SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31,
         1998 OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
         __________________ TO _________________

                         Commission file number: 0-21108

                          MARION CAPITAL HOLDINGS, INC.
               (Exact name of registrant specified in its charter)


          Indiana                                              35-1872393
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification Number)

                              100 West Third Street
                                  P.O. Box 367
                              Marion, Indiana 46952
                    (Address of principal executive offices,
                               including Zip Code)

                                 (317) 664-0556
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  report),  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

The  number of shares of the  Registrant's  common  stock,  without  par  value,
outstanding as of February 1, 1999 was 1,486,341.


<PAGE>




                          Marion Capital Holdings, Inc.

                                    Form 10-Q

                                      Index

                                                                        Page No.

Forward Looking Statements.....................................................1

PART I.   FINANCIAL INFORMATION

Item 1.     Financial Statements...............................................2

               Consolidated Condensed Statement of Financial Condition as of
                  December 31, 1998 and June 30, 1998..........................2

               Consolidated Condensed Statement of Income for the three-month
                  and six-month periods ended December 31, 1998 and 1997.......3

               Consolidated Condensed Statement of Changes 
                  in Shareholders' Equity for the six months 
                  ended December 31, 1998......................................4

               Consolidated Condensed Statement of 
                  Cash Flows for the six months
                  ended December 31, 1998 and 1997.............................5

               Notes to Consolidated Financial Statements......................7

Item 2.     Management's Discussion and Analysis of Financial 
               Condition and Results of Operations.............................8

Item 3.     Quantitative and Qualitative Disclosures About Market Risk........14

PART II.  OTHER INFORMATION

Item 1.     Legal Proceedings.................................................17

Item 4.     Submission of Matters to Vote of Security Holders.................18

Item 6.     Exhibits and Reports on Form 8-K..................................18

SIGNATURES....................................................................19



<PAGE>

                           FORWARD LOOKING STATEMENTS

         This Annual Report on Form 10-Q ("Form 10-Q") contains statements which
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include  statements  regarding the intent,  belief,
outlook,  estimate  or  expectations  of the Company  (as  defined  below),  its
directors or its officers primarily with respect to future events and the future
financial  performance  of the Company.  Readers of this Form 10-Q are cautioned
that any such forward looking  statements are not guarantees of future events or
performance  and involve risks and  uncertainties,  and that actual  results may
differ  materially from those in the forward  looking  statements as a result of
various  factors.  The  accompanying  information  contained  in this  Form 10-Q
identifies  important factors that could cause such  differences.  These factors
include  changes in interest  rates;  loss of deposits  and loan demand to other
savings and financial  institutions;  substantial  changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.

                                                         1

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                           FIRST FEDERAL SAVINGS BANK

             CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                                      December 31,                  June 30,
                                                                          1998                        1998
                                                               --------------------------- ---------------------------
ASSETS
<S>                                                                     <C>                         <C>       
   Cash                                                                 $2,641,152                  $3,211,191
   Short-term interest bearing deposits                                  2,690,334                   1,923,573
                                                                  ----------------            ----------------
     Total cash and cash equivalents                                     5,331,486                   5,134,764
   Investment securities available for sale                              3,079,321                   3,048,751




   Investment securities held to maturity
     (market value $0 and $2,001,520)                                            0                   2,002,917
   Loans receivable, net                                               167,262,121                 164,475,289
   Real estate owned, net                                                                               30,735
   Premises and equipment                                                1,915,478                   1,928,772
   Stock in Federal Home Loan Bank (at cost
     which approximates market)                                          1,134,400                   1,134,400
   Investment in limited partnerships                                    4,777,675                   4,883,175
   Investment in other affiliate                                           650,000                     650,000
   Core deposit intangibles and goodwill                                   749,080                     802,586
   Other assets                                                          9,744,122                   9,871,520
                                                                  ----------------            ----------------
     Total assets                                                     $194,643,683                $193,962,909
                                                                  ================            ================

LIABILITIES
   Deposits                                                           $137,128,384                $134,415,469
   Advances from FHLB                                                   15,272,300                  13,684,302
   Advances by borrowers for taxes and
     insurance                                                             240,159                     208,331
   Other liabilities                                                     7,568,471                   7,998,180
                                                                  ----------------            ----------------
     Total liabilities                                                 160,209,314                 156,306,282

SHAREHOLDERS' EQUITY
   Preferred Stock:
     Authorized and unissued--2,000,000 shares                                   0                           0
   Common stock, without par value:
     Authorized--5,000,000 shares
     Issued and outstanding--1,555,834 and
       1,699,307 shares                                                  4,059,811                   7,785,191
   Retained earnings                                                    30,325,610                  29,841,104
   Unrealized gain on securities available for sale                         48,948                      30,332
                                                                  ----------------            ----------------
       Total shareholders' equity                                       34,434,369                  37,656,627
                                                                  ----------------            ----------------
         Total liabilities and shareholders' equity                   $194,643,683                $193,962,909
                                                                  ================            ================
</TABLE>


                                                         2

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                           FIRST FEDERAL SAVINGS BANK

