<PAGE>

           QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934
           
                          UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549
               
                           Form 10-QSB

     [X]  Quarterly Report Pursuant to Section 13 or 15(d) of
               the Securities Exchange Act of 1934
            For the 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 1-13819

                 MegaBank Financial Corporation
                 ------------------------------
      (Exact name of registrant as specified in its charter)

         Colorado                                   84-0949755
         --------                                   ----------
        (State or other jurisdiction of             (I.R.S.
         Employer incorporation or organization)     Identification Number)
        
         8100 E. Arapahoe Road, Suite 214,Englewood, Colorado 80112
         ----------------------------------------------------------
         (Address of principal executive offices)        (Zip code)

                           (303) 740-2265
                           --------------
                   (Registrant's telephone number)
                          
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  reports),  and (2) 
has been subject  to  such  filing requirements for the past 90 days.
[X] Yes [  ]No

At October 21, 1998, there were 6,407,340 shares of the registrant's common 
stock outstanding.

Transitional Small Business Disclosure Format
     [  ] Yes  [X] No

</PAGE>
<PAGE>

           MEGABANK FINANCIAL CORPORATION
                  TABLE OF CONTENTS
PART I.   FINANCIAL INFORMATION                       PAGE NO.

          Item 1.   Financial Statements                   3

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

PART II.  OTHER INFORMATION

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

          SIGNATURES                                      16

</PAGE>
<PAGE>
<TABLE>

                    PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

            MEGABANK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED
                                 BALANCE SHEETS
                             (Dollars in thousands)

<CAPTION>

                                       September 30,    December 31,
                                           1998             1997
                                        (Unaudited)
                                       -------------     -------------
<S>                                    <C>               <C>
ASSETS                                 
   Cash and due from banks             $   12,148        $   9,910
   Interest-bearing deposits                   88            1,470
   Federal funds sold                      13,300            1,775
   Investment securities
    available for sale                     16,613           13,999
   Loans                                  166,709          126,087
      Less allowance for loan losses       (2,491)          (2,083)
                                       ___________       ___________
                                          164,218          124,004
   Bank premises, leasehold
    improvements and equipment, net         7,974            4,799
   Accrued interest receivable              1,176              898
   Deferred tax asset                         778              636
   Preferred securities issuance
    costs, net                                734              255
   Other                                      244              134
                                       ___________       ___________
               Total assets            $  217,273        $  157,880
                                       ===========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
   Liabilities
      Deposits
         Demand, non-interest
          bearing                      $   61,320       $   42,515
         Demand, interest bearing          70,567           56,339
      Savings                               5,964            4,562
      Time, $100,000 and over              14,327           10,141
      Other time                           36,716           28,321
                                       ___________      ___________
               Total deposits             188,894          141,878

      Federal Home Loan Bank
       borrowings                               -            1,423
      Securities sold under
       agreement to repurchase                556                -
      Income taxes payable                    162              132
      Accrued interest payable                399              152
      Note payable                              -            2,000
      Other                                   902              717
                                       ___________      ___________
               Total liabilities          190,913          146,302

      Company obligated manditorily
       redeemable preferred
       securities of subsidiary
       trust holding solely Junior
       Subordinated Debentures             12,000                -
   Shareholders' equity
      Preferred stock; no par value,
       10,000,000 shares authorized,
       none issued                              -                -
      Common stock; no par value,
       50,000,000 shares authorized,
       6,407,3401 (1) shares issued and
       outstanding                          1,961            1,961
      Retained earnings                    12,400            9,578
      Accumulated other
       comprehensive income                    (1)              39
                                       ___________      ___________
         Total shareholders' equity        14,360           11,578
                                       ___________      ___________

         Total liabilities and
          shareholders' equity         $  217,273       $  157,880
                                       ===========      ===========

      The accompanying notes are an integral part of these statements.
----------------
<FN>
(1) Gives effect to a 30-for-1 stock split of the Company's Common Stock
in September 1998.
</TABLE>
</PAGE>
<PAGE>
<TABLE>

