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, 1998


                                       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, 1998,  there were  1,589,681  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, 1998 and June 30, 1998                              

         Consolidated Condensed Statement of Income for the Three
         And Six Months Ended December 31, 1998 and 1997                        

         Consolidated Condensed Statement of Cash Flows for the
         Six Months Ended December 31, 1998 and 1997                            

         Consolidated Condensed Statement of Changes in Stockholders'
         Equity for the Six Months Ended December 31, 1998                      

         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,
                                                             1998               1998
                                                        -------------      -------------
<S>                                                     <C>                <C>          
Assets
  Cash ............................................     $     214,314      $     326,922
  Short-term interest-bearing deposits ............         8,718,710         10,569,823
                                                        -------------      -------------
         Total cash and cash equivalents ..........         8,933,024         10,896,745
  Interest-bearing deposits .......................           215,000            215,000
  Securities available for sale ...................           641,412            311,967
  Loans ...........................................       105,539,751        100,395,554
  Allowance for loan losses .......................          (211,000)          (186,000)
                                                        -------------      -------------
       Net loans ..................................       105,328,751        100,209,554
  Real estate owned and held for
  development, net ................................         1,281,777          1,468,199
  Premises and equipment ..........................         2,552,096          2,001,544
  Federal Home Loan Bank Stock ....................         1,250,700            921,500
  Interest receivable .............................           882,787            843,799
  Other assets ....................................           383,915            294,324
                                                        -------------      -------------

         Total assets .............................     $ 121,469,462      $ 117,162,632
                                                        =============      =============

Liabilities
  Deposits
      Noninterest bearing .........................     $   1,841,653      $   1,864,658
      Interest bearing ............................        78,430,465         82,117,324
                                                        -------------      -------------
         Total deposits ...........................        80,272,119         83,981,982
  Federal Home Loan Bank advances .................        20,013,302         11,260,715
  Interest payable ................................           647,131            538,451
  Deferred tax liability ..........................           331,203            371,197
  Other liabilities ...............................           515,662            945,136
                                                        -------------      -------------

         Total liabilities ........................       101,779,417         97,097,481
                                                        -------------      -------------

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

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


                                                         December 31,         June 30,
                                                             1998               1998
                                                        -------------      -------------
<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;  1,589,681 and 1,653,032 issued .            15,897             16,530
  Paid-in capital .................................        13,041,862         13,571,387
  Retained earnings - substantially restricted ....         7,935,820          7,782,192
   Unearned ESOP shares - 118,630 and 123,080 .....        (1,186,299)        (1,230,802)
   Unearned compensation ..........................          (110,610)          (128,507)
   Accumulated other comprehensive income (loss) ..            (6,625)            54,351
                                                        -------------      -------------

         Total stockholders' equity ...............        19,690,045         20,065,151
                                                        -------------      -------------


         Total liabilities and stockholders' equity     $ 121,469,462      $ 117,162,632
                                                        =============      =============
</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,      
                                              ----------------------------      ----------------------------
                                                  1998             1997             1998             1997 
                                              -----------      -----------      -----------      -----------
<S>                                           <C>              <C>              <C>              <C>        
Interest and Dividend Income
  Loans .................................     $ 2,171,744      $ 1,940,951      $ 4,271,760      $ 3,795,384
  Investment securities .................           5,751              567            9,248            1,134
  Deposits with financial institutions ..          85,360           74,547          195,918          189,292
  Dividend Income .......................          20,933           18,581           39,648           37,744
                                              -----------      -----------      -----------      -----------
       Total interest and dividend income       2,283,788        2,034,646        4,516,574        4,023,554
                                              -----------      -----------      -----------      -----------

Interest Expense
  Deposits ..............................       1,063,559          993,303        2,163,142        1,950,066
 Federal Home Loan Bank advances
                                                  230,489          125,847          396,662          271,008
                                              -----------      -----------      -----------      -----------
   Total interest expense ...............       1,294,048        1,119,150        2,559,804        2,221,074
                                              -----------      -----------      -----------      -----------

