U.S. SECURITIES AND EXCHANGE COMMISSION
                   Washington, D.C. 20549

                         FORM 10-K

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For the fiscal year ended December 31, 1998;

                             OR

[ ]  Transition  Report  Pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934 For the Transition  Period from  _________________  to
     -----------------

                        Commission File Number :811-3787

                      BANDO McGLOCKLIN CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

              Wisconsin                            39-1364345
     (State or other jurisdiction                 (I.R.S. Employer 
     of incorporation or organization)            Identification No.)

          W239 N1700 Busse Road
              P.O. Box 190
           Pewaukee, Wisconsin                        53072-0190
   (Address of principal executive offices)           (Zip Code)

       Registrant's telephone number, including area code: (414) 523-4300
                             -----------------------

          Securities registered pursuant to Section 12(b) of the Act:

                                      None

          Securities registered pursuant to Section 12(g) of the Act:
           Title of Class                           Title of Class
  Common Stock, 6-2/3 cents Par Value     Preferred Stock, 6-2/3 cents Par Value

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  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 [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate  market value of voting and non-voting  common equity held by
non-affiliates of the registrant at March 16, 1999 was $35,885,596.

     The  number of shares of common  stock  outstanding  at March 16,  1999 was
3,689,102

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Bando  McGlocklin  Capital  Corporation  Proxy Statement for the
1999  Annual  Meeting  of  Shareholders  (to be filed  with the  Securities  and
Exchange  Commission  under  Regulation 14A within 120 days after the end of the
Registrant's  fiscal  year and,  and upon such  filing,  to be  incorporated  by
reference into Part III).


<PAGE>

                      BANDO McGLOCKLIN CAPITAL CORPORATION

                       Index to Annual Report on Form 10-K
                            For the Fiscal Year Ended
                                December 31, 1998
                                                                            Page

Part I.........................................................................2

    Item 1.  Description of Business...........................................2

    Item 2.  Properties........................................................6

    Item 3.  Legal Proceedings.................................................6

    Item 4.  Submission of Matters to a Vote of Security Holders...............6

Part II........................................................................6

    Item 5.  Market for Common Equity and Related Stockholder Matters..........6

    Item 6.  Selected Financial Data (In thousands,
             except per share data)............................................7

    Item 7.  Management's Discussion and Analysis of Financial 
             Condition and Results of Operations (for the fiscal 
             years ended December 31, 1997 and June 30, 1996 and 1995).........8

    Item 7a. Quantitative and Qualitative Disclosures
             About Market Risk................................................14

    Item 8.  Financial Statement and Supplementary Data.......................16

Part III......................................................................52

    Item 9.  Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure..............................52

    Item 10. Directors and Executive Officers of the Registrant...............52

    Item 11. Executive Compensation...........................................52

    Item 12. Security Ownership of Certain Beneficial
             Owners and Management............................................52

    Item 13. Certain Relationships and Related Transactions...................52

    Item 14. Exhibits, Financial Statement Schedules,
             and Reports on Form 8-K..........................................52


                                      (i)
<PAGE>


                                     Part I

Item 1.  Description of Business

                                  Introduction

         Bando McGlocklin  Capital  Corporation (the "Company"),  was originally
incorporated in February 1980 to provide  long-term secured loans to finance the
growth,  expansion and  modernization  of small  businesses.  The Company is now
engaged  in two  business  segments,  the  Financial  Service  Business  and the
Consumer Products Business.

         On May 5, 1993, the Company formed Bando McGlocklin Investment Company,
a subsidiary of the Company  ("BMIC").  In May 1993,  the Company  transferred a
fully  developed real estate parcel to BMIC. In December 1996 one percent of the
economic interest in BMIC was sold to an unrelated third party. In January 1997,
this one percent  interest was sold to George R.  Schonath,  President and Chief
Executive Officer of the Company. In a subsequent  recapitalization of BMIC, the
99% voting common stock  interest in BMIC then held by the Company was converted
to the  ownership  of 100% of the  non-voting  common  stock of BMIC.  After the
recapitalization,  the Company held 100% of the non-voting common stock of BMIC,
representing 99% of the total equity interest, and George R. Schonath owned 100%
of the voting common stock of BMIC, representing one percent of the total equity
interest.   The  recapitalization  was  effected  because  applicable  REIT  tax
provisions  do not permit a REIT to own more than 10% of the voting stock of any
corporation.

         On March 26, 1993,  the Company  transferred  substantially  all of its
assets and liabilities to Bando McGlocklin  Small Business  Lending  Corporation
("BMSBLC"),   a  wholly-owned   subsidiary  of  the  Company.  In  1997,  BMSBLC
contributed  its  ownership  interest  in Lee  Middleton  Original  Dolls,  Inc.
("Middleton  Doll") and License Products,  Inc. ("License  Products"),  both 51%
owned  subsidiaries  engaged in the consumer  products  business,  to BMIC.  The
remaining 49% of each company was owned by  unaffiliated  parties.  On April 30,
1998,  BMIC acquired the remaining 49% interest of Middleton  Doll and the right
to produce  certain dolls for $5 million in cash. The  consolidated  accounts of
the  Company  reflect  the  consolidated   financial  position  and  results  of
operations of BMIC, Middleton Doll and License Products.

         Prior to January 2, 1997,  the Company and BMSBLC  were  registered  as
investment  companies  under the  Investment  Company Act of 1940 ("1940  Act").
Effective  January 2, 1997,  the Company and BMSBLC  deregistered  as investment
companies  under the 1940 Act.  The  Company now  reports  under the  Securities
Exchange Act of 1934 ("1934 Act"). Since January 1, 1997, the Company,  together
with  its  wholly-owned  subsidiary,  BMSBLC,  has  operated  as a  real  estate
investment  trust  ("REIT")  pursuant  to the  provisions  of Section 856 of the
Internal Revenue Code of 1986, as amended.

         On September 3, 1997, the Company capitalized InvestorsBancorp, Inc., a
bank holding company,  with  approximately $6.2 million and then distributed all
its shares of InvestorsBancorp, Inc. to the Company's shareholders.

         The Company and InvestorsBancorp,  Inc., together with its wholly-owned
subsidiary,  InvestorsBank  (the "Bank"),  share common  offices and  personnel.
Expenses  are shared  between the two entities in  accordance  with a Management
Services and Allocation of Expenses Agreement (the "Management Agreement").  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operation -- Liquidity and Capital Resources."


                                       2
<PAGE>


                           Financial Services Business

Loans

         The Company,  through its Financial Services Business,  (i) manages its
loan portfolio  comprised  primarily of loans to small business entities secured
by first or second  mortgages,  (ii) purchases loan  participations  from banks,
including the Bank, and (iii) owns  industrial  and  commercial  real estate for
lease to small businesses.

         Until the  distribution  of the  shares of  InvestorsBancorp,  Inc.  in
September 1997, the Company had engaged in the business of originating  loans to
small businesses.  Concurrent with such  distribution,  the Company and the Bank
agreed in the  Management  Agreement  that the Company  would not  originate any
loans  unless  agreed to by the Bank in  writing or unless the loans are made to
current  Company  customers.  Thus,  except  for the  making of loans to Company
customers  who desire to  increase  their loan  amounts  with the  Company,  the
Company does not solicit any loans.

         The Company's  loan portfolio is managed by the Bank for an annual fee,
payable  monthly,  equal to 25 basis points of the total dollar  amount of loans
under  management and 6% on leased  properties.  Overhead  expenses and rent are
also  shared  by the  Bank  and the  Company,  as well as  certain  expenses  of
employees providing accounting, reporting and related services to the Company.

         The  Company's  loan  portfolio  is primarily  comprised of  long-term,
variable rate, secured loans to small business entities. The loans are primarily
secured by first  mortgages on real estate,  although  some loans are secured by
second mortgages.  Over 93% of the Company's loans by dollar volume are loans to
borrowers located in the State of Wisconsin.  Substantially all of the Company's
loan portfolio is held by BMSBLC.

         The Company's borrowers include manufacturers,  wholesalers, retailers,
professionals and service  providers.  The Company funds its lending  operations
through its equity capital, bank and institutional borrowings,  commercial paper
sales and the sale of loan participations.

Real Estate

         On July 14, 1998 BMSBLC completed an acquisition of approximately $19.6
million of leased  properties and other assets from Bando McGlocklin Real Estate
Investment Corporation ("BMREIC"), an independently owned real estate investment
trust. The leased  portfolio,  which has a cost of approximately  $18.3 million,
consists of 18 owner-occupied  properties in the greater Milwaukee area that are
leased to a variety of manufacturing and service businesses.

         The Company  currently  owns 3 other  buildings and two parcels of real
estate on which two multi-purpose  buildings are being constructed.  The Company
has entered into  long-term  lease  agreements for all  properties.  The Company
anticipates that it will continue to construct or purchase additional industrial
or commercial properties to lease.

         The Company  anticipates that most of its rental properties will be for
industrial  real  estate,  but also  anticipates  that it may also own and lease
commercial real estate  properties,  such as office buildings and retail stores.
The Company expects that  substantially all of its properties will be located in
Wisconsin.


                                       3
<PAGE>


Competition

         The Company,  in managing its loan portfolio,  competes  primarily with
commercial  banks  and  commercial  finance   companies,   many  of  which  have
substantially  more assets and capital than the Company.  Banks,  in particular,
have been  active  in  seeking  to  refinance  outstanding  loans.  The  Company
believes,  however,  that it is able to compete effectively to maintain its loan
portfolio because of its smaller size and more flexible structure.

         In owning and leasing real estate,  the Company competes primarily with
other REITs and other  investors  such as insurance  companies  and a variety of
investment  vehicles which seek to own and lease real estate.  In addition,  the
Company competes with banks and other financial institutions, which seek to lend
money to  potential  tenants of the  Company  which  would  allow the  potential
tenants to construct and own the building  rather than lease a building owned by
the Company.

Employees

         On December 31, 1998,  the Company  employed  only its  President and a
Senior Vice President. All other duties are performed by Bank employees pursuant
to the Management Agreement.

                           Consumer Products Business

         (a) Middleton Doll.  Middleton Doll, located in Belpre, Ohio, is a 100%
owned subsidiary of BMIC.  Middleton Doll is a manufacturer of collectible vinyl
dolls  and a  distributor  of  collectible  porcelain  dolls and  mohair  bears.
Middleton  Doll uses a multi-step  process to  manufacture  its vinyl dolls that
include: (1) molding liquid vinyl to create the various body parts of its dolls;
(2) painting, eyeing and wigging each doll; and (3) dressing the dolls in custom
designed clothes.

         Although  it has one  retail  location,  Middleton  Doll  does not sell
directly  to  the  retail  market.   The  majority  of  its  dealers  are  small
independently  owned  stores and  specialty  shops that are  located in shopping
malls,  plazas,  freestanding  buildings and various other locations.  Middleton
Doll uses a database of approximately  1,700 to 2,000 stores to target potential
customers.  In addition,  Middleton  Doll sells  directly to a limited number of
large  retailers.  In  addition  to 600 JC  Penney  stores,  its dolls are being
introduced nationwide in Toys-R-Us, FAO Schwartz and Imaginarium Stores.

         Middleton  Doll sells its products  throughout  the United  States.  It
competes with various other doll manufacturers  including:  Madam Alexander,  LL
Nickerbocker,  Ashton Drake and Pleasant Company.  Middleton Doll's strategy for
future growth is to expand its channels of  distribution  and its product lines.
About  40%  of  Middleton  Dolls  material  purchases,   such  as  clothing  and
accessories,  are  purchased  from  sources  in the Far  East.  The  other  60%,
including clothing, is purchased from sources in the USA.

         Approximately  47% of Middleton Doll raw materials were acquired from a
single supplier in Hong Kong.  There is no formal  agreement  between  Middleton
Doll and this supplier. As of December 31, 1998, Middleton Doll has entered into
commitments  to  acquire  approximately  $630,000  of  raw  material  from  this
supplier.

         (b) License  Products.  License  Products is a 51% owned  subsidiary of
BMIC. License Products, located in New Berlin, Wisconsin,  designs, develops and
markets a line of quality  proprietary time pieces.  The products of the Company
are distributed nation wide through major retail account channels.


                                       4
<PAGE>


         (c) Employees. The Consumer Products Business employs approximately 150
persons.

         (d) Seasonality.  The Consumer  Products  Business tends to be seasonal
with the strongest months being September, October and November.

         (e) Large  Customers.  No customer  accounted  for more than 10% of the
Consumer Products Business' total revenues for fiscal 1998.

         (f)  Backlog.  The  backlog  of  the  Consumer  Products  Business  was
approximately  $21,000 as of December  31,  1998,  all of which should be filled
during 1999.

Revenues of Principal Product Groups

         The  following  table sets forth (in millions of dollars),  for each of
the last three fiscal years,  revenues  attributable to the Company's  principal
product groups:

                                             1998          1997          1996
                                             ----          ----          ----
         Revenues
            Loan Portfolio                  10,698        11,021        8,364
            Real Estate Portfolio            1,184            --           --
            Dolls                           17,807        17,673           --
            Time Pieces                      1,939         1,328        1,702
            Other                              329           897          560
                                           -------        ------       ------
               Total                        31,957        30,919       10,626

Segment Information

         Financial  information  concerning the Company's  business  segments is
incorporated by reference to the consolidated financial statements on pages 19 -
27 herein.

Executive Officers

         George R. Schonath,  57, has served as Chief  Executive  Officer of the
Company since 1983 and President  since July 1997. Mr.  Schonath has also served
as President and Chief Executive Officer of InvestorsBancorp,  Inc. and the Bank
since they were  established in 1997.  Until July, 1997, he served as a director
(since 1980) and Chairman of the Board (since 1983) of the Company.

         Jon  McGlocklin,  55,  has  served as a Senior  Vice  President  of the
Company since July 1997. Mr. McGlocklin has also served as Senior Vice President
and Secretary of  InvestorsBancorp,  Inc. and Senior Vice  President of the Bank
since they were  established  in 1997.  He has also served as President of Healy
Manufacturing, Inc., Menomonee Falls, Wisconsin, since 1997, and as an announcer
for the Milwaukee Bucks, an NBA baksetball team, since 1976. Until July 1997, he
served as a director (since 1980) and President (since 1991) of the Company.

         Susan J. Hauke,  33, has been the Company's  Vice  President - Finance,
Secretary  and  Treasurer  since 1997.  In 1997,  Ms.  Hauke was also  appointed
Controller,    Vice   President   -   Finance   and   Assistant   Secretary   of
InvestorsBancorp,  Inc., and Controller,  Vice President-Finance,  Secretary and
Treasurer of the


                                       5
<PAGE>


Bank. From 1991 until 1997, Ms. Hauke served as Controller for the Company,  and
was a  senior  accountant  at  PricewaterhouseCoopers  LLP  before  joining  the
Company.

         Scott J. Russell,  39, has been a Senior Vice  President of the Company
since 1997 and  InvestorsBancorp,  Inc.  since  February  1998 and a Senior Vice
President and Lending  Officer of the Bank since 1997. From 1994 until 1997, Mr.
Russell  served as a Vice  President  of the Company and was a corporate  banker
with the Bank of Tokyo, Chicago, Illinois, prior to joining the Company.

Item 2.  Properties

         BMCC owns an  approximately  16,000 square foot  building.  BMCC leases
approximately  11,200 square feet of the building,  of which approximately 4,750
square feet is leased to the Bank and approximately 6,450 is leased to two other
lessees.  The monthly rent received is variable based upon LIBOR interest rates.
Each lease has a one year term.

         Middleton Doll owns an  approximately  51,000 square foot building that
serves as its headquarters and manufacturing facility located at 1301 Washington
Boulevard,  Belpre, Ohio. During 1997 Middleton Doll added 15,000 square feet to
its existing manufacturing  facility. The building is a one-story retail, office
and  warehouse.   In  addition,   Middleton  Doll  leases   warehouse  space  of
approximately  40,000  square  feet in  Belpre,  Ohio which it uses to store raw
material and finished goods.

         License   Products  leases   approximately   9,500  square  feet  in  a
multi-tenant building located at 16200 West Rogers Drive, New Berlin,  Wisconsin
at a monthly rental rate of $3,790. The term of the lease is month-to-month.

Item 3.  Legal Proceedings

         As of the  date of this  filing,  neither  the  Company  nor any of its
subsidiaries is a party to any legal proceedings,  the adverse outcome of which,
in management's  opinion,  would have a material effect on the Company's results
of operations or financial position.

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

         No matters  were  submitted  to a vote of security  holders  during the
quarter ended December 31, 1998.

                                     Part II

Item 5.  Market for Common Equity and Related Stockholder Matters

         The common  stock of the Company is traded on The Nasdaq  Stock  Market
under the symbol BMCC.


                                       6
<PAGE>


         The  table  below  represents  the high and low  sales  prices  for the
Company  common stock as reported on The Nasdaq Stock Market and cash  dividends
paid per share for fiscal 1998 and 1997:

                                                           Cash Dividends 
                                     Common Stock            per share
         1998                    High           Low

         First Quarter         $11.875         $ 9.625          $0.18
         Second Quarter        $13.000         $ 9.750          $0.18
         Third Quarter         $12.250         $ 8.500          $0.18
         Fourth Quarter        $11.500         $ 8.000          $0.18

         1997                    High           Low

         First Quarter         $13.500         $11.250          $  --
         Second Quarter        $14.250         $11.250          $0.18
         Third Quarter         $14.750         $ 8.625          $0.18
         Fourth Quarter        $13.000         $ 8.750          $0.18

         As of March 16, 1999, there were  approximately  1,200  shareholders of
record of the Company's common stock.

