EXHIBIT 13

                       2002 ANNUAL REPORT TO STOCKHOLDERS


<PAGE>




                       2002 ANNUAL REPORT TO STOCKHOLDERS
                         LEEDS FEDERAL BANKSHARES, INC.




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                                TABLE OF CONTENTS


                                                                     Page


Message to Our Stockholders.......................................      1
Selected Consolidated Financial and Other Data....................      2
Management's Discussion and Analysis of
  Financial Condition and Results of Operations...................      4
Selected Quarterly Financial Data.................................     14
Common Stock and Related Matters..................................     15
Independent Auditors' Report......................................    F-1
Consolidated Statements of Financial Condition....................    F-2
Consolidated Statements of Income and Comprehensive Income........    F-3
Consolidated Statements of Stockholders' Equity...................    F-4
Consolidated Statements of Cash Flows.............................    F-5
Notes to Consolidated Financial Statements........................    F-7



<PAGE>


                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

         The following table sets forth certain financial and other data of
Leeds Federal Bankshares, Inc. (the "Company"), or, prior to January 21, 1998,
Leeds Federal Savings Bank (the "Bank") at the dates and for the periods
indicated. For additional information about the Company, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and related
notes included elsewhere herein.
<TABLE>
<CAPTION>

                                                                                         At June 30,
                                                           -----------------------------------------------------------------------
                                                              2002           2001           2000            1999           1998
                                                           ----------     ----------     ----------     -----------     ----------
                                                                                         (In Thousands)
<S>                                                          <C>          <C>            <C>            <C>             <C>
Selected Consolidated Financial Condition Data
Total assets...........................................      $444,329     $  378,500     $  337,048     $   331,642     $  302,737
Loans receivable, net..................................       245,000        217,183        219,204         203,886        190,181
Investments* ..........................................       145,667        122,266         95,935         102,572         85,355
Mortgage-backed securities.............................        32.960         20,021          8,317          10,008         16,412
Deposits...............................................       384,320        320,471        281,866         274,626        245,270
Borrowed funds.........................................            79            274            384             471            552
Stockholders' equity, substantially restricted.........        52,722         50,889         47,409          48,504         49,308
------------------------------------
* Includes investment securities, interest-bearing deposits, and other investments.

                                                                                     Year Ended June 30,
                                                           -----------------------------------------------------------------------
                                                              2002           2001           2000            1999           1998
                                                           ----------     ----------     ----------     -----------     ----------
                                                                            (In Thousands Except Per Share Data)
Selected Consolidated Operating Data:
Interest income.......................................     $   22,991     $   22,957     $   22,070     $    20,842     $   20,309
Interest expense......................................         16,683         15,664         13,928          13,009         12,171
                                                           ----------     ----------     ----------     -----------     ----------
  Net interest income before provision for loan losses          6,308          7,293          8,142          7,833           8,138
Provision for loan losses.............................           (170)            --             21              39            192
                                                           ----------     ----------     ----------     -----------     ----------
  Net interest income after provision for loan losses.          6,478          7,293          8,121           7,794          7,946
                                                           ----------     ----------     ----------     -----------     ----------
Noninterest income:
  Service fees and charges............................            234            200            156             132            137
  Other income........................................            475            380            288             268            213
                                                           ----------     ----------     ----------     -----------     ----------
    Total noninterest income..........................            709            580            444             400            350
                                                           ----------     ----------     ----------     -----------     ----------
Noninterest expense:
  Compensation and employee benefits..................          2,109          1,994          1,759           1,573          1,770
  Occupancy...........................................            311            339            260             222            195
  Professional fees...................................            370            156             90             106            119
  SAIF deposit insurance premiums.....................            145            131            184             222            222
  Advertising.........................................             90            181            159             128            208
  Other  .............................................            990            701            627             590            581
                                                           ----------     ----------     ----------     -----------     ----------
    Total noninterest expenses........................          4,015          3,502          3,079           2,841          3,095
                                                           ----------     ----------     ----------     -----------     ----------
Income before provision for income taxes..............          3,172          4,371          5,486           5,353          5,201
Provision for income taxes............................            815          1,486          1,891           1,889          1,895
                                                           ----------     ----------     ----------     -----------     ----------
       Net income.....................................     $    2,357     $    2,885     $    3,595     $     3,464     $    3,306
                                                           ----------     ==========     ==========     ===========     ==========
Net income per common share
  Basic...............................................     $     0.52     $     0.64     $     0.78     $      0.69     $     0.65
  Diluted.............................................           0.51           0.63           0.77            0.69           0.64
Dividends declared per common share...................           0.60           0.60           0.59            0.56           0.55
                                                           ==========     ==========     ==========     ===========     ==========
</TABLE>


                                        2

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<TABLE>
<CAPTION>

                                                                                At or for the Year Ended June 30,
                                                              --------------------------------------------------------------------
                                                                  2002          2001          2000          1999          1998
                                                              ------------  ------------  ------------   -----------   -----------
<S>                                                                 <C>         <C>           <C>           <C>           <C>
Key Operating Ratios and Other Data:

Return on average assets (net income divided
  by average total assets)....................................      .56%        .83%          1.08%         1.11%         1.13%
Return on average equity (net income divided
  by average equity)..........................................     4.56        5.88           7.54          7.05          6.86
Net interest rate spread (difference between average yield
  on interest-earning assets and average cost of interest-
  bearing liabilities)........................................     1.08        1.48           1.86          1.80          2.03
Net interest margin (net interest income as a
  percentage of average interest-earning assets)..............     1.57        2.17           2.53          2.57          2.85
Net interest income to noninterest expense....................   157.11      208.25         264.44        275.71        262.94
Net interest income after provision for loan
  losses, to total noninterest expense........................   161.34      208.25         263.75        274.33        256.74
Noninterest income to average assets..........................      .17         .17            .13           .13           .12
Noninterest expense to average assets.........................      .96        1.01            .93           .91          1.06
Nonperforming loans to total loans............................      .10          --           1.16          1.36          1.32
Nonperforming assets to total assets..........................      .62         .67            .76           .83           .83
Average interest-earning assets to average
  interest-bearing liabilities................................   111.73      114.76         115.43        118.03        119.46
Stockholders' equity to average assets (average stock-
  holders' equity divided by average total assets)............    12.38       14.13          14.33         15.68         16.49
Equity to assets at period end................................    11.87       13.44          14.07         14.63         16.28
Number of full-service offices................................        2           2              2             1             1
</TABLE>



                                        3

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

General

         The earnings of the Company depend primarily on the earnings of Leeds
Federal Savings Bank (the "Bank"). The Company and the Bank are discussed herein
on a consolidated basis. The Company's earnings depend primarily on its net
interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of mortgage loans,
mortgage-backed securities, interest-earning deposits at other institutions,
investment securities and other investments, and the interest paid on
interest-bearing liabilities. Net interest income is a function of the Company's
interest rate spread, which is the difference between the average yield on
interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest- earning
assets as compared to interest-bearing liabilities. The Company's earnings also
are affected by its level of noninterest income, including primarily service
fees and charges, and noninterest expense, including primarily compensation and
employee benefits, professional fees and occupancy costs. Earnings of the
Company also are affected significantly by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities, which events are beyond the control of
the Company.

Forward-Looking Statements

         When used in this Annual Report, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to certain risks and uncertainties,
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, changes in
demand for loans in the Company's market area, and competition, that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Undue reliance should not be placed on any such
forward-looking statements, which speak only as of the date made. Moreover, the
factors listed above could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially from
any opinions or statements expressed with respect to future periods in any
current statements.

         The Company does not undertake, and specifically disclaims any
obligation, to publicly release the results of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

Business Strategy

         The Company's current business strategy is to operate the Bank as a
well-capitalized, profitable and community-oriented savings bank dedicated to
providing quality customer service. Generally, the Company has sought to
implement this strategy by using only retail deposits as its source of funds and
maintaining a substantial part of its assets in loans secured by one- to
four-family residential real estate located in the Company's market area, home
equity loans, consumer loans, mortgage-backed securities and in other liquid
investment securities. Specifically, the Company's business strategy
incorporates the following elements: (1) operating as a community-oriented
financial institution, maintaining a strong core customer base by providing
quality service and offering customers the access to senior management

                                        4

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and services that a community-based institution can offer; (2) maintaining high
asset quality by emphasizing investment in residential mortgage loans,
mortgage-backed securities and other securities issued or guaranteed by the
United States Government or agencies thereof; (3) maintaining capital in excess
of regulatory requirements and growing only to the extent that adequate capital
levels can be maintained; and (4) managing interest rate risk exposure while
achieving desirable levels of profitability.

Financial Condition

         Assets. Cash on hand and due from banks, interest bearing deposits,
other short-term investments and investment securities totaled approximately
$152.5 million at June 30, 2002, an increase of approximately $25.4 million, or
20.0%, from June 30, 2001 due to deposit inflows in excess of funds required for
mortgage originations. Mortgage-backed securities totaled $33.0 million, an
increase of $13.0 million, or 65.0%, due primarily to purchases of new
mortgage-backed securities. Loans receivable totaled $245.0 million, an increase
of $27.8 million, or 12.8%, due primarily to increased mortgage originations.

         Liabilities. Deposits increased $63.8 million, or 19.9%, to a total of
$384.3 million at June 30, 2002, compared to June 30, 2001. Such increase was
principally attributable to a general market trend of investors placing funds
into deposits instead of the equity markets. The Company has offered savings
rates that are competitive with other financial institutions. However, it has
not solicited brokered funds or negotiated jumbo certificates to achieve
increased deposit levels.

         Stockholders' Equity. Total stockholders equity increased $1.8 million,
or 3.5%, to $52.7 million at June 30, 2002, compared to June 30, 2001. The
increase was primarily attributable to the earnings of the Company of $2.4
million plus $511,000 for compensation expense for the ESOP, less dividends
declared on common stock of $727,000 and a decrease in other comprehensive
income due to a decrease in market value of securities available-for-sale of
$308,000.

Results of Operations

         The net income of the Company depends primarily on its level of net
interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of mortgage loans,
mortgage-backed securities, interest-earning deposits at other institutions,
investment securities and other investments, and the interest paid on
interest-bearing liabilities, which consist primarily of savings deposits. The
Company had net income of $2.4 million for the year ended June 30, 2002. Net
income totaled $2.9 million and $3.6 million for 2001 and 2000, respectively.

         Interest Income. Total interest income remained relatively unchanged at
$23.0 million for the years ended June 30, 2002 and June 30, 2001. Average
interest-earning assets increased to $402.6 million for the year ended June 30,
2002, from $336.0 million for the prior year, while the average yield on
interest-earnings assets decreased to 5.71%, from 6.83%. The increase in average
interest earning assets during the year ended June 30, 2002 resulted primarily
from an increase in mortgage loans and other investments, partially offset by a
decrease in investment securities. The decrease in average yield was primarily
due to lower market interest rates on investment securities and other
investments.

         Interest on mortgage loans increased by $1.0 million, or 6.6%, to $16.1
million for the year ended June 30, 2002. The average balance of mortgage loans
increased $19.4 million, or 9.2%, while the average yield on mortgage loans
decreased to 6.95%, from 7.12%. Interest income on consumer loans

                                        5

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decreased by $12,000 to $292,000 for the year ended June 30, 2002, from $304,000
for the prior year. The decrease was due to a decrease in average balance of
consumer loans to $3.8 million from $4.1 million. The average yield on consumer
loans for the year ended June 30, 2002, increased to 7.6%, from 7.3%. Interest
income on mortgage-backed securities increased $1.3 million, to $2.0 million for
the year ended June 30, 2002, from $714,000 for the prior year. The increase was
principally due to a $22.1 million increase in average balance of
mortgage-backed securities to $31.7 million for the year ended June 30, 2002,
from $9.6 million for the prior year. The average yield on mortgage-backed
securities for the year ended June 30, 2002, decreased to 6.4%, from 7.5% due to
lower market rates. Interest income on investment securities decreased by $2.5
million, to $2.1 million for the year ended June 30, 2002, from $4.6 million for
the prior year. Such decrease was the result of a decrease in the average yield
on investment securities to 5.6%, from 6.8%, and a $30.1 million decrease in
average balance of investment securities to $37.4 million for the year ended
June 30, 2002, from $67.5 million for the year ended June 30, 2001. The decrease
in the average balance of investment securities was the result of the calls of
callable securities. Interest income from interest-earning deposits decreased by
$762,000 to $381,000 for the year ended June 30, 2002, from $1.1 million for the
prior year. The average balance of interest earning deposits decreased to $16.3
million for the year ended June 30, 2002, from $20.1 million for the prior year.
The average yield on interest-earning deposits for the year ended June 30, 2002,
decreased to 2.3% from 5.7%, due to decreases in market interest rates during
the year. Interest income from other investments increased by $1.0 million to
$2.1 million, for the year ended June 30, 2002, from $1.1 million for the prior
year. The average balance of other investments increased due to repayments on
investment securities and deposit inflows by $59.2 million to $81.6 million for
the year ended June 30, 2002, from $22.4 million for the prior year, while the
average yield on other investments decreased to 2.6% for the period, from 4.8%
due to decreases in short-term interest rates.

