EXHIBIT 13

                       2001 ANNUAL REPORT TO STOCKHOLDERS






<PAGE>





                       2001 ANNUAL REPORT TO STOCKHOLDERS
                         LEEDS FEDERAL BANKSHARES, INC.







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                                TABLE OF CONTENTS


                                                                      Page
                                                                      ----


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


<PAGE>


                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

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

<TABLE>
<CAPTION>
                                                                             At June 30,
                                                   -------------------------------------------------------------
                                                     2001          2000         1999         1998         1997
                                                   ---------    ---------    ---------    ---------     --------
                                                                             (In Thousands)
Selected Consolidated Financial Condition Data
<S>                                                <C>          <C>          <C>          <C>           <C>
Total assets....................................   $ 378,500    $ 337,048    $ 331,642    $ 302,737     $286,999
Loans receivable, net...........................     217,183      219,204      203,886      190,181      174,095
Investments* ...................................     122,266       95,935      102,572       85,355       82,553
Mortgage-backed securities......................      20,021        8,317       10,008       16,412       22,160
Deposits........................................     320,471      281,866      274,626      245,270      232,590
Borrowed funds..................................         274          384          471          552          648
Stockholders' equity, substantially restricted..      50,889       47,409       48,504       49,308       46,741
</TABLE>

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


<TABLE>
<CAPTION>

                                                                         Year Ended June 30,
                                                   -------------------------------------------------------------
                                                     2001          2000         1999         1998         1997
                                                   ---------    ---------    ---------    ---------     --------
                                                               (In Thousands Except Per Share Data)
Selected Consolidated Operating Data:
<S>                                                <C>          <C>          <C>          <C>           <C>
Interest income................................    $  22,957    $  22,070    $  20,842    $  20,309     $ 19,606
Interest expense...............................       15,664       13,928       13,009       12,171       11,613
                                                   ---------    ---------    ---------    ---------     --------
  Net interest income before provision for losses      7,293        8,142        7,833        8,138        7,993
Provision for loan losses......................           --           21           39          192          151
                                                   ---------    ---------    ---------    ---------     --------
  Net interest income after provision for losses       7,293        8,121        7,794        7,946        7,842
                                                   ---------    ---------    ---------    ---------     --------
Noninterest income:
  Service fees and charges.....................          200          156          132          137          130
  Other income.................................          380          288          268          213          140
                                                   ---------    ---------    ---------    ---------     --------
    Total noninterest income...................          580          444          400          350          270
                                                   ---------    ---------    ---------    ---------     --------
Noninterest expense:
  Compensation and employee benefits...........        1,994        1,759        1,573        1,770        1,528
  Occupancy....................................          339          260          222          195          197
  SAIF deposit insurance premiums..............          131          184          222          222        1,755
  Advertising..................................          181          159          128          208          172
    Other......................................          857          717          696          700          637
                                                   ---------    ---------    ---------    ---------     --------
    Total noninterest expenses.................        3,502        3,079        2,841        3,095        4,289
                                                   ---------    ---------    ---------    ---------     --------
Income before provision for income taxes.......        4,371        5,486        5,353        5,201        3,823
Provision for income taxes.....................        1,486        1,891        1,889        1,895        1,458
                                                   ---------    ---------    ---------    ---------     --------
      Net income...............................    $   2,885    $   3,595    $   3,464    $   3,306     $  2,365
                                                   =========    =========    =========    =========     ========
Net income per common share
  Basic........................................    $    0.64    $    0.78    $    0.69    $    0.65     $   0.46
  Diluted......................................         0.63         0.77         0.69         0.64         0.46
Dividends declared per common share............         0.60         0.59         0.56         0.55         0.48
                                                   =========    =========    =========    =========     ========
</TABLE>


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<PAGE>


                                        At or for the Year Ended June 30
                                 -----------------------------------------------
                                 2001      2000        1999     1998       1997
                                 ----      ----        ----     ----       ----
Key Operating Ratios
 and Other Data:

Return on average assets
 (net income divided by
 average total assets)* ......      .83%     1.08%     1.11%     1.13%      .85%
Return on average equity
 (net income divided by
 average equity)* ............     5.88      7.54      7.05      6.86      5.26
Net interest rate spread
 (difference between average
 yield on interest-earning
 assets and average cost of
 interest-bearing liabilities)     1.48      1.86      1.80      2.03      2.12
Net interest margin (net
 interest income as a
 percentage of average
 interest-earning assets)  ...     2.17      2.53      2.57      2.85      2.94
Net interest income to
 noninterest expense* ........   208.25    264.44    275.71    262.94    186.36
Net interest income after
 provision for losses, to
 total noninterest expense* ..   208.25    263.75    274.33    256.74    182.84
Noninterest income to
 average assets ..............      .17       .13       .13       .12       .10
Noninterest expense to
 average assets* .............     1.01       .93       .91      1.06      1.54
Nonperforming loans to
 total loans .................    --         1.16      1.36      1.32       .05
Nonperforming assets to
 total assets ................      .67       .76       .83       .83       .03
Average interest-earning
 assets to average
 interest-bearing
 liabilities .................   114.76    115.43    118.03    119.46    119.15
Stockholders' equity to
 average assets (average
 stockholders' equity
 divided by average
 total assets) ...............    14.13     14.33     15.68     16.49     16.18
Equity to assets at
 period end ..................    13.44     14.07     14.63     16.28     16.29
Number of full-service
 offices .....................     2         2         1         1         1

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

*    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%.


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

Forward-Looking Statements

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

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

Business Strategy

         The  Company's  current  business  strategy is to operate the Bank as a
well-capitalized,  profitable and  community-oriented  savings bank dedicated to
providing  quality  customer  service.  Generally,  the  Company  has  sought to
implement this strategy by using only retail deposits as its source of funds and
maintaining  a  substantial  part of its  assets  in  loans  secured  by one- to
four-family  residential  real estate located in the Company's market area, home
equity loans,  consumer  loans,  mortgage-backed  securities and in other liquid
investment   securities.   Specifically,   the   Company's   business   strategy
incorporates  the  following  elements:  (1)  operating as a  community-oriented
financial  institution,  maintaining  a strong core  customer  base by providing
quality  service and  offering  customers  the access to senior  management  and
services that a  community-based  institution can offer;  (2)  maintaining  high
asset quality by emphasizing investment in

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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 net income of the  Company  depends  primarily  on its level of net
interest  income,  which  is  the  difference  between  interest  earned  on the
Company's  interest-earning  assets,  consisting  primarily  of mortgage  loans,
mortgage-backed  securities,  interest-earning  deposits at other  institutions,
investment   securities  and  other  investments,   and  the  interest  paid  on
interest-bearing  liabilities,  which consist primarily of savings deposits. The
Company  had net income of $2.9  million for the year ended June 30,  2001.  Net
income  totaled  $3.6  million  and $3.5  million  for  fiscal  2000  and  1999,
respectively.

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

         Interest on mortgage loans increased  slightly by $54,000,  or 0.4%, to
$15.1  million  for the year ended June 30,  2001.  Average  balance of mortgage
loans  decreased  $743,000,  or 0.3%,  while the average yield on mortgage loans
increased to 7.12%,  from 7.06%.  Interest income on consumer loans increased by
$29,000 to $304,000  for the year ended June 30,  2001,  from  $275,000  for the
prior year.  The increase was due to an increase in average  balance of consumer
loans to $4.1 million from $3.8 million. The average yield on consumer loans for
the year ended June 30, 2001,  increased to 7.3%, from 7.2%.  Interest income on
mortgage-backed securities increased $77,000, or 12.1%, to $714,000 for the year
ended  June 30,  2001,  from  $637,000  for the prior  year.  The  increase  was
principally  due to a $446,000  increase in average  balance of  mortgage-backed
securities  to $9.6 million for the year ended June 30, 2001,  from $9.1 million
for the prior year. The average yield on mortgage-backed securities for the year
ended June 30, 2001, increased to 7.4%, from 7.0%. Interest income on investment
securities  decreased by  $144,000,  to $4.6 million for the year ended June 30,
2001,  from $4.8 million for the prior year.  Such  decrease was the result of a
$4.2  million  decrease in average  balance of  investment  securities  to $67.5
million for the year ended June 30, 2001,  from $71.7 million for the year ended
June 30,  2000,  offset  by an  increase  in the  average  yield  on  investment
securities to 6.8%, from 6.6%. The decrease in the average balance of investment
securities was the result of maturities.  Interest income from interest  earning
deposits increased by $538,000 to $1.1 million for the year ended June 30, 2001,
from  $605,000  for the prior  year.  The average  balance of  interest  earning
deposits increased to $20.1 million for the year ended June 30, 2001, from $10.9
million  for the prior  year.  Such  increase  was the result of  maturities  of
investment securities and deposit inflows. The average yield on interest-earning
deposits for the year ended June 30, 2001,  increased to 5.7% from 5.6%,  due to
increases in market  interest rates during the year.  Interest income from other
investments  increased by $332,000 to $1.1 million,  for the year ended June 30,
2001, from $742,000 for the prior year. The average balance of other investments
increased  by $8.7  million to $22.4  million for the year ended June 30,  2001,
from  $13.7  million  for the  prior  year,  while  the  average  yield on other
investments  decreased  to 4.8% for the period,  from 5.4% due to  decreases  in
short-term interest rates.