Item 6.  Selected Financial Data (In thousands, except per share data)

         The following table sets forth certain Selected Consolidated  Financial
Data for the periods and as of the dates indicated:

<TABLE>
<CAPTION>

                                                                   Six months ended
                             Twelve months ended December 31,      December 31, 1996       Twelve months ended June 30,
                                   1998             1997                                     1996               1995
                                   ----             ----                                     ----               ----
<S>                               <C>              <C>                 <C>                  <C>                <C>
Total revenues                    $ 32,075         $ 30,984            $ 10,940             $ 10,617           $ 11,738
Net income available
 to common shareholders              3,770            3,506               1,142                3,130              3,208
Total  assets                      154,424          140,337              79,519               85,379(1)          91,033(1)
Long term debt                      62,506           75,273              12,045               23,604(1)          26,953(1)
Total liabilities                  125,639          111,002              46,370               50,285(1)          52,823(1)
Redeemable preferred stock          16,908           16,908              16,908               16,908(1)          16,908(1)
Diluted earnings per share           $1.02            $0.95               $0.31                $0.82              $0.81
Cash dividends declared
per    common share                  $0.65            $2.28              $0.995                $0.96              $1.00

(In thousands, except per share data)
(1)    Unaudited

</TABLE>

                                       7
<PAGE>


Item 7.  Management's  Discussion  and Analysis of Financial  Condition  and
         Results of  Operations  (for the fiscal years ended  December 31, 1998,
         December 31, 1997 and June 30, 1996)

General

Amounts  presented as of December  31, 1998 and  December 31, 1997,  and for the
twelve months ended December 31, 1998 and 1997 include the  consolidation of two
segments.  The financial  services  segment  includes Bando  McGlocklin  Capital
Corporation  ("BMCC"  or the  "Company")  and Bando  McGlocklin  Small  Business
Lending  Corporation  ("BMSBLC"),  a 100% owned  subsidiary of the Company.  The
consumer  products  segment  includes Bando  McGlocklin  Investment  Corporation
("BMIC"),  a 99%-owned  subsidiary of the Company; Lee Middleton Original Dolls,
Inc. ("Middleton Doll") and License Products,  Inc. ("License  Products"),  100%
and 51%-owned  subsidiaries  of BMIC,  respectively.  As of April 30, 1998, BMIC
acquired the remaining 49% of Middleton Doll;  before that date BMIC owed 51% of
Middleton  Doll.  The  twelve  months  ended  June 30,  1996 also  includes  the
consolidation  of the two segments,  however the consumer  products segment does
not include  Middleton  Doll.  The Company had owned 49% of Middleton Doll since
1993;  the  acquisition  of an  additional  two  percent of  Middleton  Doll was
completed at the end of June 1996. Prior to this acquisition, Middleton Doll was
accounted for on the equity method.

Results of Operations

For the twelve months ended December 31, 1998 and December 31, 1997

The Company's total net income available for common  shareholders for the twelve
months  ended  December  31,  1998  equaled  $3.77  million  or $1.02  per share
(diluted)  as compared  to $3.51  million or $0.95 per share  (diluted)  for the
twelve months ended December 31, 1997, a 7.4% increase.

Consumer Products

Net income from consumer  products after income taxes and minority  interest for
the twelve months ended  December 31, 1998 was $2.08  million  compared to $1.32
million for the twelve  months ended  December 31, 1997, a 58%  increase.  As of
April 30,  1998,  BMIC owned 100% of  Middleton  Doll as compared  with the year
ended December 31, 1997 when BMIC owned only 51% of Middleton Doll.

Net sales from consumer  products for the year ended December 31, 1998 increased
4% to $19.75  million  compared  to $19.0  million for the twelve  months  ended
December 31, 1997. This was due to increased sales of $0.14 million at Middleton
Doll and $0.61 million at License Products.  Sales of License Products increased
46% during 1998 compared to 1997.  Cost of sales  increased 1% to $10.45 million
for the twelve months ended December 31, 1998 compared to $10.38 million for the
twelve  months  ended  December  31, 1997 as a result of the  increase in sales.
Middleton  Doll's cost of sales decreased to $8.72 million from 9.48 million,  a
8% decrease.  License  Products  cost of sales  increased to $1.73  million from
$0.90 million,  a 92% increase.  In total gross profit margin increased slightly
to 47% for the twelve  months  ended  December  31, 1998 from 45% for the twelve
months ended December 31, 1997.  Middleton  Doll's gross profit margin increased
from 46% to 51% during 1998 while License Products  decreased from 32% to 11% in
1998.

Total  operating  expenses  of consumer  products  for the twelve  months  ended
December 31, 1998 were $5.59  million  compared to $4.74  million for the twelve
months ended  December 31, 1997,  an 18% increase.  Sales and marketing  expense
increased  $0.86  million,  a 37%  increase.  $0.63  million of this increase is
attributable  to Middleton Doll  implementing a major  expansion of trade shows,
including  more  advertising,  personnel  and leased space per show,  along with
additional  promotions such as, point of sale displays.  License Products' sales
and marketing  expense was up $0.23  million  because of its efforts to increase
sales of its new product line through  printed  materials and opening a showroom
in Chicago. New product development expense increased $0.06 million at Middleton
Doll because of two new artists that were  introduced late in 1997 and increased
$0.04 million at License Products as result of the new product line. General and
administrative  expenses decreased $0.11 million to $1.84 million for the twelve
months ended  December 31, 1998  compared to $1.95 million for the twelve months
ended December 31, 1997. Middleton Doll's expense decreased $0.19 million


                                       8
<PAGE>


due to some  non-recurring  expenses  that occurred in 1997.  License  Products'
general and  administrative  expense  increased  $0.03  million  during 1998 and
BMIC's expense  increased  $0.05 million as a result of amortization of goodwill
associated with the  acquisition of the minority  interest in Middleton Doll and
an increase in other miscellaneous expenses.

The  consumer  products'  consolidated  net income was  reduced by the  minority
interest ownership in the net earnings of Middleton Doll for the period prior to
April 30, 1998. The minority interest in earnings of subsidiaries  equaled $0.22
million for the twelve months ended  December 31, 1998 compared to $1.08 million
for the twelve months ended December 31, 1997. The 81% decrease is the result of
BMIC  owning  100% of the  stock of  Middleton  Doll as of April 30,  1998.  The
consumer products' consolidated net income was reduced by a provision for income
taxes of $1.49 million and $1.54  million for the twelve  months ended  December
31, 1998 and 1997, respectively.

Financial Services

Net income from financial services for the twelve months ended December 31, 1998
was $3.06 million compared to $3.47 million for the twelve months ended December
31, 1997, a 12% decrease.

Total revenues were $12.21 million for the twelve months ended December 31, 1998
compared to $11.92  million for the twelve months ended  December 31, 1997, a 2%
increase. Interest on loans and rental income increased 8% to $11.88 million for
the twelve  months ended  December  31, 1998 from $11.02  million for the twelve
months ended December 31, 1997.  Rental income for the year was $1.18 million as
a result of the  acquisition  of $19 million of leased  properties  from BMREIC.
Interest on loans  decreased  3% as a result of the decrease in loans due to the
acquisition of BMREIC.  Prior to the acquisition,  the Company had $11.1 million
in loans outstanding with BMREIC.  The average loans under management  decreased
$3.6 million, or 3% during 1998.

Other income  decreased  $0.57  million.  Of this amount,  $0.50 million was the
result of receiving  proceeds of an executive's life insurance policy where BMCC
was the beneficiary in the second quarter of 1997. The remainder of the decrease
is comprised of fees related to the sale of residential mortgages, which are now
being  originated in InvestorsBank  and a reduction in  miscellaneous  loan fees
stemming from competitive market conditions.

Interest  expense  increased to $7.67  million from $5.65 million for the twelve
months ended December 31, 1998 as compared with the twelve months ended December
31, 1997. Interest expense increased  approximately $0.81 million as a result of
the purchase of $19.6 million of assets from BMREIC, net of the $13.8 million in
liabilities  assumed and other new assets.  Those additional  assets were funded
with new debt.  Average debt on the balance sheet increased $38.7 million during
the twelve months ended December 31, 1998 as compared to the twelve months ended
December  31,  1997 as a  result  of  BMSBLC  repurchasing  loans  that had been
previously  sold.  Since December 31, 1997 debt increased $13.2 million.  During
1998 the Company had borrowed $5.0 million in new debt to lend to Middleton Doll
for the  repurchase of the 49% minority  interest and the  licensing  agreement;
this new debt  increased  interest  expense  by $0.28  million  during the year.
Interest  expense,  which is offset by swap income,  increased by $0.93  million
because of a decline in swap income due to investment  swaps maturing and no new
agreements being entered into.

Operating  expenses  decreased  47% to $1.48 million for the twelve months ended
December 31, 1998 compared to $2.79 million for the twelve months ended December
31, 1997.  All employees of the Company  terminated  their  employment  with the
Company on September 8, 1997 to become employees of InvestorsBank  (the "Bank"),
a  wholly  owned  subsidiary  of  InvestorsBancorp,  Inc.,  except  for  certain
executive  officers  who are  employees  of both the Company  and the Bank.  The
Company and the Bank  entered  into a  Management  Services  and  Allocation  of
Operating Expenses Agreement (the "Agreement"). The effect of such agreement has
been to reduce the level of  operating  expenses in the  Company.  Salaries  and
other  operating  expenses were reduced by $1.01  million.  $0.40 million of the
other operating  expenses was reduced as a result of non-recurring  professional
fees that were incurred in 1997 due to the  restructuring.  The Company reversed
$0.26  million of its loan loss  reserve to due the good  condition  of its loan
portfolio as of December 31, 1998.  The


                                       9
<PAGE>


reductions in other  operating  expense were partially  offset by an increase in
depreciation  of $0.21 million  attributable to the merger with BMREIC and other
new leased  properties.  In addition  the expense  resulting  from the change in
appreciation  on  investment  swaps  decreased  $0.25 million for the year ended
December 31, 1998. No new  investment  swaps were entered into during the twelve
months  ended  December 31,  1998.  Disclosures  regarding  the  Company's  swap
transactions  are  incorporated  by  reference  from  Note  12 of the  financial
statements on pages 36 and 37, herein.

The  financial  services  segment is comprised  of two  entities  that intend to
qualify as a real estate  investment  trust ("REIT") under the code.  Under REIT
status, the Company,  together with its qualified REIT subsidiary,  BMSBLC, will
continue to not be subject to income tax on taxable  income which is distributed
to  shareholders.  Taxable  income and book earnings do not deduct the preferred
stock dividend.  The taxable income was $3.74 million or $1.01 per share for the
twelve months ended December 31, 1998, which differs from book earnings of $3.06
million or $0.83 per share due to the impact of the  elimination of intercompany
revenue and expenses  from the  consumer  products  segment and normal  book/tax
adjustments.  For the twelve months ended  December 31, 1997 the taxable  income
was $3.52 million or $0.95 per share,  which differs from book earnings of $3.47
million  or $0.94 per share due to  impact of the  elimination  of  intercompany
revenue and expenses  from the  consumer  products  segment and normal  book/tax
adjustments.

For the twelve months ended December 31, 1997 and June 30, 1996

The Company's total net income available for common  shareholders for the twelve
months  ended  December  31,  1997  equaled  $3.51  million  or $0.95  per share
(diluted)  as compared  to $3.13  million or $0.82 per share  (diluted)  for the
twelve months ended June 30, 1996, a 12% increase.

Consumer Products

Net income from consumer  products after income taxes and minority  interest for
the twelve months ended  December 31, 1997 was $1.32  million  compared to $0.04
million for the twelve  months ended June 30, 1996.  This large  increase is the
result of the  increase  in  Middleton  Doll's  earnings  for the twelve  months
December 31, 1997.  The  acquisition  of an additional  two percent of Middleton
Doll was  completed at the end of June 1996;  previously it was accounted for on
the equity method and was not  consolidated in the financial  statements.  As of
December 31, 1997,  BMIC owned 51% of Middleton  Doll as compared  with the year
ended June 30, 1996 when BMIC owned only 49% of Middleton Doll.

Net sales from consumer  products for the year ended December 31, 1997 increased
to $19.0  million  compared to $1.7 million for the twelve months ended June 30,
1996.  This large increase is the result of the  consolidation  of operations of
Middleton  Doll for the twelve  months  December  31, 1997 as noted in the above
paragraph. Cost of sales increased to $10.38 million for the twelve months ended
December 31, 1997  compared to $1.1 million for the twelve months ended June 30,
1996 as a result of the increase in sales.

Total  operating  expenses  of consumer  products  for the twelve  months  ended
December 31, 1997 were $4.74  million  compared to $0.99  million for the twelve
months ended June 30, 1996. Sales and marketing expense increased $2.06 million.
New  product   development   expense   increased  $0.43  million.   General  and
administrative  expenses  increased $1.26 million.  All of these large increases
are the result of the  consolidation  of  Middleton  Doll for the twelve  months
December 31, 1997.

As a result of the change in accounting for Middleton  Doll,  equity earnings in
this subsidiary decreased $0.36 million for the twelve months ended December 31,
1997.

The minority  interest  ownership in the net earnings of Middleton  Doll reduced
the consumer  products'  consolidated net income for the year ended December 31,
1997  and the net  consolidated  earnings  of BMIC.  The  minority  interest  in
earnings of  subsidiaries  equaled  $1.08  million for the twelve  months  ended
December  31, 1997  compared to zero for the twelve  months ended June 30, 1996.
The consumer  products'  consolidated  net income was reduced by a provision for
income taxes of $1.54 million for the twelve months ended  December 31, 1997 and
increased  net income by $0.04  million of a tax benefit for the year ended June
30, 1996.


                                       10
<PAGE>


Financial Services

Net income from financial services for the twelve months ended December 31, 1997
was $3.47 million compared to $4.38 million for the twelve months ended June 30,
1996, a 21% decrease.

Total revenues were $11.92 million for the twelve months ended December 31, 1997
compared  to $8.92  million for the twelve  months  ended June 30,  1996,  a 34%
increase.  Interest  on loans  increased  32% to $11.02  million  for the twelve
months ended  December 31, 1997 from $8.36  million for the twelve  months ended
June 30, 1996.  Interest on loans  increased $2.66 million for the twelve months
ended December 31, 1997 as a result of the new loans and the repurchase of loans
that were  previously  sold to a third  party.  Average  loans under  management
increased  $5.7 million to $136.9  million for the twelve months ended  December
31, 1997,  compared to $131.2 million for the twelve months ended June 30, 1996.
However,  the  increase in  interest  income as a result of buying back loans is
reduced by the  decreasing  yield on the  portfolio of loans due to the market's
competitive  pricing. The average prime rate of 8.44% was slightly lower for the
twelve  months ended  December 31, 1997  compared to 8.52% for the twelve months
ended June 30, 1996.

Other  income  increased  60% or $0.34  million  during the twelve  months ended
December  31, 1997  compared to the twelve  months  ended June 30,  1996.  Other
income  increased  $0.50  million as a result  receiving  $0.50  million from an
executive's  life insurance  policy where BMCC was the beneficiary in the second
quarter of 1997.  This  increase was offset by $0.16  million  decrease in other
income.

Interest  expense  increased  168% to $5.65  million from $2.11  million for the
twelve  months ended  December 31, 1997 as compared with the twelve months ended
June 30, 1996.  Interest expense  increased for the twelve months ended December
31, 1997 as a result of the  repurchase  of loans by BMSBLC.  Those  repurchased
loans were funded with new debt.  This repurchase had no impact on net operating
income as both  interest  income  and  interest  expense  increased  by the same
amount.  Interest  expense,  which is offset by swap  income,  increased by $0.2
million for the twelve  months  ended  December 31, 1997 because of a decline in
swap income due to some investment  swaps maturing and no new ones being entered
into.  Disclosures regarding the Company's swap transactions are incorporated by
reference from Note 12 to the financial statements on pages 36 and 37, herein.

Operating  expenses  increased  15% to $2.79 million for the twelve months ended
December 31, 1997 compared to $2.43 million for the twelve months ended June 30,
1996. The $0.36 million increase in expenses over the corresponding prior period
are  non-recurring  expenses,  of which $0.06  million is the result of a salary
adjustment  and  $0.30  million  are  restructuring  expenses  of  the  Company,
including legal and accounting fees, salaries and other miscellaneous  expenses.
Beginning in September of 1997,  certain operating expenses were allocated based
on a Management  Services and Allocation of Operating Expenses Agreement between
the Company  and the Bank.  The effect of such  agreement  will be to reduce the
level of operating expenses in the Company.

Liquidity and Capital

Consumer Products

Total assets of consumer  products  were $14.55  million as of December 31, 1998
and $8.17 million as of December 31, 1997, a 78% increase.

Cash  increased to $2.21  million at December 31, 1998 from zero at December 31,
1997.

Accounts  receivable,  net of the  allowance,  increased  to  $2.18  million  at
December 31, 1998 from $1.96  million at December 31, 1997. An increase of $0.27
million is attributable to License  Products,  and Middleton Doll's  receivables
decreased  $0.05 million.  License  Products had an 82% increase in sales in the
third and fourth  quarter of 1998  compared  to 1997,  which  resulted in higher
receivable balances as of December 31, 1998.


                                       11
<PAGE>


Inventory  was $3.26  million at December 31, 1998  compared to $3.28 million at
December 31,  1997.  License  Products'  inventory  was up $0.35  million due to
anticipated  sales in a new merchandise line, and Middleton Doll's inventory was
down $0.37  million.  At the end of 1997 Middleton Doll had a higher than normal
inventory level due a slowdown in sales during 1997's fourth quarter.

Non-current  prepaid assets  increased to $2.41 million from $0.32 million as of
December  31,  1997.  On April 30,  1998  Middleton  Doll  bought the  licensing
agreement  to  produce  Lee  Middleton  dolls  for $2.5  million.  The  asset is
amortizing over the remaining life of the agreement.

Fixed assets, net of accumulated depreciation, increased by $0.98 million or 59%
as of December 31, 1998  compared to December 31, 1997.  This increase is mainly
the  result  of  Middleton  Doll's   construction  of  a  new  addition  to  the
manufacturing plant in Ohio.

Goodwill was created when the company  purchased  the remaining 49% of the stock
from the estate of Lee  Middleton,  the founder of Middleton  Doll, on April 30,
1998. The purchase  price  exceeded book value by $0.61 million.  Prepaid assets
and other assets  increased to $2.54  million as of December 31, 1998 from $0.94
million as of December 31, 1997.