                   CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>


                                             Three Months Ended               Six Months Ended
                                                December 31,                     December 31,
                                       ----------------------------      ----------------------------
                                          1998             1997             1998             1997
                                       -----------      -----------      -----------      -----------
Interest Income
<S>                                    <C>              <C>              <C>              <C>        
   Loans                               $ 3,703,316      $ 3,380,286      $ 7,347,209      $ 6,638,386
   Mortgage-backed securities                 (396)             392               31            2,334
   Interest-bearing deposits                33,768           62,621           71,431          121,048
   Investment securities                    60,572           86,688          134,375          178,770
   Other interest and dividend
        income                              22,875           21,118           45,835           42,896
                                       -----------      -----------      -----------      -----------
     Total interest income               3,820,135        3,551,105        7,598,881        6,983,434

Interest expense
   Deposits                              1,702,269        1,588,499        3,416,598        3,150,765
   Advances from FHLB                      233,268          167,537          465,332          314,462
                                       -----------      -----------      -----------      -----------
     Total interest expense              1,935,537        1,756,036        3,881,930        3,465,227

Net interest income                      1,884,598        1,795,069        3,716,951        3,518,207
Provision for losses on loans                6,886            6,729           16,189           15,554
                                       -----------      -----------      -----------      -----------
Net interest income after
   provision                             1,877,712        1,788,340        3,700,762        3,502,653
Other income
   Net loan servicing fees                  18,854           19,467           39,406           39,038
   Annuity and other commissions            24,063           29,562           45,520           67,459
   Equity in losses of limited
     partnerships                          (65,000)         (36,000)        (105,500)        (125,100)
   Life insurance income and death
     benefits                               61,250           43,750          102,500           92,543
   Other income                             92,293           42,171          174,152           77,325
                                       -----------      -----------      -----------      -----------
     Total other income                    131,460           98,950          256,078          151,265
                                       -----------      -----------      -----------      -----------
Other expenses
   Salaries and employee benefits          608,654          637,059        1,279,196        1,221,020
   Occupancy expense                        65,151           59,281          129,828          106,668
   Equipment expense                        32,058           23,616           62,300           41,490
   Deposit insurance expense                32,976           31,652           66,848           63,290
   Real estate operations, net                  19          131,713           (1,247)         130,780
   Data processing expense                  76,272           47,260          151,134           86,739
   Advertising                              41,316           50,819           69,303           77,503
   Amortization of core deposit
     intangibles and goodwill               26,453            9,018           53,506            9,018
   Other expenses                          194,720          184,389          404,209          341,176
                                       -----------      -----------      -----------      -----------
     Total other expenses                1,077,619        1,174,807        2,215,077        2,077,684
                                       -----------      -----------      -----------      -----------
Income before income taxes                 931,553          712,483        1,741,763        1,576,234
   Income tax expense                      347,014          209,865          640,094          413,423
                                       -----------      -----------      -----------      -----------
Net income                             $   584,539      $   502,618      $ 1,101,669      $ 1,162,811
                                       ===========      ===========      ===========      ===========
Per share
   Basic earnings per share            $      0.37      $      0.28      $      0.69      $      0.66
   Diluted earnings per share          $      0.37      $      0.28      $      0.68      $      0.64
   Dividends                           $      0.22      $      0.22      $      0.44      $      0.44
</TABLE>


                                                         3

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                           FIRST FEDERAL SAVINGS BANK

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                   Total
                                                                Shareholders'
                                                                  Equity
                                                      ------------------------------
                                                          1998              1997
<S>                                                   <C>               <C>         
Balances, July 1                                      $ 37,656,627      $ 39,065,819

   Comprehensive income
      Net income                                         1,101,669         1,162,811
      Other comprehensive income, net of tax
        Unrealized gains on securities                      18,616            27,040
                                                      ------------      ------------

     Comprehensive income                                1,120,285         1,189,851

   Exercise of stock options                                40,893           211,413
   Repurchase of common stock                           (3,786,575)                0
   Amortization of unearned compensation                         0            87,912
   Tax benefit of stock options exercised and RRP          106,982            96,186
   Cash dividends                                         (703,843)         (782,233)
                                                      ------------      ------------
Balances, December 31                                 $ 34,434,369      $ 39,868,948
                                                      ============      ============
</TABLE>



                                                         4

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                           FIRST FEDERAL SAVINGS BANK

                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                              December 31,
                                                     ------------------------------
                                                         1998              1997
                                                     ------------      ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                  <C>               <C>         
   Net income                                        $  1,101,669      $  1,162,811
   Adjustments to reconcile net income to
     net cash provided by operating activities:
     Provision for loan losses                             16,189            15,554
     Equity in loss of limited partnerships               105,500           125,100
     Amortization of net loan origination fees           (125,680)          (98,561)
     Net amortization of investment
          securities' premiums and discounts                  403             2,226
     Amortization of unearned compensation                      0            87,912
     Amortization of core deposits and goodwill            53,506             9,018
     Depreciation                                          88,267            50,127
     Deferred income tax                                   20,009           (13,582)
     Origination of loans for sale                     (5,681,074)       (2,844,192)
     Proceeds from sale of loans                        3,946,464         2,844,192
     Change in:
       Interest receivable                                197,948           170,545
       Interest payable and other liabilities            (429,709)         (147,342)
       Cash value of insurance                           (102,500)          (92,543)
       Prepaid expense and other assets                    (4,102)           57,546
                                                     ------------      ------------

