SECURITIES AND EXCHANGE COMMISSION
                             450 Fifth Street, N.W.
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For the Fiscal Year Ended June 30, 1999

                                       OR

[ ]  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

     For the transition period from _______________ to  ______________________

                           Commission File No. 0-23645

                         LEEDS FEDERAL BANKSHARES, INC.
                         ------------------------------
             (Exact name of registrant as specified in its charter)

        United States                                         52-2062351
        -------------                                         ----------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                          Identification Number)

1101 Maiden Choice Lane, Baltimore, Maryland                    21229
--------------------------------------------                    -----
 (Address of Principal Executive Offices)                      Zip Code

                                 (410) 242-1234
                                 --------------
                         (Registrant's telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:         None
                                                                    ----

Securities Registered Pursuant to Section 12(g) of the Act:    Common Stock, par
                                                                  value $1.00
                                                                   per share
                                                                   ---------
                                (Title of Class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant  was required to file such  reports) and (2) has been subject to such
requirements for the past 90 days. YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ].

         The issuer's  revenues  for the fiscal year ended June 30,  1999,  were
$21.2 million.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  computed by  reference  to the  closing  sales price of the
Registrant's  stock, as reported on the Nasdaq National Market on July 31, 1999,
was  approximately  $15.5  million.  This  amount  includes  shares  held by the
Registrant's ESOP, and excludes shares held by Leeds Federal Bankshares, M.H.C.,
and the Registrant's  directors and senior officers.  As of July 31, 1999, there
were issued and outstanding 4,810,656 shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1. Sections of Annual Report to Stockholders  for the fiscal year ended June 30,
   1999 (Parts II and III).

2. Proxy  Statement  for the 1999 Annual  Meeting of  Stockholders  (Parts I and
   III).


<PAGE>


                                     PART I

ITEM 1. Description of Business

General

         Leeds Federal Bankshares, Inc.

         Leeds Federal Bankshares, Inc. (the "Company") is a federal corporation
which was  organized  on November 21, 1997.  The only  significant  asset of the
Company is its  investment  in Leeds  Federal  Savings  Bank (the  "Bank").  The
Company   is   majority-owned   by   Leeds   Federal   Bankshares,   M.H.C.,   a
federally-chartered  mutual holding company (the "Mutual Holding  Company").  On
January 21, 1998, the Company acquired all of the issued and outstanding  common
stock  of the  Bank in  connection  with  the  Bank's  reorganization  into  the
"two-tier" form of mutual holding company ownership. At that time, each share of
the Bank's common stock was  automatically  converted  into one share of Company
common stock, par value $1.00 per share (the "Common Stock").  At June 30, 1999,
the Company had total assets of $331.6 million and stockholders' equity of $48.5
million.

         The Company's  principal  office is located at 1101 Maiden Choice Lane,
Baltimore,  Maryland  21229,  and its telephone  number at that address is (410)
242-1234.

         Leeds Federal Savings Bank

         The  Bank  is  a  federally-chartered  savings  bank  headquartered  in
Baltimore,  Maryland.  The Bank's  deposits  are insured by the Federal  Deposit
Insurance  Corporation  ("FDIC")  under the Savings  Association  Insurance Fund
("SAIF").  The Bank has been a member  of the  Federal  Home  Loan  Bank  System
("FHLB") since 1938.

         The Bank is a community-oriented  savings institution that is primarily
engaged in the business of attracting  deposits  from the general  public in the
Bank's  market  area,  and  investing  such  deposits  in  fixed-rate   one-  to
four-family  residential  real estate  mortgages and adjustable rate home equity
loans and, to a lesser extent,  commercial real estate loans and consumer loans.
To the extent  available funds exceed local mortgage loan demand,  the Bank also
invests in mortgage-backed  securities issued or guaranteed by the United States
Government or agencies  thereof,  secured  short-term loans to commercial banks,
interest-earning   deposits  in  other   institutions,   and  other  short-  and
medium-term investments.

         The Bank's  executive  offices are located at 1101 Maiden  Choice Lane,
Baltimore,  Maryland  21229,  and its telephone  number at that address is (410)
242-1234.

Market Area/Local Economy

         The Bank's  market area  comprises  parts of the  Maryland  counties of
Baltimore, Howard, Harford, Anne Arundel, and Carroll, and Baltimore City, which
are  part  of  the  Baltimore  metropolitan  area.  Baltimore  City  is  located
approximately   30   miles   from   Washington,   D.C.,   and  is  part  of  the
Washington-Baltimore  Standard Metropolitan  Statistical Area. The Bank's market
area has a diverse base, although it is significantly  influenced by the federal
government and the defense industry. The federal government is one of the area's
largest employers.  Headquartered  within the Bank's market area are a number of
federal government  agencies,  including the Social Security  Administration and
the Health Care Financing  Administration.  Other major employers and industries
within  the Bank's  market  area  include  General  Motors  Truck and Bus Group,
Pepsi-Cola Company, Black and Decker Corporation,  Johns Hopkins University, the
University of Maryland--Baltimore County, the University of Maryland--Baltimore,
McCormick and Company,  Inc.,  Bethlehem  Steel Corp.,  Northrup  Grumman,  Fort
Meade,  Proctor and Gamble Cosmetic and Fragrance  Products,  The Baltimore Sun,
Baltimore Gas and Electric Company, Giant Food, Inc., Bell Atlantic,  Blue Cross
and Blue Shield of Maryland,  Crown Central Petroleum,  St. Agnes Hospital,  and
The  Ryland  Group,  Inc.  The  Baltimore  metropolitan  area also has an active
tourism  industry,  and is home to the Baltimore Orioles  professional  baseball
team, the Baltimore Ravens professional football team, the Inner Harbor, and the
National Aquarium.


<PAGE>

Lending Activities

         Loan  and  Mortgage-Backed   Securities  Portfolio   Composition.   The
principal  components of the Bank's loan portfolio are  fixed-rate  conventional
first  mortgage loans secured by one- to  four-family  residential  real estate,
home equity  loans,  and, to a much lesser  extent,  commercial  real estate and
consumer loans. At June 30, 1999, the Bank's net loans receivable totaled $203.9
million, of which $189.3 million, or 92.8%, were one- to four-family residential
real estate mortgage loans, $11.5 million, or 5.6%, were home equity loans, $4.0
million,  or 2.0%,  were  consumer  loans,  and  $2.5  million,  or  1.2%,  were
commercial real estate loans.

         The  Bank  also  invests  in   mortgage-backed   securities   including
pass-through certificates and, to a much lesser extent,  collateralized mortgage
obligations ("CMOs"). At June 30, 1999, mortgage-backed securities totaled $10.0
million,  or  3.0%,  of total  assets.  At June 30,  1999,  54.9% of the  Bank's
mortgage-backed  securities  were secured by adjustable  rate  mortgage  ("ARM")
loans, and 3.1% were secured by loans with terms of less than five years.  Pass-
through  certificates  totaled  $9.4  million,  or 93.9%,  of the  Bank's  total
mortgage-backed  securities  portfolio  at  June  30,  1999.  All of the  Bank's
pass-through  certificates  are insured or guaranteed by Freddie Mac, Ginnie Mae
("GNMA"), or Fannie Mae ("FNMA"). CMOs totaled $607,000 million, or 6.1%, of the
Bank's total mortgage-backed securities portfolio on June 30, 1999, all of which
were  backed  by  federal  agency  collateral.  The  Bank's  policy  is to  hold
mortgage-backed securities to maturity.


                                       -2-

<PAGE>


         Analysis of Loan Portfolio.  Set forth below are selected data relating
to the  composition of the Bank's loan portfolio by type of loan as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                        At June 30,
                              ------------------------------------------------------------------------------------------------
                                    1999               1998                1997                1996                  1995
                              -----------------   ----------------    ----------------   -----------------   ----------------
                              Amount    Percent   Amount   Percent    Amount   Percent   Amount    Percent   Amount   Percent
                              ------    -------   ------   -------    ------   -------   ------    -------   ------   -------
                                                                           (Dollars in Thousands)
<S>                           <C>       <C>       <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Real estate loans:
 One- to four-family
  residential and
  construction ...........   $189,326     92.9%  $172,152    90.5%  $155,233     89.1%  $137,700    90.5%  $127,511    90.8%
 Home equity .............     11,454      5.6     12,769     6.7     13,024      7.5     11,692     7.7     10,108     7.2
 Commercial ..............      2,500      1.2      3,738     2.0      3,763      2.2      1,548     1.0      1,494     1.1
                             --------     ----   --------    ----   --------    -----   --------   -----   --------   -----
  Total real estate
   loans .................    203,280     99.7    188,659    99.2    172,020     98.8    150,940    99.2    139,113    99.1
Consumer loans ...........      3,976      2.0      5,072     2.7      5,069      2.9      3,295     2.2      2,324     1.6
                             --------     ----   --------    ----   --------    -----   --------   -----   --------   -----

  Total loans receivable .    207,256    101.7    193,731   101.9    177,089    101.7    154,235   101.4    141,437   100.7

 Less:
 Undisbursed portion of
  loans in process .......      1,905      (.9)     2,025    (1.1)     1,668     (1.0)     1,196     (.8)       121     (.1)
 Unearned loan fees ......        740      (.4)       802     (.4)       790      (.4)       588     (.4)       498     (.4)
 Allowance for loan
 losses ..................        725      (.4)       723     (.4)       536      (.3)       375     (.2)       341     (.2)
                             --------     ----   --------    ----   --------    -----   --------   -----   --------   -----
  Total loans receivable,
   net ...................   $203,886    100.0%  $190,181   100.0%  $174,095    100.0%  $152,076   100.0%  $140,477   100.0%
                             ========    =====   ========   =====   ========    =====   ========   =====   ========   =====

Mortgage-backed securities   $ 10,008            $ 16,412           $  22,160           $ 28,917           $ 34,749
                             ========            ========           =========           ========           ========
</TABLE>

                                       -3-

<PAGE>


         Loan and Mortgage-Backed  Securities  Maturity Schedule.  The following
table sets forth the  maturity  or period of  repricing  of the Bank's  loan and
mortgage-backed  securities  portfolio at June 30,  1999.  Demand  loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less. Adjustable rate ("ARM") loans, floating
rate loans and  mortgage-backed  securities  are included in the period in which
interest  rates  are  next  scheduled  to  adjust  rather  than  in  which  they
contractually  mature,  and fixed rate loans are included in the period in which
the final contractual repayment is due.