License  Products  entered into a capital lease  obligation  for $0.035  million
during 1998. The capital lease was for the purchase of computer equipment over a
five year  period.  Middleton  Doll paid off a long-term  note  payable of $0.02
million with another bank during the first quarter of 1998.

Accounts payable  decreased by $0.20 million as of December 31, 1998 compared to
December 31, 1997.  License  Products'  accounts payable decreased $0.27 million
while  Middleton  Doll's  accounts  payable   increased  $0.07  million.   Other
liabilities  increased  by $0.78  million;  a majority  of the  increase  is the
increase in accrued taxes for Middleton Doll as of December 31, 1998.

Financial Services

Total assets of financial  services were $139.88 million as of December 31, 1998
and $132.17 million as of December 31, 1997, a 6% increase.

Total loans on the balance sheet decreased by $14.65 million, or 11%, to $115.76
million at December  31, 1998 from $130.41  million at December  31,  1997.  The
Company's loan loss reserve decreased to zero.  Leased  properties  increased to
$22.0  million as of December 31, 1998  compared to $0.40 million as of December
31, 1997. The large  increase in leased  properties and the decrease in loans is
primarily the result of the acquisition of BMREIC's assets.

Cash  increased  to $0.63  million at December  31,  1998 from $0.20  million at
December 31, 1997.

Interest  receivable  decreased  to $0.65  million as of December  31, 1998 from
$0.84  million at December 31, 1997.  Fixed assets,  investment  swaps and other
assets, in aggregate increased by $0.08 million.

The financial  services'  total  consolidated  indebtedness at December 31, 1998
increased $13.24 million. $5 million of the increase was for the purchase of the
remaining  49%  interest  in  Middleton  Doll and the  related  right to produce
certain dolls from the estate of Lee Middleton, founder of Middleton Doll. As of
December  31,  1998,  financial  services  had  $62.47  million  outstanding  in
long-term debt and $58.53 million outstanding in short-term  borrowings compared
to $75.25 million  outstanding in long-term debt and $32.51 million  outstanding
in short-term borrowings as of December 31, 1997. Financial services' short-term
facility increased from $50 million to $60 million during the quarter ended June
30, 1998.  The Company also entered into a $5 million  annually  renewable  note
secured by the stock of  Middleton  Doll,  which is  classified  as  short-term.
BMSBLC also entered into a $10 million  long-term note payable secured with real
estate.  As a result of the increase in the  short-term  facility and  long-term
facility, the Company paid off some higher cost participations during the second
quarter of 1998.  During 1999 the Company may finance new growth in part through
an increase of its short-term facility.


                                       12
<PAGE>


Year 2000 Compliance

The Year 2000 has posed a unique set of challenges to those  industries  reliant
on information technology. As a result of methods employed by early programmers,
many software  applications and operation  programs may be unable to distinguish
the Year 2000 from the Year 1900.  If not  effectively  addressed,  this problem
could result in the production of inaccurate  data, or, in the worst cases,  the
inability of the systems to continue to function altogether.

In 1997,  the  Company  moved into a newly  constructed  building.  The  Company
purchased  new computer  systems  during this move and the Year 2000 problem was
factored into the selection of the new equipment.  During this time, the Company
identified hardware and software issues required to assure Year 2000 compliance.
The Company began by assessing  the issues  related to the Year 2000 problem and
the  potential for those issues to adversely  affect the Company's  business and
operations.

The Company has established a Year 2000  management  committee to deal with this
issue.  It is the  mission  of this  committee  to  identify  areas  subject  to
complication  related to the Year 2000 problem and to initiate remedial measures
designed  to  eliminate  any  adverse  effects  on the  Company's  business  and
operations.  The  committee has  identified  all  mission-critical  software and
hardware  that may be  adversely  affected  by the  Year  2000  problem  and has
required its vendors to represent that the systems and products  provided are or
will be Year 2000 compliant.

The Company  licenses all software  used in  conducting  its business from third
party vendors. None of the Company's software has been internally developed. The
Company has developed a comprehensive list of all software, all hardware and all
service providers used by the Company. Every vendor has been contacted regarding
the Year 2000 problem.  The vendor of the primary software in use at the Company
released  its Year 2000  compliant  software in September  1998.  Testing at the
Company, using test scripts developed by the vendor, was completed on October 3,
1998. The vendor will be conducting  ongoing proxy testing and seminars and will
report its progress to the Company in a monthly  management report. In addition,
the Company  continues  to monitor  all other  major  vendors of services to the
Company for Year 2000  problems  in order to avoid  shortages  of  supplies  and
services in the coming months.

There are three third party  utilities  with which the Company has an  important
relationship.   The  Company  has  not  identified   any  practical,   long-term
alternatives  to relying on these companies for basic utility  services.  In the
event that the utilities  significantly  curtailed or interrupted their services
to the Company,  it would have a  significant  adverse  effect on the  Company's
ability to conduct its business.

The Company also has tested all heating and air conditioning units, vault doors,
alarms systems, networks, etc. and is not aware of any significant problems with
such systems.

The Company's  cumulative  costs of the Year 2000 problem through the year ended
December 31, 1998 have been $15,000.  At the present time,  the Company does not
anticipate  material cost  expenditures in the future to become fully compliant.
However,  no assurance  can be given that Year 2000  compliance  can be achieved
without  additional  unanticipated  expenditures  and  uncertainties  that might
affect  future  financial  results.  The  estimated  total cost of the Year 2000
problem is  currently  $20,000.  This  includes  costs to upgrade  software  and
replace  equipment  specifically  for the  purpose of Year 2000  compliance  and
certain administrative expenditures.

It is not  possible at this time to quantify the  estimated  future costs due to
possible business disruption caused by vendors,  suppliers,  customers,  or even
the possible loss of electric power or phone service;  however, such costs could
be substantial.

The Company is committed to a plan for achieving  compliance,  focusing not only
on its own data processing  systems,  but also on its loan  customers.  The Year
2000  management  committee has proposed  policy and  procedure  changes to help
identify  potential  risks to the  Company and to gain an  understanding  of how
customers  are managing the risks  associated  with the Year 2000  problem.  The
Company is assessing the


                                       13
<PAGE>


impact,  if any,  the Year 2000  problem  will have on its credit  risk and loan
underwriting.  In connection with potential credit risk related to the Year 2000
problem, the Company has contacted its large commercial loan customers regarding
their level of preparedness for the Year 2000.

The Company has developed  contingency  plans for various Year 2000 problems and
continues   to  revise   those  plans  based  on  testing   results  and  vendor
notifications.

Recent Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities".  This statement  establishes  accounting and reporting
standards for derivative  instruments.  It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position  and  measure  those  instruments  at fair  value.  This  statement  is
effective for all fiscal years  beginning  after June 15, 1999. The Company does
not believe this statement will have a material impact.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report contains  certain forward looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Exchange Act. The Company intends such forward-looking  statements to be covered
by the safe harbor provisions for  forward-looking  statements  contained in the
Private  Securities  Litigation  Reform  Act  of  1995,  and is  including  this
statement  for  purposes  of  these  safe  harbor  provisions.   Forward-looking
statements,  which are based on certain  assumptions  and describe future plans,
strategies and expectations of the Company, are generally identifiable by use of
the words "may," "will," "could," "believe,"  "expect," "intend,"  "anticipate,"
"estimate," "project," or similar expressions.  The Company's ability to predict
results  or the  actual  effect  of future  plans or  strategies  is  inherently
uncertain.  Factors which could have a material adverse effect on the operations
and future  prospects of the Company and the subsidiaries  include,  but are not
limited to, changes in: interest rates, general economic  conditions,  including
the condition of the local real estate market,  legislative/regulatory  changes,
monetary and fiscal policies of the U.S.  Government,  including policies of the
U.S.  Treasury and the Federal Reserve Board,  the quality or composition of the
loan  or  investment  portfolios,  demand  for  loan  products,  deposit  flows,
competition,  demand for financial services in the Company's market area, demand
for the Company's  consumer  products and  accounting  principles  and policies.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.

Item 7a. Quantitative  and  Qualitative   Disclosures  About Market Risk

         The Company  enters into interest rate swap  agreements  primarily as a
means  of  managing  interest  rate  risk.  To the  extent  that  the  Company's
variable-rate  loans are funded with fixed-rate  debt, the Company is subject to
interest  rate risk.  To reduce  interest  rate risk,  the  Company  enters into
certain  interest  rate  swaps  designed  to  convert  variable-rate  loans into
fixed-rate loans.  Although these swaps reduce interest rate risk, the potential
for  profit  or  loss  on  interest  rate  swaps  still  exists  depending  upon
fluctuations in interest  rates.  In addition,  the Company enters into interest
rate swaps in an attempt to further  manage  interest rate risk  resulting  from
interest rate movements.

         In accordance  with  applicable  accounting  principles,  the Company's
interest rate swap  agreements  are held for purposes other than trading and are
further classified as either hedges or as investment contracts.  Both hedges and
investment  contracts  have the  potential  for  profit  and  loss.  Hedges  are
accounted  for using the  designation  method,  which matches the swaps with the
assets that are being hedged.  When the designated  asset  matures,  or is sold,
extinguished  or terminated,  the hedge would be  reclassified as an investment.
Accounting principles dictate that those contracts not meeting hedge criteria be
classified as investments and  marked-to-market  with any associated  unrealized
gain or loss recorded in the statements of operations,  whereas those  contracts
meeting   hedge   criteria  are  not  to  be  classified   as   investments   or
marked-to-market.  On December 31, 1998 and December  31, 1997,  the  investment
contracts  at market  resulted in an  unrealized  gain of $49,579 and  $123,013,
respectively.  The  difference in the  unrealized  gain at December 31,


                                       14
<PAGE>


1998 and December 31, 1997 is a decrease of $73,434 recorded in the consolidated
statement of operations for the twelve months ended December 31, 1998.

         The average notional amount of investment swaps outstanding  during the
twelve months ended December 31, 1998, December 31, 1997, June 30, 1996, and for
the six months ended  December  31, 1996 and  December 31, 1995 was  $2,750,000,
$45,750,000, $142,750,000, 124,178,570 and $142,750,000, respectively.

         Based on quoted market valuations, the estimated market value
of the hedge swaps at December 31, 1998 and December 31, 1997 was  approximately
$3.4 million and $1.6 million, respectively.

         The following  table  summarizes  the interest rate swap  agreements in
effect at December  31, 1998.  No funds were  borrowed or are to be repaid under
these agreements:

<TABLE>

                                                                 Current Interest
                                                                    Rates Paid
<CAPTION>

                                   Company       Bank                                   Original Notional  Expiration
Bank                               Payment       Payment    By Company      By Bank          Amount        Date
----                               -------       -------    ----------      -------          ------        ----
<S>                                <C>           <C>        <C>             <C>         <C>                <C>
U.S. Bank National Association     Floating      Fixed      5.59031%(3)     9.20000%    $ 8,000,000(4)     06/16/99
  St. Paul, Minnesota (1)
LaSalle National Bank              Floating      Fixed      5.22094%(2)     6.34000%    $ 5,400,000        03/21/01
  Chicago, Illinois
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.35016%(2)     7.43500%    $10,325,000(5)     09/28/01
  Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.25000%(2)     5.72500%    $16,908,000        06/30/03
  Milwaukee, Wisconsin
LaSalle National Bank              Floating      Fixed      5.24375%(2)     7.60000%    $ 5,000,000        03/10/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.25000%(2)     6.66000%    $ 5,250,000(6)     05/23/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.25000%(2)     6.50000%    $ 5,000,000(7)     09/29/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.27531%(2)     7.09000%    $12,500,000        09/05/06
  Chicago, Illinois
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.22063%(2)     5.76000%    $10,000,000(8)     06/16/08
  Milwaukee, Wisconsin

(1)  Investment Swap
(2)  Adjusted every three months to the three-month LIBOR then in effect.
(3)  Adjusted every month to the one-month LIBOR then in effect.
(4)  The notional amount decreases by $83,333 each quarter and was $4,750,013 at December 31, 1998;  $2,000,013 of this contract was
     designated as a hedge; $2,750,000 was accounted for as an investment.
(5)  The notional amount decreases by $166,667 each quarter and was $5,491,667 at December 31, 1998.
(6)  The notional amount decreases by $100,000 each quarter and was $3,850,000 at December 31, 1998.
(7)  The notional amount decreases by $75,000 each quarter and was $4,025,000 at December 31, 1998
(8)  The notional amount decreased by $166,667 each quarter and was $9,666,666 at December 31, 1998.

</TABLE>

         As a result of hedge  arrangements,  the Company recognized a $519,795,
$1,193,877,  $1,382,751, and $732,066 and $566,614 reduction in interest expense
for the twelve months ended  December 31, 1998  December 31, 1997,  and June 30,
1996 and for the six months  ended  December  31, 1996 and  December  31,  1995,
respectively. In addition, the Company recognized a $93,201, $353,962, $412,129,
$445,568 and $43,458  reduction in interest  expense for the twelve months ended
December 31, 1998,  December 31, 1997,  and June 30, 1996 and for the six months
ended December 31, 1996 and December 31, 1995, respectively,  as a result of the
investment swap contracts.

         The Company may be  susceptible  to risk with respect to interest  rate
swap agreements to the extent of  nonperformance  by the financial  institutions
participating  in the interest rate swap agreements.  However,  the Company does
not anticipate nonperformance by these counterparties.


                                       15
<PAGE>


Item 8. Financial Statement and Supplementary Data.


                      Bando McGlocklin Capital Corporation

                        Consolidated Financial Statements

                                    Contents

Report of BDO Seidman LLP, Independent Auditors...............................17

Report of PricewaterhouseCoopers LLP, Independent Accountants.................18

Consolidated Balance Sheets as of December 31, 1998 and 1997..................19

Consolidated Statements of Operations - For the Twelve
Months Ended    December 31, 1998 and 1997 and six months ended
December 31, 1996 and twelve months ended June 30, 1996 ......................21


Consolidated Statement of Changes in Shareholders' Equity.....................23

Consolidated Statements of Cash Flows - For the Twelve
Months Ended December 31, 1998 and 1997 and six months ended
December 31, 1996 and twelve months ended June 30, 1996.......................24

Notes to Consolidated Financial Statements....................................28


                          Financial Statement Schedules

Schedule I   -  Condensed Financial Information of Registrant.................50

Schedule II  -  Valuation and Qualifying Accounts.............................50

Schedule IV  -  Mortgage Loans on Real Estate.................................51


                                       16
<PAGE>


To  the  Shareholders  and  Board  of  Directors  of  Bando  McGlocklin  Capital
Corporation:

We have audited the accompanying consolidated balance sheets of Bando McGlocklin
Capital  Corporation  as of  December  31,  1998 and  December  31, 1997 and the
related consolidated  statements of income,  stockholders' equity and cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles. We have also audited the schedules listed in Item 8. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Bando McGlocklin
Capital  Corporation at December 31, 1998 and December 31, 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Also, in our opinion,  the schedules present fairly,  in all material  respects,
the information set forth therein.



BDO Seidman, LLP
Milwaukee, Wisconsin
March 5, 1999


                                       17
<PAGE>


To  the  Shareholders  and  Board  of  Directors  of  Bando  McGlocklin  Capital
Corporation:

In our  opinion,  the  consolidated  statements  of  operations,  of  changes in
shareholders'  equity and of cash flows for the six months  ended  December  31,
1996 and the twelve months ended June 30, 1996 present  fairly,  in all material
respects,  the results of operations and cash flows of Bando McGlocklin  Capital
Corporation and its  subsidiaries for the six months ended December 31, 1996 and
the twelve  months ended June 30, 1996 in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable  basis for the  opinion  expressed  above.  We have not  audited  the
consolidated  financial  statements of Bando McGlocklin Capital  Corporation for
any period subsequent to December 31, 1996.

Our audits of the consolidated financial statements referred to in the preceding
paragraph also included an audit of the financial  statement schedules listed in
the  accompanying  index as of December  31,  1996 and for the six months  ended
December 31, 1996 and the twelve  months  ended June 30,  1996.  In our opinion,
these financial statement schedules, for the periods indicated,  present fairly,
in all  material  respects,  the  information  set  forth  therein  when read in
conjunction with the related consolidated financial statements.



PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 17, 1998


                                       18
<PAGE>

<TABLE>

              BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                           December 31,       December 31,
                                                                           -----------        -----------
                                                                              1998               1997
                                                                              ----               ----
                                               ASSETS
<S>                                                                       <C>                <C>
Consumer Products:
Cash and Cash Equivalents                                                 $  2,209,105       $         --
Accounts receivable, net of allowance of $75,557 and 
$268,796 as of December 31, 1998 and 1997, respectively                      2,177,385          1,958,672
Inventory                                                                    3,261,553          3,280,172
Prepaid expenses                                                               614,362            320,339 
                                                                          ------------       ------------
   Total current assets                                                      8,262,405          5,559,183 
                                                                          ------------       ------------
Fixed assets, net of accumulated depreciation of $1,069,042
 and $756,901 as of December 31, 1998 and 1997,                 
 respectively                                                                2,648,947          1,666,399

Loans                                                                          621,968            621,968
Prepaid expenses and other assets                                            2,413,210            321,434
Goodwill, net of accumulated amortization of $20,656                           599,097                 -- 
                                                                          ------------       ------------
   Total Consumer Products assets                                           14,545,627          8,168,984 
                                                                          ------------       -------------
Financial Services:
Cash                                                                           626,838            197,576
Interest receivable                                                            644,780            844,840
Other current assets                                                           235,292            144,700 
                                                                          ------------       ------------
   Total current assets                                                      1,506,910          1,187,116 
                                                                          ------------       ------------
Loans                                                                      115,759,968        130,413,277
Less: reserve for loan losses                                                       --           (450,000)
Leased properties:
  Buildings, net of accumulated depreciation of $214,822 as
  of December 31, 1998                                                      18,782,045                 --
  Land                                                                       3,090,572            395,843
  Construction in progress                                                     133,649              4,001 
                                                                          ------------       ------------
  Total Leased Properties                                                   22,006,266            399,844
Fixed assets, net of accumulated depreciation of $329,216
 and $236,869 as of December 31, 1998 and 1997, 
 respectively                                                                  384,703            427,999
Other assets, net                                                              220,613            190,010 
                                                                          ------------       ------------

  Total Financial Services assets                                          139,878,460        132,168,246 
                                                                          ------------       ------------
  Total Assets                                                            $154,424,087       $140,337,230 
                                                                          ============       ============


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 19
<PAGE>


<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS-(Continued)
<CAPTION>
                                                                           December 31,       December 31,
                                                                           -----------        -----------
                                                                              1998               1997
                                                                              ----               ----
LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
<S>                                                                       <C>                <C>
Consumer Products:
Accounts payable                                                               748,838            948,075
Accrued liabilities                                                          1,959,191          1,179,476 
                                                                          ------------       ------------
  Total current liabilities                                                  2,708,029          2,127,551
Long-term debt                                                                  35,279             22,936 
                                                                          ------------       ------------
  Total Consumer Products liabilities                                        2,743,308          2,150,487 
                                                                          ------------       ------------

Financial Services:
Commercial paper                                                            52,487,321         25,009,972
Notes payable to banks                                                       6,040,000          7,500,000 
                                                                          ------------       ------------
  Short-term borrowings                                                     58,527,321         32,509,972
Accrued liabilities                                                          1,898,342          1,090,965 
                                                                          ------------       ------------
  Total current liabilities                                                 60,425,663         33,600,937

State of Wisconsin Investment Board notes payable                           15,000,000          6,000,000
Loan participations with repurchase options                                 45,881,418         69,250,467
Other notes payable                                                          1,588,989                 --
                                                                          ------------       ------------
  Total Financial Services liabilities                                     122,896,070        108,851,404 
                                                                          ------------       ------------

Minority interest in subsidiaries                                               20,399          1,684,512
Redeemable preferred stock, 1 cent par value,
 3,000,000 shares authorized in 1998 and 1997;
 674,791 shares issued and outstanding after deducting
 15,209 shares in treasury                                                  16,908,025         16,908,025

Shareholders' Equity
Common stock, 6 2/3 cents par value,
 15,000,000 shares authorized in 1998 and 1997, 4,001,540
 shares issued and outstanding as of December 31, 1998 and
 1997, respectively, before deducting shares in treasury                       266,769            266,769
Additional paid-in capital                                                  13,671,947         13,671,947
Retained earnings                                                            1,770,080            656,597
Treasury stock, at cost (312,438 shares as of
  December 31, 1998 and 1997)                                               (3,852,511)        (3,852,511)
                                                                          ------------       ------------
   Total Shareholders' Equity                                               11,856,285         10,742,802 
                                                                          ------------       ------------

Total Liabilities, Minority Interest,
Preferred Stock and Shareholders' Equity                                  $154,424,087       $140,337,230 
                                                                          ============       ============


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 20
<PAGE>


<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                                                                     Six Months          Twelve
                                                    Twelve Months Ended                Ended           Months Ended
                                                        December 31,                 December 31,        June 30,
                                                    1998             1997               1996              1996
                                                    ----             ----               ----              ----
<S>                                              <C>              <C>                <C>                <C> 
Consumer Products:
Net sales                                        $19,745,491      $19,000,778        $7,226,130         $1,702,357
Cost of sales                                     10,448,494       10,381,039         3,413,772          1,116,876
                                                 -----------      -----------        ----------         ----------
Gross profit                                       9,296,997        8,619,739         3,812,358            585,481

Operating expenses:
  Sales and marketing                              3,202,906        2,340,625           408,524            275,713
  New product development                            550,176          451,973            82,423             25,498
  General and administrative                       1,838,074        1,945,361         1,271,996            689,335
                                                 -----------      ------------       ----------         ----------
     Total operating expenses                      5,591,156        4,737,959         1,762,943            990,546

Other income (expense):
  Interest expense                                   (39,900)          (7,074)           (9,717)                --
  Other income, net                                  118,598           65,019           117,351             47,438
  Equity earnings in subsidiary                           --               --                --            358,967
                                                 -----------      -----------        ----------         ----------
    Total other income                                78,698           57,945           107,634            406,405

Income before income taxes and               
 minority interest                                 3,784,539        3,939,725         2,157,049              1,340
Provision for income taxes                        (1,492,636)      (1,539,265)         (844,262)            35,074
Minority interest in earnings of
 subsidiaries                                       (216,136)      (1,082,362)         (573,371)                --
                                                 -----------      -----------        ----------         ----------
Income                                             2,075,767        1,318,098           739,416             36,414
                                                 -----------      -----------        ----------         ----------
Financial Services:
Revenues:
  Interest on loans                               10,698,422       11,021,265         3,578,396          8,363,911
  Rental income                                    1,183,891               --                --                 --
  Other income                                       329,323          897,298            17,713            560,085
                                                 -----------      -----------        ----------         ----------
     Total revenues                               12,211,636       11,918,563         3,596,109          8,923,996

Expenses:
  Interest expense                                 7,673,884        5,649,910           468,005          2,113,024
  Other operating expenses                         1,481,223        2,794,051         2,082,400          2,431,094
                                                 -----------      -----------        ----------         ----------
     Total expenses                                9,155,107        8,443,961         2,550,405          4,544,118

Income                                             3,056,529        3,474,602         1,045,704          4,379,878
                                                 -----------      -----------        ----------         ----------


                              The accompanying notes are an integral part of the financial statements.

</TABLE>
                                                                 21
<PAGE>

<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

<CAPTION>
                                                                                     Six Months   
                                                    Twelve Months Ended                Ended           Twelve Months
                                                        December 31,                 December 31,      Ended June 30,
                                                    1998             1997               1996              1996
                                                    ----             ----               ----              ----
<S>                                              <C>              <C>                <C>                <C> 
Total Company:
Income before income taxes and
 minority interest                                6,841,068        7,414,327          3,202,753          4,381,218
Provision for income taxes                       (1,492,636)      (1,539,265)          (844,262)            35,074
Minority interest in earnings of                 
 subsidiaries                                      (216,136)      (1,082,362)          (573,371)                -- 
                                                 ----------       ----------         ----------         ----------

Net income                                        5,132,296        4,792,700          1,785,120          4,416,292
Preferred stock dividends                        (1,362,659)      (1,286,320)          (643,160)        (1,286,320)
                                                 ----------       ----------         ----------         ----------
Net income available to common
 shareholders                                    $3,769,637       $3,506,380         $1,141,960         $3,129,972
                                                 ==========       ==========         ==========         ==========

Basic earnings per share                         $     1.02       $     0.95         $     0.31         $     0.82
Diluted earnings per share                       $     1.02       $     0.95         $     0.31         $     0.82

Segment Reconciliation:
Net income
  Consumer products                              $2,075,767       $1,318,098         $  739,416         $   36,414
  Financial services                              3,056,529        3,474,602          1,045,704          4,379,878
                                                 ----------       ----------         ----------         ----------
Total company                                     5,132,296        4,792,700          1,785,120          4,416,292
Intersegment charges
  Consumer products                              (1,171,929)        (451,352)          (365,564)          (131,150)
  Financial services                              1,171,929          451,352            365,564            131,150
                                                 ----------       ----------         ----------         ----------
Total net income for reportable
  segments
  Consumer products                                 903,838          866,746            373,852            (94,736)
  Financial services                              4,228,458        3,925,954          1,411,268          4,511,028 
                                                 ----------       ----------         ----------         ----------
Total company                                    $5,132,296       $4,792,700         $1,785,120         $4,416,292 
                                                 ==========       ==========         ==========         ==========


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 22
<PAGE>

<TABLE>

                                                CONSOLIDATED STATEMENT OF CHANGES IN
                                                        SHAREHOLDERS' EQUITY
<CAPTION>

                                                                            Additional             Retained
                                                             Common          Paid-in               Earnings            Treasury
                                                             Stock           Capital               (Deficit)            Stock
<S>                                                        <C>             <C>                   <C>                 <C>  
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1995                                     $  262,668      $21,753,353           $ (147,275)         $  (566,250)
---------------------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock options                         1,048          109,712                   --                   --
Purchase of treasury stock                                         --               --                   --           (2,696,363)
Net income                                                         --               --            4,416,292                   --
Cash dividends on preferred stock                                  --               --           (1,286,320)                  --
Cash dividends on common stock                                     --         (156,560)          (3,521,916)                  --
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996                                        263,716       21,706,505             (539,219)          (3,262,613)
---------------------------------------------------------------------------------------------------------------------------------
Net income                                                         --               --            1,785,120                   --
Cash dividends on preferred stock                                  --               --             (643,160)                  --
Cash dividends on common stock                                     --       (2,208,179)          (1,462,469)                  --
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996                                    263,716       19,498,326             (859,728)          (3,262,613)
---------------------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock options                         3,053          333,621                   --                   --
Purchase of treasury stock                                         --               --                   --             (589,898)
Net income                                                         --               --            4,792,700                   --
Cash dividends on preferred stock                                  --               --           (1,286,320)                  --
Cash dividends on common stock                                     --               --           (1,990,055)                  --
Capitalization of InvestorsBancorp, Inc.                           --       (6,160,000)                  --                   --
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997                                    266,769       13,671,947              656,597           (3,852,511)
---------------------------------------------------------------------------------------------------------------------------------
Net income                                                         --               --            5,132,296                   --
Cash dividends on preferred stock                                  --               --           (1,362,659)                  --
Cash dividends on common stock                                     --               --           (2,656,154)                  --
---------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998                                    266,769       13,671,947            1,770,080           (3,852,511)
---------------------------------------------------------------------------------------------------------------------------------


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 23
<PAGE>

<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                      Twelve months ended               Twelve months ended
                                                                       December 31, 1998                 December 31, 1997
                                                                       -----------------                 -----------------
                                                                  Consumer          Financial        Consumer          Financial
                                                                  --------          ---------        --------          ---------
                                                                  Products          Services         Products          Services
                                                                  --------          --------         --------          --------
<S>                                                              <C>               <C>              <C>               <C>
Cash Flows from Operating Activities:

Net income                                                       $ 2,075,767       $ 3,056,529      $ 1,318,098       $  3,474,602

Adjustments to reconcile net cash (used)
 provided by operating activities:
   Change in appreciation on investment swaps                             --            73,434               --            321,244
   Provision for loan loss reserve                                                    (450,000)              --              6,335
   Depreciation and amortization                                     353,453           388,278          252,463            215,479
   Change in minority interest in subsidiaries                       216,136                --        1,082,362                 --

Increase (decrease) in cash due to change in:                                                                                       
   Accounts receivable                                              (218,713)               --         (913,895)                --
   Inventory                                                          18,619                --       (1,579,358)                --
   Interest receivable                                                    --           200,060               --            488,513
   Other assets                                                      (22,422)          282,439         (361,192)           329,744
   Accounts payable                                                 (199,237)               --          382,272                 --
   Other liabilities                                                 895,680           459,348          372,695           (392,824)
   Intersegment transactions                                        (386,480)          386,480         (300,000)           300,000
                                                                  ----------        ----------      -----------        -----------
Net Cash Provided by Operations                                    2,732,803         4,396,568          253,445          4,743,093
                                                                  ----------        ----------      -----------        -----------
Cash Flows from Investing Activities:
   Loans made                                                             --       (79,143,575)              --        (53,759,887)
   Principal collected on loans                                           --        93,795,013               --         43,821,836
   Cash paid for Bando McGlocklin Real Estate                                                                                       
    Investment Corporation's assets                                       --       (19,095,424)              --                 --
   Loans purchased                                                        --                --               --        (49,647,182)
   Loan and interest charge off                                           --             1,869               --                 --
   Premium expense - net                                                  --                --               --             59,230
   Construction of leased properties                                      --       (2,497,378)               --           (399,844)
   Land sold                                                              --                --          129,675                 --
   Land purchased and construction in progress                            --          (358,351)              --                 --
   Acquisition of minority interest                               (2,500,000)               --               --                 --
   Acquisition of royalty rights                                  (2,500,000)               --               --                 --
   Purchase of fixed assets                                       (1,294,689)          (49,051)        (685,682)          (235,291)
                                                                  ----------        ----------      -----------        -----------
Net Cash Used by Investing                                        (6,294,689)       (7,346,897)        (556,007)       (60,161,138)
                                                                  ----------        ----------      -----------        -----------

                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 24
<PAGE>

<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>

                                                                      Twelve months ended               Twelve months ended
                                                                       December 31, 1998                 December 31, 1997
                                                                       -----------------                 -----------------
                                                                  Consumer          Financial        Consumer          Financial
                                                                  --------          ---------        --------          ---------
                                                                  Products          Services         Products          Services
                                                                  --------          --------         --------          --------
<S>                                                              <C>               <C>              <C>               <C>
Cash Flows from Financing Activities:
   Increase in short term borrowings                                     --         26,017,349              --          1,041,578
   (Repayment) proceeds from loan participations                                                                                    
    with repurchase options - net                                        --        (23,369,049)             --         63,901,848
   Proceeds from SWIB note - net                                         --          9,000,000              --           (666,667)
   Capitalization and distribution of  InvestorsBank                     --                 --              --         (6,160,000)
   Preferred stock dividends paid                                        --         (1,362,659)             --         (1,286,320)
   Common stock dividends paid                                           --         (2,656,154)             --         (1,990,055)
   Proceeds from exercise of stock options                               --                 --              --            336,674
   Increase (Decrease) in other Notes Payable                        12,343          1,508,752          (6,533)                --
   Repurchase of common stock                                            --                 --              --           (589,898)
   Net intersegment transactions                                  5,758,648         (5,758,648)       (354,841)           354,841
                                                                 ----------        -----------      ----------        -----------
Net Cash Provided (Used) by Financing                             5,770,991          3,379,591        (361,374)        54,942,001 
                                                                 ----------        -----------      ----------        -----------
Net increase (decrease) in cash                                   2,209,105            429,262        (663,936)          (476,044)
Cash, beginning of period                                                --            197,576         663,936            673,620
                                                                 ----------        -----------      ----------        -----------
Cash, end of period                                              $2,209,105        $   626,838      $       --        $   197,576 
                                                                 ==========        ===========      ==========        ===========
Supplemental Disclosure of Cash Flow
Information:
   Interest paid                                                 $       --        $ 7,812,817      $    2,972        $ 7,110,310
   Taxes paid                                                    $1,492,636        $        --      $1,179,023        $        --


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 25
<PAGE>

<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<CAPTION>

                                                                       Six months ended                 Twelve months ended
                                                                       December 31, 1996                   June 30, 1996
                                                                       -----------------                 -----------------
                                                                  Consumer          Financial        Consumer          Financial
                                                                  --------          ---------        --------          ---------
                                                                  Products          Services         Products          Services
                                                                  --------          --------         --------          --------
<S>                                                              <C>               <C>              <C>               <C>
Cash Flows from Operating Activities:
Net Income                                                       $ 739,416         $ 1,045,704      $ 36,414          $ 4,379,878
Adjustments to reconcile net cash (used) provided
 by operating activities:                                               --                  --            --                   --
   Change in appreciation on investment swaps                           --             263,345       (74,199)             327,995
   Provision for loan loss reserve                                      --             411,209            --              (10,501)
   Depreciation and amortization                                    96,920              77,360        28,693              112,394
   Equity (earnings) loss in subsidiary                                 --                  --      (358,967)                  --
   Change in minority interest in subsidiaries                     573,371                  --            --                   --
   Other                                                            10,533                  --            --                   --
Increase (decrease) in cash due to change in:
   Accounts receivable                                            (270,315)                 --       228,597                   --
   Inventory                                                      (580,662)                 --         7,686                   --
   Interest receivable                                                  --             (71,189)           --              (95,000)
   Other assets                                                     (3,168)              4,545       (37,203)             (53,100)
   Accounts payable                                                 76,989                  --       143,398                   --
   Other liabilities                                               244,162             294,159      (150,033)            (138,913)
                                                                  --------         -----------      --------          -----------
Net Cash Provided by Operations                                    887,246           2,025,133      (175,614)           4,522,753 
                                                                  --------         -----------      --------          -----------
Cash Flows from Investing Activities:
   Loans made                                                           --         (23,729,026)           --          (42,745,527)
   Principal collected on loans                                         --          13,600,355       459,587           23,421,624
   Cash paid for Bando McGlocklin Real Estate
    Investment Corporation's assets
   Loans Sold                                                           --          15,140,783            --           28,087,037
   Certificate purchased from trust                                     --                  --            --           (1,213,315)
   Loans purchased                                                      --                  --            --                   --
   Loan and interest charge off                                         --                  --            --                   --
   Premium expense - net                                                --              15,209            --              (78,978)
   Construction of leased properties                                    --                  --            --                   --
   Land sold                                                            --                  --       298,300              258,773
   Purchase of short-term securities                                    --                  --      (690,000)            (749,255)
   Proceeds from maturity of securities                            830,000             999,255            --                   --
   Purchase of fixed assets                                       (110,681)           (203,485)     (232,870)             (39,448)
   Consolidation of Middleton Dolls                                     --                  --       400,325                   --
                                                                  --------         -----------      --------          -----------
Net Cash (Used) Provided by Investing                              719,319           5,823,091       235,342            6,940,911
                                                                  --------         -----------      --------          -----------


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 26
<PAGE>

<TABLE>

                                        BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>

                                                                       Six months ended                 Twelve months ended
                                                                       December 31, 1996                   June 30, 1996
                                                                       -----------------                 -----------------
                                                                  Consumer          Financial        Consumer          Financial
                                                                  --------          ---------        --------          ---------
                                                                  Products          Services         Products          Services
                                                                  --------          --------         --------          --------
<S>                                                              <C>               <C>              <C>               <C>
Cash Flows from Financing Activities:
  Increase in short term borrowings                                      --          7,179,507            --               (3,435)
  Proceeds from loan participations with
   repurchase options - net                                              --          1,364,629            --            3,983,990
  Proceeds from SWIB note - net                                          --           (333,333)           --           (7,333,334)
  Repayment of SBA debenture                                             --        (12,620,000)           --                   --
  (Decrease) Increase in other notes payable                       (121,159)                --            --                   --
  Capitalization and distribution of InvestorsBank                       --                 --            --                   --
  Preferred stock dividends paid                                         --           (643,160)           --           (1,286,320)
  Common stock dividends paid                                            --         (3,670,648)           --           (3,678,476)
  Proceeds from exercise of stock options                                --                 --            --              110,760
  Repurchase of common stock                                             --                 --            --           (2,696,363)
                                                                 ----------        -----------      --------          -----------
Net cash used by financing                                         (121,159)        (8,723,005)           --          (10,903,178)
                                                                 ----------        -----------      --------          -----------
Net intersegment transactions                                    (1,216,012)         1,216,012       340,883             (340,883)
                                                                 ----------        -----------      --------          -----------
Net increase (decrease) in cash                                     269,394            341,231       400,611              219,603
Cash, beginning of period                                           394,542            332,389        (6,069)             112,786 
                                                                 ----------        -----------      --------          -----------
Cash, end of period                                              $  663,936        $   673,620      $394,542          $   332,389 
                                                                 ==========        ===========      ========          ===========
Supplemental Disclosure of Cash Flow
Information:
   Interest paid                                                 $    1,286        $ 1,777,806      $     --          $ 3,680,381
   Taxes Paid                                                    $  903,202        $        --      $     --          $        --


                              The accompanying notes are an integral part of the financial statements.