           Net cash provided (used) by operating         (813,110)        1,328,811
               activities                            ------------      ------------

INVESTING ACTIVITIES
   Proceeds from maturity of investment
     securities held to maturity                        2,000,000         1,610,000
   Payments on mortgage-backed securities                   2,917           214,928
   Net changes in loans                                  (801,328)       (7,900,288)
   Purchases of premises and equipment                    (74,973)         (481,181)
   Death benefits received on life insurance                    0           553,793
   Cash received in branch acquisition                          0        11,544,302
                                                     ------------      ------------

     Net cash provided (used) by investing
       activities                                       1,126,616         5,541,554
                                                     ------------      ------------
</TABLE>

(CONTINUED)

                                                         5

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                           FIRST FEDERAL SAVINGS BANK

           CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (continued)
<TABLE>
<CAPTION>


                                                              Six Months Ended
                                                                December 31,
                                                           1998              1997
                                                      ------------      ------------
FINANCING ACTIVITIES
   Net change in:
<S>                                                     <C>                <C>      
     Interest-bearing demand and savings deposits       (2,298,743)        2,688,133
     Certificates of deposit                             5,011,658        (3,681,801)
   Proceeds from FHLB advances                           8,000,000         6,656,069
   Repayment of FHLB advances                           (6,412,002)       (4,195,907)
   Net change on advances by borrowers for taxes
     and insurance                                          31,828            41,231
   Proceeds from exercise of stock options                  40,893           211,413
   Repurchase of common stock                           (3,786,575)                0
   Dividends paid                                         (703,843)         (782,233)
                                                      ------------      ------------
     Net cash provided (used) by
       financing activities                               (116,784)          936,905
                                                      ------------      ------------

Net change in cash and cash equivalents                    196,722         7,807,270

Cash and Cash Equivalents,
  Beginning of Period                                    5,134,764         3,622,739
                                                      ------------      ------------

Cash and Cash Equivalents,
  End of Period                                          5,331,486      $ 11,430,009
                                                      ============      ============

ADDITIONAL CASH FLOWS AND
   SUPPLEMENTARY INFORMATION
   Interest paid                                         3,906,877      $  3,417,949
   Income tax paid                                         435,000           543,139
   Loan balances transferred to real
     estate owned                                                0           875,342
   Loans to finance the sale of real
     estate owned                                            8,500            68,500
   Loan payable to limited partnership                           0         3,634,406
</TABLE>



                                                         6

<PAGE>




                          MARION CAPITAL HOLDINGS, INC.
                           AND WHOLLY-OWNED SUBSIDIARY
                      FIRST FEDERAL SAVINGS BANK OF MARION

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE A. Basis of Presentation

The unaudited interim  consolidated  condensed financial  statements include the
accounts of Marion  Capital  Holdings,  Inc. (the  "Company") and its subsidiary
First Federal Savings Bank of Marion (the "Bank").

The unaudited  interim  consolidated  condensed  financial  statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include  all  information  and  disclosures   required  by  generally   accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  the financial  statements reflect all adjustments,  comprising only
normal recurring  accruals,  necessary to present fairly the Company's financial
position as of December 31, 1998,  results of operations for the three-month and
six-month  periods  ended  December  31,  1998 and 1997,  and cash flows for the
six-month periods ended December 31, 1998 and 1997.

NOTE B: Dividends and Earnings Per Share

On November 16, 1998, the Board of Directors  declared a quarterly cash dividend
of $.22 per share.  This dividend was paid on December 15, 1998 to  shareholders
of record as of November 27, 1998.

Earnings per share (EPS) were computed as follows:

<TABLE>
<CAPTION>

                                                   Three Months Ended                        Three Months Ended
                                                    December 31, 1998                         December 31, 1997
                                                    -----------------                         -----------------
                                                         Weighted                                 Weighted
                                                          Average     Per Share                    Average       Per Share
                                            Income        Shares       Amount        Income        Shares         Amount
                                            ------        ------       ------        ------        ------         ------
<S>                                           <C>         <C>           <C>            <C>          <C>           <C>      
Basic earnings per share
   Income available to
     common shareholders                      $584,539    1,571,252     $     .37      $502,618     1,766,427     $     .28
                                                                        =========                                 =========
Effect of dilutive securities
   RRP program                                                   --                                     3,702
   Stock options                                             21,976                                    44,000
                                             ---------    ---------                  ----------        ------
Diluted earnings per share
   Income available to
     common shareholders and
     assumed conversions                      $584,539    1,593,228     $     .37      $502,618     1,814,618     $     .28
                                              ========    =========     =========      ========     =========     =========
</TABLE>




                                                         7

<PAGE>


<TABLE>
<CAPTION>
                                                    Six Months Ended                          Six Months Ended
                                                    December 31, 1998                         December 31, 1997
                                                    -----------------                         -----------------
                                                          Weighted                                 Weighted
                                                           Average        Per                       Average      Per Share
                                                                         Share
                                            Income         Shares       Amount       Income         Shares        Amount
                                            ------         ------       ------       ------         ------        ------
<S>                                          <C>           <C>          <C>          <C>            <C>           <C>      
Basic earnings per share
   Income available to common
     shareholders                            $1,101,669    1,605,768    $     .69    $1,162,811     1,762,492     $     .66
                                                                        =========                                 =========
Effect of dilutive securities
   RRP program                                                    --                                    3,435
   Stock options                                              24,578                                   43,332
                                           ------------       ------                -----------        ------
Diluted earnings per share
   Income available to common
     shareholders and assumed
     conversions                             $1,101,669    1,630,346    $     .68    $1,162,811     1,809,259     $     .64
                                             ==========    =========    =========    ==========     =========     =========