<TABLE>
<CAPTION>
                                                                                                     Beyond
                                          Within       1-3          3-5        5-10        10-20       20
                                          1 Year      Years        Years       Years       Years      Years       Total
                                          ------      -----        -----       -----       -----      -----       -----
                                                                             (In Thousands)
<S>                                      <C>         <C>         <C>         <C>          <C>        <C>         <C>
Real estate loans:
  One- to four-family
   residential and construction ......   $  4,373    $  6,174    $ 15,751    $ 29,600    $ 67,364    $ 66,064    $189,326
  Home equity ........................      7,763         267         629       2,780          15          --      11,454
  Commercial .........................      2,500          --          --          --          --          --       2,500
  Consumer loans .....................        533       1,781       1,579          83          --          --       3,976
                                         --------    --------    --------    --------    --------    --------    --------
   Total loans .......................     15,169       8,222      17,959      32,463      67,379      66,064     207,256
                                         --------    --------    --------    --------    --------    --------    --------
Mortgage-backed securities (1) .......      6,373          --         312       2,176         399         777      10,037
                                         --------    --------    --------    --------    --------    --------    --------
  Total loans and mortgage-backed
  securities .........................   $ 21,542    $  8,222    $ 18,271    $ 34,639    $ 67,778    $ 66,841    $217,293
                                         ========    ========    ========    ========    ========    ========    ========
</TABLE>

------------
(1)  Does not include discounts and premiums.


         Fixed-  and  Adjustable-Rate   Loan  and   Mortgage-Backed   Securities
Schedule.  The following table sets forth at June 30, 1999, the dollar amount of
fixed rate loans and mortgage-backed securities that mature after June 30, 2000,
and all  adjustable  rate loans and  mortgage-backed  securities  that mature or
reprice after June 30, 2000.

                                             Fixed       Adjustable       Total
                                             -----       ----------       -----
                                                      (In Thousands)
Real estate loans:
  One- to four-family
   residential and construction ......      $173,724      $ 11,229      $184,953
  Home equity ........................         3,691            --         3,691
  Commercial .........................            --            --            --
  Consumer loans .....................         3,443            --         3,443
                                            --------      --------      --------
   Total .............................      $180,858      $ 11,229      $192,087
                                            ========      ========      ========

Mortgage-backed securities ...........      $  3,664      $     --      $  3,664
                                            ========      ========      ========


         One- to Four-Family Residential and Construction Real Estate Loans. The
Bank's primary lending activity  currently  consists of the origination of fixed
rate one- to four-family  owner-occupied  residential mortgage loans,  virtually
all of which are collateralized by properties located in the Bank's market area.
The Bank also originates fixed/adjustable first mortgage loans, which have fixed
rates for the first five or seven years,  then adjust annually  thereafter.  The
Bank also  originates  one- to  four-family  construction  loans that convert to
permanent loans after the initial  construction  period which generally does not
exceed nine months. The Bank is a portfolio lender. It has not sold loans in the
secondary  mortgage  market;  however,  it may conduct limited  secondary market
sales in the future. t One- to four-family loans are underwritten and originated
according to policies approved by the board of directors.

         The Bank currently  offers fixed rate one- to  four-family  residential
mortgage  loans  with  terms  ranging  from 5 to 30 years.  One- to  four-family
residential real estate loans often remain outstanding for significantly shorter
periods than their  contractual  terms because borrowers may refinance or prepay
loans at their  option.  The  average  length  of time that the  Bank's  one- to
four-family  residential  mortgage loans remain outstanding varies significantly
depending  upon trends in market  interest  rates and other  factors.  In recent
years,  the  average  maturity  of  the  Bank's  mortgage  loans  has  decreased
significantly due to unprecedented volume of refinancing activity. Accordingly,

                                       -4-

<PAGE>


estimates  of the  average  length  of one- to  four-family  loans  that  remain
outstanding cannot be made with any degree of accuracy.

         Originations  of fixed rate mortgage  loans are monitored on an ongoing
basis and are affected  significantly by the level of market interest rates, the
Bank's  interest rate risk  position,  and loan  products  offered by the Bank's
competitors.  The Bank's fixed rate mortgage  loans  amortize on a monthly basis
with  principal and interest due each month.  To make the Bank's loan  portfolio
more interest rate sensitive,  the Bank currently  emphasizes the origination of
fixed rate loans with terms of 15 years or less and fixed/adjustable rate loans.

         The  Bank's   one-to-four   family  residential  first  mortgage  loans
customarily include due-on-sale clauses,  which provides the Bank with the right
to declare a loan immediately due and payable in the event,  among other things,
that the borrower sells or otherwise  disposes of the  underlying  real property
serving as security for the loan.  Due-on-sale clauses are an important means of
adjusting the rates on the Bank's fixed rate mortgage  loan  portfolio,  and the
Bank has generally exercised its rights under these clauses.

         Regulations  limit  the  amount  that a  savings  association  may lend
relative  to the  appraised  value of the real  estate  securing  the  loan,  as
determined  by an appraisal at the time of loan  origination.  Such  regulations
permit a maximum  loan-to-value  ratio of 100% for residential  property and 90%
for all other real estate loans.  The Bank's lending  policies limit the maximum
loan-to-value  ratio on fixed rate loans without private  mortgage  insurance to
80% of the lesser of the appraised  value or the purchase  price of the property
to serve as collateral for the loan.

         The Bank makes one-to-four  family real estate loans with loan-to-value
ratios of up to 95%;  however,  for one- to  four-family  real estate loans with
loan-to-value  ratios of between 80% and 95%, the Bank requires the first 20% of
the loan amount to be covered by private mortgage  insurance.  The Bank requires
fire  and  casualty  insurance,  as well as a title  policy,  on all  properties
securing real estate loans made by the Bank.

         Commercial  Real Estate  Loans.  The Bank  originates  commercial  real
estate loans on a limited  basis.  At June 30, 1999,  the Bank had one such loan
which represented 1.2% of the Bank's loan portfolio. The Bank generally does not
solicit such loans, and originates such loans  selectively and on a case-by-case
basis.  Because of the increased  credit risk associated with such loans and the
low level of demand for such loans in the Bank's  primary  market area, the Bank
does not expect  commercial real estate lending to constitute a significant part
of loan  originations  in the foreseeable  future.  At June 30, 1999, the Bank's
commercial real estate loan totaled $2.5 million.

         Home Equity  Loans.  The Bank also  originates  variable and fixed rate
home equity loans. As of June 30, 1999,  variable rate home equity loans totaled
$7.8 million, or 3.8%, of the Bank's total loan portfolio. The interest rates of
the Bank's  variable  rate home equity loans adjust based on the prime  interest
rate and are generally for terms of up to 15 years. At June 30, 1999, fixed rate
home equity loans totaled $3.7 million. The Bank's home equity loans are secured
by the  borrower's  principal  residence  with a  maximum  loan-to-value  ratio,
including the principal balances of both the first and second mortgage loans, of
75% or less.

         Consumer  Loans.  To a much  lesser  extent,  the Bank also  originates
consumer loans  collateralized  principally by automobiles and deposit accounts.
Consumer loans entail greater  credit risk than do residential  mortgage  loans,
particularly  in the case of  consumer  loans that are  secured  by assets  that
depreciate rapidly, such as automobiles.

         Loan  Originations,  Solicitation,  Processing,  and Commitments.  Loan
originations are derived from a number of sources such as mortgage brokers, real
estate agent referrals, existing customers,  borrowers, builders, attorneys, and
walk-in customers. Upon receiving a loan application,  the Bank obtains a credit
report and employment  verification to verify specific  information  relating to
the applicant's  employment,  income, and credit standing. In the case of a real
estate  loan,  an  appraiser  approved  by the Bank  appraises  the real  estate
intended to  collateralize  the proposed loan. An underwriter in the Bank's loan
department checks the loan application file for accuracy and  completeness,  and
verifies the information provided. Pursuant to the Bank's written loan policies,
all loans are approved by the board of directors,  which meets weekly. After the
loan is approved, a loan commitment letter is promptly issued to the borrower.

                                       -5-

<PAGE>


         If the loan is approved,  the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral,  and required
insurance  coverage.  Commitments are typically issued for 60-day periods in the
case of loans to  refinance,  90-day  periods  in the case of loans to  purchase
existing real estate,  and 120-day periods for construction  loans. The borrower
must  provide  proof of fire and casualty  insurance on the property  serving as
collateral, which insurance must be maintained during the full term of the loan.
Title  insurance,  based on a title search of the  property,  is required on all
loans secured by real property.  At June 30, 1999, the Bank had outstanding loan
commitments  of $6.4  million.  This amount does not  include  $14.9  million of
undisbursed  lines of credit on home equity loans,  and the unfunded  portion of
loans in process.

         Origination,  Purchase  and Sale of Loans.  The table  below  shows the
Bank's  originations  of loans for the periods  indicated.


                                                     Years Ended June 30,
                                            ------------------------------------
                                               1999         1998         1997
                                               ----         ----         ----
                                                         (In Thousands)
Loans receivable at beginning
 of period, excluding loans
 in process .............................   $ 191,706    $ 175,421    $ 153,039
Originations:
 Real estate:
  One- to four-family residential .......      53,207       41,206       35,919
  Home equity (1) .......................       6,429        7,571        7,657
  Commercial ............................          --           --        2,500
 Consumer passbook loans (2) ............         (40)          81          (39)
 Consumer loans, other ..................       1,118        1,785        2,699
                                            ---------    ---------    ---------
   Total originations ...................      60,714       50,643       48,736
                                            ---------    ---------    ---------
  Transfer of mortgage loans to
   foreclosed real estate ...............          --           --
Repayments ..............................     (47,071)     (34,353)     (26,364)
Loan charge-off/transfer provision ......           2           (5)          10
                                            ---------    ---------    ---------
Net loan activity .......................      13,645       16,285       22,382
                                            ---------    ---------    ---------
     Total loans receivable at end
      of period, excluding loans
      in process ........................   $ 205,351    $ 191,706    $ 175,421
                                            =========    =========    =========

--------------
(1) Includes  disbursements  from existing home equity loans. (2) Represents net
changes in ending balances.

         Loan Origination Fees and Other Income.  In addition to interest earned
on loans, the Bank generally receives fees in connection with loan originations.
Such  loan  origination  fees,  net of  costs to  originate,  are  deferred  and
amortized using an interest  method over the contractual  life of the loan. Fees
deferred are recognized into income  immediately  upon prepayment of the related
loan. At June 30, 1999, the Bank had $740,000 of deferred loan origination fees.
Such fees  vary  with the  volume  and type of loans  and  commitments  made and
purchased,  principal  repayments,  and  competitive  conditions in the mortgage
markets,  which in turn  respond  to the demand and  availability  of money.  In
addition to loan  origination  fees, the Bank also receives other fees,  service
charges,  and other income that consist primarily of deposit transaction account
service  charges and late charges.  The Bank recognized fees and service charges
of $132,000,  $137,000 and  $130,000,  for the fiscal years ended June 30, 1999,
1998, and 1997, respectively.

Mortgage-Backed Securities

         A  significant  part of the Bank's  business  involves  investments  in
mortgage-backed  securities. At June 30, 1999, all of the Bank's mortgage-backed
securities  were insured or guaranteed by a United States  Government  agency or
sponsored corporation.  The Bank's mortgage-backed securities portfolio includes
primarily  pass-through  certificates  and, to a lesser  extent,  CMOs. The Bank
invests in  mortgage-backed  securities to supplement local loan originations as
well as to reduce interest rate risk exposure.