Net Interest Income .....................         989,740          915,496        1,956,770        1,802,480
  Provision for losses on loans .........          10,000           25,000            3,000
                                              -----------      -----------      -----------      -----------
Net Interest Income After
  Provision for Losses on Loans .........         979,740          915,496        1,931,770        1,799,480
                                              -----------      -----------      -----------      -----------
Other Income
  Service charges on deposit accounts ...          13,181            8,713           23,799           15,951
  Net appraisal income (expense) ........          (5,940)             111           (4,535)            (943)
  Other income ..........................           1,638            1,063            3,389            2,381
                                              -----------      -----------      -----------      -----------
       Total other income ...............           8,879            9,887           22,653           17,389
                                              -----------      -----------      -----------      -----------
Other Expenses
  Salaries and employee benefits ........         359,398          317,634          643,313          593,492
  Net occupancy expense .................          25,918           25,188           53,447           51,374
  Equipment expense .....................          45,958           37,486           92,515           72,819
  Data processing expense ...............          42,197           29,393           78,050           57,351
  Deposit insurance expense .............          12,695           11,778           25,192           23,206
  Real estate operations, net ...........         (10,954)          (1,719)         (16,197)         (12,404)
Advertising expense .....................          12,221           10,270           23,513           18,869

Other expenses ..........................         139,922          136,811          263,798          250,993
                                              -----------      -----------      -----------      -----------
           Total other expenses .........         627,355          566,841        1,163,631        1,055,700
                                              -----------      -----------      -----------      -----------
</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,      
                                              ----------------------------      ----------------------------
                                                  1998             1997             1998             1997 
                                              -----------      -----------      -----------      -----------
<S>                                           <C>              <C>              <C>              <C>        
Income Before Income Tax ................         361,264          358,542          790,792          761,169
  Income tax expense ....................         125,390          158,775          299,890          335,825
                                              -----------      -----------      -----------      -----------

Net Income ..............................     $   235,874      $   199,767      $   490,902      $   425,344
                                              ===========      ===========      ===========      ===========



Net Income Per Share:
      Basic .............................     $      0.16      $      0.13      $      0.33      $      0.28
      Diluted ...........................     $      0.16      $      0.13      $      0.32      $      0.28

Dividends Per Share .....................     $     0.055      $     0.055      $     0.110      $     0.110


</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, 
                                                                 1998             1997
                                                             -----------      -----------
<S>                                                          <C>              <C>        
Operating Activities

  Net income ...........................................     $   490,902      $   425,344
  Adjustments to reconcile net income to net cash
      provided by operating activities
      Provision for loan losses ........................          25,000            3,000
      Depreciation .....................................         125,155          102,214
      ESOP stock amortization ..........................          48,762           46,494
      Amortization of unearned compensation ............           4,341
      Change In
          Interest receivable ..........................         (38,988)         (80,294)
          Interest payable .............................         108,680          156,955
          Other assets .................................         (89,591)         (53,275)
          Other liabilities ............................        (419,220)          21,678
                                                             -----------      -----------

             Net cash provided by operating activities .         255,041          622,116
                                                             -----------      -----------


Investing Activities

  Proceeds from paydowns of
      securities available for sale ....................          10,805           10,087
   Purchase of securities available for sale ...........        (441,220)        (200,000)
  Net change in loans ..................................      (5,256,388)      (6,987,383)
  Additions to real estate owned and held for investment         (46,308)         (75,460)
  Proceeds from Real Estate Owned Sales ................         319,222           52,795
  Purchases of premises and equipment ..................        (650,008)        (178,726)
  Purchase of FHLB of Indianapolis stock ...............        (329,200)

             Net cash used by investing activities .....      (6,393,097)      (7,476,687)
                                                             -----------      -----------


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

                      Consolidated Condensed Statement of Cash Flows
                                        (Continued)



                                                                  Six Months Ended
                                                                     December 31, 
                                                                1998              1997
                                                            ------------      ------------
<S>                                                         <C>               <C>         
Financing Activities

  Net Change In
       Noninterest-bearing, interest-bearing demand and
          savings deposits ............................     $  1,960,057      $    993,652
      Certificates of deposit .........................       (5,669,920)        3,885,823
  Proceeds from FHLB advances .........................       11,000,000         2,000,000
  Repayment of FHLB advances ..........................       (2,247,413)       (5,167,658)
  Stock purchase ......................................         (693,924)

  Dividends paid ......................................         (174,465)          (90,917)
                                                            ------------      ------------