</TABLE>

NOTE C:  Reporting Comprehensive Income

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 130,
Reporting  Comprehensive Income.  Comprehensive income includes unrealized gains
on securities  available for sale, net of tax.  Accumulated other  comprehensive
income and income tax on such income reported are as follows:



                                              Six Months Ended
                                                 December 31,
                                        --------------------------------
                                         1998                     1997
                                        -------                 --------
Accumulated comprehensive income
   Balance, July 1                      $30,332                 $( 1,961)
   Net unrealized gains                  18,616                   27,040
                                         ------                   ------

   Balance December 31                  $48,948                  $25,079
                                        =======                  =======

Income tax expense
   Unrealized holding losses            $12,210                  $17,736
                                        =======                  =======


Item. 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.

General:


                                                         8

<PAGE>




The Company's  total assets were $194.6 million at December 31, 1998 compared to
$194.0 million at June 30, 1998. Cash and cash equivalents increased $.2 million
and investment  securities decreased $2.0 million from June 30, 1998 to December
31, 1998. Loans receivable were $167.3 million at December 31, 1998, an increase
of $2.8 million,  or 1.7%,  from June 30, 1998. The Company owned no real estate
owned at December 31, 1998, down from the $31,000 reported at June 30, 1998.

Deposits  increased to $137.1  million at December  31, 1998  compared to $134.4
million  at  June  30,  1998,  a  2.0%  increase.  This  $2.7  million  increase
represented a $2.3 million decrease in passbook and transaction  accounts and an
approximate $5.0 million increase in certificate of deposit accounts.

Federal Home Loan Bank advances increased to $15.3 million at December 31, 1998,
compared to $13.7 million at June 30, 1998, an 11.6% increase.

Other  liabilities  decreased from $8.0 million at June 30, 1998 to $7.6 million
at December 31, 1998 as a result of normal operational decreases.

Shareholders'  equity was $34.4 million at December 31, 1998,  compared to $37.7
million at June 30,  1998.  As of  December  31,  1998,  the  Company was in the
process of repurchasing an additional 5% of its outstanding  shares. The current
repurchase  program was announced in November  1998,  totaling  77,891 shares of
which 5,000 shares had been  repurchased  by December 31,  1998.  Subsequent  to
December  31,  1998,  69,493  shares were  repurchased  in the open market at an
average  price of  $21.94.  This  reduced  the number of shares  outstanding  to
1,486,341.

Net income for the six months ended December 31, 1998 of $1.1 million represents
a 5.3%  decrease  in income  reported  for the same  period  in the prior  year.
Although net income  decreased 5.3%, net interest income  increased by $199,000,
or 5.6%, for the six month period ended December 31, 1998, compared to the prior
period. Also, other income increased by $105,000 due primarily to an increase in
fee income for the six months  ended  December  31,  1998,  compared  to the six
months ended December 31, 1997.  Total other  expenses  increased  $137,000,  or
6.6%,  for the six months  ended  December 31,  1998.  This  resulted in pre-tax
income  increasing by $165,000,  or 10.5%, for the six months ended December 31,
1998 compared to the same prior year period.

For the six months ended December 31, 1998, the Bank made a provision of $16,189
for general  loan losses  compared  to $15,554 in loss  provisions  for the same
period in the prior year.  Management  continues to review its current portfolio
to ensure that total loss reserves remain adequate.


Results of  Operations  Comparison  of Three Months Ended  December 31. 1998 and
December 31,1997

Net interest income for the quarter ended December 31, 1998, equaled $1,884,598,
an increase of 5.0% over the quarter ended December 31, 1997 of $1,795,069.  Net
income for the three  months  ended  December  31, 1998 of $584,539  was a 16.3%
increase from the three months ended December

                                                         9

<PAGE>




31, 1997 of  $502,618.  The increase in net income is due in part to the Company
incurring  $132,000 in additional  operating expenses in the prior year's second
quarter from operating a nursing home received by a deed in lieu of foreclosure.
The  after-tax  effect  amounted to  $80,000.  Also,  as  mentioned  above,  the
reduction of federal  income tax credits for the three months ended December 31,
1998, caused the Company's  effective tax rate to increase to 37% from the prior
year's  effective  tax rate of 29%.  Although  certain  credits  have been fully
utilized, a more recent investment should generate new credits beginning in 1999
increasing  to  approximately  $370,000  per year based on current  projections.
Until tax credits resume,  the Company will experience this higher effective tax
rate.

A provision  of $6,886 for losses on loans was made for the three  months  ended
December 31, 1998, compared to a $6,729 provision in the same period last year.

Total other income  increased by $32,510 for the three months ended December 31,
1998, compared to the same period in the prior year. This increase is attributed
to an increase in fee income on deposit  accounts  which  includes  ATM fees and
transaction account fees.

