at December 31, 2002 from $104.5 million at December 31, 2001. The portfolio consists primarily
of U.S. Government agency securities, mortgage-backed securities, corporate bonds, and state and municipal obligations. The income from state and municipal obligations is exempt from federal income
tax. Certain agency securities are exempt from state income taxes. The Company uses its investment portfolio as a source of both liquidity and earnings. The Company reinvested the proceeds of the loan payoffs during the year
into the investment portfolio, structured in a manner as to provide liquidity for
funding future loan growth, as well as for the runoff of higher cost funding sources. These transactions were principally undertaken to increase liquidity and reduce interest rate risk.

LOANS

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

ALLOWANCE FOR LOAN LOSSES

At December 31, 2002, the allowance for loan losses was $3.6 million, a 7% increase from the end of 2001. The ratio of the allowance to total loans
was 1.74% at December 31, 2002 and 1.51% at December 31, 2001. The ratio of net loan losses to average loans outstanding for 2002 was 0.13% compared to 0.10% for 2001. The ratio of
nonaccrual loans, restructured loans, and loans delinquent more than 90 days to total loans increased to 1.56% at December 31, 2002 from 0.55% at the end of 2001. The ratio of real
estate secured loans to total loans decreased to 81% at the end of 2002 from 82% at the end of 2001. An allowance for loan losses is maintained to absorb losses in the existing loan portfolio. The allowance is a function of
specific loan allowances, general
loan allowances based on historical loan loss experience and current trends, and allowances based on general economic conditions that affect the collectibility of the loan portfolio. These can
include, but are not limited to exposure to an industry experiencing problems, changes in the nature or volume of the portfolio and delinquency and nonaccrual trends. The portfolio review and
calculation of the allowance is performed by management on a continuing basis.
All loan reserves are subject to regulatory examinations and determination as to the appropriateness of the methodology and adequacy on an annual basis.
The specific allowance is based on regular analysis of the loan portfolio and is determined by analysis of collateral value, cash flow and guarantor capacity, as applicable. The specific allowance
was $1,312,020 and $1,126,700 as of December 31, 2002 and 2001, respectively.
The general allowance is calculated using internal loan grading results and appropriate allowance factors on approximately 10 classes of loans. This process is reviewed on a regular basis. The
allowance factors may be revised whenever necessary to address current credit quality trends or risks associated with particular loan types. Historic trend analysis is utilized to obtain the factors
to be applied. The general allowance was $1,150,239 and $1,136,171 as of December 31, 2002 and 2001, respectively.
Allocation of a portion of the allowance does not preclude its availability to absorb losses in other categories. An unallocated reserve is maintained to recognize the imprecision in estimating and
measuring loss when evaluating the allowance for individual loans or pools of loans.
During the years ended December 31, 1999 through 2002, the unallocated portion of the allowance for loan losses has fluctuated with the specific and general allowances so that the total
allowance for loan losses would be at a level that management believes is the best estimate of possible future loan losses at the balance sheet date. The specific allowance may fluctuate from period
to period if the balance of what management considers problem loans changes. The general allowance will fluctuate with changes in the mix of

23

---

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

FUNDING SOURCES

Total deposits at December 31, 2002 decreased by $35.3 million to $230.3 million from the end of 2001. Interest bearing accounts decreased by
$36.5 million and noninterest bearing deposits increased by $1.3 million. Overall deposit contraction is a result of the Company's efforts to reduce interest rate risk on its balance
sheet, including the sale of its Liberty Road branch. The Company made a concerted effort to reduce the level of high-yield deposits. Advances from the Federal Home Loan Bank remained at the same level of $45 million at
the end of 2002 compared to the end of 2001. Borrowings for
federal funds purchased, securities sold under agreements to repurchase and notes payable to the US Treasury increased by $1.7 million from December 31, 2001 to 2002.

CAPITAL

At December 31, 2002, shareholders' equity was $33.7 million, an increase of $1.2 million from 2001. The increase in Shareholders' equity was
largely due to a $489,000 fair market value adjustment of the investment portfolio as required by Statement No. 115 of the Financial Accounting Standards Board. The Company paid shareholders
dividends totaling $974,000, and net income for 2002 was $1.9 million. In addition, the Company purchased and retired common stock for $199,000 in 2002. Shareholders' equity amounted to 10% of
total assets at December 31, 2002 compared to 9% at the end of 2001. Bank holding companies and banks are required by the Federal Reserve and FDIC to maintain minimum levels of Tier 1 (or Core) and Tier 2 capital measured
as a
percentage of assets on a risk-weighted basis. Capital is primarily represented by shareholders' equity, adjusted for the allowance for loan losses and certain issues of preferred stock,
convertible securities, and subordinated debt, depending on the capital level being measured. Assets and certain off-balance sheet transactions are assigned to one of five different
risk-weighting factors for purposes of determining the risk-adjusted asset base. The minimum levels of Tier 1 and Tier 2 capital to risk-adjusted assets are 4% and
8%, respectively, under the regulations.
In addition, the Federal Reserve and the FDIC require that bank holding companies and banks maintain a minimum level of Tier 1 (or Core) capital to average total assets excluding intangibles for the
current quarter. This measure is known as the leverage ratio. The current regulatory minimum for the leverage ratio for institutions to be considered adequately capitalized is 4%, but could be
required to be maintained at a higher level based on the regulator's assessment of an institution's risk profile. The following chart shows the regulatory capital levels for the Company and Bank at
December 31, 2002 and 2001.The Company's subsidiary bank also exceeded the FDIC required minimum capital levels at those dates by a substantial margin. Based on the levels of capital, the
Company and the Bank are well capitalized.

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

---

LIQUIDITY

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

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

24

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lines of credit on which management places a low probability for required funding.

INTEREST RATE RISK

The level of income of a financial institution can be affected by the repricing characteristics of its assets and liabilities due to changes in interest rates.
This is referred to as interest rate risk. Financial institutions allocate significant time and resources to managing interest rate risk because of the impact that interest rate changes can have on
the net interest margin and earnings. Management continues to seek reasonable ways to reduce its exposure to interest rate shifts. A static gap analysis is used by the Company as one tool to monitor
interest rate risk. A static gap analysis measures the difference, or the "gap", between the amount of assets and liabilities repricing within a given time period. The Company also performs rate shock
analyses which estimate changes in the net interest margin for parallel rising and falling interest rate environments. Management also calculates and monitors other ratios on a monthly basis that
provide additional information relating to certain aspects of asset/liability management. This information, together with information about forecasted future interest rate trends, is used to manage
the Company's asset and liability positions. Management uses this information as a factor in decisions made about maturities for investment of cash flows, classification of investment securities
purchases as available for sale or held to maturity, emphasis of variable rate or fixed rate loans and short or longer term deposit products in marketing campaigns, and deposit account pricing to
alter asset and liability repricing characteristics. At December 31, 2002, the Company was in a liability sensitive position amounting to 13.8% 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,
2002, the Company can experience significant volatility in its asset/liability position by virtue of its funding of longer term mortgage loans with relatively short repricing borrowings while it works
to sell the loans. Management continues to work to structure borrowing terms that more closely match asset repricing characteristics, keeping in mind the overall balance sheet strategy of the Company.
Theoretically, a liability sensitive position is preferable in a falling interest rate climate since more liabilities will reprice downward as interest rates fall than will assets, and an asset
sensitive position is preferable in a rising rate environment.
The following chart shows the static gap position for interest sensitive assets and liabilities of the Company as of December 31, 2002. The chart is as of a point in time, and reflects only
the contractual terms of the loan or deposit accounts in assigning assets and liabilities to the various repricing periods except that deposit accounts with no contractual maturity, such as money
market, NOW and savings accounts, have been allocated evenly over a five-year period. In addition, the maturities of investments shown in the gap table will differ from contractual
maturities due to anticipated calls of certain securities based on current interest rates. While this chart indicates the opportunity to reprice assets and liabilities within certain time frames, it
does not reflect the fact that interest rate changes occur in disproportionate increments for various assets and liabilities.

