SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                   FORM 10-QSB

(Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
       SECURITIES EXCHANGE ACT OF 1934


         For the quarterly period ended December 31, 1997


                                       OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
       SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________


                        MONTGOMERY FINANCIAL CORPORATION
--------------------------------------------------------------------------------
              (Exact Name of Small Business Issuer in its Charter)        

              Indiana                                      35-1962246
--------------------------------------------------------------------------------
   (State or other jurisdiction of                    (I.R.S. Employer
   Incorporation or organization)                     Identification Number)

        119 East Main Street
      Crawfordsville, Indiana                                47933
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                   (Zip Code)

                                 (765) 362-4710
              (Registrant's telephone number, including area code)

         Check here whether the issuer (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 period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]

     As of January 31, 1997,  there were  1,653,032  shares of the  Registrant's
common stock issued and outstanding.
<PAGE>

                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


                                   Form 10-QSB

                                      Index
                                     

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Condensed Statement of Financial Condition
         As of December 31, 1997 and June 30, 1997                         

         Consolidated Condensed Statement of Income for the Three
         And Six Months Ended December 31, 1997 and 1996                   

         Consolidated Condensed Statement of Cash Flows for the
         Six Months Ended December 31, 1997 and 1996                       

         Consolidated Condensed Statement of Changes in Stockholders'
         Equity for the Six Months Ended December 31, 1997                 

         Notes to Consolidated Condensed Financial Statements              

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


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings                                                 

Item 2.  Changes in Securities                                             

Item 3.  Defaults in Securities                                            

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

Item 5.  Other Information                                                 

Item 6.  Exhibits and Reports on Form 8-K                                  

Signatures                                                                 
<PAGE>
<TABLE>
<CAPTION>
                      MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                  Crawfordsville, Indiana

                  Consolidated Condensed Statement of Financial Condition
                                        (Unaudited)

                                                          December 31,          June 30,
                                                             1997                1997
                                                         -------------       -------------
<S>                                                      <C>                 <C>
Assets
  Cash ............................................      $     321,991       $     221,456
  Short-term interest-bearing deposits ............          6,042,110          11,373,316
                                                         -------------       -------------
         Total cash and cash equivalents ..........          6,364,101          11,594,772
  Interest-bearing deposits .......................            195,000             100,000
  Securities Available for Sale ...................            232,407              42,494
  Loans ...........................................         94,022,523          87,088,294
  Allowance for loan losses .......................           (183,000)           (180,000)
                                                         -------------       -------------
       Net loans ..................................         93,839,523          86,908,294
 Real estate owned and held for development, net ..          1,360,868           1,301,734
  Premises and equipment ..........................          1,714,082           1,620,885
  Federal Home Loan Bank Stock ....................            921,500             921,500
  Interest receivable .............................            764,773             684,479
  Other Assets ....................................            278,422             225,147
                                                         -------------       -------------

         Total assets .............................      $ 105,670,676       $ 103,399,305
                                                         =============       =============
Liabilities
  Deposits
      Noninterest bearing .........................      $   1,047,113       $   1,165,223
      Interest bearing ............................         75,097,586          70,100,001
                                                         -------------       -------------
         Total deposits ...........................         76,144,699          71,265,224
  Federal Home Loan Bank advances .................          8,260,715          11,428,373
  Interest payable ................................            580,260             423,305
  Deferred Tax Liability ..........................            360,156             360,156
  Dividends Payable ...............................             90,917
  Other Liabilities ...............................            577,347             555,669
                                                         -------------       -------------

         Total liabilities ........................         86,014,094          84,032,727
                                                         -------------       -------------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                      MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                  Crawfordsville, Indiana

                  Consolidated Condensed Statement of Financial Condition
                                        (Unaudited)
                                        (continued)

                                                          December 31,          June 30,
                                                             1997                1997
                                                         -------------       -------------
<S>                                                      <C>                 <C>
Stockholders' Equity
   Preferred stock, $.01 par value
       authorized and unissued - 2,000,000 shares
  Common stock, $.01 par value - 8,000,000 shares
      authorized;  1,653,032 Issued ...............             16,530              16,530
  Paid-in capital .................................         13,561,050          13,547,619
  Retained earnings - substantially restricted ....          7,380,002           7,136,492
   Unearned ESOP shares - 127,665 and 132,250 .....         (1,289,437)         (1,322,500)
   Unearned compensation ..........................            (11,563)            (11,563)
                                                         -------------       -------------


         Total stockholders' equity ...............         19,656,582          19,366,578
                                                         -------------       -------------


         Total liabilities and stockholders' equity      $ 105,670,676       $ 103,399,305
                                                         =============       =============

</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                             Crawfordsville, Indiana

                                    Consolidated Condensed Statement of Income
                                                   (Unaudited)