         Total interest income increased by $887,000, or 4.0%, to $23.0 million
for the year ended June 30, 2001, from $22.1 million for the year ended June 30,
2000. The increase in interest income was primarily due to an increase in the
balance of average interest earning assets to $336.0 million for the year ended
June 30, 2001, from $322.3 million for the prior year, offset by a slight
decrease in the average yield on interest earnings assets to 6.83%, from 6.85%.
The increase in average interest-earning assets during the year ended June 30,
2001, resulted primarily from an increase in interest-earning deposits and other
investments, partially offset by a decrease in investment securities.

         Interest on mortgage loans increased slightly by $54,000, or 0.4%, to
$15.1 million for the year ended June 30, 2001. Average balance of mortgage
loans decreased $743,000, or 0.3%, while the average yield on mortgage loans
increased to 7.12%, from 7.06%. Interest income on consumer loans increased by
$29,000 to $304,000 for the year ended June 30, 2001, from $275,000 for the
prior year. The increase was due to an increase in average balance of consumer
loans to $4.1 million from $3.8 million. The average yield on consumer loans for
the year ended June 30, 2001, increased to 7.3%, from 7.2%. Interest income on
mortgage-backed securities increased $77,000, or 12.1%, to $714,000 for the year
ended June 30, 2001, from $637,000 for the prior year. The increase was
principally due to a $446,000 increase in average balance of mortgage-backed
securities to $9.6 million for the year ended June 30, 2001, from $9.1 million
for the prior year. The average yield on mortgage-backed securities for the year
ended June 30, 2001, increased to 7.4%, from 7.0%. Interest income on investment
securities decreased by $144,000, to $4.6 million for the year ended June 30,
2001, from $4.8 million for the prior year. Such decrease was the result of a
$4.2 million decrease in average balance of investment securities to $67.5
million for the year ended June 30, 2001, from $71.7 million for the year ended
June 30, 2000, offset by an increase in the average yield on investment
securities to 6.8%, from 6.6%. The decrease in the average balance of investment
securities was the result of maturities. Interest income from interest- earning
deposits increased by $538,000 to $1.1 million for the year ended June 30, 2001,
from $605,000

                                        6

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for the prior year. The average balance of interest earning deposits increased
to $20.1 million for the year ended June 30, 2001, from $10.9 million for the
prior year. Such increase was the result of maturities of investment securities
and deposit inflows. The average yield on interest-earning deposits for the year
ended June 30, 2001, increased to 5.7% from 5.6%, due to increases in market
interest rates during the year. Interest income from other investments increased
by $332,000 to $1.1 million, for the year ended June 30, 2001, from $742,000 for
the prior year. The average balance of other investments increased by $8.7
million to $22.4 million for the year ended June 30, 2001, from $13.7 million
for the prior year, while the average yield on other investments decreased to
4.8% for the period, from 5.4% due to decreases in short-term interest rates.

         Interest Expense. Total interest expense increased by $1.0 million, or
6.5%, to $16.7 million for the year ended June 30, 2002, from $15.7 million for
the year ended June 30, 2001. Such increase was the result of an increase in the
average balance of interest-bearing liabilities of $67.5 million to $360.3
million for the year ended June 30, 2002, from $292.8 million for the prior year
due to strong deposit inflows, partially offset by a decrease in the average
cost of interest-bearing liabilities to 4.6% from 5.4%. The lower cost reflects
generally lower market rates during the year and a shorter average maturity of
deposits.

            Total interest expense increased by $1.7 million, or 12.5%, to $15.7
million for the year ended June 30, 2001, from $13.9 million for the year ended
June 30, 2000. Such increase was the result of an increase in the average
balance of interest-bearing liabilities of $13.6 million to $292.8 million for
the year ended June 30, 2001, from $279.2 million for the prior year and an
increase in the average cost of interest-bearing liabilities to 5.4% from 5.0%.
The higher cost reflects generally higher market rates in the first half on the
year and the longer average maturity of deposits.

         Net Interest Income. Net interest income decreased by $985,000, or
13.5% to $6.3 million for the year ended June 30, 2002, from $7.3 million for
the year ended June 30, 2001. This decrease was due principally to a decrease in
the average interest rate spread to 1.08% from 1.48%. This decrease was caused
primarily by a 112 basis point decrease in the average yield on interest earning
assets, partially offset by a 72 basis point decrease in the cost of interest
bearing liabilities.

        Net interest income decreased by $849,000, or 10.4%. to $7.3 million for
the year ended June 30, 2001, from $8.1 million for the year ended June 30,
2000. This decrease was due principally to a decrease in the average interest
rate spread to 1.48% from 1.86%. This decrease was caused primarily by a 37
basis points increase in the average cost of deposits and a $13.6 million
increase in the average balance of deposits, as well as a 2 basis points
decrease in the average yield on interest-earning assets.

         Provision for Loan Losses. The Company maintains an allowance for loan
losses, which was $559,000 at June 30, 2002, in accordance with accounting
principles generally accepted in the United States of America. The allowance
exists to cover probable losses inherent in the Company's loan portfolio. In
addition to historical loss experience, the Company considers other factors that
are likely to cause loan losses, including changes in economic and business
conditions, changes in the composition and volume of the portfolio, trends in
the level of past due and classified loans and the status of nonperforming
loans. The Company reduced its allowance for loan losses by a credit to the
provision for loan losses of $170,000 for the year ended June 30, 2002. The
Company has experienced continued high credit quality, even in the current
economic downturn. The Company's provision for loan losses was $154 for the year
ended June 30, 2001 and $21,000 for the year ended June 30, 2000. Management
believes that, on an overall basis, the allowance for loan losses at June 30,
2002 is sufficient to address the credit risk of the Bank.


                                        7

<PAGE>


         Noninterest Income. Noninterest income increased by $129,000 to
$709,000 for the year ended June 30, 2002, from $580,000 for the year ended June
30, 2001. The increase was due to increases in service fees and charges and
increases in the cash surrender value of life insurance investments.

         Noninterest income increased by $135,000 to $580,000 for the year ended
June 30, 2001, from $445,000 for the year ended June 30, 2000. The increase was
due to increases in service fees and charges and increases in the cash surrender
value of life insurance investments.

         Noninterest Expense. Noninterest expense increased by $513,000, to $4.0
million for the year ended June 30, 2002, from $3.5 million for the year ended
June 30, 2001. Compensation and employee benefits increased by $115,000 to $2.1
million for the year ended June 30, 2002, from $2.0 million for the prior year
due primarily to increased expense recognized on our Employee Stock Ownership
Plan. Professional fees increased $215,000 to $371,000 for the year ended June
30, 2002, due principally to expenses incurred in connection with the proposed
merger with Northwest Bancorp, Inc. and Northwest Bancorp, MHC. Advertising
decreased $91,000 to $90,000 for the year ended June 30, 2002 from $181,000 for
the prior year in response to changes in market conditions. Other expenses
increased $289,000 to $990,000 for the year ended June 30, 2002, from $701,000
for the prior year, due principally to an increase in real estate owned expense
of $159,000 and increases in other operating expenses.

         Noninterest expense increased by $423,000, to $3.5 million for the year
ended June 30, 2001, from $3.1 million for the year ended June 30, 2000.
Compensation and employee benefits increased by $234,000 to $2.0 million for the
year ended June 30, 2001, from $1.8 million for the prior year. The increase was
due principally to additional staffing in the Bank's branch office and other
normal increases in salary levels. Occupancy expense, advertising and other
expenses also increased, principally due to additional costs in operating the
new branch. Savings Association Insurance Fund ("SAIF") deposit insurance
premiums decreased due to a decrease in the premium rate assessed.

         The ratio of noninterest expenses to average assets was 0.96%, 1.01%,
and 0.93% for the years ending June 30, 2002, 2001 and 2000, respectively.

         The provision for income taxes was approximately $815,000, $1.5 million
and $1.9 million for the years ended June 30, 2002, 2001 and 2000. The effective
tax rates were 25.7%, 34.0% and 34.5% for the years ended June 30, 2002, 2001
and 2000, respectively. The lower effective rates in 2002 reflects the fact that
a higher portion of the Company's pretax income consists of income that is not
subject to federal and state income taxes, including an increase in the cash
surrender value of life insurance investments. The decrease in the effective tax
rate in 2001 was due to lower state income taxes.

         Other Comprehensive Income. The accumulated unrealized gains on
securities available-for- sale, net of related income taxes, decreased $308,000
for the year ended June 30, 2002, as compared to an increase of $1.2 million and
a decrease of $802,000 for the years ended June 30, 2001 and 2000, respectively.
These changes primarily reflect fluctuations in interest rates and general
market trends.


                                        8

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Average Balance Sheet

         The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from daily balances.
<TABLE>
<CAPTION>

                                                                                Year Ended June 30,
                                              -------------------------------------------------------------------------------------
                                                                2002                                         2001
                                              ----------------------------------------      ---------------------------------------
                                                                             Average                                       Average
                                                 Average                     Yield/           Average                      Yield/
                                                 Balance      Interest        Cost            Balance      Interest         Cost
                                              ------------  ------------  ------------      -----------   -----------   -----------
                                                                             (Dollars in Thousands)
<S>                                           <C>                 <C>          <C>          <C>                <C>          <C>
Interest-earning assets:
  Mortgage loans (1).......................   $    231,763        16,113       6.95%        $   212,328        15,108       7.12%
  Consumer and other loans.................          3,847           292       7.59               4,139           304       7.34
  Mortgage-backed securities...............         31,676         2,033       6.42               9,587           714       7.45
  Investment securities....................         37,360         2,084       5.58              67,499         4,613       6.83
  Interest-earning deposits (2)............         16,335           381       2.33              20,077         1,143       5.69
  Other investments (3)....................         81,613         2,088       2.56              22,352         1,075       4.81
                                              ------------  ------------  ---------         -----------   -----------   --------
     Total interest-earning assets.........        402,594        22,991       5.71             335,982        22,957       6.83
                                                            ------------  ---------                       -----------   --------
Noninterest-earning assets.................         15,053                                       11,473
                                              ------------                                  -----------
     Total assets..........................   $    417,647                                  $   347,455
                                              ============                                  ===========
Interest-bearing liabilities:
  Savings deposits.........................   $    360,178        16,675       4.63         $   292,453        15,638       5.35
  Other borrowed funds.....................            165             8       4.85                 318            26       8.18
                                              ------------  ------------  ---------         -----------   -----------   --------
     Total interest-bearing liabilities....        360,343        16,683       4.63             292,771        15,664       5.35
                                                            ------------  ---------                       -----------   --------
Noninterest-bearing liabilities............          5,605                                        5,592
                                              ------------                                  -----------
     Total liabilities.....................        365,948                                      298,363
Stockholders' equity.......................         51,699                                       49,092
                                              ------------                                  -----------
     Total liabilities and
     stockholders' equity..................   $    417,647                                  $   347,455
                                              ============                                  ===========
Net interest income........................                 $      6,308                                  $     7,293
                                                            ------------                                  ===========
Net interest rate spread (4)...............                                    1.08%                                        1.48%
                                                                          =========                                     ========
Net interest margin (5)....................                                    1.57%                                        2.17%
                                                                          =========                                     ========
Average interest-earning assets to
Average interest-bearing liabilities.......                                  111.73%                                      114.76%
                                                                          =========                                     ========
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                             Year Ended June 30,
                                              ----------------------------------------------
                                                                   2000
                                              ----------------------------------------------
                                                                                   Average
                                                 Average                           Yield/
                                                 Balance         Interest           Cost
                                              -----------      ------------     ------------
                                                         (Dollars in Thousands)
<S>                                           <C>              <C>                   <C>
Interest-earning assets:
  Mortgage loans (1).......................   $   213,071      $     15,054          7.06%
  Consumer and other loans.................         3,836               275          7.17
  Mortgage-backed securities...............         9,141               637          6.97
  Investment securities....................        71,687             4,757          6.64
  Interest-earning deposits (2)............        10,889               605          5.56
  Other investments (3)....................        13,660               742          5.44
                                              -----------      ------------     ---------
     Total interest-earning assets.........       322,284            22,070          6.85
                                                               ------------     ---------
Noninterest-earning assets.................        10,348
                                              -----------
     Total assets..........................   $   332,632
                                              ===========
Interest-bearing liabilities:
  Savings deposits.........................   $   278,775            13,890          4.98
  Other borrowed funds.....................           422                38          9.00
                                              -----------      ------------     ---------
     Total interest-bearing liabilities....       279,197            13,928          4.99
                                                               ------------     ---------
Noninterest-bearing liabilities............         5,774
                                              -----------
     Total liabilities.....................       284,971
Stockholders' equity.......................        47,661
                                              -----------
     Total liabilities and
     stockholders' equity..................   $   332,632
                                              ===========
Net interest income........................                    $      8,142
                                                               ============
Net interest rate spread (4)...............                                          1.86%
                                                                                =========
Net interest margin (5)....................                                          2.53%
                                                                                =========
Average interest-earning assets to
Average interest-bearing liabilities.......                                        115.43%
                                                                                =========
----------------------------------------
</TABLE>

(1)  Includes one- to  four-family  residential  real estate loans,  home equity
     loans, and commercial real estate loans.
(2)  Includes secured short term loans to commercial banks and  interest-earning
     deposits in other institutions.
(3)  Includes Federal Home Loan Bank stock and other assets.
(4)  Net interest  rate spread  represents  the  difference  between the average
     yield on  interest-earning  assets and the average cost of interest-bearing
     liabilities.
(5)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.