</TABLE>

                                                                 27
<PAGE>


              BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENT


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS - Bando McGlocklin Capital  Corporation (the "Company'),  was
originally  incorporated in February 1980 to provide  long-term secured loans to
finance the growth, expansion and modernization of small businesses. During 1997
it began leasing "owner-occupied" type real estate to small businesses.

On March 26, 1993,  the Company  completed  the  formation of a holding  company
structure by  transferring  substantially  all of its assets and  liabilities to
Bando McGlocklin Small Business Lending Corporation  ("BMSBLC"),  a wholly owned
subsidiary of the Company.  At the close of the day on December 31, 1996, BMSBLC
surrendered  its Small  Business  Administration  ("SBA")  license.  BMSBLC  was
formerly known as Bando McGlocklin Small Business  Investment  Corporation;  the
entity formerly known as BMSBLC was liquidated on December 1, 1996.

On May 5, 1993,  the Company  formed  Bando  McGlocklin  Investment  Corporation
("BMIC"),  a subsidiary of the Company.  In May 1993, a partially developed real
estate  parcel was  transferred  to BMIC. In December  1996,  one percent of the
economic  interest in BMIC was sold to an unrelated party. In January 1997, this
one  percent  interest  was sold by the  unrelated  party to an  officer  of the
Company  and the  officer  received  100%  of the  voting  stock  of BMIC by the
Company.  In 1997,  BMSBLC  contributed its ownership  interest in Lee Middleton
Original Dolls, Inc.  ("Middleton  Doll") and License Products,  Inc.  ("License
Products"),  both 51% owned subsidiaries engaged in the manufacturing  business,
to BMIC.  On April 30, 1998 the Company  acquired the  remaining 49% interest of
Middleton  Doll and the right to produce  certain  dolls for $5 million in cash.
The  consolidated  accounts of the Company  reflect the  consolidated  financial
position and results of operations of BMIC, Middleton Doll and License Products.

Prior to January 2, 1997,  the Company and BMSBLC were  registered as investment
companies  under the  Investment  Company  Act of 1940 ("1940  Act").  Effective
January 2, 1997,  the Company and BMSBLC  deregistered  as investment  companies
under the 1940 Act. The Company  continues to operate as a registrant  under the
Securities  Act of 1933,  but now reports under the  Securities  Exchange Act of
1934 ("1934  Act").  The  statements  of  operations  and cash flows for the six
months ended  December 31, 1996 and  December 31, 1995  (unaudited)  and for the
twelve  months  ended June 30,  1996 have been  restated  as if the  Company had
always reported under the 1934 Act. Under the 1940 Act, the investments in BMIC,
Middleton  Doll  and  License  Products  were  accounted  for  as  common  stock
investments  and stated at "fair value" as determined in good faith by the Board
of Directors.  Under the 1934 Act, these three  investments are  consolidated or
accounted for as equity  investments,  as appropriate.  The format and manner of
presentation  of the financial  statements has also been changed to conform with
the reporting requirements of the 1934 Act.

During 1996 the Company changed its year-end from June 30 to December 31.

On September 3, 1997,  the Company  capitalized  InvestorsBancorp,  Inc., a bank
holding company, with approximately $6.2 million and then distributed all of its
outstanding  shares of  InvestorsBancorp,  Inc. to the  Company's  shareholders.
Subsequent to the spin-off of the bank holding company,  the principal  business
of the  Company is to manage  its loan  portfolio  and  expand  its real  estate
lending business into ownership of real property including related buildings and
improvements  for lease to small  businesses.  The Company also  participates in
loans with third party loan originators.


                                       28
<PAGE>


BASIS OF  PRESENTATION - These  financial  statements are prepared in accordance
with generally  accepted  accounting  principles.  The  preparation of financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

PRINCIPLES  OF  CONSOLIDATION  - The  consolidated  financial  statements  as of
December 31, 1998 and December 31, 1997 and for the twelve months ended December
31, 1998,  December 31, 1997 and the six months ended  December 31, 1996 include
the accounts of the Company,  BMSBLC, BMIC, Middleton Doll and License Products.
During  the twelve  months  ended  June 30,  1996 and for the six  months  ended
December 31, 1995,  the Company owned only 49% of Middleton Doll and as a result
during this period the  investment  is accounted for on the equity method and is
not consolidated.  In late June 1996, BMCC acquired an additional 2% interest in
Middleton  Doll  and,  therefore,  the  balance  sheet  of  Middleton  Doll  was
consolidated  as of June 30, 1996.  All  significant  intercompany  accounts and
transactions have been eliminated in consolidation.

COMPREHENSIVE  INCOME - The Company  adopted  Statement of Financial  Accounting
Standards No. 130, "Reporting  Comprehensive  Income" as of January 1, 1998. The
Company does not have any components of comprehensive income.

SEGMENT  INFORMATION  - The Company  adopted  Statement of Financial  Accounting
Standards  No. 131,  "Disclosure  About  Segments of an  Enterprise  and Related
Information" as of January 1, 1998.  Following the provisions of this Statement,
the Company is reporting segment assets, liabilities, sales and operating income
in the same format reviewed by the Company's management.  As discussed in Nature
of Business above, the Company has two reportable  segments:  Consumer  Products
(which  includes  BMIC,  Middleton  Doll,  and License  Products)  and Financial
Services (which includes the Company and BMSBLC).  Segment information  required
to be disclosed  under the Statement is included in the  accompanying  financial
statements.

Intersegment  charges are only  reflected in the segment  reconciliation  on the
consolidated  statement of operations.  The consolidated statement of operations
and the  consolidated  statement  of cash  flows  for the  twelve  months  ended
December 31,  1997,  six months  ended  December 31, 1996 and the twelve  months
ended  June 30,  1996 have been  reclassified  to conform  to the  current  year
presentation.

TREASURY STOCK - Preferred stock has been reduced by the cost of shares acquired
for treasury. The common treasury stock is shown as a reduction in shareholders'
equity at cost.

INVESTMENT  VALUATION - The Company's  investment  swap  contracts are valued at
current market value.  Loans are stated at unpaid principal  balance unless loss
reserves are considered necessary.  Land owned is stated at the lower of cost or
net realizable value.

INTEREST  RATE SWAP  AGREEMENTS  - The Company  enters into  interest  rate swap
agreements as a means of managing its interest rate exposure.  The  differential
to be paid or  received  on all  interest  rate swap  agreements  is  accrued as
interest rates change and is recognized over the life of the  agreements.  Those
agreements  which are considered to be  investments  are accounted for at market
value in the financial statements.

ACCOUNTS  RECEIVABLE  - Accounts  receivable  represent  sales on credit made by
Middleton Doll and License Products, net of an allowance for doubtful accounts.


                                       29
<PAGE>


INVENTORY - Inventories of Middleton Doll and License Products are valued at the
lower of cost or market. Middleton Doll and License Products utilize the average
cost method to determine cost. The components of inventory are as follows:

                                                       December 31,
                                                   1998            1997

  Raw materials, net of reserve of $466,661
    and $207,612, respectively                  $1,600,051      $1,767,390
  Work in process                                  275,755         282,484
  Finished goods                                 1,356,646       1,230,298
  Prepaid inventory                                 29,101              -- 
                                                ----------      ----------
        Total                                   $3,261,553      $3,280,172
                                                ==========      ==========

FIXED ASSETS - Fixed assets primarily represent  manufacturing  property,  plant
and equipment of Middleton Doll and License Products. Fixed assets are stated at
cost and are depreciated using the straight-line  method for financial statement
purposes and accelerated methods for income tax purposes. Maintenance and repair
costs are charged to expense as incurred,  and renewals  and  improvements  that
extend  the  useful  life of the  assets  are added to the  plant and  equipment
accounts. The major classes of fixed assets are as follows:

                             Useful                 December 31,
                             Lives           1998                   1997
                             ------          ----                   ----
  Land                          --        $  173,590             $ 173,590
  Building                  40 years       1,579,838               698,876
  Furniture & fixtures       7 years         727,323               551,838
  Machinery & equipment  3 - 5 years       1,951,157             1,663,864
                                          ----------             ---------
    Total                                 $4,431,908            $3,088,168
                                          ==========            ==========

LEASED  PROPERTIES -  Depreciation  is  calculated  for both book and income tax
purposes on the  straight-line  method over the  estimated  useful  lives of the
leased  properties,  generally  40  years.  The  costs  of  normal  repairs  and
maintenance are charged against income in the period incurred.

RECOGNITION  OF  INTEREST  INCOME - Interest  income is  recorded on the accrual
basis to the  extent  that  management  anticipates  that such  amounts  will be
collected.  In all other cases,  the unpaid interest is monitored,  and interest
income is recorded only upon receipt.

PREMIUM  (EXPENSE) INCOME - Premium (expense) income represents the differential
at the time a  portion  of a loan is sold  between  the  present  valued  excess
servicing  income  on the sold  portion  and the  retained  loan  discount,  and
subsequent  to sale,  amortization  of the  retained  loan  discount  and excess
servicing asset.

INCOME  TAXES  - The  Company  and  BMSBLC  qualified  as  regulated  investment
companies ("RICs") meeting certain  requirements under the Internal Revenue Code
(the  "Code") for the six months ended  December 31, 1996 and the twelve  months
ended June 30, 1996. As such,  the Company and BMSBLC were not subject to income
tax  on  investment  company  taxable  income  which  had  been  distributed  to
shareholders.  Subsequent  to December 31, 1996,  the Company has qualified as a
real estate  investment  trust ("REIT") under the Code.  Under REIT status,  the
Company,  together with its qualified REIT subsidiary,  BMSBLC, will continue to
not be  subject  to  income  tax on  taxable  income  which  is  distributed  to
shareholders.  Due to the


                                       30
<PAGE>


change in status,  the  Company has changed its year end to December 31 for both
tax and financial reporting purposes.

In order to qualify as a REIT under the Code,  the  Company,  together  with its
qualified REIT subsidiary,  among other  requirements,  must meet certain annual
income and  quarterly  asset  diversification  tests  including  not holding the
securities  of any one issuer  valued at more than 5% of total  assets,  and not
holding more than 10% of the outstanding voting securities of any one issuer.

For the non-qualified REIT subsidiaries of the Company, taxes are provided using
the liability  approach which  generally  requires that deferred income taxes be
recognized  when assets and  liabilities  have  different  values for  financial
statement and tax reporting purposes.

During the year ended June 30,  1995,  the Company  made  payments to modify the
terms of certain  investment  swap  contracts  which  resulted  in a  $2,031,928
realized  loss for the  financial  statement  purposes.  For tax  purposes,  the
realized loss has been  amortized  through 1997. As a result,  ordinary  taxable
income was  reduced by  $223,911  for the 12 months  ended  December  31,  1997,
$355,721  for the six months  ended  December 31, 1996 and $820,598 and $631,698
for the years ended June 30, 1996 and 1995, respectively.

NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial  Accounting  Standards No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities".  This statement establishes
accounting and reporting standards for derivative instruments.  It requires that
an entity  recognize  all  derivatives  as either assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
This statement is effective for all fiscal years  beginning after June 15, 1999.
The Company does not believe this statement will have a material impact.

NOTE 2 - INVESTORSBANCORP, INC.

InvestorsBancorp,  Inc. is a bank holding company that was  incorporated on June
12, 1996 and  capitalized  on  September 3, 1997  primarily by the Company.  The
Company distributed all of its outstanding shares of  InvestorsBancorp,  Inc. to
its  shareholders on September 6, 1997 to shareholders of record on September 5,
1997.

InvestorsBank (the "Bank") is a newly-organized  Wisconsin chartered  commercial
bank  with  depository   accounts  insured  by  the  Federal  Deposit  Insurance
Corporation. The Bank started providing a full range of commercial and consumer
banking services on September 8, 1997.

All employees, except certain officers, ceased their employment with the Company
on  September  8, 1997 and became  employees  of the Bank.  The  officers of the
Company became officers of both the Company and the Bank.

The Company and the Bank entered into a Management  Services and  Allocation  of
Expenses  Agreement (the "Agreement") on September 2, 1997. The Agreement allows
the employees of the Bank to provide loan management and accounting  services to
the Company for a fee, payable  monthly.  Management fee expense relating to the
Agreement was $775,892 for the year ended December 31, 1998 and was $229,285 for
the period from  September 3, 1997 to December 31, 1997.  Overhead  expenses and
rent are also shared between the two entities in accordance with the Agreement.


                                       31
<PAGE>


NOTE 3 - ACQUISITION OF MINORITY INTEREST

On April 30,  1998,  BMIC paid $5 million  for the  remaining  49%  interest  of
Middleton Doll and the right to produce  certain dolls under a five year royalty
agreement.  The purchase  was  financed by a loan from  BMSBLC.  One half of the
purchase price was allocated to the  acquisition of the minority  interest based
upon an  appraisal of Middleton  Doll.  The $2.5 million  allocated to the stock
exceeded the  minority  interest  recorded by BMIC by $619,751.  This amount has
been recorded as goodwill in the accompanying  financial statements and is being
amortized over twenty years.

The $2.5  million  allocated  to the  right to  produce  certain  dolls has been
recorded as a prepaid royalty in the  accompanying  financial  statements.  This
amount is being  amortized  on a  straight  line basis over the term of the five
year royalty agreement.

NOTE 4 - SIGNIFICANT SUPPLIER

Approximately  47% of Middleton  Doll raw materials  were acquired from a single
supplier in Hong Kong. There is no formal agreement  between  Middleton Doll and
this  supplier.  As of  December  31,  1998,  Middleton  Doll has  entered  into
commitments to acquire approximately $630,000
of raw material from this supplier.

NOTE 5 - LOANS

The Company's exposure to loss in the event of nonperformance by the borrower is
represented by the outstanding principal amount of the loans. The Company's loan
portfolio  consists  primarily  of  variable-rate  loans  with  terms of five to
fifteen  years.  Substantially  all loans are fully  secured  by first or second
mortgages on commercial  real estate.  Approximately  93% of the Company's  loan
portfolio at December 31, 1998 is comprised of loans to borrowers located within
the State of Wisconsin.  At December 31, 1998, the Company had loans outstanding
to its largest borrower totaling $9,021,322.

The  Company  routinely  monitors  its  loan  portfolio  for  evidence  of  loan
impairment. A loan is considered impaired when, based on current information and
events,  it is probable  that the Company  will be unable to collect all amounts
due according to the contractual terms of the loan.  Historically impairment has
not been an  indicator  of loss.  As of December  31, 1998 and December 31, 1997
loans with balances  aggregating  $721,816 and  $1,583,981,  respectively,  were
considered impaired.  In determining the need for a loss reserve on the impaired
loans,  management  looks  to  the  underlying  collateral.  A loss  reserve  is
established if the estimated value of the underlying  collateral is insufficient
to cover the impaired  loan.  At December 31, 1998, no loss reserve was recorded
on impaired loans. At December 31, 1997, a loss reserve of $100,491 was recorded
on impaired loans totaling $1,583,981.  The average impaired loan balance during
the twelve months ended December 31, 1998 was $1,213,914.  The accrued  interest
on the impaired  loans totals $12,017 at December 31, 1998 and all is considered
fully collectible.

Undisbursed   construction   loan   commitments  and  lines  of  credit  totaled
$10,133,279  at December  31, 1998.  In addition the Company  issued a letter of
credit totaling $4,000,000 as of December 31, 1998.

NOTE 6 - LOANS SOLD

Since 1994, the Company has sold loans to third parties. During 1998 and 1997 no
new  loans  were sold to third  parties.  The  following  table  summarizes  the
outstanding balance of loans sold.


                                       32
<PAGE>


Principal                                             Principal
Balance Sold at                    Percentage      Balance sold at    Recourse
Date of Sale                         Sold         December 31, 1998   Provision
------------                         ----         -----------------   ---------

During the year ended June 30, 1995:
        $ 2,837,677                 75%-80%           $608,348          None

During the year ended June 30, 1994:
        $10,397,410                     75%           $519,327          None


The Company also sells loans with the option to repurchase them at a later date.
During  1998,  the  Company  sold  $5,331,814  in loans to a third party with an
option to  repurchase  them.  As of  December  31,  1998,  the  balance  of loan
participations   with  repurchase  options  was  $45,881,418.   Of  this  amount
approximately  $30.4  million  is to a  single  non-related  party.  These  loan
participations  mature as the corresponding notes mature,  which at December 31,
1998 range from one to nine years. During 1998 loan  participations  matured and
were refinanced with new debt, such as commercial paper and long-term debt. (See
Notes 10 & 11). As of December 31, 1997, the balance of loan participations with
repurchase options was $69,250,467.  During the twelve months ended December 31,
1997,  the  Company  resold,  with an  option  to  repurchase,  loans at  unpaid
principal balances totaling $41,549,621. These sales all have been accounted for
as secured financing.