         The Bank's pass-through certificates represent a participation interest
in a pool of  single-family  mortgages,  the principal and interest  payments on
which  are  passed  from  the  mortgage  originators,   through   intermediaries
(generally   quasi-governmental   agencies)   that   pool  and   repackage   the
participation interest in the form of securities,

                                       -6-

<PAGE>



to investors such as the Bank. Such  quasi-governmental  agencies that guarantee
the payment of principal and interest to investors,  include  Freddie Mac, GNMA,
or  the  FNMA.  Pass-through  certificates  typically  are  issued  with  stated
principal amounts, and the securities are backed by pools of mortgages that have
loans with interest rates and maturities that are within a specified  range. The
underlying pool of mortgages can be composed of either fixed rate mortgage loans
or ARM loans. The interest rate risk  characteristics  of the underlying pool of
mortgages, i.e., fixed rate or adjustable rate, are passed on to the certificate
holder.

         CMOs are securities  created by segregating or partitioning  cash flows
from  mortgage  pass-through  securities or from pools of mortgage  loans.  CMOs
provide a broad range of mortgage  investment  vehicles by tailoring  cash flows
from  mortgages  to meet the varied risk and return  preferences  of  investors.
These  securities  enable  the  issuer  to  "carve  up" the cash  flow  from the
underlying  securities and thereby create  multiple  classes of securities  with
different  maturity and risk  characteristics.  CMOs are  typically  issued by a
special-purpose  entity (the  "issuer")  that may be  organized  in a variety of
legal forms, such as a trust, a corporation,  or a partnership.  Accordingly,  a
CMO instrument may be purchased in equity form (e.g., trust interests, stock and
partnership interests) or non-equity form (e.g., participating debt securities).
All of the Bank's CMOs are  non-equity  interests.  CMOs are  collateralized  by
mortgage loans or  mortgage-backed  securities  that are  transferred to the CMO
trust or pool by a sponsor.  The issuey is structured so that  collections  from
the  underlying  collateral  provide a cash flow to make  principal and interest
payments on the obligations, or "tranches," of the issuer.

         Set forth below is information relating to the Bank's purchases,  sales
and repayments of mortgage-backed securities for the periods indicated.

                                                  Years Ended June 30,
                                         ---------------------------------------
                                            1999          1998           1997
                                            ----          ----           ----
                                                     (In Thousands)
Mortgage-backed securities
 at beginning of period ...........      $ 16,412       $ 22,160       $ 28,917
Purchases .........................            --             --             --
Repayments ........................        (6,415)        (5,769)        (6,791)
Other (1) .........................            11             21             34
                                         --------       --------       --------
Mortgage-backed securities
 at end of period .................      $ 10,008       $ 16,412       $ 22,160
                                         ========       ========       ========
--------
(1)  Includes net discount/premium amortization.


         The  following   table  sets  forth   selected  data  relating  to  the
composition of the Bank's mortgage-backed securities as of the dates indicated.

<TABLE>
<CAPTION>
                                                         At June 30,
                               --------------------------------------------------------------
                                      1999                  1998                  1997
                               ------------------    ------------------    ------------------
                               Amount     Percent    Amount     Percent    Amount     Percent
                               ------     -------    ------     -------    ------     -------
                                                    (Dollars in Thousands)
Pass-through certificates:
<S>                          <C>            <C>    <C>            <C>    <C>            <C>
  Adjustable .............   $  5,495       54.9%  $  7,624       46.5%  $  9,970       45.0%
  Fixed ..................      3,935       39.3      7,068       43.0     10,375       46.8
                             --------      -----   --------      -----   --------      -----
   Total pass-through
    certificates .........      9,430       94.2     14,692       89.5     20,345       91.8
                             --------      -----   --------      -----   --------      -----

CMOs:
  Adjustable .............        607        6.1      1,759       10.7      1,876        8.5
                             --------      -----   --------      -----   --------      -----
   Total CMOs ............        607        6.1      1,759       10.7      1,876        8.5
                             --------      -----   --------      -----   --------      -----
  Unamortized discount
   and premium ...........        (29)      (0.3)       (39)      (0.2)       (61)      (0.3)
                             --------      -----   --------      -----   --------      -----
    Total mortgage-backed
     securities ..........   $ 10,008      100.0%  $ 16,412      100.0%  $ 22,160      100.0%
                             ========      =====   ========      =====   ========      =====
</TABLE>


                                       -7-

<PAGE>


         At June 30, 1999,  mortgage-backed securities totaled $10.0 million, or
3.0%,  of  total  assets.   ARM  loans   collateralized   61.0%  of  the  Bank's
mortgage-backed  securities  portfolio,  and loans  with terms of less than five
years collateralized 5.8% of the Bank's  mortgage-backed  securities  portfolio.
Pass-through  certificates  totaled $9.4 million,  or 93.9%, of the Bank's total
mortgage-backed  securities  portfolio  at  June  30,  1999.  All of the  Bank's
pass-through  certificates  are insured or  guaranteed  by the Freddie  Mac, the
GNMA,  or the  FNMA.  CMOs  totaled  $607,000,  or  6.1%,  of the  Bank's  total
mortgage-backed securities portfolio on that same date, all of which were backed
by federal agency collateral.  At June 30, 1999, all the Bank's  mortgage-backed
securities   were  held  for   investment.   At  June  30,   1999,   the  Bank's
mortgage-backed securities portfolio had a fair market value of $10.2 million.

Delinquencies and Classified Assets

         Delinquencies.  The Bank's  collection  procedures  provide that when a
loan is 15 days past due, a computer-generated late charge notice is sent to the
borrower requesting payment,  plus a late charge. If delinquency  continues,  on
the first day of the second  month,  a delinquent  notice is mailed along with a
letter  advising  that the  mortgagors  are in  violation  of the terms of their
mortgage contract.  If a loan becomes 60 days past due, the loan becomes subject
to possible legal action.  The Bank's  attorney has been authorized by the Board
of  Directors  to send a letter on the first day of the third month  advising of
pending  legal action.  This letter  grants  mortgagors an additional 15 days to
bring the account to date prior to the start of any legal  action.  If not paid,
foreclosure proceedings are initiated.

         It is sometimes  necessary and desirable to arrange  special  repayment
 schedules with mortgagors to prevent foreclosure or filing for bankruptcy.  The
 mortgagors are required to submit a written repayment schedule which is closely
 monitored for  compliance.  Under these terms,  the account is brought to date,
 usually within a few months.

         Nonperforming  Assets.  Loans are  reviewed on a regular  basis and are
placed on a nonaccrual status when, in the opinion of management, the collection
of   additional   interest   is   doubtful.   Mortgage   loans  are   placed  on
nonaccrual status generally  when either  principal  or interest is more than 90
days  past  due.  Interest  accrued  and  unpaid at the time a loan is placed on
nonaccrual status is charged against interest income.

         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is deemed REO until such time as it is sold.  When REO is
acquired,  it is  recorded at the lower of the unpaid  principal  balance of the
related loan or its  estimated  fair value,  less  estimated  selling  expenses.
Valuations are periodically performed by management,  and any subsequent decline
in fair value is charged to operations.


                                       -8-

<PAGE>



         Delinquent  Loans and  Nonperforming  Assets.  The following table sets
forth information  regarding loans delinquent 90 days or more, real estate owned
by the Bank and other  nonperforming  assets at the dates  indicated.  As of the
dates indicated,  the Bank did not have any material  restructured  loans within
the meaning of SFAS 15. At June 30, 1999,  the Bank had six loans on  nonaccrual
status,  totaling $2.8 million. At June 30, 1999, the Company had a $2.5 million
loan which  matured in June 1998,  and has not been  repaid.  The  borrower  has
declared bankruptcy,  and the scheduled foreclosure proceedings on the loan have
been temporarily suspended.  Based on a current appraisal and other factors, the
Company believes it will not incur a material loss on this loan.

<TABLE>
<CAPTION>
                                                          At June 30,
                                         -----------------------------------------------
                                           1999         1998        1997    1996    1995
                                           ----         ----        ----    ----    ----
                                                      (Dollars in Thousands)
Delinquent loans:
<S>                                     <C>          <C>          <C>       <C>     <C>
  One- to four-family residential ...   $     264    $      19    $   88    $100    $104
  Consumer loans ....................          --           --        --      --       7
  Commercial loans ..................       2,500        2,500        --      --      --
                                        ---------    ---------    ------    ----    ----
   Total delinquent loans ...........   $   2,764    $   2,519    $   88    $100    $111
                                        ---------    =========    ======    ====    ====

Total real estate owned (1) .........   $      --    $      --    $   --    $ --    $ --
Other nonperforming assets ..........          --           --        --      90     150
                                        ---------    ---------    ------    ----    ----
   Total nonperforming assets .......   $      --    $      --    $   --    $ 90    $150
                                        =========    =========    ======    ====    ====

Total loans delinquent 90 days
 or more to net loans receivable ....        1.36%        1.32%      .05%    .07%    .08%
Total loans delinquent 90 days
 or more to total assets ............         .83%         .83%      .03%    .04%    .04%
Total nonperforming loans and
 nonperforming assets to total assets         .83%         .83%      .03%    .07%    .10%
</TABLE>

------------
(1)  Represents  the net book value of  property  acquired  by the Bank  through
     foreclosure or deed in lieu of foreclosure. Upon acquisition, this property
     was recorded at the lower of its fair value or the principal balance of the
     related loan.

         During  the  year  ended  June  30,  1999,  gross  interest  income  of
approximately   $286,000   would  have  been  recorded  on   nonperforming   and
restructured  loans,  under their original  terms, if the loans had been current
throughout the period. $193,000 was actually recorded on these assets during the
year ended June 30, 1999.

         The  following  table  sets  forth  information  with  respect to loans
delinquent  60-89 days and 90 days or more in the Bank's  portfolio at the dates
indicated.

                                                           At June 30,
                                                  ------------------------------
                                                   1999         1998       1997
                                                   ----         ----       ----
                                                         (In Thousands)
Loans delinquent 60-89 days ................      $   60      $  169      $   32
Loans delinquent 90 days or more ...........      $2,764      $2,519          88
                                                  ------      ------      ------
 Total delinquent 60 days or more ..........      $2,824      $2,688      $  120
                                                  ======      ======      ======


                                       -9-

<PAGE>

         The following table sets forth  information  with respect to the Bank's
delinquent loans and other problem assets at June 30, 1999.