              MEGABANK FINANCIAL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME AND
                   COMPREHENSIVE INCOME Nine months ended
                   September 30, 1998 and 1997 (Unaudited)
               (Dollars in thousands, except per share data)

<CAPTION>
                                      Three Months        Nine Months
                                         Ended                Ended
                                      September 30,        September 30,
                                    1998       1997       1998       1997
                                  _________  _________ _________  _________ 

<S>                               <C>        <C>       <C>        <C>
Interest income
   Loans, including fees          $  5,166   $  3,576   $ 13,448   $  9,982
   Taxable investment
    securities                          89         72        231        209
   Nontaxable investment
    securities                         187        137        561        413
   Funds sold                           74        137        381        447
   Other interest                       47         18        135         34
                                  _________  _________  _________  _________ 
      Total interest income          5,563      3,940     14,756     11,085  
 
Interest expense
   Deposits                          1,499      1,199      4,164      3,358
   Borrowed funds                       28         32        112        126
   Trust preferred securities          270          -        688          -
   Notes payable                         -         44         19        135
                                  _________  _________  _________  _________ 
      Total interest expense         1,797      1,275      4,983      3,619
                                  _________  _________  _________  _________
      Net interest income            3,766      2,665      9,773      7,466
                              
           
Provision for loan losses              190        110        410        360
                                  _________  _________   _________  _________ 
      Net interest income after
       provision for loan
       losses                        3,576      2,555      9,363      7,106
Other income
   Service charges on deposit
    accounts                           142         84        391        253
   Gain on sale of investment
    securities                           -          -         25          -
   Other income                         92        128        280        287
                                  _________  _________  _________  _________
      Total other income               234        212       696         540

Other expenses
   Salaries and employee
    benefits                         1,279        784     3,183       2,216
   Occupancy expenses of
    premises                           301        221       688         539
   Furniture and equipment
    expense                            108         93       337         221
   Other expenses                      501        518     1,681       1,608
                                  _________  _________  _________  _________ 
      Total other expenses           2,189      1,616     5,889       4,584
                                  _________  _________  _________  _________
      Income before income
       taxes                         1,621      1,151      4,170      3,062
Income tax expense                     514        378      1,348      1,031
                                  _________  _________   _________  _________ 
      Net income                     1,107        773      2,822      2,031
Other comprehensive income, net
 of tax
   Unrealized gains (losses) on
    investment securities
    available for sale                 (61)       106       (40)        104
                                  _________  _________  _________  _________ 
Comprehensive income              $  1,046   $    879   $  2,782    $  2,135
                                  =========  =========  =========  ========= 
Income per share
      Basic earnings per share    $    .17   $    .12   $    .44    $    .32
                                  =========  =========  =========  ========= 
Common shares outstanding        6,407,340  6,407,340  6,407,340  6,407,340
                                 ========== ========== ========== ==========

       The accompanying notes are an integral part of these statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>

         MEGABANK FINANCIAL CORPORATION AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS
          Nine months ended September 30, 1998 and 1997
                        (Unaudited) 
                  (Dollars in thousands)

<CAPTION>
                                                    Nine months ended
                                                      September 30,
                                                     1998      1997
                                                 _________  _________
                                                      (Unaudited) 