Total other  expenses  increased by $97,188,  or 8.3% for the three months ended
December  31, 1998,  compared to the same period in the prior year.  Real estate
operations  expense  decreased  $131,694 as the result of operating  the nursing
home described above. Data processing  expense increased as the result of adding
the two new branch  locations in October and December of 1997, as well as adding
additional  features  including a voice response unit and Sunday  processing for
our Wal-Mart branch location.  Other expense  increases were normal  operational
increases.

Income tax expense for the three  months  ended  December  31, 1998  amounted to
$347,024, an increase of $137,149 over the three months ended December 31, 1997,
as the result of an increased  effective rate. The Company's  effective tax rate
for the three  months  ended  December  31, 1998 was 37% compared to 29% for the
comparable period in 1997. The increase in the effective tax rate was attributed
to the expiration of low income housing tax credits as described above.

Results of  Operations  Comparison  of Six Months  Ended  December  31, 1998 and
December 31, 1997.

Net income for the six months ended  December 31, 1998 was  $1,101,669  compared
with $1,162,811 for the six months ended December 31,1997, a decrease of $61,142
or 5.3%.  Earnings  for the six months  ended  December  31,  1997,  included an
additional  $150,000 in federal income tax credits as compared to the six months
ended  December  31,  1998.  This  reduction  of tax  credits  had the effect of
increasing the effective tax rate of the Company from  approximately 26% for the
six months ended December 31, 1997, to 37% for the six months ended December 31,
1998. Also, in the prior period the Company  experienced an additional  $132,000
in additional  operating  expenses  from  operating a nursing home received by a
deed in lieu of foreclosure.  The after-tax effect amounted to $79,550. Interest
income for the six months ended December 31, 1998, increased to $615,447 or 8.8%
compared to the same period in the prior year,  while  interest  expense for the
six months ended December 31, 1998,  increased $416,703 or 12.0% compared to the
same period in the prior year.

                                                        10

<PAGE>




As a result,  net interest  income for the six months  ended  December 31, 1998,
amounted to  $3,716,951,  an  increase of $198,744 or 5.6%  compared to the same
period in the prior year.

A $16,189  provision  for loss on loans for the six months  ended  December  31,
1998, was made compared to a $15,554 provision  reported in the same period last
year.

Total other income  increased by $104,813 for the six months ended  December 31,
1998,  compared to the same period in the prior year. This increase is primarily
attributable to increased fee income from ATM and transaction accounts.  Annuity
and security product sales  commissions were down $21,939,  or 32.5% for the six
months ended December 31, 1998, compared to the same period in the prior year.

Total other  expenses  increased  by  $137,393 or 6.6% for the six months  ended
December 31, 1998,  compared to the same period in the prior year.  Salaries and
employee  benefits  increased  $58,176 or 4.8%.  Real estate  operating  expense
decreased by $132,027 for the six months  ended  December 31, 1998,  compared to
the same  period in the prior year as a result of  operating  the  nursing  home
discussed above.  Data processing  expense increased as the result of adding the
two new branch  locations  in October and  December  of 1997,  as well as adding
additional  features  including a voice response unit and Sunday  processing for
our Wal-Mart branch location.  Other  operational  expense increases were normal
operational  increases and includes the amortization expense of the core deposit
premium for the  purchase of the Gas City branch  which  amounted to $53,506 for
the six months ended  December  31,  1998,  compared to $9,018 for the prior six
month period.

Income tax expense  for the six months  ended  December  31,  1998,  amounted to
$640,094,  an increase of $226,671 from the six months ended  December 31, 1997,
as a result of an  increase  in  effective  tax rate from 26% for the six months
ended December 31, 1997 to 37% for the six months ended December 31, 1998.  This
change in effective  tax rate is primarily  the result of a reduction in federal
income tax credits as previously described above.

Allowance for loan losses  amounted to $2.1 million at December 31, 1998,  which
was unchanged from June 30, 1998 after adjusting for charge-offs and recoveries.
Management considered the allowances for loan and real estate losses at December
31, 1998, to be adequate to cover estimated  losses inherent in those portfolios
at that date,  and its  consideration  included  probable  losses  that could be
reasonably  estimated.  Such belief is based upon an analysis of loans currently
outstanding,   real  estate  owned,  past  loss  experience,   current  economic
conditions  and other  factors  and  estimates  which are subject to change over
time. The following table  illustrates  the changes  affecting the allowance for
loan losses for the three months ended December 31, 1998.



                                                        11

<PAGE>


<TABLE>
<CAPTION>

                                                       Allowance For         Allowance For        Total
                                                       Loan Losses           REO Losses           Allowance
                                                       -------------         ------------         ----------

<S>                                                         <C>               <C>                    <C>       
Balances at July 1, 1998............................        $2,087,412        $        275           $2,087,687
Provision for losses................................            16,189               2,255               18,444
Recoveries..........................................                 0                 130                  130
Loans and REO charged off...........................           (21,327)             (2,660)             (23,987)
                                                           -----------             -------          -----------

Balances at December 31, 1998.......................        $2,082,274        $          0           $2,082,274
                                                            ==========        ============           ==========
</TABLE>

The loan loss  reserves  to total loans at December  31, 1998  equaled  1.23% of
total loans  outstanding,  compared to 1.25% of total loans  outstanding at June
30, 1998.  Total  non-performing  assets  decreased  during the six months ended
December  31,  1998,  from $2.0  million  at June 30,  1998 to $1.6  million  at
December 31, 1998. Non-performing assets at December 31, 1998 consisted entirely
of loans delinquent greater than 90 days.