                                        9

<PAGE>


Rate/Volume Analysis

         The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the changes in average volume); and (iv) the net
change.
<TABLE>
<CAPTION>

                                                                         Year Ended June 30,
                                    ------------------------------------------------------------------------------------------------
                                                     2002 vs. 2001                                  2001 vs. 2000
                                    ---------------------------------------------- -------------------------------------------------
                                               Increase/(Decrease)                           Increase/(Decrease)
                                                     Due to                                        Due to
                                    ----------------------------------    Total    ------------------------------------      Total
                                                               Rate/     Increase                              Rate/       Increase
                                       Volume      Rate       Volume    (Decrease)   Volume         Rate      Volume      (Decrease)
                                    ----------- ---------- ----------- ----------- ------------ ---------- ------------  -----------
                                                                          (In Thousands)
<S>                                 <C>         <C>        <C>         <C>           <C>        <C>        <C>           <C>
Interest income:
  Mortgage loans (1)............... $   1,384   $   (360)  $     (19)  $   1,005     $    (52)  $    128   $     (22)    $      54
  Consumer and other loans.........       (21)        10          (1)        (12)          22          6           1            29
  Mortgage-backed securities.......     1,646        (99)       (228)      1,319           31         43           3            77
  Investment securities............    (2,058)      (844)        373      (2,529)        (278)       136          (2)         (144)
  Interest-earning deposits (2)....      (213)      (675)        126        (762)         511         14          13           538
  Other investments (3)............     2,850       (503)     (1,334)      1,013          473        (86)        (54)          333
                                    ---------   --------   ---------   ---------     --------   --------   ---------     ---------
  Total interest-earning assets....     3,588     (2,471)     (1,083)         34          707        241         (61)          887
                                    ---------   --------   ----------  ---------     --------   --------   ----------    ---------
Interest expense...................     3,615     (2,108)       (488)      1,019          677      1,005          54         1,736
                                    ---------   --------   ----------  ---------     --------   --------   ---------     ---------
Change in net interest income...... $     (27)  $   (363)  $    (595)  $    (985)    $     30   $   (764)  $    (115)    $    (849)
                                    =========   ========   =========   =========     ========   ========   =========     =========
-----------------------------------------
</TABLE>

(1)  Includes one- to  four-family  residential  real estate loans,  home equity
     loans, and commercial real estate loans.
(2)  Includes secured short term loans to commercial banks and  interest-earning
     deposits in other institutions.
(3)  Includes Federal Home Loan Bank stock and other assets.

Management of Market Risk

         Like other financial institution holding companies, the Company's most
significant form of market risk is interest rate risk. The Company is subject to
interest rate risk because its liabilities generally have shorter terms or
maturities than its assets. As a result, its liabilities are more sensitive to
changes in market interest rates. The general objective of the Company's
interest rate risk management is to determine the appropriate level of risk
given the Company's business strategy, and then manage that risk in a manner
that is consistent with the Company's policy to reduce exposure of the Company's
net interest income to changes in market interest rates.

         The Company's policy in recent years has been to attempt to better
match the maturities and interest rates of its interest rate sensitive assets
and liabilities by emphasizing fixed-rate one- to four- family mortgage loans
with terms of 15 years or less, adjustable-rate first mortgages and home equity
loans, and to maintain relatively high levels of liquidity. By maintaining a
significant percentage of its assets in cash and other liquid investments, the
Company is able to reinvest a higher percentage of its assets more quickly in
response to changes in market interest rates, thereby reducing its exposure to
interest rate volatility. The Company does not utilize derivative instruments or
engage in other hedging activities to manage interest rate risk.

         The Company has an Asset-Liability Management Committee which is
responsible for reviewing the Company's asset and liability policies. The
Committee meets weekly and reports monthly to the Board of Directors on interest
rate risks and trends, as well as liquidity and capital requirements.

         The Company measures  interest rate risk in terms of the sensitivity of
the Company's net

                                       10

<PAGE>



portfolio value ("NPV") to changes in interest rates. NPV is the difference
between incoming and outgoing discounted cash flows from assets, liabilities,
and off-balance sheet contracts. The following table presents the pro forma
computations of the Company's NPV as of June 30, 2002. Given the current low
level of interest rates and the low probability of further significant declines
in absolute rates, we did not calculate NPV for interest rate decreases of
greater then 100 basis points.
<TABLE>
<CAPTION>

                                                                                    NPV as Percentage of
        Change in                                                                 Present Value of Assets
     Interest Rates                     Net Portfolio Value                   --------------------------------
     in Basis Points  ---------------------------------------------------                          Basis Point
      (Rate Shock)      $  Amount           $ Change         % Change            NPV Ratio           Change
     ---------------  ---------------     -------------     -------------     --------------    --------------
                                              (Dollars in Thousands)
         <S>              <C>               <C>                <C>                 <C>              <C>
         300              34,061            (28,134)           (45)%               8.03%            (551)bp
         200              42,262            (18,933)           (30)%               9.93%            (361)bp
         100              53,156             (9,069)           (15)%              11.87%            (168)bp
       Static             62,195                 --              --               13.55%              --
        (100)             66,093              3,899               6%              14.20%               65bp
</TABLE>

         The above table indicates that at June 30, 2002, in the event of a
sudden and sustained increase in prevailing market rates, the Company's NPV
would be expected to decrease, and that in the event of a sudden and sustained
decrease in prevailing market interest rates, the Company's NPV would be
expected to increase. The Company's Board of Directors reviews the Company's NPV
position quarterly, and, if estimated changes in NPV are not within the targets
established by the Board, the Board may direct management to adjust the asset
and liability mix to bring interest rate risk within Board approved targets.

         Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. The NPV table presented above
assumes that the composition of the Company's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured. It also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing characteristics of specific assets and liabilities.
Accordingly, although the NPV table provides an indication of the Company's
interest rate risk exposure at a particular point in time, such measurements are
not intended to and do not provide a precise forecast of the effect of changes
in market interest rates on the Company's net interest income and will differ
from actual results.

                                       11

<PAGE>


Liquidity and Capital Resources

         The Bank is required to maintain liquid assets, as defined by Office of
Thrift Supervision ("OTS") regulations, to operate in a safe and sound manner.
The Bank adjusts its liquidity levels in order to meet funding needs of deposit
outflows, payment of real estate taxes on mortgage loans and loan commitments.
The Bank also adjusts liquidity as appropriate to meet its asset and liability
management objectives.

         The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other investments, and earnings and funds provided from
operations. While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition. The Bank manages the pricing of its deposits to
maintain a desired deposit balance. In addition, the Bank invests in short-term
interest-earning assets, which provide liquidity to meet lending requirements.
Assets qualifying for liquidity at June 30, 2002, totaled $140.4 million. For
additional information about cash flows from the Bank's operating, financing,
and investing activities, see "Consolidated Statements of Cash Flows" included
in the Consolidated Financial Statements.

         A major portion of the Bank's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities. The primary sources of cash are net income, principal repayments on
loans and mortgage-backed securities, and increases in deposit accounts.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds; however, the Bank has never borrowed funds from the FHLB.

         At June 30, 2002, the Bank had outstanding loan commitments of $4.0
million. This amount does not include $13.3 million of undisbursed lines of
credit on home equity loans, and the unfunded portion of loans in process.
Certificates of deposit scheduled to mature in less than one year at June 30,
2002, totaled $206.3 million. Based on prior experience, management believes
that a significant portion of such deposits will remain with the Bank.

         At June 30, 2002, the Bank exceeded OTS capital requirements. Set forth
below is a summary of the Bank's compliance with the following OTS capital
standards as of June 30, 2002.
<TABLE>
<CAPTION>

                                                                                    Minimum               To Be Well Capitalized
                                                                                  For Capital             Under Prompt Corrective
                                                     Actual                    Adequacy Purposes             Action Provisions
                                            -------------------------     -------------------------     --------------------------
                                              Amount        Ratio (1)       Amount        Ratio (1)        Amount        Ratio(1)
                                            ----------     ----------     ----------     ----------     -----------     ---------
<S>                                         <C>              <C>          <C>               <C>         <C>                <C>
As of June 30, 2002:
  Tier I core capital....................   $ 49,961         11.35%       $ 17,607          4.00%       $  22,009         >5.0%
  Tier I risk-based capital..............     49,961         18.55          10,772          4.00           16,159         >6.0
  Total risk-based capital...............     52,338         19.43          21,545          8.00           26,931        >10.0
</TABLE>

(1)  Core capital is calculated  on the basis of a percentage of total  adjusted
     assets;  risk-based  capital  levels  are  calculated  on  the  basis  of a
     percentage of risk-weighted assets.


                                       12

<PAGE>


Impact of Inflation and Changing Prices

         The financial statements of the Company and notes thereto, presented
elsewhere herein, have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
nearly all the assets and liabilities of the Company are monetary. As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.

Impact of New Accounting Standards

         There are no recently issued accounting standards anticipated to have
an impact on future consolidated financial statements.




                                       13

<PAGE>


                        SELECTED QUARTERLY FINANCIAL DATA

         A summary of selected quarterly financial data for the years ended June
30, 2002 and 2001 is as follows:
<TABLE>
<CAPTION>

                                                   First               Second               Third              Fourth
                                                  Quarter              Quarter             Quarter             Quarter
                                              -------------------------------------------------------------------------
                                                          (In Thousands Except Per Share Data)
<S>                                           <C>                 <C>                  <C>                 <C>
Fiscal 2002
Interest income........................       $    5,940          $     5,666          $    5,696          $    5,689
Net interest income....................            1,616                1,359               1,542               1,791
Provision for loan losses..............             ----                -----                ----                (170)
Income before provision
  for income taxes.....................              780                  580                 746               1,066
Net income.............................              584                  464                 557                 752
                                              ==========          ===========          ==========          ==========
Net income per common share:
  Basic................................       $      .13          $       .10          $      .12          $      .17
  Diluted..............................              .13                  .10                 .12                 .16
                                              ==========          ===========          ==========          ==========

Fiscal 2001

Interest income........................       $    5,710          $     5,714          $    5,718          $    5,815
Net interest income....................            1,928                1,824               1,822               1,719
Provision for loan losses..............               --                   --                  --                  --
Income before provision
  for income taxes.....................            1,245                1,103               1,007               1,016
Net income.............................              798                  750                 666                 671
                                              ==========          ===========          ==========          ==========

Net income per common share:
  Basic................................       $      .17          $       .17          $      .15          $      .15
  Diluted..............................              .17                  .16                 .15                 .15
                                              ==========          ===========          ==========          ==========
</TABLE>



                                       14

<PAGE>


                        COMMON STOCK AND RELATED MATTERS

         The Company's common stock is listed on the Nasdaq National Market
under the symbol "LFED." As of August 20, 2002, the Company had five registered
market makers, 396 stockholders of record (excluding the number of persons or
entities holding stock in street name through various brokerage firms), and
4,550,931 shares outstanding. As of such date, Leeds Federal Bankshares, M.H.C.
(the "Mutual Holding Company"), the Company's mutual holding company, held
3,300,000 shares of common stock and stockholders other than the Mutual Holding
Company held 1,250,931 shares.