<S>                                              <C>        <C>
Cash flows from operating activities
   Net income                                    $  2,822   $   2,031
   Adjustments to reconcile net income to net
    cash provided by operating activities
      Provision for loan losses                       410         360
      Depreciation and amortization of fixed
       assets                                         350         203
      Amortization of preferred securities
       issuance costs                                  16           -
      Net discount accretion on investment
       securities                                     (12)        (21)
      FHLB stock dividend                             (23)        (16)
      Gain on sale of investment securities
       available for sale                             (25)          -
      Deferred income taxes                          (126)          6
   Changes in deferrals and accruals
      Accrued interest receivable                    (278)       (214)
      Accrued interest payable                        247          46
      Other, net                                      105         265
                                                 _________  _________
         Net cash provided by operating
          activities                                3,486       2,660
Cash flows from investing activities
   Net (increase) in federal funds sold           (11,525)    (10,475)
   Net (increase) decrease in interest-bearing
    deposits                                        1,382      (1,542)
   Purchase of securities available for sale       (4,476)     (3,531)
   Proceeds from maturities of investment
    securities available for sale                   1,250       2,850
   Proceeds from sales of securities available
    for sale                                          616           -
   Net (increase) in loans                        (40,624)    (20,689)
   Expenditures for bank premises and equipment    (3,525)     (1,462)
                                                 _________   _________
         Net cash used in investing activities    (56,902)    (34,849)

Cash flows from financing activities
   Net increase in deposits                        47,016      38,605
   Net(decrease) in advances from
    Federal Home Loan Bank                         (1,423)       (484)
   Net increase in securities sold
    under repurchase agreements                       556           -
   Proceeds from trust preferred securities        12,000           -
   Trust preferred securities issuance costs         (495)          -
   Principal payments on notes payable             (2,000)       (628)
                                                 _________   _________
         Net cash provided by financing
          activities                               55,654      37,493
                                                 _________   _________
Net increase in cash and due from banks             2,238       5,304
Cash and due from banks at beginning of period      9,910       9,130
                                                 _________   _________
Cash and due from banks at end of period         $ 12,148    $ 14,434
                                                 =========   =========
Supplemental disclosures of cash flow
 information
   Cash paid year to date for:
      Interest expense                           $  4,735    $  3,573
      Income taxes                                  1,408       1,168

   The accompanying notes are an integral part of these statements.
</TABLE>
</PAGE>
<PAGE>

         MEGABANK FINANCIAL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          Nine months ended September 30, 1998 and 1997 
                           (Unaudited)
 
1.   Unaudited Financial Statements

The accompanying unaudited interim financial statements have been prepared in 
accordance with the instructions for Form 10-QSB  and do  not include all
of the information and footnotes required  by generally  accepted accounting 
principles for complete  financial statements.   All  adjustments  that  are,  
in  the opinion   of management,  of  a normal recurring nature necessary  to  
a  fair statement of results for the interim periods presented have  been made.
The results of operations for such interim periods are not necessarily 
indicative of results of operations for a full  year. The statements should be
read in conjunction with the summary  of significant accounting  policies  and  
notes  to   consolidated financial  statements included in the prospectus of
the  Company dated February 3, 1998, SEC File Nos. 333-42189 and 333-42191.

In   the   opinion  of  management,  the accompanying  financial statements  
contain all adjustments necessary to present  fairly the  financial position of 
the Company at September 30, 1998, and the  results  of operations and cash 
flows for the periods  ended September 30, 1998 and 1997.

The consolidated financial statements include the accounts of the Company's  
respective  subsidiaries.  All  material  intercompany transactions have been
eliminated.

2.   Nature of Operations

MegaBank  Financial Corporation (the "Company")  was founded  in 1984  with the 
objective of building a banking franchise  in  the Denver,  Colorado
metropolitan area that would  deliver  a  broad based package  of  products  
and  services  to  businesses and individuals.   The  Company's banking 
subsidiary, MegaBank  (the "Bank"),  was  organized in 1983.  Since  the  
advent of  branch banking in Colorado in 1993, the Bank has opened seven 
additional banking locations throughout the Denver area.  Two more branches are 
in the planning and construction phases.

3.   Offering of Trust Preferred Securities by MB Capital I

On  February 9, 1998 the Company and its wholly owned subsidiary, MB  Capital I 
(the "Trust"), completed the sale of $12.0  million of 8.75% Cumulative Trust
Preferred Securities of the Trust.  Net proceeds were approximately $11.2 
million after payment of  sales commissions and other offering costs, and were
invested in Junior Subordinated Debentures maturing February 9, 2028, issued 
by  the Company  to  the Trust in connection with the  public  offering.
Interest  on the Junior Subordinated Debentures will be  paid  by the  Company 
to the Trust, will be the sole revenues of the Trust and  the source for
distributions by the Trust to the holders  of the Trust Preferred Securities.

