EXHIBIT 13


                       1999 ANNUAL REPORT TO STOCKHOLDERS
                         LEEDS FEDERAL BANKSHARES, INC.




<PAGE>



                                TABLE OF CONTENTS


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



<PAGE>


                 [LETTERHEAD OF LEEDS FEDERAL BANKSHARES, INC.]


                                                              September 30, 1999

To Our Shareholders:

We are pleased to report the financial results of Leeds Federal Bankshares, Inc.
On  June  30,  1999,  the  Company  had  total  assets  of  $331.6  million  and
stockholders'  equity of $48.5 million,  which  resulted in a  capital-to-assets
ratio of 14.6%.  The Company's  relatively high level of capital  provides Leeds
Federal  with  a  strong   foundation   for  future   growth  and  new  business
opportunities.

As we reported last year, we have  implemented a plan to repurchase  some of our
common stock.  At July 31, 1999, we have purchased  384,941  shares.  This is an
important  means  for  us  to  enhance  stockholder  value  and  invest  capital
resources.

The  Company's  net  income for the fiscal  year ended June 30,  1999,  was $3.5
million, or $.69 per diluted share of common stock, compared to $3.3 million, or
$.64 per  diluted  share for the  previous  fiscal  year.  During  the year,  we
continued to emphasize  residential  real estate  financing,  as evidenced by an
increase of $13.7 million in loans  receivable.  We have continued to maintain a
low level of  noninterest  expense;  our  noninterest  expense to average assets
ratio was .91% and 1.06% for the  fiscal  years  ended  June 30,  1999 and 1998,
respectively.  The enclosed annual report  discusses  Leeds Federal's  operating
results through June 30, 1999, in more detail.

Construction has begun on our new full service branch in Howard County.  We hope
to open it in the quarter ending March 31, 2000. The 3,000 square foot branch is
our first, and we are excited about the growth potential of the area.

As an  independent  community  bank,  our goal is to  provide  the  personalized
quality financial  services our neighbors and customers have come to expect over
the past 76 years. We think the old-style  banking  approach of Leeds Federal is
based on a clear  understanding of who are our customers and how best to deliver
the products they want and need. At the same time,  though, we will aggressively
pursue new areas where we believe our banking  philosophy  can be implemented in
an efficient and profitable fashion.

Thank  you for the  confidence  you have  placed  in Leeds  Federal.  We hope to
justify that confidence by continuing to be a leading community-based  financial
institution and by sharing our growth and our success with our shareholders.

Sincerely,



John F. Amer                               Gordon E. Clark
-------------                              -------------------------------------
Chairman                                   President and Chief Executive Officer



<PAGE>


                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

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

<TABLE>
<CAPTION>

                                                                              At June 30,
                                                   -------------------------------------------------------------
                                                     1999          1998         1997         1996         1995
                                                     ----          ----         ----         ----         ----
                                                                             (In Thousands)
Selected Consolidated Financial Condition Data
<S>                                                <C>          <C>          <C>          <C>           <C>
Total assets....................................   $ 331,642    $ 302,737    $ 286,999    $ 273,278     $260,145
Loans receivable, net...........................     203,886      190,181      174,095      152,076      140,477
Investments* ...................................     102,572       85,355       82,553       84,564       78,081
Mortgage-backed securities......................      10,008       16,412       22,160       28,917       34,749
Deposits........................................     274,626      245,270      232,590      222,146      211,414
Borrowed funds..................................         471          552          648          744          840
Stockholders' equity, substantially restricted..      48,504       49,308       46,741       44,192       41,738
</TABLE>

---------
*    Includes  investment  securities,   interest-bearing  deposits,  and  other
     investments.

<TABLE>
<CAPTION>
                                                                         Year Ended June 30,
                                                   -------------------------------------------------------------
                                                     1999          1998         1997         1996         1995
                                                     ----          ----         ----         ----         ----
                                                                 (In Thousands Except Per Share Data)
Selected Consolidated Operating Data:
<S>                                                <C>          <C>          <C>          <C>           <C>
Interest income................................    $  20,842    $  20,309    $  19,606    $  18,567     $ 17,602
Interest expense...............................       13,009       12,171       11,613       11,232        9,945
                                                   ---------    ---------    ---------    ---------     --------
  Net interest income before provision for losses      7,833        8,138        7,993        7,335        7,657
Provision for loan losses......................           39          192          151           33           24
Provision for losses on deposit................           --           --           --           --           30
                                                   ---------    ---------    ---------    ---------     --------
  Net interest income after provision for losses       7,794        7,946        7,842        7,302        7,603
                                                   ---------    ---------    ---------    ---------     --------

Noninterest income:
  Service fees and charges.....................          132          137          130          116           74
  Other income ................................          268          213          140          168          160
                                                   ---------    ---------    ---------    ---------     --------
    Total noninterest income...................          400          350          270          284          234
                                                   ---------    ---------    ---------    ---------     --------

Noninterest expense:
  Compensation and employee benefits...........        1,573        1,770        1,528        1,516        1,440
  Occupancy....................................          222          195          197          192          182
  SAIF deposit insurance premiums..............          222          222        1,755          558          558
  Advertising..................................          128          208          172          216          179
  Other   .....................................          696          700          637          580          629
                                                   ---------    ---------    ---------    ---------     --------
    Total noninterest expenses.................        2,841        3,095        4,289        3,062        2,988
                                                   ---------    ---------    ---------    ---------     --------
Income before provision for income taxes.......        5,353        5,201        3,823        4,524        4,849
Provision for income taxes.....................        1,889        1,895        1,458        1,737        1,922
                                                   ---------    ---------    ---------    ---------     --------
      Net income...............................    $   3,464    $   3,306    $   2,365    $   2,787     $  2,927
                                                   =========    =========    =========    =========     ========
Net income per common share
  Basic........................................    $    0.69    $    0.65    $    0.46    $    0.55     $   0.59
  Diluted......................................         0.69         0.64         0.46         0.55         0.59
Dividends declared per common share............         0.56         0.55         0.48         0.44         0.31
                                                   =========    =========    =========    =========     ========
</TABLE>

                                        2

<PAGE>

<TABLE>
<CAPTION>

                                                                  At or for the Year Ended June 30,
                                                   ----------------------------------------------------------
                                                      1999          1998         1997         1996        1995
                                                      ----          ----         ----         ----        ----
Key Operating Ratios and Other Data:
<S>                                                  <C>          <C>           <C>          <C>        <C>
Return on average assets (net income divided
  by average total assets)*......................    1.11%         1.13%         .85%        1.06%       1.17%
Return on average equity (net income divided
  by average equity)*............................    7.05          6.86         5.26         6.50        7.30
Net interest rate spread (difference between
  average yield on interest-earning assets and
  average cost of interest-bearing liabilities)..    1.80          2.03         2.12         2.00        2.34
Net interest margin (net interest income as a
  percentage of average interest-earning assets).    2.57          2.85         2.94         2.85        3.11
Net interest income to noninterest expense*......  275.71        262.94       186.36       239.54      256.26
Net interest income after provision for
  losses, to total noninterest expense*..........  274.33        256.74       182.84       238.44      254.45
Noninterest income to average assets.............     .13           .12          .10          .11         .09
Noninterest expense to average assets*...........     .91          1.06         1.54         1.17        1.19
Nonperforming loans to total loans...............    1.36          1.32          .05          .06         .07
Nonperforming assets to total assets.............     .83           .83          .03          .07         .10
Average interest-earning assets to average
  interest-bearing liabilities...................  118.03        119.46       119.15       119.50      118.97
Allowance for losses to nonperforming assets.....   26.24         28.70       609.09       213.67      146.15
Stockholders' equity to average assets
 (average stock-holders' equity divided by
 average total assets)...........................   15.68         16.49        16.18        16.36       15.96
Equity to assets at period end...................   14.63         16.28        16.29        16.17       16.04
Number of full-service offices...................       1             1            1            1           1
</TABLE>

-----------
*    Excluding the one-time  assessment to recapitalize the Savings  Association
     Insurance Fund, for the year ended June 30, 1997,  return on average assets
     was 1.16%,  return on average  equity  was  7.14%,  noninterest  expense to
     average assets was 1.05%,  net interest  income to noninterest  expense was
     275.05% and net interest  income after  provision  for loan losses to total
     noninterest expense was 269.86%. See "Management's  Discussion and Analysis
     of   Financial   Condition   and   Results   of    Operations--Results   of
     Operations--Deposit Insurance Premiums."


                                        3

<PAGE>


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

General

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

Forward-Looking Statements

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

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

Business Strategy

         The  Company's  current  business  strategy is to operate the Bank as a
well-capitalized,  profitable and  independent  community-oriented  savings bank
dedicated to providing  quality  customer  service.  Generally,  the Company has
sought to implement this strategy by using only retail deposits as its source of
funds and maintaining a substantial  part of its assets in loans secured by one-
to four-family  residential  real estate  located in the Company's  market area,
home equity  loans,  consumer  loans,  mortgage-backed  securities  and in other
liquid  investment  securities.  Specifically,  the Company's  business strategy
incorporates the

                                        4

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following elements: (1) operating as a community-oriented financial institution,
maintaining  a strong  core  customer  base by  providing  quality  service  and
offering  customers  the  access  to  senior  management  and  services  that  a
community-based  institution can offer;  (2)  maintaining  high asset quality by
emphasizing investment in residential mortgage loans, mortgage-backed securities
and other  securities  issued or guaranteed  by the United States  Government or
agencies thereof;  (3) maintaining capital in excess of regulatory  requirements
and growing only to the extent that adequate  capital  levels can be maintained;
and (4) managing interest rate risk exposure while achieving desirable levels of
profitability.

Results of Operations

         The  earnings  of the  Company  depend  primarily  on its  level of net
interest  income,  which  is  the  difference  between  interest  earned  on the
Company's  interest-earning  assets,  consisting  primarily  of mortgage  loans,
mortgage-backed  securities,  interest-earning  deposits at other  institutions,
investment   securities  and  other  investments,   and  the  interest  paid  on
interest-bearing  liabilities,  which consist primarily of savings deposits. The
Company  had net income of $3.5  million for the year ended June 30,  1999.  Net
income  totaled  $3.3  million  and $2.4  million  for  fiscal  1998  and  1997,
respectively.

         Interest Income. Total interest income increased by $533,000,  or 2.6%,
to $20.8  million for the year ended June 30, 1999,  from $20.3  million for the
year ended June 30, 1998.  The increase in interest  income was primarily due to
an increase in the balance of average  interest earning assets to $305.1 million
for the year  ended June 30,  1999,  from  $285.4  million  for the prior  year,
partially  offset by a decrease in yield on average  interest  earning assets to
6.8%, from 7.1%. The increase in average interest earning assets during the year
ended June 30, 1999  resulted  primarily  from an increase in average  loans and
investment  securities,  partially  offset  by  a  decrease  in  mortgage-backed
securities.  The decrease in the average yield was caused primarily by decreases
in market rates on mortgage loans and short-term investments.