         The following table sets forth market price and dividend information
for the common stock for each quarter of the previous two fiscal years.

    Fiscal Year Ended                                       Cash Dividends
      June 30, 2002             High            Low             Declared
  ---------------------     ------------   ------------   --------------------

    First quarter            $  31.34       $  15.40        $     .15
    Second quarter              32.35          31.00              .15
    Third quarter               32.00          31.13              .15
    Fourth quarter              31.99          30.75              .15


    Fiscal Year Ended                                       Cash Dividends
      June 30, 2001             High            Low             Declared
  ---------------------     ------------   ------------   --------------------

    First quarter            $  14.25       $  10.44        $     .15
    Second quarter              14.19          12.38              .15
    Third quarter               13.56          12.69              .15
    Fourth quarter              16.90          13.10              .15


         Payment of dividends on the Company's common stock is subject to
determination and declaration by the Board of Directors and will depend upon a
number of factors, including capital requirements, regulatory limitations on the
payment of dividends, the Company's results of operations and financial
condition, tax considerations and general economic conditions. No assurance can
be given that dividends will be declared or, if declared, what the amount of
dividends will be, or whether such dividends, once declared, will continue.

         OTS regulations impose limitations upon all "capital distributions" by
savings institutions, including cash dividends, payments by a savings
institution to repurchase or otherwise acquire its stock, payments to
stockholders of another savings institution in a cash-out merger, and other
distributions charged against capital. The regulations establish a three-tiered
system of regulation, with the greatest flexibility being afforded to
well-capitalized or Tier 1 savings associations. As of June 30, 2002, the most
recent notification categorized the Bank as "well-capitalized." Accordingly,
under the OTS capital distribution regulations, the Bank would be permitted to
pay, upon notice to the OTS, dividends during any calendar year up to 100% of
its net income during that calendar year, plus its retained net income for the
preceding two years.

         In addition to the foregoing, earnings of the Company appropriated to
bad debt reserves and deducted for federal income tax purposes are not available
for payment of cash dividends or other

                                       15

<PAGE>



distributions to stockholders without payment of taxes at the then-current tax
rate by the Company on the amount of earnings removed from the reserves for such
distributions. The Company intends to make full use of this favorable tax
treatment and does not contemplate any distribution by the Company in a manner
that would create federal tax liability.

         The Mutual Holding Company has waived the receipt of all dividends paid
by the Company. OTS regulations require the Mutual Holding Company to notify the
OTS of any proposed waiver of the receipt of dividends. The OTS will not object
to a notice of intent to waive dividends if the waiver would not be detrimental
to the safe and sound operation of a mutual holding company's underlying savings
association, and the mutual holding company's board of directors determines that
the waiver is consistent with the directors' fiduciary duties to the mutual
holding company.


                                       16

<PAGE>



                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                        Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000

                   (With Independent Auditors' Report Thereon)


<PAGE>


                          Independent Auditors' Report



The Board of Directors
Leeds Federal Bankshares, Inc.
Baltimore, Maryland:


We have audited the accompanying  consolidated statements of financial condition
of Leeds Federal  Bankshares,  Inc. and subsidiary as of June 30, 2002 and 2001,
and the related  consolidated  statements  of income and  comprehensive  income,
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended June 30, 2002.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated 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 Leeds  Federal
Bankshares, Inc. and subsidiary as of June 30, 2002 and 2001, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 2002 in conformity  with accounting  principles  generally
accepted in the United States of America.



\s\ KPMG LLP



August 2, 2002, except for note 18
   as to which the date is August 28, 2002

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY
                 Consolidated Statements of Financial Condition
                             June 30, 2002 and 2001

<TABLE>
<CAPTION>
                            Assets                                         2002             2001
                                                                      -------------     -----------
<S>                                                                   <C>               <C>
Cash, including interest-bearing deposits of $1,929,277 in 2002
  and $2,198,218 in 2001 ..........................................   $   8,784,723       7,015,942
Short-term investments ............................................     100,612,524      35,334,058
Secured short-term loans to commercial banks ......................      19,848,989      16,225,333
Securities available-for-sale, amortized cost of $1,156,760 in 2002
  and $1,256,760 in 2001 (note 2) .................................       5,199,177       5,802,094
Investment securities held-to-maturity (fair value of $15,450,753
  in 2002 and $59,451,083 in 2001) (note 3) .......................      15,498,705      60,518,903
Mortgage-backed securities held-to-maturity (fair value of
  $33,475,666 in 2002 and $20,018,094 in 2001) (note 4) ...........      32,959,769      20,021,025
Loans receivable, net (note 5) ....................................     245,000,388     217,182,587
Investment in Federal Home Loan Bank of Atlanta stock,
  at cost (note 10) ...............................................       2,578,200       2,187,200
Property and equipment, net (note 6) ..............................       2,076,698       2,205,229
Cash surrender value of life insurance (note 11) ..................       7,455,859       7,023,712
Accrued interest receivable .......................................       1,587,932       2,236,760
Other real estate owned (note 7) ..................................       2,538,455       2,540,127
Prepaid expenses and other assets .................................         187,948         207,267
                                                                      -------------    ------------
                                                                      $ 444,329,367     378,500,237
                                                                      =============    ============
                Liabilities and Stockholders' Equity
Liabilities:
  Savings accounts (note 8) .......................................   $ 384,320,466     320,470,865
  Borrowed funds - employee stock ownership plan (note 12) ........          79,238         274,123
  Advance payments by borrowers for taxes, insurance and
    ground rents ..................................................       3,576,296       3,515,261
  Federal and state income taxes (note 9):
    Currently payable .............................................         581,948         218,075
    Deferred ......................................................         953,198       1,219,523
  Accrued expenses and other liabilities (notes 11 and 13) ........       2,095,787       1,913,349
                                                                      -------------    ------------
      Total liabilities ...........................................     391,606,933     327,611,196
                                                                      -------------    ------------
Stockholders' equity (notes 10, 12, and 15):
  Common stock, $1 par value. Authorized 20,000,000 shares;
    issued 5,205,597 shares .......................................       5,205,597       5,205,597
  Additional paid-in-capital ......................................      10,022,486       9,667,133
  Unearned employee stock ownership plan shares ...................         (24,826)       (180,672)
  Treasury stock, at cost;  667,416 shares ........................      (8,336,969)     (8,336,969)
  Retained income, substantially restricted .......................      43,381,082      41,750,444
  Accumulated other comprehensive income ..........................       2,475,064       2,783,508
                                                                      -------------    ------------
      Total stockholders' equity ..................................      52,722,434      50,889,041
Commitments (notes 11, 12, and 14)
                                                                      -------------    ------------
                                                                      $ 444,329,367     378,500,237
                                                                      =============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC.AND SUBSIDIARY
           Consolidated Statements of Income and Comprehensive Income
                    Years ended June 30, 2002, 2001, and 2000



<TABLE>
<CAPTION>
                                                              2002           2001          2000
                                                          ------------    ----------    ----------
<S>                                                       <C>             <C>           <C>
Interest income:
  First mortgage and other loans ......................   $ 16,404,890    15,411,216    15,328,947
  Investment securities and short-term investments ....      4,553,484     6,832,640     6,104,071
  Mortgage-backed securities ..........................      2,032,949       713,592       636,556
                                                          ------------    ----------   -----------
      Total interest income ...........................     22,991,323    22,957,448    22,069,574
                                                          ------------    ----------   -----------
Interest expense:
  Savings accounts (note 8) ...........................     16,674,802    15,635,632    13,889,755
  Other ...............................................          8,570        28,701        38,030
                                                          ------------    ----------   -----------
      Total interest expense ..........................     16,683,372    15,664,333    13,927,785
                                                          ------------    ----------   -----------
      Net interest income .............................      6,307,951     7,293,115     8,141,789
Provision for loan losses (note 5) ....................       (170,000)          154        20,983
                                                          ------------    ----------   -----------
      Net interest income after provision
        for loan losses ...............................      6,477,951     7,292,961     8,120,806
                                                          ------------    ----------   -----------
Non-interest income:
  Service fees and charges ............................        234,230       199,809       156,241
  Increase in cash surrender value of life insurance ..        432,147       336,175       288,064
  Other ...............................................         42,989        44,178           520
                                                          ------------    ----------   -----------
                                                               709,366       580,162       444,825
                                                          ------------    ----------   -----------
Non-interest expense:
  Compensation and employee benefits ..................      2,109,057     1,993,616     1,759,282
  Occupancy expense ...................................        310,821       338,892       259,710
  Professional fees ...................................        370,725       156,110        89,809
  SAIF deposit insurance premiums (note 10) ...........        144,631       131,153       184,213
  Advertising .........................................         89,928       181,365       158,807
  Other ...............................................        990,010       700,892       627,377
                                                          ------------    ----------   -----------
                                                             4,015,172     3,502,028     3,079,198
                                                          ------------    ----------   -----------
      Income before provision for
        income taxes ..................................      3,172,145     4,371,095     5,486,433
Provision for income taxes (note 9) ...................        814,955     1,485,890     1,891,125
                                                          ------------    ----------   -----------
      Net income ......................................      2,357,190     2,885,205     3,595,308
Other comprehensive income, net of tax:
  Unrealized gain (loss) on securities
    available-for-sale, net of tax expense (benefit) of
    ($194,473) in 2002, $772,072 in 2001 and
    ($491,100) in 2000 ................................       (308,444)    1,246,505      (801,885)
                                                          ------------    ----------   -----------
      Comprehensive income ............................   $  2,048,746     4,131,710     2,793,423
                                                          ============    ==========   ===========
Net income per share of common stock (note 16):
  Basic ...............................................   $       0.52          0.64          0.78
  Diluted .............................................           0.51          0.63          0.77
                                                          ============    ==========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY
                 Consolidated Statements of Stockholders' Equity
                    Years ended June 30, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                Unearned                     Retained     Accumulated
                                                                employee                      income,        other         Total
                                               Additional   stock ownership    Treasury    substantially comprehensive stockholders'
                               Common stock paid-in capital   plan shares   stock, at cost   restricted      income       equity
                               ------------ --------------- --------------- -------------- ------------- ------------- -------------
<S>                             <C>             <C>            <C>            <C>           <C>            <C>          <C>
Balance at June 30, 1999 .....  $5,195,597      9,367,161      (390,682)      (4,740,869)   36,734,317     2,338,888    48,504,412
Compensation expense - ESOP ..          --         48,535        93,616               --            --            --       142,151
Exercise of stock options ....      10,000         69,200            --               --            --            --        79,200
Income tax benefit of stock
  awards and stock options ...          --        121,915            --               --            --            --       121,915
Dividends ($0.59 per share) ..          --             --            --               --      (755,778)           --      (755,778)
Net income ...................          --             --            --               --     3,595,308            --     3,595,308
Other comprehensive income ...          --             --            --               --            --      (801,885)     (801,885)
Purchases of treasury stock ..          --             --            --       (3,475,850)           --            --    (3,475,850)
                                ----------     ----------      --------       ----------    ----------     ---------    ----------
Balance at June 30, 2000 .....   5,205,597      9,606,811      (297,066)      (8,216,719)   39,573,847     1,537,003    47,409,473
Compensation expense - ESOP ..          --         60,322       116,394               --            --            --       176,716
Dividends ($0.60 per share) ..          --             --            --               --      (708,608)           --      (708,608)
Net income ...................          --             --            --               --     2,885,205            --     2,885,205
Other comprehensive income ...          --             --            --               --            --     1,246,505     1,246,505
Purchases of treasury stock ..          --             --            --         (120,250)           --            --      (120,250)
                                ----------     ----------      --------       ----------    ----------     ---------    ----------
Balance at June 30, 2001 .....   5,205,597      9,667,133      (180,672)      (8,336,969)   41,750,444     2,783,508    50,889,041
Compensation expense - ESOP ..          --        355,353       155,846               --            --            --       511,199
Dividends ($0.60 per share) ..          --             --            --               --      (726,552)           --      (726,552)
Net income ...................          --             --            --               --     2,357,190            --     2,357,190
Other comprehensive income ...          --             --            --               --            --      (308,444)     (308,444)
                                ----------     ----------      --------       ----------    ----------     ---------    ----------
Balance at June 30, 2002 .....  $5,205,597     10,022,486       (24,826)      (8,336,969)   43,381,082     2,475,064    52,722,434
                                ==========     ==========      ========       ==========    ==========     =========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                       2002            2001           2000
                                                  -------------     ----------    -----------
<S>                                               <C>                <C>            <C>
Cash flows from operating activities:
  Net income ..................................   $   2,357,190      2,885,205      3,595,308
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Accretion of loan fees ..................        (161,788)      (131,709)       (80,866)
      Provision for loan losses ...............        (170,000)           154         20,983
      Accretion of premiums (discounts) on
        investment and mortgage-backed
        securities ............................         (55,619)        16,489        (10,650)
      Depreciation ............................         153,673        175,679        144,237
      Noncash compensation under stock-based
        benefit plans .........................         511,199        176,716        142,151
      Income tax benefit of stock awards
        and stock options .....................              --             --        121,915
      Deferred income tax benefit .............         (71,852)       (45,852)      (409,400)
      Increase in cash surrender value of life
        insurance .............................        (432,147)      (336,175)      (288,064)
      (Increase) decrease in accrued interest
        receivable ............................         648,828       (119,905)      (122,251)
      (Increase) decrease in prepaid expenses
        and other assets ......................          20,991        278,962       (282,209)
      Increase (decrease) in income taxes
        currently payable .....................         363,873        (49,208)       159,706
      Increase in accrued expenses and other
        liabilities ...........................         182,438        359,213        250,517
      Increase (decrease) in unearned loan fees        (131,574)        46,391         55,222
                                                  -------------    -----------    -----------
          Net cash provided by operating
            activities ........................       3,215,212      3,255,960      3,296,599
                                                  -------------    -----------    -----------
Cash flows from investing activities:
  Purchases of securities available-for-sale ..      (1,000,000)            --             --
  Maturities of securities available-for-sale .       1,100,000      1,475,000             --
  Purchases of investment securities
    held-to-maturity ..........................     (15,698,875)      (485,240)    (1,700,000)
  Maturities of and principal repayments on
    investment securities held-to-maturity ....      60,734,556      7,386,542        477,213
  Purchases of mortgage-backed securities
    held-to-maturity ..........................     (19,394,884)   (13,778,195)      (400,000)
  Principal repayments on mortgage-backed
    securities held-to-maturity ...............       6,496,276      2,030,168      2,099,013
  Purchases of Federal Home Loan Bank of
    Atlanta stock .............................        (391,000)            --       (251,500)
  Loan disbursements, net of repayments .......     (27,354,439)      (433,943)   (15,312,776)
  Purchases of property and equipment .........         (25,142)      (138,125)      (902,400)
                                                  -------------    -----------    -----------
          Net cash provided (used) by
            investing activities ..............       4,466,492     (3,943,793)   (15,990,450)
                                                  -------------    -----------    -----------
</TABLE>