</PAGE>
<PAGE>

For  financial  reporting purposes, the Trust  is treated  as  a subsidiary of 
the Company, and accordingly, the accounts  of  the Trust  are included in the 
consolidated financial statements  of the  Company.  The Trust Preferred 
Securities are presented as  a separate  line item in the consolidated balance 
sheet  under  the caption "Company  obligated  mandatorily  redeemable
preferred securities of subsidiary trust holding solely Junior Subordinated 
Debentures."   For financial  reporting  purposes,  the  Company records
distributions payable on the Trust Preferred Securities as interest expense in 
the consolidated statements of income.

The  Junior Subordinated Debentures are unsecured and rank junior and  are  
subordinate  to  all senior debt  of  the  Company  and constitute  a  full and
unconditional guarantee on a subordinated basis  by the Company of the 
obligations of the Trust under the Preferred Securities.

4.   Accounting Changes

Comprehensive Income

The   Company   adopted  Financial  Accounting Standards   Board Statement  
No.  130, "Reporting Comprehensive Income"  (SFAS  No. 130),  effective
January  1, 1998.   SFAS  No.  130  establishes standards  for reporting 
comprehensive income and its components (revenues,   expenses,   gains  and
losses).    Components   of comprehensive  income  are net income  and  all
other  non-owner changes in equity.  The Statement requires that an enterprise 
(a) classify items of other comprehensive income by their nature in a 
financial  statement and (b) display the accumulated balance  of other 
comprehensive income separately from retained earnings  and additional  paid-in
capital in the equity section of a  statement of financial position.  
Reclassification of financial statements for   earlier  periods  provided  for
comparative  purposes is required.  Amounts formerly presented in Shareholders' 
Equity  as "Unrealized  gains  on securities available  for  sale,  net  of 
taxes", are  now  reflected as "Accumulated other comprehensive income".

Operating Segments

The   Company   adopted  Financial  Accounting Standards   Board Statement  
No.  131, Disclosures About Segments of an  Enterprise and  Related 
Information, (SFAS No. 131)  effective  January  1, 1998.    This  Statement  
establishes  standards  for   reporting information  about  segments  in  
annual  and interim  financial statements.  SFAS  No. 131 introduces a new  
model  for  segment reporting  called  the  "management  approach."   The
management approach  is  based on the way the chief operating decision-maker 
organizes  segments  within the  company  for  making  operating decisions  and
assessing performance.  Reportable  segments  are based  on  products  and  
services, geography,  legal structure, management   structure  and  any  other
in   which   management disaggregates  a  company.  Based on the  "management  
approach" model,  the Company has determined that its business is comprised
of a single operating segment and that SFAS No. 131 therefore has no impact on 
its financial statements.

</PAGE>
<PAGE>

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

Overview

It is presumed that readers of these interim financial statements have  read  
or  have  access to the Management's  Discussion  and Analysis of Financial 
Condition and Results of Operations for the year   ended  December  31,  1996,  
included  in  the   Company's Prospectus  dated February 3, 1998, SEC File Nos.
333-42189  and 333-42191.   The following discussion of the financial  
condition and  results  of operation  of the Company  should  be  read  in
conjunction with the unaudited consolidated financial statements of the Company 
included elsewhere herein.