         Interest on mortgage  loans  increased by $631,000,  or 4.7%,  to $14.0
million for the year ended June 30, 1999, from $13.4 for the year ended June 30,
1998,  primarily  because of an  increase  in average  mortgage  loans to $190.8
million for the year ended June 30, 1999, from $177.8 million for the year ended
June 30, 1998, partially offset by a decrease in average yield on mortgage loans
to 7.3% from  7.5%.  The  increase  in  average  mortgage  loans  resulted  from
increased loan demand in the Bank's community and from an increase in the volume
of loan originations  from brokers.  The lower yield on mortgage loans reflected
generally lower market rates, including the reinvestment of the proceeds of loan
prepayments in lower yielding mortgage loans.  Interest income on consumer loans
decreased by $30,000 to $329,000 for the year ended June 30, 1999, from $359,000
for the prior year.  The  decrease  was due to a decrease in average  balance of
consumer  loans to $4.5  million  from  $5.1  million,  as a result  of  reduced
marketing  of consumer  loans during the year.  Yield on consumer  loans for the
year ended  June 30,  1999,  increased  to 7.3%,  from 7.1% for the prior  year.
Interest income on mortgage-backed  securities decreased $506,000,  or 35.6%, to
$917,000 for the year ended June 30, 1999, from $1.4 million for the prior year.
The decrease was principally  due to a $6.4 million  decrease in average balance
of mortgage-backed securities to $13.2 million for the year ended June 30, 1999,
from $19.6 million for the prior year. Interest income on investment  securities
increased  by $536,000,  to $3.6 million for the year ended June 30, 1999,  from
$3.1 million for the prior year. Such increase was the result of an $8.0 million
increase in average  balance of  investment  securities to $54.3 million for the
year ended June 30, 1999,  from $46.3  million for the year ended June 30, 1998.
The increase in the average  balance of investment  securities was the result of
increases in savings  deposits.  Interest income from interest  earning deposits
decreased  by $135,000 to $1.4  million for the year ended June 30,  1999,  from
$1.5 million for the prior year. Yield on interest earning deposits decreased to
4.9%  from  5.7% for the  prior  year.  Interest  income  on  other  investments
increased  $37,000 to $539,000 for the year ended June 30, 1999,  from  $502,000
for the

                                        5

<PAGE>



prior year.  Such  increase was the result of an increase in average  balance of
other investments of $3.8 million, partially offset by a decrease in the average
yield on other investments to 4.1% from 5.3% for the prior year.

         Total interest income increased by $703,000,  or 3.6%, to $20.3 million
for the year ended June 30, 1998, from $19.6 million for the year ended June 30,
1997.  The  increase  in  interest  income was  primarily  due to an increase in
average  interest  earning  assets to $285.4 million for the year ended June 30,
1998, from $272.3 million for the prior year,  partially offset by a decrease in
yield on average  interest  earning  assets to 7.1%,  from 7.2%. The increase in
average  interest  earning assets during the year ended June 30, 1998,  resulted
primarily   from  an  increase  in  average   loans,   offset  by  decreases  in
mortgage-backed securities.

         Interest on mortgage  loans  increased by $1.3  million,  or 10.2%,  to
$13.4 million for the year ended June 30, 1998,  from $12.1 million for the year
ended June 30, 1997,  primarily because of an increase in average mortgage loans
to $177.8 million for the year ended June 30, 1998,  from $159.9 million for the
year ended June 30,  1997,  partially  offset by a decrease in average  yield on
mortgage  loans to 7.5% from  7.6%.  The  increase  in  average  mortgage  loans
resulted from increased loan demand in the Bank's community and from an increase
in the volume of loan  originations  from  brokers.  The lower yield on mortgage
loans reflected generally lower market rates,  including the reinvestment of the
proceeds of loan prepayments in lower yielding  mortgage loans.  Interest income
on consumer  loans  increased by $52,000 to $359,000 for the year ended June 30,
1998,  from $307,000 for the prior year.  The increase was due to an increase in
average  balance of  consumer  loans to $5.1  million,  from $4.4  million.  The
average  yield on consumer  loans for the year ended June 30, 1998  increased to
7.1%,  from  6.9%  for  the  prior  year.  Interest  income  on  mortgage-backed
securities decreased $439,000, or 23.6%, to $1.4 million for the year ended June
30, 1998, from $1.9 million for the prior year. The decrease was principally due
to a $6.2 million decrease in average balance of  mortgage-backed  securities to
$19.6 million for the year ended June 30, 1998, from $25.8 million for the prior
year. Interest income on investment  securities  decreased by $599,000,  to $3.1
million for the year ended June 30, 1998,  from $3.7 million for the prior year.
Such decrease was the result of a decrease in yield on investment  securities to
6.7% from 6.9%,  and a $7.7 million  decrease in average  balance of  investment
securities to $46.3 million for the year ended June 30, 1998, from $54.0 million
for the year ended June 30, 1997. The decrease in average balances of investment
securities  was the result of increased  mortgage  loan  originations.  Interest
income from interest earning deposits  increased by $332,000 to $1.5 million for
the year ended June 30,  1998,  from $1.2  million for the prior year.  Yield on
interest  earning  deposits  increased  to 5.7% from  5.5% for the  prior  year.
Interest income on other  investments  increased by $115,000 to $502,000 for the
year ended June 30, 1998,  from  $387,000 for the prior year.  Such increase was
principally the result of an increase in average balance of other investments of
$3.4  million,  partially  offset by a decrease  in the  average  yield on other
investments to 5.3% from 6.5% for the prior year.

         Interest  Expense.  Total interest  expense  increased by $838,000,  or
6.9%, to $13.0 million for the year ended June 30, 1999,  from $12.2 million for
the year ended June 20, 1998.  Such  increase was  principally  the result of an
increase in the average balance in interest bearing liabilities of $19.6 million
to $258.5 million for the year ended June 30, 1999,  from $238.9 million for the
prior period.

         Total interest expense increased by $558,000, or 4.8%, to $12.2 million
for the year ended June 30, 1998, from $11.6 million for the year ended June 30,
1997. Such increase was principally the result of an increase in average balance
of interest bearing  liabilities of $10.4 million to $238.9 million for the year
ended June 30, 1998, from $228.5 million for the prior period.


                                        6

<PAGE>



         Net Interest  Income.  Net interest  income  decreased by $305,000,  or
3.7%,  to $7.8 million for the year ended June 30,  1999,  from $8.1 million for
the year ended June 30, 1998. This decrease was due principally to a decrease in
the ratio of  average  interest  earning  assets  to  average  interest  bearing
liabilities, and a decrease in yield on interest earning assets.

         Net interest income increased by $145,000, or 1.8%, to $8.1 million for
the year  ended June 30,  1998,  from $8.0  million  for the year ended June 30,
1997.  This increase was due  principally to an increase in the ratio of average
interest  earning  assets to average  interest  bearing  liabilities,  partially
offset by the decrease in yield on interest earning assets.

         Provision  for Losses.  The Company  maintains  an  allowance  for loan
losses,  which was  $725,000 at June 30,  1999,  in  accordance  with  generally
accepted accounting  principles.  The allowance exists to absorb losses inherent
in the  Company's  overall  loan  portfolio.  In  addition  to  historical  loss
experience,  the Company  considers  other factors that are likely to cause loan
losses,  including changes in economic and business conditions and developments,
changes in the nature and volume of the  portfolio,  trends in the level of past
due and classified  loans and the status of  nonperforming  loans. The Company's
provision for loan losses decreased to $39,000 for the year ended June 30, 1999,
from $192,000 for the year ended June 30, 1998. The Company's allowance for loan
losses as a percentage  of  nonperforming  loans was 26.2% and 28.7% at June 30,
1999  and  1998,  respectively,  and  the  Company's  nonperforming  loans  as a
percentage  of total loans was 1.4% at June 30, 1999 and 1.3% at June 30,  1998.
At June  30,  1999,  nonperforming  loans  included  a $2.5  million  commercial
mortgage loan which matured in June 1998, and has not been repaid.  The borrower
has declared  bankruptcy,  and the scheduled  foreclosure  proceedings have been
temporarily  suspended.  Based on a current  appraisal  and other  factors,  the
Company  believes  that it will not  incur a  material  loss on this  loan.  The
Company also  believes  that the  allowance for loan losses at June 30, 1999 was
adequate on an overall basis.

         Noninterest Income. Noninterest income increased by $50,000 to $400,000
for the year  ended June 30,  1999,  from  $350,000  for the year ended June 30,
1998. The increase was due  principally to increases in the cash surrender value
of life insurance investments.

         Noninterest  income increased by $80,000 to $350,000 for the year ended
June  30,  1998,  from  $270,000  for  the  prior  year.  The  increase  was due
principally to increases in cash surrender value of life insurance investments.

         Noninterest Expense. Noninterest expense decreased by $254,000, to $2.8
million for the year ended June 30,  1999,  from $3.1 million for the year ended
June 30, 1999. Compensation and employee benefits decreased by $196,000, to $1.6
million for the year ended June 30, 1999,  from $1.8 million for the prior year.
The decrease  was due  principally  to a decrease of $116,000 in Employee  Stock
Ownership  Plan  ("ESOP")  contribution  expense as a result of decreases in the
price of ESOP shares,  the basis used to determine the expense.  Other decreases
in  compensation  and  employee  benefits  were  primarily  the  result  of  the
retirement of an officer.  Advertising  decreased due to a decreased emphasis on
advertising.

         Noninterest expense increased by $189,000 to $3.1 million, for the year
ended June 30, 1998, from $2.9 million for the prior year, before  considering a
one-time SAIF  assessment  of $1.4 million  during the year ended June 30, 1997.
Compensation and employee benefits increased by $242,000 to $1.8 million for the
year ended June 30, 1998, from $1.5 million for the prior year. The increase was
due  principally  to an increase of $148,000 in ESOP  contribution  expense as a
result of  increases  in the market  price of ESOP  shares.  Other  increases in
compensation and employee benefits were the result of additional staffing and

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normal  increases  in salaries  and  benefits.  Advertising  and other  expenses
increased due to additional marketing and normal increases in other expenses.

         Before   considering  the  one-time  SAIF  assessment,   the  ratio  of
noninterest  expenses to average assets was 0.91%, 1.06% and 1.05% for the years
ending June 30, 1999, 1998 and 1997, respectively.

         The provision for income taxes was  approximately  $1.9 million for the
years ended June 30, 1999 and 1998. The effective tax rates were 35.3% and 36.4%
for the years ending June 30, 1999 and 1998,  respectively.  The decrease in the
effective rate in 1999 was due to lower state income taxes.

         The  provision  for income taxes  increased by $437,000 to $1.9 million
for the year ended June 30,  1998,  from $1.5  million for the prior year.  This
reflects an increase of $1.4  million in income  before  income  taxes in fiscal
year 1998. The Company's  effective tax rates were 36.4% and 38.1% for the years
ending June 30, 1998 and 1997, respectively.  The decrease in the effective rate
in 1998 was due to lower state income taxes.

         Deposit Insurance  Premiums.  The deposits of the Company are presently
insured by the SAIF,  which along with the Bank Insurance  Fund (the "BIF"),  is
one of the two insurance  funds  administered  by the FDIC.  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
Company,  the assessment amounted to $1.4 million (or $849,000 when adjusted for
taxes),  based on the  Company's  SAIF-insured  deposits of $210.5  million.  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  now  paid  jointly  by
BIF-insured institutions and SAIF-insured  institutions.  The FICO assessment is
1.29 basis points per $100 in BIF deposits and 6.1 basis points per $100 in SAIF
deposits.  Beginning  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).


