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 SEPTEMBER 30,
         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 November 10, 1998 was 1,557,828.


<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
              September 30, 1998 and June 30, 1998.............................2

              Consolidated Condensed Statement of Income for the three-month
              periods ended September 30, 1998 and 1997........................3

              Consolidated Condensed Statement of Changes in 
              Shareholders' Equity for the three months ended 
              September 30, 1998 and 1997......................................4

              Consolidated Condensed Statement of Cash Flows 
              for the three months ended September 30, 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........12

PART II.  OTHER INFORMATION

Item 1.     Legal Proceedings.................................................15

Item 6.     Exhibits and Reports on Form 8-K..................................15

SIGNATURES....................................................................16



<PAGE>

                           FORWARD LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q ("Form 10-Q") may contain 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  primarily  with  respect to
future events and future  financial  performance.  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 financial institutions;  substantial changes in financial markets; changes
in real estate values and the real estate market or regulatory changes.

                                                         1

<PAGE>




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

             CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                                      September 30,                 June 30,
                                                                          1998                        1998
                                                               --------------------------- ---------------------------
ASSETS
<S>                                                                     <C>                         <C>       
   Cash                                                                 $1,826,492                  $3,211,191
   Short-term interest bearing deposits                                  3,836,224                   1,923,573
                                                                  ----------------            ----------------
     Total cash and cash equivalents                                     5,662,716                   5,134,764
   Investment securities available for sale                              3,114,400                   3,048,751
   Investment securities held to maturity
     (market value $2,037,500 and $2,001,520)                            1,999,832                   2,002,917
   Loans receivable, net                                               166,950,970                 164,475,289
   Real estate owned, net                                                   10,595                      30,735
   Premises and equipment                                                1,922,870                   1,928,772
   Stock in Federal Home Loan Bank (at cost
     which approximates market)                                          1,134,400                   1,134,400
   Investment in limited partnerships                                    4,842,675                   4,883,175
   Investment in other affiliate                                           650,000                     650,000
   Core deposit intangibles and goodwill                                   775,532                     802,586
   Other assets                                                          9,650,364                   9,871,520
                                                                  ----------------            ----------------
     Total assets                                                     $196,714,354                $193,962,909
                                                                  ================            ================

LIABILITIES
   Deposits                                                           $136,629,417                $134,415,469
   Advances from FHLB                                                   15,457,302                  13,684,302
   Advances by borrowers for taxes and
     insurance                                                             322,378                     208,331
   Other liabilities                                                     8,669,641                   7,998,180
                                                                  ----------------            ----------------
     Total liabilities                                                 161,078,738                 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--1,619,240 and
       1,699,307 shares                                                  5,567,959                   7,785,191
   Retained earnings                                                    29,997,774                  29,841,104
   Unrealized gain on securities available for sale                         69,883                      30,332
                                                                  ----------------            ----------------
       Total shareholders' equity                                       35,635,616                  37,656,627
                                                                  ----------------            ----------------
         Total Liabilities and Shareholders' Equity                   $196,714,354                $193,962,909
                                                                  ================            ================
</TABLE>


                                                         2

<PAGE>




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

                   CONSOLIDATED CONDENSED STATEMENT OF INCOME

                                                       Three Months Ended
                                                         September 30,
                                                 -----------------------------
                                                    1998              1997
                                                 -----------       -----------
Interest Income
   Loans                                         $ 3,643,893       $ 3,258,100
   Mortgage-backed securities                            427             1,942
   Interest-bearing deposits                          37,663            58,427
   Investment securities                              73,803            92,082
   Other interest and dividend income                 22,960            21,778
                                                 -----------       -----------
     Total interest income                         3,778,746         3,432,329

Interest expense
   Deposits                                        1,714,329         1,562,266
   Advances from FHLB                                232,064           146,925
                                                 -----------       -----------
     Total interest expense                        1,946,393         1,709,191
                                                 -----------       -----------

Net interest income                                1,832,353         1,723,138
   Provision for losses on loans                       9,303             8,825
                                                 -----------       -----------

Net interest income after
   provision for losses on loans                   1,823,050         1,714,313
                                                 -----------       -----------