For the loans sold with no recourse,  the Company is  susceptible to loss on the
loans up to the percentage of the retained interest to the extent the underlying
collateral is insufficient in the event of nonperformance  by the borrower.  The
Company's  retained  interest is subordinated to the portion sold. For the loans
sold with full  recourse,  the Company is susceptible to loss equal to the total
principal  balance  of the  loan to the  extent  the  underlying  collateral  is
insufficient in the event of nonperformance. No associated loss reserve has been
established as of December 31, 1998 for loans which have been sold.

Under the terms of the agreements,  the Company retains servicing rights for the
entire loan. As servicer and provider of recourse,  certain  agreements  require
the Company to comply with various  covenants,  including the maintenance of net
worth.  As of  December  31,  1998,  the company  was in  compliance  with these
covenants.

NOTE 7 - LOAN BACKED CERTIFICATES

During the year ended June 30, 1996,  the Company  sold loans to a trust,  which
issued two classes of certificates as noted in the table below:

Principal Balance         A Certificate                         B Certificate
Sold at                      Sold to           A Certificate       Sold to
Date of Sale               Third Party         Interest Rate       Company
-----------------         -------------        -------------       -------
$8,666,538                 $7,453,223              (1)           $1,213,315

(1)      The  interest  rate was  reset  monthly  based  upon the 30 day  London
         Interbank Offered Rate (LIBOR) plus one and one-half percent.

On May 1, 1997 the Company  repurchased all of the loans sold to the trust.  The
unpaid  principal  balances for the A and B  certificates  were  $8,097,561  and
$1,497,499,  respectively.  As  a  result  of  these  transactions,  the 


                                       33
<PAGE>


excess  servicing asset and retained loan discount  related to the original sale
were reduced by $202,437 and $201,140,  respectively.  Premium expense of $1,297
was also recognized due to these transactions.

NOTE 8 - BUSINESS ACQUISTION

In  July,  1998,   BMSBLC  acquired  Bando  McGlocklin  Real  Estate  Investment
Corporation  ("BMREIC"),  an independently  owned real estate  investment trust.
This acquisition was accounted for as a purchase. Under the terms of the Plan of
Merger,  BMSBLC acquired leased properties and other assets with a fair value of
approximately $19.6 million,  assumed liabilities of approximately $13.8 million
and paid cash of  approximately  $5.1 million to shareholders of BMREIC.  Of the
liabilities assumed, $13.4 million were paid by BMSBLC at the date of closing.

In  addition,  BMSBLC paid  $555,379  to a related  party to acquire the rights,
title and interest  under an Advisory  Agreement  between the related  party and
BMREIC.  This purchase was made in  connection  with the  acquisition  of BMREIC
described above and has been capitalized as part of the purchase price.

As of  December  31,  1997  the  Company  had  outstanding  loans to  BMREIC  of
$4,428,578.

NOTE 9 - LEASED PROPERTIES

The  Company  has $22  million  in leased  properties  located  in  southeastern
Wisconsin as of December 31, 1998.  This  includes the $18.3 million of acquired
properties  described  in Note 8 above.  The  Company  has  entered  into  three
construction contracts totaling $2,552,855 of which $1,053,629 is unfunded as of
December 31, 1998.

The Company  normally  leases its properties  pursuant to a lease agreement with
initial lease terms ranging from five to fifteen  years.  The leases require the
lessee to pay all operating expenses including  utilities,  insurance and taxes.
The lease agreements, all of which are operating leases, expire at various dates
through 2009 and provide the lessee with renewal and purchase  options.  Minimum
future  rental  income,  by year,  from these leases based on the  agreements in
effect at December 31, 1998 approximate:

                          1999                    $ 2,217,506
                          2000                      2,056,994
                          2001                      1,927,686
                          2002                      1,957,335
                          2003                      1,776,832
                          Future Years              5,548,274
                                                  -----------
                                                  $15,484,627
                                                  ===========

The Company  subleases  half of its office space with  InvestorsBank,  a related
party.  Monthly  rents  are  variable  based on  LIBOR  interest  rates  and the
agreement is for a one-year renewable term. Rental income from the related party
for the year ended  December 31, 1998 and period from  September 3, 1997 through
December 31, 1997 was $67,452 and $24,330, respectively.

NOTE 10 - SHORT-TERM BORROWINGS

Commercial paper is issued for working capital purposes with maturities of up to
90 days. The average yield on commercial paper  outstanding at December 31, 1998
was 5.50%.


                                       34
<PAGE>


BMSBLC has entered into one loan agreement with four  participating  banks as of
March 11, 1998. The current loan agreement provides for a maximum of $60,000,000
less the outstanding  principal  amount of commercial  paper. The facility bears
interest  at the  prime  rate or at the 30-,  60- or 90-day  LIBOR  plus one and
three-eighths  percent.  Interest  is payable  monthly,  and the loan  agreement
expires on April 30, 1999. BMSBLC is also required to pay a commitment fee equal
to 1/2 of 1% per year on the unused amount of the loan  commitment.  At December
31,  1998,  under  these  agreements,  the  outstanding  principal  balance  was
$1,040,000.

On April 30, 1998, the Company  entered into a credit  agreement with one of its
correspondent  banks providing for a note of $5,000,000  bearing interest at the
prime rate.  The credit  agreement  expires on April 30, 1999. The proceeds from
the new note were for the  purchase of the  remaining  49% interest in Middleton
Doll and the right to produce  certain  dolls.  As of  December  31,  1998,  the
outstanding principal balance was $5,000,000.

NOTE 11 - LONG-TERM DEBT

On November 7, 1991,  BMSBLC  borrowed  $10,000,000  from The State of Wisconsin
Investment  Board  ("SWIB")  pursuant to a term note which  bears  interest at a
fixed rate of 9.05% per year through its maturity.  The note is payable in equal
quarterly  installments of $166,667 with a final payment of unpaid principal due
on November 7, 2006, and is secured by specific loans. At December 31, 1998, the
outstanding principal balance was $5,333,333.

On June 12, 1998,  BMSBLC borrowed an additional  $10,000,000  from the State of
Wisconsin  Investment  Board  pursuant to a term note which bears  interest at a
fixed rate of 6.98% per year through its maturity.  The note is payable in equal
quarterly  installments of $166,667 with a final payment of unpaid principal due
on June 1, 2013,  and is secured by specific  loans.  At December 31, 1998,  the
outstanding principal balance was $9,666,667.

The  SWIB  agreement  and the  loan  agreements  described  in  Note 10  contain
restrictions  on BMSBLC's new  indebtedness,  acquisition  of its common  stock,
return of capital  dividends,  past due loans, and realized losses on loans, and
require maintenance of collateral, minimum equity and loan to debt ratios, among
others. Under the most restrictive covenant,  approximately $800,000 of BMSBLC's
capital is available  for payment of dividends to BMCC. As of December 31, 1998,
BMSBLC is in compliance with all such requirements.

On December 1, 1998,  BMSBLC  entered into a Loan and Trust  Agreement  with the
City of Franklin,  Wisconsin,  which issued an  industrial  development  revenue
bond.  The bond matures on December 1, 2018.  The interest  rate changes  weekly
based upon the remarketing  agent's lowest rate to permit the sale of the bonds.
This  interest is paid  monthly to the trustee.  As of December  31,  1998,  the
outstanding principal balance was $1,510,000 and the interest rate was 4.20%.


                                       35
<PAGE>


Future  annual  maturities  of  long-term  debt as of  December  31, 1998 are as
follows:

                  December 31. 1999               $ 1,338,534
                  December 31, 2000                 1,338,855
                  December 31, 2001                 1,399,196
                  December 31, 2002                 1,404,557
                  December 31, 2003                 1,404,941
                  Later Years                       9,702,906
                                                   ----------
                                                  $16,588,989
                                                  ===========

Based on the  borrowing  rates  currently  available  to BMSBLC  for loans  with
similar  maturities,  the estimated  fair market value of the long-term  debt at
December 31, 1998 was approximately $16.9 million.

NOTE 12 - INTEREST RATE SWAPS

The Company  enters into interest rate swap  agreements  primarily as a means of
managing  interest  rate risk.  To the extent that the  Company's  variable-rate
loans are funded with  fixed-rate  debt, the Company is subject to interest rate
risk. To reduce  interest rate risk,  the Company  enters into certain  interest
rate swaps  designed  to convert  variable-rate  loans  into  fixed-rate  loans.
Although these swaps reduce interest rate risk, the potential for profit or loss
on interest  rate swaps still exists  depending  upon  fluctuations  in interest
rates. In addition, the Company enters into interest rate swaps in an attempt to
further manage interest rate risk resulting from interest rate movements.

In accordance with applicable accounting principles, the Company's interest rate
swap  agreements  are held for  purposes  other  than  trading  and are  further
classified  as  either  hedges  or as  investment  contracts.  Both  hedges  and
investment  contracts  have the  potential  for  profit  and  loss.  Hedges  are
accounted  for using the  designation  method,  which matches the swaps with the
assets that are being hedged.  When the designated  asset  matures,  or is sold,
extinguished  or terminated,  the hedge would be  reclassified as an investment.
Accounting principles dictate that those contracts not meeting hedge criteria be
classified as investments and  marked-to-market  with any associated  unrealized
gain or loss recorded in the statements of operations,  whereas those  contracts
meeting   hedge   criteria  are  not  to  be  classified   as   investments   or
marked-to-market.  On December 31, 1998 and December  31, 1997,  the  investment
contracts  at market  resulted in an  unrealized  gain of $49,579 and  $123,013,
respectively.  The  difference in the  unrealized  gain at December 31, 1998 and
December  31,  1997  is a  decrease  of  $73,434  recorded  in the  consolidated
statement of operations for the twelve months ended December 31, 1998.

The average  notional amount of investment swaps  outstanding  during the twelve
months ended  December 31, 1998,  December 31, 1997,  June 30, 1996, and for the
six months  ended  December  31,  1996 and  December  31,  1995 was  $2,750,000,
$45,750,000, $142,750,000, 124,178,570 and
$142,750,000 (unaudited), respectively.

Based on quoted market valuations, the estimated market value of the hedge swaps
at December 31, 1998 and December  31, 1997 was  approximately  $3.4 million and
$1.6 million, respectively.

The following  table  summarizes the interest rate swap  agreements in effect at
December  31,  1998.  No funds were  borrowed  or are to be repaid  under  these
agreements:


                                       36
<PAGE>

<TABLE>

                                                                 Current Interest
                                                                    Rates Paid
<CAPTION>

                                   Company       Bank                                   Original Notional  Expiration
Bank                               Payment       Payment    By Company      By Bank          Amount        Date
----                               -------       -----      ----------      -------          ------        ----
<S>                                <C>           <C>        <C>             <C>         <C>                <C>
U.S. Bank National Association     Floating      Fixed      5.59031%(3)     9.20000%    $ 8,000,000(4)     06/16/99
  St. Paul, Minnesota (1)
LaSalle National Bank              Floating      Fixed      5.22094%(2)     6.34000%    $ 5,400,000        03/21/01
  Chicago, Illinois
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.35016%(2)     7.43500%    $10,325,000(5)     09/28/01
  Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.25000%(2)     5.72500%    $16,908,000        06/30/03
  Milwaukee, Wisconsin
LaSalle National Bank              Floating      Fixed      5.24375%(2)     7.60000%    $ 5,000,000        03/10/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.25000%(2)     6.66000%    $ 5,250,000(6)     05/23/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.25000%(2)     6.50000%    $ 5,000,000(7)     09/29/05
  Chicago, Illinois
LaSalle National Bank              Floating      Fixed      5.27531%(2)     7.09000%    $12,500,000        09/05/06
  Chicago, Illinois
Firstar Bank Milwaukee, N.A.       Floating      Fixed      5.22063%(2)     5.76000%    $10,000,000(8)     06/16/08
  Milwaukee, Wisconsin

(1)  Investment Swap

(8)  Adjusted every three months to the three-month LIBOR then in effect.

(9)  Adjusted every month to the one-month LIBOR then in effect.

(10) The notional amount decreases by $83,333 each quarter and was $4,750,013 at December 31, 1998;  $2,000,013 of this contract was
     designated as a hedge; $2,750,000 was accounted for as an investment.

(11) The notional amount decreases by $166,667 each quarter and was $5,491,667 at December 31, 1998.

(12) The notional amount decreases by $100,000 each quarter and was $3,850,000 at December 31, 1998.

(13) The notional amount decreases by $75,000 each quarter and was $4,025,000 at December 31, 1998

(8)  The notional amount decreased by $166,667 each quarter and was $9,666,666 at December 31, 1998.

</TABLE>


As  a  result  of  hedge  arrangements,   the  Company  recognized  a  $519,795,
$1,193,877,  $1,382,751,  and  $732,066 and  $566,614  (unaudited)  reduction in
interest  expense for the twelve  months ended  December  31, 1998  December 31,
1997,  and June 30,  1996 and for the six months  ended  December  31,  1996 and
December 31, 1995, respectively.  In addition, the Company recognized a $93,201,
$353,962,  $412,129,  $445,568  and $43,458  (unaudited)  reduction  in interest
expense for the twelve months ended  December 31, 1998,  December 31, 1997,  and
June 30, 1996 and for the six months  ended  December  31, 1996 and December 31,
1995, respectively, as a result of the investment swap contracts.

The  Company  may be  susceptible  to risk with  respect to  interest  rate swap
agreements  to  the  extent  of  nonperformance  by the  financial  institutions
participating  in the interest rate swap agreements.  However,  the Company does
not anticipate nonperformance by these counterparties.

NOTE 13 - MANDATORILY REDEEMABLE PREFERRED STOCK

On October 20,  1993,  the Company  issued  690,000  shares of  Adjustable  Rate
Cumulative  Preferred  Stock,  Series A in a public offering at $25.00 per share
less an  underwriting  discount  of $1.0625 per share and other  issuance  costs
amounting to $295,221. The preferred stock is redeemable, in whole or in part at
the option of the Company,  on any dividend  payment date during the period from
July 1, 2001 to June 30,  2003 and from July 1, 2006 to June 30, 2008 at $25 per
share plus  accrued  and unpaid  dividends.  Any shares of  preferred


                                       37
<PAGE>


stock not redeemed prior to July 1, 2008 are subject to mandatory  redemption on
that date by the Company at a price of $25 plus accrued dividends.  Dividends on
the preferred stock were paid quarterly at the annual rate of 7.625% through the
dividend  period June 30, 1998. The dividend rate was adjusted to an annual rate
of 8.53% for the  dividend  period  commencing  July 1, 1998 and ending June 30,
2003. The next adjustment will be effective for the five year period  commencing
July 1, 2003. Through December 31, 1997, the Company purchased 15,209 shares for
treasury.

Based on quoted market prices,  the estimated fair market value of the preferred
stock outstanding as of December 31, 1998 was approximately $15.6 million.

In the twelve  months  ended  December 31, 1998,  the Company  began  presenting
preferred stock dividends as a deduction from net income to arrive at net income
available  to common  shareholders.  In prior  periods,  the  Company  presented
preferred stock dividends as part of interest expense. Prior period consolidated
statements of operations  have been  reclassified  to conform to current  period
presentation.

NOTE 14 - RETIREMENT PLANS

On September 8, 1997 the Company  terminated  its profit  sharing plan and money
purchase plan. The Company continues to have an employee benefit expense through
the sharing of employees and expenses according to the Agreement. (See Note 2.)

As of July 1, 1998, the Company's subsidiary, Lee Middleton Original Dolls, Inc.
has a qualified defined contribution plan for eligible employees.  Employees can
contribute  between  1% and 15% of their  base  compensation  to the  plan.  The
Company's  contribution  to the plan is at the discretion of the Company's Board
of Directors.  The Company made no  contributions to the plan for the year ended
December 31, 1998.

The  Company  provided  an  additional  supplemental  retirement  benefit for an
executive  officer,  such  benefit  totaled $ 38,098 and  $38,347 for the twelve
months  ended  December  31,  1998 and 1997,  respectively.  For the year  ended
December 31, 1998 and for the period September 3, 1997 to December 31, 1997 this
benefit was paid as part of the Management  Services Fee paid to  InvestorsBank.
In the prior  periods  this  benefit was given to two  executive  officers.  The
benefits paid during the six months ended  December 31, 1996 and the fiscal year
ended June 30, 1996 were $71,683 and $194,882,  respectively.  The payments were
made in the sole discretion of the outside members of the Board of Directors.

NOTE 15 - STOCK OPTION PLANS

The Company has four stock option  plans,  the 1987 Stock Option Plan,  the 1990
Stock  Option  Plan,  the 1993 Stock  Option Plan and the 1997 Stock Option Plan
(the "Plans"). In accordance with the Plans' provisions, the exercise prices for
stock  options may not be less than the fair market value of the optioned  stock
at the date of grant. The exercise price of all options granted was equal to the
market value of the stock on the date of grant.  All of the options,  except for
the options  granted  under the 1997 Stock Option  Plan,  are  "incentive  stock
options" as defined  under  Section 422 of the Code.  Options  granted under the
1997 Stock Option Plan are considered  "non-qualified  stock options" as defined
by the Code.  All  options  must be  exercised  within  ten years of the date of
grant.

Additional information relating to the Plans is shown below:


                                       38
<PAGE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                                       For the twelve months               For the twelve months
             Stock Option Plans                       Ended December 31, 1998             Ended December 31, 1997
---------------------------------------------------------------------------------------------------------------------------
                                                                        Average                           Average
                                                    Number of            Option         Number of         Option
                                                     Options             Price           Options           Price
                                                     -------             -----           -------           -----
<S>                                                 <C>                 <C>             <C>               <C>  
Options outstanding at January 1, 1998
and 1997, respectively                                205,870           $12.73           169,424          $10.45
    Options granted                                        --               --           189,450           12.90
    Options exercised                                      --               --           (45,796)           7.35
    Options terminated Unexercised                         --               --          (107,208)          11.70
---------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31,
1998 and 1997, respectively                           205,870            11.23(1)        205,870           12.73
Options available for grant at December
31, 1998 and 1997, respectively                       173,188               --           173,188              --
---------------------------------------------------------------------------------------------------------------------------
Total Reserved Shares                                 379,058               --           379,058              --
---------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1998                                                                                 
and 1997, respectively                                192,590           $11.25           187,950          $12.94
---------------------------------------------------------------------------------------------------------------------------

(1)  On February 11, 1998, the Board of Directors of the Company  approved a downward  adjustment of $1.67 in the exercise prices of
     the 1997 Stock  options  that were granted on February 3, 1997 and June 25, 1997.  The downward  adjustment  was to reflect the
     Company's 1997 return of capital dividend.