             Net cash provided by financing activities         4,174,335         1,620,900
                                                            ------------      ------------


Net Change in Cash and Cash Equivalents ...............       (1,963,721)       (5,230,671)

Cash and Cash Equivalents, Beginning of Period ........       10,896,745        11,594,772
                                                            ------------      ------------

Cash and Cash Equivalents, End of Period ..............     $  8,933,024      $  6,364,101
                                                            ============      ============



Additional Cash Flow and Supplementary Information

  Interest Paid .......................................     $  2,451,124      $  2,064,119
  Income Tax Paid .....................................          755,589           174,450
   Transfer from Loans to Other Real Estate Owned .....          112,191            53,154
   Cash Dividends Payable .............................           80,663            90,917

</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        Comprehensive      Retained                
                                            Shares         Amount         Capital            Income         Earnings                
                                          ---------      ---------      ------------     -------------     -----------
<S>                                       <C>             <C>           <C>              <C>               <C>            
  Balance July 1, 1998 ............       1,653,032      $  16,530      $ 13,571,387                       $ 7,782,192    
                                                                                                                          
  Net income for the six months                                                                                           
      ended December 31, 1998 .....                                                       $   490,902          490,902    
                                                                                                                          
                                                                                                                          
  Other comprehensive income,                                                                                             
      net of tax                                                                                                          
      Unrealized loss on securities                                                           (60,976)         (60,976)   
                                                                                          -----------  
                                                                                                                          
  Other comprehensive income ......                                                       $   429,926                     
                                                                                          ===========                     
                                                                                                                          
  Cash dividends ($.055 per share)                                                                            (164,211)   
                                                                                                                          
  Stock purchase ..................         (63,351)          (633)         (520,228)                         (173,063)   
                                                                                                                          
                                                                                                                          
  ESOP shares earned ..............                                            4,259                                      
                                                                                                                          
  Amortization of unearned                                                                                                
      compensation expense ........                                          (13,556)                                     
                                                                                                                          
                                                                                                                          
                                          ---------      ---------      ------------      ------------     ----------- 
  Balance December 31, 1998 .......       1,589,681      $  15,897      $ 13,041,862                       $ 7,935,820    
                                          =========      =========      ============      ============     ===========    


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                 Accumulated                                        
                                                                                   Other            
                                             Unearned       Unearned            Comprehensive    
                                           ESOP Shares     Compensation           Income               Total
                                           -----------      ---------            --------           -----------            
<S>                                        <C>              <C>                  <C>                <C>                    
  Balance July 1, 1998 ............        $(1,230,802)     $(128,507)           $ 54,351           $20,065,151            
                                                                                                                           
  Net income for the six months                                                                                            
      ended December 31, 1998 .....                                                                     490,902            
                                                                                                                           
                                                                                                                           
  Other comprehensive income,                                                                                              
      net of tax                                                                                                           
      Unrealized loss on securities                                               (60,976)                                 
                                                                                                                           
                                                                                                                           
  Other comprehensive income ......                                                                                        
                                                                                                                           
  Cash dividends ($.055 per share)                                                                     (164,211)           
                                                                                                                           
  Stock purchase ..................                                                                    (693,924)           
                                                                                                                           
                                                                                                                           
  ESOP shares earned ..............             44,503                                                   48,762            
                                                                                                                           
  Amortization of unearned                                                                                                 
      compensation expense ........                            17,897                                     4,341            
                                            -----------      ---------            --------           -----------            
                                                                                                                          
  Balance December 31, 1998 .......        $(1,186,299)     $(110,610)              $ (6,625)       $19,690,045            
                                           ===========      =========               ========        ===========            
                                                                                

</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, 1998, results
of operations for the three and six month periods  ending  December 31, 1998 and
1997, and cash flows for the six month periods ended December 31, 1998 and 1997.
The results of operations for the three and six month periods ended December 31,
1998 are not  necessarily  indicative of the results of operations  which may be
expected for the fiscal year ending June 30, 1999.