Charter Conversion

As  of  September 1, 1998, the Company changed its status  to  a unitary  
thrift holding company within the meaning  of  the  Home Owners'  Loan Act of 
1933 ("HOLA"), as amended.  The  Company  is registered with the Office of 
Thrift Supervision ("OTS")  and is subject to  OTS regulations,  examinations,
supervision  and reporting requirements. Conversely, the Company is no  longer  
a bank holding  company registered under the Bank Holding Company Act  of 1956 
and, therefore, the Company is no longer subject  to regulation  by  the  Board 
of Governors of the Federal  Reserve System.   In addition, the Bank converted  
its  charter  from  a Colorado  state-chartered commercial  bank  to  a
federal stock savings  bank.   Management believes that the  flexibilities  and 
opportunities with a thrift charter complement the Bank's current lending
practices  and  should enhance the  Company's  long-term plans,  including the 
establishment of a real estate  subsidiary. Management's  plan  is  that  the
real  estate  subsidiary  will purchase  undeveloped real estate in the Denver,
Colorado  area, and  develop  and  sell  the  land to  small-  to  medium-sized 
homebuilders  who do not have resources to develop land but are able  to build  
homes economically.  The Company would  receive income  from  the  land sales 
as well as fee and interest  income upon  funding  the homebuilders' loans 
through  the  Bank.  The Company also contemplates entering into related
activities,  such as the formation or purchase of a title company.

Stock Split

The  Company effected a 30-for-1 stock split of its Common  stock on  
September 1, 1998.  The financial information herein gives effect to the split. 

Results of Operations 

Net  interest  income was $9.4 million for the nine months  ended September 30, 
1998, an increase of $2.3 million from $7.1 million for the same period in 1997.
Net interest income for the three months ended  September 30, 1998 and 1997 was 
$3.6  million and $2.6  million, respectively.  Interest income for the nine 
months ended  September  30, 1998 and 1997 was $14.8 million  and  $11.1 
million, respectively, and $5.6 million compared to $3.9  million for  the

</PAGE>
<PAGE>

three month period ended September 30, 1998  and 1997, respectively.   The  
increase  was  due  to higher  balances of interest  earning  assets.  Interest 
expense for  the same  nine month period was $5.0 million in 1998 compared to 
$3.6 million in 1997  and  the  three month period ended September 30,  was  
$1.8 million in  1998  compared to $1.3 million in 1997.  Additional interest 
bearing deposits contributed to the increase in interest expense, as well as 
the additional interest expense of the  Trust Preferred Securities offering 
discussed elsewhere herein. Other income generated in the first three quarters 
of 1998 increased to approximately  $696,000  as compared to $540,000  for  
the  first three  quarters of 1997,and $234,000 and $212,000 for the  three 
months ended  September 30, 1998 and 1997,  respectively.  This overall  
increase  is attributable primarily  to additional fee income,  and to a lesser 
extent, to a one-time gain on  sale of equity securities.  Other expenses in 
the first three quarters of 1998  were  $5.9 million compared to $4.6 million  
for  the  same period  the  previous year.  Other expenses in the  three  
months ended  September 30,  1998 were $2.2 million  compared  to  $1.6 
million  for  the  three  months ended September  30, 1997.  An increase  in  
other  expenses  is  primarily  due  to additional employee  and occupancy 
expense required by branch expansion and internal growth.

In  the  nine  months ended  September  30,  1998, the  Company generated  net  
income after provisions for income  tax  of  $2.8 million  compared to $2.0
million for the same period  last  year and  $1.1 million compared to $0.8 
million for the three months ended   September   30,  1998  and  1997, 
respectively.  This improvement  is attributable to the overall growth of 
the  Bank. Total  assets of the Company were approximately $217 million and
$159 million at September 30, 1998 and 1997, respectively.

On  February 9, 1998 the Company and its wholly owned subsidiary, MB  Capital I
(the "Trust"), completed the sale of $12.0  million of 8.75% Cumulative Trust
Preferred Securities of the Trust.  Net proceeds were approximately $11.2 
million after payment of  sales commissions and other offering costs, and were 
invested in Junior Subordinated Debentures issued by the Company to  the  Trust
in connection  with  the public offering.  Interest  on the  Junior Subordinated
Debentures will be paid by the Company to the Trust, will  be  the  sole  
revenues of the Trust  and  the source  for distributions by the Trust to the 
holders of the Trust  Preferred Securities.