                                        8

<PAGE>



Average Balance Sheet

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

<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                ---------------------------------------------------------------------------------------------------
                                              1999                               1998                             1997
                                --------------------------------    --------------------------------  -----------------------------
                                                         Average                             Average                        Average
                                 Average                 Yield/      Average                 Yield/    Average               Yield/
                                 Balance    Interest      Cost       Balance    Interest      Cost     Balance   Interest     Cost
                                 -------    --------      ----       -------    --------      ----     -------   --------     ----
                                                                       (Dollars in Thousands)
Interest-earning assets:
<S>                             <C>         <C>            <C>     <C>         <C>            <C>     <C>        <C>           <C>
  Mortgage loans(1)............ $190,836    $  14,007      7.34%   $ 177,817   $  13,376      7.52%   $159,899   $  12,134     7.59%
  Consumer and other loans.....    4,535          329      7.25        5,065         359      7.09       4,422         307     6.94
  Mortgage-backed securities...   13,210          917      6.94       19,604       1,423      7.26      25,829       1,862     7.21
  Investment securities........   54,322        3,647      6.71       46,311       3,111      6.72      54,006       3,710     6.87
  Interest-earning deposits(2).   28,931        1,403      4.85       27,161       1,538      5.66      22,100       1,206     5.46
  Other investments(3).........   13,221          539      4.08        9,424         502      5.33       5,995         387     6.46
                                --------    ---------   -------    ---------   ---------   -------    --------   ---------  -------
    Total interest-earning
     assets....................  305,055       20,842      6.83      285,382      20,309      7.12     272,252      19,606     7.20
                                            ---------   -------                ---------   -------               ---------  -------
Noninterest-earning assets.....    8,353                               7,046                             5,807
                                --------                           ---------                          --------
    Total assets............... $313,408                           $ 292,428                          $278,059
                                ========                           =========                          ========
Interest-bearing liabilities:
  Savings deposits............. $257,942       12,965      5.03    $ 238,272      12,114      5.09    $227,785      11,549     5.07
  Other borrowed funds.........      518           44      8.49          616          57      8.28         713          64     8.98
                                --------    ---------   -------    ---------   ---------   -------    --------   ---------  -------
    Total interest-bearing
     liabilities...............  258,460       13,009      5.03      238,888      12,171      5.09     228,498      11,613     5.08
                                            ---------   -------                ---------   -------               ---------  -------
Noninterest-bearing
 liabilities...................    5,800                               5,331                             4,572
                                --------                           ---------                          --------
    Total liabilities..........  264,260                             244,219                           233,070
Stockholders' equity...........   49,148                              48,209                            44,989
                                --------                           ---------                          --------
    Total liabilities and
    stockholders' equity....... $313,408                           $ 292,428                          $278,059
                                ========                           =========                          ========
Net interest income............             $   7,833                          $   8,138                         $   7,993
                                            =========                          =========                         =========
Net interest rate spread(4)....                            1.80%                              2.03%                            2.12%
                                                        =======                            =======                          =======
Net interest margin(5).........                            2.57%                              2.85%                            2.94%
                                                        =======                            =======                          =======
Ratio of average interest-
  earning assets to average
  interest-bearing
  liabilities..................                          118.03%                            119.46%                          119.15%
                                                        =======                            =======                          =======
</TABLE>

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

                                        9

<PAGE>

Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                                ------------------------------------------------------------------------------------
                                                              1999 vs. 1998                              1998 vs. 1997
                                                -----------------------------------------  -----------------------------------------
                                                    Increase/(Decrease)                       Increase/(Decrease)
                                                         Due to                                    Due to
                                                ---------------------------      Total     ----------------------------     Total
                                                                      Rate/     Increase                          Rate/    Increase
                                                Volume      Rate     Volume    (Decrease)  Volume      Rate      Volume   (Decrease)
                                                ------      ----     ------    ----------  ------      ----      ------   ----------
                                                                   (In Thousands)
Interest income:
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
  Mortgage loans (1) .......................   $   979    $  (320)   $   (28)   $   631    $ 1,360    $  (112)   $    (6)   $ 1,242
  Consumer and other loans .................       (38)         8         --        (30)        45          6          1         52
  Mortgage-backed securities ...............      (464)       (62)        20       (506)      (449)        13         (3)      (439)
  Investment securities ....................       538         (5)         3        536       (529)       (81)        11       (599)
  Interest earning deposits (2) ............       100       (220)       (15)      (135)       276         44         12        332
  Other investments (3) ....................       202       (117)       (48)        37        222        (68)       (39)       115
                                               -------    -------    -------    -------    -------    -------    -------    -------

  Total interest-earning assets ............     1,317       (716)       (68)       533        925       (198)       (24)       703
                                               -------    -------    -------    -------    -------    -------    -------    -------
Interest expense ...........................       996       (143)       (15)       838        528         23          7        558
                                               -------    -------    -------    -------    -------    -------    -------    -------

Change in net interest income ..............   $   321    $  (573)   $   (53)   $  (305)   $   397    $  (221)   $   (31)   $   145
                                               =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

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

Management of Market Risk

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

         The Company's policy in recent years has been to reduce its exposure to
interest  rate risk  generally by better  matching the  maturities  and interest
rates of its interest  rate  sensitive  assets and  liabilities  by  emphasizing
fixed-rate  one- to  four-family  mortgage loans with terms of 15 years or less,
adjustable-rate  first  mortgages  and home  equity  loans,  and by  maintaining
relatively high levels of liquidity.  By maintaining a significant percentage of
its assets in cash and other liquid investments, the Company is able to reinvest
a higher  percentage of its assets more quickly in response to changes in market
interest rates,  thereby reducing its exposure to interest rate  volatility.  In
addition,  the Company offers  competitive  rates on deposit accounts and prices
certificates  of  deposit  to  provide   customers  with  incentives  to  choose
certificates of deposit with

                                       10

<PAGE>



longer terms. The Company does not utilize  derivative  instruments or engage in
other hedging activities to manage interest rate risk.

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

         The Company measures  interest rate risk in terms of the sensitivity of
the Company's net portfolio value ("NPV") to changes in interest  rates.  NPV is
the difference between incoming and outgoing  discounted cash flows from assets,
liabilities,  and off-balance sheet contracts.  The following table presents the
pro forma computations of the Company's NPV as of June 30, 1999.

<TABLE>
<CAPTION>
                                                                                  NPV as Percentage of
       Change in                                                                Present Value of Assets
     Interest Rates                  Net Portfolio Value                      --------------------------
     in Basis Points    --------------------------------------------                         Basis Point
     (Rate Shock)       $ Amount          $ Change          % Change          NPV Ratio         Change
     ------------       --------          --------          --------          ---------         ------
                                            (Dollars in Thousands)
     <S>               <C>              <C>                  <C>              <C>              <C>
        300              20,485           (31,198)             (60)             6.86             (859)
        200              29,907           (21,776)             (42)             9.66             (579)
        100              39,577           (12,106)             (23)            12.33             (311)
     Static              51,683                --               --             15.45               --
       (100)             55,152             3,469                7             16.24               79
       (200)             57,694             6,011               12             16.77              132
       (300)             59,155             7,472               14             17.03              158
</TABLE>


         The above  table  indicates  that at June 30,  1999,  in the event of a
sudden and  sustained  increase in prevailing  market  rates,  the Company's NPV
would be expected to decrease,  and that in the event of a sudden and  sustained
decrease  in  prevailing  market  interest  rates,  the  Company's  NPV would be
expected to increase. The Company's Board of Directors reviews the Company's NPV
position quarterly,  and, if estimated changes in NPV are not within the targets
established  by the Board,  the Board may direct  management to adjust the asset
and liability mix to bring interest rate risk within Board approved targets.

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

                                       11

<PAGE>

Liquidity and Capital Resources

         The Bank is  required to maintain  minimum  levels of liquid  assets as
defined by Office of Thrift Supervision ("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%. The Bank's liquidity ratio averaged 43.2% during
the quarter ended June 30, 1999. The Bank adjusts its liquidity  levels in order
to meet  funding  needs of deposit  outflows,  payment of real  estate  taxes on
mortgage  loans,  repayment of borrowings  and loan  commitments.  The Bank also
adjusts  liquidity as  appropriate  to meet its asset and  liability  management
objectives.

         The Bank's  primary  sources of funds are  deposits,  amortization  and
prepayment  of loans and  mortgage-backed  securities,  maturities of investment
securities  and  other  investments,   and  earnings  and  funds  provided  from
operations.  While scheduled  principal  repayments on loans and mortgage-backed
securities are a relatively  predictable source of funds, deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions,  and  competition.  The Bank  manages the pricing of its deposits to
maintain a desired deposit balance. In addition,  the Bank invests in short-term
interest-earning  assets, which provide liquidity to meet lending  requirements.
Assets qualifying for liquidity outstanding at June 30, 1999, amounted to $112.2
million. For additional  information about cash flows from the Bank's operating,
financing,  and investing activities,  see Consolidated Statements of Cash Flows
included in the Consolidated Financial Statements.

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

         At June 30, 1999,  the Bank had  outstanding  loan  commitments of $6.4
million.  This amount does not include  $16.7  million of  undisbursed  lines of
credit on home  equity  loans,  and the  unfunded  portion of loans in  process.
Certificates  of deposit  scheduled  to mature in less than one year at June 30,
1999, totaled $99 million. Based on prior experience, management believes that a
significant portion of such deposits will remain with the Bank.

         At June 30, 1999, the Bank exceeded OTS capital requirements. Set forth
below is a summary of the  Bank's  compliance  with the  following  OTS  capital
standards as of June 30, 1999.

<TABLE>
<CAPTION>
                                                                    Minimum          To Be Well Capitalized
                                                                  For Capital        Under Prompt Corrective
                                             Actual            Adequacy Purposes        Action Provisions
                                      -------------------    ---------------------    --------------------
                                       Amount    Ratio(1)     Amount      Ratio(1)     Amount     Ratio(1)
                                       ------    --------     ------      --------     ------     --------
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.


                                       12

<PAGE>



Impact of Inflation and Changing Prices

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

Impact of New Accounting Standards

         In June 1998, the FASB issued SFAS No. 133  "Accounting  for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other   contracts   (collectively   referred  to  as
derivatives),  and for hedging activities.  SFAS No. 133 requires that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and measure those instruments at fair value. It is effective
for all fiscal quarters of fiscal years  beginning after June 15, 2000.  Initial
application  of this  Statement  should be as of the  beginning  of an  entity's
fiscal quarter. On that date, hedging  relationships must be designated anew and
documented  pursuant to the provisions of SFAS No. 133.  Earlier  application of
SFAS No. 133 is encouraged but it may not be applied  retroactively to financial
statements of prior periods.  Management  has not determined  when it will adopt
the  provisions  of SFAS No. 133, but  believes  that  adoption  will not have a
material effect on the Company's financial position or results of operations.

Capability of the Company's Data Processing Software and Hardware to Accommodate
the Year 2000

The following information constitutes "Year 2000 Readiness Disclosure" under the
Year 2000 Information and Readiness Disclosure Act.

         The Company relies upon computers for the daily conduct of its business
and for data processing generally.  There is concern among industry experts that
commencing on January 1, 2000,  computers  will be unable to "read" the new year
and there may be widespread computer  malfunctions.  The Year 2000 ("Y2K") issue
is the result of computer  programs  being  written using two digits rather than
four to define the applicable year. Any of the Company's  computer programs that
would have date sensitive  software may recognize a date during "00" as the year
1900  rather  than the year  2000.  This  could  result in a systems  failure or
miscalculations causing disruptions of operations. The Board of Directors of the
Company  formed a Y2K Project  Team to address how the Bank will prepare for the
Y2K.  The  Project  Team,  with the strong  support  and  involvement  of senior
management,  developed an Action Plan  comprising  of five  phases;  assessment,
evaluation,   renovation,   validation  and  implementation.   The  Company  has
substantially  completed  all of the five phases for its internal  systems.  The
Company  contracts  with  service  bureaus to provide  the  majority of its data
processing  and is dependent  upon purchased  application  software.  Management
believes that all "mission  critical" systems have been identified and have been
tested for Y2K  compliance.  Bank  personnel  have  participated  with the major
provider of our systems in a test of our  equipment and our  connections  to the
data center.  Some of the smaller  systems were tested by other  institutions by
proxy,  as defined by the  regulators.  The Company  believes that the potential
effects on  operations  from Y2K issues can and will be  addressed  prior to the
Y2K. However,  unforeseen  circumstances could arise, disrupting normal business
operations.  To this end, the Company has adopted a contingency  plan to address
alternative methods to

                                       13

<PAGE>



enable  the  Company to  continue  to offer  basic  services  to its  customers.
Extensive  training of personnel and testing of the contingency  plan have begun
and will continue  throughout 1999. There can be no assurance that the Company's
contingency plan will fully mitigate the effects of such potential failures. The
Company has contacted its  commercial  borrowers and has been informed that they
are either compliant or in process of becoming  compliant in connection with the
Year 2000 issue. As commercial  loans represent less than 2% of its assets,  the
Company  believes  that the  effect  of the  Year  2000  issue on the  Company's
commercial  borrowers will not have an adverse effect on the Company in general.
The Company has not incurred any material costs, and management believes that it
will  incur  costs of no more than  $25,000  in  connection  with the Y2K issue,
although there can be no assurances in this regard.