Net Income Per Share

Net income per share for the three and six month periods ended December 31, 1998
and 1997 are computed by dividing net earnings by the weighted average shares of
common stock outstanding during the period.
<TABLE>
<CAPTION>
For the Three Months Ended                        December 31, 1998                            December 31, 1997
                                          -----------------------------------         -----------------------------------------
                                                       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 ......          $235,874     1,490,103     $   0.16        $199,767       1,521,209     $        0.13
                                          --------     ---------     ========        --------       ---------     =============

Effect of Dilutive Stock Options
   and Grants ..................                 0        12,897                            0          17,746
                                          --------     ---------                     --------       ---------      

Diluted Net Income Per Share:
   Net Income Available
   To Common Stockholders ......          $235,874     1,502,999     $   0.16        $199,767       1,538,955     $        0.13
                                          ========     =========     ========        ========       =========     =============


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

 
For the Six Months Ended                     December 31, 1998                     December 31, 1997
                                             -----------------                     -----------------
                                                  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 ......     $490,902     1,504,986     $   0.33  $425,344     1,520,636     $   0.28
                                     ========     =========     ========  ========     =========     ========

Effect of Dilutive Stock Options
   and Grants ..................            0        13,650                      0       16,896
                                     --------     ---------               --------     ---------                           

Diluted Net Income Per Share:
   Net Income Available
   To Common Stockholders ......     $490,902     1,518,636     $   0.32  $425,344     1,537,532     $   0.28
                                     ========     =========     ========  ========     =========     ========



</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  Securities  and  Exchange   Commission,   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 $121.5 million at
December 31,  1998,  an increase of $4.3  million,  or 3.7 percent from June 30,
1998. During this six month period  interest-earning  assets,  including Federal
Home Loan Bank  advances,  increased  $4.0 million,  or 3.5 percent.  Short-term
interest-earning  deposits  decreased  $1.9  million,  or  17.5  percent.  Loans
increased  $5.1  million,  or 5.1  percent,  which is the  approximate  increase
budgeted for the current  year-to-date.  Deposits decreased $3.7 million, or 4.4
percent and borrowings  increased $8.8 million,  or 77.7 percent,  causing a net
increase  in  interest-bearing  liabilities  of 5.4  percent.  The  decrease  in
deposits was primarily the result of a decrease in public funds  deposits due to
short term bid rates being above the cost of longer term  Federal Home Loan Bank
advance  rates.  The  increase in advances  was used to replace the  decrease in
deposits and to fund loan growth.

          Capital  and   Liquidity.   At   December   31,   1998,   Montgomery's
stockholders'  equity was $19,690,000 or 16.2 percent of total assets,  compared
with  stockholders'  equity of $20,065,000,  or 17.1 percent,  at June 30, 1998.
With  the  approval  of the  OTS  on  September  24,1998,  Montgomery  began  to
repurchase  82,651,  or 5.0  percent  of its  outstanding  common  stock.  As of
December 31, 1998 Montgomery had repurchased  63,351 shares of common stock at a
cost of $694,000,  leaving  19,300 shares to be repurchased to complete the 5.0%
authorized.  On February 4, 1999 Montgomery  completed the repurchase program of
82,651  shares at a total cost of  $891,000.00.  The  Association  continues  to
exceed all minimum capital requirements. At December 31, 1998, the Association's
tangible and core capital was  $16,033,000,  or 13.4 percent of tangible assets,
$14,232,000 in excess of the 1.5 percent minimum  required  tangible capital and
$11,230,000  in  excess  of the  4.0  percent  minimum  required  core  capital.
Risk-based capital equaled $15,327,000, or 20.5 percent of risk-weighted assets,
$9,344,000  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. The Association's average liquidity ratio for the six months ended
December 31, 1998, was 8.1 percent.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


          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.  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.  The amount of that deduction is
one-half of the  difference  between  (a) the  institution's  actual  calculated
exposure to the 200 basis point  interest  rate increase or decrease ( whichever
results in the greater pro forma  decrease in NPV) or (b) its "normal"  level of
exposure  which is 2% of the present value of its assets.  Regulations do 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, 1998 the Association's total
assets were $120.5 million and risk based capital was 20.5 percent; therefor the
Association  would have been exempt from  calculating  or making any  risk-based
capital reduction.  The Association's  management believes 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, 1998, 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 $2.42 million, which was less than
$2.82  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, 1998 NPV information,  the amount of the  Association's  deduction
from capital,  had it been subject to reporting,  would have been  approximately
$200,000.
          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.