Net  increases  in  loans were $40.6 million  and $20.7  million during  the  
nine  months  ended September  30,  1998 and  1997, respectively  and $19.3 
million and $6.6 million  for  the  three months  ended  September 30, 1998 
and 1997, respectively.  Actual origination of new loans was approximately 
$231.6 million for the first  nine  months of 1998 as compared to $136.1
million  during the same period in 1997. 

Net  increases in deposits were approximately $47.0 million  and $38.6  
million  for the nine months ended September 30, 1998 and 1997, respectively, 
due to the Bank's growth. Total deposits were approximately $188.9 million at 
September 30, 1998 as compared to $143.3 million at September 30, 1997.

Analysis  of  Allowance for Loan Losses. The allowance  for  loan losses  
represents  management's recognition  of  the  risks  of extending  credit and
its evaluation of the quality of  the  loan portfolio.   The  allowance is 
maintained at a  level considered adequate  to  provide  for  anticipated

</PAGE>
<PAGE>

loan  losses  based   on management's  assessment of various factors  
affecting  the  loan portfolio.  The allowance is increased by additional 
charges  to operating  income  and  reduced by  loans  charged off,  net  of 
recoveries.

The  following table sets forth information regarding changes  in the  
allowance  for  loan losses of the Company  for  the  period indicated.
<TABLE>

<CAPTION>
                                          For The Nine Months Ended
                                              September 30, 1998
                                              ------------------
                                            (Dollars in thousands)

<S>                                                 <C>
Average total loans                                 $142,481
                                                    ========

Total loans at end of period                        $166,709
                                                    ========

Allowance at beginning of period                      $2,083

Charge-offs:
     Construction                                          -
     Commercial and industrial                            (2)
     Installment                                          (6)
     Mortgage                                              -
     Other                                                 -
          Total charge-offs                               (8)

<CAPTION>
                                            Nine Months Ended
                                           September 30, 1998
                                           ------------------
                                         (Dollars in thousands) 

<S>                                          <C>
Recoveries:
     Construction                                    -
     Commercial and industrial                       3
     Installment                                     3
     Mortgage                                        -
     Other                                           -

          Total recoveries                           6
                                              ---------

Net (charge-offs) recoveries                        (2)
Provisions for loan losses                         410
                                              ---------

Allowance at end of period                    $   2,491

Ratio of net (charge-offs) recoveries
     to average loans                             0.001%
Allowance to total loans at end of period          1.49% 
Allowance to nonperforming loans                 192.91%
</TABLE>
</PAGE>
<PAGE>

The  Company's  lending personnel are responsible for continuous monitoring  
of  the  quality  of  loan portfolios.  The   loan portfolios  are also 
monitored and examined by the Company  loan review  personnel.   The  allowance
for  loan  losses  is  based primarily on management's estimates of possible 
loan losses  from the   foregoing  processes  and  historical experience.    
These estimates involve ongoing judgments and may be adjusted over time 
depending on  economic  conditions  and  changing  historical experience.

As   an  integral  part  of  their examination process,  federal regulators 
review the Company's loans and its allowance for  loan losses.   Management  
believes that the Company's  allowance  for loan  losses is adequate to cover 
anticipated losses.  There  can be no  assurance, however, that management 
will not determine  a need   to  increase  the  allowance  for loan  losses  
or that regulators, when reviewing the Company's loan portfolios  in  the 
future,  will not require the Company to increase such allowance, either  of  
which could adversely affect the Company's  earnings. Further, there can be no
assurance that the Company's actual loan losses will not exceed its allowance 
for loan losses.