                                       5

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                       2002            2001           2000
                                                  -------------     ----------    -----------
<S>                                               <C>               <C>            <C>
Cash flows from financing activities:
  Payment of dividends ........................   $    (726,552)      (708,608)      (788,434)
  Repayment of borrowed funds .................        (194,885)      (109,877)       (86,813)
  Net increase in savings accounts ............      63,849,601     38,604,659      7,240,595
  (Decrease) increase in advance payments by
    borrowers for taxes, insurance and
    ground rents ..............................          61,035     (1,558,645)      (129,626)
  Purchases of treasury stock .................              --       (120,250)    (3,475,850)
  Exercise of stock options ...................              --             --         79,200
                                                  -------------    -----------    -----------
          Net cash provided by financing
            activities ........................      62,989,199     36,107,279      2,839,072
                                                  -------------    -----------    -----------
          Net increase (decrease) in cash
            and cash equivalents ..............      70,670,903     35,419,446     (9,854,779)
Cash and cash equivalents at beginning of year       58,575,333     23,155,887     33,010,666
                                                  -------------    -----------    -----------
Cash and cash equivalents at end of year ......   $ 129,246,236     58,575,333     23,155,887
                                                  =============    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000

(1)  Description of Business,  Summary of Significant  Accounting Policies,  and
     Other Matters

     (a)  Business

          Leeds Federal Bankshares,  Inc. (the Company) is a federally chartered
          corporation which owns all of the issued and outstanding  common stock
          of Leeds  Federal  Savings  Bank  (the  Bank),  a  federally-chartered
          savings  bank  that  conducts  its  operations   through  branches  in
          Baltimore  County  and  Howard  County,  Maryland.  At June 30,  2002,
          approximately  73% of the  outstanding  shares of common  stock of the
          Company were held by Leeds Federal Bankshares, M.H.C. (MHC), a federal
          mutual holding company.

          The  primary  business  of  the  Bank  is  attracting   deposits  from
          individual  and corporate  customers and  originating  mortgage  loans
          secured by residential real estate properties.  The Bank is subject to
          competition  from  other  financial  institutions  in  attracting  and
          retaining  deposits and in making  loans.  The Bank is also subject to
          the  regulations  of certain  agencies of the federal  government  and
          undergoes periodic examinations by those agencies.

     (b)  Basis of Presentation

          The  consolidated  financial  statements  include the  accounts of the
          Company, the Bank and its wholly owned subsidiaries,  Leeds Investment
          Corporation  and  Leeds  Investor   Services,   Inc.  All  significant
          intercompany   accounts  and  transactions  have  been  eliminated  in
          consolidation.

          In preparing  the  consolidated  financial  statements,  management is
          required to make  estimates and  assumptions  that affect the reported
          amounts of assets and liabilities and disclosures of contingent assets
          and  liabilities  as of the  dates  of  the  statements  of  financial
          condition  and the  reported  amounts of income and  expenses  for the
          periods.   Actual  results  could  differ   significantly  from  those
          estimates.

          Material  estimates that are  particularly  susceptible to significant
          change in the near term relate to the  determination  of the allowance
          for loan losses and the valuation of real estate owned.  In connection
          with  the  determination  of the  allowance  for loan  losses  and the
          valuation  of  real  estate  owned,   management  obtains  independent
          appraisals  for   significant   properties  and  prepares  fair  value
          analyses,  as appropriate.  Management believes that the allowance for
          losses on loans is adequate  and that real estate  owned is carried at
          an appropriate value.  While management uses available  information to
          make the required estimates,  additional  provisions for losses may be
          necessary based on changes in economic conditions, particularly in the
          State of Maryland.  In addition,  various regulatory  agencies,  as an
          integral part of their examination processes,  periodically review the
          Bank's  allowance for losses on loans and the valuation of real estate
          owned.  Such  agencies  may require the Bank to  recognize  additional
          provisions  for  losses  based on their  judgments  about  information
          available to them at the time of their examinations.

     (c)  Short-Term Investments

          Short-term  investments,  which consist of money market accounts,  are
          carried at cost which approximates fair value.

                                                                     (Continued)

                                       7

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     (d)  Secured Short-Term Loans to Commercial Banks

          Secured short-term loans to commercial banks, which consist of Federal
          funds  sold,  are  carried  at cost  which  approximates  fair  value.
          Generally, Federal funds are purchased and sold for one-day periods.

     (e)  Investment Securities and Mortgage-Backed Securities

          The Company  classifies its securities  into one of three  categories.
          Debt  securities  that the Company has the positive intent and ability
          to hold to maturity are classified as held-to-maturity and recorded at
          amortized cost. Debt securities not classified as held-to-maturity and
          equity securities with readily determinable fair values are classified
          as trading  securities if bought and held  principally for the purpose
          of selling them in the near term.  Trading  securities are reported at
          fair value,  with  unrealized  gains and losses  included in earnings.
          Debt and equity  securities  not  classified  as  held-to-maturity  or
          trading are  considered  available-for-sale  and are  reported at fair
          value  with  unrealized  gains  and  losses,  net of the  related  tax
          effects,  excluded  from  income  and  reported  as an item  of  other
          comprehensive income until realized. Fair value is determined based on
          published  bid  prices  or bid  quotations  received  from  securities
          dealers.  Realized  gains  or  losses  on  sales  of  investments  are
          determined using the specific identification method and are recognized
          at the  time  of  sale.  Premiums  and  discounts  on  investment  and
          mortgage-backed securities are amortized over the term of the security
          using methods that approximate the interest method.

     (f)  Loan Fees

          Loan origination and commitment fees and direct  origination  costs of
          income  fees  are  deferred  and   amortized   into  income  over  the
          contractual  lives of the  related  loans using the  interest  method.
          Under certain  circumstances,  commitment fees are recognized over the
          commitment period or upon the expiration of the commitment.

     (g)  Loans Receivable

          Loans are stated at the amount of unpaid principal reduced by unearned
          loan fees and the allowance for loan losses.  Interest on loans is not
          accrued  when,  in the  opinion  of  management,  full  collection  of
          principal or interest is in doubt, or payment of principal or interest
          has become 90 days past due. Interest accrued prior to a loan becoming
          90 days past due is not retained in income.  Any  interest  ultimately
          collected  on such  loans is  recorded  in  income  in the  period  of
          recovery.

          The provision for losses on loans is determined  based on management's
          review of the loan  portfolio.  The  Company's  objective is to ensure
          that the  allowance  is  adequate  to  cover  probable  credit  losses
          inherent  in the  loan  portfolio  at the  date of each  statement  of
          financial  condition.  Management  considers  a number of  factors  in
          estimating the required level of the allowance.  These factors include
          historical  loss  experience  in the loan  portfolio;  the  levels and
          trends in past-due  and  nonaccrual  loans;  the status of  nonaccrual
          loans and other loans  identified  as having the potential for further
          deterioration; credit risk and industry concentrations; trends in loan
          volume;  the effects of any changes in lending policies and procedures
          or underwriting standards; and a continuing evaluation of the economic
          environment.  The  Company's  estimate of the  required  allowance  is
          subject to revision as these  factors  change and is  sensitive to the
          effects of  economic  and market  conditions  on  borrowers.  Loans or
          portions  thereof  are charged off when  considered  uncollectible  by
          management.

                                                                     (Continued)

                                       8

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


          A loan is considered  impaired when, based on current  information and
          events,  it is probable  that a creditor will be unable to collect all
          amounts due according to the contractual  terms of the loan agreement.
          Loans that experience  insignificant  payment delays (90 days or less)
          or shortfalls generally are not considered  impaired.  Impairment of a
          loan is measured  based on the present  value of expected  future cash
          flows  discounted  at the loan's  effective  interest  rate, or at the
          loan's  observable market price or 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 a corresponding provision
          for loan losses.

          Large  groups  of  smaller   balance   homogenous   loans,   including
          residential   mortgage  loans  and  consumer  installment  loans,  are
          collectively   evaluated  for  impairment.   Accordingly,   individual
          consumer  and  residential  loans are not  separately  identified  for
          impairment disclosures.

     (h)  Property and Equipment

          Property   and   equipment   are  stated  at  cost  less   accumulated
          depreciation.  Depreciation is computed using the straight-line method
          over  the  estimated  useful  lives  of  the  assets.   Additions  and
          betterments  are  capitalized  and charges for repairs and maintenance
          are   expensed  as  incurred.   The  related   cost  and   accumulated
          depreciation are eliminated from the accounts when an asset is sold or
          retired and the related gain or loss is credited or charged to income.

     (i)  Other Real Estate Owned

          Real estate acquired  through  foreclosure is classified as other real
          estate  owned and  recorded  at the lower of cost or fair  value  less
          estimated  costs to sell.  Costs  relating to holding  real estate are
          charged to expense,  while costs relating to improving real estate are
          capitalized, if recoverable, until a salable condition is reached.

     (j)  Income Taxes

          Deferred  income taxes are accounted for using the asset and liability
          method. Under this method, deferred income taxes are recognized,  with
          certain  exceptions,  for temporary  differences between the financial
          reporting basis and income tax basis of assets and  liabilities  based
          on enacted tax rates  expected  to be in effect when such  amounts are
          realized or settled.  Deferred tax assets are  recognized  only to the
          extent  that it is more  likely  than not that  such  amounts  will be
          realized based on consideration of available  evidence,  including tax
          planning  strategies and other factors.  The effects of changes in tax
          laws or rates on deferred tax assets and liabilities are recognized in
          the period that includes the enactment date.

                                                                     (Continued)

                                       9

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


          Qualified  thrift lenders such as the Bank are not required to provide
          a deferred tax  liability  for bad debt reserves for tax purposes that
          arose in fiscal years  beginning  before  December 31, 1987.  Such bad
          debt reserve for the Bank amounted to approximately $7,100,000 with an
          income tax effect of  approximately  $2,700,000 at June 30, 2002. This
          bad debt reserve would become  taxable in the future if the Bank fails
          to meet certain conditions.