          Presented  below, as of September 30, 1998, and September 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
assumptions utilized by the OTS in assessing the interest risk of the thrifts it
regulates.  Based upon these assumptions at September 30, 1998 and September 30,
1997,  the  NPV  of  the   Association  was  $18.5  million  and  $18.6  million
respectively. NPV is calculated by the OTS for the purpose of interest rate risk
assessment  and  should  not be  considered  as an  indicator  of  value  of the
Association.
<PAGE>
<TABLE>
<CAPTION>
                            MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                                     Crawfordsville, Indiana


                                             At September 30, 1998                At September 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            -4,882               -26              -5,414            -29
      +200                  -50            -2,815               -15              -3,313            -18
      +100                  -30            -1,159                -6              -1,425             -8
         0                    0                 0                 0                   0              0
      -100                  -30              +839                +5                +721             +4
      -200                  -50            +1,840               +10                +979             +5
      -300                  -60            +4,363               +24              +1,297             +7
                                                               
</TABLE>
 
          In the event of a 300 basis point  change in interest  rate based upon
estimates  as of  September  30, 1998 the  Association  would  experience  a 24%
increase, compared to a 7% increase at September 30, 1997, in NPV in a declining
rate environment and a 26% decrease, compared to a 29% decrease at September 30,
1997, 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, 1998, was $236,000  compared to $200,000 for the three months
ended December 31, 1997, an increase of $36,000,  or 18.1 percent.  Net interest
income increased $74,000,  or 8.1 percent,  primarily due an increase in average
interest-earning   assets   of  $13.3   million,   or  13.4   percent.   Average
interest-earning  assets were $112.7 million for the three months ended December
31, 1998  compared to $99.4  million for the 1997  three-month  period.  Average
interest-bearing liabilities increased $13.1 million from $81.3 million to $94.4
million  during  the  comparable  three-month  periods.   Interest  rate  spread
decreased  from 2.68 percent for the three months  ended  December 31, 1997,  to
2.62 percent for the three months ended December 31, 1998.  Net interest  margin
decreased to 3.51 percent for the three months ended December 31, 1998 from 3.68
percent for the three months ended  December 31, 1997.  Non-interest  income was
$9,000 for the 1998 three-month  period compared to $10,000 for the 1997 period.
Non-interest  expense was $627,000 for the three months ended  December 31, 1998
compared to $567,000 for the 1997 three-month period, an increase of $60,000, or
10.7  percent.  This  increase  was  primarily  due to an  increase  in employee
benefits  due to an increase in the number of employees  in  preparation  of the
opening of a Lafayette, Indiana office.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


          For the six months ended  December  31, 1998,  net income was $491,000
compared to $425,000 for the six months ended  December 31, 1997, an increase of
$66,000,  or 15.4 percent.  This increase was again primarily due to an increase
in net interest  income from  $1,803,000  for the six months ended  December 31,
1997 to  $1,957,000  for the six months ended  December 31, 1998, an increase of
$154,000,  or 8.6  percent.  Average  interest-earning  assets  increased  $14.1
million from $98.4 million for the six months ended  December 31, 1997 to $112.5
million for the 1998 six-month period while average interest-bearing liabilities
increased  $13.8 million during the  comparable  periods.  Non-interest  expense
increased  $108,000,  or 10.2 percent.  This increase was primarily caused by an
increase in  personnel  and an increase in  operational  costs due to growth and
expansion. Income tax expense was $300,000 for the six months ended December 31,
1998, compared to $336,000 for the six months ended December 31, 1997.

          Interest  Income.  Montgomery's  total  interest  income for the three
months ended  December 31, 1998, was $2.3 million,  an increase of $249,000,  or
12.2 percent,  compared to interest  income for the three months ended  December
31,  1997.  This  increase  was  primarily  caused  by an  increase  in  average
interest-earning  assets from $99.4 million for the three months ended  December
31, 1997,  to $112.7  million for the three months ended  December 31, 1998,  an
increase of $13.3  million,  or 13.4  percent  principally  due to loan  growth.
Average loans  increased from $93.0 million for the 1997  three-month  period to
$105.2 million for the 1998 three month period and average investment securities
increased from $35,000 to $687,000 for the respective periods. The average yield
on interest-earning  assets was 8.10 percent for the three months ended December
31, 1998, compared to 8.19 percent for the three months ended December 31, 1997.