25

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

|($'s in 000's)                                                 |             | 0 to 90
days |         | 91 to 365
days |    | 1 to 2
years |         | 2 to 5
years |        | > 5
year |   
|-------------------------------------------------------------- | ----------- | ------------ | ------- | -------------- | -- | ------------ | ------- | ------------ | ------ | -------- | --
|                                                               |            
|ASSETS                                                         |             |              |         |                |    |              |         |              |        |          |   
|Short term investments                                         |             | $            | 11,067  |                | $  |             |         | $            |       |          | $ 
|Securities                                                     |             |              | 27,588  |                |    | 12,313       |         |              | 6,586  |          |   
|Loans                                                          |             |              | 86,245  |                |    | 13,400       |         |              | 16,267 |          |   
|                                                               |             |              |         |                |    |              |         |              |        |          |   
|                                                               |             | $            | 124,900 |                | $  | 25,713       |         | $            | 22,853 |          | $ 
|                                                               |             |              |         |                |    |              |         |              |        |          |   
|LIABILITIES:                                                   |             |              |         |                |    |              |         |              |        |          |   
|Deposits                                                       |             | $            | 116,046 |                | $  | 60,660       |         | $            | 6,591  |          | $ 
|Borrowings                                                     |             |              | 18,580  |                |    |             |         |              |       |          |   
|                                                               |             |              |         |                |    |              |         |              |        |          |   
|                                                               |             | $            | 134,626 |                | $  | 60,660       |         | $            | 6,591  |          | $ 
|                                                               |             |              |         |                |    |              |         |              |        |          |   
|Gap position:                                                  |             |              |         |                |    |              |         |              |        |          |   
|                                                               | Period      |              | $       | (9,726         | )  | $            | (34,947 | )            | $      | 16,262   |   
|                                                               | % of Assets |              |         | (3.0           | )% |              | (10.8   | )%           |        | 5.0      | % 
|                                                               | Cumulative  |              | $       | (9,726         | )  | $            | (44,673 | )            | $      | (28,411  | ) 
|                                                               | % of Assets |              |         | (3.0           | )% |              | (13.8   | )%           |        | (8.8     | )%
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 0.93    |                |    | 0.77         |         |              | 0.86   |          |   

NEW ACCOUNTING PRONOUNCEMENTS

FASB Statement No. 141, Business Combinations requires 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 Assets changes 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 Obligations applies 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.
FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The statement amends various earlier pronouncements addressing accounting for impairment of long-lived assets or disposal of long-lived assets or
a business segment and clarifies that a business segment treated as a discontinued operation should be evaluated for recognition of an impairment loss. The statement also amends Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement
were effective for years beginning after December 15, 2001.
FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections rescinds those pronouncements referred to
in the title and amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Statement also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their applicability under changed conditions.
FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities addresses financial accounting and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs
incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal

26

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activity be recognized and measured initially at fair value only when a liability is incurred, recognizing that a company's commitment to an exit plan may not create a liability. The provisions of
this statement are effective for exit or disposal activities initiated after December 31, 2002.
FASB Statement No. 147 Acquisitions of Certain Financial Institutions addresses guidance on accounting for the acquisition of a financial institution and applies to all acquisitions except
those between two or more mutual enterprises. The Statement requires that the excess of fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired in
a business combination represents goodwill that should be accounted for under FASB Statement No. 142, Goodwill and Other Intangible Assets.
FASB Statement No. 148, Accounting for Stock-Based CompensationTransition and Disclosure amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The effective dates of parts of the Statement are for years ending after December 15, 2002 and parts for years beginning after December 15, 2002.

EARNINGS 2001 COMPARED TO 2000

SUMMARY

Carrollton Bancorp reported net income for 2001 of $1,933,000, or $0.68 per share, representing an 11% increase from 2000 net income of $1,748,000, or $0.61 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. Noninterest 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 47%.
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 5.80% in 2001 from 6.54% 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

27

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monitored and periodic reviews of business and property leasing operations are performed on an individual loan basis to determine potential collection and repayment problems.

NONINTEREST INCOME

For 2001, noninterest 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.

NONINTEREST EXPENSES

In 2001, noninterest 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 $356.9 million at December 31, 2001 versus $387.7 million at the end of 2000. Investment
securities increased to $104.5 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 $104.5 million at December 31, 2001 from $70.1 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.

28

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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 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, 1998 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 are a consideration in determining the required total allowance.
Management believes that it has adequately assessed the risk of loss in the loan portfolios based on a subjective evaluation and has provided an allowance which is appropriate based on that
assessment. Because the allowance is an estimate based on current conditions, any change in the economic conditions of the Company's market area or change within a borrower's business could result in
a revised evaluation which could alter the Company's earnings.

FUNDING SOURCES

Total deposits at December 31, 2001 decreased by $26.5 million to $265.5 million from the end of 2000. Interest-bearing accounts decreased by
$28.5 million and noninterest 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 $32.5 million, an increase of $2.2 million from 2000. The increase in Shareholders' 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. Shareholders' equity
amounted to 9.09% of total assets at December 31, 2001 compared to 7.81% 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

29

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

|                    |                |   |   | At December 31 |     
|------------------- | -------------- | - | - | -------------- | ----
|
|
|                    |               
|Leverage Ratio      |                | 4 | % | 8.6            | %   
|Risk-based Capital: |                |   |   |                |     
|                    | Tier 1 (Core)  |   | 4 | %              | 12.9
|                    | Tier 2 (Total) |   | 8 | %              | 14.3

---

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 an asset sensitive
position amounting to 14.0% 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 positive 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.

30

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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 |              |         | 25.0           | % |              | (11.1   | )%           |        | (11.4    | )%
|                                                               | Cumulative  |              | $       | 89,313         |   | $            | 49,841  |              | $      | 9,200    |   
|                                                               | % of Assets |              |         | 25.0           | % |              | 14.0    | %            |        | 2.6      | % 
|Cumulative risk sensitive assets to risk sensitive liabilities |             |              | 3.22    |                |   | 1.49         |         |              | 1.05   |          |   

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.

ITEM 7: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

31

---



ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Carrollton Bancorp and Subsidiary as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in shareholders' equity, and cash flows for the three years ended December 31, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for the three years ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

Rowles & Company, LLP

SIGNATURE

Baltimore,
Maryland
January 29, 2003

32

---



CONSOLIDATED BALANCE SHEETS

|                                                                                                                                |                     | December 31
|------------------------------------------------------------------------------------------------------------------------------- | ------------------- | -----------
|
|                                                                                                                               
|ASSETS                                                                                                                          |                     |            
|Cash and due from bank                                                                                                          |                     | $          
|Federal funds sold and Federal Home Loan Bank deposit                                                                           |                     |            
|Federal Home Loan Bank stock, at cost                                                                                           |                     |            
|Investment securities:                                                                                                          |                     |            
|                                                                                                                                | Available for sale  |            
|                                                                                                                                | Held to maturity    |            
|Loans held for sale                                                                                                             |                     |            
|Loans, less allowance for loan losses of $3,578,762 and $3,338,807                                                              |                     |            
|Premises and equipment                                                                                                          |                     |            
|Accrued interest receivable                                                                                                     |                     |            
|Foreclosed real estate                                                                                                          |                     |            
|Prepaid income taxes                                                                                                            |                     |            
|Other assets                                                                                                                    |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     | $          
|                                                                                                                                |                     |            
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                           
|Deposits                                                                                                                        |                     |            
|                                                                                                                                | Noninterest bearing |            
|                                                                                                                                | Interest bearing    |            
|                                                                                                                                |                     |            
|Total deposits                                                                                                                  |                     |            
|Federal funds purchased and securities sold under agreement to repurchase                                                       |                     |            
|Notes payable  U.S. Treasury                                                                                                   |                     |            
|Advances from the Federal Home Loan Bank                                                                                        |                     |            
|Accrued interest payable                                                                                                        |                     |            
|Deferred income taxes                                                                                                           |                     |            
|Accrued income taxes                                                                                                            |                     |            
|Other liabilities                                                                                                               |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     |            
|Shareholders' equity                                                                                                            |                     |            
|Common stock, par $1.00 per share; authorized 10,000,000 shares; issued and outstanding 2,821,757 in 2002 and 2,701,254 in 2001 |                     |            
|Surplus                                                                                                                         |                     |            
|Retained earnings                                                                                                               |                     |            
|Accumulated other comprehensive income                                                                                          |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     |            
|                                                                                                                                |                     | $          
|                                                                                                                                |                     |            

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

33

---



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 branch divesture                                 |                            |                        
|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                             |                            | $                      
|                                                         |                            |                        

All earnings per share amounts have been adjusted to reflect a 5% stock dividend declared on October 24, 2002.