</TABLE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                       For the six months ended            For the twelve months
              Stock Option Plans                          December 31, 1996                 Ended June 30, 1996
---------------------------------------------------------------------------------------------------------------------------
                                                                        Average                           Average
                                                    Number of            Option         Number of          Option
                                                     Options             Price           Options           Price
                                                     -------             -----           -------           -----
<S>                                                 <C>                 <C>             <C>               <C>
Options outstanding at July 1, 1996 and
1995, respectively                                    153,924           $10.37           147,144          $ 9.92
    Options granted                                    15,500            11.25            22,500           11.00
    Options exercised                                      --               --           (15,720)           7.05
    Options terminated unexercised                         --               --                --              --
---------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996
  and June 30, 1996, respectively                     169,424            10.45           153,924               
Options available for grant at December
31, 1996 and June 30, 1996, respectively               55,430               --            70,930              --
---------------------------------------------------------------------------------------------------------------------------
Total reserved shares                                 224,854               --           224,854              --
---------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1996                                                                       
and June 30, 1996, respectively                        46,780           $ 8.58            46,780          $ 8.58
---------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                                                 39
<PAGE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                                      Options Outstanding                    Options Exercisable
---------------------------------------------------------------------------------------------------------------------------
 Exercise Price Range         Shares            Remaining             Average             Shares            Exercise
                                               Average Life          Exercise                                Price
                                                 (years)               Price
---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>                   <C>              <C>        
        $6.50-8.50                  10,920          1.9              $ 8.00                  3,640          $ 8.00

     $10.00-$14.50                 194,950          8.1              $11.41                188,950          $11.31
---------------------------------------------------------------------------------------------------------------------------
         Total                     205,870          7.8              $11.23                192,590          $11.25
---------------------------------------------------------------------------------------------------------------------------

</TABLE>


The Company  adopted the  disclosure  only option  under  Statement of Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation."  The
impact of the  provision of this  statement on proforma  income and earnings per
share is not material.

NOTE 16 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income  available to common
shareholders by the weighted-average  number of common shares outstanding during
the period.  Diluted  earnings  per share is  computed  by giving  effect to all
dilutive  potential  common shares.  A  reconciliation  of the income and shares
issued in computing the basic and diluted earnings per share for the years ended
December 31,  1998,  December  31,  1997,  and June 30, 1996,  and the six month
periods ended December 31, 1996, respectively, are as follows:


<TABLE>
<CAPTION>

                                             For the Twelve Months Ended             For the Six           For the Twelve
                                                     December 31,                    Months Ended          Months Ended
                                               1998                1997            December  31, 1996      June 30, 1996
                                               ----                ----            ------------------      -------------
<S>                                          <C>                 <C>                 <C>                    <C>
Net income available to common
 shareholders                                $ 3,769,637         $ 3,506,380         $ 1,141,960            $ 3,129,972
                                             -----------         -----------         -----------            -----------
Determination of shares:
 Weighted average common shares
 outstanding (basic)                           3,689,102           3,685,990           3,689,094              3,812,131

 Assumed conversion of stock options               2,468              11,597              22,261                 27,354
                                             -----------          ----------         -----------            -----------
Weighted average common shares
outstanding (diluted)                          3,691,570           3,697,587           3,711,355              3,839,485
                                             ===========         ===========         ===========            ===========
Basic earnings per share                          $ 1.02              $ 0.95              $ 0.31                 $ 0.82
Diluted earnings per share                        $ 1.02              $ 0.95              $ 0.31                 $ 0.82


</TABLE>

                                       40
<PAGE>



NOTE 17 - INCOME TAXES

Taxes on income consist of the following:
<TABLE>
<CAPTION>

                                                   Twelve Months ended                          Six Months ended
                                     December 31,       December 31,    June 30,                  December 31,
                                         1998              1997          1996               1996             1995
                                         ----              ----          ----               ----             ----
                                                                                                           (Unaudited)
<S>                                    <C>              <C>            <C>                <C>              <C> 
Current
   Federal                             $1,063,000       $1,311,496     $     --           $860,201         $  --
   State                                  344,404          227,126           --             40,288            --
                                       ----------       ----------     --------           --------         -----
                                        1,407,404        1,538,622           --            900,489            --
                                       ----------       ----------     --------           --------         -----
Deferred
   Federal                                 53,000              642      (35,074)           (55,102)           --
   State                                   16,810               --           --             (1,125)           --
                                       ----------       ----------     --------           --------         -----
                                           69,810              642      (35,074)           (56,227)           --
                                       ----------       ----------     --------           --------         -----
Taxes on income                        $1,477,214       $1,539,264     $(35,074)          $844,262         $  --
                                       ==========       ==========     ========           ========         =====

</TABLE>

A reconciliation  of the statutory federal income tax rate and the effective tax
rate as a percentage of income before taxes is as
follows:

<TABLE>
<CAPTION>

                                                 Twelve Months ended                          Six Months ended
                                   December 31,      December 31,        June 30,               December 31,
                                       1998              1997              1996           1996             1995
                                       ----              ----              ----           ----             ----
                                                                                                        (Unaudited)
<S>                                 <C>                 <C>              <C>              <C>             <C>  
Federal Statutory rate                 34.0%             34.0%             34.0%           34.0%           34.0%
State income taxes, net of                                                                                             
 federal tax benefits                   4.4               2.3                --             0.4              --
Income passed through to                                                                                               
 shareholders                         (17.9)            (15.1)            (35.4)          (10.2)          (33.7)
Loss not benefited                      6.5               3.2               5.5             3.1             3.0
Equity in earnings of                                                                                                  
 subsidiary                              --                --              (3.9)             --            (3.3)
Other                                    --               0.6              (1.3)            5.7             0.0
                                  --------------------------------------------------------------------------------------

                                       27.0%             25.0%             (1.1)%          33.0%             --
                                  ======================================================================================

</TABLE>


                                                                 41
<PAGE>


Temporary  differences and carryforwards  which gave rise to deferred tax assets
and liabilities,  which were classified in other assets and other liabilities in
the Consolidated Balance Sheet, included:

                                                      December 31,
                                               1998                  1997
                                               ----                  ----
Deferred tax assets:
  Accrued expenses and reserves             $  125,000             $195,100
  Net operating loss carryforwards           1,172,000              784,000
                                            ----------             --------
                                             1,297,000              979,100
Valuation allowance                         (1,172,000)            (784,000)
                                            ----------             --------
                                               125,000              195,100
Deferred tax liabilities
  Depreciation                                  (5,000)              (5,290)
                                            ----------             --------
Net deferred tax assets                     $  120,000             $189,810
                                            ==========             ========

The valuation  allowance  represents net operating loss carryforwards at License
Products,  for which utilization is uncertain.  A portion of the deferred income
tax assets may be realized  through  carrybacks with the remainder  dependent on
future income.  Management believes that sufficient income will be earned in the
future to realize the remaining net deferred income tax assets.  The increase in
the  valuation  allowance  is a  result  of the  increased  deferred  tax  asset
associated with the net operating loss carryforwards.

NOTE 18- DISTRIBUTIONS

For the year ended December 31, 1998, the Company's board of directors  declared
the following common stock distributions:

                                              For the
                                             year ended
                                            December 31,
                                               1998

Total distributions                          $2,397,916 
Distributions per share (tax basis):
  Ordinary income                            $     0.65
  Capital gains                                      --
  Return of capital                                  --
                                             ----------
Total distributions declared per
  share                                      $     0.65
Distribution in cash                         $     0.65
Distribution in stock                        $       --


                                       42
<PAGE>

NOTE 19- TRANSITION PERIOD


A  comparison  of key  financial  information  of the Company for the  six-month
periods ending December 31, 1996 and 1995 is as follows:

                                                               December 31, 1995
                                             December 31, 1996   (Unaudited)

Revenues:
    Interest on loans                             $ 3,579,266      $4,547,651
    Net sales of manufacturing subsidiaries         7,226,130       1,049,870
    Other income                                      134,194         128,182
                                                  -----------      ----------
       Total revenues                              10,939,590       5,725,703
                                                  -----------      ----------
Expenses:
    Interest expense                                  477,722       1,490,670
    Cost of goods sold of manufacturing 
     subsidiaries                                   3,413,772         717,731
    Salaries of employee benefits                     931,908         635,381
    Other expenses                                  2,913,435         567,170
                                                  -----------      ----------
       Total expenses                               7,736,837       3,410,952
                                                  -----------      ----------
Equity earnings in subsidiary                              --         176,760
                                                  -----------      ----------
Net operating income before income taxes and   
 minority interest                                  3,202,753       2,491,511
Provision for income taxes                           (844,262)             --
Minority interest                                    (573,371)             --
                                                  -----------      ----------
Net income                                        $ 1,785,120      $2,491,511
Preferred stock dividends                             643,160         643,160
                                                  -----------      ----------
Net income available to common shareholders       $ 1,141,960      $1,848,351
                                                  ===========      ==========
Basic earnings per share                          $      0.31      $     0.47
                                                  ===========      ==========
Diluted earnings per share                        $      0.31      $     0.47
                                                  ===========      ==========


                                       43
<PAGE>

<TABLE>
<CAPTION>

                                                                           Six Months Ended December 31,
                                                                                                1995
                                                                       1996                   (Unaudited)
<S>                                                                <C>                        <C> 
Cash Flows from Operating Activities:
    Net Income                                                     $ 1,785,120                $ 2,491,511
    Adjustments to reconcile net income to net cash
     (used) provided by operating activities                         1,127,259                    530,058
                                                                   -----------                -----------
Net Cash Provided by Operations                                      2,912,379                  3,021,569
                                                                   -----------                -----------
Cash Flows from Investing Activities:
    Loans made                                                     (23,729,026)               (23,003,932)
    Principal collected on loans                                    13,600,355                 14,094,074
    Loans sold                                                      15,140,783                 15,400,490
    Certificate purchased from trust                                        --                 (1,213,315)
    Purchase of short-term securities                                       --                 (1,442,778)
    Proceeds from maturity of securities                             1,829,255                         --
    All Other - Net                                                   (298,957)                   (12,583)
                                                                   -----------                -----------
Net Cash Provided by Investing Activities                          $ 6,542,410                $ 3,821,956 
                                                                   -----------                -----------
Cash Flows from Financing Activities:
    Increase (decrease) in short-term borrowings                   $ 7,179,507                $(1,632,110)
    Proceeds from loan participations with repurchase                                                    
     options - net                                                   1,364,629                         --
    Repayment of SBA debenture                                     (12,620,000)                        --
    Preferred stock dividends paid                                    (643,160)                  (643,160)
    Common stock dividends paid                                     (3,670,648)                (1,876,173)
    Repurchase of common stock                                              --                 (1,234,045)
    All other - net                                                   (454,492)                  (555,907)
                                                                   -----------                -----------
Net Cash Used in Financing Activities                               (8,844,164)                (5,941,395)
                                                                   -----------                -----------
Net increase in cash                                                   610,625                    902,130
Cash, beginning of period                                              726,931                    106,717
                                                                   -----------                -----------
Cash, end of period                                                $ 1,337,556                $ 1,008,847
                                                                   ===========                ===========
Supplemental Disclosure of Cash Flow Information:
   Interest paid                                                   $ 1,779,092                $ 2,004,408
   Taxes paid                                                          903,202                         --

</TABLE>


                                       44
<PAGE>


NOTE 20 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                                                                           Quarters Ended
                                                               (In thousands, except per share data)
                                                ---------------------------------------------------------------------
                                                  December 31,     September 30,       June 30,         March 31,
                                                      1998              1998             1998             1998
<S>                                               <C>                <C>                <C>              <C>
Total revenues                                       $9,957            $8,844           $6,799           $6,357
Net operating income before income taxes
and minority interest                                $1,968            $1,768           $1,038           $  705
Net income available to common
shareholders                                         $1,293            $1,321           $  700           $  456
Basic earnings per share                             $ 0.35            $ 0.36           $ 0.19           $ 0.12
Diluted earnings per share                           $ 0.35            $ 0.36           $ 0.19           $ 0.12

<CAPTION>
                                                  December 31,     September 30,       June 30,         March 31,
                                                      1997              1997             1997             1997
<S>                                               <C>               <C>                 <C>              <C>
Total revenues                                       $9,629            $7,920           $7,993           $5,442
Net operating income before income taxes
and minority interest                                $1,277            $1,653           $2,153           $1,045
Net income available to common
shareholders                                         $  720            $  853           $1,303           $  630
Basic earnings per share                             $ 0.20            $ 0.23           $ 0.35           $ 0.17
Diluted earnings per share                           $ 0.20            $ 0.23           $ 0.35           $ 0.17


</TABLE>


NOTE 21- BANDO McGLOCKLIN CAPITAL CORPORATION (PARENT ONLY)

Pursuant to covenants  contained in its debt  agreements,  BMSBLC is  prohibited
from declaring or paying any dividend on its common stock which would constitute
a  return-of-capital  dividend for income tax purposes.  The  Company's  balance
sheet as of December 31, 1998 and 1997 and related  statements of operations and
cash flows for the years ended December 31, 1998 and 1997, and June 30, 1996 and
the six months  ended  December  31,  1996 and 1995 on an  unconsolidated  basis
follow.


                                       45
<PAGE>


                      Bando McGlocklin Capital Corporation
                          Balance Sheets (Parent Only)

                                                         December 31,
                                                     1998             1997
Assets
Loans                                             $ 5,199,672      $ 1,600,000
Less:  Retained loan discount                              --          (48,875)
Investments in BMSBLC                              25,226,128       26,236,596
Investments in other subsidiaries                   2,019,516        1,126,677
                                                  -----------      -----------
   Investments                                     32,445,316       28,914,398
Other assets - net                                  1,327,153          757,750
                                                  -----------      -----------
   Total Assets                                   $33,772,469      $29,672,148
                                                  ===========      ===========
Liabilities
Note payable                                        5,000,000               --
Loan participations with repurchase options                --      $ 1,600,000
Other liabilities                                       8,159          421,321
                                                  -----------      -----------
   Total Liabilities                                5,008,159        2,021,321
Preferred stock                                    16,908,025       16,908,025
Shareholders' Equity
Common stock                                          266,769          266,769
Additional paid-in capital                         13,671,947       13,671,947
Retained earnings/(deficit)                         1,770,080          656,597
Treasury stock, at cost                            (3,852,511)      (3,852,511)
                                                  -----------      -----------
   Total Shareholders Equity                       11,856,285       10,742,802
                                                  -----------      -----------
   Total Liabilities, Preferred Stock,
    Common Stock & Other Shareholders' Equity     $33,772,469      $29,672,148
                                                  ===========      ===========



                                       46
<PAGE>

<TABLE>

                                                Bando McGlocklin Capital Corporation
                                               Statements of Operations (Parent Only)
<CAPTION>

                                                                      For the Years Ended

                                                                December 31,                        June 30,
                                                       1998                   1997                  1996
                                                       ----                   ----                  ----
<S>                                                  <C>                   <C>                    <C>  
Revenues:
Interest on loans                                    $  712,120            $  551,793             $1,071,037
Equity in income of BMSBLC                            4,333,785             4,791,300              4,792,902
Equity in income of other subsidiaries                  901,856               798,482                146,110
Other income                                            194,400               881,967                168,762
                                                     ----------            ----------             ----------
   Total revenues                                     6,142,161             7,023,542              6,178,811
                                                     ----------            ----------             ----------
Expenses:
Interest expense                                        328,920               157,419                 72,102
Salaries and employee benefits                          118,917               916,574              1,081,106
Other operating expenses                                553,009             1,156,849                609,311
                                                     ----------            ----------             ----------
   Total expenses                                     1,000,846             2,230,842              1,762,519
                                                     ----------            ----------             ----------
Net income                                            5,141,315             4,792,700              4,416,292
Preferred stock dividends                             1,362,659             1,286,320              1,286,320
                                                     ----------            ----------             ----------
Net income available for common
 shareholders                                        $3,778,656            $3,506,380             $3,129,972
                                                     ==========            ==========             ==========
<CAPTION>

                                                                          For the Six Months Ended
                                                                                December 31,

                                                                     1996                          1995
                                                                     ----                        (Unaudited)
<S>                                                                <C>                           <C> 
Revenues:
Interest on loans                                                  $  477,729                    $  613,782
Equity in income of BMSBLC                                          2,018,071                     2,615,094
Equity in income of other subsidiaries                                425,944                        47,879
Other income                                                           23,051                        64,055
                                                                   ----------                    ----------
   Total revenues                                                   2,944,795                     3,340,810
                                                                   ----------                    ----------
Expenses:
Interest expense                                                       24,748                        48,628
Salaries and employee benefits                                        601,361                       510,368
Other operating expenses                                              533,566                       290,303
                                                                   ----------                    ----------
   Total expenses                                                   1,159,675                       849,299
                                                                   ----------                    ----------
Net income                                                          1,785,120                     2,491,511
Preferred stock dividends                                             643,160                       643,160
                                                                   ----------                    ----------
Net income available for common shareholders                       $1,141,960                    $1,848,351
                                                                   ==========                    ==========

</TABLE>

                                                                 47
<PAGE>

<TABLE>

                                                Bando McGlocklin Capital Corporation
                                               Statements of Cash Flows (Parent Only)
<CAPTION>