                                                     Three Months Ended                 Six Months Ended
                                                         December 31,                       December 31,           
                                               -----------------------------       -----------------------------
                                                   1997               1996             1997              1996 
                                               -----------       -----------       -----------       -----------
<S>                                            <C>               <C>               <C>               <C>
Interest and Dividend Income
  Loans .................................      $ 1,940,951       $ 1,719,134       $ 3,795,384       $ 3,395,258
  Investment securities .................              567             3,461             1,134             9,469
  Deposits with financial institutions ..           74,547            49,400           189,292            97,479
  Dividend Income .......................           18,581            14,799            37,744            29,598
                                               -----------       -----------       -----------       -----------
       Total interest and dividend income        2,034,646         1,786,794         4,023,554         3,531,804
                                               -----------       -----------       -----------       -----------

Interest Expense
  Deposits ..............................          993,303           935,893         1,950,066         1,897,595
 Federal Home Loan Bank advances ........          125,847           170,816           271,008           303,399
           Total interest expense .......        1,119,150         1,106,709         2,221,074         2,200,994
                                               -----------       -----------       -----------       -----------

Net Interest Income .....................          915,496           680,085         1,802,480         1,330,810
  Provision for losses on loans .........            3,000
                                               -----------       -----------       -----------       -----------
Net Interest Income After
  Provision for Losses on Loans .........          915,496           680,085         1,799,480         1,330,810
                                               -----------       -----------       -----------       -----------
Other Income
  Service charges on deposit accounts ...            8,713             6,294            15,951            12,309
  Net appraisal income (expense) ........              111               369              (943)            3,450
  Other income ..........................            1,063             1,097             2,381             1,989
                                               -----------       -----------       -----------       -----------
       Total other income ...............            9,887             7,760            17,389            17,748
                                               -----------       -----------       -----------       -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                             Crawfordsville, Indiana

                                    Consolidated Condensed Statement of Income
                                                   (Unaudited)
                                                   (continued)


                                                     Three Months Ended                 Six Months Ended
                                                         December 31,                       December 31,           
                                               -----------------------------       -----------------------------
                                                   1997               1996             1997              1996 
                                               -----------       -----------       -----------       -----------
<S>                                            <C>               <C>               <C>               <C>
Other Expenses
  Salaries and employee benefits ........          317,634           235,310           593,492           448,990
  Net occupancy expense .................           25,188            25,801            51,374            51,332
  Equipment expense .....................           37,486            36,314            72,819            70,435
  Data processing expense ...............           29,393            22,570            57,351            44,995
  Deposit insurance expense .............           11,778            31,318            23,206           500,156
  Real estate operations, net ...........           (1,719)          (27,610)          (12,404)          (40,681)
  Advertising expense ...................           10,270             9,198            18,869            17,788
  Other expenses ........................          136,811           113,019           250,993           219,916
                                               -----------       -----------       -----------       -----------

           Total other expenses .........          566,841           445,920         1,055,700         1,312,931
                                               -----------       -----------       -----------       -----------

Income Before Income Tax ................          358,542           241,925           761,169            35,627
  Income tax expense ....................          158,775            98,350           335,825            19,118
                                               -----------       -----------       -----------       -----------

Net Income ..............................      $   199,767       $   143,575       $   425,344       $    16,509
                                               ===========       ===========       ===========       ===========

Net Income Per Share:
      Basic .............................      $      0.13       $      0.31       $      0.28       $      0.04
      Diluted ...........................      $      0.13       $      0.31       $      0.28       $      0.04

Dividends Per Share .....................      $     0.055       $     0.054       $     0.110       $     0.107


</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                         MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                     Crawfordsville, Indiana

                         Consolidated Condensed Statement of Cash Flows
                                           (Unaudited)



                                                                          Six Months Ended
                                                                            December 31, 
                                                                      1997               1996 
                                                                  -----------       -----------
<S>                                                                <C>               <C>
Operating Activities

  Net income ................................................      $   425,344       $    16,509
  Adjustments to reconcile net income to net cash
      provided by operating activities
      Provision for loan losses .............................            3,000
      Depreciation ..........................................          102,214           105,607
      Gain (loss) on sale of real estate owned ..............                            (17,915)
      Deferred income tax ...................................                                 37
      ESOP stock amortization ...............................           46,494
      Change In
          Interest receivable ...............................          (80,294)          (48,691)
          Interest payable ..................................          156,955           114,254
          Other assets ......................................          (53,275)         (260,120)
          Other liabilities .................................           21,678          (219,869)
                                                                   -----------       -----------

             Net cash (used) provided by operating activities          622,116          (310,188)
                                                                   -----------       -----------


Investing Activities

   Purchase of interest-bearing deposits ....................          (95,000)
  Proceeds from paydowns of
      securities available for sale .........................           10,087           259,454
   Purchase of securities available for sale ................         (200,000)
  Net change in loans .......................................       (6,987,383)       (4,003,485)
  Additions to real estate owned and held for investment ....          (75,460)         (173,586)
  Proceeds from Real Estate Owned Sales .....................           52,795           107,315
  Purchases of premises and equipment .......................         (178,726)          (98,658)
                                                                   -----------       -----------