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

34

---



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                                                                       |  | Common Stock |   |   |           |   |   | Accumulated Other
Comprehensive
Income |   |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | - | --------- | - | - | -------------------------------------- | - | -
|
|
|                                                                                                                      
|BALANCE AS PREVIOUSLY REPORTED, DECEMBER 31, 1999:                                                                     |  | 2,776,904    |   | $ | 2,776,904 |   | $ | 18,016,419                             |   | $
|Adjustment for the cumulative effect of the correction of an error in the financial statements of prior years (Note 2) |  |              |   |   |          |   |   |                                       |   |  
|BALANCE AS ADJUSTED, DECEMBER 31, 1999                                                                                 |  | 2,776,904    |   |   | 2,776,904 |   |   | 18,016,419                             |   |  
|Net Income                                                                                                             |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized holding gains (losses) on available for sale securities, net of tax                          |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                                                   |  |              |   |   |           |   |   |                                        |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Shares acquired and cancelled                                                                                          |  | (69,171      | ) |   | (69,171   | ) |   | (926,408                               | ) |  
|Cash dividends, $0.337                                                                                                 |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2000                                                                                             |  | 2,707,733    |   |   | 2,707,733 |   |   | 17,090,011                             |   |  
|Net Income                                                                                                             |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized holding gains (loses) on available for sale securities, net of tax                           |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                                                   |  |              |   |   |           |   |   |                                        |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Shares acquired and cancelled                                                                                          |  | (6,479       | ) |   | (6,479    | ) |   | (72,565                                | ) |  
|Cash dividends, $0.342                                                                                                 |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2001                                                                                             |  | 2,701,254    |   |   | 2,701,254 |   |   | 17,017,446                             |   |  
|Net Income                                                                                                             |  |              |   |   |          |   |   |                                       |   |  
|Changes in net unrealized holding gains (losses) on available for sale securities, net of tax                          |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Comprehensive Income                                                                                                   |  |              |   |   |           |   |   |                                        |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|Shares acquired and cancelled                                                                                          |  | (14,044      | ) |   | (14,044   | ) |   | (185,277                               | ) |  
|Stock dividend, 5%                                                                                                     |  | 134,547      |   |   | 134,547   |   |   | 1,785,439                              |   |  
|Cash dividends, $0.342                                                                                                 |  |              |   |   |          |   |   |                                       |   |  
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  
|BALANCE, DECEMBER 31, 2002                                                                                             |  | 2,821,757    |   | $ | 2,821,757 |   | $ | 18,617,608                             |   | $
|                                                                                                                       |  |              |   |   |           |   |   |                                        |   |  

Cash dividends per share amounts have been adjusted to reflect a 5% stock dividend declared on October 24, 2002.

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

35

---



CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                |  | Year Ended December 31, |             
|------------------------------------------------------------------------------- |  | ----------------------- | ------------
|
|                                                                                | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                            |  |                         |             
|Interest received                                                               |  | $                       | 19,727,578  
|Fees and commissions received                                                   |  |                         | 6,616,085   
|Interest paid                                                                   |  |                         | (8,729,715  
|Cash paid to suppliers and employees                                            |  |                         | (12,764,619 
|Proceeds from sale of loans held for sale                                       |  |                         |            
|Origination of loans held for sale, net of principal reduction                  |  |                         |            
|Income taxes paid                                                               |  |                         | (1,568,808  
|                                                                                |  |                         |             
|                                                                                |  |                         | 3,280,521   
|                                                                                |  |                         |             
|CASH FLOWS FROM INVESTING ACTIVITIES                                            |  |                         |             
|Proceeds from maturities of securities held to maturity                         |  |                         |            
|Proceeds from sales of securities available for sale                            |  |                         | 600,596     
|Proceeds from maturities of securities available for sale                       |  |                         | 136,088,554 
|Proceeds from redemption of Federal Home Loan Bank stock                        |  |                         | 750,000     
|Purchase of securities available for sale                                       |  |                         | (110,281,342
|Loans made, net of principal collected                                          |  |                         | 3,282,936   
|Purchase of loans, net of principal collected                                   |  |                         | 11,617,770  
|Proceeds from sale of loans                                                     |  |                         |            
|Purchase of premises and equipment                                              |  |                         | (367,160    
|Proceeds from sale of premises and equipment                                    |  |                         | 212,984     
|Purchase of foreclosed real estate                                              |  |                         | (145,191    
|Net proceeds from branch divestiture                                            |  |                         | 687,883     
|Proceeds from sale of foreclosed real estate                                    |  |                         | 50,779      
|                                                                                |  |                         |             
|                                                                                |  |                         | 42,497,809  
|                                                                                |  |                         |             
|CASH FLOWS FROM FINANCING ACTIVITIES                                            |  |                         |             
|Net increase (decrease) in time deposits                                        |  |                         | (12,942,713 
|Net decrease in other deposits                                                  |  |                         | (22,321,899 
|Net increase (decrease) in other borrowed funds                                 |  |                         | 1,690,054   
|Common stock repurchase and retirement                                          |  |                         | (199,321    
|Dividends paid                                                                  |  |                         | (973,902    
|                                                                                |  |                         |             
|                                                                                |  |                         | (34,747,781 
|                                                                                |  |                         |             
|Net increase (decrease) in cash and cash equivalents                            |  |                         | 11,030,549  
|Cash and cash equivalents at beginning of year                                  |  |                         | 20,369,207  
|                                                                                |  |                         |             
|Cash and cash equivalents at end of year                                        |  | $                       | 31,399,756  
|                                                                                |  |                         |             
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITES        |  |                         |             
|Net income                                                                      |  | $                       | 1,917,258   
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITES |  |                         |             
|Provision for loan losses                                                       |  |                         | 526,000     
|Deprecation and amortization                                                    |  |                         | 1,650,548   
|Deferred income taxes                                                           |  |                         | (192,177    
|Amortization of premiums and discounts                                          |  |                         | 249,218     
|(Gains) losses on disposal of securities                                        |  |                         | (209,880    
|Loans held for sale made, net of principal sold                                 |  |                         |            
|(Gains) losses on sale of loans                                                 |  |                         |            
|Gain on branch divestiture                                                      |  |                         | (687,883    
|(Gains) losses on sale and write-down of premises and equipment                 |  |                         | (72,984     
|Losses on sale of foreclosed real estate                                        |  |                         | 7,898       
|(Increase) decrease in:                                                         |  |                         |             
|Accrued interest receivable                                                     |  |                         | 492,996     
|Prepaid income taxes                                                            |  |                         | (152,591    
|Other assets                                                                    |  |                         | 115,485     
|Increase (decrease) in:                                                         |  |                         |             
|Accrued interest payable                                                        |  |                         | (37,395     
|Income taxes payable                                                            |  |                         | (280,785    
|Other liabilities                                                               |  |                         | (45,187     
|                                                                                |  |                         |             
|                                                                                |  | $                       | 3,280,521   
|                                                                                |  |                         |             
|NONCASH INVESTING ACTIVITY                                                      |  |                         |             
|Transfer of loans to foreclosed real estate                                     |  | $                       | 132,140     
|                                                                                |  |                         |             

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

36

---



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 amortization are computed over the estimated useful lives using the straight-line method. Leasehold improvements are amortized over the terms of the leases

37

---

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

or the estimated useful lives of the improvements, whichever is shorter. Accumulated depreciation includes provisions for declines in the value of land and
buildings.

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

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

2. PRIOR PERIOD ADJUSTMENT

The balance of retained earnings at December 31, 2001 has been restated to reflect a retroactive charge to earnings totaling $190,000, net
of related income taxes of $98,000. The Company restated earnings for 1997 in the amount of $65,000, net of taxes of $33,000 and in 1999 in the amount of $125,000, net of taxes of $65,000. The
adjustment came about as a result of management's discovery that the ACH position associated with its ATM Network and Check Card transaction processing was overstated. Management discovered the
overstatement as part of its efforts to enhance controls with its vendor/service provider. Cash and Due from Banks, accrued tax liability, noninterest income and income taxes have been restated for
the affected years to reflect the adjustments.

3. 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 $12.0 million and $13.7 million during 2002 and 2001 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 2002 and 2001, the Company maintained average compensating balances of approximately $1,000,000 which was maintained at the
Federal Reserve Bank. In addition, the Company paid $91,827, $63,423, and $50,058, respectively, in bank account charges in 2002, 2001, and 2000.