                                                            At June 30, 1999
                                                            -----------------
                                                            Balance    Number
                                                            -------    ------
                                                              (In Thousands)
Residential real estate:
  Loans 60 to 89 days delinquent .....................     $   60       1
  Loans 90 days or more delinquent ...................        264       5
Commercial real estate:
  Loans 60 to 89 days delinquent .....................         --      --
  Loans 90 days or more delinquent ...................      2,500       1
Consumer loans 90 days or more delinquent ............         --      --
Foreclosed real estate and repossessions .............         --      --
Other nonperforming assets ...........................         --      --
Restructured loans within the meaning of
 Statement of Financial Accounting
 Standards No. 15 (not included in
 other nonperforming categories above) ...............         --      --
Loans to facilitate sale of real
 estate owned ........................................         --      --


         Classification  of  Assets.   Federal   regulations   provide  for  the
classification  of loans and other  assets  such as debt and  equity  securities
considered by the OTS to be of lesser quality as  "substandard,"  "doubtful," or
"loss"  assets.  An  asset is  considered  "substandard"  if it is  inadequately
protected by the current net worth and paying  capacity of the obligor or of the
collateral pledged, if any.  "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected.  Assets classified as "doubtful" have all
of the weaknesses  inherent in those  classified  "substandard,"  with the added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
that do not  expose  the  savings  institution  to risk  sufficient  to  warrant
classification in one of the aforementioned  categories,  but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated  as special  mention  are  generally  loans  that,  while  current in
required  payments,  have  exhibited  some  potential  weaknesses  that,  if not
corrected, could increase the level of risk in the future. At June 30, 1999, the
Bank had three loans totaling $230,000 classified as special mention, secured by
one- to four- family residences.

         The  following  table  sets  forth the  aggregate  amount of the Bank's
classified assets at the dates indicated.

                                                          At June 30,
                                               ---------------------------------
                                                 1999         1998         1997
                                                 ----         ----         ----
                                                        (In Thousands)
Substandard assets (1) .................       $2,764       $2,519       $    --
Doubtful assets ........................          152           --            --
Loss assets ............................           --           --            --
                                               ------       ------       -------
   Total classified assets .............       $2,916       $2,519       $    --
                                               ======       ======       =======

--------
(1) Includes REO and other nonperforming assets.


         Allowance  for Loan  Losses.  Management's  policy  is to  provide  for
estimated  losses on the Bank's loan portfolio based on management's  evaluation
of the estimated  losses that may be incurred.  The Bank  regularly  reviews its
loan portfolio,  including problem loans, to determine whether any loans require
classification  or the  establishment of appropriate  reserves or allowances for
losses.  Such  evaluation,  which  includes  a review of all loans of which full
collectability  of  interest  and  principal  may  not  be  reasonably  assured,
considers,  among other  matters,  the  estimated  fair value of the  underlying
collateral.  During the years ended June 30, 1999, 1998 and 1997, the Bank added
$39,000, $192,000 and $151,000,  respectively, to the provision for loan losses.
The Bank's allowance for loan losses totaled $725,000, $723,000 and $536,000, at
June 30, 1999, 1998, and 1997, respectively.

                                      -10-

<PAGE>



         Management  believes  that  the  allowance  for  losses  on  loans  and
investments  in real  estate  are  adequate.  While  management  uses  available
information to recognize losses on loans and investments in real estate,  future
additions  to the  allowances  may be  necessary  based on changes  in  economic
conditions.  In addition,  various regulatory  agencies,  as an integral part of
their examination processes periodically review the Bank's allowances for losses
on loans and  investments in real estate.  Such agencies may require the Bank to
recognize  additions to the allowance based on their judgments about information
available to them at the time of their examination.

         Analysis of the  Allowance For Loan Losses.  The  following  table sets
forth the analysis of the allowance  for loan losses for the periods  indicated.
Of the total  allowance  for loan  losses at June 30,  1999,  $404,000  has been
allocated to one- to  four-family  residential  real estate  loans,  $250,000 to
commercial real estate loans and $71,000 to consumer loans.

<TABLE>
<CAPTION>
                                                                           At June 30,
                                                --------------------------------------------------------------
                                                  1999           1998          1997          1996        1995
                                                  ----           ----          ----          ----        ----
                                                                         (Dollars in Thousands)
<S>                                            <C>           <C>           <C>           <C>          <C>
Total loans outstanding ....................   $ 203,886     $ 190,181     $ 174,095     $ 152,076    $ 140,477
Average loans outstanding ..................     195,371       182,882       164,321       143,126      143,829

Allowance balances (at beginning of period)          723           536           375           341          317
Provision for losses on real estate loans ..          39           192           151            34           24
Transfer from provision for other assets ...          --            --            30            --           --
Charge-offs ................................         (37)           (5)          (20)           --           --
                                               ---------     ---------     ---------     ---------    ---------
Allowance balances (at end of period) ......   $     725     $     723     $     536     $     375    $     341
                                               =========     =========     =========     =========    =========

Allowance for loan losses as a percentage of
  net loans receivable at end of period ....         .35%          .38%          .31%          .25%         .24%
</TABLE>


Investment Activities

         The  Bank's  investment  portfolio  comprises  investment   securities,
securities  purchased under  agreements to resell,  secured  short-term loans to
commercial banks, Federal Home Loan Bank stock, and interest-earning deposits in
other  institutions.  The  Bank  has no  investments  in  corporate  or  unrated
securities.  At June 30, 1999, $30.3 million, or 29.6%, of the Bank's investment
portfolio  was scheduled to mature in one year or less,  $1.6 million,  or 1.6%,
was  scheduled  to  mature in from one to five  years,  and  $70.6  million  was
scheduled to mature in over five years.

         The Bank is required  under federal  regulations  to maintain a minimum
amount of liquid assets that may be invested in specified  short term securities
and certain other investments.  See  "Regulation--Federal  Regulation of Savings
Institutions--Liquidity."  The Bank  generally  has  maintained  a portfolio  of
liquid assets that exceeds regulatory requirements. Management believes that the
higher levels are prudent  because of the  possibility  that interest  rates may
increase. By maintaining high levels of liquidity,  the Bank is able to reinvest
its assets more quickly in response to changes in market interest rates, thereby
reducing  its  exposure to interest  rate  volatility.  Liquidity  levels may be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its  expectation  of the level of yield
that will be available in the future, as well as management's  projections as to
the short term  demand for funds to be used in the Bank's loan  origination  and
other activities. Currently, due to savings deposit growth, the Bank's liquidity
levels are higher than they have been in recent periods.

                                      -11-

<PAGE>


         Investment Portfolio. The following table sets forth the carrying value
of the Bank's investment portfolio at the dates indicated.


                                                          At June 30,
                                                  ------------------------------
                                                    1999        1998       1997
                                                    ----        ----       ----
                                                         (In Thousands)
Investment securities:
  U.S. Government and agency obligations ......   $ 68,700   $ 44,685   $ 48,644
  Freddie Mac preferred stock .................      3,950      3,205      2,384
  Other equity securities .....................         68         --         --
                                                  --------   --------   --------
    Total investment securities ...............   $ 72,718   $ 47,890   $ 51,028

Securities purchased under agreements
 to resell ....................................         --         --      5,518
Short-term investments/money market
 accounts .....................................     12,941      4,777      2,722
Secured short-term loans to
 commercial banks (1) .........................     10,012     18,405      9,736
FHLB stock ....................................      1,936      2,377      2,377
Interest-earning deposits in other
 institutions .................................      4,964     11,906     11,172
                                                  --------   --------   --------
    Total investments .........................   $102,571   $ 85,355   $ 82,553
                                                  ========   ========   ========

----------

(1) Includes Federal Funds sold and other deposits.



                                      -12-

<PAGE>


         Investment  Portfolio  Maturities.  The following  table sets forth the
scheduled maturities, carrying values, market values and weighted average yields
for the Bank's investment portfolio at June 30, 1999.

<TABLE>
<CAPTION>
                                                                      At June 30, 1999
                            --------------------------------------------------------------------------------------------------------
                             One Year or Less     One to Five Years     Five to Ten Years    More than Ten Years     Total
                            --------------------------------------------------------------------------------------------------------
                                     Annualized        Annualized           Annualized       Annualized                   Annualized
                                      Weighted          Weighted             Weighted         Weighted                     Weighted
                            Carrying  Average Carrying   Average  Carrying   Average Carrying  Average  Carrying  Market    Average
                              Value    Yield    Value     Yield     Value     Yield    Value    Yield    Value    Value     Yield
                              -----    -----    -----     -----     -----     -----    -----    -----    -----    -----     -----
                             (Dollars in Thousands)
<S>                         <C>       <C>      <C>      <C>       <C>       <C>       <C>      <C>       <C>      <C>        <C>
Investment securities:
US. Government agency
 securities ..............   $   --      --%   $  600     6.24%   $2,501     6.61%    $64,023    7.08%  $67,124   $64,439     7.06%
U.S. Government treasury
 securities ..............      576    4.76     1,000     7.50        --       --          --      --     1,576     1,531     6.60
Freddie Mac preferred
 stock ...................       --      --        --       --        --       --       3,950     .93     3,950     3,950      .98
Other equity
 securities ..............       --      --        --       --        --       --          68    1.48        68        68     1.48
                             ------    ----    ------     ----    ------     ----     -------    ----   -------   -------     ----
 Total investment
 securities ..............   $  576    4.76%   $1,600     7.03%   $2,501     6.61%    $68,041    6.72%  $72,718   $69,988     6.71%


Short-term investments/
money market accounts ....   12,941    4.97        --       --        --       --          --      --    12,941    12,941     4.97
Secured short-term loans
 to commercial banks .....   10,012    4.73        --       --        --       --          --      --    10,012    10,012     4.73
FHLB stock ...............    1,936    7.50        --       --        --       --          --      --     1,936     1,936     7.50
Interest earning
 deposits in other
 institutions ............    4,964    5.15        --       --        --       --          --      --     4,964     4,964     5.15
                             ------    ----    ------     ----    ------     ----     -------    ----   -------   -------     ----
  Total investments ......  $30,429    5.08%   $1,600     7.03%   $2,501     6.61%    $68,041    6.72% $102,571   $99,841     6.24%
                            =======    ====    ======     ====    ======     ====     =======    ====  ========   =======     ====
</TABLE>


                                      -13-

<PAGE>


Sources of Funds

         General.   The  Bank's   deposit-gathering   activities  are  currently
conducted from the Bank's facility in Arbutus, Maryland.  Deposits are the major
source  of the  Bank's  funds for  lending  and other  investment  purposes.  In
addition  to  deposits,  the  Bank  derives  funds  from  the  amortization  and
prepayment of loans and mortgage-backed securities, n the maturity of investment
securities, and operations. Scheduled loan principal repayments are a relatively
stable source of funds,  while deposit inflows and outflows and loan prepayments
are influenced  significantly by general  interest rates and market  conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability  of funds from other  sources or on a longer term basis for general
business  purposes.  Historically,  the  Bank  has  maintained  a high  level of
liquidity, and only rarely uses borrowed funds.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from within the Bank's market area through the offering of a broad  selection of
deposit  instruments  including  NOW accounts,  passbook and  statement  savings
accounts,  money market  deposits,  term  certificate  accounts  and  individual
retirement accounts. Deposit account terms vary according to the minimum balance
required,  the period of time during which the funds must remain on deposit, and
the interest rate,  among other factors.  The maximum rate of interest which the
Bank must pay is not  established  by regulatory  authority.  The Bank regularly
evaluates  its  internal  cost of funds,  surveys  rates  offered  by  competing
institutions,  reviews  the  Bank's  cash  flow  requirements  for  lending  and
liquidity,  and  executes  rate changes  when deemed  appropriate.  The Bank has
sought to  decrease  the risk  associated  with  changes  in  interest  rates by
offering  competitive  rates on deposit accounts and by pricing  certificates of
deposit to provide customers with incentives to choose  certificates of deposit.
The Bank does not obtain funds through brokers,  through a solicitation of funds
outside its market area, nor by offering  negotiated  rates on  certificates  of
deposit in excess of $100,000.

