SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                    FORM 10-Q


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

     For the quarterly period ended June 30, 1998

                                       OR

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

     For the transition period from _________ to _________

                         Commission File Number 0-26574

                           DAMEN FINANCIAL CORPORATION
                           ---------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                                  36-4029638
----------------------------                                     ---------------
(State or other jurisdiction                                     I.R.S. Employer
    of incorporation or                                           Identification
       organization)                                                  Number


200 West Higgins Road, Schaumburg, Illinois                           60195
-------------------------------------------                        ----------
(Address of Principal executive offices)                           (Zip Code)

Registrant telephone number, including area code:                 (847) 882-5320
                                                                  --------------

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.  Yes  X    No
             -----    -----

     As of August  10,  1998  there were  2,967,154  shares of the  Registrant's
common stock issued and outstanding.

     Transitional Small Business Disclosure Format(check one): Yes      No   X
                                                                  -----    -----
<PAGE>

                          DAMEN FINANCIAL CORPORATION

                                    FORM 10-Q

                                TABLE OF CONTENTS


Part I.  FINANCIAL INFORMATION                                              PAGE
                                                                            ----
     Item 1.  Financial Statements

              Consolidated Statements of Financial Condition at
              June 30, 1998 (Unaudited) and September 30, 1997                4

              Consolidated Statements of Earnings for the three
              and nine months ended June 30, 1998 and 1997 (unaudited)        5

              Consolidated Statement of Changes in
              Stockholders' Equity for the nine months
              ended June 30, 1998 (unaudited)                                 6

              Consolidated Statements of Cash Flows for the nine
              months ended June 30, 1998 and 1997 (unaudited)                 7

              Notes to Unaudited Consolidated Financial Statements           8-9

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                          10-14


Part II. OTHER INFORMATION                                                   15

     Signatures                                                              16

     Index to Exhibits                                                       17

     Earnings Per Share Analysis (Exhibit 11)                                18

     Financial Data Schedule (Exhibit 27)                                    19


                                       -2-

<PAGE>








                         PART I - FINANCIAL INFORMATION









                                       -3-

<PAGE>

                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

<TABLE>
<CAPTION>
                                                               June 30,     September 30,
                                                                 1998            1997
                                                           -------------    -------------
                                                             (unaudited)
Assets
------
<S>                                                         <C>              <C>    
Cash and amounts due from depository institutions ........  $    559,610         500,455
Interest-bearing deposits ................................       268,636       1,590,529
                                                            ------------     -----------
   Total cash and cash equivalents .......................       828,246       2,090,984
Investment securities (fair value: $1,767,700 at
  June 30, 1998 and $1,845,400 at September 30, 1997) ....     1,767,679       1,845,383
Investment securities, available for sale, at fair value .    43,444,652      35,874,298
Mortgage-backed securities (fair value: $19,448,200 at
  June 30, 1998 and $27,548,700 at September 30, 1997) ...    19,535,414      27,869,570
Mortgage-backed securities, available for sale,
  at fair value ..........................................    51,644,861      56,740,190
Loans receivable (net of allowance for loan
  losses: $410,000 at June 30, 1998 and $332,000
  at September 30, 1997) .................................   106,663,928      97,244,031
Foreclosed real estate ...................................            --          79,000
Stock in Federal Home Loan Bank of Chicago
  and Federal Reserve Bank of Chicago ....................     3,620,650       3,698,500
Accrued interest receivable ..............................     1,647,191       1,551,284
Office properties and equipment - net ....................     3,435,475       3,473,326
Prepaid expenses and other assets ........................       597,167         642,654
                                                            ------------     -----------
   Total assets ..........................................   233,185,263     231,109,220
                                                            ============     ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits .................................................   122,454,440     125,746,001
Borrowed money ...........................................    59,500,000      56,500,000
Advance payments by borrowers for taxes and insurance ....     1,802,686         722,141
Other liabilities ........................................     2,024,427       2,202,115
                                                            ------------     -----------
   Total liabilities .....................................   185,781,553     185,170,257
                                                            ------------     -----------
Stockholders' Equity
--------------------
Preferred stock, $.01 par value; authorized
  100,000 shares; none outstanding .......................            --              --
Common stock, $.01 par value; authorized
  4,500,000 shares;  3,981,434 shares issued and
  3,123,154 shares outstanding at June 30, 1998
  and 3,967,500 shares issued and 3,109,220 shares
  outstanding at September 30, 1997 ......................        39,814          39,675
Additional paid-in capital ...............................    38,809,643      38,452,948
Retained earnings, substantially restricted ..............    22,775,229      22,100,190
Unrealized gain on securities available for sale,
  net of income taxes ....................................     1,376,960       1,382,560
Treasury stock, at cost (858,280 shares at June 30, 1998
  and September 30, 1997) ................................   (12,117,799)    (12,117,799)
Common stock acquired by Employee Stock Ownership Plan ...    (2,392,100)     (2,550,800)
Common stock awarded by Recognition and Retention Plan ...    (1,088,037)     (1,367,811)
                                                            ------------     -----------
   Total stockholders' equity ............................    47,403,710      45,938,963
                                                            ------------     -----------
   Total liabilities and stockholders' equity ............  $233,185,263     231,109,220
                                                            ============     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       -4-