38

---

4. INVESTMENT SECURITIES

Investment securities are summarized as follows:

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

|                           |  | 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           |  |             
|                           |  |                |             |                  |   |                   |  |             
|                           |  |                | 98,102,534  |                  |   | 989,571           |  |             
|Equity securities          |  |                | 4,299,478   |                  |   | 1,264,180         |  |             
|                           |  |                |             |                  |   |                   |  |             
|                           |  | $              | 102,402,012 |                  | $ | 2,253,751         |  | $           
|                           |  |                |             |                  |   |                   |  |             
|HELD TO MATURITY           |  |                |             |                  |   |                   |  |             
|Foreign Bonds              |  | $              | 25,000      |                  | $ |                  |  | $           
|                           |  |                |             |                  |   |                   |  |             

39

---

Contractual maturities of debt securities at December 31, 2002 and 2001 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, 2002
|-------------------------- |  | -----------------
|
|
|
|
|                          
|Within one year            |  | $                
|Over one to five years     |  |                  
|Over five to ten years     |  |                  
|Over ten years             |  |                  
|Mortgage backed securities |  |                  
|                           |  |                  
|                           |  | $                
|                           |  |                  

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

At December 31, 2002 and 2001, securities with a cost basis of $24,968,799 (market value of $25,773,673), and $34,268,569 (market value of
$34,760,967), respectively, were pledged as collateral for government deposits, securities sold under repurchase agreements, and advances from the Federal Home Loan Bank.

In
2002, 2001, and 2000, the Company realized gains on sales of securities of $209,880, $0, and $491,480, respectively, and losses of $0, $2,725, and $235,228. Income taxes on net
security gains were $81,056, $(1,052), and $99,356 in 2002, 2001, and 2000, respectively.

40

---

5. LOANS

Major
classifications of loans are as follows:

|                          |                                   | 2002 |             | 2001      
|------------------------- | --------------------------------- | ---- | ----------- | ----------
|                         
|Real estate               |                                   |      |             |           
|                          | Residential                       |      | $           | 79,520,154
|                          | Commercial                        |      |             | 78,500,418
|                          | Construction and land development |      |             | 7,664,367 
|Demand and time           |                                   |      | 32,444,790  |           
|Lease financing           |                                   |      | 4,343,539   |           
|Installment               |                                   |      | 2,746,858   |           
|                          |                                   |      |             |           
|                          |                                   |      | 205,220,126 |           
|Allowance for loan losses |                                   |      | 3,578,762   |           
|                          |                                   |      |             |           
|Loans, net                |                                   | $    | 201,641,364 |           
|                          |                                   |      |             |           

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 |  | $ | 99,240,344  |  | $ | 88,783,498 
|------------------------------------- |  | - | ----------- |  | - | -----------
|Maturing over one to five years       |  |   | 69,640,641  |  |   | 52,341,290 
|Maturing over five years              |  |   | 36,339,141  |  |   | 79,053,195 
|                                      |  |   |             | 
|                                      |  | $ | 205,220,126 |  | $ | 220,177,983
|                                      |  |   |             | 

Loan balances have been adjusted by the following deferred amounts:

|Deferred origination costs and premiums          |  | $ | 825,007  |   | $ | 1,035,380 |  
|------------------------------------------------ |  | - | -------- | - | - | --------- | -
|Deferred origination fees and unearned discounts |  |   | (692,981 | ) |   | (701,625  | )
|                                                 |  |   |          |   |  
|Net deferred costs                               |  | $ | 132,026  |   | $ | 333,755   |  
|                                                 |  |   |          |   |  

Transactions in the allowance for loan losses were as follows:

|                                |  | 2002 |           | 2001 |   | 2000     
|------------------------------- |  | ---- | --------- | ---- | - | ---------
|                               
|Beginning balance               |  | $    | 3,338,807 |      | $ | 3,024,290
|Provision charged to operations |  |      | 526,000   |      |   | 550,000  
|Recoveries                      |  |      | 94,561    |      |   | 66,658   
|                                |  |      |           |      |   |          
|                                |  |      | 3,959,368 |      |   | 3,640,948
|Loans charged off               |  |      | 380,606   |      |   | 302,141  
|                                |  |      |           |      |   |          
|Ending balance                  |  | $    | 3,578,762 |      | $ | 3,338,807
|                                |  |      |           |      |   |          

At December 31, 2002, 2001, and 2000, the accrual of interest has been discontinued on loans of $734,879, $387,037, and $622,392,
respectively. The amount of interest income that would have been recorded in 2002, 2001, and 2000 on non-accrual loans if those loans had been handled in accordance with their contractual
terms totaled $30,938, $16,109, and $28,689, respectively. The amount of interest income actually recorded on nonaccrual loans totaled $22,878, $1,239, and $3,892 for 2002, 2001, and 2000,
respectively.

At
December 31, 2002, 2001, and 2000, the Company had one impaired loan to the same borrower amounting to $568,969, $598,644, and $633,302, respectively, which was classified as
impaired because it had been restructured to accept interest only payments for a period of time. The average balance of impaired loans amounted to $576,577, $616,358, and $342,416 in 2002, 2001, and
2000, respectively. During 2002, 2001, and 2000, the Company received total payments on impaired loans of $85,189, $99,868, and $42,153, respectively. Of these amounts, $54,614, $65,210, and $27,817
were recorded as interest income for 2002, 2001, and 2000, respectively. The remainder was applied to reduce principal.

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

41

---

5. LOANS(Continued)

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

|                |  | 2002 |           | 2001 |   | 2000   
|--------------- |  | ---- | --------- | ---- | - | -------
|               
|Mortgage        |  | $    | 498,029   |      | $ | 108,596
|Demand and time |  |      | 1,402,634 |      |   | 114,863
|                |  |      |           |      |   |        
|                |  | $    | 1,900,663 |      | $ | 223,459
|                |  |      |           |      |   |        

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 $55,638,248 and $33,527,799 were pledged as collateral to the Federal Home Loan Bank of Atlanta
as of December 31, 2002 and 2001, respectively.

6. CREDIT COMMITMENTS

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

|                       |                                   | 2002 |            | 2001       |   | 2000      
|---------------------- | --------------------------------- | ---- | ---------- | ---------- | - | ----------
|                      
|LOAN COMMITMENTS       |                                   |      |            |            |   |           
|                       | Mortgage loans                    |      | $          |           |   | $         
|                       | Construction and land development |      |            | 6,899,380  |   |           
|                       | Commercial loans                  |      |            | 9,448,509  |   |           
|                       | Installment loans                 |      |            |           |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 16,347,889 |            | $ | 28,462,771
|                       |                                   |      |            |            |   |           
|UNUSED LINES OF CREDIT |                                   |      |            |            |   |           
|                       | Home equity lines                 |      | $          | 46,945,198 |   | $         
|                       | Commercial lines                  |      |            | 22,608,235 |   |           
|                       | Unsecured consumer lines          |      |            | 369,182    |   |           
|                       |                                   |      |            |            |   |           
|                       |                                   | $    | 69,922,615 |            | $ | 65,380,862
|                       |                                   |      |            |            |   |           
|                       |                                   |      |            |            |   |           
|LETTERS OF CREDIT      |                                   | $    | 3,166,123  |            | $ | 2,871,588 
|                       |                                   |      |            |            |   |           

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.

7. 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, 2002, 2001 and 2000, transactions in related party loans were as follows:

|                                            |  | 2002 |            | 2001 |   | 2000      |  
|------------------------------------------- |  | ---- | ---------- | ---- | - | --------- | -
|                                            | 
|Beginning balance                           |  | $    | 5,264,386  |      | $ | 1,915,984 |  
|Additions                                   |  |      | 1,184,451  |      |   | 664,183   |  
|Repayments                                  |  |      | (2,027,807 | )    |   | (179,367  | )
|Changes in executive officers and directors |  |      |           |      |   | 2,863,586 |  
|                                            |  |      |            |      |   |           |  
|                                            |  | $    | 4,421,030  |      | $ | 5,264,386 |  
|                                            |  |      |            |      |   |           |  

42

---

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, 2002, 2001, and 2000, amounts paid to the law firm in connection with those services were $224,138, $173,737, and $166,522, 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,
2002, 2001, and 2000, amounts paid to the insurance brokerage for insurance premiums were $153,656, $249,889, and $57,656, respectively. Related commissions amounted to $17,724, $22,582, and $16,440
during the years ended December 31, 2002, 2001, and 2000, respectively.