Stock Repurchase Plan To Repurchase Common Stock

         As of June 30, 1999,  the Company was  authorized  to  repurchase up to
475,000 shares of its Common Stock pursuant to its Stock Repurchase Plan. During
the years ended June 30, 1999,  and 1998,  the Company  repurchased  292,736 and
39,205 shares at an average cost of $13.56 and $19.70 per share, respectively.

                        SELECTED QUARTERLY FINANCIAL DATA

         A summary of selected quarterly financial data for the years ended June
30, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                          First            Second             Third           Fourth
                                         Quarter           Quarter           Quarter          Quarter
                                         -------           -------           -------          -------
                                                        (In Thousands Except Per Share Data)
<S>                                     <C>               <C>              <C>               <C>
Fiscal 1999
-----------
Interest income..................       $   5,267         $  5,147         $   5,149         $  5,279
Net interest income..............           2,069            1,915             1,904            1,945
Provision for losses.............              29                2                --                8
Income before provision
  for income taxes...............           1,437            1,330             1,268            1,318
Net income.......................             923              856               818              867
                                        =========         ========         =========         ========

Net income per common share:
  Basic..........................       $     .18         $    .17         $     .16         $    .18
  Diluted........................             .18              .17               .16              .18
                                        =========         ========         =========         ========

Fiscal 1998
-----------
Interest income..................       $   5,030         $  5,074         $   5,091         $  5,114
Net interest income..............           2,041            2,047             2,056            1,994
Provision for losses.............               3                8                --              181
Income before provision
  for income taxes...............           1,366            1,292             1,359            1,184
Net income.......................             864              819               864              759
                                        =========         ========         =========         ========

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


                                       14

<PAGE>


                        COMMON STOCK AND RELATED MATTERS

         The  Company's  common  stock is listed on the Nasdaq  National  Market
under the symbol  "LFED." As of July 31,  1999,  the  Company  had 5  registered
market makers,  499  stockholders of record  (excluding the number of persons or
entities  holding stock in street name through  various  brokerage  firms),  and
4,810,656 shares outstanding. As of such date, Leeds Federal Bankshares,  M.H.C.
(the "Mutual  Holding  Company"),  the Company's  mutual holding  company,  held
3,300,000 shares of common stock and stockholders  other than the Mutual Holding
Company held 1,510,656 shares.

         The  following  table sets forth market price and dividend  information
for the common stock or, prior to the  completion  of the Bank's  reorganization
into the two-tier  mutual  holding  company  structure on January 21, 1998,  the
Bank's common stock.  Information  is presented for each quarter of the previous
two fiscal years.


   Fiscal Year Ended                                            Cash Dividends
     June 30, 1999                 High             Low            Declared
----------------------        -------------    -------------   ---------------
First quarter                 $   18.88        $   15.50         $    .14
Second quarter                    15.75            11.75              .14
Third quarter                     14.75            12.00              .14
Fourth quarter                    12.50            10.75              .14

   Fiscal Year Ended                                            Cash Dividends
     June 30, 1998                 High             Low            Declared
----------------------        -------------    -------------   ---------------
First quarter                 $   21.51        $   12.76         $    .13
Second quarter                    23.50            20.18              .14
Third quarter                     23.00            21.00              .14
Fourth quarter                    22.50            18.75              .14


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

         OTS regulations impose limitations upon all "capital  distributions" by
savings   institutions,   including  cash  dividends,   payments  by  a  savings
institution  to  repurchase  or  otherwise   acquire  its  stock,   payments  to
stockholders  of another  savings  institution in a cash-out  merger,  and other
distributions  charged against capital. The regulations establish a three-tiered
system  of  regulation,   with  the  greatest   flexibility  being  afforded  to
well-capitalized or Tier 1 savings  associations.  As of June 30, 1999, the most
recent  notification  categorized the Bank as  "well-capitalized."  Accordingly,
under the OTS capital distribution  regulations,  the Bank would be permitted to
pay,  upon  notice to the OTS,  dividends  during  any  calendar  year up to 100
percent of its net income  during that  calendar  year,  plus its  retained  net
income for the preceding two years.

         In addition to the foregoing,  earnings of the Company  appropriated to
bad debt reserves and deducted for federal income tax purposes are not available
for payment of cash dividends or other  distributions  to  stockholders  without
payment of taxes at the  then-current  tax rate by the  Company on the amount of
earnings

                                       15

<PAGE>



removed from the reserves for such  distributions.  The Company  intends to make
full  use  of  this  favorable  tax  treatment  and  does  not  contemplate  any
distribution by the Company in a manner that would create federal tax liability.

         The Mutual Holding Company has waived the receipt of all dividends paid
by the Company. OTS regulations require the Mutual Holding Company to notify the
OTS of any proposed  waiver of the receipt of  dividends.  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 a 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 is
considered as a restriction on the retained earnings of the savings  association
in a note to the financial  statements;  (iii) the amount of any dividend waived
by the mutual holding  company is available for declaration as a dividend solely
to the mutual  holding  company,  and, in accordance  with SFAS No. 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.


                                       16

<PAGE>



                             STOCKHOLDER INFORMATION

Annual Meeting
--------------

The Annual  Meeting of  Stockholders  will be held at 4:00 p.m.,  on November 3,
1999, at the Company's office at 1101 Maiden Choice Lane, Baltimore, Maryland.

Stock Listing
-------------

The Company's Common Stock trades over-the-counter on the Nasdaq National Market
under the symbol "LFED."

Special Counsel
---------------

Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Washington, D.C.  20015


Independent Auditors
--------------------

KPMG LLP
111 South Calvert Street
Baltimore, Maryland  21202


Transfer Agent
--------------

American Stock Transfer and Trust Company
40 Wall Street
New York, New York  10005

Annual Report on Form 10-KSB
----------------------------

A copy of the  Company's  Form 10-KSB for the fiscal  year ended June 30,  1999,
will be furnished  without charge to stockholders as of September 10, 1999, upon
written request to the Secretary,  Leeds Federal  Bankshares,  Inc., 1101 Maiden
Choice Lane, Baltimore, Maryland 21229.


                                       17

<PAGE>



                          Independent Auditors' Report



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


We have audited the accompanying  consolidated statements of financial condition
of Leeds Federal  Bankshares,  Inc. and subsidiary  (the Company) as of June 30,
1999  and  1998,  and  the  related   consolidated   statements  of  income  and
comprehensive income, stockholders' equity, and cash flows for each of the years
in the  three-year  period ended June 30,  1999.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Leeds  Federal
Bankshares, Inc. and subsidiary as of June 30, 1999 and 1998, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 1999 in  conformity  with  generally  accepted  accounting
principles.

                                        /s/ KPMG LLP

Baltimore, Maryland
August 13, 1999

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                 Consolidated Statements of Financial Condition

                             June 30, 1999 and 1998


                                                          1999          1998
                                                      ------------  -----------
                       Assets

Cash, including interest-bearing deposits of
  $4,964,126 in 1999 and $11,906,061 in 1998 .......  $ 10,057,442   13,675,554
Short-term investments .............................    12,941,254    4,776,681
Secured short-term loans to commercial banks .......    10,011,970   18,405,234
Securities available for sale, amortized cost of
  $2,731,760 and $4,731,760, respectively (note 3) .     6,551,478    7,906,186
Investment securities held to maturity (fair
  value of $63,428,635 in 1999 and $39,896,283
  in 1998) (note 4) ................................    66,167,181   39,984,056
Mortgage-backed securities held to maturity
  (fair value of $10,214,065 in 1999 and
  $16,820,973 in 1998) (note 5) ....................    10,008,111   16,411,813
Loans receivable, net (note 6) .....................   203,886,170  190,181,247
Investment in Federal Home Loan Bank of Atlanta
  stock, at cost (note 10) .........................     1,935,700    2,377,200
Property and equipment, net (note 7) ...............     1,484,620      851,265
Cash surrender value of life insurance (note 11) ...     6,399,473    6,132,929
Accrued interest receivable ........................     1,994,604    1,833,318
Prepaid expenses and other assets ..................       204,020      201,208
                                                      ------------  -----------
                                                      $331,642,023  302,736,691
                                                      ============  ===========

        Liabilities and Stockholders' Equity

Liabilities:
  Savings accounts (note 8) ........................  $274,625,611  245,269,602
  Borrowed funds-- Employee Stock Ownership
    Plan (note 12) .................................       470,813      552,000
  Advance payments by borrowers for taxes,
    insurance and ground rents .....................     5,203,532    5,006,020
  Federal and state income taxes (note 9):
    Currently payable ..............................       107,577      133,676
    Deferred .......................................     1,393,803    1,296,001
  Accrued expenses and other liabilities
    (notes 11 and 13) ..............................     1,336,275    1,171,882
                                                      ------------  -----------
        Total liabilities ..........................   283,137,611  253,429,181
                                                      ------------  -----------
Stockholders' equity (notes 10, 12, 16 and 18):
  Common stock, $1 par value; 20,000,000 shares
    authorized; 5,195,597 shares issued in 1999
    and 1998 .......................................     5,195,597    5,195,597
  Additional paid-in-capital .......................     9,367,161    9,247,010
  Unearned employee stock ownership plan shares ....      (390,682)    (487,891)
  Treasury stock, at cost; 331,941 and 39,205
    shares, respectively ...........................    (4,740,869)    (772,430)
  Retained income, substantially restricted ........    36,734,317   34,162,743
  Accumulated other comprehensive income ...........     2,338,888    1,962,481
                                                      ------------  -----------
        Total stockholders' equity .................    48,504,412   49,307,510
                                                      ------------  -----------
Commitments (notes 11, 12 and 14)
                                                      ------------  -----------
                                                      $331,642,023  302,736,691
                                                      ============  ===========


See accompanying notes to consolidated financial statements.