Total  non-performing  loans totaled .96% of total loans outstanding at December
31, 1998 compared to 1.16% of total loans at June 30, 1998.

The  following  table further  depicts the amounts and  categories of the Bank's
non-performing  assets.  It is the  policy  of the  Bank  that  all  earned  but
uncollected  interest  on all loans be  reviewed  monthly  to  determine  if any
portion thereof should be classified as  uncollectible  for any loan past due in
excess of 90 days.


                                                     December 31,      June 30,
                                                        1998             1998
                                                     ------------      --------
                                                        (Dollars in Thousands)

Accruing loans delinquent
         more than 90 days.....................      $     ---       $     ---
Non-accruing loans:
         Residential...........................          1,090           1,454
         Multi-family..........................            465             193
         Commercial............................             24               5
         Consumer..............................             40             286
Troubled debt restructurings...................            ---             ---
                                                        ------          ------
         Total non-performing loans............          1,619           1,938
Real estate owned, net.........................              0              31
                                                        ------          ------
         Total non-performing assets...........         $1,619          $1,969
                                                        ======          ======

Non-performing loans to
         total loans...........................          0.96%           1.16%
Non-performing assets to
         total assets..........................          0.83%           1.02%


                                                        12

<PAGE>




Average Balances and Interest

The  following  table  presents for the periods  indicated  the monthly  average
balances  of  the  Company's   interest-earning   assets  and   interest-bearing
liabilities, the interest earned or paid on such amounts, and the average yields
earned and rates paid.  Such yields and costs are determined by dividing  income
or  expense by the  average  balance of assets or  liabilities  for the  periods
presented.

<TABLE>
<CAPTION>
                                                         Three Months Ended December 31,
                                    ------------------------------------------------------------------------------
                                                   1998                                       1997
                                    -------------------------------------        ---------------------------------
                                                               (Dollars in thousands)

                                    Average                       Average        Average                   Average
                                    Balance         Interest         Rate        Balance       Interest       Rate
                                    -------         --------         ----        -------       --------       ----

<S>                                 <C>              <C>             <C>         <C>             <C>           <C>  
Total interest-
   earnings assets..............    $176,858         $3,820          8.64%       $167,954        $3,551        8.46%
Total interest-
   bearing liabilities..........     152,063          1,936          5.09%        134,199         1,756        5.23%
                                                      -----                                       -----

Net interest income/
Interest rate spread............                     $1,884          3.55%                       $1,795        3.23%
                                                     ======                                      ======


                                                           Six Months Ended December 31,
                                    ------------------------------------------------------------------------------
                                                   1998                                       1997
                                    -------------------------------------        ---------------------------------
                                                               (Dollars in thousands)

                                    Average                       Average        Average                   Average
                                    Balance         Interest         Rate        Balance       Interest       Rate
                                    -------         --------         ----        -------       --------       ----

Total interest-
   earnings assets..............    $176,470         $7,599          8.61%       $166,379        $6,983        8.39%
Total interest-
   bearing liabilities..........     151,311          3,882          5.13%        132,429         3,465        5.23%
                                                      -----                                       -----

Net interest income/
Interest rate spread............                     $3,717          3.48%                       $3,518        3.16%
                                                     ======                                      ======
</TABLE>

Financial Condition

Shareholders'  equity at  December  31,  1998 was  $34,434,369,  a  decrease  of
$3,222,258 from June 30, 1998. The Company's equity to asset ratio was 17.69% at
December  31, 1998  compared  to 19.41% at June 30,  1998.  All fully  phased-in
capital requirements are currently met.

                                                         13

<PAGE>




The following  table depicts the amounts and ratios of the Bank's  capital as of
December  31,  1998,  under each of the three  regulatory  capital  requirements
(tangible, core, and fully phased-in risk based):
<TABLE>
<CAPTION>
                                                     Tangible               Core                Risk-Based
                                                      Capital              Capital                Capital
                                                      -------              -------                -------
                                                                      (Dollars in thousands)

<S>                                                 <C>                  <C>                    <C>        
Amount...........................................   $   29,675           $    29,675            $    31,237
As a percent of assets, as defined...............         15.9%                 15.9%                  25.1%
Required amount..................................   $    3,728           $     7,455            $     9,974
As a percent of assets, as defined...............          2.0%                  4.0%                   8.0%
Capital in excess of
    required amount..............................   $   25,947           $    22,220            $    21,263
</TABLE>

Liquidity and Capital Resources

The standard measure of liquidity for savings  associations is the ratio of cash
and eligible  investments to a certain  percentage of net  withdrawable  savings
accounts  and  borrowings  due within one year.  The minimum  required  ratio is
currently set by the Office of Thrift Supervision  regulation at 5%, of which 1%
must be comprised of short-term  investments.  At December 31, 1998,  the Bank's
liquidity ratio was 5.8% of which 3.8% was comprised of short-term investments.

Year 2000

The  Company's  lending and  deposit  activities,  like those of most  financial
institutions,  depend  significantly  upon  computer  systems.  The  Company  is
addressing  the potential  problems  associated  with the  possibility  that the
computers which control its systems,  facilities and  infrastructure  may not be
programmed  to read  four-digit  date  codes.  This could  cause  some  computer
applications to be unable to recognize the change from the year 1999 to the year
2000, which would cause computer systems to generate erroneous data or to fail.