                                                                    For the Twelve                   For the Twelve
                                                                        Months                           Months
                                                                  Ended December 31,                 Ended June 30,
                                                              1998                 1997                  1996
                                                              ----                 ----                  ---- 
<S>                                                       <C>                   <C>                     <C> 
Cash Flows from Operating Activities:
  Net income                                              $ 5,141,315           $4,792,700              $4,416,292
Adjustments to reconcile net income to net
 cash  provided by operating activities:
   Equity in subsidiaries' earnings                        (5,226,622)          (5,693,211)             (4,939,012)
   Dividends from subsidiaries                              5,344,251            2,846,038               4,677,698
   Other                                                     (376,356)            (162,070)                 53,794
                                                          -----------           ----------              ----------
Net Cash Provided by Operations                             4,882,588            1,783,457               4,208,772
                                                          -----------           ----------              ----------
Cash Flows from Investing Activities:
   Loans made to related party                             (5,000,000)                  --              (2,951,633)
   Principal collected on loans                             1,401,572            6,226,917               1,658,743
   Loans sold                                                      --                   --              11,173,648
   Certificate purchased from trust                                --                   --              (1,213,315)
   Loans purchased                                                 --                   --              (4,767,544)
   Proceeds from maturity of securities                      (664,104)                  --                      --
   Increase in note receivable from subsidiary                     --                   --                (543,689)
   Other                                                           --             (235,290)                110,291
                                                          -----------           ----------              ----------
Net Cash (Used) Provided by Investing
 Activities                                                (4,262,532)           5,991,627               3,466,501
                                                          -----------           ----------              ----------
Cash flows from Financing Activities:
   Proceeds from loan participations with                                                                        
    Repurchase options - net                               (1,600,000)           1,600,000                      --
   Increase in other notes payable                          5,000,000                   --                      --
   Capitalization & distribution of
    InvestorsBank                                                  --           (6,160,000)                     --
   Preferred stock dividends paid                          (1,362,659)          (1,286,320)             (1,286,320)
   Common stock dividends paid                             (2,656,153)          (1,990,055)             (3,678,476)
   Repurchase of common stock                                      --             (589,898)             (2,696,363)
   Common stock investment in subsidiaries                         --                   --                      --
   Other                                                           --              336,674                 110,760
                                                          -----------           ----------              ----------
Net Cash Provided (Used) in Financing
 Activities                                                  (618,812)          (8,089,599)             (7,550,399)
                                                          -----------           ----------              ----------
Net increase (decrease) in cash                                 1,244             (314,515)                124,874
Cash, beginning of year                                        27,210              341,725                 103,379
                                                          -----------           ----------              ----------
Cash, end of year                                         $    28,454           $   27,210              $  228,253
                                                          ===========           ==========              ==========
</TABLE>

                                                                 48
<PAGE>

<TABLE>

                                                Bando McGlocklin Capital Corporation
                                           Statements Cash Flows - continued (Parent Only)
<CAPTION>

                                                                         For the Six Months Ended
                                                                               December 31,

                                                                     1996                        1995
                                                                     ----                        ----
                                                                                              (Unaudited)
<S>                                                              <C>                         <C> 
Cash Flows from Operating Activities:
  Net income                                                     $ 1,785,120                 $ 2,491,511
  Other adjustments to reconcile net income to
    net cash (used) by operating activities:
      Equity in subsidiaries' earnings                            (2,444,015)                 (2,662,973)
      Dividends from subsidiaries                                  3,857,425                   2,418,731
      Other                                                          439,316                     812,901
                                                                 -----------                 -----------
Net Cash Provided by Operations                                    3,637,846                   3,060,170
                                                                 -----------                 -----------
Cash Flows from Investing Activities:
      Loans made                                                  (5,269,882)                   (630,149)
      Principal collected on loans                                   631,872                     233,092
      Loans sold                                                   4,340,001                   8,666,538
      Certificate purchased from trust                                    --                  (1,213,315)
      Loans purchased                                                     --                  (4,767,544)
      Proceeds from maturity of securities                                --                     250,000
      Decrease (increase) in note receivable                       1,087,443                  (1,054,120)
        from subsidiary
      Other                                                               --                     (27,040)
                                                                 -----------                 -----------
Net Cash Provided by Investing Activities                            789,434                   1,457,462
                                                                 -----------                 -----------
Cash Flows from Financing Activities:
      Preferred stock dividends paid                                (643,160)                   (643,160)
      Common stock dividends paid                                 (3,670,648)                 (1,876,173)
      Repurchase of common stock                                          --                  (1,234,045)
      Other                                                               --                     110,760
                                                                 -----------                 -----------
Net Cash Used in Financing Activities                             (4,313,808)                 (3,642,618)
                                                                 -----------                 -----------
Net increase in cash                                                 113,472                     875,014
Cash, beginning of period                                            228,253                     103,379
                                                                 -----------                 -----------
Cash, end of period                                              $   341,725                 $   978,393
                                                                 ===========                 ===========

</TABLE>


                                                                 49
<PAGE>


Schedule I
Condensed Financial Information of Registrant
(Refer to footnote 20 of the financial statements)


Schedule II
Valuation and Qualifying Accounts


<TABLE>

         Changes in the reserves deducted from assets in the consolidated balance sheet other than accumulated  depreciation for the
years ended  December 31, 1998 and 1997 and June 30,  1996,  respectively  and for the six months ended  December 31, 1996 and 1995,
respectively.

<CAPTION>

Reserve for loan losses:                  Beginning          Additions         Charges for        Ending balance
                                          balance            charged           purposes for       --------------
                                          -------            to Income         which reserve
                                                             ---------         was created
Year ended:                                                                    -----------
<S>                                      <C>                 <C>                <C>                    <C>
  December 31, 1998                      $450,000            $     --           $ 450,000              $     --
  December 31, 1997                       450,000               6,335               6,335               450,000
  June 30, 1996                            51,943             (10,501)              2,651                38,791
Six months ended:
  December 31, 1996                        38,791             411,209                  --               450,000
  December 31, 1995(1)                     51,943             (10,501)                 --                41,442

<CAPTION>
Reserve for doubtful                      Beginning          Additions         Charges for        Ending balance
accounts:                                 balance            charged           purposes for       --------------
                                          -------            to Income         which reserve
                                                             ---------         was created
Year ended:                                                                    -----------
<S>                                      <C>                 <C>                <C>                    <C>
  December 31, 1998                      $268,796            $274,561           $      --              $543,357
  December 31, 1997                        98,083             170,713                  --               268,796
  June 30, 1996                             2,450              58,377                  --                60,827
Six months ended:
  December 31, 1996                        60,827              37,256                  --                98,083
  December 31, 1995(1)(2)                   2,450                  --                  --                 2,450

(1) Unaudited.
(2) These periods include only License Products reserve for doubtful accounts.


</TABLE>


                                                                 50
<PAGE>

<TABLE>

Schedule IV
Mortgage Loans on real estate
<CAPTION>

                                                                                                                        Principal
                                                                                                                        amount of
                                                                                                                         loans
                                                                                                        Carrying         subject
                                                                                                        Amount of          to
                                                                                            Face       Mortgages as     delinquent
                                                                     Periodic              Amount          of           Principal
  Description          Interest Rate             Final               Payment       Prior     of         December 31,       or
  -----------          -------------          Maturity Date          Terms         Liens   Mortgages      1998          Interest(1)
                                                -------------         -----        -----   ---------      ----          --------
<S>                    <C>                  <C>                      <C>            <C>     <C>         <C>             <C>
Residential
  1st Mortgage           10.99%               06/01/27                 N/A          N/A       N/A       $     68,563

Commercial
  1st Mortgage         6.375% to 12.00%      02/01/99 to 01/01/16      N/A          N/A       N/A       $ 95,187,657      $309,383
  2nd Mortgage         7.750% to 12.00%      02/01/99 to 09/01/07      N/A          N/A       N/A          4,295,581        62,227
  3rd Mortgage         7.750% to 12.00%      02/01/99 to 11/01/07      N/A          N/A       N/A            285,660        65,049
  Construction         7.00% to 8.50%        06/30/99 to 11/01/08      N/A          N/A       N/A          6,280,896
                                                                                                         -----------
Total Commercial                                                                                         106,049,794

All others(2)             N/A                      N/A                 N/A          N/A       N/A         10,263,581       302,087
                                                                                                         ------------

Total loans(3)                                                                                          $116,381,938
                                                                                                        ============

Footnotes to Schedule IV:

(1)  Delinquent  is  defined  as 90 days or more  past  due.
(2) This  category includes all non-mortgage loans on the balance sheet.
(3) No individual mortgage loan exceeded 3% of the total carrying value of mortgages.

</TABLE>

<TABLE>

Reconciliation of Loans on the Balance Sheet
<CAPTION>

                                                    12/31/97          12/31/96         06/30/95          06/30/96         06/30/95
                                                       to                to               to                to               to
                                                    12/31/98          12/31/97         06/30/96          12/31/96         12/31/95
                                                                                                                        (Unaudited)
                                               -------------------------------------------------------------------------------------
<S>                                                <C>               <C>              <C>               <C>              <C> 
Loans on balance sheet,                            $131,035,245      $71,456,347      $86,571,594       $76,468,459      $86,571,594
  Beginning of period(1)
  Additions during period:
         Loans made                                  79,143,575       53,759,887       42,745,527        23,729,026       23,003,932
         Loans purchased                                     --       49,647,182               --                --               --
         Certificate purchased from trust                    --               --        1,213,315                --        1,213,315

  Deductions during period:
         Principal collected on loans                93,795,013       43,821,836       23,881,211        13,600,355       14,094,074
         Loans sold                                                           --       28,087,037        15,140,783       15,400,490
         Principal charged off                            1,869            6,335            2,651                --               --
         Consolidation of Middleton Doll                     --               --        2,091,078                --               --
                                               ----------------- ---------------- ---------------- ----------------- ---------------
Loans on balance sheet, end of period(1)           $116,381,938     $131,035,245      $76,468,459       $71,456,347      $81,294,277
                                               ================= ================ ================ ================= ===============

(1) Loans on balance sheet includes Loan-backed certificates where applicable.

</TABLE>


                                       51
<PAGE>

                                    Part III

Item 9.  Changes in and  Disagreements  with  Accountants  on Accounting  and
         Financial Disclosure

         Not Applicable.

Item 10. Directors and Executive Officers of the Registrant

         Pursuant to Instruction G, the information  required by this item (with
respect to directors of the registrant) is incorporated herein by reference from
the Company's  definitive  Proxy Statement  involving the election of directors.
The  information  with  respect to  executive  officers  of the Company has been
included in Part I hereof. The definitive proxy statement will be filed with the
Securities  and  Exchange  Commission  within  120  days  after  the  end of the
Company's fiscal year.

Item 11. Executive Compensation

         Pursuant to Instruction G, information  required by this item is hereby
incorporated by reference from the Company's  definitive proxy statement for its
1999   annual   meeting   of   shareholders   under   the   caption   "Board  of
Directors-Director   Compensation"  and  "Executive   Compensation";   provided,
however,  that  the  subsection  entitled  "Executive   Compensation-Report   on
Executive  Compensation"  shall  not be  deemed  to be  incorporated  herein  by
reference.  The definitive proxy statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the Company's fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Pursuant to Instruction G, information  required by this item is hereby
incorporated by reference from the Company's  definitive proxy statement for its
1999 annual meeting of shareholders under the caption "Principal  Shareholders".
The  definitive  proxy  statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's fiscal year.

Item 13. Certain Relationships and Related Transactions

         Pursuant to Instruction G, information  required by this item is hereby
incorporated by reference from the Company's  definitive proxy statement for its
1999  annual  meeting  of   shareholders   under  the  caption   "Related  Party
Transactions".  The definitive proxy statement will be filed with the Securities
and  Exchange  Commission  with 120 days after the end of the  Company's  fiscal
year.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         1. Exhibits

         Reference is made to the separate  exhibit index contained on pages I-1
through I-2 hereof.

         2. Financial Statements and Financial Statement Schedules

         Reference is made to the separate index in Item 8 of this Annual Report
on Form 10-K with  respect  to the  financial  statements  and  schedules  filed
herewith.

         3. Reports on Form 8-K

         None.



                                       52
<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 30, 1999.

                                        BANDO McGLOCKLIN CAPITAL 
                                        CORPORATION


                                       By:/s/ George R. Schonath
                                       George R. Schonath,
                                       President and Chief Executive Officer

         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities indicated on March 30, 1999.

         Signature                              Title


/s/  George R. Schonath                President and Chief Executive Officer
George R. Schonath                     (Principal Financial Officer)


/s/  Susan J. Hauke                    Vice President Finance
Susan J. Hauke                         (Principal Accounting Officer)


/s/  Robert A. Cooper                  Director
Robert A. Cooper


/s/  Peter A. Fischer                  Director
Peter A. Fischer


/s/  David A. Geraldson, Sr.           Director
David A. Geraldson, Sr.


/s/  Albert O. Nicholas                Director
Albert O. Nicholas


                                       53
<PAGE>


                                INDEX TO EXHIBITS

Exhibit No.                 Exhibit Description

3.1      Articles of  Incorporation,  as amended  (incorporated  by reference to
         Exhibit 3.1 to the Company's  Form 10-Q for the quarterly  period ended
         March 31, 1997).

3.2      By-laws (incorporated by reference to Exhibit 3.2 to the Company's Form
         10-Q for the quarterly period ended March 31, 1997).

4.1      Loan and  Security  Agreement,  dated  March 11,  1998,  by and between
         Firstar  Bank  Milwaukee  and  Bando  McGlocklin  Capital   Corporation
         (incorporated  by reference to Exhibit 4.1 to the  Company's  Form 10-K
         for the fiscal year ended December 31, 1997).

4.2      Amended and Restated Loan  Agreement  dated as of June 28, 1996 between
         First  Bank  (N.A.)  and Bando  McGlocklin  Small  Business  Investment
         Corporation  (incorporated by reference to Exhibit 4.1 to the Company's
         Form 10-Q for the quarterly period ended March 31, 1997).

4.3      Modification  Agreement dated as of October 31, 1996 between First Bank
         (N.A.)  and Bando  McGlocklin  Small  Business  Investment  Corporation
         (incorporated  by reference to Exhibit 4.1 to the  Company's  Form 10-Q
         for the quarterly period ended March 31, 1997).

4.4      Loan Agreement dated as of June 28, 1996 between LaSalle  National Bank
         and   Bando   McGlocklin   Small   Business   Investment    Corporation
         (incorporated  by reference to Exhibit 4.2 to the  Company's  Form 10-Q
         for the quarterly period ended March 31, 1997).

4.5      First  Amendment  to Loan  Documents  dated as of  December  2, 1996 by
         LaSalle National Bank and Bando  McGlocklin  (incorporated by reference
         to Exhibit  4.3 to the  Company's  Form 10-Q for the  quarterly  period
         ended March 31, 1997).

4.6      First  Amendment to Amended and  Restated  Loan  Agreement  dated as of
         October  31,  1996  between  Firstar  Bank  Milwaukee,  N.A.  and Bando
         McGlocklin  Small  Business  Investment  Corporation  (incorporated  by
         reference to Exhibit 4.4 to the  Company's  Form 10-Q for the quarterly
         period ended March 31, 1997).

4.7      First  Amendment to Amended and  Restated  Loan  Agreement  dated as of
         October  31,  1996  between  Firstar  Bank  Milwaukee,  N.A.  and Bando
         McGlocklin  Small  Business  Investment  Corporation  (incorporated  by
         reference to Exhibit 4.5 to the  Company's  Form 10-Q for the quarterly
         period ended March 31, 1997).

4.8      Second Amendment to Amended and Restated Loan Agreement dated as of May
         14, 1997 between  Firstar  Bank  Milwaukee,  N.A. and Bando  McGlocklin
         Small Business  Investment  Corporation  (incorporated  by reference to
         Exhibit 4.6 to the Company's  Form 10-Q for the quarterly  period ended
         March 31, 1997).

4.9      Master Note Purchase  Agreement dated as of January 1, 1997 between the
         State of Wisconsin  Investment  Board,  Bando McGlocklin Small Business
         Lending   Corporation   and  Bando   McGlocklin   Capital   Corporation
         (incorporated  by reference to Exhibit 4.7 to the  Company's  Form 10-Q
         for the quarterly period ended March 31, 1997).

10.1     Bando McGlocklin  Capital  Corporation 1987 Incentive Stock Option Plan
         (incorporated  by  reference to Exhibit 7.3 to the  Company's  Form N-5
         Registration Statement, Registration No. 33-12939).


                                       54
<PAGE>

10.2     Bando McGlocklin  Capital  Corporation 1990 Incentive Stock Option Plan
         (incorporated  by  reference to Exhibit 7.4 to the  Company's  Form N-5
         Registration Statement, Registration No. 33-51406).

10.3     Bando McGlocklin  Capital  Corporation 1993 Incentive Stock Option Plan
         (incorporated   by  reference  to  Exhibit   (i)(6)  to  the  Company's
         Pre-Effective  Amendment  No.  1 to Form  N-2  Registration  Statement,
         Registration No. 33-66258).

10.4     Bando   McGlocklin   Capital   Corporation   1997  Stock   Option  Plan
         (incorporated  by reference to Exhibit 10.4 to the Company's  Form 10-Q
         for the quarterly period ended march 31, 1997).

10.5     Management  Services  and  Allocation  of  Expenses  Agreement,   dated
         September 2, 1997, by and between  InvestorsBank  and Bando  McGlocklin
         Capital  Corporation  (incorporated by reference to Exhibit 10.5 to the
         Company's Form 10-K for the fiscal year ended December 31, 1997).

21       List of subsidiaries of Bando McGlocklin Capital Corporation

27       Financial Data Schedule (with EDGAR filing only)

99       Proxy Statement for 1999 Annual Meeting of Shareholders

         The Proxy Statement for the 1999 Annual Meeting of Shareholders will be
         filed with the Securities and Exchange  Commission under Regulation 14A
         within 120 days after the end of the Company's  fiscal year;  except to
         the extent incorporated by reference,  the Proxy Statement for the 1999
         Annual Meeting of Shareholders shall not be deemed to be filed with the
         Securities  and Exchange  Commission  as part of this Annual  Report on
         Form 10-K.