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

A
second 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 $3,744 in 2002 and $5,021 in 2001.

8. PREMISES AND EQUIPMENT

A summary of premises and equipment is as follows:

|                                          |  | 2002 |            | 2001
|----------------------------------------- |  | ---- | ---------- | ----
|                                         
|Land and improvements                     |  | $    | 946,520    |     
|Buildings                                 |  |      | 2,528,767  |     
|Leasehold improvements                    |  |      | 2,144,953  |     
|Equipment and fixtures                    |  |      | 9,523,157  |     
|                                          |  |      |            |     
|                                          |  |      | 15,143,397 |     
|Accumulated depreciation and amortization |  |      | 9,532,682  |     
|                                          |  |      |            |     
|                                          |  | $    | 5,610,715  |     
|                                          |  |      |            |     

Depreciation and amortization of premises and equipment was $1,481,612, $1,365,767, and $1,136,243 for 2002, 2001, and 2000, respectively.
Amortization of intangible assets, excluding amortization of deposit premiums, was $45,756, $109,090, and $124,134 for 2002, 2001, and 2000, 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 2002 on ATM machines by
$392,000 and by $261,000 in 2001.

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

9. DEPOSITS

Major
classifications of interest bearing deposits are as follows:

|                                            |  | 2002 |             | 2001
|------------------------------------------- |  | ---- | ----------- | ----
|                                           
|NOW and Super NOW                           |  | $    | 35,614,170  |     
|Money market                                |  |      | 27,395,072  |     
|Savings                                     |  |      | 37,170,695  |     
|Certificates of deposit of $100,000 or more |  |      | 20,488,159  |     
|Other time deposits                         |  |      | 68,336,872  |     
|                                            |  |      |             |     
|                                            |  | $    | 189,004,968 |     
|                                            |  |      |             |     

Interest expense associated with certificates of deposit of $100,000 or more was $1,198,018, $1,910,347, and $1,756,939 for the years ended
December 31, 2002, 2001, and 2000, respectively.

43

---

Time
deposits mature as follows:

|                                  |  | 2002 |            | 2001
|--------------------------------- |  | ---- | ---------- | ----
|                                 
|Maturing within one year          |  | $    | 76,527,192 |     
|Maturing over one to two years    |  |      | 6,590,866  |     
|Maturing over two to three years  |  |      | 2,439,505  |     
|Maturing over three to four years |  |      | 1,141,742  |     
|Maturing over four to five years  |  |      | 2,015,844  |     
|Maturing over five years          |  |      | 109,882    |     
|                                  |  |      |            |     
|                                  |  | $    | 88,825,031 |     
|                                  |  |      |            |     



10. DEPOSIT PREMIUM

The Company acquired a branch office from another bank in 1995. Included in Other Assets on the Consolidated Balance Sheets is the remaining
balance of the premium paid for the deposits at the branch. Amortization expense was $123,180 for 2002, 2001, and 2000, respectively. The remaining unamortized balance at December 31, 2002 and
2001 was $923,813 and $1,046,993, respectively. The premium is being amortized using the straight-line method over 15 years.

11. BORROWED FUNDS

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

|                                              |  | 2002 |            | 2001 |   | 2000      
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                             
|Total outstanding at period end               |  | $    | 11,535,372 |      | $ | 11,232,829
|Average amount outstanding during period      |  |      | 11,711,110 |      |   | 13,058,607
|Maximum amount outstanding at any month end   |  |      | 12,939,282 |      |   | 14,765,870
|Weighted average interest rate at period end  |  |      | 0.82%      |      |   | 0.83%     
|Weighted average interest rate for the period |  |      | 0.92%      |      |   | 2.91%     

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 at December 31, 2002 and 2001. Advances averaged $45,008,219 and $46,054,795 for 2002 and 2001,
respectively, with weighted average costs of 6.83% for 2002 and 6.80% for 2001. At December 31, 2002, the advances carried a weighted average interest rate of 6.74%, and matured at dates
ranging from March 26, 2008 to May 24, 2010. At December 31, 2001, the advances carried a weighted average interest rate of 6.83%, and matured at dates ranging from
March 26, 2008 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 (see notes 4 and 5).

The
Company borrows under available unsecured federal funds lines of credit of $7 million with other institutions. The balance outstanding under these lines was $0 and $1,000,000
at December 31, 2002 and 2001, respectively. These lines bear interest at the current federal funds rate of the correspondent bank.

44

---

12. OTHER OPERATING EXPENSES

Other operating expenses include the following:

|                                   |  | 2002 |           | 2001 |   | 2000     
|---------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                  
|ATM services                       |  | $    | 1,474,497 |      | $ | 1,539,670
|Data processing services           |  |      | 809,215   |      |   | 725,179  
|Professional services              |  |      | 379,440   |      |   | 398,553  
|Telephone                          |  |      | 240,999   |      |   | 288,710  
|Printing, stationery, and supplies |  |      | 217,188   |      |   | 147,118  
|Postage and freight                |  |      | 176,675   |      |   | 163,929  
|Directors' fees                    |  |      | 141,150   |      |   | 149,775  
|Liability insurance                |  |      | 135,656   |      |   | 140,230  
|Deposit premium amortization       |  |      | 123,180   |      |   | 123,180  
|Marketing                          |  |      | 85,849    |      |   | 190,787  
|Software amortization              |  |      | 45,756    |      |   | 109,090  
|Other                              |  |      | 993,335   |      |   | 1,199,764
|                                   |  |      |           |      |   |          
|                                   |  | $    | 4,822,940 |      | $ | 5,175,985
|                                   |  |      |           |      |   |          

13. STOCK OPTIONS

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

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

|                                 |                  |         |         |                 |                  | 2001    |        |                 |                 |        
|-------------------------------- | ---------------- | ------- | ------- | --------------- | ---------------- | ------- | ------ | --------------- | --------------- | -------
|
|
|
|                                
|Outstanding at beginning of year |                  | 162,434 |         |                 |                  | 114,134 |        |                 |                 | 109,830
|                                 | Granted          |         | 39,690  |                 | $12.11 to $12.67 |         | 48,300 |                 | $9.69 to $10.92 |        
|                                 | Exercised        |         |        |                 |                  |         |       |                 |                 |        
|                                 | Expired/Canceled |         | (23,099 | )               | $9.69 to $18.05  |         |       |                 |                 |        
|                                 |                  |         |         |                 |                  |         |        |                 |                 |        
|Outstanding at end of year       |                  | 179,025 |         | $9.69 to $18.05 |                  | 162,434 |        | $9.69 to $18.05 |                 | 114,134
|                                 |                  |         |         |                 |                  |         |        |                 |                 |        
|Exercisable at December 31       |                  | 100,135 |         |                 |                  | 82,761  |        |                 |                 | 50,324 
|                                 |                  |         |         |                 |                  |         |        |                 |                 |        

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, 2002, 2001, and 2000.

|                    |  | 2002           |  | 2001           |  | 2000          
|------------------- |  | -------------- |  | -------------- |  | --------------
|                   
|Dividend yield      |  | 2.84% to 2.97% |  | 3.13% to 3.53% |  | 2.51%         
|Expected volatility |  | 19.55%         |  | 23.52%         |  | 30.83%        
|Risk free rate      |  | 4.70% to 5.56% |  | 5.18% to 5.67% |  | 5.76% to 6.35%
|Expected lives      |  | 10 years       |  | 10 years       |  | 10 years      

45

---



13. STOCK OPTIONS(Continued)

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, 2002, 2001, and 2000.

|                            |                                                   | 2001 |   | 2000      |  | 1999
|--------------------------- | ------------------------------------------------- | ---- | - | --------- |  | ----
|                           
|Net Income:                 |                                                   |      |   |           |  |     
|                            | As Reported                                       |      | $ | 1,917,258 |  | $   
|                            | Additional compensation net of related income tax |      |   | 41,824    |  |     
|                            |                                                   |      |   |           |  |     
|                            | Pro forma                                         |      | $ | 1,875,434 |  | $   
|                            |                                                   |      |   |           |  |     
|Basic Earnings Per Share:   |                                                   |      |   |           |  |     
|                            | As Reported                                       |      | $ | 0.68      |  | $   
|                            | Pro forma                                         |      | $ | 0.66      |  | $   
|Diluted Earnings Per Share: |                                                   |      |   |           |  |     
|                            | As reported                                       |      | $ | 0.68      |  | $   
|                            | Pro forma                                         |      | $ | 0.66      |  | $   