          Interest  income for the six months ended  December 31, 1998, was $4.5
million, an increase of $493,000,  or 12.3 percent, from interest income for the
same period in 1997.  Average  interest-earning  assets for the six months ended
December 31, 1998, was $112.4 million compared to $98.4 million for the 1997 six
month period, an increase of $14.0 million, or 14.2 percent,  principally due to
loan growth.  The average yield for the 1998 period was 8.03 percent compared to
8.18 percent for the 1997 period.

          Interest Expense. Interest expense for the three months ended December
31, 1998, was $1.3 million,  which was an increase of $175,000, or 15.6 percent,
from  the  three  months  ended  December  31,  1997.  Average  interest-bearing
liabilities increased $13.1 million, or 16.1 percent, from $81.3 million for the
three months ended  December  31,  1997,  to $94.4  million for the three months
ended December 31, 1998.  The average cost of funds  decreased from 5.50 percent
to 5.48  percent  for the  comparable  periods.  The  average  cost of  deposits
decreased  from 5.43  percent to 5.41  percent  for the  comparable  three-month
periods.  The average  cost of  borrowings  decreased  from 6.18 percent to 5.85
percent for the comparable periods due.

          Interest  expense for the six months ended December 31, 1998, was $2.6
million,  an increase of $339,000,  or 15.3  percent,  from the six months ended
December  31,  1997.  The  average  cost of funds for the 1998  period  was 5.45
percent compared to 5.55 percent for the 1997 period.  Average  interest-bearing
liabilities  increased  from $80.0 million for the six months ended December 31,
1997 to $93.8 million for the 1997 six-month period.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


          Provision  for Losses on Loans.  The provision for losses on loans was
$10,000 for the three  months ended  December 31, 1998  compared to no provision
adjustment for the three months ended  December 31, 1997.  During the six months
ended  December  31,  1998, a $25,000  provision  was made  compared to a $3,000
provision in the comparable 1997 six-month period. Provision for loan losses 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.  Both the $25,000 and $3,000 provisions were made
primarily due to increased  loan growth.  Loans  delinquent  ninety days or more
were  $852,000  at December  31,  1998,  compared to $724,000 at June 30,  1998.
Non-performing  loans to total loans at December  31,  1998,  were 0.81  percent
compared  to 0.72  percent  at June  30,  1998.  The  allowance  for  losses  to
non-performing  loans was 24.8  percent at December  31,  1998  compared to 25.7
percent at June 30,  1998.  The  allowance  to total  loans was 0.20  percent at
December 31, 1998 and 0.19 percent at June 30, 1998.  Montgomery is  continually
re-evaluating  the  level of the  allowance  for loan  losses  as the  amount of
non-residential mortgage loans and other new loan products are offered.

          Non-Interest  Income.  Montgomery's  other income for the three months
ended  December  31,  1998,  totalled  $9,000  compared to $10,000 for the three
months ended  December 31, 1997,  a decrease of $1,000,  or 10.2  percent.  This
increase was primarily due to an increase in service charges on deposit accounts
of $4,000 and a decrease in net appraisal income of $6,000.

         Other income for the six months ended December 31, 1998, was $23,000, a
decrease of $5,000, or 31.4 percent,  from the comparable 1997 six month period.
During  the six months  ended  December  31,  1998,  service  charges on deposit
accounts  increased  $8,000 and appraisal  income decreased $3,000 from the 1997
six-month period.

         Non-Interest Expense.  Montgomery's other expenses for the three months
ended  December 31, 1998,  totalled  $627,000,  an increase of $60,000,  or 10.7
percent,  from the three months ended  December 31, 1997.  Salaries and employee
benefits  increased  $42,000.  The increase was  primarily due to an increase in
branch office personnel to accommodate growth to prepare for staffing of a fifth
office in Lafayette,  Indiana to be opened during the first calendar  quarter of
1999.  Equipment expense increased $8,000 and data processing  expense increased
$13,000.  Included  in the data  processing  expense  is  $8,100  for Year  2000
testing.  This is part of an  expected  total  expense of $40,500 to perform all
necessary  testing of our service  bureau  provider.  The  increase in equipment
expense and the balance of the data processing expense are generally  reflective
of Montgomery's  growth.  Real estate operations net income for the three months
ended December 31, 1998, was $11,000  compared to $2,000 for the 1997 comparable
period, an decrease of $9,000 due to an increase in net rental income.