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<PAGE>



         Total  interest  income  increased by $1.2  million,  or 5.9%, to $22.1
million for the year ended June 30, 2000,  from $20.8  million of the year ended
June 30, 1999. The increase in interest  income was primarily due to an increase
in the balance of average interest-earning assets to $322.3 million for the year
ended  June 30,  2000,  from  $305.1  million  for the prior  year,  and a small
increase in the average yield on  interest-earnings  assets to 6.9%,  from 6.8%.
The increase in average  interest-earning  assets during the year ended June 30,
2000, resulted primarily from an increase in mortgage loans, partially offset by
a decrease in mortgage-  backed  securities.  The increase in average  yield was
caused  primarily  by increases in yield on  short-term  investments,  partially
offset by a decrease in yield on mortgage loans.

         Interest on mortgage loans increased by $1.1 million, or 7.5%, to $15.1
million for the year ended June 30, 2000,  from $14.0 million for the year ended
June 30, 1999,  primarily  because of an increase in average  mortgage  loans to
$213.1  million for the year ended June 30,  2000,  from $190.1  million for the
year ended June 30, 1999,  which was  partially  offset by a decrease in average
yield on mortgage  loans to 7.1% from 7.3%.  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 effect of
reinvesting the proceeds of loan  prepayments in lower yielding  mortgage loans.
Interest  income on consumer loans decreased by $54,000 to $275,000 for the year
ended June 30, 2000, from $329,000 for the prior year. The decrease was due to a
decrease in the  average  balance of consumer  loans to $3.8  million  from $4.5
million, as a result of reduced marketing of consumer loans during the year. The
average yield on consumer  loans for the year ended June 30, 2000,  decreased to
7.2%,  from  7.3%.  Interest  income  on  mortgage-backed  securities  decreased
$280,000,  or 30.5%, to $637,000 for the year ended June 30, 2000, from $917,000
for the prior year. The decrease was principally due to a $4.1 million  decrease
in the average  balance of  mortgage-backed  securities  to $9.1 million for the
year ended June 30,  2000,  from $13.2  million for the prior year.  The average
yield on mortgage-backed  securities for the year ended June 30, 2000, increased
to 7.0%, from 6.9%. Interest income on investment  securities  increased by $1.1
million, to $4.8 million for the year ended June 30, 2000, from $3.6 million for
the prior year.  Such  increase  was the result of a $17.4  million  increase in
average  balance of  investment  securities  to $71.7 million for the year ended
June 30, 2000, from $54.3 million for the year ended June 30, 1999. The increase
in the average  balance of investment  securities  was primarily the result of a
decrease  in  short-term   interest-earning   deposits.   Interest  income  from
interest-earning  deposits  decreased by $798,000 to $605,000 for the year ended
June 30, 2000, from $1.4 million for the prior year. Such decrease was primarily
the result of the purchase of  longer-term  investment  securities.  The average
yield on interest-earning  deposits for the year ended June 30, 2000,  increased
to 5.6%, from 4.9%, due to increases in market rates during the year.

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

          Total  interest  expense  increased  by  $919,000,  or 7.1%,  to $13.9
million for the year ended June 30, 2000,  from $13.0 million for the year ended
June 30, 1999.  Such increase was  principally  the result of an increase in the
average  balance  of  interest-bearing  liabilities  of $20.7  million to $279.2
million  for the year ended June 30,  2000,  from  $258.5  million for the prior
year.

         Net Interest  Income.  Net interest  income  decreased by $849,000,  or
10.4%.  to $7.3 million for the year ended June 30, 2001,  from $8.1 million for
the year ended June 30, 2000. This decrease was due

                                        6

<PAGE>



principally  to a decrease  in the  average  interest  rate spread to 1.48% from
1.86%.  This decrease was caused  primarily by a 37 basis points increase in the
average cost of deposits and a $13.6 million  increase in the average balance of
deposits,  as  well  as a 2  basis  points  decrease  in the  average  yield  on
interest-earning assets.

          Net interest  income  increased by $309,000,  or 3.9%, to $8.1 million
for the year ended June 30, 2000,  from $7.8 million for the year ended June 30,
1999.  This  increase  was due  principally  to  slightly  lower  rates  paid on
deposits,   partially   offset  by  a   decrease   in  the   ratio  of   average
interest-earning assets to average interest-bearing liabilities.

         Provision  for Losses.  The Company  maintains  an  allowance  for loan
losses,  which was  $732,000 at June 30,  2001,  in  accordance  with  generally
accepted  accounting  principles.  The  allowance  exists  to  absorb  known and
inherent  losses  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,
changes in the composition  and volume of the portfolio,  trends in the level of
past due and  classified  loans  and the  status  of  nonperforming  loans.  The
Company's  provision  for loan losses was $154 for the year ended June 30, 2001,
$21,000 for the year ended June 30, 2000 and $39,000 for the year ended June 30,
1999.  Management  believes  that, on an overall  basis,  the allowance for loan
losses at June 30, 2001 is sufficient to address the credit risk of the Bank.

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

           Noninterest  income  increased  by $44,000 to  $445,000  for the year
ended  June 30,  2000,  from  $400,000  for the year ended  June 30,  1999.  The
increase was due to  increases in service fees and charges and  increases in the
cash surrender value of life insurance investments.

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

           Noninterest  expense  increased by $238,000,  to $3.1 million for the
year ended June 30,  2000,  from $2.8  million for the year ended June 30, 1999.
Compensation and employee benefits increased by $186,000 to $1.8 million for the
year ended June 30, 2000, from $1.6 million for the prior year. The increase was
due  principally  to staffing  added for the Bank's new branch  office and other
normal  increases in salary levels.  Occupancy  expense,  advertising  and other
expenses  also  increased  principally  due to  additional  costs of opening and
operating the new branch. These increases were partially offset by a decrease in
SAIF deposit  insurance  premiums due to a decrease in the premium rate assessed
on insured deposits.

         The ratio of noninterest  expenses to average  assets was 1.01%,  0.93%
and 0.91% for the years ending June 30, 2001, 2000 and 1999, respectively.

         The provision  for income taxes was  approximately  $1.5 million,  $1.9
million and $1.9 million for the years ended June 30, 2001,  2000 and 1999.  The
effective tax rates were 34.0%, 34.5% and 35.3% for the

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years ended June 30,  2001,  2000 and 1999,  respectively.  The  decrease in the
effective rates in 2001 and 2000 was due to lower state income taxes.

         Other  comprehensive  income.  The  accumulated   unrealized  gains  on
securities  available-for-sale,  net of related  income  taxes,  increased  $1.2
million  for the year ended June 30,  2001 as compared to a decrease of $802,000
and an  increase  of  $376,000  for the  years  ended  June 30,  2000 and  1999,
respectively. These changes primarily reflect fluctuations in interest rates and
general market trends.