Other Income
   Net loan servicing fees                            20,552            19,571
   Annuity and other commissions                      21,457            37,897
   Equity in losses of limited partnerships          (40,500)          (89,100)
   Life insurance income and death benefits           41,250            48,793
   Other income                                       81,859            35,154
                                                 -----------       -----------
     Total other income                              124,618            52,315
                                                 -----------       -----------

Other expenses
   Salaries and employee benefits                    670,542           583,961
   Occupancy expense                                  64,677            47,387
   Equipment expense                                  30,242            17,874
   Deposit insurance expense                          33,872            31,638
   Real estate operations, net                        (1,266)             (933)
   Data processing expense                            74,862            39,479
   Advertising                                        27,987            26,684
   Other expenses                                    236,542           156,787
                                                 -----------       -----------
     Total other expenses                          1,137,458           902,877
                                                 -----------       -----------

Income before income taxes                           810,210           863,751

   Income tax expense                                293,080           203,558
                                                 -----------       -----------

Net income                                       $   517,130       $   660,193
                                                 ===========       ===========
Per Share
   Basic earnings per share                      $      0.32       $      0.38
   Diluted earnings per share                    $      0.31       $      0.37
   Dividends                                     $      0.22       $      0.22


                                                         3

<PAGE>




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

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


                                                          Total
                                                      Shareholders'
                                                         Equity
                                               -------------------------------
                                                   1998               1997
                                               ------------       ------------

Balances, July 1                               $ 37,656,627       $ 39,065,819

Comprehensive income
   Net income                                       517,130            660,193
   Other comprehensive income, net of tax
      Unrealized gains on securities                 39,551             18,367
                                               ------------       ------------

    Comprehensive income                            556,681            678,560

Exercise of stock options                            10,830             69,067

Repurchase of common stock                       (2,228,062)

Amortization of unearned compensation                43,956

Cash Dividends                                     (360,460)          (390,268)
                                               ------------       ------------
Balances, September 30                         $ 35,635,616       $ 39,467,134
                                               ============       ============


                                                                 4

<PAGE>

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

                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

                                                           Three Months Ended
                                                             September 30,
                                                     -----------------------------
                                                        1998              1997
                                                     -----------       -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                  <C>               <C>        
   Net income                                        $   517,130       $   660,193
   Adjustments to reconcile net income to
     net cash provided by operating activities:
     Provision for loan losses                             9,303             8,825
     Equity in loss of limited partnerships               40,500            89,100
     Amortization of net loan origination fees           (45,728)          (38,263)
     Net amortization of investment
          securities' premiums and discounts                 159             1,113
     Amortization of unearned compensation                     0            43,956
     Amortization of core deposits and goodwill           27,053                 0
     Depreciation                                         43,273            23,706
     Deferred income tax                                  35,792             3,811
     Origination of loans for sale                    (1,891,518)       (1,416,307)
     Proceeds from sale of loans                       1,910,123         1,416,307
     Change in:
       Interest receivable                               128,728           (57,997)
       Interest payable and other liabilities            671,461           971,054
       Cash value of insurance                           (41,250)          (48,793)
       Prepaid expense and other assets                  (93,932)          (31,108)
                                                     -----------       -----------

     Net cash provided by operating activities         1,311,094         1,625,597
                                                     -----------       -----------
        
INVESTING ACTIVITIES
   Proceeds from maturity of investment
     securities held to maturity                               0         1,610,000
   Contribution to limited partnership                   394,062                 0
   Payments on mortgage-backed securities                  2,770           174,970
   Net changes in loans                               (2,665,906)       (3,817,317)
   Purchases of premises and equipment                   (37,371)         (113,395)
   Death benefits received on life insurance                   0           553,793
                                                     -----------       -----------

     Net cash used by investing
       activities                                     (2,306,445)       (1,591,949)
                                                     -----------       -----------
</TABLE>



                                                                 5

<PAGE>




           CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (continued)

                                                      Three Months Ended
                                                         September 30,
                                                    1998              1997