14. 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:

|                                          |  | 2002 |           | 2001 |   | 2000     
|----------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                         
|BASIC:                                    |  |      |           |      |   |          
|Net income (applicable to common stock)   |  | $    | 1,917,258 |      | $ | 1,933,077
|Average common shares outstanding         |  |      | 2,832,265 |      |   | 2,842,523
|Basic net income per share                |  | $    | 0.68      |      | $ | 0.68     
|DILUTED:                                  |  |      |           |      |   |          
|Net income (applicable to common stock)   |  | $    | 1,917,258 |      | $ | 1,933,077
|Average common shares outstanding         |  |      | 2,832,265 |      |   | 2,842,523
|Stock option adjustment                   |  |      | 5,093     |      |   | 952      
|                                          |  |      |           |      |   |          
|Average common shares outstanding-diluted |  |      | 2,837,358 |      |   | 2,843,475
|                                          |  |      |           |      |   |          
|Diluted net income per share              |  | $    | 0.68      |      | $ | 0.68     
|                                          |  |      |           |      |   |          

15. 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:

|                                             |  | 2002 |           | 2001 |   | 2000      |  
|-------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                             | 
|Net Income                                   |  | $    | 1,917,258 |      | $ | 1,933,077 |  
|                                             |  |      |           |      |   |           |  
|OTHER COMPREHENSIVE INCOME:                  |  |      |           |      |   |           |  
|Unrealized holding gains during the period   |  |      | 1,006,004 |      |   | 2,094,132 |  
|Less: Adjustment for security (gains) losses |  |      | (209,880  | )    |   | 2,725     |  
|                                             |  |      |           |      |   |           |  
|Other comprehensive income before tax        |  |      | 796,124   |      |   | 2,096,857 |  
|Income taxes on comprehensive income         |  |      | (307,463  | )    |   | (809,806  | )
|                                             |  |      |           |      |   |           |  
|Other comprehensive income after tax         |  |      | 488,661   |      |   | 1,287,051 |  
|                                             |  |      |           |      |   |           |  
|Comprehensive income                         |  | $    | 2,405,919 |      | $ | 3,220,128 |  
|                                             |  |      |           |      |   |           |  

46

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16. 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, 2002 and 2001, the capital ratios and
minimum capital requirements are as follows.

|                                         |  | Actual |            | Minimum
    Capital
    Adequacy |       | To be Well
    Capitalized |  
|---------------------------------------- |  | ------ | ---------- | -------------------------------- | ----- | -------------------------- | -
|
|                                         | 
|DECEMBER 31, 2002                        |  |        |            |                                  |       |                            |  
|Total Capital (to risk-weighted assets)  |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 34,342,000 |                                  | 15.07 | %                          | $
|Carrollton Bank                          |  | $      | 31,306,000 |                                  | 13.92 | %                          | $
|Tier 1 Capital
(to risk-weighted assets) |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 30,929,000 |                                  | 13.57 | %                          | $
|Carrollton Bank                          |  | $      | 28,484,000 |                                  | 12.66 | %                          | $
|Tier 1 Capital
(to average assets)       |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 30,929,000 |                                  | 9.54  | %                          | $
|Carrollton Bank                          |  | $      | 28,484,000 |                                  | 8.87  | %                          | $
|DECEMBER 31, 2001 (As restated)          |  |        |            |                                  |       |                            |  
|Total Capital
(to risk-weighted assets)  |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 34,178,000 |                                  | 14.26 | %                          | $
|Carrollton Bank                          |  | $      | 30,081,000 |                                  | 12.62 | %                          | $
|Tier 1 Capital
(to risk-weighted assets) |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 30,870,000 |                                  | 12.88 | %                          | $
|Carrollton Bank                          |  | $      | 27,092,000 |                                  | 11.37 | %                          | $
|Tier 1 Capital
(to average assets)       |  |        |            |                                  |       |                            |  
|Consolidated                             |  | $      | 30,870,000 |                                  | 8.61  | %                          | $
|Carrollton Bank                          |  | $      | 27,092,000 |                                  | 7.63  | %                          | $

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

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

As
of December 31, 2002, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management believes have changed the Bank's category.

47

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17. RETIREMENT PLANS

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

|                                                                                |                                                | 2002 |         | 2001       |   | 2000    |          
|------------------------------------------------------------------------------- | ---------------------------------------------- | ---- | ------- | ---------- | - | ------- | ---------
|                                                                                |                                               
|CHANGE IN BENEFIT OBLIGATION:                                                   |                                                |      |         |            |   |         |          
|                                                                                | Benefit obligation at beginning of year        |      | $       | 7,225,216  |   | $       | 6,759,948
|                                                                                | Service cost                                   |      |         | 391,125    |   |         | 387,560  
|                                                                                | Interest cost                                  |      |         | 496,375    |   |         | 473,302  
|                                                                                | Actuarial gain                                 |      |         | 465,449    |   |         | (103,963 
|                                                                                | Benefits paid                                  |      |         | (377,094   | ) |         | (291,631 
|                                                                                |                                                |      |         |            |   |         |          
|                                                                                | Benefit obligation at end of year              |      |         | 8,201,071  |   |         | 7,225,216
|                                                                                |                                                |      |         |            |   |         |          
|CHANGE IN PLAN ASSETS:                                                          |                                                |      |         |            |   |         |          
|                                                                                | Fair value of plan assets at beginning of year |      |         | 6,735,251  |   |         | 6,990,732
|                                                                                | Actual return on plan assets                   |      |         | (525,715   | ) |         | (255,939 
|                                                                                | Employer contribution                          |      |         | 328,805    |   |         | 292,089  
|                                                                                | Benefits paid                                  |      |         | (377,094   | ) |         | (291,631 
|                                                                                |                                                |      |         |            |   |         |          
|                                                                                | Fair value of plan assets at end of year       |      |         | 6,161,247  |   |         | 6,735,251
|                                                                                |                                                |      |         |            |   |         |          
|                                                                                | Funded status                                  |      |         | (2,039,824 | ) |         | (489,965 
|                                                                                | Unrecognized net actuarial loss (gain)         |      |         | 2,244,035  |   |         | 675,944  
|                                                                                | Unrecognized prior service cost                |      |         | 126,928    |   |         | 149,625  
|                                                                                |                                                |      |         |            |   |         |          
|                                                                                | Prepaid benefit cost                           |      | $       | 331,139    |   | $       | 335,604  
|                                                                                |                                                |      |         |            |   |         |          
|ASSUMPTIONS USED IN MEASURING THE PROJECTED BENEFIT OBLIGATION WERE AS FOLLOWS: |                                                |      |         |            |   |         |          
|                                                                                | Discount rates                                 |      |         | 6.75       | % |         | 7.25     
|                                                                                | 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                                   |      | $       | 391,125    |   | $       | 387,560  
|                                                                                | Interest cost                                  |      |         | 496,375    |   |         | 473,302  
|                                                                                | Estimated return on assets                     |      |         | (605,295   | ) |         | (630,194 
|                                                                                | Net amortization and deferral                  |      |         | 51,065     |   |         | 51,065   
|                                                                                |                                                |      |         |            |   |         |          
|Net pension expense                                                             |                                                | $    | 333,270 |            | $ | 281,733 |          
|                                                                                |                                                |      |         |            |   |         |          

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 $88,866, $89,125, and $94,143 for 2002, 2001 and 2000, respectively.

18. 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 armored 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, anticipates 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, 2002, this amount is classified in Other Assets on the Company's consolidated
balance sheet.

On
March 8, 2002, the United States District Court for the District of Maryland entered a summary judgment in favor of the Bank and against the Defendant Fujitsu-ICL
Systems, Inc. in the total amount of $515,821. This judgment represents a full award to the Bank of its ATM losses, 9% pre-judgment interest, and court costs claimed in its initial
complaint. The judgment entered by the

48

---

18. CONTINGENCIES(Continued)

court is a final judgment, 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 judgment should be fully collectible as the defendant is highly solvent.

The Federal Appellate Court affirmed Carrollton Bank's judgment against Fujitsu-ICL, Inc. on January 28, 2003.