         Savings  Portfolio.  Savings  in the  Bank as of  June  30,  1999  were
represented by the various types of deposit programs described below.


<TABLE>
<CAPTION>

   Weighted                                                                                           Percentage
   Average                                                               Minimum                       of Total
Interest Rate     Minimum Term      Checking and Savings Deposits        Amount         Balances        Savings
-------------     ------------      -----------------------------        ------         --------        -------
                                                                                      (In Thousands)
<S>               <C>                <C>                                 <C>            <C>                <C>
       --%            None            Noninterest-bearing demand         $   500        $    896           .33%
    1.992             None            NOW Accounts                           300           6,076          2.21
    3.151             None            Passbooks and Statement Savings         50          20,018          7.29
    4.685             None            Money Market Accounts                  100          61,368         22.35
    3.334             None            Anniversary Bonus Account              100           4,466          1.62
    3.350             None            Club Accounts                            5             143           .05
                             Certificates of Deposit
                             -----------------------
     3.95           3 months          Fixed term, fixed rate               1,000             399           .15
     4.69           6 months          Fixed term, fixed rate               1,000           4,769          1.74
     5.08           12 months         Fixed term, fixed rate               1,000          22,370          8.15
     5.04           13 months         Fixed term, fixed rate              10,000             888           .32
     5.25           18 months         Fixed term, fixed rate               1,000           4,803          1.75
     5.16           18 months         Fixed term, fixed rate               5,000          71,593         26.07
     5.41           24 months         Fixed term, fixed rate               1,000          22,560          8.20
     5.49           36 months         Fixed term, fixed rate               1,000          18,296          6.66
     5.60           48 months         Fixed term, fixed rate               1,000           1,335           .49
     6.32           60 months         Fixed term, fixed rate               1,000          22,809          8.31
     5.34        Various (15-20)      Fixed term, fixed rate               5,000           3,619          1.32
     5.00        Various (14-25)      Fixed term, variable rate            1,000           7,826          2.85
     7.50        Various (3-60)       Fixed term, fixed rate              90,000             392           .14
                                                                                        --------        ------
                                                                                        $274,626        100.00%
                                                                                        ========        ======
</TABLE>


                                      -14-

<PAGE>


         The  following  table sets forth the change in dollar amount of savings
deposits in the various  types of savings  accounts  offered by the Bank between
the dates indicated.

<TABLE>
<CAPTION>
                                                                        At June 30,
                         ---------------------------------------------------------------------------------------------------------
                                    1999                        1998                         1997                       1996
                         --------------------------  --------------------------    -------------------------   -------------------
                                  Percent   Change            Percent                       Percent                        Percent
                         Balance     (1)      (2)    Balance    (1)      Change    Balance    (1)     Change    Balance       (1)
                         -------  -------   -------  -------  -------    ------    -------  -------   ------    -------    -------
                                                                         (Dollars in Thousands)
<S>                     <C>          <C>    <C>      <C>          <C>    <C>      <C>         <C>    <C>        <C>          <C>
Anniversary bonus
 account ............   $  4,466     1.63%  $ (641)  $  5,107     2.08%  $(1,384) $  6,491    2.79%  $(1,289)   $  7,780     3.5%
NOW and demand
 accounts ...........      6,973     2.54      685      6,288     2.56     1,173     5,115    2.20       892       4,223     1.9
Passbooks, statements
 and clubs ..........     20,161     7.34    1,809     18,352     7.49      (506)   18,858    8.11       436      18,422     8.3
Money market deposit
 accounts ...........     61,369    22.35   (2,423)    63,792    26.01   (11,231)   75,023   32.26     6,936      68,087    30.6

Time deposits that
 mature:
  within 12 months ..     98,563    35.89    7,397     91,166    37.17    14,544    76,622   32.94     6,505      70,117    31.6
  within 13-36 months     76,055    27.69   21,642     54,413    22.18    10,589    43,824   18.84     2,716      41,108    18.5
  beyond 36 months ..      7,039     2.56      887      6,152     2.51      (505)    6,657    2.86    (5,752)     12,409     5.6
                        --------   ------  -------   --------    -----    ------  --------   -----    ------    --------    ----

   Total deposits ...   $274,626    100.0% $29,356   $245,270    100.0%  $12,680  $232,590   100.0%  $10,444    $222,146   100.0%
                        ========    =====  =======   ========    =====   =======  ========   =====   =======    ========   =====
</TABLE>

----------
(1)  Represents percentage of total deposits.
(2) Represents increase (decrease) in balance from end of prior period.


                                      -15-

<PAGE>


         Time Deposit Rates. The following table sets forth the time deposits in
the Bank classified by rates as of the dates indicated:

                                                     At June 30,
                                      ------------------------------------------
                                         1999             1998            1997
                                         ----             ----            ----
                                                    (In Thousands)
Rate
----
3.00 - 5.99% ................         $168,087         $132,687         $ 96,982
6.00 - 7.99% ................           13,570           19,044           30,121
                                      --------         --------         --------
                                      $181,657         $151,731         $127,103
                                      ========         ========         ========


         Time Deposit Maturities.  The following table sets forth the amount and
maturities of time deposit at June 30, 1999.

                                             Amount Due
                        -------------------------------------------------------
                        Less Than      1-2        2-3        After
                         One Year     Years      Years      3 Years      Total
                         --------     -----      -----      -------      -----
Rate                                          (In Thousands)
----
3.00 - 5.99% .......    $ 88,009    $ 62,277    $ 10,790    $  7,011    $168,087
6.00 - 7.99% .......      10,554       2,886         102          28      13,570
                        --------    --------    --------    --------    --------
                        $ 98,563    $ 65,163    $ 10,892    $  7,039    $181,657
                        ========    ========    ========    ========    ========


         Large Certificates of Deposit Maturities. The following table indicates
the amount of the Bank's  certificates  of deposit of  $100,000  or more by time
remaining  until  maturity at June 30, 1999.  This amount does not include other
savings account deposits of $100,000 or more, which totaled  approximately $17.6
million at June 30, 1999.

                                                Certificates
         Maturity Period                         of Deposit
         ---------------                         ----------
                                                (In Thousands)
Three months or less ..........................    $ 6,750
Three through six months ......................      4,852
Six through twelve months .....................      9,442
Over twelve months ............................     20,311
                                                   -------
     Total ....................................    $41,355
                                                   =======

         Change in Deposits.  The  following  table sets forth  changes in total
deposits of the Bank for the periods indicated:

                                                         At June 30,
                                              ----------------------------------
                                                 1999         1998         1997
                                                 ----         ----         ----
Rate                                                    (In Thousands)
----
Balance at beginning of period ............   $ 245,270   $ 232,590   $ 222,146
Net (withdrawals)/deposits ................      16,391         566      (1,105)
Interest credited .........................      12,965      12,114      11,549
                                              ---------   ---------   ---------
      Ending balance ......................   $ 274,626   $ 245,270   $ 232,590
                                              =========   =========   ---------
      Net increase in deposits ............   $  29,356   $  12,680   $  10,444
                                              =========   =========   =========


Borrowings

         Deposits  are the  Bank's  primary  source of funds.  The Bank may also
obtain  funds from the FHLB and  through  reverse  repurchase  agreements.  FHLB
advances are  collateralized  by selected  assets of the Bank. Such advances are
made pursuant to several  different credit  programs,  each of which has its own
interest  rate and range of  maturities.  The maximum  amount that the FHLB will
advance to member  institutions,  including  the Bank,  for purposes  other than
meeting  withdrawals,  fluctuates  from  time  to time in  accordance  with  the
policies  of the OTS and the FHLB.  The  maximum  amount of FHLB  advances  to a
member institution generally is reduced by borrowings

                                      -16-

<PAGE>



from any other source.  In 1994,  the Employee  Stock  Ownership  Plan and Trust
("ESOP")  borrowed  funds from an  unrelated  third party  lender to finance the
purchase of 144,000 shares of Common Stock. The loan will be repaid  principally
from the Bank's  contributions  to the ESOP over a period of up to ten years. At
June 30, 1999,  the balance on the ESOP loan was $471,000 and was reported as an
obligation of the Bank.

         Although the Bank has rarely done so, it may also sell securities under
agreements to repurchase with selected dealers (reverse  repurchase  agreements)
as a means  of  obtaining  short-term  funds as  market  conditions  permit.  In
areverse repurchase agreement, a fixed dollar amount of securities would be sold
to a dealer under an agreement to repurchase  the securities at a specific price
within a  specific  period of time,  typically  not more than 180 days.  Reverse
repurchase  agreements are treated as financings of the Bank and the obligations
to  repurchase  securities  sold are  reflected as a liability of the Bank.  The
dollar amount of securities  underlying  the  agreements  remain an asset of the
Bank. There were no securities sold under  agreements to repurchase  outstanding
at June 30, 1999.

Competition

         As  of  June  30,  1999,  the  Bank  was  the  fourth  largest  savings
institution  headquartered in the Bank's market area. The Bank encounters strong
competition both in attracting deposits and in originating real estate and other
loans.  Its most direct  competition  for  deposits has  historically  come from
commercial and savings banks, other savings  associations,  and credit unions in
its market area. Competition for loans comes from such financial institutions as
well  as  mortgage  banking   companies.   The  Bank  expects  continued  strong
competition in the foreseeable  future,  including  increased  competition  from
"super-regional" banks entering the market by purchasing large banks and savings
banks. Many such  institutions  have greater  financial and marketing  resources
available to them than does the Bank. The Bank competes for savings  deposits by
offering  depositors  a high  level  of  personal  service  and a wide  range of
competitively  priced financial  services.  In recent years,  additional  strong
competition has come from stock and bond dealers and brokers.  The Bank competes
for real estate  loans  primarily  through the  interest  rates and loan fees it
charges and advertising.

Personnel

         As of June  30,  1999,  the  Bank had 26  full-time  and six  part-time
employees.  None  of  the  Bank's  employees  is  represented  by  a  collective
bargaining  group. The Bank believes its  relationship  with its employees to be
good.

Regulation

         As a federally chartered SAIF-insured savings association,  the Bank is
subject to examination,  supervision and extensive regulation by the OTS and the
FDIC.  The Bank is a member of and owns stock in the FHLB of  Atlanta,  which is
one of the twelve  regional  banks in the Federal  Home Loan Bank  System.  This
regulation and supervision  establishes a comprehensive  framework of activities
in which an institution can engage and is intended  primarily for the protection
of the insurance fund and depositors.  The Bank also is subject to regulation by
the Board of  Governors  of the Federal  Reserve  System (the  "Federal  Reserve
Board") governing  reserves to be maintained  against deposits and certain other
matters. The OTS examines the Bank and prepares reports for the consideration of
the Bank's  Board of  Directors  on any  deficiencies  that they may find in the
Bank's  operations.  The  FDIC  also  examines  the  Bank  in  its  role  as the
administrator  of the SAIF.  The Bank's  relationship  with its  depositors  and
borrowers  also is  regulated  to a great  extent by both federal and state laws
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents. Any change in such regulation, whether
by the FDIC,  OTS,  or  Congress,  could have a material  adverse  impact on the
Company, the Mutual Holding Company and the Bank and their operations.