             Net cash used by investing activities ..........       (7,473,687)       (3,908,960)
                                                                   -----------       -----------

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                         MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                     Crawfordsville, Indiana

                         Consolidated Condensed Statement of Cash Flows
                                           (Continued)



                                                                       Six Months Ended
                                                                           December 31, 
                                                               --------------------------------
                                                                     1997               1996
                                                               -------------       ------------
<S>                                                             <C>                <C>
Financing Activities

  Net Change In
       Noninterest-bearing, interest-bearing demand and
          savings deposits ...............................      $    993,652       $    390,689
      Certificates of deposit ............................         3,885,823          2,243,299
  Proceeds from FHLB advances ............................         2,000,000          4,000,000
  Repayment of FHLB advances .............................        (5,167,658)           (71,627)
Purchase of unearned compensation (MRP) stock ............                              (11,563)
  Dividends paid .........................................           (90,917)           (50,000)
                                                                ------------       ------------

             Net cash provided by financing activities ...         1,620,900          6,500,798
                                                                ------------       ------------


Net Change in Cash and Cash Equivalents ..................        (5,230,671)         2,281,650

Cash and Cash Equivalents, Beginning of Period ...........        11,594,772          3,636,204
                                                                ------------       ------------

Cash and Cash Equivalents, End of Period .................      $  6,364,101       $  5,917,854
                                                                ============       ============

Additional Cash Flow and Supplementary Information

  Interest Paid ..........................................      $  2,064,119       $  2,086,740
  Income Tax Paid ........................................           174,450             62,847
  Transfer from Loans to Other Real Estate Owned .........            53,154            307,894
  Cash Dividends Payable .................................            90,917             25,000

</TABLE>

See Notes to Consolidated Condensed Financial Statements

<PAGE>
<TABLE>
<CAPTION>

                                           MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                                       Crawfordsville, Indiana

                                 Consolidated Condensed Statement of Changes in Stockholders' Equity
                                                             (Unaudited)


                                           Common Stock
                                   ---------------------- 
                                                                Paid-in      Retained       Unearned       Unearned
                                     Shares      Amount        Capital       Earnings      ESOP Shares     Compensation      Total
                                   ---------  -----------    -----------   -----------    ------------    -------------  -----------
<S>                                <C>        <C>            <C>           <C>            <C>             <C>            <C>
Balance July 1, 1997 ...........   1,653,032  $    16,530    $13,547,619   $ 7,136,492    $(1,322,500)    $   (11,563)   $19,366,578


Net income for the six months
    ended December 31, 1997 ....                                               425,344                        425,344


Cash dividends ($.055 per share)                                              (181,834)                      (181,834)


ESOP shares earned .............                                  13,431                       33,063          46,494

                                   ---------  -----------    -----------   -----------    -----------     -----------    -----------
Balance December 31, 1997 ......   1,653,032  $    16,530    $13,561,050   $ 7,380,002    $(1,289,437)    $   (11,563)   $19,656,582
                                   =========  ===========    ===========   ===========    ===========     ===========    ===========

</TABLE>

  See Notes to Consolidated Condensed Financial Statement
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana



              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


Basis of Presentation

The unaudited interim  consolidated  condensed financial  statements include the
accounts of Montgomery  Financial  Corporation  ("Montgomery"),  its subsidiary,
Montgomery   Savings,  A  Federal   Association  (the   "Association")  and  its
subsidiary, MSA SERVICE CORP.

The unaudited  interim  consolidated  condensed  financial  statements have been
prepared in accordance with the instructions to Form 10-QSB 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  necessary  to
present fairly Montgomery's  financial position as of December 31, 1997, results
of operations for the three and six month periods  ending  December 31, 1997 and
1996, and cash flows for the six month periods ended December 31, 1997 and 1996.
The results of operations for the three and six month periods ended December 31,
1997 are not  necessarily  indicative of the results of operations  which may be
expected for the fiscal year ending June 30 1998.


Net Income Per Share

Net income per share for the three and six month periods ended December 31, 1997
and 1996 are computed by dividing net earnings by the weighted average shares of
common stock outstanding  during the period. For the three and six month periods
ended December 31, 1996, the weighted  average shares is computed based upon the
weighted  average of the 250,000  shares of publicly  owned  common stock of the
Association  that were  outstanding  during  the  three  and six  month  periods
converted to 466,350  shares of Montgomery  common stock in connection  with the
second conversion and reorganization completed on June 30, 1997.
<TABLE>
<CAPTION>