FINANCING ACTIVITIES 
   Net change in:
     Noninterest-bearing deposits, NOW
       passbook and money market savings
       accounts                                  (2,100,500)          322,812
     Certificates of deposit                      4,314,448        (1,513,645)
   Proceeds from FHLB advances                    7,000,000         5,656,000
   Repayment of FHLB advances                    (5,227,000)       (3,000,000)
   Net change in advances by borrowers for
     taxes and insurance                            114,047            76,606
   Proceeds from exercise of stock options           10,830            69,067
   Stock repurchases                             (2,228,062)                0
   Dividends paid                                  (360,460)         (390,268)
                                                -----------       -----------

     Net cash provided by
       financing activities                       1,523,303         1,220,572
                                                -----------       -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS             527,952         1,254,220

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

     Cash and Cash Equivalents,
       End of Period                            $ 5,662,716       $ 4,876,959
                                                ===========       ===========

ADDITIONAL CASH FLOWS AND
   SUPPLEMENTARY INFORMATION
   Interest paid                                $ 1,142,209       $   911,814
   Income tax paid                                   80,000           153,139
   Loan balances transferred to real
     estate owned                                         0            69,694


                                                                 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 September  30, 1998,  results of operations  for the  three-month
period ended  September  30, 1998 and 1997,  and cash flows for the  three-month
period ended September 30, 1998 and 1997.

NOTE B: Dividends and Earnings Per Share

On August 17, 1998, the Board of Directors declared a quarterly cash dividend of
$.22 per share.  This dividend was paid on September 15, 1998 to shareholders of
record as of August 28, 1998.

Earnings per share (EPS) were computed as follows:

<TABLE>
<CAPTION>

                                                 Three Months Ended                          Three Months Ended
                                                 September 30, 1998                          September 30, 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                $     517,130       1,640,284       $   .32      $   660,193     1,771,260      $  .38
                                                                         =======                                     ======

Effect of dilutive securities
  RRP program                                                3,324                                        6,012
  Stock Options                                             41,086                                       47,342
                                     -------------      ----------       -------      -----------    ----------      ------

Diluted earnings per share
  Income available to
  common shareholders and
  assumed conversions                $     517,130       1,667,464       $   .31      $   660,193     1,804,389      $  .37
                                     =============       =========       =======      ===========     =========      ======

</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:


                                                             7

<PAGE>




                                             Three Months Ended
                                               September 30,

                                       1998                    1997
                                    ----------              ----------
Accumulated comprehensive income
  Balance, July 1                   $   30,337              ($   1,961)
  Net unrealized gains                  39,551                  18,367
                                    ----------              ----------

  Balance, September 30             $   69,883              $   16,406
                                    ==========              ==========

Income tax expense
  Unrealized holding gains          $   25,942              $   12,047
                                    ==========              ==========


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

General:

The Company's total assets were $196.7 million at September 30, 1998 compared to
$194.0 million at June 30, 1998. Cash and cash equivalents increased $528,000 or
10.28% from June 30, 1998 to September 30, 1998.  Loans  receivable  were $167.0
million at September 30, 1998, an increase of $2.5 million,  or 1.5%,  from June
30,  1998.  This  increase is largely due to the  origination  of 1-4 family and
consumer loans.

Deposits  increased to $136.6  million at September  30, 1998 compared to $134.4
million  at  June  30,  1998,  a  1.6%  increase.  This  $2.2  million  increase
represented a $2.1 million decrease in passbook and transaction  accounts and an
approximate  $4.3 million  increase in  certificate  of deposit  accounts.  This
increase in total  deposits could  partially be attributed to investors  looking
for less volatile investments due to current stock market conditions.

Other  liabilities  increased from $8.0 million at June 30, 1998 to $8.7 million
at September 30, 1998 as a result of normal operational increases.  The increase
consisted  primarily  of a  $792,000  increase  in accrued  interest  payable on
deposits since a majority of the certificates of deposit compound  semi-annually
at June 30 and December 31.

Shareholders'  equity was $35.6 million at September 30, 1998, compared to $37.7
million  at June 30,  1998.  This  decrease  was  primarily  the  result  of the
Company's  stock  repurchases  during the three months ended September 30, 1998.
The Company  completed the stock  repurchase  program from May 1998,  during the
quarter  ended  September 30, 1998. In addition,  a new  repurchase  program was
announced  in August 1998  calling for 81,907  shares to be  acquired,  of which
61,907 remained outstanding at September 30, 1998.