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<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. 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,
                                    ------------------------------------------------------------------------------------------------
                                                2001                             2000                           1999
                                    ------------------------------   ------------------------------   -----------------------------
                                                          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>           <C>
  Mortgage loans (1).............   $212,328     15,108     7.12%   $ 213,071  $  15,054     7.06%   $190,836   $  14,007     7.34%
  Consumer and other loans.......      4,139        304     7.34        3,836        275     7.17       4,535         329     7.25
  Mortgage-backed securities.....      9,587        714     7.45        9,141        637     6.97      13,210         917     6.94
  Investment securities..........     67,499      4,613     6.83       71,687      4,757     6.64      54,322       3,647     6.71
  Interest-earning deposits (2)..     20,077      1,143     5.69       10,889        605     5.56      28,931       1,403     4.85
  Other investments (3)..........     22,352      1,075     4.81       13,660        742     5.44      13,221         539     4.08
                                    --------  ---------  -------    ---------  ---------  -------    --------   ---------  -------
    Total interest-earning assets    335,982     22,957     6.83      322,284     22,070     6.85     305,055      20,842     6.83
                                              ---------  -------               ---------  -------               ---------  -------
Noninterest-earning assets.......     11,473                           10,348                           8,353
                                    --------                        ---------                        --------
    Total assets.................   $347,455                        $ 332,632                        $313,408
                                    ========                        =========                        ========
Interest-bearing liabilities:
  Savings deposits...............   $292,453     15,638     5.35    $ 278,775     13,890     4.98    $257,942      12,965     5.03
  Other borrowed funds...........        318         26     8.18          422         38     9.00         518          44     8.49
                                    --------  ---------  -------    ---------  ---------  -------    --------   ---------  -------
    Total interest-bearing
     liabilities.................    292,771    15,664     5.35      279,197     13,928     4.99     258,460      13,009     5.03
                                              ---------  -------               ---------  -------               ---------  -------
Noninterest-bearing liabilities..      5,592                            5,774                           5,800
                                    --------                        ---------                        --------
    Total liabilities............    298,363                          284,971                         264,260
Stockholders' equity.............     49,092                           47,661                          49,148
                                    --------                        ---------                        --------
    Total liabilities and
    stockholders' equity.........   $347,455                        $ 332,632                        $313,408
                                    ========                        =========                        ========
Net interest income..............             $   7,293                        $   8,142                        $   7,833
                                              =========                        =========                        =========
Net interest rate spread (4).....                           1.48%                            1.86%                            1.80%
                                                         =======                          =======                          =======
Net interest margin (5)..........                           2.17%                            2.53%                            2.57%
                                                         =======                          =======                          =======
Ratio of average interest-earning
 assets to average interest-
 bearing liabilities.............                         114.76%                          115.43%                          118.03%
                                                         =======                          =======                          =======
</TABLE>

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


                                        9

<PAGE>



Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                --------------------------------------------------------------------------------------
                                               2001 vs. 2000                                 2000 vs. 1999
                                -----------------------------------------    -----------------------------------------
                                      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>        <C>
  Mortgage loans (1).......... $   (52)   $   128    $   (22)   $    54    $ 1,632    $  (534)   $   (51)   $1,047
  Consumer and other loans....      22          6          1         29        (51)        (4)         1       (54)
  Mortgage-backed securities..      31         43          3         77       (283)         4         (1)     (280)
  Investment securities.......    (278)       136         (2)      (144)     1,165        (38)       (17)    1,110
  Interest-earning deposits (2)    511         14         13        538       (875)       205       (128)     (798)
  Other investments (3).......     473        (86)       (54)       333         18        180          5       203
                               -------    -------    -------    -------    -------    -------    -------    ------

  Total interest-earning assets    707        241        (61)       887      1,606       (187)      (191)    1,228
                               -------    -------    --------   -------    -------    -------    -------    ------
Interest expense..............     677      1,005         54      1,736      1,043       (103)       (21)      919
                               -------    -------    -------    -------    -------    -------    -------    ------

Change in net interest income. $    30    $  (764)   $  (115)   $  (849)   $   563    $   (84)   $  (170)   $  309
                               =======    =======    =======    =======    =======    =======    =======    ======
</TABLE>

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

Management of Market Risk

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

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


                                       10

<PAGE>



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

         The Company measures  interest rate risk in terms of the sensitivity of
the Company's net 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, 2001.

<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>             <C>
        300              25,021           (30,363)              (55)%          7.14%           (714)bp
        200              34,657           (20,727)              (37)%          9.56%           (472)bp
        100              45,115           (10,269)              (19)%         12.02%           (226)bp
     Static              55,384                --              --             14.28%               --
       (100)             61,016             5,632               10%           15.41%            113bp
       (200)             62,180             6,796               12%           15.55%            127bp
       (300)             62,754             7,370               13%           15.56%            128bp
</TABLE>


         The above  table  indicates  that at June 30,  2001,  in the event of a
sudden and  sustained  increase in prevailing  market  rates,  the Company's NPV
would be expected to decrease,  and that in the event of a sudden and  sustained
decrease  in  prevailing  market  interest  rates,  the  Company's  NPV would be
expected to increase. The Company's Board of Directors reviews the Company's NPV
position quarterly,  and, if estimated changes in NPV are not within the targets
established  by the Board,  the Board may direct  management to adjust the asset
and liability mix to bring interest rate risk within Board approved targets.

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

                                       11

<PAGE>



Liquidity and Capital Resources

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

         The Bank's  primary  sources of funds are  deposits,  amortization  and
prepayment  of loans and  mortgage-backed  securities,  maturities of investment
securities  and  other  investments,   and  earnings  and  funds  provided  from
operations.  While scheduled  principal  repayments on loans and mortgage-backed
securities are a relatively  predictable source of funds, deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions,  and  competition.  The Bank  manages the pricing of its deposits to
maintain a desired deposit balance. In addition,  the Bank invests in short-term
interest-earning  assets, which provide liquidity to meet lending  requirements.
Assets  qualifying for liquidity at June 30, 2001,  totaled $140.4 million.  For
additional  information about cash flows from the Bank's  operating,  financing,
and investing activities,  see "Consolidated  Statements of Cash Flows" included
in the Consolidated Financial Statements.

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

         At June 30, 2001,  the Bank had  outstanding  loan  commitments of $7.0
million.  This amount does not include  $17.6  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,
2001,  totaled $132.0 million.  Based on prior experience,  management  believes
that a significant portion of such deposits will remain with the Bank.

         At June 30, 2001, 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, 2001.

<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, 2001:
<S>                                   <C>           <C>         <C>             <C>       <C>            <C>
  Tier I core capital...............  $  47,692     12.8%       $  14,954       4.0%      $  18,692     >5.0%
  Tier I risk-based capital.........     47,692     24.4            7,833       4.0          11,749      >6.0
  Total risk-based capital..........     51,224     26.2           15,666       8.0          19,582     >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.


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

                                       12

<PAGE>


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.

Common Stock Repurchase Plan

         As of June 30, 2001,  the Company was  authorized  to  repurchase up to
1,023,441 shares of its common stock pursuant to a stock repurchase plan. During
the years ended June 30,  2001,  and 2000,  the Company  repurchased  11,000 and
324,475 shares at an average cost of $10.93 and $10.71 per share, respectively.


                        SELECTED QUARTERLY FINANCIAL DATA

         A summary of selected quarterly financial data for the years ended June
30, 2001 and 2000 is as follows:


                                         First     Second       Third    Fourth
                                        Quarter    Quarter     Quarter   Quarter
                                        -------    -------     -------   -------
                                           (In Thousands Except Per Share Data)
Fiscal 2001
-----------
Interest income ....................     $5,710     $5,714     $5,718     $5,815
Net interest income ................      1,928      1,824      1,822      1,719
Provision for losses ...............         --         --         --         --
Income before provision
  for income taxes .................      1,245      1,103      1,007      1,016
Net income .........................        798        750        666        671
                                         ======     ======     ======     ======

Net income per common share:
  Basic ............................     $  .17     $  .17     $  .15     $  .15
  Diluted ..........................        .17        .16        .15        .15
                                         ======     ======     ======     ======

Fiscal 2000
-----------
Interest income ....................     $5,448     $5,498     $5,542     $5,582
Net interest income ................      2,027      2,039      2,073      2,003
Provision for losses ...............         12          9         --         --
Income before provision
  for income taxes .................      1,431      1,360      1,429      1,266
Net income .........................        931        892        940        832
                                         ======     ======     ======     ======

Net income per common share:
  Basic ............................     $  .20     $  .19     $  .21     $  .18
  Diluted ..........................        .19        .19        .21        .18
                                         ======     ======     ======     ======



                                       13

<PAGE>


                        COMMON STOCK AND RELATED MATTERS

         The  Company's  common  stock is listed on the Nasdaq  National  Market
under the symbol "LFED." As of August 15, 2001, the Company had five  registered
market makers,  444  stockholders of record  (excluding the number of persons or
entities  holding stock in street name through  various  brokerage  firms),  and
4,538,181 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 1,238,181 shares.

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

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

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


    Fiscal Year Ended                                       Cash Dividends
      June 30, 2000           High             Low             Declared
      ---------------         ----             ---             --------

 First quarter             $ 11.88           $ 10.38           $  .14
 Second quarter              10.75              8.50              .15
 Third quarter               10.25              9.00              .15
 Fourth quarter              11.06              9.63              .15


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

         OTS regulations impose limitations upon all "capital  distributions" by
savings   institutions,   including  cash  dividends,   payments  by  a  savings
institution  to  repurchase  or  otherwise   acquire  its  stock,   payments  to
stockholders  of another  savings  institution in a cash-out  merger,  and other
distributions  charged against capital. The regulations establish a three-tiered
system  of  regulation,   with  the  greatest   flexibility  being  afforded  to
well-capitalized or Tier 1 savings  associations.  As of June 30, 2001, the most
recent  notification  categorized the Bank as  "well-capitalized."  Accordingly,
under the OTS capital distribution  regulations,  the Bank would be permitted to
pay,  upon notice to the OTS,  dividends  during any calendar year up to 100% of
its net income during that calendar  year,  plus its retained net income for the
preceding two years.