For the Three Months Ended                      December 31, 1997                       December 31, 1996
                                       -----------------------------------      ----------------------------------
                                                    Weighted         Per                     Weighted        Per
                                                     Average        Share                     Average       Share
                                       Income        Shares         Amount      Income         Shares       Amount
                                       ------        ------         ------      ------         ------       ------
<S>                                  <C>           <C>           <C>          <C>             <C>           <C>
Basic Net Income Per Share:
   Net Income Available
   to Common Stockholders ......     $ 199,767     1,521,209     $   0.13     $ 143,575       465,620       $   0.31
                                                                 ========                                   ========
Effect of Dilutive Stock Options
   and Grants ..................             0        26,515                          0             0
                                     ---------     ---------                  ---------       -------
Diluted Net Income Per Share:
   Net Income Available
   To Common Stockholders ......     $ 199,767     1,547,724     $   0.13     $ 143,575       465,620       $   0.31
                                     =========     =========     ========     =========       =======       ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                    MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                                                Crawfordsville, Indiana

For the Six Months Ended                        December 31, 1997                       December 31, 1996
                                       -----------------------------------      ----------------------------------
                                                    Weighted        Per                     Weighted        Per
                                                     Average       Share                     Average       Share
                                       Income        Shares        Amount      Income         Shares       Amount
                                       ------        ------        ------      ------         ------       ------
<S>                                  <C>           <C>           <C>          <C>             <C>           <C>
Basic Net Income Per Share:
   Net Income Available
   to Common Stockholders           $ 425,344      1,520,636     $   0.28    $    16,509     465,985        $  0.04
                                                                 ========                                   ======= 
Effect of Dilutive Stock Options
   and Grants                               0         25,248                           0           0
                                    ---------      ---------                  -----------    -------

Diluted Net Income Per Share:
   Net Income Available
   To Common Stockholders           $ 425,344      1,545,884    $    0.28    $    16,509     465,985        $  0.04
                                    =========      =========    =========    ===========     ======         =======

</TABLE>
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


Item 2.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          Forward-Looking  Statements.  When  used in this  Form  10-Q or future
filings by Montgomery  with the Office of Thrift  Supervision,  in  Montgomery's
press releases or other public shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases,
"will likely  result",  "are expected to", "will  continue",  "is  anticipated",
"estimate",  "project",  "believe",  or  similar  expressions  are  intended  to
identify  "forward-looking   statements"  within  the  meaning  of  the  Private
Securities  Litigation Reform Act of 1995.  Montgomery wishes to caution readers
not to place undue reliance on any such forward-looking statements,  which speak
only as of the date made, and to advise readers that various factors,  including
regional and national economic conditions,  changes in levels of market interest
rates,  credit  risks of lending  activities,  and  competitive  and  regulatory
factors,   could  affect  Montgomery"  financial  performance  and  could  cause
Montgomery's  actual results for future periods to differ  materially from those
anticipated  or  projected.  Montgomery  does not  undertake,  and  specifically
disclaims any obligation,  to revise any  forward-looking  statements to reflect
the occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.

          Financial Condition.  Montgomery's total assets were $105.7 million at
December 31,  1997,  an increase of $2.3  million,  or 2.2 percent from June 30,
1997.  During this three month period  interest-earning  assets  increased  $1.9
million,  or 1.9 percent.  Short-term  interest-earning  deposits decreased $5.3
million, or 46.9 percent primarily due to the use of liquidity received from the
sale of stock on June 30, 1997 to repay Federal Home Loan Bank advances and fund
loan  growth.  Loans  increased  $6.9  million,  or 8.0  percent,  which  is the
approximate  increase  budgeted for the current  year-to-date.  Interest-earning
deposits  increased  $95,000  or  95.0  percent,   to  $195,000  and  investment
securities  increased  $190,000,  or 446.9 percent,  to $232,000  during the six
months ended  December 31, 1997.  Real estate owned  increased  $59,000,  or 4.5
percent primarily due to the acquisition of one  single-family  residence due to
foreclosure.  Included in real estate owned is a nine-unit  condominium  complex
Montgomery  has been  holding for resale.  The Family  Crisis  Shelter,  a local
not-for-profit  organization,  has made a commitment to purchase this  nine-unit
complex for use as office space and housing for abused family members.  The sale
of this complex  should be completed  during late third  quarter or early fourth
quarter of this fiscal year. Deposits increased $4.9 million, or 6.8 percent and
borrowings  decreased $3.2 million,  or 27.7 percent,  causing a net increase in
interest-bearing  liabilities  of 2.2  percent.  The  increase in  deposits  was
primarily  the result of an increase in public funds  deposits.  These  deposits
were acquired at rates below comparable Federal Home Loan Bank advances.

          Capital and Liquidity. At December 31, 1997,  stockholders' equity was
$19,657,000 or 18.6 percent of total assets,  compared with stockholders' equity
of $19,367,000,  or 18.7 percent, at June 30, 1997. The Association continues to
exceed all minimum capital requirements. At December 31, 1997, the Association's
tangible and core capital was  $15,015,000,  or 14.3 percent of tangible assets,
$13,442,000 in excess of the 1.5 percent minimum  required  tangible capital and
$11,869,000  in  excess  of the  3.0  percent  minimum  required  core  capital.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


Risk-based capital equaled $14,000,000, or 21.9 percent of risk-weighted assets,
$8,891,000  more than the  minimum 8.0 percent  risk based level  required.  The
director of the OTS is required to set minimum liquidity levels between four and
10 percent of assets.  Current  regulations require a minimum liquidity level of
five  percent.  Montgomery's  average  liquidity  ratio for the six months ended
December 31, 1997, was 7.7 percent.