Net income  amounted to $517,130 for the three months ended  September 30, 1998.
This amount  represents  a $143,063  decrease  from the  earnings  for the three
months ended September 30, 1997 of $660,193. Earnings for the three months ended
September 30, 1997 included an additional $100,000 in federal income tax credits
as compared to the three months ended  September 30, 1998. This reduction of tax
credits had the effect of increasing  the effective tax rate of the Company from
approximately 24% to 36%.  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. The
Company is also  experiencing  an increase in operating  expenses due to two new
branches that were opened in October and December, 1997, respectively.  As these
branches continue to grow, the increased  revenues should offset their operating
expenses.  For the  three  months  ended  September  30,  1998,  the Bank made a
provision  of  $9,303  for  general  loan  losses  compared  to  $8,825  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.

                                                             8

<PAGE>





Results of Operations  Comparison  of Three Months Ended  September 30, 1998 and
September 30, 1997

Net income for the three months ended  September 30, 1998 was $517,130  compared
with  $660,193  for the three  months  ended  September  30, 1997, a decrease of
$143,063.  Interest  income  for the  three  months  ended  September  30,  1998
increased $346,000 or 10.1% compared to the same period in the prior year, while
interest  expense  for the three  months  ended  September  30,  1998  increased
$237,000 or 13.9%  compared  to the same period in the prior year.  As a result,
net interest  income for the three months ended  September  30, 1998 amounted to
$1,832,353, an increase  of $109,000 or 6.4%  compared to the same period in the
prior year.

A provision  of $9,303 for losses on loans was made for the three  months  ended
September  30, 1998  compared  to a provision  of $8,825 in the same period last
year.

Total other income increased by $72,000 for the three months ended September 30,
1998,  compared  to the  same  period  in the  prior  year.  This  increase  was
attributed  to both a reduction in the amount of losses of limited  partnerships
and an increase in other income resulting  primarily from fee income received in
relation to transaction accounts and debit card products.

Total other expenses increased by $235,000, for the three months ended September
30, 1998,  compared to the same period in the prior year.  The majority of these
increases are directly  related to the opening of two new branches in late 1997.
As a result,  the Company has seen an increase in the following areas:  salaries
and employee benefits,  occupancy expense, equipment expense and data processing
expense.  Other expenses have increased as a result of more transaction accounts
and the added costs of operating  four ATM's during the quarter ended  September
30, 1998, compared to one ATM in the same period of the prior year.

Income tax expense for the three months  ended  September  30, 1998  amounted to
$293,080  compared to income tax expense of $203,558  for the three months ended
September 30, 1997.  The Company's  effective tax rate  increased to 36% for the
quarter  ended  September  30,  1998,  compared to 24% during the quarter  ended
September  30, 1997.  This was a direct result of a reduction of $100,000 in tax
credits for 1998 compared to the prior year's quarter ended September 30, 1997.

The  allowance  for loan losses  amounted to $2.1 million at September 30, 1998,
which was  unchanged  from June 30, 1998 after  adjusting  for  charge-offs  and
recoveries. Management considered the allowance for loan losses at September 30,
1998, to be adequate to cover estimated losses inherent in the portfolio 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,
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
September 30, 1998.

                                        Allowance For
                                        Loan Losses

Balances at July 1, 1998               $     2,087,412
Provision for losses                             9,303
Recoveries                                           0
Loans charged off                              (20,010)
                                       ---------------

Balances at September 30, 1998               2,076,705
                                       ===============

The loan loss  reserves to total loans at September  30, 1998  equaled  1.23% of
total loans  outstanding,  compared to 1.25% of total loans  outstanding at June
30, 1998.  Total  nonperforming  assets  decreased during the three months ended
September  30,  1998,  from $2.0  million  at June 30,  1997 to $1.6  million at
September 30, 1998.

                                                             9

<PAGE>




Non-performing  assets at September 30, 1998  consisted of $1.6 million of loans
delinquent greater than 90 days and $11,000 of other real estate owned.

Total  non-performing loans totaled .94% of total loans outstanding at September
30, 1998 compared to 1.16% of total loans at June 30, 1998.