<PAGE>
                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                       Consolidated Statements of Earnings

<TABLE>
<CAPTION>
                                             Three Months Ended        Nine Months Ended
                                                  June 30,                  June 30,
                                           ----------------------   -----------------------
                                              1998         1997        1998         1997
                                           ----------   ---------   ----------   ----------
                                                 (unaudited)              (unaudited)
<S>                                        <C>          <C>         <C>          <C>      
Interest income:
  Loans ................................   $2,099,866   1,929,330    6,213,353    5,664,971
  Mortgage-backed securities ...........    1,281,042   1,505,616    4,092,261    4,580,693
  Tax-exempt securities ................      328,353     322,718    1,001,257    1,075,212
  Interest and dividends on
    other investments ..................      377,154     264,356    1,027,455      902,477
  Dividends on FHLB and FRB stock ......       58,775      61,210      182,857      170,856
                                           ----------   ---------   ----------   ----------
      Total interest income ............    4,145,190   4,083,230   12,517,183   12,394,209
                                           ----------   ---------   ----------   ----------
Interest expense:
  Deposits .............................    1,581,535   1,526,802    4,836,492    4,560,965
  Borrowings ...........................      904,787     934,425    2,731,071    2,744,165
                                           ----------   ---------   ----------   ----------
      Total interest expense ...........    2,486,322   2,461,227    7,567,563    7,305,130
                                           ----------   ---------   ----------   ----------
      Net interest income before
        provision for loan losses ......    1,658,868   1,622,003    4,949,620    5,089,079
Provision for loan losses ..............       41,751      30,000       80,921       36,618
                                           ----------   ---------   ----------   ----------
      Net interest income after
        provision for loan losses ......    1,617,117   1,592,003    4,868,699    5,052,461
                                           ----------   ---------   ----------   ----------
Non-interest income:
  Loan fees and service charges ........       53,360       5,947      132,958       36,327
  Gain (loss) on sale of:
    Mortgage-backed securities,
      available for sale ...............           --          --           --      (17,365)
    Investment securities,
      available for sale ...............      109,922          --      384,557      157,083
  Other income .........................       56,734      17,597      132,598       54,435
                                           ----------   ---------   ----------   ----------
      Total non-interest income ........      220,016      23,544      650,113      230,480
                                           ----------   ---------   ----------   ----------
Non-interest expense:
  Compensation, employee benefits, and
    related expenses ...................      711,672     659,260    2,066,578    2,023,332
  Advertising and promotion ............       75,393     175,134      258,099      394,993
  Occupancy and equipment expense ......      184,719     206,325      540,177      601,996
  Data processing ......................       54,052      28,683      119,674       91,399
  Insurance expense ....................       19,460      17,313       55,986       51,939
  Federal insurance premiums ...........       19,727      19,382       58,563       95,824
  Legal, audit, and examination services      122,290      64,599      332,528      216,636
  Other operating expenses .............       94,172      88,801      270,962      268,138
                                           ----------   ---------   ----------   ----------
      Total non-interest expense .......    1,281,485   1,259,497    3,702,567    3,744,257
                                           ----------   ---------   ----------   ----------
Net income before income taxes .........      555,648     356,050    1,816,245    1,538,684
Provision for federal and state
  income taxes .........................       93,320      64,546      337,182      296,547
                                           ----------   ---------   ----------   ----------
      Net income .......................   $  462,328     291,504    1,479,063    1,242,137
                                           ==========   =========   ==========   ==========
Earnings per share--basic ..............         $.16         .10          .51          .37
                                                 ----        ----         ----         ----
Earnings per share--diluted ............          .15         .10          .49          .37
                                                 ----        ----         ----         ----