Federal Regulation of Savings Institutions

         Business  Activities.   The  activities  of  savings  institutions  are
governed by the Home  Owners'  Loan act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act (the "FDI Act"). The federal banking
statutes,  as  amended  by  the  Financial  Institutions  Reform,  Recovery  and
Enforcement Act of 1989

                                      -17-

<PAGE>



("FIRREA") and Federal Deposit Insurance Corporation  Improvement Act ("FDICIA")
(1) restrict the solicitation of brokered deposits by savings  institutions that
are  troubled or not  well-capitalized,  (2)  prohibit  the  acquisition  of any
corporate  debt  security  that is not rated in one of the four  highest  rating
categories,   (3)   restrict   the   aggregate   amount  of  loans   secured  by
non-residential  real estate property to 400% of capital, (4) permit savings and
loan  holding   companies  to  acquire  up  to  5%  of  the  voting   shares  of
non-subsidiary  savings  institutions  or  savings  and loan  holding  companies
without prior approval, and (5) permit bank holding companies to acquire healthy
savings  institutions.  The description of statutory  provisions and regulations
applicable  to savings  associations  set forth  herein does not purport to be a
complete  description of such statutes and  regulations  and their effect on the
Bank.

         Loans  to One  Borrower.  Under  the  HOLA,  savings  institutions  are
generally  subject  to the  national  bank  limits  on  loans  to one  borrower.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of the Bank's unimpaired  capital
and surplus on an unsecured  basis. An additional  amount may be lent,  equal to
10% of  unimpaired  capital  and  surplus,  if such loan is secured by  readily-
marketable  collateral,  which is  defined  to include  certain  securities  and
bullion, but generally does not include real estate. The Bank's maximum loans to
one borrower  limit was $7.3 million at June 30, 1999. As of June 30, 1999,  the
Bank was in compliance with its loans-to-one-borrower limitations.

         Qualified  Thrift  Lender   Requirement.   The  HOLA  requires  savings
institutions to be qualified thrift lenders  ("QTL").  To be a QTL, the Bank can
either  satisfy the QTL test,  or the  Domestic  Building  and Loan  Association
("DBLA")  Test of the Internal  Revenue Code of 1986,  as amended (the  "Code").
Under the QTL test,  a savings  bank is required to maintain at least 65% of its
"portfolio  assets" (total assets less (i) specified  liquid assets up to 20% of
total  assets,  (ii)  intangibles,  including  goodwill,  and (iii) the value of
property used to conduct business) in certain  "qualified  thrift  investments,"
primarily  residential  mortgages  and related  investments,  including  certain
mortgage- backed and related  securities on a monthly basis in 9 out of every 12
months.  Under the DBLA test, an  institution  must meet a "business  operations
test" and a "60% of assets  test." The  business  operations  test  requires the
business of a DBLA to consist  primarily of acquiring  the savings of the public
and investing in loans.  An institution  meets the public  savings  requirements
when it meets one of two conditions: (i) the institution acquires its savings in
conformity with OTS rules and regulations; or (ii) the general public holds more
than 75% of its  deposits,  withdrawable  shares,  and  other  obligations.  The
general public may not include family or related  business groups or persons who
are officers or directors of the institution.

         The 60% of assets test  requires  that at least 60% of a DBLA's  assets
must consist of assets that thrifts  normally  hold,  except for consumer  loans
that are not educational loans. The DBLA test does not include,  as the QTL test
does to a limited or optional  extent,  mortgage loans  originated and sold into
the secondary market and subsidiary investments. A savings bank that fails to be
a  QTL  must  either  convert  to  a  bank  charter  or  operate  under  certain
restrictions.  As of June 30, 1999, the Bank  maintained  83.6% of its portfolio
assets in qualified thrift investments and, therefore, met the QTL test.

         Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions,  such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another  institution  in a cash-out  merger and other  distributions  charged
against capital.  A "well  capitalized"  institution can, after prior notice but
without the approval of the OTS,  make capital  distributions  during a calendar
year in an amount up to 100 percent of its net income during the calendar  year,
plus its retained net income for the preceding  two years.  As of June 30, 1999,
the Bank was a "well-capitalized" institution.

         In addition,  OTS  regulations  require the Mutual  Holding  Company to
notify the OTS of any proposed waiver of its right to receive  dividends.  It is
the OTS' recent  practice to review  dividend  waiver  notices on a case-by-case
basis, and, in general, not object to any such waiver if: (i) the mutual holding
company's board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the mutual holding company's members; (ii) for as
long as the savings  association  subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction on the retained earnings of the savings association,
which restriction,  if material, is disclosed in the public financial statements
of the savings  association  as a note to the  financial  statements;  (iii) the
amount of any dividend waived by the mutual holding company is available

                                      -18-

<PAGE>



for  declaration  as a dividend  solely to the mutual holding  company,  and, in
accordance  with  SFAS 5,  where the  savings  association  determines  that the
payment  of  such  dividend  to the  mutual  holding  company  is  probable,  an
appropriate  dollar  amount is recorded as a  liability;  (iv) the amount of any
waived  dividend is  considered  as having been paid by the savings  association
(and  the  savings   association's   capital  ratios  adjusted  accordingly)  in
evaluating any proposed dividend under OTS capital distribution regulations; and
(v) in the  event  the  mutual  holding  company  converts  to stock  form,  the
appraisal  submitted to the OTS in connection  with the  conversion  application
takes into account the aggregate  amount of the  dividends  waived by the mutual
holding company.

         Liquidity.  The Bank is required to maintain  minimum  levels of liquid
assets as defined by OTS regulations.  This requirement,  which varies from time
to time  depending upon economic  conditions and deposit flows,  is based upon a
percentage of deposits and short-term  borrowings.  The required ratio currently
is 4%.  Monetary  penalties  may be imposed for failure to meet these  liquidity
requirements.  The Bank's average liquidity ratio for the quarter ended June 30,
1999 was 43.2%, which exceeded the then applicable requirements.

         Assessments. Savings institutions are required by OTS regulation to pay
assessments  to  the  OTS  to  fund  the  operations  of the  OTS.  The  general
assessment,   paid  on  a  semi-annual  basis,  is  computed  upon  the  savings
institution'sconsolidated  total assets, as reported in the institution's latest
quarterly  thrift financial  report.  Based on assets at June 30, 1999, the Bank
has a semi-annual assessment of approximately $36,000.

         Community  Reinvestment.  Under  the  Community  Reinvestment  Act (the
"CRA"),  as  implemented  by  OTS  regulations,  a  savings  institution  has  a
continuing  and  affirmative  obligation,  consistent  with its  safe and  sound
operation, to help meet the credit needs of its entire community,  including low
and moderate income  neighborhoods.  The CRA does not establish specific lending
requirements  or  programs  for  financial  institutions,  nor  does it limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular  community,  consistent with the CRA.
The CRA  requires  the OTS,  in  connection  with its  examination  of a savings
institution,  to assess the institution's  record of meeting the credit needs of
its community and to take such record into account in its  evaluation of certain
applications by such  institution.  The CRA rating system identifies four levels
of performance  that may describe an institution's  record of meeting  community
needs:   outstanding,   satisfactory,   needs   to   improve   and   substantial
non-compliance. The CRA also requires all institutions to make public disclosure
of their  CRA  ratings.  The CRA  regulations  were  recently  revised.  The OTS
assesses the CRA performance of a savings institution under lending, service and
investment  tests, and based on such  assessment,  will assign an institution in
one of the four above-referenced ratings. The Bank received a "satisfactory" CRA
rating under the current CRA regulations in its most recent federal  examination
by the OTS.

         Transactions  with Related  Parties.  The Bank's authority to engage in
transactions  with  related  parties or  "affiliates"  (i.e.,  any company  that
controls or is under common control with an  institution,  including the Company
and its  non-savings  institution  subsidiaries)  or to make  loans  to  certain
insiders, is limited by Sections 23A and 23B of the Federal reserve Act ("FRA").
Section 23A limits the  aggregate  amount of  transactions  with any  individual
affiliate to 10% of the capital and surplus of the savings  institution and also
limits the aggregate  amount of  transactions  with all affiliates to 20% of the
savings institution's capital and surplus.  Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from  affiliates is generally
prohibited.  Section 23B provides  that certain  transactions  with  affiliates,
including loans and asset purchases,  must be on terms and under  circumstances,
including  credit  standards,  that  are  substantially  the same or at least as
favorable to the  institution  as those  prevailing  at the time for  comparable
transactions with non-affiliated  companies.  In addition,  savings institutions
are prohibited  from lending to any affiliate that is engaged in activities that
are not  permissible for bank holding  companies and no savings  institution may
purchase the securities of any affiliate other than a subsidiary.

         The Bank's authority to extend credit to executive officers,  directors
and 10%  stockholders,  as well  as  entities  controlled  by such  persons,  is
currently  governed by Sections  22(g) and 22(h) of the FRA,  and  Regulation  O
thereunder.  Among other things, these regulations  generally require such loans
to be made on terms  substantially  the same as those  offered  to  unaffiliated
individuals  and  do not  involve  more  than  the  normal  risk  of  repayment.
Regulation O also places  individual and aggregate limits on the amount of loans
the Bank may make to such persons

                                      -19-

<PAGE>



based, in part, on the Bank's capital  position,  and requires  certain approval
procedures to be followed. At June 30, 1999, the Bank was in compliance with the
regulations.

         Enforcement.  Under  the  FDI  Act,  the OTS  has  primary  enforcement
responsibility  over  savings  institutions  and  has  the  authority  to  bring
enforcement  action  against  all   "institution-related   parties,"   including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive  or cease and  desist  order to removal  of  officers  and/or
directors of the institutions, receivership,  conservatorship or the termination
of deposit  insurance.  Civil  penalties  cover a wide range of  violations  and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day.  Criminal
penalties  for  most  financial  institution  crimes  include  fines of up to $1
million and imprisonment for up to 30 years. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS that  enforcement  action be taken
with respect to a particular savings institution.  If action is not taken by the
Director,   the  FDIC  has   authority  to  take  such  action   under   certain
circumstances.