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.

19. INCOME TAXES

The
components of income tax expense are as follows:

|         |  | 2002 |           | 2001 |   | 2000    
|-------- |  | ---- | --------- | ---- | - | --------
|        
|CURRENT  |  |      |           |      |   |         
|Federal  |  | $    | 988,868   |      | $ | 908,494 
|State    |  |      | 50,939    |      |   | 65,153  
|         |  |      |           |      |   |         
|         |  |      | 1,039,807 |      |   | 973,647 
|DEFERRED |  |      | (192,177  | )    |   | (157,515
|         |  |      |           |      |   |         
|         |  | $    | 847,630   |      | $ | 816,132 
|         |  |      |           |      |   |         

The components of the deferred tax expense (benefits) were as follows:

|Provision for loan losses  |  | $ | (125,757 | ) | $ | (121,621 | ) | $ | (72,450  | )
|-------------------------- |  | - | -------- | - | - | -------- | - | - | -------- | -
|Deferred origination costs |  |   | (112,822 | ) |   | (95,921  | ) |   | (100,027 | )
|Deferred compensation plan |  |   | 892      |   |   | (9,404   | ) |   | (11,116  | )
|Depreciation               |  |   | (29,292  | ) |   | 15,705   |   |   | 141,486  |  
|Discount accretion         |  |   | 3,246    |   |   | (2,951   | ) |   | (3,917   | )
|Retirement benefits        |  |   | (1,724   | ) |   | 4,540    |   |   | 167,632  |  
|Ground rent losses         |  |   |         |   |   |         |   |   | 53,443   |  
|Write-down of building     |  |   | 73,280   |   |   |         |   |   | (73,280  | )
|Early retirement benefits  |  |   |         |   |   | 52,137   |   |   | (52,137  | )
|                           |  |   |          |   |   |          |  
|                           |  | $ | (192,177 | ) | $ | (157,515 | ) | $ | 49,634   |  
|                           |  |   |          |   |   |          |  

The components of the net deferred tax asset (liability) were as follows:

|DEFERRED TAX ASSETS                                           |  |   |           |   |   |           |   |   |          
|------------------------------------------------------------- |  | - | --------- | - | - | --------- | - | - | ---------
|Allowance for loan losses                                     |  | $ | 1,146,983 |   | $ | 1,054,312 |   | $ | 932,691  
|Deferred compensation plan                                    |  |   | 213,892   |   |   | 214,784   |   |   | 205,380  
|Unrealized losses on available for sale investment securities |  |   |          |   |   |          |   |   | 23,828   
|Allowance for loss on building                                |  |   |          |   |   | 73,280    |   |   | 73,280   
|Early retirement benefits                                     |  |   |          |   |   |          |   |   | 52,137   
|                                                              |  |   |           |   |   |          
|                                                              |  |   | 1,360,875 |   |   | 1,342,376 |   |   | 1,287,316
|                                                              |  |   |           |   |   |          
|DEFERRED TAX LIABILITIES                                      |  |   |           |   |   |           |   |   |          
|Accrued retirement benefits                                   |  |   | 128,987   |   |   | 130,711   |   |   | 126,171  
|Deferred origination costs                                    |  |   | 164,472   |   |   | 277,304   |   |   | 373,225  
|Unrealized gains on available for sale investment securities  |  |   | 1,093,441 |   |   | 785,978   |   |   |         
|Depreciation                                                  |  |   | 222,003   |   |   | 477,832   |   |   | 462,127  
|Discount accretion                                            |  |   | 7,633     |   |   | 4,387     |   |   | 7,338    
|FHLB Stock dividends                                          |  |   | 2,019     |   |   | 2,019     |   |   | 2,019    
|                                                              |  |   |           |   |   |          
|                                                              |  |   | 1,618,555 |   |   | 1,678,231 |   |   | 970,880  
|                                                              |  |   |           |   |   |          
|NET DEFERRED TAX ASSET (LIABILITY)                            |  | $ | (257,680  | ) | $ | (335,855  | ) | $ | 316,436  
|                                                              |  |   |           |   |   |          

49

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

|                                                      |  | 2002  |   | 2001  |   | 2000  |  
|----------------------------------------------------- |  | ----- | - | ----- | - | ----- | -
|                                                      | 
|Statutory federal income tax rate                     |  | 34.0  | % | 34.0  | % | 34.0  | %
|INCREASE (DECREASE) RESULTING FROM:                   |  |       |   |       |   |       |  
|Tax-exempt income                                     |  | (11.1 | ) | (13.2 | ) | (13.9 | )
|State income taxes, net of federal income tax benefit |  | 1.8   |   | 1.3   |   | 3.1   |  
|Other                                                 |  | 6.0   |   | 7.6   |   | 1.6   |  
|                                                      |  |       |   |       |   |       |  
|                                                      |  | 30.7  | % | 29.7  | % | 24.8  | %
|                                                      |  |       |   |       |   |       |  

20. LEASE COMMITMENTS

The
Company leases various branch and general office facilities to conduct its operations. The leases have remaining terms which range from a period of 1 year to 6 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 $569,703,
$642,218, and $631,618, for 2002, 2001, and 2000, respectively.

Lease
obligations will require minimum rent payments as follows:

Period

Minimum rentals2003

$
519,3012004


416,0422005


276,7582006


210,2132007


192,614Remaining years


139,300$
1,754,228


21. PARENT COMPANY FINANCIAL INFORMATION

The balance sheets for 2002 and 2001 and statements of income and cash flows for Carrollton Bancorp (Parent Only) for 2002, 2001, and 2000, are
presented below:

Balance Sheets

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

50

---

Statements of Income

|                                                                                |  | 2002 |           | 2001 |   | 2000     
|------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                               
|INCOME                                                                          |  |      |           |      |   |          
|Dividends from subsidiary                                                       |  | $    | 235,309   |      | $ | 235,309  
|Interest and dividends                                                          |  |      | 128,866   |      |   | 142,874  
|Security gains                                                                  |  |      | 209,880   |      |   | (2,725   
|                                                                                |  |      |           |      |   |          
|                                                                                |  |      | 574,055   |      |   | 375,458  
|EXPENSES                                                                        |  |      | 92,624    |      |   | 22,034   
|                                                                                |  |      |           |      |   |          
|Income before income taxes and equity in undistributed net income of subsidiary |  |      | 481,431   |      |   | 353,424  
|Income tax expense                                                              |  |      | 62,236    |      |   | 10,922   
|                                                                                |  |      |           |      |   |          
|                                                                                |  |      | 419,195   |      |   | 342,502  
|Equity in undistributed net income of subsidiary                                |  |      | 1,498,063 |      |   | 1,590,575
|                                                                                |  |      |           |      |   |          
|NET INCOME                                                                      |  | $    | 1,917,258 |      | $ | 1,933,077
|                                                                                |  |      |           |      |   |          

Statements of Cash Flows

|                                                                                 |  | 2002 |            | 2001 |   | 2000       |  
|-------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |  |      |            |      |   |            |  
|Cash dividends from subsidiary                                                   |  | $    | 235,309    |      | $ | 235,309    |  
|Interest and dividends received                                                  |  |      | 128,866    |      |   | 128,333    |  
|Cash paid to suppliers                                                           |  |      | (101,239   | )    |   | (32,206    | )
|Income taxes paid, net of cash received from subsidiaries                        |  |      | 8,942      |      |   | (25,256    | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | 271,878    |      |   | 306,180    |  
|                                                                                 |  |      |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |  |      |            |      |   |            |  
|Net (increase) decrease in interest-bearing deposits                             |  |      | 59,038     |      |   | 398,884    |  
|Proceeds from sales of securities available for sale                             |  |      | 600,596    |      |   | 48,318     |  
|Purchases of securities available for sale                                       |  |      |           |      |   |           |  
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | 659,634    |      |   | 447,202    |  
|                                                                                 |  |      |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |  |      |            |      |   |            |  
|Dividends paid                                                                   |  |      | (973,902   | )    |   | (974,784   | )
|Common stock repurchase and retirement                                           |  |      | (199,321   | )    |   | (79,044    | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  |      | (1,173,223 | )    |   | (1,053,828 | )
|                                                                                 |  |      |            |      |   |            |  
|Net (decrease) increase in cash                                                  |  |      | (241,711   | )    |   | (300,446   | )
|Cash at beginning of year                                                        |  |      | 251,786    |      |   | 552,232    |  
|                                                                                 |  |      |            |      |   |            |  
|Cash at end of year                                                              |  | $    | 10,075     |      | $ | 251,786    |  
|                                                                                 |  |      |            |      |   |            |  
|RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES        |  |      |            |      |   |            |  
|Net income                                                                       |  | $    | 1,917,258  |      | $ | 1,933,077  |  
|ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES |  |      |            |      |   |            |  
|Equity in undistributed income of subsidiary                                     |  |      | (1,498,063 | )    |   | (1,590,575 | )
|Security gains                                                                   |  |      | (209,880   | )    |   | 2,725      |  
|Decrease (increase) in accounts receivable                                       |  |      |           |      |   | 28,175     |  
|Increase (decrease) in accounts payable                                          |  |      | 62,563     |      |   | (67,222    | )
|                                                                                 |  |      |            |      |   |            |  
|                                                                                 |  | $    | 271,878    |      | $ | 306,180    |  
|                                                                                 |  |      |            |      |   |            |  