          Asset/Liability  Management.  The  Association,  like other  financial
institutions,  is  subject  to  interest  rate  risk  to the  extent  that  its'
interest-bearing   liabilities   reprice   on  a   different   basis  than  its'
interest-bearing  assets. OTS regulations  provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence,  this approach
calculates the  difference  between the present value of  liabilities,  expected
cash flows from assets and cash flows from off balance  sheet  contracts.  Under
OTS regulations,  an  institution's  "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest  rates is
a decrease in the  institution's NPV in an amount not exceeding 2 percent of the
present value of its assets.  Beginning  September 30. 1995, thrift institutions
with greater than "normal"  interest  rate  exposure must take a deduction  from
their total  capital  available to meet their  risk-based  capital  requirement.
Regulations exempt all institutions under $300 million in assets with risk-based
capital above 12 percent from reporting  information  to calculate  exposure and
making any  deduction  from  risk-based  capital.  At  December  31,  1997,  the
Association  would have been exempt from  calculating  or making any  risk-based
capital reduction.  The Association's  management feels interest-rate risk is an
important   factor  and  makes  all  reports   necessary  to  OTS  to  calculate
interest-rate  risk on a voluntary basis. At September 30, 1997, the most recent
date for which information was available from the OTS, 2.0% of the present value
of the Association's assets was approximately $2.10 million, which was less than
$3.31  million,  the greatest  decrease in NPV resulting  from a 200 basis point
change in  interest  rates.  As a result,  the  Association,  for OTS  reporting
purposes,  would have been  required to make a deduction  from total  capital in
calculating its risk-based capital  requirement had this rule been in effect and
had the  Association  not been  exempt  from  reporting  on such date.  Based on
September 30, 1997 NPV information,  the amount of the  Association's  deduction
from capital,  had it been subject to reporting,  would have been  approximately
$605,000.

          It has been and continues to be a priority of the Association's  Board
of Directors and  management to manage  interest rate risk and thereby limit any
negative  effect  of  changes  in  interest  rates  on  Montgomery's   NPV.  The
Association's Interest Rate Risk Policy,  established by the Board of Directors,
promulgates  acceptable  limits on the  amount  of  change in NPV given  certain
changes in interest  rates.  Specific  strategies  have included  shortening the
amortized  maturity of fixed-rate  loans and increasing the volume of adjustable
rate loans to reduce the average maturity of the Association's  interest-earning
assets.  FHLB advances are used in an effort to match the effective  maturity of
the Association's  interest-bearing  liabilities to its interest-earning assets.
These strategies have resulted in the Association  maintaining acceptable limits
as set out in the Interest Rate Risk Policy.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana

          Presented  below,  as of September 30, 1997,  and June 30, 1997, is an
analysis  of the  Association's  estimated  interest  rate risk as  measured  by
changes in NPV for  instantaneous  and  sustained  parallel  shifts in  interest
rates, up and down 300 basis points in 100 point increments,  compared to limits
set by the Board.  Assumptions used in calculating the amounts in this table are
those  assumptions  utilized  by the OTS  for the  purpose  interest  rate  risk
assessment  and  should  not be  considered  as an  indicator  of  value  of the
Association.
<TABLE>
<CAPTION>
                             MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                         Crawfordsville, Indiana


                                             At September 30, 1997                   At June 30,1997
     Assumed             Board            --------------------------          --------------------------
    Change in            Limit
  Interest Rates        % Change          $ Change          % Change          $ Change          % Change
  (Basis Points)         in NPV            in NPV            in NPV            in NPV            in NPV
  --------------         ------            ------            ------            ------            ------
                                             (Dollars in Thousands)
<S>                        <C>            <C>                  <C>              <C>                 <C>
       +300                -60            -5,414               -29              -5,754              -43
       +200                -50            -3,313               -18              -3,637              -31
       +100                -30            -1,425                -8              -1,622              -20
          0                  0                 0                 0                   0                0
       -100                -30              +721                +4                +988               +5
       -200                -50              +979                +5              +1,237               +7
       -300                -60            +1,297                +7              +1,347               +7
                                                       
</TABLE>

          In the event of a 300 basis point  change in interest  rate based upon
estimates  as of September  30,  1997,  the  Association  would  experience a 7%
increase in NPV in a declining rate  environment  and a 29% decrease in NPV in a
rising environment. During periods of rising rates, the value of monetary assets
and liabilities decline. Conversely,  during periods of falling rates, the value
of monetary assets and liabilities  increase.  However,  the amount of change in
value of specific assets and liabilities due to changes in rates is not the same
in a rising rate environment as in a falling rate environment  (i.e., the amount
of value  increase  under a specific  rate  decline  may not equal the amount of
value  decrease  under an identical  upward rate  movement).  Based upon the NPV
methodology,  the  increased  level of  interest  rate risk  experienced  by the
Association  in  recent  periods  was  primarily  due to the  interest  rate  on
interest-bearing   liabilities   increasing  more  than  the  interest  rate  on
interest-earning assets because of the annual and lifetime caps on interest rate
adjustments for adjustable rate loans and because of the lag in rate adjustments
for such loans as compared to interest-bearing liabilities.