         The federal banking  agencies  recently  adopted a final regulation and
Interagency   Guidelines   Prescribing   Standards   for  Safety  and  Soundness
("Guidelines")  to implement the safety and soundness  standards  required under
the FDI Act. The  Guidelines  set forth the safety and soundness  standards that
the federal  banking  agencies use to identify  and address  problems at insured
depository institutions before capital becomes impaired. The standards set forth
in the Guidelines  address internal controls and information  systems;  internal
audit  system;  credit  underwriting;  loan  documentation;  interest  rate risk
exposure;  asset growth; and compensation,  fees and benefits. The agencies also
adopted  final rules which  require  institutions  to examine  asset quality and
earnings standards. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines,  the agency
may  require  the  institution  to submit to the  agency an  acceptable  plan to
achieve  compliance  with the  standard,  as required by the FDI Act.  The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.

         Capital  Requirements.  A 4%  tier 1 core  capital  ratio,  a 4% tier 1
risk-based  ratio,  and an 8% total  risk-based  ratio.  Tier 1 core  capital is
defined as common  stockholders'  equity  less  investments  in and  advances to
"nonincludable"   subsidiaries,    goodwill   and   other   intangible   assets,
nonqualifying  equity  instruments and disallowed  servicing  assets,  and other
disallowed assets; plus accumulated losses(gains) on certain  available-for-sale
securities and cash flow hedges (net of taxes),  qualifying  intangible  assets,
minority   interest  in  includable   consolidated   subsidiaries,   and  mutual
institutions' nonwithdrawable deposit accounts. Adjusted total assets is defined
as total assets less assets of "nonincludable" subsidiaries,  goodwill and other
intangible assets and disallowed  servicing assets and other disallowed  assets;
plus accumulated losses(gains) on certain available-for sale securities and cash
flow hedges,  and qualifying  intangible  assets.  Total  risk-based  capital is
defined   as  tier  1  (core)   capital   plus  45%  of   unrealized   gains  on
available-for-sale   equity   securities,   qualifying   subordinated  debt  and
redeemable  preferred  stock,  capital  certificates,   nonwithdrawable  deposit
accounts not included in core capital,  other equity  instruments and allowances
for loan and lease losses;  less equity  investment and other assets required to
be  deducted,   low-level   recourse   deduction   and  capital   reduction  for
interest-rate risk exposure.

         In  determining  the  amount  of  risk-weighted   assets,  all  assets,
including  certain  off-balance  sheet assets,  all assets,  are multiplied by a
risk-weight  of 0% to 100%, as assigned by the OTS capital  regulation  based on
the risks the OTS believes are inherent in the type of asset.


                                      -20-

<PAGE>



         At June 30,  1999,  the Bank  exceeded  each of the three  OTS  capital
requirements  on a fully  phased-in  basis.  Set forth below is a summary of the
Bank's compliance with the OTS capital standards as of June 30, 1999.

<TABLE>
<CAPTION>
                                                                                          To Be Well Capitalized
                                                                      For Capital         Under Prompt Corrective
                                              Actual               Adequacy Purposes         Action Provisions
                                      ----------------------    -----------------------   ----------------------
                                       Amount      Ratio (1)      Amount      Ratio (1)     Amount      Ratio(1)
                                       ------      ---------      ------      ---------     ------      --------
As of June 30, 1999:
<S>                                   <C>           <C>         <C>             <C>       <C>               <C>
  Tier I core capital...............  $  46,062     14.1%       $  13,109       4.0%      $  16,386       > 5.0%
  Tier I risk-based capital.........     46,062     28.7            6,418       4.0           9,627       > 6.0%
  Total risk-based capital..........     48,520     30.2           12,837       8.0          16,046       >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.

Prompt Corrective Regulatory Action

         Under the OTS Prompt Corrective Action regulations, the OTS is required
to take certain supervisory actions against undercapitalized  institutions,  the
severity  of which  depends  upon the  institution's  degree of  capitalization.
Generally,  a savings institution that has total risk-based capital of less than
8.0% or a leverage  ratio or a Tier 1 core capital  ratio that is less than 4.0%
is considered to be  undercapitalized.  A savings institution that has the total
risk- based  capital less than 6.0%, a Tier 1 core  risk-based  capital ratio of
less than 3.0% or a leverage  ratio that is less than 3.0% is  considered  to be
"significantly  undercapitalized"  and a savings institution that has a tangible
capital to assets  ratio equal to or less than 2.0% is deemed to be  "critically
undercapitalized."  Subject to a narrow  exception,  the  banking  regulator  is
required  to  appoint a  receiver  or  conservator  for an  institution  that is
"critically  undercapitalized."  The  regulation  also  provides  that a capital
restoration  plan  must be  filed  with  the OTS  within  45 days of the date an
institution  receives  notice  that  it  is  "undercapitalized,"  "significantly
undercapitalized"  or  "critically   undercapitalized."  In  addition,  numerous
mandatory supervisory actions become immediately  applicable to the institution,
including,  but not limited to, restrictions on growth,  investment  activities,
capital distributions,  and affiliate transactions.  The OTS could also take any
one of a number of discretionary supervisory actions,  including the issuance of
a capital  directive  and the  replacement  of  senior  executive  officers  and
directors.

Insurance of Deposit Accounts

         The Bank is a member of the SAIF,  which is  administered  by the FDIC.
Deposits are insured up to applicable  limits by the FDIC and such  insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct  examinations of
and to require reporting by FDIC-insured institutions.  It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation  or order to pose a serious  risk to the FDIC.  The FDIC also has the
authority to initiate  enforcement  actions against savings banks,  after giving
the OTS an  opportunity  to take such  action,  and may  terminate  the  deposit
insurance if it determines  that the  institution  has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.

         The minimum annual deposit insurance premiums are currently assessed at
the rate of .065% of deposits for all SAIF-insured  members.  The FDIC, however,
is authorized to raise premiums in certain  circumstances related to fund losses
and severe economic  circumstances and has exercise this authority several times
with respect to premium paid to the Bank  Insurance  Fund ("BIF") by  commercial
banks and BIF-member savings association.

         In September 1996,  Congress  enacted  legislation to recapitalize  the
SAIF by a one-time assessment on all SAIF-insured  deposits held as of March 31,
1995.  The  assessment  was 65.7 basis points per $100 in  deposits,  payable on
November 30, 1996.  For the Bank,  the  assessment  amounted to $1.4 million (or
$849,000  when  adjusted for taxes),  based on the Bank's  deposits on March 31,
1995. In addition, pursuant to the legislation,  interest payments on FICO bonds
issued in the late 1980's by the Financing  Corporation to recapitalize  the now
defunct  Federal  Savings and Loan  Insurance  Corporation  are paid  jointly by
BIF-insured institutions and SAIF-insured institutions.  The FICO assessment was
1.29 basis points per $100 in BIF deposits and 6.1 basis points per $100 in SAIF
deposits. Beginning

                                      -21-

<PAGE>

January 1, 2000,  the FICO interest  payments will be paid pro rata by banks and
thrifts based on deposits (approximately 2.4 basis points per $100 in deposits).

         Several bills have been  introduced in the current  Congress that would
eliminate  the federal  thrift  charter  and OTS.  The Bank is unable to predict
whether the legislation  will be enacted or, given such  uncertainty,  determine
the extent to which the legislation,  if enacted, would affect its business. The
Bank is also unable to predict whether the SAIF and BIF funds will eventually be
merged.

Federal Home Loan Bank System

         The Bank is a member of the FHLB System,  which consists of 12 regional
FHLBs.  The FHLB  provides  a  central  credit  facility  primarily  for  member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of  capital  stock in that FHLB in an amount at least  equal to 1% of the
aggregate principal amount of its unpaid residential  mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances  (borrowings)
from the  FHLB,  whichever  is  greater.  The Bank was in  compliance  with this
requirement with an investment in FHLB-Atlanta  stock, at June 30, 1999, of $1.9
million.

         The FHLBs are required to provide funds for the resolution of insolvent
thrifts  and  to  contribute  funds  for  affordable  housing  programs.   These
requirements  could reduce the amount of  dividends  that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. Over the past five years such dividends have averaged
7.2%, and were 7.5% for the fiscal year ended June 30, 1999.

Federal Reserve System

         The Federal Reserve Board regulations  require savings  institutions to
maintain   non-interest-earning  reserves  against  their  transaction  accounts
(primarily  NOW and  regular  checking  accounts).  The  Federal  Reserve  Board
regulations  generally  require that  reserves be maintained  against  aggregate
transaction  accounts as follows: for accounts aggregating $46.5 million or less
(subject to adjustment by the Federal Reserve Board) the reserve  requirement is
3%; and for accounts greater than $46.5 million, the reserve requirement is $1.4
million plus 10% (subject to adjustment by the Federal  Reserve Board between 8%
and 14%) against that portion of total  transaction  accounts in excess of $46.5
million.  The first $4.9 million of otherwise  reservable  balances  (subject to
adjustments  by the  Federal  Reserve  Board)  are  exempted  from  the  reserve
requirements.  The Bank is in compliance  with the foregoing  requirements.  The
balances maintained to meet the reserve  requirements  imposed by the FRB may be
used to satisfy liquidity requirements imposed by the OTS.

Holding Company Regulation

         General. The Company and the Mutual Holding Company are non-diversified
savings and loan holding  companies  within the meaning of the HOLA, as amended.
As such, the Company and the Mutual Holding  Company are registered with the OTS
and are subject to OTS  regulations,  examinations,  supervision  and  reporting
requirements.  In addition,  the OTS has enforcement  authority over the Company
and the Mutual Holding  Company and any non- savings  institution  subsidiaries.
Among  other  things,  this  authority  permits  the OTS to restrict or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
institution.

         Restrictions  Applicable  to  Mutual  Holding  Companies.  Pursuant  to
Section  10(o) of the HOLA and OTS  regulations,  a mutual  holding  company may
engage in the  following  activities:  (i)  investing  in the stock of a savings
association;  (ii)  acquiring  a mutual  association  through the merger of such
association into a savings association  subsidiary of such holding company or an
interim savings  association  subsidiary of such holding company;  (iii) merging
with or  acquiring  another  holding  company;  one of whose  subsidiaries  is a
savings association; (iv) investing in a corporation, the capital stock of which
is available  for purchase by a savings  association  under federal law or under
the law of any state where the subsidiary  savings  association or  associations
share their home offices; (v) furnishing or performing management services for a
savings  association  subsidiary  of such  company;  (vi)  holding,  managing or
liquidating assets owned or acquired from a savings subsidiary of such company;

                                      -22-

<PAGE>



(vii) holding or managing  properties used or occupied by a savings  association
subsidiary of such company properties used or occupied by a savings  association
subsidiary of such company;  (viii) acting as trustee under deeds of trust; (ix)
any other  activity  (A) that the Federal  Reserve  Board,  by  regulation,  has
determined to be permissible  for bank holding  companies  under Section 4(c) of
the Bank  Holding  Company  Act of 1956,  unless the  Director,  by  regulation,
prohibits or limits any such activity for savings and loan holding companies; or
(B) in which multiple  savings and loan holding  companies  were  authorized (by
regulation) to directly engage on March 5, 1987; and (x) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if the
purchase of such stock by such savings and loan  holding  company is approved by
the  Director.  If a mutual  holding  company  acquires or merges  with  another
holding company,  the holding company acquired or the holding company  resulting
from such  merger  or  acquisition  may only  invest  in  assets  and  engage in
activities  listed in (i)  through  (x) above,  and has a period of two years to
cease  any   non-conforming   activities   and  divest  of  any   non-conforming
investments.