As a result of the most recent  operating  statements of two  multi-family  real
estate loans that the Bank has  participated in with another  lender,  the loans
were  classified as doubtful or loss. A portion of the Bank's loan loss reserves
in the amount of  $242,000  has been  allocated  for  potential  losses on these
projects. As of September 30, 1998, both loans were current.

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.

                                        September 30,       June 30,
                                           1998              1998
                                           (Dollars in Thousands)

Accruing loans delinquent
   more than 90 days                       $---               $---
Non-accruing loans:                                     
   Residential                            1,330              1,454
   Multi-family                              --                 --
   Commercial Real Estate                    --                198
   Commercial                               215                268
   Consumer                                  50                 18
Troubled debt restructurings                 --                 --
                                         ------             ------
   Total non-performing loans             1,595              1,938
Real estate owned, net                       11                 31
                                         ------             ------
   Total nonperforming assets            $1,606             $1,969
                                         ======             ======
                                                     
Non-performing loans to
   total loans                              .94%              1.16%
Non-performing assets to
   total assets                             .82%              1.02%

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.


                                                            10

<PAGE>


<TABLE>
<CAPTION>

                                                            Three Months Ended September 30
                                                           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            $176,490         $3,779            8.56%    $164,550         $3,432            8.34%
Total interest-
         bearing liabilities         150,767          1,946            5.16%     130,149          1,709            5.25%
                                                    -------                                     -------

Net interest income/
         interest rate spread                        $1,833            3.40%                     $1,723            3.09%
                                                     ======                                       =====
</TABLE>


Financial Condition

Shareholders'  equity at  September  30,  1998 was  $35,635,616,  a decrease  of
$2,021,011 from June 30, 1998. The Company's equity to asset ratio was 18.12% at
September  30, 1998  compared to 19.41% at June 30,  1998.  All fully  phased-in
capital  requirements are currently met. The following table depicts the amounts
and ratios of the Bank's  capital as of September  30,  1998,  under each of the
three regulatory capital requirements (tangible,  core, and fully phased-in risk
based):

                                            Tangible       Core      Risk-Based
                                            Capital       Capital     Capital
                                            -------       -------     -------
                                                  (Dollars in thousands)

Amount                                      $ 31,010      $ 31,010    $32,586
As a percent of assets, as defined             16.42%        16.42%     25.95%
Required amount                             $  2,828      $  5,656    $10,047
As a percent of assets, as defined               1.5%          3.0%       8.0%
Capital in excess of
   required amount                          $ 28,182      $ 25,354    $22,539

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 September 30, 1998, the Bank's
liquidity ratio was 7.5% of which 4.8% 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

                                                            11

<PAGE>




from the year 1999 to the year  2000,  which  could  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
September  30, 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.
The Company has been informed that its primary service provider anticipates that
all  reprogramming  efforts  will be completed  by October,  1998,  allowing the
Company adequate time for testing. In November,  1998, the Company began testing
the systems of its primary service provider.  Such testing will continue through
the next fiscal quarter.

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 the 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://www.sec.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

                                                            12

<PAGE>




a rising  interest rate  environment  by having in excess of 85% of its 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  is limits 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 relates  "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 70 of the present value of its assets.

Presented  below, as of September 30, 1998, 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.

                                                            13

<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

-100 bp       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 dos  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.





                                                            14

<PAGE>


                            PART II OTHER INFORMATION

Item 1.           Legal Proceedings

Neither  the  Company  nor the Bank were  during the  three-month  period  ended
September  30,  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 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).

          27.1      Financial Data Schedule for Period Ended September 30, 1998

          27.2      Restated  Financial Data Schedule for Period Ended September
                    30, 1997

b)       Reports on Form 8-K

          The  Company  filed no reports on Form 8-K  during the  quarter  ended
September 30, 1998.



                                                        15

<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: November 11, 1998                   By: /s/ John M. Dalton
                                              --------------------------
                                              John M. Dalton, President



Date: November 11, 1998                   By: /s/ Larry G. Phillips
                                              ----------------------------
                                              Larry G. Phillips, Vice President,
                                              Secretary and Treasurer