Nonperforming  loans.  Nonperforming loans consist of  loans  90 days  or  
more delinquent and still accruing interest, nonaccrual loans   and 
restructured  loans.   When,  in  the  opinion   of management, a reasonable 
doubt exists as to the collectibility of interest,  regardless of the 
delinquency status of  a  loan,  the accrual  of interest income is 
discontinued and interest  accrued during  the current year is reversed 
through a charge to  current year's  earnings.   While  the  loan  is on  
nonaccrual  status, interest income is recognized only upon receipt and then 
only if, in the judgment of management, there is no reasonable doubt as to the
collectibility of the principal balance.  Loans 90 days  or more delinquent 
generally are changed to nonaccrual status unless the   loan  is  in  the 
process  of  collection  and  management determines that full collection of 
principal and accrued interest is probable.

Restructured loans are those for which concessions, including the reduction  
of interest rates below a rate otherwise available  to the  borrower or the
deferral of interest or principal, have been granted due  to  the  borrower's 
weakened  financial condition. Interest  on  restructured loans is accrued at
the  restructured rates  when it is anticipated that no loss of original  
principal will occur.  The Company did not have any restructured loans  as of 
September 30, 1998.

The   following  table  sets  forth  information concerning  the nonperforming 
assets of the Company at the dates indicated:

<TABLE>
       
<CAPTION>
                                   September 30,         December 31,
                                       1998                  1997
                                   -------------         ------------

<S>                                      <C>                  <C>
Nonaccrual loans                         $1,291               $1,604
Other loans 90 days past due                  -                    -
Other real estate                             -                    -
Total nonperforming loans                $1,291               $1,604
                                         ======               ======

Ratio of nonaccrual and other loans
    90 days past due to total loans       0.77%                 1.27%
Ratio of nonperforming assets to total
    loans plus other real estate          0.77                  1.27
Ratio of nonperforming assets to total
    assets                                0.59                  1.02

</TABLE>

Most  of  the amount of nonaccrual loans as of September 30, 1998 is  the  
Bank's  portion  of  the five  related  loans  totaling approximately  $4.0
million that are subject  to  a  Chapter  11 bankruptcy proceeding.  Principal 
reductions on these loans  were made  in April and July 1998.  The loans were 
originated  by  the Bank and were made at various times during 1994, 1995 and 
1996 in connection with a real estate development on which the  developer has 
constructed a residential building assembly plant.  The loans are  secured by 
real estate, certificates of deposit, as well  as two personal guarantees from 
the owners of the developer and  a guarantee  by a related limited partnership,
all three  of  which have substantial net worth.  Management believes that the 
Company is adequately collateralized on these loans.

As  of September 30, 1998, there were no significant balances  of loans  
excluded from nonperforming loans set forth  above,  where known  information  
about possible credit problems  of  borrowers caused management to have serious 
doubts as to  the  ability of such  borrowers  to comply with the present loan
repayment terms and which  may result  in  such loans  becoming  nonperforming. 
Management  is  not aware of any adverse trend  relating  to  the Company's 
loan portfolio.

</PAGE>
<PAGE>

Liquidity and Capital Resources

The Company has two basic sources of liquidity.  The First is its retail 
deposit market served by its banking offices.  The Company has  increased  core
deposits through  growth  of  its  existing deposits and  through  promotions  
directed  at  existing and potential  customers.  Deposits increased to $188.9
million  at September  30,  1998 compared to $143.3 million at September  30, 
1997.  

The second source of the Company's liquidity is Federal Home Loan Bank 
("FHLB")  advances  and Company  lines  of  credit.   FHLB advances are used
regularly in the cash management function  both to fund a portion of the 
lending portfolio and to manage the dayto-day   fluctuations  in  liquidity
resulting  from  needs of depositors and borrowers.  At September 30, 1998, the
Company had available $7.0 million of unused borrowing capacity from the FHLB 
and $10.0 million  from  its  other  lenders.   The Company anticipates that 
it will continue to rely primarily upon customer deposits, FHLB borrowings,  
other lending   sources,   loan repayments,   loan  sales and  retained  
earnings to provide liquidity,  and will use funds provided primarily to make
Loans and to purchase investment securities.