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

                                       14

<PAGE>



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

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





                                       15

<PAGE>



                          Independent Auditors' Report


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



We have audited the accompanying  consolidated statements of financial condition
of Leeds Federal  Bankshares,  Inc. and subsidiary as of June 30, 2001 and 2000,
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, 2001.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.


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


In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Leeds  Federal
Bankshares, Inc. and subsidiary as of June 30, 2001 and 2000, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 2001 in conformity  with accounting  principles  generally
accepted in the United States of America.


                                         /s/ KPMG  LLP


August 16, 2001


<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.
                 Consolidated Statements of Financial Condition
                            June 30, 2001 and 2000


                                                       2001             2000
                                                       ----             ----
Assets

Cash, including interest-bearing deposits
 of  $2,198,218 in 2001 and
 $1,982,152 in 2000 ............................  $   7,015,942       4,041,162
Short-term investments .........................     35,334,058       9,551,979
secured short-term loans to commercial banks ...     16,225,333       9,562,746
Securities available-for-sale, amortized
 cost of $1,256,760 in 2001 and
 $2,731,760 in 2000 (note 2) ...................      5,802,094       5,258,493
Investment securities held-to-maturity (fair
 value of $59,451,083 in 2001 and
 $62,206,406 in 2000) (note 3) .................     60,518,903      67,392,698
Mortgage-backed securities held-to-maturity
 (fair value of $20,018,094 in 2001 and
 $8,342,663 in 2000) (note 4) ..................     20,021,025       8,317,018
Loans receivable, net (note 5) .................    217,182,587     219,203,607
Investment in Federal Home Loan Bank of
 Atlanta stock, at cost (note 10) ..............      2,187,200       2,187,200
Property and equipment, net (note 6) ...........      2,205,229       2,242,783
Cash surrender value of life insurance (note 11)      7,023,712       6,687,537
Accrued interest receivable ....................      2,236,760       2,116,855
Other real estate owned (note 7) ...............      2,540,127              --
Prepaid expenses and other assets ..............        207,267         486,229
                                                  -------------    ------------
                                                  $ 378,500,237     337,048,307
                                                  =============    ============
Liabilities and Stockholders' Equity

Liabilities:
    Savings accounts (note 8) ..................  $ 320,470,865     281,866,206
    Borrowed funds-- employee stock
     ownership plan (note 12) ..................        274,123         384,000
     Advance payments by borrowers for taxes,
      insurance and ground rents ...............      3,515,261       5,073,906
     Federal and state income taxes (note 9):
        Currently payable ......................        218,075         267,283
        Deferred ...............................      1,219,523         493,303
     Accrued expenses and other liabilities
      (notes 11 and 13) ........................      1,913,349       1,554,136
                                                  -------------    ------------
               Total liabilities ...............    327,611,196     289,638,834
                                                  -------------    ------------
Stockholders' equity (notes 10, 12 and 15):
     Common stock, $1 par value; 20,000,000
      shares authorized; 5,205,597 shares
      issued ...................................      5,205,597       5,205,597
     Additional paid-in-capital ................      9,667,133       9,606,811
     Unearned employee stock ownership
      plan shares ..............................       (180,672)       (297,066)
     Treasury stock, at cost; 667,416 and
      656,416 shares in 2001 and
      2000, respectively .......................     (8,336,969)     (8,216,719)
     Retained income, substantially restricted .     41,750,444      39,573,847
     Accumulated other comprehensive income ....      2,783,508       1,537,003
                                                  -------------    ------------
              Total stockholders' equity .......     50,889,041      47,409,473
                                                  -------------    ------------
Commitments (notes 11, 12 and 14)
                                                  $ 378,500,237     337,048,307
                                                  =============    ============



See accompanying notes to consolidated financial statements.

                                       2

<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

           Consolidated Statements of Income and Comprehensive Income

                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                2001          2000           1999
                                                ----          ----           ----
Interest income:
<S>                                         <C>            <C>           <C>
     First mortgage and other loans .....   $15,411,216    15,328,947    14,336,211
     Investment securities and
      short-term investments ............     6,832,640     6,104,071     5,588,307
     Mortgage-backed securities .........       713,592       636,556       917,074
                                            -----------   -----------    ----------
               Total interest income ....    22,957,448    22,069,574    20,841,592
                                            -----------   -----------    ----------

Interest expense:
     Savings accounts (note 8) ..........    15,635,632    13,889,755    12,965,300
     Other ..............................        28,701        38,030        43,489
                                            -----------   -----------    ----------
               Total interest expense ...    15,664,333    13,927,785    13,008,789
                                            -----------   -----------    ----------
               Net interest income ......     7,293,115     8,141,789     7,832,803

Provision for loan losses (note 5) ......           154        20,983        39,412
                                            -----------   -----------    ----------
               Net interest income after
                provision for loan losses     7,292,961     8,120,806     7,793,391
                                            -----------   -----------    ----------

Noninterest income:
     Service fees and charges ...........       199,809       156,241       132,219
     Other ..............................       380,353       288,584       268,175
                                            -----------   -----------    ----------
                                                580,162       444,825       400,394
                                            -----------   -----------    ----------

Noninterest expense:
     Compensation and employee benefits .     1,993,616     1,759,282     1,573,399
     Occupancy expense ..................       338,892       259,710       221,527
     SAIF deposit insurance
      premiums (note 10) ................       131,153       184,213       222,022
     Advertising ........................       181,365       158,807       127,933
     Other ..............................       857,002       717,186       696,020
                                            -----------   -----------    ----------
                                              3,502,028     3,079,198     2,840,901
                                            -----------   -----------    ----------
               Income before provision
                for income taxes ........     4,371,095     5,486,433     5,352,884

Provision for income taxes (note 9) .....     1,485,890     1,891,125     1,889,368
                                            -----------   -----------    ----------
               Net income ...............     2,885,205     3,595,308     3,463,516

Other comprehensive income, net of tax:
     Unrealized gain (loss) on securities
        available-for-sale, net .........     1,246,505      (801,885)      376,407
                                            -----------   -----------    ----------
               Comprehensive income .....   $ 4,131,710     2,793,423     3,839,923
                                            ===========   ===========    ==========

Net income per share of common stock
 (note 16):
     Basic ..............................   $      0.64          0.78          0.69
     Diluted ............................          0.63          0.77          0.69
                                            ===========   ===========    ==========
</TABLE>



See accompanying notes to consolidated financial statements.

                                       3

<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

                 Consolidated Statements of Stockholders' Equity

                    Years ended June 30, 2001, 2000 and 1999


<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, 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

Compensation expense-- ESOP .........           --      48,535     93,616            --             --            --        142,151

Other comprehensive income ..........           --          --         --            --             --      (801,885)      (801,885)

Exercise of stock options ...........       10,000      69,200         --            --             --            --         79,200

Income tax benefit of MRP
    awards and stock options ........           --     121,915         --            --             --            --        121,915

Dividends ($.59 per share) ..........           --          --         --            --       (755,778)           --       (755,778)

Net income ..........................           --          --         --            --      3,595,308            --      3,595,308

Purchases of treasury stock .........           --          --         --    (3,475,850)            --            --     (3,475,850)
                                        ----------   ---------   --------    ----------    -----------    ----------    -----------
Balance at June 30, 2000 ............    5,205,597   9,606,811   (297,066)   (8,216,719)    39,573,847     1,537,003     47,409,473

Compensation expense-- ESOP .........           --      60,322    116,394            --             --            --        176,716

Other comprehensive income ..........           --          --         --            --             --     1,246,505      1,246,505

Dividends ($.60 per share) ..........           --          --         --            --       (708,608)           --       (708,608)

Net income ..........................           --          --         --            --      2,885,205            --      2,885,205

Purchases of treasury stock .........           --          --         --      (120,250)            --            --       (120,250)
                                        ----------   ---------   --------    ----------    -----------    ----------    -----------
Balance at June 30, 2001 ............   $5,205,597   9,667,133   (180,672)   (8,336,969)    41,750,444     2,783,508     50,889,041
                                        ==========   =========   ========    ==========    ===========    ==========    ===========
</TABLE>



See accompanying notes to consolidated financial statements.