                                      F-2

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

           Consolidated Statements of Income and Comprehensive Income

                    Years ended June 30, 1999, 1998 and 1997


                                               1999         1998         1997
                                           -----------   ----------   ----------
Interest income:
  First mortgage and other loans ........  $14,336,211   13,734,747   12,440,362
  Mortgage-backed securities ............      917,074    1,423,221    1,862,074
  Investment securities and short-term
    investments .........................    5,588,307    5,150,921    5,303,280
                                           -----------   ----------   ----------
      Total interest income .............   20,841,592   20,308,889   19,605,716
                                           -----------   ----------   ----------
Interest expense:
  Savings accounts (note 8) .............   12,965,300   12,114,148   11,548,634
  Other .................................       43,489       56,971       64,473
                                           -----------   ----------   ----------
      Total interest expense ............   13,008,789   12,171,119   11,613,107
                                           -----------   ----------   ----------
      Net interest income ...............    7,832,803    8,137,770    7,992,609

Provision for loan losses (note 6) ......       39,412      191,705      151,240
                                           -----------   ----------   ----------

      Net interest income after
        provision for loan losses .......    7,793,391    7,946,065    7,841,369
                                           -----------   ----------   ----------
Noninterest income:
  Service fees and charges ..............      132,219      137,190      130,202
  Other .................................      268,175      212,889      140,288
                                           -----------   ----------   ----------
                                               400,394      350,079      270,490
                                           -----------   ----------   ----------
Noninterest expense:
  Compensation and employee benefits ....    1,573,399    1,769,715    1,528,280
  Occupancy expense .....................      221,527      195,151      197,067
  SAIF deposit insurance premiums
    (note 10) ...........................      222,022      222,147    1,755,113
  Advertising ...........................      127,933      208,165      171,385
  Other .................................      696,020      699,885      636,941
                                           -----------   ----------   ----------
                                             2,840,901    3,095,063    4,288,786
                                           -----------   ----------   ----------
      Income before provision
        for income taxes ................    5,352,884    5,201,081    3,823,073

Provision for income taxes (note 9) .....    1,889,368    1,895,072    1,457,942
                                           -----------   ----------   ----------
      Net income ........................    3,463,516    3,306,009    2,365,131

Other comprehensive income net of tax:
  Unrealized gains on securities
    available-for-sale, net .............      376,407      554,353      687,454
                                           -----------   ----------   ----------
      Comprehensive income ..............  $ 3,839,923    3,860,362    3,052,585
                                           ===========   ==========   ==========
Net income per share of common stock
  (note 17):
    Basic ...............................  $      0.69         0.65         0.46
    Diluted .............................         0.69         0.64         0.46
                                           ===========   ==========   ==========


See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                 Consolidated Statements of Stockholders' Equity

                    Years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                          Unearned
                                                          employee
                                                           stock                     Retained      Accumu-        Total
                                            Additional   ownership    Treasury        income,    lated other     stock-
                                  Common      paid-in       plan       stock,     substantially   comprehen-    holders'
                                   stock      capital      shares      at cost      restricted   sive income     equity
                                ----------  ----------   ---------   ----------   -------------  -----------   ----------
<S>                             <C>          <C>         <C>         <C>            <C>           <C>          <C>
Balance at June 30, 1996 ....   $5,171,993   8,658,586   (700,380)           --     30,341,307      720,674    44,192,180

Compensation expense--ESOP ..           --      63,663    109,080            --             --           --       172,743

Compensation expense--MRP ...           --      92,287         --            --             --           --        92,287

Amortization of net
  unrealized holding loss ...           --          --         --            --        (15,996)      15,996            --

Other comprehensive income ..           --          --         --            --             --      671,458       671,458

Exercise of stock options ...       10,104      73,442         --            --             --           --        83,546

Dividends ($.72 per share) ..           --          --         --            --       (836,008)          --      (836,008)

Net income ..................           --          --         --            --      2,365,131           --     2,365,131
                                ----------   ---------   --------    ----------     ----------    ---------    ----------
Balance at June 30, 1997 ....    5,182,097   8,887,978   (591,300)           --     31,854,434    1,408,128    46,741,337

Compensation expense--ESOP ..           --     217,378    103,409            --             --           --       320,787

Compensation expense--MRP ...           --      48,234         --            --             --           --        48,234

Other comprehensive income ..           --          --         --            --             --      554,353       554,353

Exercise of stock options ...       13,500      93,420         --            --             --           --       106,920

Dividends ($.55 per share) ..           --          --         --            --       (997,700)          --      (997,700)

Net income ..................           --          --         --            --      3,306,009           --     3,306,009

Purchases of treasury stock .           --          --         --      (772,430)            --           --      (772,430)
                                ----------   ---------   --------    ----------     ----------    ---------    ----------
Balance at June 30, 1998 ....   $5,195,597   9,247,010   (487,891)     (772,430)    34,162,743    1,962,481    49,307,510

Compensation expense--ESOP ..           --     108,244     97,209            --             --           --       205,453

Compensation expense--MRP ...           --      11,907         --            --             --           --        11,907

Other comprehensive income ..           --          --         --            --             --      376,407       376,407

Dividends ($.56 per share) ..           --          --         --            --       (891,942)          --      (891,942)

Net income ..................           --          --         --            --      3,463,516           --     3,463,516

Purchases of treasury stock .           --          --         --    (3,968,439)            --           --    (3,968,439)
                                ----------   ---------   --------    ----------     ----------    ---------    ----------
Balance at June 30, 1999 ....   $5,195,597   9,367,161   (390,682)   (4,740,869)    36,734,317    2,338,888    48,504,412
                                ==========   =========   ========    ==========     ==========    =========    ==========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-4

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                     1999           1998           1997
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Cash flows from operating activities:
  Net income .................................   $ 3,463,516      3,306,009      2,365,131
  Adjustments to reconcile net income to net
    cash provided by operating activities:
  Amortization of loan fees ..................      (218,168)       (98,772)       (80,728)
  Provision for loan losses ..................        39,412        191,705        151,240
  Accretion of premiums (discounts) on
    investment securities and mortgage-
    backed securities ........................       (10,763)       (18,835)       (54,991)
  Loss (gain) on sale of assets, net .........         2,190         (1,806)            --
  Depreciation ...............................       133,791        125,639        121,209
  Noncash compensation under stock-
    based benefit plans ......................       217,360        369,021        265,030
  Deferred income tax benefit ................      (171,083)       (86,626)      (134,722)
  Increase in accrued interest receivable ....      (161,286)       (44,708)        (2,646)
  Increase (decrease) in income taxes
    currently payable ........................       (26,099)      (202,165)       207,601
  Increase in accrued expenses and
    other liabilities ........................       260,991        329,633         69,472
  Increase in unearned loan fees .............       155,797        110,922        282,353
  Decrease (increase) in prepaid expenses
    and other assets .........................        (2,812)       (14,333)        93,488
  Amortization of net unrealized
    holding loss .............................            --             --        (15,996)
                                                 -----------    -----------    -----------
      Net cash provided by
        operating activities .................     3,682,846      3,965,684      3,266,441
                                                 -----------    -----------    -----------
Cash flows from investing activities:
  Purchases of securities available for sale .    (1,000,000)    (1,175,000)      (300,000)
  Maturities of securities available for sale      3,000,000      2,200,000             --
  Purchase of investment securities
    held to maturity .........................   (69,225,000)   (35,903,264)    (6,399,906)
  Maturity of investment securities
    held to maturity .........................    43,041,421     38,888,255     14,728,283
  Sale of Federal Home Loan Bank of
    Atlanta stock ............................       441,500             --             --
  Loan disbursements, net of repayments ......   (13,681,964)   (16,289,600)   (22,372,160)
  Mortgage-backed securities held to
    maturity principal repayments ............     6,414,919      5,769,485      6,790,616
  Purchases of property and equipment ........      (769,336)      (117,276)       (34,267)
  Sale of property and equipment .............            --          6,001             --
  Investment in life insurance policies ......      (266,544)    (2,979,736)      (134,662)
  Sale of ground rents owned .................            --         39,500          1,600
                                                 -----------    -----------    -----------
      Net cash used in investing activities ..   (32,045,004)    (9,561,635)    (7,720,496)
                                                 -----------    -----------    -----------
</TABLE>
                                                                     (Continued)

                                      F-5

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                     1999           1998           1997
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Cash flows from financing activities:
  Payment of dividends .......................      (988,540)      (973,322)      (836,008)
  Repayment of borrowed funds ................       (81,187)       (96,000)       (96,000)
  Net increase in savings accounts ...........    29,356,009     12,679,593     10,443,991
  Increase in advance payments
    by borrowers for taxes, insurance and
    ground rents .............................       197,512        201,960        243,568
  Purchases of treasury stock ................    (3,968,439)      (772,430)            --
  Exercise of stock options ..................            --        106,920         83,546
                                                 -----------    -----------    -----------
      Net cash provided by
        financing activities .................    24,515,355     11,146,721      9,839,097

      Net increase (decrease) in cash
        and cash equivalents .................    (3,846,803)     5,550,770      5,385,042

Cash and cash equivalents at beginning of year    36,857,469     31,306,699     25,921,657
                                                 -----------    -----------    -----------
Cash and cash equivalents at end of year .....   $33,010,666     36,857,469     31,306,699
                                                 ===========    ===========    ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


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

     (a)  Description of Business and Reorganization

          Leeds Federal Bankshares,  Inc. (the Company) is a federally chartered
          corporation which owns all of the issued and outstanding  common stock
          of Leeds  Federal  Savings  Bank  (the  Bank),  a  federally-chartered
          savings bank that conducts its  operations  from a single  facility in
          Arbutus in Baltimore County, Maryland. At June 30, 1999, approximately
          64% of the issued  shares of common  stock of the Company were held by
          Leeds Federal  Bankshares,  M.H.C.  (MHC),  a federal  mutual  holding
          company.

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

     (b)  Basis of Presentation

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

          In preparing  the  consolidated  financial  statements,  management is
          required to make  estimates and  assumptions  that affect the reported
          amounts of assets and liabilities and disclosures of contingent assets
          and  liabilities  as of the  dates  of  the  statements  of  financial
          condition  and the  reported  amounts of income and  expenses  for the
          periods.   Actual  results  could  differ   significantly  from  those
          estimates.  Material  estimates that are  particularly  susceptible to
          significant change in the near term relate to the determination of the
          allowance  for loan losses.  In  connection  with this  determination,
          management obtains independent  appraisals for significant  properties
          and prepares fair value analyses as appropriate.

          Management  believes  that  the  allowance  for  losses  on  loans  is
          adequate.  While  management  uses available  information to recognize
          losses on loans,  future  additions to the  allowance may be necessary
          based on changes in economic conditions,  particularly in the state of
          Maryland.  In addition,  various regulatory  agencies,  as an integral
          part of their examination  processes,  periodically  review the Bank's
          allowance  for losses on loans.  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 examinations.

     (c)  Short-Term Investments

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

     (d)  Secured Short-Term Loans to Commercial Banks

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

                                                                     (Continued)

                                       F-7

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     (e)  Property and Equipment

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

     (f)  Loan Fees

          Loan  origination  and commitment fees are deferred and amortized into
          income  over the  contractual  lives of the  related  loans  using the
          interest  method.  Under certain  circumstances,  commitment  fees are
          recognized  over the  commitment  period or upon the expiration of the
          commitment.  Direct loan origination costs are deferred and recognized
          as a  reduction  of yield over the  contractual  lives of the  related
          loans using the interest method.  Deferred fees and costs are combined
          where applicable and the net amount is amortized.

     (g)  Real Estate Owned

          Real estate acquired through  foreclosure is initially recorded at the
          lower of cost or fair value and  subsequently  at the lower of cost or
          fair value,  less estimated  costs to sell.  Costs relating to holding
          real  estate are  charged  against  income,  while  costs  relating to
          improving  real estate are  capitalized  until a salable  condition is
          reached.

     (h)  Income Taxes

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

          Qualified  thrift lenders such as the Bank are not required to provide
          a deferred tax  liability  for bad debt reserves for tax purposes that
          arose in fiscal years  beginning  before  December 31, 1987.  Such bad
          debt reserve for the Bank amounted to approximately $7,100,000 with an
          income tax effect of  approximately  $2,700,000 at June 30, 1999. This
          bad debt reserve would become taxable if certain conditions are met by
          the Bank.

     (i)  Loans Receivable

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

                                                                     (Continued)

                                       F-8

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


          The provision for losses on loans is determined  based on management's
          review of the loan  portfolio  and analyses of  borrowers'  ability to
          pay, past collection  experience,  risk  characteristics of individual
          loans or groups of similar loans and  underlying  collateral,  current
          economic  conditions,  the status of  nonperforming  loans,  and other
          relevant  factors.  Loans or  portions  thereof  are  charged off when
          considered, in the opinion of management, uncollectible.