51

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22. 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, 2002 |             | December 31, 2001
|---------------------------------------------- |  | ----------------- | ----------- | -----------------
|
|                                              
|FINANCIAL ASSETS                               |  |                   |             |                  
|Cash and due from banks                        |  | $                 | 20,332,373  |                  
|Federal funds sold and FHLB deposit            |  |                   | 11,067,383  |                  
|Investment securities (total)                  |  |                   | 78,811,147  |                  
|Federal Home Loan Bank stock                   |  |                   | 2,500,000   |                  
|Loans held for sale                            |  |                   |            |                  
|Loans, net                                     |  |                   | 201,641,364 |                  
|Accrued interest receivable                    |  |                   | 1,747,994   |                  
|FINANCIAL LIABILITIES                          |  |                   |             |                  
|Noninterest-bearing deposits                   |  | $                 | 41,259,140  |                  
|Interest-bearing deposits                      |  |                   | 189,004,968 |                  
|Federal funds purchased                        |  |                   | 1,853,261   |                  
|Securities sold under agreements to repurchase |  |                   | 9,682,111   |                  
|Notes payable-U.S. Treasury                    |  |                   | 2,045,237   |                  
|Advances from the Federal Home Loan Bank       |  |                   | 45,000,000  |                  
|Accrued interest payable                       |  |                   | 513,358     |                  

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.

23. 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.

52

---

Segment
information for the Company for 2002 is as follows:

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

A reconciliation of total segment assets to consolidated total assets follows:

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

53

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23. SEGMENT INFORMATION(Continued)

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 (As Restated)                                           |  | $                       | 345,072,034 |                    | $ | 11,245,455 |   | $             | 569,059   |                | $ | 22,773,491   |   | $            | 379,660,039
|Expenditures for segment purchases of premises, equipment and software |  | $                       | 552,223     |                    | $ | 76,206     |   | $             | 39,610    |                | $ |             |   | $            | 668,039    

A reconciliation of total segment assets to consolidated total assets follows:

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

54

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23. SEGMENT INFORMATION(Continued)

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     
|Noninterest 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
(As Restated)                                           |  | $                       | 370,116,261 |                    | $ | 18,136,079 |   | $             | 576,273   |                | $ | 70,937,014   |   | $            | 459,765,627
|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 (As Restated)           |  | $ | 459,765,627 |  
|-------------------------------------------- |  | - | ----------- | -
|Elimination of intersegment loans            |  |   | (69,830,054 | )
|Elimination of intersegment deposit accounts |  |   | (2,276,762  | )
|                                             |  |   |            
|                                             |  | $ | 387,658,811 |  
|                                             |  |   |            

55

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24. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

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

|                             |  | 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 income                 |  |                              | 1,933,921 
|Operating expenses           |  |                              | (3,699,772
|                             |  |                              |           
|Income before income taxes   |  |                              | 743,717   
|Income taxes                 |  |                              | (238,546  
|                             |  |                              |           
|Net income                   |  | $                            | 505,171   
|                             |  |                              |           
|Earnings per share           |  |                              | $    0.18 
|Cash dividends per share     |  |                              | $0.085    
|Market prices:  high         |  |                              | $  11.43  
|low                          |  |                              | $  9.52   

56

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ITEM 9: CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS

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

PART III

---

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

There is hereby incorporated by reference into this Item 10 the information appearing under the captions "Election of Directors," "Other Executive Officers and
Directors of the Bank" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on
April 22, 2003.

ITEM 11: EXECUTIVE COMPENSATION

There is hereby incorporated by reference into this Item 11 the information appearing under the captions "Executive Compensation" and "Long-Term
Incentive Plan" in the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on April 22, 2003.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by reference into this Item 12 the information appearing under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on April 22, 2003.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference into this Item 13 the information appearing under the caption "Certain Relationships and Related Transactions" in the
Company's definitive Proxy Statement relating to its Annual meeting of Shareholders to be held on April 22, 2003.

ITEM 14: CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. The
design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or other factors that could
significantly
affect those controls subsequent to the date of their last evaluation.

PART IV

---

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



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

57

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|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                                                                                       
|99.1 |  | Chief Executive Officer Certification of Annual Report on Form 10-K.                                        
|99.2 |  | Chief Financial Officer Certification of Annual Report on Form 10-K.                                        

Notice of Restatement of Earnings for 1999 and 1997 filed on November 27, 2002.

SIGNATURES

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

CARROLLTON BANCORP

March
19, 2003  By: /s/ROBERT A. ALTIERI

---

Robert
A. Altieri
President and Chief Executive Officer

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

PRINCIPAL EXECUTIVE OFFICER

|March 19, 2003 |  | By: /s/ROBERT A. ALTIERIRobert A. Altieri
President and Chief Executive
Officer
|-------------- |  | -------------------------------------------------------------------------------

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

|March 19, 2003 |  | By: /s/RANDALL M. ROBEYRandall M. Robey
Executive Vice President and Treasurer
|-------------- |  | ------------------------------------------------------------------------------
|               |  | Board of Directors                                                            
|March 19, 2003 |  | /s/ROBERT J. AUMILLERRobert J. Aumiller
Director                              
|March 19, 2003 |  | /s/STEVEN K. BREEDENSteven K. Breeden
Director                                
|March 19, 2003 |  | /s/ALBERT R. COUNSELMANAlbert R. Counselman
Director                          
|March 19, 2003 |  | /s/HAROLD I. HACKERMANHarold I. Hackerman
Director                            
|March 19, 2003 |  | /s/JOHN P. HAUSWALDJohn P. Hauswald
Director                                  
|March 19, 2003 |  | /s/DAVID P. HESSLERDavid P. Hessler
Director                                  
|March 19, 2003 |  | /s/HOWARD S. KLEINHoward S. Klein
Director                                    
|March 19, 2003 |  | /s/BEN F. MASONBen F. Mason
Director                                          
|March 19, 2003 |  | /s/CHARLES E. MOORE, JR.Charles E. Moore, Jr.
Director                        
|March 19, 2003 |  | /s/JOHN PAUL ROGERSJohn Paul Rogers
Director                                  
|March 19, 2003 |  | /s/WILLIAM C. ROGERS, JR.William C. Rogers, Jr.
Director                      

58

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CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Carrollton Bancorp (the "Company") on Form 10-K for the period ending December 31, 2002, as filed
with the Securities and Exchange Commission and which this Certification is an exhibit (the "Report"), the undersigned hereby certifies, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, that:





|Date: March 4, 2003 |  |  | /s/ROBERT A. ALTIERIRobert A. Altieri
President and Chief Executive Officer
|------------------- |  |  | ---------------------------------------------------------------------------

---



CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Carrollton Bancorp (the "Company") on Form 10-K for the period ending December 31, 2002, as filed
with the Securities and Exchange Commission and which this Certification is an exhibit (the "Report"), the undersigned hereby certifies, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, that:





|Date: March 4, 2003 |  |  | /s/RANDALL M. ROBEYRandall M. Robey
Treasurer, Executive Vice President & CFO
|------------------- |  |  | -----------------------------------------------------------------------------

---



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                                                                                               |  |                           
|99.1           |  | Chief Executive Officer Certification of Annual Report on Form 10-K.                                                |  |                           
|99.2           |  | Chief Financial Officer Certification of Annual Report on Form 10-K.                                                |  |                           

61

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