          Results of  Operations.  Montgomery's  net income for the three months
ended December 31, 1997, was $200,000  compared to $144,000 for the three months
ended December 31, 1996, an increase of $56,000,  or 39.1 percent.  Net interest
income  increased  $235,000,  or 34.6  percent,  primarily  due an  increase  in
interest-earning   assets   of  $11.4   million,   or  13.0   percent.   Average
interest-earning  assets were $99.4 million for the three months ended  December
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


31, 1997  compared to $88.0  million for the 1996  three-month  period.  Average
interest-bearing  liabilities  decreased  from $81.7  million  to $81.3  million
during the comparable  three-month periods.  Interest rate spread decreased from
2.71 percent for the three months ended  December 31, 1996,  to 2.68 percent for
the three  months  ended  December  31,  1997.  Due to the  increase  in average
interest-earning  assets,  net interest margin increased to 3.68 percent for the
three  months  ended  December  31, 1997 from 3.09  percent for the three months
ended  December  31,  1996.   Non-interest  income  was  $10,000  for  the  1997
three-month period compared to $8,000 for the 1996 period.  Non-interest expense
was $567,000 for the three months ended  December 31, 1997  compared to $446,000
for the 1996 three-month period, an increase of $121,000,  or 27.1 percent. This
increase was  primarily due to an increase in employee  benefits,  including the
establishment of an employee stock ownership plan (ESOP) and additional  expense
of being a publicly held company.  Net income before income tax was $359,000 for
the three  months ended  December  31, 1997,  compared to $242,000 for the three
months ended December 31, 1996, an increase of $117,000, or 48.3 percent. Income
tax for the three months  ended  December  31,  1997,  was $159,000  compared to
$98,000 for the three months ended December 31, 1996.

          For the six months ended  December  31, 1997,  net income was $425,000
compared to $17,000 for the six months ended  December 31, 1996,  an increase of
$408,000. The most significant factor effecting Montgomery's  operations for the
six months ended December 31, 1996 was the one time special assessment  required
by the  Deposit  Insurance  Funds Act of 1996.  The after tax effect of this one
time assessment was approximately  $258,700. Net income for the six months ended
December 31, 1996, was $275,000 before the net effect of the Savings Association
Insurance Fund ("SAIF") special  assessment.  The increase in net income for the
six-month  period was also  primarily due to an increase in net interest  income
from $1.3  million  for the 1996 period to $1.8  million for the 1997  six-month
period,  an increase of  $472,000,  or 35.4  percent.  Average  interest-earning
assets  increased  from $87.1 million for the six months ended December 31, 1996
to $98.4 million for the 1997 six-month period.  Non-interest  expense decreased
$257,000,  or 19.6 percent.  This decrease was primarily  caused by the one time
SAIF special  assessment  during the 1996 six month  period which was  partially
offset by additional  employee  salaries and benefits and the increased  cost of
operation of a publicly  held  corporation.  Income tax expense was $336,000 for
the six months ended  December 31, 1997,  compared to $19,000 for the six months
ended December 31, 1996.

          Interest  Income.  Montgomery's  total  interest  income for the three
months ended  December 31, 1997, was $2.0 million,  an increase of $248,000,  or
13.9 percent,  compared to interest  income for the three months ended  December
31,  1996.  This  increase  was  primarily  caused  by an  increase  in  average
interest-earning  assets from $88.0 million for the three months ended  December
31, 1996,  to $99.4  million for the three months  ended  December 31, 1997,  an
increase of $11.4  million,  or 13.0  percent  principally  due to loan  growth.
Average loans  increased from $83.4 million for the 1996  three-month  period to
$93.0  million  for the 1997 three  month  period and  average  interest-earning
deposits increased from $3.6 million to $5.5 million for the respective periods.
The  average  yield on  interest-earning  assets was 8.19  percent for the three
months ended  December  31, 1997,  compared to 8.13 percent for the three months
ended December 31, 1996.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana

          Interest  income for the six months ended  December 31, 1997, was $4.0
million, an increase of $492,000,  or 13.9 percent, from interest income for the
same period in 1996.  Average  interest-earning  assets for the six months ended
December 31, 1997, was $98.4 million  compared to $87.1 million for the 1996 six
month period, an increase of $11.3 million, or 13.0 percent,  principally due to
loan growth.  The average yield for the 1997 period was 8.18 percent compared to
8.11 percent for the 1996 period.