Dividends declared per common share ....         $.12         .06          .28          .18
                                                 ----        ----         ----         ----
</TABLE>

See accompanying notes to consolidated financial statements.


                                       -5-
<PAGE>

                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES

            Consolidated Statement of Changes in Stockholders' Equity

                         Nine Months Ended June 30, 1998

                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Unrealized
                                                                       Gain on                    Common       Common
                                              Additional             Securities                   Stock        Stock
                                      Common    Paid-In    Retained   Available    Treasury      Acquired     Awarded
                                      Stock     Capital    Earnings   For Sale       Stock       by ESOP       by RRP       Total
                                     -------  ----------  ---------- ----------  ------------  -----------  -----------  ----------
<S>                                  <C>      <C>         <C>         <C>        <C>           <C>          <C>          <C>       
Balance at September 30, 1997 ...... $39,675  38,452,948  22,100,190  1,382,560  (12,117,799)  (2,550,800)  (1,367,811)  45,938,963

  Additions (deductions) for the
    period ended June 30, 1998:

    Net income .....................                       1,479,063                                                      1,479,063

    Adjustment of securities
      to fair value,
      net of tax effect ............                                     (5,600)                                             (5,600)

    Tax benefit related to
      employee stock plans .........              83,730                                                                     83,730

    Exercise of stock
      options (13,934 shares) ......     139     161,844                                                                    161,983

    Amortization of award
      of RRP stock .................                                                                           279,774      279,774

    Contribution to fund ESOP loan .             111,121                                          158,700                   269,821

    Dividends declared on
      common stock .................                        (804,024)                                                      (804,024)
                                     -------  ----------  ----------  ---------  -----------   ----------   ----------   ----------
Balance at June 30, 1998 ........... $39,814  38,809,643  22,775,229  1,376,960  (12,117,799)  (2,392,100)  (1,088,037)  47,403,710
                                     =======  ==========  ==========  =========  ===========   ==========   ==========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -6-