         Non-interest  expense for the six months ended  December 31, 1998,  was
$1.2 million compared to $1.1 million, an increase of $108,000, or 10.2 percent,
from the six months  ended  December  31,  1997.  Salary and  employee  benefits
increased $50,000, or 8.4 percent. 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  $20,000 and data  processing
expense  increased  $21,000.  With the  exception  of $14,000  included  in data
processing  expense for Year 2000 testing,  the balance of these  increases were
primarily due to Montgomery's growth. Net real estate operations generated a net
income for the six months ended December 31, 1998, of $16,000  compared to a net
income of $12,000 for the 1997 comparable period. This increase was primarily
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


due to an increase in net rental income. Other expenses for the six months ended
December 31, 1998,  were $264,000  compared to $251,000 for the six months ended
December 31, 1997,  an increase of $13,000,  or 5.1  percent.  This  increase is
generally reflective of Montgomery's growth.

       Impact of the Year 2000.  Montgomery has conducted a comprehensive review
of its computer systems to identify  applications  that could be affected by the
"Year 2000"  issue,  and has  developed  an  implementation  plan to address the
issue. The Year 2000 issue is the result of the computer  programs being written
using two  digits  rather  than  four to  define  the  applicable  year.  Any of
Montgomery's  programs  that have  time-sensitive  software may recognize a date
using "00" as the year 1900  rather than the year 2000.  This could  result in a
system  failure or  miscalculations.  Montgomery is utilizing  both internal and
external  resources to identify,  correct or reprogram  and test the systems for
the Year 2000 compliance. Montgomery's data processing is performed primarily by
an outside vender.  Montgomery began the testing phase during the third calendar
quarter of 1998. Core application testing should be completed by March 31, 1999.

       Montgomery  has already  contacted each vendor to request time tables for
year  2000  compliance  and  expected  costs,  if any,  to be  passed  along  to
Montgomery.  To date,  Montgomery  anticipates that its primary service provider
will complete all reprogramming  efforts by March 31, 1999; however,  Montgomery
will  pursue  other  options if it appears  that any  vendors  will be unable to
comply.  In addition to possible  expenses  related to Montgomery's  systems and
those of its  service  providers,  Montgomery  could  incur  losses if Year 2000
problems affect any of its depositors or borrowers.  Such problems could include
delayed loan payments due to Year 2000 problems affecting any of its significant
borrowers  or  impairing  the payroll  systems of large  employers in its market
area.  Because  Montgomery's  loan portfolio is diversified  and its market area
does not depend significantly upon one employer or industry, Montgomery does not
expect any such Year 2000 related difficulties that may affect its depositors or
borrowers to significantly affect its net earnings or cash flows.

       The  Board of  Directors  reviews,  on at least a  quarterly  basis,  the
progress in  addressing  Year 2000 issues.  Montgomery  has estimated a cost and
established  a budget of $75,000  for  testing  and  upgrading  its  systems and
software for Year 2000 compliance.  As of December 31, 1998 Montgomery has spent
approximately  $35,000 in connection with Year 2000  compliance.  Of the $35,000
approximately  $20,000  has  been  capitalized  as  non-compliant  systems  were
replaced  and  upgraded.  Management  does  not  expect  these  costs  to have a
significant impact on its financial position or results of operations,  however,
there can be no assurance that the vendors  systems will be Year 2000 compliant,
consequently  Montgomery  could  incur  incremental  costs to convert to another
vendor or move data processing in house in future periods.
<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 20, 1998, at 2:00
p.m., Crawfordsville time for the purpose of electing two Directors, to consider
and approve or disapprove the Company's 1997 Stock Option and Incentive Plan, to
consider and approve or disapprove the Company's 1997  Recognition and Retention
Plan,  to ratify the  appointment  of Geo. S. Olive & Co.  LLC, as  Montgomery's
independent  auditors  for the 1999  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  14, 1998. A total of 1,653,032
shares of common stock of Montgomery were  outstanding on August 31, 1998, and a
total of 1,513,302  shares were  represented  at the meeting.  Of the  1,513,302
shares,  1,478,789  were  represented  by proxy and 34,513 were  represented  in
person.