The  OTS capital regulations require savings associations to meet three 
capital standards:  a 1.5% tangible capital standard, a  3% leverage  ratio  
(or core capital ratio) and  an  8%  risk-based capital standard.

<TABLE>

<CAPTION>
                                      At September 30, 1998
                                      ---------------------
<S>                                    <C>          <C>              
                                                    Minimum
Ratio                                   Actual      Required
-----                                   ------      --------
Tangible capital                         10.34%         1.50%
Core (Tier 1) capital                    10.34%         3.00% 
Risk-Based capital                       13.20%         8.00%

</TABLE>

In  1991,  the  OTS  issued a proposal to  amend  its regulatory capital  
regulations to establish a new framework  for  assessing capital adequacy.  
The new regulation has yet to be enacted,  and if enacted in final form as 
proposed, management does not believe that the proposed regulation would have 
a material effect on  the Bank.

Year 2000 Considerations

As  the  year 2000 approaches, a significant business issue  has emerged 
regarding how existing application software programs  and operating  systems can
accommodate the date value  for  the  year 2000. Many  existing  software 
application products, including software  application products used by the
Bank and its suppliers and customers, were designed to accommodate only a two-
digit date value,  which represents  the year.   For  example,  information
relating  the year 1996 is stored in the system as "96."   As  a result the 
year 1999 (i.e., "99") could be the maximum date value that  these  systems  
will be able to  process  accurately.   In response  to concerns about this 

</PAGE>
<PAGE>

issue, regulatory agencies  have begun to monitor holding companies; and banks'
readiness for the year  2000  as  part  of  the regular examination  process.
The Company  presently believes that with modifications to  existing software 
and conversion to new software, the year 2000 issue will not pose  significant
operation  problems  for  the Company's computer systems or business operations.
Implementation of  the Company's plan to test in-house and out-sourced software 
has been underway since the first  quarter of 1998.    Testing of applications  
considered to be "mission critical" are  scheduled for  completion  by first 
quarter of 1999.  Total compliance  for all  systems  is expected by 
management to be completed  by  the third quarter of 1999; management currently 
estimates that such compliance  will  cost $150,000.  However, if such  
modifications and  conversions are not made, or are not completed  timely,  
the year  2000  issue could have a material adverse  impact  on  the 
operations  of  the  Company.   In  addition,  there can  be  no assurance  
that  unforeseen problems in the  Company's  computer systems,  or the systems 
of third parties on which the Company's computers rely, will not have an adverse
effect on the Company's systems  or  operations.  Additionally, failure  of  
the  Bank's customers  to  prepare for year 2000 compatibility could  have  a 
significant adverse  effect on such  customers' operations and profitability, 
thus inhibiting their ability to repay loans and adversely affecting the Bank's 
operations. The Company does  not have  sufficient  information accumulated 
from customers  of  the Bank  to  enable the  Company  to assess  the  degree  
to  which customers'  operations  are  susceptible  to potential  problems 
relating to the year 2000 issue.

</PAGE>
<PAGE>

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K
          a.   Exhibits.
               Exhibit 27 - Financial Data Schedule (filed electronically only).
          b.   Reports on Form 8-K.
               During the quarter ending September 30, 1998, the Registrant 
               filed a current report on Form 8-K dated September 24, 1998, 
               under "Item 5.Other Events" describing the conversion of the 
               Registrant's status to a unitary thrift holding company within 
               the meaning of the Home Owners' Loan Act of 1933, as well as 
               the Bank's conversion of its charter form a Colorado state
               chartered commercial bank to a federal savings bank.

</PAGE>
<PAGE>

                           SIGNATURES

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




                               MEGABANK FINANCIAL CORPORATION
                               (Registrant )


                               /s/ Hiram J. Welton
                               ___________________
Date:  October 21, 1998        Hiram J. Welton
                               Duly authorized officer,
                               Treasurer and Chief Accounting Officer