Management recognizes the possibility of certain risks associated with Year 2000
and is continuing to evaluate  appropriate  courses of corrective  action. As of
December  31, 1998,  the Company has  completed an inventory of all hardware and
software systems and has made all mission critical classifications.  The Company
has  implemented  both an employee  awareness  program and a customer  awareness
program aimed at educating people about the efforts being made by the Company as
well as bank regulators regarding the Year 2000 issue.

The Company's data processing is performed  primarily by a third party servicer.
In November,  1998, the Company began testing the systems of its primary service
provider.  Such  testing  will  continue  through the next fiscal  quarter.  The
results from these initial tests disclosed no

                                                         14

<PAGE>




significant weakness or problems in processing and operating beyond December 31,
1999. Additional tests will continue through the next three quarters.

The Company also uses software and hardware which are covered under  maintenance
agreements with third party vendors.  Consequently,  the Company is dependent on
these vendors to conduct its business.  The Company has contacted each vendor to
request time tables for Year 2000  compliance and the expected costs, if any, to
be passed  along to the Company.  Most of the  Company's  vendors have  provided
responses as to where they stand regarding Year 2000  readiness.  Those who have
not  responded  to the  Company's  status  requests are being  contacted  again.
Depending on the responses  received from the third party  vendors,  the Company
will make decisions as to whether to continue those  relationships  or to search
for new providers of those services.

In addition to possible  expenses related to the Company's own systems and those
of its  service  providers,  the  Company  could be  affected  by the Year  2000
problems  affecting  any of its  depositors or  borrowers.  Such problems  could
include  delayed loan  payments due to Year 2000  problems  affecting  borrower.
Selected borrowers have been sent questionnaires to assess their readiness.  The
Company is still in the process of collecting that information.

At this time, it is estimated that costs  associated  with Year 2000 issues will
be less than $50,000 for fiscal 1999.  Although management believes it is taking
the necessary steps to address the Year 2000 compliance issue, no assurances can
be given that some  problems  will not occur or that the Company  will not incur
additional expenses in future periods.  Amounts expensed in fiscal 1997 and 1998
were immaterial.

Other

The  Securities  and  Exchange  Commission  maintains  a Web site that  contains
reports,   proxy  information   statements,   and  other  information  regarding
registrants that file electronically with the Commission, including the Company.
The address is (http://wwwsec.gov).

Item 3:  Quantitative and Qualitative Disclosures About Market Risk

The  Bank  is  subject   to   interest   rate  risk  to  the  degree   that  its
interest-bearing  liabilities,  primarily  deposits with short- and  medium-term
maturities,  mature or reprice  at  different  rates  than our  interest-earning
assets.  Although having  liabilities  that mature or reprice less frequently on
average than assets will be beneficial in times of rising interest  rates,  such
an  asset/liability  structure will result in lower net income during periods of
declining interest rates, unless offset by other factors.

The  Bank  protects   against  problems  arising  in  a  falling  interest  rate
environment  by  requiring   interest  rate  minimums  on  its  residential  and
commercial real estate adjustable-rate mortgages and against problems arising in
a rising interest rate environment by having in excess of 85% of its

                                                         15

<PAGE>




mortgage loans with  adjustable  rate features.  Management  believes that these
minimums,  which  establish  floors  below which the loan  interest  rate cannot
decline,  will continue to reduce its interest rate vulnerability in a declining
interest  rate  environment.  For the loans  which do not adjust  because of the
interest rate minimums, there is an increased risk of prepayment.

The Bank  believes it is critical to manage the  relationship  between  interest
rates  and  the  effect  on its  net  portfolio  value  ("NPV").  This  approach
calculates the difference  between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash  flows  from  off-balance  sheet  contracts.  The Bank  manages  assets and
liabilities within the context of the marketplace,  regulatory limitations,  and
within  its units on the  amount of  change  in NPV  which is  acceptable  given
certain interest rate changes.

The OTS  issued a  regulation,  which  uses a net market  value  methodology  to
measure the interest rate risk exposure of savings associations.  Under this OTS
regulation,  an institution's  "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an  amount  not  exceeding  2% of  the  present  value  of its  assets.  Savings
associations  with over  $300  million  in assets or less than a 12%  risk-based
capital  ratio are required to file OTS Schedule  CMR. Data from Schedule CMR is
used by the OTS to calculate  changes in NPV (and the related  "Normal" level of
interest rate risk) based upon certain interest rate changes  (discussed below).
Associations  which  do not  meet  either  of the  filing  requirements  are not
required to file OTS Schedule CMR, but may do so  voluntarily.  As the Bank does
not meet either of these requirements,  it is not required to file Schedule CMR,
although it does so voluntarily.  Under the regulation,  associations which must
file are required to take a deduction (the interest rate risk capital component)
from their  total  capital  available  to  calculate  their  risk based  capital
requirement of their interest rate exposure is greater than "normal." The amount
of that  deduction is one-half of the difference  between (a) the  institution's
actual  calculated  exposure  to a 200 basis  point  interest  rate  increase or
decrease  (whichever  results in the greater pro forma  decrease in NPV) and (b)
its "normal" level of exposure which is 1% of the present value of its assets.