          A loan is considered  impaired when, based on current  information and
          events,  it is probable  that a creditor will be unable to collect all
          amounts due according to the contractual  terms of the loan agreement.
          In accordance with SFAS No. 114 Accounting by Creditors for Impairment
          of a Loan (SFAS No. 114),  impairment  of a loan is measured  based on
          the present  value of expected  future  cash flows  discounted  at the
          loan's  effective  interest rate, or at the loan's  observable  market
          price or the fair value of the  collateral  if the loan is  collateral
          dependent.  If the  measure  of the  impaired  loan is less  than  the
          recorded investment in the loan, an impairment is recognized through a
          valuation  allowance.  SFAS No. 114 does not apply to large  groups of
          smaller balance homogenous loans, including residential mortgage loans
          and consumer  installment  loans, that are collectively  evaluated for
          impairment.

     (j)  Investment Securities and Mortgage-Backed Securities

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

     (k)  Stock-Based Compensation

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

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

                                                                     (Continued)

                                       F-9

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     (l)  Comprehensive Income

          Effective  January 1, 1998, the Company adopted Statement of Financial
          Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
          130).  SFAS  No.  130  establishes  standards  for the  reporting  and
          presentation of  comprehensive  income and its components in financial
          statements. Comprehensive income includes all changes in stockholders'
          equity during a period,  except those  relating to  investments by and
          distributions  to  stockholders.  The Company's  comprehensive  income
          consists of net earnings and unrealized gains and losses on securities
          available  for sale and is presented in the  statements  of income and
          comprehensive  income.   Accumulated  other  comprehensive  income  is
          displayed as a separate component of stockholders' equity.

     (m)  Cash Equivalents and Cash Flow Information

          For purposes of the  consolidated  statement of cash flows, all highly
          liquid  investments  with original  maturities of three months or less
          are  considered  to be  cash  equivalents.  Cash  equivalents  include
          interest bearing deposits,  money market accounts,  secured short-term
          loans to commercial banks and securities purchased under agreements to
          resell.

          The Company  made income tax  payments  of  approximately  $2,169,000,
          $2,184,000 and $1,375,000 in 1999,  1998 and 1997,  respectively.  The
          Company paid approximately $13,012,000, $12,159,000 and $11,613,000 in
          interest  on deposits  and other  borrowings  in 1999,  1998 and 1997,
          respectively.

     (n)  Reclassifications

          Certain amounts for 1998 and 1997 have been reclassified to conform to
          the 1999 presentation.

(2)  Securities Purchased Under Agreements to Resell

     The Bank  periodically  purchases  securities  under  agreements  to resell
     (repurchase   agreements).   The  amounts  advanced  under  the  agreements
     represent  short-term loans and are reflected as short-term  investments in
     the consolidated statements of financial condition.

     The   securities   underlying  the  agreements  are  generally  book  entry
     securities  which are delivered by appropriate  entry in the Bank's account
     maintained at a commercial  bank under a written  custodial  agreement that
     explicitly recognizes the Bank's interest in the securities.  There were no
     securities  purchased  under  agreements to resell at June 30, 1999 or 1998
     and the  Bank  did not  enter  into  any  repurchase  agreements  in  1999.
     Securities  purchased under  agreements to resell  averaged  $3,412,000 and
     $3,654,000  during  1998  and  1997,  respectively.   The  maximum  amounts
     outstanding at any month-end were $7,036,728 and $5,517,903 during 1998 and
     1997, respectively.

                                                                     (Continued)

                                      F-10

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(3)  Securities Available for Sale

     The  amortized  cost and fair value of  securities  available  for sale are
     summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                                  1999
                                           -------------------------------------------------
                                                           Gross        Gross
                                            Amortized   unrealized   unrealized
                                              cost         gains       losses     Fair value
                                           ----------   ----------   ----------   ----------
<S>                                        <C>          <C>           <C>         <C>
U.S. government and agency obligations
  due:
    Beyond 5 years but within 10 years .   $  500,000          938         --       500,938
    Beyond 10 years ....................    2,075,000           --    (42,956)    2,032,044
Other equity securities ................      100,000           --    (32,000)       68,000
Federal Home Loan Mortgage Corporation
  preferred stock ......................       56,760    3,893,736         --     3,950,496
                                           ----------   ----------    -------     ---------
                                           $2,731,760    3,894,674    (74,956)    6,551,478
                                           ==========   ==========    =======     =========
</TABLE>

<TABLE>
<CAPTION>
                                                                  1998
                                           -------------------------------------------------
                                                           Gross        Gross
                                            Amortized   unrealized   unrealized
                                              cost         gains       losses     Fair value
                                           ----------   ----------   ----------   ----------
<S>                                        <C>          <C>           <C>         <C>
U.S. government and agency obligations
  due:
    Beyond 5 years but within 10 years .   $2,800,000       16,917         --     2,816,917
    Beyond 10 years ....................    1,875,000        8,748         --     1,883,748
Federal Home Loan Mortgage Corporation
  preferred stock ......................       56,760    3,148,761         --     3,205,521
                                           ----------   ----------    -------     ---------
                                           $4,731,760    3,174,426         --     7,906,186
                                           ==========   ==========    =======     =========
</TABLE>

                                                                     (Continued)

                                      F-11

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(4)  Investment Securities Held to Maturity

     The amortized  cost and fair value of investment  securities are summarized
     as follows at June 30:

                                                     1999
                               -------------------------------------------------
                                               Gross        Gross
                               Amortized    unrealized   unrealized
                                 cost          gains       losses     Fair value
                              -----------   ----------   ----------   ----------
U.S. Government and agency
  obligations .............   $66,167,181      47,331    (2,785,877)  63,428,635
                              ===========     =======    ==========   ==========


                                                     1998
                               -------------------------------------------------
                                               Gross        Gross
                               Amortized    unrealized   unrealized
                                 cost          gains       losses     Fair value
                              -----------   ----------   ----------   ----------
U.S. Government and agency
  obligations .............   $39,984,056     122,160      (209,933)  39,896,283
                              ===========     =======    ==========   ==========


Investment securities mature as follows at June 30:

                                       1999                       1998
                             ------------------------   ------------------------
                              Amortized                  Amortized
                                 cost      Fair value       cost      Fair value
                             -----------   ----------   -----------   ----------
Due within 12 months .....   $   575,879      575,879    2,491,898     2,489,368
Due beyond 12 months
  but within 5 years .....     1,600,000    1,633,283    3,800,000     3,850,700
Due beyond 5 years
  but within 10 years ....     2,000,000    1,941,710    5,065,000     5,044,285
Due beyond 10 years ......    61,991,302   59,277,763   28,627,158    28,511,930
                             -----------   ----------   ----------    ----------
                             $66,167,181   63,428,635   39,984,056    39,896,283
                             ===========   ==========   ==========    ==========

                                                                     (Continued)

                                      F-12

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(5)  Mortgage-Backed Securities Held to Maturity

     The  amortized  cost  and  fair  value of  mortgage-backed  securities  are
     summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                              1999
                                       --------------------------------------------------
                                                        Gross        Gross
                                        Amortized    unrealized   unrealized
                                           cost         gains       losses     Fair value
                                       -----------   ----------   ----------   ----------
<S>                                    <C>             <C>          <C>        <C>
Government National Mortgage
  Association ......................   $ 6,676,664     168,976           --     6,845,640
Federal National Mortgage
  Association ......................     1,478,778      10,523           --     1,489,301
Federal Home Loan Mortgage
  Corporation ......................     1,245,714      16,047           --     1,261,761
Collateralized Mortgage Obligation--
  FNMA REMIC .......................       606,955      10,408           --       617,363
                                       -----------     -------      -------    ----------
                                       $10,008,111     205,954           --    10,214,065
                                       ===========     =======      =======    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              1998
                                       --------------------------------------------------
                                                        Gross        Gross
                                        Amortized    unrealized   unrealized
                                           cost         gains       losses     Fair value
                                       -----------   ----------   ----------   ----------
<S>                                    <C>             <C>          <C>        <C>
Government National Mortgage
  Association ......................   $ 9,572,963     321,723           --     9,894,686
Federal National Mortgage
  Association ......................     2,597,401      43,028           --     2,640,429
Federal Home Loan Mortgage
  Corporation ......................     2,481,929      35,557           --     2,517,486
Collateralized Mortgage Obligation--
  FNMA REMIC .......................     1,759,520       8,852           --     1,768,372
                                       -----------     -------      -------    ----------
                                       $16,411,813     409,160           --    16,820,973
                                       ===========     =======      =======    ==========
</TABLE>


                                                                     (Continued)

                                      F-13

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     Contractual  maturities of  mortgage-backed  securities  are  summarized as
     follows at June 30:

                                       1999                       1998
                             ------------------------   ------------------------
                              Amortized                  Amortized
                                 cost      Fair value       cost      Fair value
                             -----------   ----------   -----------   ----------
Due within 12 months .....   $   270,147      270,724    1,124,638     1,127,061
Due beyond 12 months
  but within 5 years .....       314,843      324,889    1,007,709     1,028,060
Due beyond 5 years but
  within 10 years ........     2,408,873    2,433,826    3,417,449     3,487,855
Beyond 10 years ..........     7,014,248    7,184,626   10,862,017    11,177,997
                             -----------   ----------   ----------    ----------
                             $10,008,111   10,214,065   16,411,813    16,820,973
                             ===========   ==========   ==========    ==========


(6)  Loans Receivable

     Loans receivable are summarized as follows at June 30:

                                                        1999             1998
                                                    ------------     -----------
First mortgage loans:
  One-to-four family residential ...............    $186,040,721     167,421,983
  Commercial ...................................       2,500,000       3,738,433
  Construction .................................       3,284,893       4,730,199
                                                    ------------     -----------
                                                     191,825,614     175,890,615
Home equity loans ..............................      11,454,227      12,768,944
Loans secured by savings accounts ..............         436,745         438,831
Consumer loans .................................       3,539,664       4,632,750
                                                    ------------     -----------
                                                     207,256,250     193,731,140

Less:
  Allowance for loan losses ....................         725,152         722,860
  Unearned loan fees ...........................         739,800         802,171
  Undisbursed portion of loans in process ......       1,905,128       2,024,862
                                                    ------------     -----------
      Loans receivable, net ....................    $203,886,170     190,181,247
                                                    ============     ===========


     Substantially  all of the loans  receivable  are mortgage  loans secured by
     residential real estate properties located in the state of Maryland.  Loans
     are  extended   only  after   evaluation   by   management   of  customers'
     creditworthiness,  the loan to value ratio and other relevant factors.  The
     Bank  generally  does not lend  more than 80% of the  appraised  value of a
     property and requires private mortgage insurance

                                                                     (Continued)

                                      F-14

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     on  residential  mortgages with  loan-to-value  ratios in excess of 80%. In
     addition,  the Bank generally obtains personal guarantees of repayment from
     borrowers and/or others for construction and commercial loans and disburses
     the proceeds of  construction  and similar loans only as work progresses on
     the related property.

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

     Nonaccrual  loans  totaled  approximately   $2,764,000  and  $2,519,000  at
     June 30,  1999 and 1998,  respectively.  For the years ended June 30, 1999,
     1998 and 1997, the amount of interest  income that would have been recorded
     on loans in  nonaccrual  status  at year end had such  loans  performed  in
     accordance  with  their  terms was  approximately  $286,000,  $281,000  and
     $7,000,  respectively.  The actual  interest income recorded on these loans
     for the  years  ended  June 30,  1999,  1998  and  1997  was  approximately
     $193,000, $211,000 and $4,000, respectively.  At June 30, 1999 the Bank has
     one impaired loan with an unpaid  principal  balance and average balance of
     approximately  $2,500,000.  No interest  income was recognized on this loan
     during impairment and an allocation of approximately  $250,000 was included
     in the  allowance  for  losses on loans  relating  to this loan at June 30,
     1999.