          Interest Expense. Interest expense for the three months ended December
31, 1997,  was $1.1 million,  which was an increase of $12,000,  or 1.1 percent,
from  the  three  months  ended  December  31,  1996.  Average  interest-bearing
liabilities decreased $398,000, or 0.5 percent, from $81.7 million for the three
months  ended  December 31,  1996,  to $81.3  million for the three months ended
December  31,  1997.  The average  cost of funds  increased  however,  from 5.42
percent to 5.50 percent for the comparable periods. The average cost of deposits
increased  from 5.34  percent to 5.43  percent  for the  comparable  three-month
periods.  The average  cost of  borrowings  increased  from 5.89 percent to 6.18
percent  for the  comparable  periods  due to  converting  some  short term FHLB
advances to longer term fixed rate advances.

          Interest  expense for the six months ended December 31, 1997, was $2.2
million,  an increase  of $20,000,  or 0.9  percent,  from the six months  ended
December  31,  1996.  The  average  cost of funds for the 1997  period  was 5.55
percent compared to 5.52 percent for the 1996 period.  Average  interest-bearing
liabilities  increased  from $79.8 million for the six months ended December 31,
1996 to $80.0 million for the 1996 six-month period.

          Provision  for Losses on Loans.  There was no provision  for losses on
loans during the three months ended  December 31, 1997 or the three months ended
December  31,  1996.  During the six months  ended  December  31, 1997, a $3,000
provision was made compared to no provision  being made in the  comparable  1996
six-month period. Provision or adjustment entries are made based on the Internal
Loan and Asset  Review  Policy.  A review is  performed  at least  quarterly  to
determine  the adequacy of the current  balance in the  allowance  for losses on
loans.  Loans delinquent ninety days or more were $656,000 at December 31, 1997,
compared to $502,000 at June 30,  1997.  Non-performing  loans to total loans at
December 31, 1997, were 0.70 percent  compared to 0.58 percent at June 30, 1997.
Non-performing  assets,  consisting  of  non-performing  loans in the  amount of
$656,000 and other real estate in the amount of $163,000,  totaled $819,000,  or
0.78  percent  of  total  assets,  at  December  31,  1997.  At June  30,  1997,
non-performing  assets  were  $611,000,  or 0.59  percent of total  assets.  The
allowance for losses to  non-performing  assets was 22.3 percent at December 31,
1997 and 29.5  percent at June 30, 1997.  The  allowance to total loans was 0.19
percent at both December 31, 1997 and 0.21 percent at June 30, 1997. As new loan
products are offered, and Montgomery increases its amount of non-residential and
consumer loans,  management will re-evaluate the level of the allowance for loan
losses.

          Non-Interest  Income.  Montgomery's  other income for the three months
ended  December  31,  1997,  totalled  $10,000  compared to $8,000 for the three
months ended  December 31, 1996, an increase of $2,000,  or 27.4  percent.  This
increase was due to an increase in service charges on deposit accounts.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana

         Other income for the six months ended December 31, 1997, was $17,000, a
decrease of $400,  or 2.0 percent,  from the  comparable  1996 six month period.
During  the six months  ended  December  31,  1997,  service  charges on deposit
accounts  increased  $4,000 and appraisal  income decreased $4,000 from the 1996
six-month period.

         Non-Interest Expense.  Montgomery's other expenses for the three months
ended December 31, 1997,  totalled  $567,000,  an increase of $121,000,  or 27.1
percent,  from the three months ended  December 31, 1996.  Salaries and employee
benefits increased  $82,000.  Stock benefit plans were adopted subsequent to the
December,  1996  three-month  period and the cost of these plans was $36,000 for
the three  months  ended  December  31,  1997.  The balance of the  increase was
primarily due to an increase in branch office  personnel to accommodate  growth.
Equipment expense increased $1,000 and data processing expense increased $7,000.
These  increases  are  generally  reflective  of  Montgomery's  growth.  Deposit
insurance  expense  decreased  $20,000 for the  comparable  three-month  periods
primarily due to the decrease in the annual SAIF premium from 23 basis points to
6.4 basis points  effective  January 1, 1997. Real estate  operations net income
for the three months ended December 31, 1997, was $2,000 compared to $28,000 for
the 1996 comparable  period, a decrease of $26,000 due to the income on the sale
of two real estate  properties  during the 1996 three month period.  Advertising
expense  increased  $1,000  from the 1996  comparative  period.  Other  expenses
increased $24,000, or 21.1 percent, for the three months ended December 31, 1997
compared to the same 1996 period,  primarily due to increased  expenses relating
the  operation  of a publicly  held  company  including  the  annual  meeting of
Montgomery held in October.