Joseph M. Malott and J. Lee Walden were  nominated to hold office until the year
2001 Annual Meeting of  Shareholders.  Mr. Malott has been a director since 1978
and Mr. Walden since 1995. No other nominations were made at the meeting. Joseph
M. Malott was elected receiving 1,496,217 votes for, with 17,085 votes withheld.
J. Lee Walden was elected  receiving  1,496,142  votes for,  with  17,160  votes
withheld.  With the  election  of Messrs.  Malott and  Walden,  the terms of the
Directors as of October 20, 1998, expire as follows:  1999 - C. Rex Henthorn and
John E. Woodward;  2000 - Earl F. Elliott,  Mark E. Foster and Robert C. Wright;
2001 - Joseph M. Malott and J. Lee Walden.

Geo S. Olive & Co. LLC ("GSO"), served as independent auditors for Montgomery in
fiscal  1998.  The  Board  of  Directors  approved  the  appointment  of  GSO as
independent   auditors  for  fiscal  1999,   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  1,493,534  votes in favor,  5,755  votes
against and 14,013 abstentions.

On July 21,  1998,  the Board of Directors  adopted,  subject to approval of the
shareholders,  the 1997 Stock Option and  Incentive  Plan.  Adoption of the Plan
reflects  the  belief  of the  Board of  Directors  that the  granting  of stock
incentive  awards to  directors,  officers and employees is a means of enhancing
and encouraging  the recruitment and retention of those  individuals on whom the
continued success of the company most depends.  The plan provides for the future
issuance of 118,678 shares. The affirmative vote of a majority of the votes cast
was required to approve  adoption of the 1997 Stock Option and  Incentive  Plan.
Proxies  marked to abstain and broker  non-votes had no effect on this proposal.
The 1997 Stock Option and  Incentive  Plan was adopted by  affirmative  votes of
784,229 and 83,793 votes against.
<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


On July 21,  1998,  the Board of Directors  adopted,  subject to approval of the
shareholders,  the 1997  Recognition  and Retention  Plan.  Adoption of the Plan
reflects  the  belief of the Board of  Directors  that the Plan will  provide to
directors,  advisory directors, officers and employees a proprietary interest in
the Montgomery in a manner designed to encourage such individuals to remain with
the  Montgomery and the  Association.  The maximum number of shares which may be
awarded under the 1997 RRP will be an amount which,  when added to the number of
shares of Common Stock awarded under  Montgomery's  1995 plan, will equal 66,121
shares of Common Stock. The affirmative vote of a majority of the votes cast was
required to approve adoption of the 1997 Recognition and Retention Plan. Proxies
marked to abstain and broker non-votes had no effect on this proposal.  The 1997
Stock Option and Incentive Plan was adopted by affirmative  votes of 760,115 and
97,608 votes against.

Item 5.  Other Information    None.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

          10.1  Montgomery   Financial   Corporation's  1997  Stock  Option  and
          Incentive Plan

          10.2 Montgomery Financial Corporation's 1997 Recognition and Retention
          Plan

     (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 10, 1999            By:   /s/ Earl F. Elliott
                                          ---------------------
                                          Earl F. Elliott, President and Chief
                                          Executive Officer



Date:  February 10, 1999            By:  /s/ J. Lee Walden
                                         -------------------
                                         J. Lee Walden, Vice President and Chief
                                         Financial Officer



<PAGE>
                 MONTGOMERY FINANCIAL CORPORATION AND SUBSIDIARY
                             Crawfordsville, Indiana


                                  EXHIBIT INDEX

                                                                    Executive
                                                                  Compensation
                                                                    Plans and
Exhibits                                                Page      Arrangements**
--------                                                ----      --------------

   10.1      Montgomery Financial Corporation            20             X
             1997 Stock Option and Incentive Plan

   10.2      Montgomery Financial Corporation            27             X
             1997 Recognition and Retention Plan





**   Indicates  exhibits that describe or evidence all  management  contracts or
     compensation plans or arrangements required to be filed as exhibits to this
     report.