<PAGE>

                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                           June 30,
                                                                  --------------------------
                                                                      1998           1997
                                                                  ------------   -----------
                                                                          (unaudited)
<S>                                                               <C>            <C>      
Cash flows from operating activities:
  Net income ..................................................   $  1,479,063     1,242,137
  Adjustments to reconcile net income to
   net cash from operating activities:
     Depreciation .............................................        178,797       149,516
     Amortization of cost of stock benefit plans ..............        549,595       521,932
     Provision for loan losses ................................         80,921        36,618
     Decrease in deferred loan income .........................       (259,565)     (233,591)
     (Increase) decrease in prepaid and deferred federal
       and state income taxes .................................        241,321      (107,018)
     (Gain) loss on sale of mortgage-backed securities,
       available for sale .....................................             --        17,365
     Gain on sale of investment securities, available for sale        (384,557)     (157,083)
     (Increase) decrease in accrued interest receivable .......        (95,907)      254,932
     Increase (decrease) in accrued interest payable ..........         41,900       (19,000)
     (Increase) decrease in other assets ......................        (45,626)       33,066
     Decrease in other liabilities ............................       (317,311)     (698,800)
                                                                  ------------   -----------
Net cash provided by operating activities .....................      1,468,631     1,040,074
                                                                  ------------   -----------
Cash flows from investing activities:
     Purchase of investment securities, available for sale ....    (15,344,351)   (3,826,592)
     Purchase of investment securities ........................        (49,324)     (172,481)
     Purchase of mortgage-backed securities, available for sale     (7,039,146)   (8,173,518)
     Proceeds from sales of investment securities,
       available for sale .....................................      2,141,049     9,472,341
     Proceeds from sales of mortgage-backed securities,
       available for sale .....................................             --     1,816,256
     Proceeds from maturities of investment securities,
       available for sale .....................................      5,999,505     4,194,823
     Proceeds from maturities of investment securities ........        127,028        98,709
     Proceeds from maturities of mortgage-backed securities,
       available for sale .....................................     12,142,475     5,550,749
     Proceeds from maturities of mortgage-backed securities ...      8,334,156     4,545,871
     Proceeds from redemption of Federal Home Loan Bank stock .        305,000        55,500
     Purchase of Federal Home Loan Bank and
       Federal Reserve Bank stock .............................       (227,150)     (643,500)
     Disbursements for loans originated and purchased .........    (24,908,455)  (17,222,091)
     Loan repayments ..........................................     15,746,202    13,313,988
     Property and equipment expenditures ......................       (140,946)     (144,883)
                                                                  ------------   -----------
Net cash provided by (for) investing activities ...............     (2,913,957)    8,865,172
                                                                  ------------   -----------
Cash flows from financing activities:
     Proceeds from exercise of stock options ..................        161,983            --
     Deposit receipts .........................................     55,974,121    57,039,136
     Deposit withdrawals ......................................    (62,579,853)  (59,012,786)
     Interest credited to deposit accounts ....................      3,314,171     3,325,991
     Proceeds from borrowed money .............................     41,200,000   139,700,000
     Repayment of borrowed money ..............................    (38,200,000) (140,800,000)
     Increase in advance payments by borrowers
       for taxes and insurance ................................      1,080,545     1,078,385
     Purchase of treasury stock ...............................             --    (8,103,611)
     Dividends paid on common stock ...........................       (768,379)     (815,132)
                                                                  ------------   -----------
Net cash provided by (for) financing activities ...............        182,588    (7,588,017)
                                                                  ------------   -----------
Increase (decrease) in cash and cash equivalents ..............     (1,262,738)    2,317,229
Cash and cash equivalents at beginning of period ..............      2,090,984     1,181,231
                                                                  ------------   -----------
Cash and cash equivalents at end of period ....................   $    828,246     3,498,460
                                                                  ============   ===========
Cash paid during the period for:
     Interest .................................................   $  7,525,663     7,324,130
     Income taxes .............................................        242,388       350,142
                                                                  ============   ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       -7-

<PAGE>

                           Damen Financial Corporation
                                and Subsidiaries


Notes to Consolidated Financial Statements
------------------------------------------

1.   Statement of Information Furnished

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with Form 10-Q  instructions and Article 10 of Regulation
S-X, and in the opinion of management contains all adjustments (all of which are
normal and  recurring  in nature)  necessary  to  present  fairly the  financial
position as of June 30, 1998,  the results of operations  for the three and nine
months  ended June 30,  1998 and 1997 and cash flows for the nine  months  ended
June 30,  1998 and 1997.  These  results  have been  determined  on the basis of
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 disclosures 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.  The attached  consolidated  statements are those of Damen  Financial
Corporation  (the "Holding  Company") and its  consolidated  subsidiaries  Damen
National Bank (the"Bank") and Dasch Inc. The results of operations for the three
and nine month periods ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year.


2.   Mutual to Stock Conversion

     In April 1995, the Bank's Board of Directors  approved a Plan of Conversion
(the  "Conversion"),  providing  for  the  Bank's  conversion  from a  federally
chartered  mutual  bank for  savings  to a  federally  chartered  stock bank for
savings with the concurrent  formation of a holding company. The Holding Company
issued  3,967,500 shares of $.01 par value common stock at $10.00 per share, for
an aggregate purchase price of $39,675,000. The Conversion and sale of 3,967,500
shares of common stock of the Holding  Company was  completed  on September  29,
1995.  Net  proceeds  to  the  Company,   after  conversion  expenses,   totaled
approximately $38,320,000.