Presented  below,  as of  September  30,  1998,  since data from the most recent
quarter  (December 31, 1998) is not yet  available  from the OTS, is an analysis
performed by the OTS of the Bank's  interest rate risk as measured by changes in
NPV for instantaneous  and sustained  parallel shifts in the yield curve, in 100
basis point increments,  up and down 400 basis points. At September 30, 1998, 2%
of the  present  value of the Bank's  assets  was  approximately  $3.8  million.
Because the  interest  rate risk of a 200 basis point  decrease in market  rates
(which was greater  than the interest  rate risk of a 200 basis point  increase)
was $.3 million at September 30, 1998,  the Bank would not have been required to
make a deduction  from its total  capital  available to calculate its risk based
capital  requirement if it had been subject to the OTS's reporting  requirements
under this methodology. Management believes there has been no significant change
in the interest rate risk measures since September 30, 1998.



                                                         16

<PAGE>


                Net Portfolio Value                  NPV as % of PV of Assets
Change
in Rates    $ Amount          $ Change   % Change     NPV Ratio        Change
-----------------------------------------------------------------------------
               (Dollars in Thousands)

+400 bp         33,427            -271         -1%         17.86%      +47 bp

+300 bp         34,307             663          2%         18.11%      +71 bp

+200 bp         34,627             982          3%         18.10%      +71 bp

+100 bp         34,274             629          2%         17.81%      +41 bp

   0 bp         33,645

-100bp          33,290           - 354         -1%         17.10%      -30 bp

-200 bp         33,392           - 253         -1%         16.99%      -40 bp

-300 bp         33,815             171          1%         17.02%      -37 bp

-400 bp         34,405             761          2%         17.11%      -28 bp


As with any method of measuring  interest rate risk,  certain  shortcomings  are
inherent in the methods of  analysis  presented  above.  For  example,  although
certain  assets  and  liabilities  may have  similar  maturities  or  periods to
repricing,  they may react in  different  degrees to changes in market  interest
rates.  Also, the interest rates on certain types of assets and  liabilities may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other types may lag behind  changes in market  rates.  Additionally,  certain
assets,  such as adjustable rate loans,  have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Most of the
Bank's   adjustable  rate  loans  have  interest  rate  minimums  of  6.00%  for
residential  loans  and 8.25%  for  commercial  real  estate  loans.  Currently,
originations  of  residential  adjustable  rate  mortgages  have  interest  rate
minimums of 6.25%. Further, in the event of a change in interest rates, expected
rates of  prepayments on loans and early  withdrawals  from  certificates  could
likely  deviate  significantly  from  those  assumed in  calculating  the table.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest  rate  increase,  although the Bank does  underwrite  these
mortgages  at  approximately  4.0%  above  the  origination  rate.  The  Company
considers all of these factors in monitoring its exposure to interest rate risk.



                                                         17

<PAGE>




                            PART II OTHER INFORMATION

Item 1.           Legal Proceedings

Neither  the  Company  nor the Bank were,  during  the  six-month  period  ended
December  31,  1998,  or  are as of  the  date  hereof,  involved  in any  legal
proceeding of a material nature. From time to time, the Bank is a party to legal
proceedings  wherein it enforces its security  interests in connection  with its
mortgage loans.

Item 4.           Submission of Matters to Vote of Security Holders

On October 8, 1998,  the Company  held its annual  meeting of  shareholders,  at
which time matters submitted to a vote of the shareholders included the election
of two Company directors and the approval and ratification of the appointment of
Olive LLP as auditors for the fiscal year ending June 30, 1999.

Both director nominees were elected and the appointment of auditors was approved
and ratified by a majority of the 1,638,157 issued and outstanding  share votes.
A  tabulation  of votes cast as to each  matter  submitted  to  shareholders  is
presented below:

                                                                      Broker
Director Nominees              For           Against     Abstain    Non-Votes
-----------------              ---           -------     -------    ---------
John M. Dalton                 1,512,868     21,986       -0-          -0-
Jack O. Murrell                1,512,418     22,436       -0-          -0-

Other Matters
-------------
Approval and
Ratification of Auditors       1,530,064     3,240       1,550         -0-

Item 6.           Exhibits and Reports on Form 8-K

a)       Exhibits

         3(1)     The  Articles  of   Incorporation   of  the   Registrant   are
                  incorporated by reference to Exhibit 3(1) to the  Registration
                  Statement on Form S-1 (Registration No. 33- 55052).

         3(2)     The Code of  By-Laws  of the  Registrant  is  incorporated  by
                  reference  to Exhibit  3(2) to the  Registration  Statement on
                  Form S-1 (Registration No. 33-55052).

         27       Financial Data Schedule

b)       Reports on Form 8-K

          The  Company  filed no reports on Form 8-K  during the  quarter  ended
December 31, 1998.

                                                         18

<PAGE>



                                   Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    MARION CAPITAL HOLDINGS, INC.



Date: February 11, 1999            By:  /s/ John M. Dalton
                                        --------------------------------------
                                             John M. Dalton, President



Date: February 11, 1999            By:  /s/ Larry G. Phillips
                                        --------------------------------------
                                             Larry G. Phillips, Vice President,
                                             Secretary and Treasurer