                                       4


<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                      2001            2000           1999
                                                                      ----            ----           ----
Cash flows from operating activities:
<S>                                                              <C>               <C>            <C>
     Net income ..............................................   $  2,885,205      3,595,308      3,463,516
     Adjustments to reconcile net income to net
        cash provided by operating activities:
            Accretion of loan fees ...........................       (131,709)       (80,866)      (218,168)
            Provision for loan losses ........................            154         20,983         39,412
            Accretion of premiums (discounts) on investment
               and mortgage-backed securities ................         16,489        (10,650)       (10,763)
            Loss (gain) on sale of assets, net ...............             --             --          2,190
            Depreciation .....................................        175,679        144,237        133,791
            Noncash compensation under stock-based
               benefit plans .................................        176,716        142,151        217,360
            Income tax benefit of MRP awards
               and stock options .............................             --        121,915             --
            Deferred income tax benefit ......................        (45,852)      (409,400)      (171,083)
            Increase in accrued interest receivable ..........       (119,905)      (122,251)      (161,286)
            Increase (decrease) in income taxes
               currently payable .............................        (49,208)       159,706        (26,099)
            Increase in accrued expenses and other liabilities        359,213        250,517        260,991
            Increase in unearned loan fees ...................         46,391         55,222        155,797
            (Increase) decrease in prepaid expenses and other
               assets ........................................        278,962       (282,209)        (2,812)
                                                                 ------------    -----------    -----------
               Net cash provided by operating activities .....      3,592,135      3,584,663      3,682,846
                                                                 ------------    -----------    -----------

Cash flows from investing activities:
     Purchases of securities available-for-sale ..............             --             --     (1,000,000)
     Maturities of securities available-for-sale .............      1,475,000             --      3,000,000
     Purchases of investment securities held-to-maturity .....       (485,240)    (1,700,000)   (69,225,000)
     Maturities of and principal repayments on
        investment securities held-to-maturity ...............      7,386,542        477,213     43,041,421
     Purchases of mortgage-backed securities
        held-to-maturity .....................................    (13,778,195)      (400,000)            --
     Principal repayments on mortgage-backed securities
        held-to-maturity .....................................      2,030,168      2,099,013      6,414,919
     (Purchase) sale of Federal Home Loan
        Bank of Atlanta stock ................................             --       (251,500)       441,500
     Loan disbursements, net of repayments ...................       (433,943)   (15,312,776)   (13,681,964)
     Purchases of property and equipment .....................       (138,125)      (902,400)      (769,336)
     Increase in cash surrender value of life insurance ......       (336,175)      (288,064)      (266,544)
                                                                 ------------    -----------    -----------
               Net cash used in investing activities .........     (4,279,968)   (16,278,514)   (32,045,004)
                                                                 ------------    -----------    -----------

</TABLE>


                                                                     (continued)

                                       5

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                Consolidated Statements of Cash Flows, Continued

                    Years ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                  2001           2000           1999
                                                                  ----           ----           ----
Cash flows from financing activities:
<S>                                                             <C>            <C>            <C>
     Payment of dividends ...............................       (708,608)      (788,434)      (988,540)
     Repayment of borrowed funds ........................       (109,877)       (86,813)       (81,187)
     Net increase in savings accounts ...................     38,604,659      7,240,595     29,356,009
     (Decrease) increase in advance payments by borrowers
        for taxes, insurance and ground rents ...........     (1,558,645)      (129,626)       197,512
     Purchases of treasury stock ........................       (120,250)    (3,475,850)    (3,968,439)
     Exercise of stock options ..........................             --         79,200             --
                                                            ------------    -----------    -----------
               Net cash provided by financing activities      36,107,279      2,839,072     24,515,355
                                                            ------------    -----------    -----------

               Net increase (decrease) in cash
                   and cash equivalents .................     35,419,446     (9,854,779)    (3,846,803)

Cash and cash equivalents at beginning of year ..........     23,155,887     33,010,666     36,857,469
                                                            ------------    -----------    -----------
Cash and cash equivalents at end of year ................   $ 58,575,333     23,155,887     33,010,666
                                                            ============    ===========    ===========

</TABLE>


See accompanying notes to consolidated financial statements.


                                       6

<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

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

     (a)  Business

          Leeds Federal Bankshares,  Inc. (the Company) is a federally chartered
          corporation which owns all of the issued and outstanding  common stock
          of Leeds  Federal  Savings  Bank  (the  Bank),  a  federally-chartered
          savings  bank  that  conducts  its  operations   through  branches  in
          Baltimore  County  and  Howard  County,  Maryland.  At June 30,  2001,
          approximately  73% of the  outstanding  shares of common  stock of the
          Company were held by Leeds Federal Bankshares, M.H.C. (MHC), a federal
          mutual holding company.

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

     (b)  Basis of Presentation

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

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

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

     (c)  Short-Term Investments

                                       7

<PAGE>


          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.


                                       8
<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     (e)  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.
          Debt and equity  securities  not  classified  as  held-to-maturity  or
          trading are  considered  available-for-sale  and are  reported at fair
          value  with  unrealized  gains  and  losses,  net of the  related  tax
          effects,  excluded  from  income  and  reported  as an item  of  other
          comprehensive income until realized. Fair value is determined based on
          published  bid  prices  or bid  quotations  received  from  securities
          dealers.  Realized  gains or losses on the  sales of  investments  are
          determined using the specific identification method and are recognized
          at the  time  of  sale.  Premiums  and  discounts  on  investment  and
          mortgage-backed securities are amortized over the term of the security
          using methods that approximate the interest method.

     (f)  Loan Fees

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

     (g)  Loans Receivable

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

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

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

                                       9

<PAGE>



                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

          loan's  observable market price or the fair value of the collateral if
          the loan is collateral dependent.  If the measure of the impaired loan
          is less than the recorded  investment  in the loan,  an  impairment is
          recognized through a valuation allowance and a corresponding provision
          for loan losses.



                                       10

<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

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

     (h)  Property and Equipment

          Property  and   equipment   are  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 related gain or loss is credited or charged to income.

     (i)  Other Real Estate Owned

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

     (j)  Income Taxes

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

          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, 2001. This
          bad debt reserve would become  taxable in the future if the Bank fails
          to meet certain conditions.

     (k)  Stock-Based Compensation

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

                                       11

<PAGE>


                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999


          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.

                                       12

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     (l)  Comprehensive Income

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

     (m)  Cash Equivalents and Supplemental Cash Flow Information

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

          Income tax payments were  approximately  $1,581,000,  $1,985,000,  and
          $2,169,000  in 2001,  2000 and 1999,  respectively.  Interest  paid on
          savings accounts and borrowings aggregated approximately  $15,668,000,
          $13,928,000 and $13,012,000 in 2001, 2000 and 1999,  respectively.  In
          2001,  loans  receivable  with a  carrying  value of  $2,540,127  were
          transferred to other real estate owned.


(2) Securities Available-for-Sale

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

                                       13


<PAGE>



                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                               2001
                                              ----------------------------------------------------------------------
                                                                     Gross             Gross
                                                 Amortized         unrealized        unrealized
                                                   cost              gains             losses          Fair value
                                              ---------------   ----------------  --------------    ----------------
<S>                                          <C>                      <C>                 <C>              <C>
U.S. Government and agency obligations
   due beyond 10 years ...................   $      1,100,000                 --          (7,502)          1,092,498
Federal Home Loan Mortgage Corporation
   (FHLMC) preferred stock ...............             56,760          4,578,836              --           4,635,596
Other equity securities ..................            100,000                 --         (26,000)             74,000
                                              ---------------   ----------------  --------------    ----------------
                                             $      1,256,760          4,578,836         (33,502)          5,802,094
                                              ===============   ================  ==============    ================


                                                                               2000
                                              ----------------------------------------------------------------------
                                                                     Gross             Gross
                                                 Amortized         unrealized        unrealized
                                                   cost              gains             losses          Fair value
                                              ---------------   ----------------  ---------------   ----------------
U.S. Government and agency obligations
   due:
      Beyond 5 years but within 10 years .   $        500,000                 --         (10,156)            489,844
      Beyond 10 years ....................          2,075,000                 --        (112,887)          1,962,113
FHLMC preferred stock ....................             56,760          2,701,776              --           2,758,536
Other equity securities ..................            100,000                 --         (52,000)             48,000
                                              ---------------   ----------------  --------------    ----------------
                                             $      2,731,760          2,701,776        (175,043)          5,258,493
                                              ===============   ================  ==============    ================
</TABLE>


                                                                     (Continued)

                                       14

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

(3) Investment Securities Held-to-Maturity

     Investment  securities  held-to-maturity  are summarized as follows at June
30:
<TABLE>
<CAPTION>

                                                                                 2001
                                               -------------------------------------------------------------------------
                                                                       Gross             Gross
                                                   Amortized        unrealized        unrealized
                                                     cost              gains             losses            Fair value
                                               ----------------- ----------------- -----------------   -----------------
<S>                                           <C>                           <C>           <C>                 <C>
U.S. Government and agency obligations .....  $       60,518,903            19,485        (1,087,305)         59,451,083
                                               ================= ================= =================   =================