         Non-interest  expense for the six months ended  December 31, 1997,  was
$1.1 million compared to $1.3 million, a decrease of $257,000,  or 19.6 percent,
from the six months  ended  December  31,  1996.  Salary and  employee  benefits
increased  $145,000 of which  $62,000 was due to the  adoption of stock  benefit
plans in effect during the 1997 six month  period.  An increase in personnel due
to branch office  growth was the primary  factor for the balance of the increase
in salary and employee  benefits.  Equipment  expense  increased $2,000 and data
processing  expense  increased  $12,000  due  to  Montgomery's  growth.  Deposit
insurance expense decreased $477,000 for the six months ended December 31, 1997,
compared to the same period in 1996 due to the one time SAIF special  assessment
of $428,000 and the reduction in the regular  assessment from 23 basis points to
6.4 basis points. Net real estate operations  generated a net income for the six
months ended  December 31, 1997, of $12,000  compared to a net income of $41,000
for the 1996 comparable period.  This decrease was primarily caused by a gain on
the sale of real  estate in the 1996  period  compared to a loss on sale of real
estate during the 1996 period.  Other expenses for the six months ended December
31, 1997,  were $251,000  compared to $220,000 for the six months ended December
31, 1996, an increase of $31,000,  or 14.1 percent.  Stockholder related expense
increased $31,000 due to the additional cost of Montgomery's  annual meeting and
operation of the publicly held company.

         Income Tax  Expense.  Income tax  expense  for the three  months  ended
December 31, 1997,  was $159,000  compared to $98,000 for the three months ended
December 31, 1996. This increase was due to the increase in taxable income.

          For the six months ended  December  31,  1997,  income tax expense was
$336,000  compared to $19,000 for the six months ended  December 31, 1996.  This
increase was due to the increase in taxable  income which included the effect of
the FDIC special assessment during the 1996 period.
<PAGE>

                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


Part II.  OTHER INFORMATION


Item 1.  Legal Proceedings    None.

Item 2.  Changes in Securities    None.

Item 3.  Defaults Upon Senior Securities    None.

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

The  Annual  Meeting  of  Shareholders  of  Montgomery   Financial   Corporation
("Montgomery")  was held at the principal  office of  Montgomery,  119 East Main
Street,  Crawfordsville,  Indiana 47933,  on Tuesday,  October 21, 1997, at 2:00
p.m., Crawfordsville time for the purpose of electing three Directors, to ratify
the appointment of Geo. S. Olive & Co. LLC, as Montgomery's independent auditors
for the 1998  fiscal year and to transact  such other  business as may  properly
come before the Annual Meeting.  Proxy Statements were furnished to such holders
on or about  September 22, 1997. A total of 1,653,032  shares of common stock of
Montgomery were  outstanding on August 31, 1997, and a total of 1,417,672 shares
were  represented  at the  meeting.  Of the  1,417,672  shares,  1,412,076  were
represented by proxy and 5,596 were represented in person.

Earl F.  Elliott,  Mark E. Foster and Robert C. Wright  were  nominated  to hold
office until the year 2000 Annual Meeting of Shareholders.  Mr. Elliott has been
a director since 1973, Mr. Foster since 1990 and Mr. Wright since 1996. No other
nominations  were made at the  meeting.  Earl F.  Elliott was elected  receiving
1,403,901  votes for,  with 13,771  votes  withheld.  Mark E. Foster was elected
receiving 1,404,047 votes for, with 13,625 votes withheld.  Robert C. Wright was
elected  receiving  1,404,808  votes for, with 12,864 votes  withheld.  With the
election of Messrs. Elliott, Foster and Wright, the terms of the Directors as of
October 21, 1997, expire as follows:  1998 - Joseph M. Malott and J. Lee Walden;
1999 - C. Rex Henthorn and John E.  Woodward;  2000 - Earl F.  Elliott,  Mark E.
Foster and Robert C. Wright.

Geo S. Olive & Co. LLC ("GSO"), served as independent auditors for Montgomery in
fiscal  1997.  The  Board  of  Directors  approved  the  appointment  of  GSO as
independent   auditors  for  fiscal  1998,   subject  to   ratification  by  the
shareholders.  The appointment of the  independent  auditors is ratified if more
votes are cast in favor of the  appointment  than against the  appointment.  The
ratification  of GSO was  approved by  1,400,174  votes in favor,  10,657  votes
against and 6,841 abstentions.

Item 5.  Other Information    None.

Item 6.  Exhibits and Reports on Form 8-K

     (a)   Exhibits

               None

     (b)   Reports on Form 8-K

               None
<PAGE>


                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


                                   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.


                                         Montgomery Financial Corporation



Date:  February 12, 1998            By:  /s/Earl F. Elliott
                                         ------------------
                                         Earl F. Elliott, President and Chief
                                         Executive Officer



Date:  February 12, 1998            By:  /s/ J. Lee Walden
                                         -----------------
                                         J. Lee Walden, Vice President and Chief
                                         Financial Officer