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

                                                 1999         1998        1997
                                               --------     -------     -------
Beginning balance .........................    $722,860     536,280     374,797
Provision for loan losses .................      39,412     191,705     151,240
Charge-offs ...............................     (37,120)     (5,125)    (19,757)
Transfer from provision for loss on deposit          --          --      30,000
                                               --------     -------     -------
Ending balance ............................    $725,152     722,860     536,280
                                               ========     =======     =======

(7)  Property and Equipment

     Property and equipment are summarized as follows at June 30:

                                                                     Useful life
                                               1999         1998       in years
                                            ----------   ---------   -----------
Land ....................................   $  729,749      68,449            --
Building and improvements ...............      925,789     864,388      50 years
Furniture, fixtures and equipment .......      988,019     948,766    3-10 years
                                            ----------   ---------    ==========
      Total, at cost ....................    2,643,557   1,881,603

Less accumulated depreciation ...........    1,158,937   1,030,338
                                            ----------   ---------
      Property and equipment, net .......   $1,484,620     851,265
                                            ==========   =========

                                                                     (Continued)

                                      F-15

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(8)  Savings Accounts

     Savings accounts are summarized as follows at June 30:

                            Weighted
                            average
                              rate               1999                1998
                         -------------    -----------------   -----------------
  Type of Account        1999     1998       Amount      %       Amount      %
  ---------------        ----     ----    ------------  ---   ------------  ---
Certificates ..........  5.35%    5.66%   $181,657,046   66%  $151,731,316   62%
Anniversary bonus .....  3.33%    3.33%      4,466,317    2      5,106,781    2
Money Market ..........  4.68%    4.78%     61,368,492   22     63,792,586   26
Passbook ..............  3.15%    3.35%     20,160,926    7     18,352,118    7
NOW and demand ........  1.99%    1.86%      6,972,830    3      6,286,801    3
                         ----     ----    ------------  ---   ------------  ---
                                          $274,625,611  100%  $245,269,602  100%
                                          ============  ===   ============  ===

Certificate accounts mature as follows:
  Within 12 months ....................   $ 98,562,974   54%  $ 91,165,891   60%
  12 to 24 months .....................     65,163,034   36     44,366,567   29
  24 to 36 months .....................     10,891,676    6     10,046,627    7
  36 to 48 months .....................      3,705,841    2      3,118,966    2
  48 to 60 months .....................      3,333,521    2      3,033,265    2
                                          ------------  ---   ------------  ---
                                          $181,657,046  100%  $151,173,316  100%
                                          ============  ===   ============  ===

     At June 30,  1999 and  1998,  the Bank had  customer  deposits  in  savings
     accounts of $100,000 or more of approximately  $58,989,000 and $48,655,000,
     respectively.

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

                                           1999           1998           1997
                                       -----------     ----------     ----------
Time deposits ......................   $ 9,132,231      7,905,150      7,212,849
Checking and money market ..........     3,237,150      3,607,568      3,734,784
Passbook and other .................       595,919        601,430        601,001
                                       -----------     ----------     ----------
                                       $12,965,300     12,114,148     11,548,634
                                       ===========     ==========     ==========

                                                                     (Continued)

                                      F-16

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(9)  Income Taxes

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


                                        1999             1998            1997
                                     ----------       ---------       ---------
Current:
  Federal .......................    $1,852,003       1,767,197       1,326,458
  State .........................       208,448         214,501         266,206
                                     ----------       ---------       ---------
                                      2,060,451       1,981,698       1,592,664
                                     ----------       ---------       ---------
Deferred:
  Federal .......................      (140,074)        (70,925)       (110,303)
  State .........................       (31,009)        (15,701)        (24,419)
                                     ----------       ---------       ---------
                                       (171,083)        (86,626)       (134,722)
                                     ----------       ---------       ---------
                                     $1,889,368       1,895,072       1,457,942
                                     ==========       =========       =========


     The net deferred tax  liability at June 30, 1999 and 1998 consists of total
     deferred  tax assets of  $729,237  and  $793,358,  respectively,  and total
     deferred tax  liabilities of $2,123,040 and $2,089,359,  respectively.  The
     tax effects of temporary  differences  between the financial  reporting and
     income tax basis of assets and liabilities  relate to the following at June
     30:


                                                         1999           1998
                                                     -----------     ----------
Tax bad debt reserve in excess of base year .....    $  (299,897)      (399,863)
Allowance for losses on loans ...................        280,054        279,169
Federal Home Loan Bank stock dividends ..........       (304,291)      (373,687)
Compensation plans ..............................        324,927        320,662
Unrealized gains on securities
 available for sale, net ........................     (1,480,830)    (1,211,945)
Other, net ......................................         86,234         89,663
                                                     -----------     ----------
                                                     $(1,393,803)    (1,296,001)
                                                     ===========     ==========


                                                                     (Continued)

                                      F-17

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


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

                                            1999           1998          1997
                                         ----------     ---------     ---------
Federal income taxes at
  statutory rate .....................   $1,819,981     1,768,368     1,299,845
State income taxes, net of
  Federal income tax benefit .........      114,054       131,208       159,579
Other, net ...........................      (44,667)       (4,504)       (1,482)
                                         ----------     ---------     ---------
                                         $1,889,368     1,895,072     1,457,942
                                         ==========     =========     =========

(10) Regulatory Matters

     The Federal Deposit Insurance Corporation,  through the Savings Association
     Insurance Fund (SAIF),  insures deposits of  accountholders up to $100,000.
     The Bank pays an annual premium to provide for this insurance.  The Bank is
     also a member of the  Federal  Home Loan Bank  System  and is  required  to
     maintain  an  investment  in the  stock of the  Federal  Home  Loan Bank of
     Atlanta (FHLB) equal to at least 1% of the unpaid principal balances of its
     residential  mortgage  loans,  .3%  of  its  total  assets  or  5%  of  its
     outstanding  advances  from the Bank,  whichever is greater.  Purchases and
     sales of stock are made directly with the FHLB at par value.

     During 1997, the Bank paid a special assessment of approximately $1,383,000
     as a result of the federally  mandated  recapitalization  of the SAIF.  The
     assessment  was  required  of  substantially  all  SAIF-insured  depository
     institutions and was charged to non-interest expense.

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

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum amounts and ratios (as defined in the
     regulations  and as set forth in the table below,  as defined).  Management
     believes,  as of June 30,  1999,  that the Bank meets all capital  adequacy
     requirements to which it is subject.

     As of June 30, 1999, the most recent notification from the Office of Thrift
     Supervision  (OTS)  categorized  the  Bank as well  capitalized  under  the
     regulatory  framework for prompt corrective action. There are no conditions
     or events since that notification that management believes have changed the
     Bank's category.

                                                                     (Continued)

                                      F-18

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


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

<TABLE>
<CAPTION>
                                                                                   To Be Well
                                                              Minimum              Capitalized
                                                                For               Under Prompt
                                                              Capital              Corrective
                                                             Adequacy                Action
                                            Actual           Purposes              Provisions
                                       ---------------    --------------    ------------------------
                                        Amount   Ratio    Amount   Ratio    Amount        Ratio
                                       -------   -----    ------   -----    ------   ---------------
As of June 30, 1999:
<S>                                    <C>       <C>      <C>      <C>      <C>      <C>
  Tier I core capital(a) ............  $46,062   14.06%   13,109   4.00%    16,386   greater than  5%
  Tier I risk-based capita(b) .......   46,062   28.71%    6,418   4.00%     9,627   greater than  6%
  Total risk-based capital(b) .......   48,520   30.24%   12,837   8.00%    16,046   greater than 10%

As of June 30, 1998:
  Tier I core capital(a) ............  $47,346   15.80%   11,985   4.00%    14,982   greater than  5%
  Tier I risk-based capital(b) ......   47,346   32.76%    5,781   4.00%     8,672   greater than  6%
  Total risk-based capital(b) .......   48,069   33.26%   11,563   8.00%    14,453   greater than 10%
                                       =======   =====    ======   ====     ======   ===============
</TABLE>
----------
(a)  Percentage of capital to ending assets.
(b)  Percentage of risk-based capital to ending risk-weighted assets.


(11) Retirement Benefit and Deferred Compensation Plans

     The Bank has a 401(k) Employee  Investment Plan covering  substantially all
     employees.  Participation is voluntary and employee contributions are based
     on a percentage of compensation,  ranging from a minimum of 1% to a maximum
     of 10%. The Bank matches the  employee's  contribution  not to exceed 6% of
     compensation or a maximum of $2,400 annually. The Bank's contributions were
     $37,936,  $34,432 and $29,565 for the years ended June 30,  1999,  1998 and
     1997, respectively.

     The Bank has a  supplemental  retirement  income plan (SERP) for  executive
     officers.  The SERP supplements the 401(k) plan to bring officer retirement
     benefits up to targeted levels (2% for each year of service,  not to exceed
     70% of  final  salary).  In  addition,  the  SERP  provides  death  benefit
     protection  for  officers'  beneficiaries.  The cost of each  participant's
     retirement  benefits is accrued over the participant's  active  employment.
     The accrued  liability  under the SERP was $203,973 and $184,723 as of June
     30, 1999 and 1998, respectively.  Compensation cost related to the SERP was
     $118,640, $116,468 and $103,877 for the years ended June 30, 1999, 1998 and
     1997, respectively.

                                                                     (Continued)

                                      F-19

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     The Bank also has a deferred  compensation  agreement  with one  officer to
     provide  certain death and retirement  benefits.  The benefits  payable are
     accrued annually by charges to income amounting to $1,383 in 1999, 1998 and
     1997.  The accrued  liability  for these  benefits  amounted to $29,593 and
     $28,210 at June 30, 1999 and 1998, respectively, and is included in accrued
     expenses and other liabilities.

     In 1997,  the Bank  established  a  Directors  Retirement  Plan  which is a
     nonqualified  plan for income tax purposes.  Under the plan,  each director
     will be paid 75% of annual  directors'  fees for ten  years or until  death
     after  retirement.  The benefits payable are accrued annually and are based
     on the  retirement age selected by each director and an assumed 4% increase
     in annual fees until retirement.  The accrued liability under this plan was
     $269,010  and  $151,352  at June 30,  1999 and 1998,  respectively,  and is
     included  in accrued  expenses  and other  liabilities.  Compensation  cost
     related to this plan was $117,658, $105,414 and $45,938 for the years ended
     June 30, 1999, 1998 and 1997, respectively.

     The Bank also has an  optional  plan for the  deferral of  directors'  fees
     which is nonqualified for income tax purposes.  The accrued liability under
     this  plan  was   $410,187   and  $348,367  at  June  30,  1999  and  1998,
     respectively, and is included in accrued expenses and other liabilities.

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

                                                           1999           1998
                                                        ----------     ---------
     Transamerica .................................     $3,341,297     3,218,642
     American General .............................      1,969,051     1,885,608
     Connecticut Mutual ...........................        608,533       578,777
     Pacific Mutual ...............................        480,592       449,902
                                                        ----------     ---------
                                                        $6,399,473     6,132,929
                                                        ==========     =========

(12) Stock-Based Benefit Plans

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

     In 1994 the ESOP  borrowed  $960,000  from an unrelated  third party lender
     under a ten year loan bearing  interest at the Federal funds rate plus 2.5%
     per annum,  with payments of principal and interest due  quarterly.  Annual
     principal  payments are $96,000.  The proceeds of the loan were used by the
     ESOP to  acquire  144,000  shares  of the  Bank's  common  stock  upon  its
     conversion  to a capital  stock  form of  organization.  The ESOP holds the
     common stock in a trust for allocation among participating employees, which
     occurs as the ESOP repays the loan. The ESOP's sources of repayment

                                                                     (Continued)

                                      F-20

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     of the loan are dividends on the common stock, if any, either held in trust
     or allocated to the  participants'  accounts,  and quarterly  contributions
     from the Bank to the ESOP and  earnings  thereon.  For the years ended June
     30,  1999,  1998  and  1997  the  Bank  made  contributions  to the ESOP of
     $134,790, $146,944 and $153,895, respectively.