                                                                                 2000
                                               -------------------------------------------------------------------------
                                                                       Gross             Gross
                                                   Amortized        unrealized        unrealized
                                                     cost              gains             losses            Fair value
                                               ----------------- ----------------- -----------------   -----------------
U.S. Government and agency obligations .....  $       67,392,698            25,120        (5,211,412)         62,206,406
                                               ================= ================= =================   =================
</TABLE>


     Investment securities mature as follows at June 30:

<TABLE>
<CAPTION>
                                                 2001                                    2000
                                 -------------------------------------   -------------------------------------
                                     Amortized                               Amortized
                                       cost             Fair value             cost             Fair value
                                 -----------------   -----------------   -----------------  ------------------
<S>                             <C>                          <C>                   <C>                 <C>
Due within 12 months .........  $        1,000,000           1,014,060             487,445             487,445
Due beyond 12 months
     but within 5 years ......                  --                  --           1,800,000           1,790,933
Due beyond 5 years
     but within 10 years .....           1,800,000           1,797,624           1,800,000           1,690,370
Due beyond 10 years ..........          57,718,903          56,639,399          63,305,253          58,237,658
                                 -----------------   -----------------   -----------------  ------------------
                                $       60,518,903          59,451,083          67,392,698          62,206,406
                                 =================   =================   =================  ==================
</TABLE>


                                       15


<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999


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

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

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


                                                                                         2000
                                                     ----------------------------------------------------------------------------
                                                                               Gross               Gross
                                                         Amortized          unrealized          unrealized
                                                            cost               gains              losses           Fair value
                                                     ------------------  -----------------   ----------------   -----------------
GNMA ............................................. $          5,756,560             51,400             (4,503)          5,803,457
FNMA .............................................            1,256,720                908            (14,615)          1,243,013
FHLMC ............................................              755,331              2,033             (6,478)            750,886
Collateralized Mortgage Obligation----
     FNMA REMIC ..................................              548,407                 --             (3,100)            545,307
                                                     ------------------  -----------------   ----------------   -----------------
                                                   $          8,317,018             54,341            (28,696)          8,342,663
                                                     ==================  =================   ================   =================
</TABLE>


                                       16

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

(5) Loans Receivable

     Loans receivable are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                       2001                 2000
                                               -------------------  -------------------
<S>                                           <C>                           <C>
First mortgage loans:
     One-to four-family residential ........  $        200,466,473          202,342,561
     Commercial ............................                    --            2,500,000
     Construction ..........................             6,168,853            2,238,615
                                               -------------------  -------------------
                                                       206,635,326          207,081,176

Home equity loans ..........................            12,130,758           11,070,571
Loans secured by savings accounts ..........               483,807              445,401
Consumer loans .............................             3,648,703            3,361,863
                                               -------------------  -------------------
                                                       222,898,594          221,959,011

Less:
     Allowance for loan losses .............               731,641              741,678
     Unearned loan fees ....................               548,417              765,444
     Undisbursed portion of loans in process             4,435,949            1,248,282
                                               -------------------  -------------------
                 Loans receivable, net .....  $        217,182,587          219,203,607
                                               ===================  ===================
</TABLE>

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

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

     There were no nonaccrual  loans at June 30, 2001.  Nonaccrual loans totaled
     approximately  $2,547,823  at June 30,  2000.  For the years ended June 30,
     2000 and 1999, the amount of interest  income that would have been recorded
     on loans in  nonaccrual  status  at year end had such  loans  performed  in
     accordance  with  their  terms was  approximately  $305,000  and  $286,000,
     respectively.  The actual  interest  income recorded on these loans for the
     years ended June 30, 2000 and 1999 was  approximately  $2,000 and $193,000,
     respectively.

                                       17

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

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

                                   2001            2000            1999
                              --------------  --------------  --------------
Beginning balance .......... $       741,678         725,152         722,860
Provision for loan losses ..             154          20,983          39,412
Charge-offs ................         (10,191)         (4,457)        (37,120)
                              --------------  --------------  --------------
          Ending balance ... $       731,641         741,678         725,152
                              ==============  ==============  ==============


(6) Property and Equipment

         Property and equipment are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                                                 Useful life
                                                2001              2000             in years
                                          ----------------  ----------------   ----------------
<S>                                      <C>                         <C>         <C>
Land ................................... $         729,749           729,749                 --
Building and improvements ..............         1,717,157         1,569,628           50 years
Furniture, fixtures and equipment ......         1,165,410         1,246,580         3-10 years
                                          ----------------  ----------------   ================
         Total, at cost ................         3,612,316         3,545,957
Less accumulated depreciation ..........         1,407,087         1,303,174
                                          ----------------  ----------------
         Property and equipment, net ... $       2,205,229         2,242,783
                                          ================  ================
</TABLE>


(7) Other Real Estate Owned

     At June 30, 2001, other real estate owned consists of a commercial property
which the Bank intends to sell.

                                                                     (Continued)

                                       18

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

(8) Savings Accounts

     Savings accounts are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                   Weighted
                                   average
                                     rate                           2001                       2000
                             ----------------------     ---------------------------   ----------------------
      Type of Account          2001         2000                Amount          %           Amount       %
---------------------------- -------    -----------     --------------------  -----   ---------------  -----
<S>                            <C>          <C>         <C>                     <C>      <C>             <C>
Certificates ...............   5.88%        5.74%       $       238,761,753     75%   $  197,247,164     70%
Anniversary bonus ..........   3.32         3.32                  3,188,871      1         3,603,206      1
Money Market ...............   4.69         4.78                 45,950,302     14        50,420,733     18
Passbook ...................   3.15         3.15                 21,780,408      7        21,443,796      8
NOW and demand .............   1.99         1.99                 10,789,531      3         9,151,307      3
                             -------    -----------     --------------------  -----   ---------------  -----
                                                        $       320,470,865    100%   $  281,866,206    100%
                                                        ====================  =====   ===============  =====
Certificate accounts mature as follows:
   Within 12 months ..................................  $       132,022,035     56%   $  132,565,286      67%
   12 to 24 months ...................................           86,817,784     36        45,886,252      23
   24 to 36 months ...................................           10,241,842      4        10,634,922      5
   36 to 48 months ...................................            5,081,886      2         3,374,479      2
   48 to 60 months ...................................            4,598,206      2         4,786,225      3
                                                        --------------------  -----   ---------------  -----
                                                        $       238,761,753    100%   $  197,247,164    100%
                                                        ====================  =====   ===============  =====
</TABLE>


       At June 30,  2001 and 2000,  the Bank had  customer  deposits  in savings
       accounts   of  $100,000  or  more  of   approximately   $88,236,000   and
       $65,096,000, respectively.

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


                                   2001             2000             1999
                             ---------------   --------------   --------------
Time deposits .............. $    12,486,143       10,289,585        9,132,231
Checking and money market ..       2,504,553        2,972,732        3,237,150
Passbook and other .........         644,936          627,438          595,919
                             ---------------   --------------   --------------
                             $    15,635,632       13,889,755       12,965,300
                             ===============   ==============   ==============

                                                                     (Continued)
                                       19
<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

(9) Income Taxes

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

                       2001               2000              1999
                 ----------------   ----------------   ---------------
Current:
     Federal ... $      1,608,854          2,240,711         1,852,003
     State .....          (77,112)            59,814           208,448
                 ----------------   ----------------   ---------------
                        1,531,742          2,300,525         2,060,451
                 ----------------   ----------------   ---------------
Deferred:
     Federal ...          (37,541)          (367,454)         (140,074)
     State .....           (8,311)           (41,946)          (31,009)
                 ----------------   ----------------   ---------------
                          (45,852)          (409,400)         (171,083)
                 ----------------   ----------------   ---------------
                 $      1,485,890          1,891,125         1,889,368
                 ================   ================   ===============


     The net deferred tax  liability at June 30, 2001 and 2000 consists of total
     deferred  tax assets of  $937,341  and  $986,743,  respectively,  and total
     deferred tax  liabilities of $2,156,864 and $1,480,046,  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:
<TABLE>
<CAPTION>

                                                                 2001                2000
                                                          -----------------   ----------------
<S>                                                       <C>                         <C>
Tax bad debt reserve in excess of base year ............. $         (99,966)          (199,931)
Allowance for losses on loans ...........................           282,560            286,436
Federal Home Loan Bank stock dividends ..................          (304,291)          (304,291)
Compensation plans ......................................           553,894            435,483
Unrealized gains on securities available-for-sale, net ..        (1,752,607)          (980,511)
Other, net ..............................................           100,887            269,511
                                                          -----------------   ----------------
                                                          $      (1,219,523)          (493,303)
                                                          =================   ================
</TABLE>

     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:

                                                                     (Continued)
                                       20
<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                          2001            2000            1999
                                                     --------------  --------------  --------------
<S>                                                  <C>                  <C>             <C>
Federal income taxes at statutory rate ............. $    1,486,172       1,865,387       1,819,981
State income taxes, net of Federal income tax effect        (56,379)         11,793         114,054
Other, net .........................................         56,097          13,945         (44,667)
                                                     --------------  --------------  --------------
                                                     $    1,485,890       1,891,125       1,889,368
                                                     ==============  ==============  ==============
</TABLE>

                                                                     (Continued)

                                     21


<PAGE>



                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999


(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 FHLB,  whichever is greater.  Purchases and
     sales of stock are made directly with the FHLB at par value.