     (k)  Stock-Based Compensation

          The Company uses the intrinsic value method to account for stock-based
          employee  compensation plans. Under this method,  compensation cost is
          recognized  for awards of shares of common stock to employees  only if
          the  quoted  market  price of the  stock at the  grant  date (or other
          measurement  date,  if later) is greater  than the amount the employee
          must pay to acquire  the stock.  Compensation  cost is  recorded  on a
          pro-rata  basis as the  employees  perform  the  services  required to
          acquire the stock.

          The Company has  established an employee  stock  ownership plan (ESOP)
          for its employees.  The Company  recognizes the costs  associated with
          the ESOP in accordance  with provisions of AICPA Statement of Position
          93-6,  Employers'  Accounting  for  Employee  Stock  Ownership  Plans.
          Accordingly,  compensation  expense  is  recorded  based on the market
          value of shares committed-to-be-released to the ESOP for allocation to
          participants for services rendered.

     (l)  Comprehensive Income

          Comprehensive  income  includes  all changes in  stockholders'  equity
          during  a  period,   except  those  relating  to  investments  by  and
          distributions  to  stockholders.  The Company's  comprehensive  income
          consists of net earnings and unrealized gains and losses on securities
          available-for-sale  and is presented in the  statements  of income and
          comprehensive  income.   Accumulated  other  comprehensive  income  is
          displayed as a separate component of stockholders' equity.

     (m)  Cash Equivalents and Supplemental Cash Flow Information

          For purposes of the consolidated  statements of cash flows, all highly
          liquid  investments  with  maturities  at dates of  purchase  of three
          months or less are considered to be cash equivalents. Cash equivalents
          include interest-bearing deposits,  short-term investments and secured
          short-term loans to commercial banks.

          Income tax  payments  were  approximately  $523,000,  $1,581,000,  and
          $1,985,000 in 2002,  2001,  and 2000,  respectively.  Interest paid on
          savings accounts and borrowings aggregated approximately  $16,687,000,
          $15,668,000, and $13,928,000 in 2002, 2001, and 2000, respectively. In
          2001,  a loan  receivable  with a  carrying  value of  $2,540,127  was
          transferred to other real estate owned.

     (n)  Reclassifications

          Certain  amounts for 2001 and 2000 have been  reclassified  to conform
          with the presentation for 2002.

                                                                     (Continued)

                                       10

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000



(2)  Securities Available-for-Sale

     Securities available-for-sale are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                              2002
                                      -------------------------------------------------
                                                      Gross        Gross
                                       Amortized   unrealized   unrealized
                                          cost        gains       losses     Fair value
                                      ----------   ----------   ----------   ----------
<S>                                   <C>          <C>           <C>            <C>
U.S. Government and agency
  obligations due beyond ten years .. $1,000,000          --     (73,437)       926,563
Federal Home Loan Mortgage
  Corporation (FHLMC) preferred
  stock .............................     56,760   4,111,694          --      4,168,454
Other equity securities .............    100,000       4,160          --        104,160
                                      ----------   ---------     -------      ---------
                                      $1,156,760   4,115,854     (73,437)     5,199,177
                                      ==========   =========     =======      =========

                                                              2001
                                      -------------------------------------------------
                                                      Gross        Gross
                                       Amortized   unrealized   unrealized
                                          cost        gains       losses     Fair value
                                      ----------   ----------   ----------   ----------
U.S. Government and agency
  obligations due beyond ten years .. $1,100,000          --      (7,502)     1,092,498
FHLMC preferred stock ...............     56,760   4,578,836          --      4,635,596
Other equity securities .............    100,000          --     (26,000)        74,000
                                      ----------   ---------     -------      ---------
                                      $1,256,760   4,578,836     (33,502)     5,802,094
                                      ==========   =========     =======      =========
</TABLE>

(3)  Investment Securities Held-to-Maturity

     Investment  securities  held-to-maturity  are summarized as follows at June
     30:

                                                         2002           2001
                                                     -----------     ----------
U.S. Government and agency obligations:
  Amortized cost .................................   $15,498,705     60,518,903
  Gross unrealized gains .........................        40,929         19,485
  Gross unrealized losses ........................       (88,881)    (1,087,305)
                                                     -----------     ----------
      Fair value .................................   $15,450,753     59,451,083
                                                     ===========     ==========

                                                                     (Continued)

                                       11

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     Investment securities mature as follows at June 30:

                                           2002                    2001
                                ------------------------  ----------------------
                                  Amortized                Amortized
                                     cost     Fair value      cost    Fair value
                                 -----------  ----------  ----------  ----------
Due within 12 months .........   $       --           --   1,900,000   1,896,906
Due beyond 5 years
     but within 10 years .....      500,000      497,344   1,800,000   1,797,624
Due beyond 10 years ..........   14,998,705   14,953,409  56,818,903  55,756,553
                                 -----------  ----------  ----------  ----------
                                 $15,498,705  15,450,753  60,518,903  59,451,083
                                 ===========  ==========  ==========  ==========

(4)  Mortgage-Backed Securities Held-to-Maturity

     Mortgage-backed  securities  held-to-maturity  are summarized as follows at
     June 30:

                                                      2002
                                 -----------------------------------------------
                                                 Gross       Gross
                                  Amortized   unrealized  unrealized
                                     cost        gains      losses    Fair value
                                 -----------  ----------  ----------  ----------
Government National Mortgage
  Association (GNMA) ........... $ 3,986,067    137,658         --     4,123,725
Federal National Mortgage
  Association (FNMA) ...........  27,106,233    376,541    (12,545)   27,470,229
FHLMC ..........................   1,622,440     14,451       (562)    1,636,329
Collateralized Mortgage
  Obligation -- FNMA
  REMIC ........................     245,029        354         --       245,383
                                 -----------    -------    -------    ----------
                                 $32,959,769    529,004    (13,107)   33,475,666
                                 ===========    =======    =======    ==========

                                                      2001
                                 -----------------------------------------------
                                                 Gross       Gross
                                  Amortized   unrealized  unrealized
                                     cost        gains      losses    Fair value
                                 -----------  ----------  ----------  ----------
GNMA ........................... $ 6,001,005    143,035    (14,417)    6,129,623
FNMA ...........................  13,033,532     28,611   (177,926)   12,884,217
FHLMC ..........................     500,100     16,203         --       516,303
Collateralized Mortgage
  Obligation -- FNMA
  REMIC ........................     486,388      1,563         --       487,951
                                 -----------    -------   --------    ----------
                                 $20,021,025    189,412   (192,343)   20,018,094
                                 ===========    =======   ========    ==========

                                                                     (Continued)

                                       12

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


(5)  Loans Receivable

     Loans receivable are summarized as follows at June 30:

                                                        2002             2001
                                                    ------------     -----------
First mortgage loans:
  One-to four-family residential ................   $228,232,970     200,466,473
  Construction ..................................      5,693,156       6,168,853
                                                    ------------     -----------
                                                     233,926,126     206,635,326
Home equity loans ...............................     10,912,785      12,130,758
Loans secured by savings accounts ...............        509,998         483,807
Consumer loans ..................................      3,062,510       3,648,703
                                                    ------------     -----------
                                                     248,411,419     222,898,594
Less:
  Allowance for loan losses .....................        558,810         731,641
  Unearned loan fees ............................        255,055         548,417
  Undisbursed portion of loans in process .......      2,597,166       4,435,949
                                                    ------------     -----------
      Loans receivable, net .....................   $245,000,388     217,182,587
                                                    ============     ===========

     Substantially  all of the loans  receivable  are mortgage  loans secured by
     residential real estate properties located in the State of Maryland.  Loans
     are  extended   only  after   evaluation   by   management   of  customers'
     creditworthiness,  the loan-to-value ratio and other relevant factors.  The
     Bank  generally  does not lend  more than 80% of the  appraised  value of a
     property and, with limited exceptions,  requires private mortgage insurance
     on  residential  mortgages with  loan-to-value  ratios in excess of 80%. In
     addition,  the Bank generally obtains personal guarantees of repayment from
     borrowers and/or others for construction and commercial loans and disburses
     the proceeds of  construction  and similar loans only as work progresses on
     the related properties.

     Residential lending is generally considered to involve less risk than other
     forms of lending,  although payment  experience on these loans is dependent
     to some  extent on economic  and market  conditions  in the Bank's  lending
     area.

     There  were no  nonaccrual  loans at June 30,  2002 and 2001.  For the year
     ended June 30,  2000,  the amount of  interest  income that would have been
     recorded on loans in nonaccrual status at year end had such loans performed
     in  accordance  with their  terms was  approximately  $305,000.  The actual
     interest  income  recorded  on these loans for the year ended June 30, 2000
     was approximately $2,000.

     Activity in the  allowance for loan losses is summarized as follows for the
     years ended June 30:

                                                 2002         2001       2000
                                               --------     -------     -------
Beginning balance .........................    $731,641     741,678     725,152
Provision for loan losses .................    (170,000)        154      20,983
Charge-offs ...............................      (2,831)    (10,191)     (4,457)
                                               --------     -------     -------
Ending balance ............................    $558,810     731,641     741,678
                                               ========     =======     =======

                                                                     (Continued)

                                       13

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


(6)  Property and Equipment

     Property and equipment are summarized as follows at June 30:

                                                                     Useful life
                                           2002           2001         in years
                                        ----------     ---------     -----------
Land .................................  $  729,749       729,749             --
Building and improvements ............   1,717,157     1,717,157        50 years
Furniture, fixtures, and equipment ...   1,155,633     1,165,410      3-10 years
                                        ----------     ---------
      Total, at cost .................   3,602,539     3,612,316
Less accumulated depreciation ........   1,525,841     1,407,087
                                        ----------     ---------
      Property and equipment, net ....  $2,076,698     2,205,229
                                        ==========     =========

(7)  Other Real Estate Owned

     At June 30, 2002, other real estate owned consists of a commercial property
     which is under a contract for sale.

(8)  Savings Accounts

     Savings accounts are summarized as follows at June 30:

<TABLE>
<CAPTION>
                       Weighted average rate           2002                  2001
                       ---------------------   -------------------   -------------------
  Type of Account        2002         2001        Amount        %       Amount        %
-------------------    --------     --------   ------------   ----   ------------   ----
<S>                      <C>          <C>      <C>            <C>    <C>            <C>
Certificates ........    5.26%        5.78%    $288,637,333    75%   $238,761,753    75%
Anniversary bonus ...      --         3.32%              --    --       3,188,871     1%
Money Market ........    3.00%        4.69%      58,058,875    16%     45,950,302    14%
Passbook ............    2.50%        3.15%      24,522,018     6%     21,780,408     7%
NOW and demand ......    1.00%        1.99%      13,102,240     3%     10,789,531     3%
                                               ------------   ----   ------------   ----
                                               $384,320,466   100%   $320,470,865   100%
                                               ============   ====   ============   ====
Certificate accounts mature as follows:
  Within 12 months ........................    $206,298,974    71%   $132,022,035    56%
  12 to 24 months .........................      64,174,258    22%     86,817,784    36%
  24 to 36 months .........................      10,833,317     4%     10,241,842     4%
  36 to 48 months .........................       4,985,765     2%      5,081,886     2%
  48 to 60 months .........................       2,345,019     1%      4,598,206     2%
                                               ------------   ----   ------------   ----
                                               $288,637,333   100%   $238,761,753   100%
                                               ============   ====   ============   ====
</TABLE>

     At June 30,  2002 and  2001,  the Bank had  customer  deposits  in  savings
     accounts of $100,000 or more of approximately $135,701,000 and $88,236,000,
     respectively.