         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly, or through one or more subsidiaries,  from acquiring another savings
institution or holding company  thereof,  without prior written  approval of the
OTS. It also prohibits the acquisition or retention of, with certain exceptions,
more than 5% of a non-subsidiary  savings institution,  a non-subsidiary holding
company,  or a  non-subsidiary  company  engaged in activities  other than those
permitted by the HOLA; or acquiring or retaining  control of an institution that
is not federally  insured.  In evaluating  applications by holding  companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources,  future prospects of the company and institution involved, the effect
of the  acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.

         Restrictions Applicable to Federally-Chartered  Stock Holding Companies
The OTS recently  adopted new regulations  governing the two-tier mutual holding
company form of  organization  and mid-tier  stock  holding  companies  that are
controlled by mutual holding companies.  A stock holding company subsidiary of a
mutual holding  company is permitted to engage in activities  that are permitted
for its mutual holding company parent and to have the same  indemnification  and
employment contract  restrictions imposed that are on the mutual holding company
parent.

Federal and State Taxation

         General.  The  Bank and the  Company  are  subject  to  federal  income
taxation  in the  same  manner  as  other  corporations,  with  some  exceptions
discussed below.  The following  discussion of federal taxation is intended only
to  summarize  certain  pertinent  federal  income  tax  matters  and  is  not a
comprehensive description of the tax rules applicable to the Company.

         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.

         The Bank was audited by the Internal  Revenue  Service for the tax year
ended June 30, 1995.  There were no adjustments  made as a result of that audit.
The State of Maryland  has not audited the Bank within the past five years.  See
Notes 1 and 9 to the Financial Statements.

         State Taxation. The State of Maryland generally imposes a franchise tax
on thrift institutions computed at a rate of 7% of net earnings. For the purpose
of the 7%  franchise  tax,  net  earnings  are  defined as the net income of the
thrift institution as determined for federal corporate income tax purposes, plus
(i)  interest  income  from  obligations  of the  United  States,  of any state,
including Maryland and of any county, municipal or public corporation authority,
special district or political subdivision of any state, including Maryland, (ii)
any profit  realized  from the sale or exchange of bonds  issued by the State of
Maryland or any of its political subdivisions, and (iii) any deduction for state
income taxes.

                                      -23-

<PAGE>


Executive Officers of the Registrant

         Listed  below is  information,  as of June  30,  1999,  concerning  the
Registrant's  executive  officers.  All of the executive  officers have held the
positions  listed below since the time the  registrant was organized in November
1997. In addition,  all of the executive officers of the Registrant are officers
of the Bank holding the same position as listed below. There are no arrangements
or  understandings  between the  Registrant  and any of persons named below with
respect to which he or she was or is to be selected as an officer.

 Name                     Age                               Position
 ----                     ---                               --------
 John F. Amer             73     Chairman of the Board
 Gordon E. Clark          57     President, Chief Executive Officer and Director
 Marguerite E. Wolf       72     Vice Chairman and Director
 Joan H. McCleary         65     Director and Secretary to the Board
 Dale R. Douglas          57     Senior Vice President
 Kathleen G. Trumpler     61     Treasurer


ITEM 2. Description of Property

         (a) The Company conducts its business through a single facility located
in Arbutus,  Baltimore County,  Maryland. The facility opened and has been owned
by the Bank since 1960.  At June 30, 1999,  the net book value of the  Company's
property and equipment was $1.5 million.

         (b) Investment  Policies.  For a description of the Company's  policies
(all of which may be changed without a vote of the Company's  security  holders)
and the limitations on the percentage of assets which may be invested in any one
investment,  or type of  investment  with  respect to: (1)  investments  in real
estate or interests in real estate;  (2)  investments in real estate  mortgages;
and (3) securities of or interests in persons  primarily  engaged in real estate
activities, reference is made hereunder to the information presented above under
"Item 1. Description of Business."

         (c) Description of Real Estate and Operating Data. Not Applicable;  the
book value of each of the Company's properties is less than 10% of the Company's
total consolidated assets at June 30, 1999.

ITEM 3. Legal Proceedings

         The Company is  periodically  involved in claims and lawsuits  that are
incident  to the  Company's  business.  At June 30,  1999,  the  Company was not
involved in any such claim or lawsuit.

ITEM 4. Submission of Matters to a Vote of Security Holders

         During the fourth  quarter of the fiscal year  covered by this  report,
the Registrant did not submit any matters to the vote of security holders.



                                      -24-

<PAGE>

                                     PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters

         The "Common Stock and Related  Matters" and  "Stockholder  Information"
sections of the  Registrant's  annual report to stockholders for the fiscal year
ended June 30, 1999 (the "1999 Annual Report to Stockholders")  are incorporated
herein by reference. No other sections of the 1999 Annual Report to Stockholders
are incorporated herein by this reference.

ITEM 6. Management's Discussion and Analysis or Plan of Operations

         The  "Management's  Discussion and Analysis of Financial  Condition and
Results  of  Operations"  section  of the  Registrant's  1999  Annual  Report to
Stockholders is incorporated herein by reference.  No other sections of the 1999
Annual Report to Stockholders are incorporated herein by this reference.

ITEM 7. Financial Statements

         The  following  sections  from the  Registrant's  1999 Annual Report to
Stockholders is incorporated herein by reference.  No other sections of the 1999
Annual Report to Stockholders are incorporated herein by this reference.

                  (i)      Independent Auditors' Report;

                  (ii)     Statements of Financial Condition;

                  (iii)    Statements of Income and Comprehensive Income;

                  (iv)     Statements of Stockholders' Equity;

                  (v)      Statements of Cash Flows; and

                  (vi)     Notes to Financial Statements.


ITEM  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure

         None.


                                    PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act

         The "Proposal  I--Election  of Directors"  section of the  Registrant's
definitive  proxy  statement for its 1999 annual  meeting of  stockholders  (the
"Proxy Statement") is incorporated herein by reference. In addition, see Item 1.
"Executive  Officers of the Registrant"  for  information  concerning the Bank's
executive officers.

ITEM 10. Executive Compensation

         The "Proposal  I--Election  of Directors"  section of the  Registrant's
Proxy Statement is incorporated herein by reference.


                                      -25-

<PAGE>



ITEM 11. Security Ownership of Certain Beneficial Owners and Management

         The "Proposal  I--Election  of Directors"  section of the  Registrant's
Proxy Statement is incorporated herein by reference.


ITEM 12. Certain Relationships and Related Transactions

         The "Proposal  I--Election  of Directors"  section of the  Registrant's
Proxy Statement is incorporated herein by reference.

                                     PART IV

ITEM 13. Exhibits and Reports on Form 8-K


<TABLE>
<CAPTION>

         (a)  Exhibits
                                                          Sequential Page
                                                         Reference to Prior          Number Where
                                                          Filing or Exhibit        Attached Exhibits
  Regulation S-B                                          Number Attached        Are Located in This
  Exhibit Number               Document                         Hereto            Form 10-KSB Report
  --------------               --------                         ------            ------------------
        <S>           <C>                                  <C>                    <C>
         3             Articles of Incorporation                  *                 Not Applicable

         3                      Bylaws                            *                 Not Applicable

         4             Instruments defining the                   *                 Not Applicable
                      rights of security holders,
                         including debentures

         9              Voting trust agreement                  None                Not Applicable

       10.1         Leeds Federal Savings Bank and               **                 Not Applicable
                   Leeds Federal Bankshares, M.H.C.
                  1994 Recognition and Retention Plan

       10.2         Leeds Federal Savings Bank and               **                 Not Applicable
                   Leeds Federal Bankshares, M.H.C.
                        1994 Stock Option Plan

       10.3           Employment Agreement with                  ***                Not Applicable
                         Gordon E. Clark, Jr.

        11             Statement re: computation                 Not                Not Applicable
                        of per share earnings                 Required

</TABLE>



                                      -26-

<PAGE>

<TABLE>
<CAPTION>

<S>                       <C>                                     <C>              <C>
        13                  Form of Annual Report to                   13                       Exhibit 13
                                Security Holders

        16               Letter re: change in certifying              None                    Not Applicable
                                   accountants

        18               Letter re: change in accounting              None                    Not Applicable
                                   principles

        21                 Subsidiaries of Registrant                  21                       Exhibit 21

        22                 Published report regarding                 None                    Not Applicable
                          matters submitted to vote of
                                security holders

        23               Consent of Experts and Counsel                23                       Exhibit 23

        28                  Information from reports                  None                    Not Applicable
                               furnished to state
                              insurance regulatory
                                   authorities

        99                     Additional Exhibits                    None                    Not Applicable
</TABLE>

--------------




*    Filed as exhibits to the Company's Registration Statement on Form S-8 (File
     No.  333-44899) filed with the SEC on January 26, 1998. All such previously
     filed  documents are  incorporated by reference in accordance with Item 601
     of Regulation S-B.

**   Filed as  exhibits  to the  Company's  Current  Report  Form 8-K  (File No.
     0-23645) filed with the SEC on January 21, 1998. All such previously  filed
     documents  are  incorporated  by reference in  accordance  with Item 601 of
     Regulation S-B.

***  Filed as an exhibit to the Company's Annual Report on Form 10-KSB (file No.
     0-23645) filed with the SEC on September 29, 1998.  This  previously  filed
     document  is  incorporated  by  reference  in  accordance  with Item 601 of
     Regulation S-B.

         (b)  Reports on Form 8-K:

                  Not applicable.


                                      -27-

<PAGE>


                                   SIGNATURES

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


                                             LEEDS FEDERAL BANKSHARES, INC.


Date:    September 24, 1999                  By: \s\ Gordon E. Clark
                                                 -------------------------------
                                                 Gordon E. Clark, President
                                                 and Chief Executive Officer


         Pursuant to the  requirements of the Securities  Exchange of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.


By: \s\ Gordon E. Clark                     By: \s\ Kathleen G. Trumpler
    ---------------------------------           --------------------------------
    Gordon E. Clark, President, Chief           Kathleen G. Trumpler, Treasurer
    Executive Officer and Director              (Principal Financial/Accounting
    (Principal Executive Officer)               Officer)

Date:  September 24, 1999                   Date:  September 24, 1999


By: \s\ John F. Amer                        By: \s\ Marguerite B. Wolf
    ---------------------------------           --------------------------------
    John F. Amer, Chairman                      Marguerite E. Wolf, Vice
                                                Chairman

Date:  September 24, 1999                   Date:  September 24, 1999


By: \s\ Joan H. McCleary                    By: \s\ Raymond J. Hartman
    ---------------------------------           --------------------------------
    Joan H. McCleary, Director                  Raymond J. Hartman, Director

Date:  September 24, 1999                   Date:  September 24, 1999


By: \s\ John F. Doyle
    ----------------------------------
    John F. Doyle, Director

Date:  September 24, 1999

                                      -28-