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

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum amounts and ratios (as defined in the
     regulations and as set forth in the table below).  As of June 30, 2001, 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.

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

                                                                     (Continued)

                                       22

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                                                                               To be well
                                                                                   Minimum                  capitalized under
                                                                                 for capital                prompt corrective
                                                   Actual                     adequacy purposes             action provisions
                                        -------------------------       -------------------------        -----------------------
                                             Amount     Ratio               Amount        Ratio             Amount       Ratio
                                        ------------- -----------       --------------- ---------        ------------- ---------
<S>                                     <C>             <C>             <C>                 <C>          <C>               <C>
As of June 30, 2001:
   Tier I core capital (a) ............ $     47,692    12.76%          $     14,954        4%           $     18,692      5%
   Tier I risk-based capital (b) ......       47,692    24.36                  7,833        4                  11,749      6
   Total risk-based capital (b) .......       51,224    26.16                 15,665        8                  19,582     10

As of June 30, 2000:
   Tier I core capital (a) ............ $     45,491    13.60%          $     13,375        4            $     16,719     >5%
   Tier I risk-based capital (b) ......       45,491    27.71                  6,566        4                   9,849     >6
   Total risk-based capital (b) .......       47,393    28.87                 13,133        8                  16,416    >10

</TABLE>
(a)   Percentage of capital to ending assets.
(b)   Percentage of risk-based capital to ending risk-weighted assets.


                                                                     (Continued)

                                       23
<PAGE>


(11) Retirement and Deferred Compensation Plans

     The Bank has a 401(k) Employee  Investment Plan covering  substantially all
     employees.  Participation is voluntary and employee contributions are based
     on a percentage of  compensation,  ranging from 1% to 10%. The Bank matches
     employees' contributions,  not to exceed 6% of compensation or a maximum of
     $2,400 annually. The Bank's contributions were $39,995, $38,644 and $37,936
     for the years ended June 30, 2001, 2000 and 1999, respectively.

     The Bank has a  supplemental  retirement  income plan (SERP) for  executive
     officers.  The SERP supplements the 401(k) plan to bring officer retirement
     benefits up to targeted levels (2% for each year of service,  not to exceed
     70% of  final  salary).  In  addition,  the  SERP  provides  death  benefit
     protection  for  officers'  beneficiaries.  The cost of each  participant's
     retirement  benefits is accrued over the participant's  active  employment.
     The  accrued  liability  under  the SERP  was  approximately  $165,000  and
     $186,000  as of June 30,  2001 and 2000,  respectively.  Compensation  cost
     related to the SERP was $158,540, $129,001 and $118,640 for the years ended
     June 30, 2001, 2000 and 1999, respectively.

     The Bank also has a deferred  compensation  agreement  with one  officer to
     provide  certain death and retirement  benefits.  The benefits  payable are
     accrued annually by charges to income of $1,383.  The accrued liability for
     these  benefits  amounted to $32,359 and $30,976 at June 30, 2001 and 2000,
     respectively, and is included in accrued expenses and other liabilities.

     The Bank has a Directors  Retirement Plan which is a nonqualified  plan for
     income tax  purposes.  Under the plan,  each  director  will be paid 75% of
     annual  directors' fees for ten years after  retirement or until death. The
     benefits  payable are accrued  annually and are based on the retirement age
     selected by each  director  and an assumed 4% increase in annual fees until
     retirement. The accrued liability under this plan was $642,161 and $413,410
     at June  30,  2001 and  2000,  respectively,  and is  included  in  accrued
     expenses and other liabilities.  Compensation cost related to this plan was
     $234,940, $144,400 and $117,658 for the years ended June 30, 2001, 2000 and
     1999, 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   $594,969   and  $497,504  at  June  30,  2001  and  2000,
     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:

                                                                     (Continued)

                                       24

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999



                                        2001              2000
                                  ---------------   ----------------
Transamerica .................... $     3,702,794          3,518,280
American General ................         670,458          2,046,057
Massachusetts Mutual ............       2,650,460            638,642
Pacific Mutual ..................              --            484,558
                                  ---------------   ----------------
                                  $     7,023,712          6,687,537
                                  ===============   ================




                                                                     (Continued)

                                       25

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

(12) Stock-Based Benefit Plans

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

     In 1994 the ESOP  borrowed  $960,000  from an unrelated  third party lender
     under a ten year loan bearing  interest at the Federal funds rate plus 2.5%
     per annum,  with payments of principal and interest due  quarterly.  Annual
     principal  payments are $96,000.  The proceeds of the loan were used by the
     ESOP to  acquire  144,000  shares  of the  Bank's  common  stock  upon  its
     conversion  to a capital  stock  form of  organization.  The ESOP holds the
     common stock in a trust for allocation among participating employees, which
     occurs as the ESOP repays the loan.  The ESOP's sources of repayment of the
     loan are  dividends on the common  stock,  if any,  either held in trust or
     allocated to the participants'  accounts, and quarterly  contributions from
     the Bank to the ESOP and  earnings  thereon.  For the years  ended June 30,
     2001,  2000 and 1999 the Bank made  contributions  to the ESOP of $136,101,
     $130,385 and $134,790, 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  $26,224,  $34,385  and  $38,790,  respectively,  and
     compensation  expense of  $162,839,  $141,548  and  205,453,  respectively,
     related  to the ESOP for the  years  ended  June 30,  2001,  2000 and 1999.
     Dividends on ESOP shares used for debt service  were  $26,546,  $33,303 and
     $40,963 for the years ended June 30, 2001, 2000 and 1999, respectively. The
     related tax  benefits to the Bank for  dividends  paid to the ESOP were not
     material. The ESOP shares were as follows at June 30:


                                                2001            2000
                                            -------------   -------------
Allocated shares ..........................       107,923          92,263
Shares earned, but unallocated ............         7,152           6,935
Unearned shares ...........................        28,925          44,802
                                            -------------   -------------
                                                  144,000         144,000
                                            =============   =============
Fair value of unearned shares at June 30 .. $     455,566         467,621
                                            =============   =============


     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.  There  was no
     compensation  expense  related to the MRP  during the years  ended June 30,
     2001 and 2000. Compensation expense was $11,907 for the year ended June 30,
     1999.

                                                                     (Continued)

                                       26

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     In 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  vested  at a  rate  of 20%  per  year.  Options  are
     exercisable at $7.92 per share, the market price of the common stock on the
     date of grant,  and must be  exercised  within  ten years  from the date of
     grant.

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


                                         2001          2000          1999
                                     ------------  ------------  ------------
Outstanding at beginning of year ...      138,500       148,500       148,500
Exercised ..........................           --       (10,000)           --
                                     ------------  ------------  ------------
      Outstanding at end of year ...      138,500       138,500       148,500
                                     ------------  ------------  ------------
Exercisable at end of year .........      138,500       138,500       148,500
                                     ============  ============  ============


(13) Postretirement Benefits Other Than Pensions

     The Bank  offers a  postretirement  health  care  benefit  plan to  certain
     Directors  and  employees.  The net  cost  of the  plan  was  approximately
     $38,000,  $39,000 and $46,000 for the years ended June 30,  2001,  2000 and
     1999,   respectively.   The  accrued   liability  for  these  benefits  was
     approximately   $201,000   and   $175,000   at  June  30,  2001  and  2000,
     respectively, and is included in accrued expenses and other liabilities.