                                                                     (Continued)

                                       14

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     Interest  expense on savings  accounts  consists of the  following  for the
     years ended June 30:

                                           2002           2001           2000
                                       -----------     ----------     ----------
Time deposits ....................     $14,420,431     12,486,143     10,289,585
Checking and money market ........       1,680,887      2,504,553      2,972,732
Passbook and other ...............         573,484        644,936        627,438
                                       -----------     ----------     ----------
                                       $16,674,802     15,635,632     13,889,755
                                       ===========     ==========     ==========

(9)  Income Taxes

     The  provision for income taxes is comprised of the following for the years
     ended June 30:

                                  2002               2001                2000
                              -----------         ----------         -----------
Current:
  Federal ............        $   886,807          1,608,854          2,240,711
  State ..............                 --            (77,112)            59,814
                              -----------         ----------         ----------
                                  886,807          1,531,742          2,300,525
                              -----------         ----------         ----------
Deferred:
  Federal ............            (58,829)           (37,541)          (367,454)
  State ..............            (13,023)            (8,311)           (41,946)
                              -----------         ----------         ----------
                                  (71,852)           (45,852)          (409,400)
                              -----------         ----------         ----------
                              $   814,955          1,485,890          1,891,125
                              ===========         ==========         ==========

     The net deferred tax  liability at June 30, 2002 and 2001 consists of total
     deferred  tax assets of  $914,843  and  $937,341,  respectively,  and total
     deferred tax  liabilities of $1,868,041 and $2,156,864,  respectively.  The
     tax effects of temporary  differences  between the financial  reporting and
     income tax basis of assets and liabilities  relate to the following at June
     30:

                                                         2002           2001
                                                     -----------     ----------
Tax bad debt reserve in excess of base year .....    $        --        (99,966)
Allowance for losses on loans ...................        215,812        282,560
Federal Home Loan Bank stock dividends ..........       (304,291)      (304,291)
Compensation plans ..............................        616,879        553,894
Unrealized gains on securities
  available-for-sale, net .......................     (1,558,134)    (1,752,607)
Other, net ......................................         76,536        100,887
                                                     -----------     ----------
                                                     $  (953,198)    (1,219,523)
                                                     ===========     ==========

                                                                     (Continued)

                                       15

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     Reconciliations  between  the  provisions  for  income  taxes  computed  by
     multiplying  income before income taxes by the statutory Federal income tax
     rate (34%) and the actual  provisions  for income  taxes are as follows for
     the years ended June 30:

                                                 2002         2001        2000
                                              ----------   ---------   ---------
Federal income taxes at statutory rate ....   $1,078,529   1,486,172   1,865,387
State income taxes, net of Federal
  income tax effect .......................       (8,595)    (56,379)     11,793
Permanent difference for increase in
  cash surrender value of life insurance ..     (289,930)         --          --
Other, net ................................       34,951      56,097      13,945
                                              ----------   ---------   ---------
                                              $  814,955   1,485,890   1,891,125
                                              ==========   =========   =========

(10) Regulatory Matters

     The Federal Deposit Insurance Corporation,  through the Savings Association
     Insurance Fund (SAIF),  insures deposits of  accountholders up to $100,000.
     The Bank pays an annual premium to provide for this insurance.  The Bank is
     also a member of the  Federal  Home Loan Bank  System  and is  required  to
     maintain  an  investment  in the  stock of the  Federal  Home  Loan Bank of
     Atlanta (FHLB) equal to at least 1% of the unpaid principal balances of its
     residential  mortgage  loans,  0.3%  of  its  total  assets  or 5%  of  its
     outstanding  advances  from the FHLB,  whichever is greater.  Purchases and
     sales of stock are made directly with the FHLB at par value.

     The Bank is subject to various regulatory capital requirements administered
     by  the  federal  banking   agencies.   Failure  to  meet  minimum  capital
     requirements  can  initiate  certain  mandatory,  and  possibly  additional
     discretionary,  actions by  regulators  that, if  undertaken,  could have a
     direct material effect on the financial statements.  Under capital adequacy
     guidelines and the regulatory  framework for prompt corrective  action, the
     Bank  must meet  specific  capital  guidelines  that  involve  quantitative
     measures of the Bank's assets,  liabilities,  and certain off-balance-sheet
     items as  calculated  under  regulatory  accounting  practices.  The Bank's
     capital  amounts  and   classification  are  also  subject  to  qualitative
     judgments by the regulators about  components,  risk weightings,  and other
     factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum amounts and ratios (as defined in the
     regulations and as set forth in the table below).  As of June 30, 2002, the
     most  recent  notification  from the  Office  of Thrift  Supervision  (OTS)
     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.

                                                                     (Continued)

                                       16

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     Regulatory  capital  amounts  and ratios  for the Bank are as  follows  (in
     thousands):

                                                                  To be well
                                                 Minimum       capitalized under
                                               for capital     prompt corrective
                                Actual      adequacy purposes  action provisions
                            --------------  -----------------  -----------------
                             Amount  Ratio   Amount    Ratio   Amount     Ratio
                            -------  -----  -------    -----   ------     -----
As of June 30, 2002:
  Tier I core capital (a) . $49,961  11.35% $17,607      4%    $22,009      5%
  Risk-based capital (b):
    Tier I ................  49,961  18.55%  10,772      4%     16,159      6%
    Total .................  52,338  19.43%  21,545      8%     26,931     10%
As of June 30, 2001:
  Tier I core capital (a) . $47,692  12.76% $14,954      4%    $18,692      5%
  Risk-based capital (b):
    Tier I ................  47,692  24.36%   7,833      4%     11,749      6%
    Total .................  51,224  26.16%  15,665      8%     19,582     10%

(a)  Percentage of capital to ending assets.
(b)  Percentage of risk-based capital to ending risk-weighted assets.

(11) Retirement and Deferred Compensation Plans

     The Bank has a 401(k) Employee  Investment Plan covering  substantially all
     employees.  Participation is voluntary and employee contributions are based
     on a percentage of  compensation,  ranging from 1% to 10%. The Bank matches
     employees' contributions,  not to exceed 6% of compensation or a maximum of
     $2,400  annually.  The Bank's  contributions  were  $41,918,  $39,995,  and
     $38,644 for the years ended June 30, 2002, 2001, and 2000, respectively.

     The Bank has a  supplemental  retirement  income plan (SERP) for  executive
     officers.  The SERP supplements the 401(k) plan to bring officer retirement
     benefits up to targeted levels (2% for each year of service,  not to exceed
     70% of  final  salary).  In  addition,  the  SERP  provides  death  benefit
     protection  for  officers'  beneficiaries.  The cost of each  participant's
     retirement  benefits is accrued over the participant's  active  employment.
     The  accrued  liability  under  the SERP  was  approximately  $135,000  and
     $165,000,  as of June 30, 2002 and 2001,  respectively.  Compensation  cost
     related to the SERP was  $188,725,  $158,540,  and  $129,001  for the years
     ended June 30, 2002, 2001, and 2000, respectively.

     The Bank also has a deferred  compensation  agreement  with one  officer to
     provide  certain death and retirement  benefits.  The benefits  payable are
     accrued annually by charges to income of $1,383.  The accrued liability for
     these  benefits  amounted to $33,742 and $32,359 at June 30, 2002 and 2001,
     respectively, and is included in accrued expenses and other liabilities.

                                                                     (Continued)

                                       17

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     The Bank has a Directors  Retirement Plan which is a nonqualified  plan for
     income tax  purposes.  Under the plan,  each  director  will be paid 75% of
     annual  directors' fees for ten years after  retirement or until death. The
     benefits  payable are accrued  annually and are based on the retirement age
     selected by each  director  and an assumed 4% increase in annual fees until
     retirement. The accrued liability under this plan was $772,291 and $642,161
     at June  30,  2002 and  2001,  respectively,  and is  included  in  accrued
     expenses and other liabilities.  Compensation cost related to this plan was
     $204,651,  $234,940,  and $144,400 for the years ended June 30, 2002, 2001,
     and 2000, respectively.

     The Bank also has an  optional  plan for the  deferral of  directors'  fees
     which is nonqualified for income tax purposes.  The accrued liability under
     this  plan  was   $656,249   and  $594,969  at  June  30,  2002  and  2001,
     respectively, and is included in accrued expenses and other liabilities.

     The Bank has invested in whole-life  insurance policies on the lives of the
     individual  participants for purposes of providing income and assets in the
     future to offset the costs of the officers and directors'  plans.  The life
     insurance companies and related investments are as follows at June 30:

                                                      2002                2001
                                                   ----------          ---------
Transamerica ............................          $3,943,520          3,702,794
Massachusetts Mutual ....................             703,302            670,458
Pacific Mutual ..........................           2,809,037          2,650,460
                                                   ----------          ---------
                                                   $7,455,859          7,023,712
                                                   ==========          =========

(12) Stock-Based Benefit Plans

     Employees  who attain the age of 21 and  complete  one year of service with
     the Bank are eligible to  participate in the Company's  ESOP.  Participants
     are 100% vested in their accounts after five years of service with the Bank
     or, if earlier, upon death, disability,  or attainment of normal retirement
     age.  Participants  received  credit for service with the Bank prior to the
     establishment of the ESOP.

     In 1994,  the ESOP borrowed  $960,000 from an unrelated  third party lender
     under a ten year loan bearing  interest at the Federal funds rate plus 2.5%
     per annum,  with payments of principal and interest due  quarterly.  Annual
     principal  payments are $96,000.  The proceeds of the loan were used by the
     ESOP to  acquire  144,000  shares  of the  Bank's  common  stock  upon  its
     conversion  to a capital  stock  form of  organization.  The ESOP holds the
     common stock in a trust for allocation among participating employees, which
     occurs as the ESOP repays the loan.  The ESOP's sources of repayment of the
     loan are  dividends on the common  stock,  if any,  either held in trust or
     allocated to the participants'  accounts, and quarterly  contributions from
     the Bank to the ESOP and  earnings  thereon.  For the years  ended June 30,
     2002,  2001, and 2000 the Bank made  contributions to the ESOP of $133,312,
     $136,101, and $130,385, respectively.

                                                                     (Continued)

                                       18

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     The debt of the ESOP is  recorded  as debt of the  Company  and the  shares
     pledged as collateral are reported as unearned ESOP shares in the statement
     of financial  condition.  Dividends  on allocated  shares are recorded as a
     reduction  of  retained  earnings;  dividends  on  unallocated  shares  are
     recorded as a reduction of debt and accrued  interest.  The Bank recognized
     interest  expense  of  $7,970,  $26,224,  and  $34,385,  respectively,  and
     compensation  expense of $441,457,  $162,839,  and  141,548,  respectively,
     related to the ESOP for the years  ended  June 30,  2002,  2001,  and 2000.
     Dividends on  unallocated  ESOP shares used for debt service were  $16,352,
     $26,546,  and $33,303 for the years ended June 30,  2002,  2001,  and 2000,
     respectively.  The related tax benefits to the Bank for  dividends  paid to
     the ESOP were not material. The ESOP shares were as follows at June 30:

                                                            2002           2001
                                                          --------       -------
Allocated shares ..................................        126,991       107,923
Shares earned, but unallocated ....................         13,606         7,152
Unearned shares ...................................          3,403        28,925
                                                          --------       -------
                                                           144,000       144,000
                                                          ========       =======
Fair value of unearned shares at June 30 ..........       $108,796       455,566
                                                          ========       =======

     In 1994, the Company adopted a Stock Option Plan (Option Plan), under which
     180,000  shares of common stock were  granted to directors  and officers of
     the Bank.  Options  granted  under the Option Plan may be  Incentive  Stock
     Options  within the meaning of Section 422 of the Internal  Revenue Code of
     1986,  as amended,  or  nonqualifying  stock  options.  The 72,000  options
     granted  to  directors  vested at grant  date,  while the  108,000  options
     granted  to  officers  vested  at a  rate  of 20%  per  year.  Options  are
     exercisable at $7.92 per share, the market price of the common stock on the
     date of grant,  and must be  exercised  within  ten years  from the date of
     grant.

     A summary of changes in shares under option and options  exercisable  is as
     follows for the years ended June 30:

                                                2002         2001         2000
                                              -------      -------      -------
Outstanding at beginning of year ......       138,500      138,500      148,500
Exercised .............................            --           --      (10,000)
                                              -------      -------      -------
Outstanding at end of year ............       138,500      138,500      138,500
                                              -------      -------      -------
Exercisable at end of year ............       138,500      138,500      138,500
                                              =======      =======      =======

(13) Postretirement Benefits Other Than Pensions

     The Bank  offers a  postretirement  health  care  benefit  plan to  certain
     directors  and  employees.  The net  cost  of the  plan  was  approximately
     $38,000,  $38,000, and $39,000 for the years ended June 30, 2002, 2001, and
     2000,   respectively.   The  accrued   liability  for  these  benefits  was
     approximately   $225,000   and   $201,000   at  June  30,  2002  and  2001,
     respectively, and is included in accrued expenses and other liabilities.

                                                                     (Continued)

                                       19

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


(14) Financial Instruments

     The Bank is a party to financial instruments with off-balance sheet risk in
     the normal  course of business,  including  mortgage loan  commitments  and
     lines of credit on home equity loans. These instruments involve, to various
     degrees,  elements of credit and interest rate risk in excess of the amount
     recognized in the consolidated statements of financial condition.