     The debt of the ESOP is  recorded  as debt of the  Company  and the  shares
     pledged as collateral are reported as unearned ESOP shares in the statement
     of financial  condition.  Dividends  on allocated  shares are recorded as a
     reduction  of  retained  earnings;  dividends  on  unallocated  shares  are
     recorded as a reduction of debt and accrued  interest.  The Bank recognized
     interest  expense  of  $38,790,  $50,944  and  $57,895,  respectively,  and
     compensation  expense of  $205,453,  $320,787 and  $172,743,  respectively,
     related  to the ESOP for the  years  ended  June 30,  1999,  1998 and 1997.
     Dividends on ESOP shares used for debt service  were  $40,963,  $48,380 and
     $50,204 for the years ended June 30, 1999, 1998 and 1997, respectively. The
     related tax  benefits to the Bank for  dividends  paid to the ESOP were not
     material. The ESOP shares as of June 30 were as follows:

                                                            1999          1998
                                                          --------     ---------
     Allocated shares ...............................       78,417        63,286
     Shares earned, but unallocated .................        7,466         7,587
     Unearned shares ................................       58,117        73,127
                                                          --------     ---------
                                                           144,000       144,000
                                                          --------     ---------
     Fair value of unearned shares at June 30 .......     $639,287     1,334,568
                                                          ========     =========

     In 1994 the Company  established  a  Management  Recognition  Plan (MRP) to
     retain   personnel  of   experience   and  ability  in  key   positions  of
     responsibility.  Under  the MRP,  members  of the  Board of  Directors  and
     certain  executive  officers of the  Company  were issued a total of 72,000
     shares of common stock.  Participants become one-fifth vested in the shares
     awarded on January 1 of each year from 1995 to 1999.  Compensation  expense
     related to the MRP was  $11,907,  $48,234  and  $92,287 for the years ended
     June 30, 1999, 1998 and 1997, respectively.

(13) Postretirement Benefits Other Than Pensions

     The Bank  offers a  postretirement  health  care  benefit  plan to  certain
     Directors and employees. Net costs of the plan were $46,000 for each of the
     years ended June 30, 1999,  1998 and 1997. The accrued  liability for these
     benefits was $147,000 and $112,000 at June 30, 1999 and 1998, respectively,
     and is included in accrued expenses and other liabilities.


                                                                     (Continued)

                                      F-21

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(14) Financial Instruments

     The Bank's  exposure to credit loss in the event of  nonperformance  by the
     other party to a financial instrument is represented by the contract amount
     of the  financial  instrument.  The Bank uses the same  credit  policies in
     making commitments for  off-balance-sheet  financial instruments as it does
     for  on-balance-sheet  financial  instruments.  Financial  instruments with
     off-balance-sheet risk are as follows at June 30, 1999:

                                                                       Contract
                                                                        amount
                                                                     -----------
     Undisbursed lines of credit on home equity loans ...........    $16,729,000
     Residential mortgage loans to be funded ....................      6,377,000
                                                                     -----------
                                                                     $23,106,000
                                                                     ===========

     The  Bank had  outstanding  mortgage  loan  commitments,  exclusive  of the
     undisbursed  portion of loans in process,  of approximately  $6,129,000 for
     fixed rate loans and $248,000 for floating rate loans at June 30, 1999. The
     interest rate range on fixed rate mortgage  loan  commitments  was 6.38% to
     7.38% and all commitments expire within one year.

     Commitments  to extend credit are  agreements to lend to a customer as long
     as there is no  violation of any  condition  established  in the  contract.
     Commitments  generally  have fixed  expiration  dates or other  termination
     clauses.   The  Bank  evaluates  each  customer's   creditworthiness  on  a
     case-by-case basis.

     The Bank has an unsecured  line of credit with a commercial  bank for up to
     $2 million. There were no borrowings outstanding as of June 30, 1999.


                                                                     (Continued)

                                      F-22

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(15) Disclosures About Fair Value of Financial Instruments

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

<TABLE>
<CAPTION>
                                               1999                        1998
                                    -------------------------   -------------------------
                                      Carrying        Fair        Carrying        Fair
                                       amount        value         amount        value
                                    -----------   -----------   -----------   -----------
<S>                                 <C>            <C>           <C>           <C>
Assets:
  Cash and interest-bearing
    deposits ....................   $10,057,442    10,057,000    13,675,554    13,676,000
  Short-term investments ........    12,941,254    12,941,000     4,776,681     4,777,000
  Secured short-term loans to
    commercial banks ............    10,011,970    10,012,000    18,405,234    18,405,000
  Securities available for sale .     6,551,478     6,551,000     7,906,186     7,906,000
  Investment securities .........    66,167,181    63,429,000    39,984,056    39,896,000
  Mortgage-backed securities ....    10,008,111    10,214,000    16,411,813    16,821,000
  Loans receivable ..............   203,886,170   202,890,000   190,181,247   193,438,000
  Accrued interest receivable ...     1,994,604     1,995,000     1,833,318     1,833,000

Liabilities:
  Savings accounts ..............   274,625,611   275,218,000   245,269,602   245,777,000
  Borrowed funds ................       470,813       471,000       552,000       552,000
  Advances payments by
    borrowers for taxes,
    insurance and ground rents ..   $ 5,203,532     5,204,000     5,006,020     5,006,000
                                    ===========   ===========   ===========   ===========
</TABLE>

     Fair value  estimates  and the methods and  assumptions  used to determined
     them are set forth below.

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

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


                                                                     (Continued)

                                      F-23

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     (b)  Loans Receivable

          The fair value of loans receivable is estimated by discounting  future
          cash flows using  current  rates for which similar loans would be made
          to borrowers.

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

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

     (d)  Commitments to Extend Credit

          The fair value of commitments to extend credit is estimated  using the
          fees currently charged to enter into similar  agreements,  taking into
          account  the  remaining  terms  of  the  agreements  and  the  present
          creditworthiness   of  the   counterparties.   For   fixed-rate   loan
          commitments,  fair value also considers the difference between current
          levels of interest  rates and the committed  rates.  The fair value of
          unrecognized   financial  instruments  is  estimated  to  equal  their
          carrying value.

(16) Stockholders' Equity

     In March  1994,  the  members of Leeds  Federal  Savings  Association  (the
     Association)  approved  a plan  of  reorganization  from a  mutual  savings
     association  to  a  mutual  holding  company.   Pursuant  to  the  plan  of
     reorganization the Association transferred  substantially all of its assets
     and  all of its  liabilities  to a new  federally-chartered  stock  savings
     association   which   became  a  wholly  owned   subsidiary   of  MHC.  The
     reorganization was consummated on April 29, 1994.

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

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


                                                                     (Continued)

                                      F-24

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


     MHC has waived  receipt of its quarterly  dividends,  thereby  reducing the
     actual  dividend  payout  by the  Company  in 1999  and  prior  years.  The
     dividends  waived by MHC are  considered as a  restriction  on the retained
     earnings of the Bank. The amount of any dividend waived by MHC is available
     for  declaration  as a  dividend  solely  to MHC.  At June  30,  1999,  the
     cumulative amount of such waived dividends was $7,781,400.

     At June 30, 1999,  the Company was  authorized  to repurchase up to 475,000
     shares of common stock  pursuant to its repurchase  plan.  During the years
     ended June 30,  1999 and 1998,  the  Company  purchased  292,736 and 39,205
     shares,  respectively,  at an average  cost per share of $13.56 and $19.70,
     respectively.

(17) Net Income Per Share of Common Stock

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

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

<TABLE>
<CAPTION>
                                     1999                     1998                    1997
                            ----------------------   ---------------------   ---------------------
                               Basic      Diluted      Basic      Diluted      Basic      Diluted
                            ----------   ---------   ---------   ---------   ---------   ---------
<S>                         <C>          <C>         <C>         <C>         <C>         <C>
Net income ..............   $3,463,516   3,463,516   3,306,009   3,306,009   2,365,131   2,365,131
Dividends on unvested
  common stock awards ...           --          --      (7,872)     (3,107)    (13,824)    (10,250)
                            ----------   ---------   ---------   ---------   ---------   ---------
Adjusted net income used
  in EPS calculations ...   $3,463,516   3,463,516   3,298,137   3,302,902   2,351,307   2,354,881
                            ==========   =========   =========   =========   =========   =========
Weighted average shares
  outstanding ...........    4,983,896   4,983,896   5,091,918   5,091,918   5,062,986   5,062,986

Dilutive securities:
  Options ...............           --      64,867          --      89,885          --      41,888
  Unvested common stock
    awards ..............           --          --          --       8,716          --       7,447
                            ----------   ---------   ---------   ---------   ---------   ---------
Adjusted weighted average
  shares used in EPS
  calculations ..........    4,983,896   5,048,763   5,091,918   5,190,519   5,062,986   5,112,321
                            ==========   =========   =========   =========   =========   =========
</TABLE>


                                                                     (Continued)

                                      F-25

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(18) Stock Option Plan

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

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

                                                    1999       1998       1997
                                                  -------    -------    -------
     Outstanding at beginning of year .........   148,500    162,000    180,000
     Granted ..................................        --         --         --
     Canceled .................................        --         --     (7,896)
     Exercised ................................        --    (13,500)   (10,104)
                                                  -------    -------    -------
         Outstanding at end of year ...........   148,500    148,500    162,000
                                                  -------    -------    -------
     Exercisable at end of year ...............   148,500    133,200    126,000
                                                  =======    =======    =======


                                                                     (Continued)

                                      F-26

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998 and 1997


(19) Condensed Financial Information (Parent Company Only)

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

                                                            1999        1998
                                                        -----------  ----------
     Statements of Financial Condition
     Cash ............................................  $   222,926      25,663
     Securities available for sale ...................       68,000          --
     Deferred tax asset ..............................       12,352          --
     Investment in Bank ..............................   48,421,166  49,540,472
                                                        -----------  ----------
                                                        $48,724,444  49,566,135
                                                        ===========  ==========
     Accrued expenses and other liabilities ..........  $   220,032     258,625
     Stockholders' equity ............................   48,504,412  49,307,510
                                                        -----------  ----------
 .....................................................  $48,724,444  49,566,135
                                                        ===========  ==========
     Statements of Income
     Interest income .................................  $    14,975       1,903
     Equity in net income of subsidiary ..............    3,449,274   3,304,106
                                                        -----------  ----------
             Income before provision for income taxes     3,464,249   3,306,009
     Provision for income taxes ......................          733          --
                                                        -----------  ----------
             Net income ..............................  $ 3,463,516   3,306,009
                                                        ===========  ==========
     Statements of Cash Flows
     Cash flows from operating activities:
       Net income ....................................  $ 3,463,516   3,306,009
       Adjustments to reconcile net income to net
         cash provided by operating activities:
           Equity in net income of subsidiary ........   (3,449,274) (3,304,106)
                                                        -----------  ----------
             Net cash provided by operating activities       14,242       1,903
                                                        -----------  ----------
     Cash flows from investing activities:
       Dividend distribution from bank ...............    5,240,000     850,000
       Purchase of securities available for sale .....     (100,000)         --
                                                        -----------  ----------
             Net cash provided by investing activities    5,140,000     850,000
                                                        -----------  ----------
     Cash flows from financing activities:
       Payment of dividends ..........................     (988,540)   (260,730)
       Purchases of treasury stock ...................   (3,968,439)   (772,430)
       Exercise of stock options .....................           --     106,920
       Net proceeds of stock exchanged ...............           --     100,000
                                                        -----------  ----------
             Net cash used by financing activities ...   (4,956,979)   (826,240)
                                                        -----------  ----------
             Net increase in cash and cash equivalents      197,263      25,663

     Cash and cash equivalents at beginning of year ..       25,663          --
                                                        -----------  ----------
     Cash and cash equivalents at end of year ........  $   222,926      25,663
                                                        ===========  ==========


                                      F-27