(14) Financial Instruments

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

     The Bank's  exposure to credit loss in the event of  nonperformance  by the
     other party to a financial instrument is represented by the contract amount
     of the  financial  instrument.  The Bank uses the same  credit  policies in
     making commitments for  off-balance-sheet  financial instruments as it does
     for  on-balance-sheet  financial  instruments.  Financial  instruments with
     off-balance-sheet risk are as follows at June 30, 2001:

                                                                     (Continued)

                                       27

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999



                                                        Contract
                                                         amount
                                                    -----------------
Undisbursed lines of credit on home equity loans .. $      13,158,000
Residential mortgage loans to be funded ...........         6,959,000
                                                    -----------------
                                                    $      20,117,000
                                                    =================







                                                                     (Continued)

                                       28


<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     The Bank's outstanding  mortgage loan commitments at June 30, 2001 were all
     for fixed rate loans.  The  interest  rate range on these  commitments  was
     6.375% to 7.375%  and all  commitments  expire  within  one year.  The loan
     commitments and  undisbursed  lines of credit are expected to be settled at
     face amount or expire unused.  The fair value of these  commitments was not
     significant at June 30, 2001.

     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, 2001.

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

                                                                  2001                                     2000
                                                 ---------------------------------------   --------------------------------------
                                                      Carrying              Fair                Carrying             Fair
                                                       amount               value                amount              value
                                                 ------------------- -------------------   ------------------  ------------------
<S>                                              <C>                      <C>                  <C>                 <C>
Assets:
     Cash and interest-bearing
         deposits .............................. $    7,015,942           7,016,000            4,041,162           4,041,000
     Short-term investments ....................     35,334,058          35,334,000            9,551,979           9,552,000
     Secured short-term loans to
         commercial banks ......................     16,225,333          16,225,000            9,562,746           9,563,000
     Securities available-for-sale .............      5,802,094           5,802,000            5,258,493           5,258,000
     Investment securities
         held-to-maturity ......................     60,518,903          59,451,000           67,392,698          62,206,000
     Mortgage-backed securities
         held-to-maturity ......................     20,021,025          20,018,000            8,317,018           8,343,000
     Loans receivable ..........................    217,182,587         216,542,000          219,203,607         210,975,000
     Investment in Federal Home
         Loan Bank stock .......................      2,187,200           2,187,000            2,187,200           2,187,000
     Accrued interest receivable ...............      2,236,760           2,237,000            2,116,855           2,117,000

Liabilities:
     Savings accounts ..........................    320,470,865         324,175,000          281,866,206         281,357,000
     Borrowed funds ............................        274,123             274,000              384,000             384,000
     Advances payments by
         borrowers for taxes,
         insurance and ground rents ............      3,515,261           3,515,000            5,073,906           5,074,000
                                                 ==============      ==============       ==============      ==============
</TABLE>

                                                                     (Continued)

                                       29

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     The methods and assumptions  used to determine fair value estimates at June
     30, 2001 and 2000 are set forth below.

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

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

     (b) Loans Receivable

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

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

          The fair value of savings accounts,  other than certificate  accounts,
          and advance  payments by  borrowers  for taxes,  insurance  and ground
          rents is the  amount  payable  on demand at June 30. The fair value of
          certificate accounts is based on the lower of redemption value (net of
          penalty) or the discounted value of contractual  cash flows.  Discount
          rates are estimated using 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.

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

(15) Stockholders' Equity

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

                                                                     (Continued)

                                       30


<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

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

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

     MHC has waived  receipt of its quarterly  dividends,  thereby  reducing the
     actual  dividend  payout  by the  Company  in 2001  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,  2001,  the
     cumulative amount of such waived dividends was $11,708,400.

     At June 30, 2001,  the Company was authorized to repurchase up to 1,023,441
     shares of common stock  pursuant to its repurchase  plan.  During the years
     ended June 30, 2001, 2000 and 1999, the Company purchased  11,000,  324,475
     and 292,736 shares,  respectively,  at an average cost per share of $10.93,
     $10.71 and $13.56, respectively.

(16) Net Income Per Share of Common Stock

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

                                                                     (Continued)

                                       31

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

     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>
                                       2001                            2000                            1999
                           ---------------------------    -----------------------------    ---------------------------
                               Basic        Diluted           Basic         Diluted            Basic        Diluted
                           ------------- -------------    -------------- --------------    ------------- -------------
<S>                        <C>               <C>               <C>            <C>              <C>           <C>
Net income ............... $   2,885,205     2,885,205         3,595,308      3,595,308        3,463,516     3,463,516
                           ============= =============    ============== ==============    ============= =============
Weighted average
  shares outstanding .....     4,508,026     4,508,026         4,634,155      4,634,155        4,983,896     4,983,896

Dilutive securities
  --options ..............            --        55,618                --        31,764                --        64,867
                           ------------- -------------    -------------- --------------    ------------- -------------
Adjusted weighted
  average shares used
  in EPS calculations ....     4,508,026     4,563,644         4,634,155      4,665,919        4,983,896     5,048,763
                           ============= =============    ============== ==============    ============= =============
</TABLE>


(17) Condensed Financial Information (Parent Company Only)

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

                                                                     2001              2000
                                                                ---------------   ---------------
<S>                                                             <C>                       <C>
Statements of Financial Condition
Cash .........................................................  $       502,248           143,131
Securities available-for-sale ................................           83,605            53,240
Deferred tax asset ...........................................            9,822            19,822
Other assets .................................................               --           200,000
Investment in Bank ...........................................       50,491,891        47,180,556
                                                                ---------------   ---------------
                                                                $    51,087,566        47,596,749
                                                                ===============   ===============
Accrued expenses and other liabilities .......................  $       198,525           187,276
Stockholders' equity .........................................       50,889,041        47,409,473
                                                                ---------------   ---------------
                                                                $    51,087,566        47,596,749
                                                                ===============   ===============

                                                     2001            2000              1999
                                                --------------  ---------------   ---------------
Statements of Income
Interest income ............................... $       28,288           23,129            14,975
Equity in net income of subsidiary ............      2,869,740        3,586,547         3,449,274
                                                --------------  ---------------   ---------------
               Income before provision for
                   income taxes ...............      2,898,028        3,609,676         3,464,249
Provision for income taxes ....................         12,823           14,368               733
                                                --------------  ---------------   ---------------
               Net income ..................... $    2,885,205        3,595,308         3,463,516
                                                ==============  ===============   ===============
</TABLE>

                                                                     (Continued)

                                       32

<PAGE>

                         LEEDS FEDERAL BANKSHARES, INC.

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999
<TABLE>
<CAPTION>

                                                             2001               2000               1999
                                                       ---------------    ---------------    ---------------
<S>                                                    <C>                      <C>                <C>
Statements of Cash Flows
Cash flows from operating activities:
    Net income ....................................... $     2,885,205          3,595,308          3,463,516
    Adjustments to reconcile net income to net cash
      provided (used) by operating activities:
         Equity in net income of subsidiary ..........      (2,869,740)        (3,586,547)        (3,449,274)
         Other, net ..................................         429,606           (238,472)                --
                                                       ---------------    ---------------    ---------------
            Net cash (used) provided by operating
                activities ...........................         445,071           (229,711)            14,242
                                                       ---------------    ---------------    ---------------
Cash flows from investing activities:
    Dividend distribution from bank ..................         742,904          4,335,000          5,240,000
    Purchase of securities available-for-sale ........              --                 --           (100,000)
                                                       ---------------    ---------------    ---------------
            Net cash provided by investing activities          742,904          4,335,000          5,140,000
                                                       ---------------    ---------------    ---------------
Cash flows from financing activities:
    Payment of dividends .............................        (708,608)          (788,434)          (988,540)
    Purchases of treasury stock ......................        (120,250)        (3,475,850)        (3,968,439)
    Exercise of stock options ........................              --             79,200                 --
                                                       ---------------    ---------------    ---------------
            Net cash used by financing activities ....        (828,858)        (4,185,084)        (4,956,979)
                                                       ---------------    ---------------    ---------------
            Net increase (decrease) in cash and
                   cash equivalents ..................         359,117            (79,795)           197,263
Cash and cash equivalents at beginning of year .......         143,131            222,926             25,663
                                                       ---------------    ---------------    ---------------
Cash and cash equivalents at end of year ............. $       502,248            143,131            222,926
                                                       ===============    ===============    ===============
</TABLE>

(18) Subsequent Event

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

     The  transaction is expected to be completed in the first calendar  quarter
     of 2002, and is subject to approval by the Company's  shareholders  and MHC
     members (if necessary) and applicable regulatory authorities.

                                       33


<PAGE>

                             STOCKHOLDER INFORMATION


Annual Meeting

The Annual  Meeting of  Stockholders  will be held at 4:00 p.m., on November 14,
2001, 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
59 Maiden Lane
New York, New York  10007

Annual Report on Form 10-KSB

A copy of the  Company's  Form 10-KSB for the fiscal  year ended June 30,  2001,
will be furnished  without charge to  stockholders  as of October 12, 2001, upon
written request to the Secretary,  Leeds Federal  Bankshares,  Inc., 1101 Maiden
Choice Lane, Baltimore, Maryland 21229.



                                       16