     The Bank's  exposure to credit loss in the event of  nonperformance  by the
     other party to a financial instrument is represented by the contract amount
     of the  financial  instrument.  The Bank uses the same  credit  policies in
     making commitments for  off-balance-sheet  financial instruments as it does
     for  on-balance-sheet  financial  instruments.  Financial  instruments with
     off-balance-sheet risk are as follows at June 30, 2002:

                                                                       Contract
                                                                        amount
                                                                     -----------
Undisbursed lines of credit on home equity loans .............       $13,300,000
Residential mortgage loans to be funded ......................         3,981,000
                                                                     -----------
                                                                     $17,281,000
                                                                     ===========

     The Bank's outstanding  mortgage loan commitments at June 30, 2002 were all
     for fixed rate loans.  The  interest  rate range on these  commitments  was
     5.875% to 7.875%  and all  commitments  expire  within  one year.  The loan
     commitments and  undisbursed  lines of credit are expected to be settled at
     face amount or expire unused.  The fair value of these  commitments was not
     significant at June 30, 2002.

     The Bank has an unsecured line of credit and a reverse  repurchase  line of
     credit  with a  commercial  bank  for  up to $2  million  and  $3  million,
     respectively. There were no borrowings outstanding as of June 30, 2002.

                                                                     (Continued)

                                       20

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     The carrying amounts and estimated fair values of financial instruments are
     summarized as follows at June 30:

<TABLE>
<CAPTION>
                                             2002                         2001
                                  --------------------------   -------------------------
                                    Carrying         Fair        Carrying        Fair
                                     amount         value         amount        value
                                  ------------   -----------   -----------   -----------
<S>                               <C>            <C>           <C>           <C>
Assets:
  Cash and interest-bearing
    deposits ..................   $  8,784,723     8,785,000     7,015,942     7,016,000
  Short-term investments ......    100,612,524   100,613,000    35,334,058    35,334,000
  Secured short-term loans to
    commercial banks ..........     19,848,989    19,849,000    16,225,333    16,225,000
  Securities available-for-sale      5,199,177     5,199,000     5,802,094     5,802,000
  Investment securities
    held-to-maturity ..........     15,498,705    15,451,000    60,518,903    59,451,000
  Mortgage-backed securities
    held-to-maturity ..........     32,959,769    33,476,000    20,021,025    20,018,000
  Loans receivable ............    245,000,388   250,291,000   217,182,587   216,542,000
  Investment in Federal Home
    Loan Bank stock ...........      2,578,200     2,578,000     2,187,200     2,187,000
  Accrued interest receivable .      1,587,932     1,588,000     2,236,760     2,237,000
Liabilities:
  Savings accounts ............    384,320,466   389,496,000   320,470,865   324,175,000
  Borrowed funds ..............         79,238        79,000       274,123       274,000
  Advances payments by
    borrowers for taxes,
    insurance, and ground
    rents .....................      3,576,296     3,576,000     3,515,261     3,515,000
</TABLE>

     The methods and assumptions  used to determine fair value estimates at June
     30, 2002 and 2001 are set forth below.

     (a)  Cash, Cash Equivalents, Investments, and Mortgage-Backed Securities

          For cash and cash  equivalents,  the carrying value  approximates fair
          value due to the short maturity of these instruments.  The fair values
          of U.S.  Government and agency  obligations,  equity  securities,  and
          mortgage-backed securities are estimated based on published bid prices
          or bid quotations received from securities dealers.  The fair value of
          Federal  Home Loan Bank stock is estimated to be equal to its carrying
          amount since it is not a publicly  traded equity  security,  it has an
          adjustable  dividend  rate  and  all  transactions  in the  stock  are
          executed at the stated par value.

     (b)  Loans Receivable

          The  fair  value of  loans  receivable  is  estimated  by  discounting
          anticipated  future  cash  flows  (based  on  contractual  maturities,
          weighted  average  coupons,  and  prepayment  assumptions)  at current
          market rates for loans to borrowers with similar credit histories.

                                                                     (Continued)

                                       21

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     (c)  Savings  Accounts,  Borrowed Funds,  and Advance Payments by Borrowers
          for Taxes, Insurance, and Ground Rents

          The fair value of savings accounts,  other than certificate  accounts,
          and advance  payments by borrowers  for taxes,  insurance,  and ground
          rents is the  amount  payable  on demand at June 30. The fair value of
          certificate accounts is based on the lower of redemption value (net of
          penalty) or the discounted value of contractual  cash flows.  Discount
          rates are  estimated  using  current  market rates for  accounts  with
          similar remaining  maturities.  Borrowed funds are considered to be at
          fair value due to their adjustable rate nature.

     Fair  value  estimates  are made at a  specific  point  in  time,  based on
     relevant market  information and information  about financial  instruments.
     These  estimates  do not reflect any premium or discount  that could result
     from  offering  for sale at one time the entire  holdings  of a  particular
     financial instrument. Fair value estimates are based on judgments regarding
     future  expected  loss  experience,   current  economic  conditions,   risk
     characteristics of various financial  instruments and other factors.  These
     estimates are subjective in nature and involve uncertainties and matters of
     significant  judgment and therefore  cannot be determined  with  precision.
     Changes in assumptions could significantly affect the estimates.

(15) Stockholders' Equity

     In March  1994,  the  members of Leeds  Federal  Savings  Association  (the
     Association)  approved  a plan  of  reorganization  from a  mutual  savings
     association  to  a  mutual  holding  company.   Pursuant  to  the  plan  of
     reorganization, the Association transferred substantially all of its assets
     and  all of its  liabilities  to a new  federally-chartered  stock  savings
     association   which   became  a  wholly  owned   subsidiary   of  MHC.  The
     reorganization was consummated in April 1994.

     The principal purpose of the reorganization was to organize the Association
     into a  corporate  form so that it would  have  more  flexibility  to raise
     capital, diversify operations and establish employee incentive plans. Under
     the terms of the reorganization, the membership rights of the Association's
     members became rights in the mutual holding company and the Company has the
     authority to issue shares of capital stock to persons other than MHC for up
     to  49.9%  (a  minority  ownership  interest)  of  the  shares  issued  and
     outstanding.

     OTS regulations impose limitations on all capital  distributions by savings
     institutions.  Capital  distributions  include cash dividends,  payments to
     repurchase  or  otherwise  acquire the  institution's  shares,  payments to
     shareholders  of  another  institution  in  a  cash-out  merger  and  other
     distributions  charged against  capital.  The  regulations  establish three
     tiers of institutions.  An institution,  such as the Bank, that exceeds all
     capital requirements before and after a proposed capital distribution (Tier
     1 institution) may, after prior notice but without the approval of the OTS,
     make  capital  distributions  during a year up to 100% of its net income to
     date during the year plus its  retained  net income for the  preceding  two
     years. Any additional capital distributions require OTS approval.

     MHC has waived  receipt of its quarterly  dividends,  thereby  reducing the
     actual  dividend  payout  by the  Company  in 2002  and  prior  years.  The
     dividends  waived by MHC are  considered as a  restriction  on the retained
     earnings of the Bank. The amount of any dividend waived by MHC is available
     for  declaration  as a  dividend  solely  to MHC.  At June  30,  2002,  the
     cumulative amount of such waived dividends was $13,688,400.

                                                                     (Continued)

                                       22

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


     At June 30, 2002,  the Company was authorized to repurchase up to 1,023,441
     shares of common  stock  pursuant to its  repurchase  plan.  No shares were
     purchased  in 2002.  During  the years  ended June 30,  2001 and 2000,  the
     Company  purchased 11,000 and 324,475 shares,  respectively,  at an average
     cost per share of $10.93 and $10.71, respectively.

(16) Net Income Per Share of Common Stock

     Basic  earning per share (EPS) is  calculated by dividing net income by the
     weighted  average  number of common shares  outstanding  for the applicable
     period.  Diluted EPS is  calculated  after  adjusting the numerator and the
     denominator  of the basic EPS  calculation  for the effect of all  dilutive
     potential common shares outstanding during the period. The dilutive effects
     of options and any unvested restricted stock awards are computed during the
     "treasury  stock"  method.   Unearned  ESOP  shares  are  not  included  in
     outstanding shares.

     Information  related to the  calculation  of net income per share of common
     stock is summarized as follows for the years ended June 30:

<TABLE>
<CAPTION>
                                 2002                    2001                    2000
                        ----------------------   ---------------------   ---------------------
                           Basic      Diluted      Basic      Diluted      Basic      Diluted
                        ----------   ---------   ---------   ---------   ---------   ---------
<S>                     <C>          <C>         <C>         <C>         <C>         <C>
Net income ..........   $2,357,190   2,357,190   2,885,205   2,885,205   3,595,308   3,595,308
                        ==========   =========   =========   =========   =========   =========
Weighted average
  shares outstanding     4,532,087   4,532,087   4,508,026   4,508,026   4,634,155   4,634,155
Dilutive securities:
  Options ...........           --     101,588          --      55,618          --      31,764
                        ----------   ---------   ---------   ---------   ---------   ---------
Adjusted weighted
  average shares used
  in EPS calculations    4,532,087   4,633,675   4,508,026   4,563,644   4,634,155   4,665,919
                        ==========   =========   =========   =========   =========   =========
</TABLE>

                                                                     (Continued)

                                       23

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


(17) Condensed Financial Information (Parent Company Only)

     Summarized  financial  information  for the Company is as follows as of and
     for the years ended June 30:

                        Statements of Financial Condition

                                                         2002            2001
                                                     -----------      ----------
Cash ..........................................      $   168,494         502,248
Securities available-for-sale .................          117,921          83,605
Deferred tax asset ............................               --           9,822
Investment in Bank ............................       52,633,639      50,491,891
                                                     -----------      ----------
                                                     $52,920,054      51,087,566
                                                     ===========      ==========
Deferred tax liability ........................      $     1,817              --
Accrued expenses and other liabilities ........          195,803         198,525
Stockholders' equity ..........................       52,722,434      50,889,041
                                                     -----------      ----------
                                                     $52,920,054      51,087,566
                                                     ===========      ==========

                              Statements of Income

                                               2002          2001         2000
                                            ----------    ---------    ---------
Interest income ........................    $   26,105       28,288       23,129
Equity in net income of subsidiary .....     2,341,162    2,869,740    3,586,547
                                            ----------    ---------    ---------
      Income before provision for
        income taxes ...................     2,367,267    2,898,028    3,609,676
Provision for income taxes .............        10,077       12,823       14,368
                                            ----------    ---------    ---------
      Net income .......................    $2,357,190    2,885,205    3,595,308
                                            ==========    =========    =========

                                                                     (Continued)

                                       24

<PAGE>

                  LEEDS FEDERAL BANKSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                          June 30, 2002, 2001, and 2000


                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                        2002          2001          2000
                                                    -----------    ----------    ----------
<S>                                                 <C>             <C>           <C>
Cash flows from operating activities:
  Net income ....................................   $ 2,357,190     2,885,205     3,595,308
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
      Equity in net income of subsidiary ........    (2,341,162)   (2,869,740)   (3,586,547)
      Other, net ................................      (366,134)      429,606      (238,472)
                                                    -----------    ----------    ----------
        Net cash (used) provided by operating
          activities ............................      (350,106)      445,071      (229,711)
                                                    -----------    ----------    ----------
Cash flows from investing activities:
  Dividend distribution from bank ...............       742,904       742,904     4,335,000
Cash flows from financing activities:
  Payment of dividends ..........................      (726,552)     (708,608)     (788,434)
  Purchases of treasury stock ...................            --      (120,250)   (3,475,850)
  Exercise of stock options .....................            --            --        79,200
                                                    -----------    ----------    ----------
        Net cash used by financing activities ...      (726,552)     (828,858)   (4,185,084)
                                                    -----------    ----------    ----------
        Net increase (decrease) in cash and
          cash equivalents ......................      (333,754)      359,117       (79,795)
Cash and cash equivalents at beginning of year ..       502,248       143,131       222,926
                                                    -----------    ----------    ----------
Cash and cash equivalents at end of year ........   $   168,494       502,248       143,131
                                                    ===========    ==========    ==========
</TABLE>

(18) Proposed Merger

     On August 16, 2001,  Northwest Bancorp,  Inc.  (Northwest  Bancorp) and the
     Company announced that they, along with Northwest  Bancorp,  MHC (Northwest
     MHC) and MHC, had entered into an agreement under which  Northwest  Bancorp
     and Northwest MHC would  acquire the Company and MHC,  respectively.  Under
     terms of the agreement,  the Company's  stockholders,  other than MHC, will
     receive  $32.00 for each share of the Company's  common stock and shares of
     the Company's common stock held by MHC will be cancelled.

     The  transaction is subject to the approval of the OTS and the  application
     is on file with the OTS but has not yet been  approved.  Under terms of the
     merger  agreement,  as  amended,  the  transaction  is to be  completed  by
     December 31, 2002, and the Company will become a wholly owned subsidiary of
     Northwest MHC.

                                       25