3.   Earnings Per Share

     Earnings per share for the three and nine month periods ended June 30, 1998
and 1997 were  determined by dividing net income for the periods by the weighted
average number of both basic and diluted shares of common stock and common stock
equivalents outstanding (see Exhibit 11 attached). Stock options are regarded as
common stock  equivalents and are therefore  considered in diluted  earnings per
share  calculations.  Common stock  equivalents  are computed using the treasury
stock method.  ESOP shares not committed to be released to participants  are not
considered  outstanding  for purposes of computing  earnings per share  amounts.
Earnings per share data for the three and nine month periods ended June 30, 1997
have been restated for  comparative  purposes to reflect the  implementation  of
Statement of Financial Accounting Standards No. 128.


                                       -8-

<PAGE>

4.   Impact of New Accounting Standards

     Accounting   for   Transfers   and   Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities.  In December 1996, the FASB issued Statement of
Financial Accounting Standards No. 127 ("SFAS 127"),  "Deferral of the Effective
Date of Certain  Provisions of FASB Statement No. 125". The statement delays for
one year the implementation of SFAS 125, as it relates to (1) secured borrowings
and collateral,  and (2) for the transfers of financial  assets that are part of
repurchase   agreements,   dollar-rolls,    securities   lending   and   similar
transactions.  The Company has adopted  portions of SFAS 125 (those not deferred
by SFAS 127) effective January 1, 1997.  Adoption of these portions did not have
a  significant  effect  on the  Company's  financial  condition  or  results  of
operations.  Based on its review of SFAS 125,  management  does not believe that
adoption of the  portions of SFAS 125 which have been  deferred by SFAS 127 will
have a material effect on the Company.

     Reporting  Comprehensive Income. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive Income" ("SFAS
No. 130"). This statement establishes standards for reporting and the display of
comprehensive income and its components (revenues, expenses, gains, losses) in a
full set of general-purpose financial statements.  SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Management does not believe that
adoption  of  SFAS  No.  130  will  have a  material  impact  on  the  Company's
consolidated financial condition or results of operations.

     Disclosures  about  Segments of an Enterprise and Related  Information.  In
June 1997, the FASB issued Statement of Financial  Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") which becomes  effective  for fiscal years  beginning  after  December 15,
1997.  SFAS No.  131  establishes  standards  for the way that  public  business
enterprises report information about operating segments and requires enterprises
to report selected  information  about operating  segments in interim  financial
reports.  Management  does not believe that adoption of SFAS No. 131 will have a
material impact on the Company's  consolidated financial condition or results of
operations.

     Employers'  Disclosures  about  Pension  and Other  Employee  Benefits.  In
February 1998, the FASB issued Statement of Financial  Accounting  Standards No.
132, "Employers'  Disclosures about Pensions and Other Postretirement  Benefits"
("SFAS No. 132"). SFAS No. 132 alters current disclosure  requirements regarding
pensions  and other  postretirement  benefits  in the  financial  statements  of
employers who sponsor such benefit plans.  The revised  disclosure  requirements
are designed to provide  additional  information to assist readers in evaluating
future costs related to such plans.  Additionally,  the revised  disclosures are
designed to provide  changes in the  components  of pension and benefit costs in
addition to the year end  components of those factors in the resulting  asset or
liability  related to such plans.  The  statement is effective  for fiscal years
beginning after December 15, 1997 with earlier application available. Management
does not believe  that  adoption of SFAS No. 132 will have a material  impact on
the Company's consolidated financial condition or results of operations.

     The foregoing does not constitute a  comprehensive  summary of all material
changes or  developments  affecting  the manner in which the  Company  keeps its
books and records and performs its financial accounting responsibilities.  It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.


                                       -9-

<PAGE>

                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

                               FINANCIAL CONDITION

                  June 30, 1998 compared to September 30, 1997.


Total assets  increased  $2.1 million to $233.2 million as of June 30, 1998 from
$231.1  million as of September 30, 1997.  Interest-bearing  deposits  decreased
$1.3  million to $269,000  as of June 30,  1998 as  compared to $1.6  million at
September 30, 1997.  Investment  securities  available-for-sale  increased  $7.6
million to $43.5  million at June 30, 1998 from $35.9  million at September  30,
1997 due primarily to purchases of $15.3 million  exceeding sales and maturities
of $7.7 million.  Purchases were  primarily  callable  government  agency notes.
Mortgage-backed  securities  held to maturity  decreased  $8.3  million to $19.6
million at June 30, 1998 from $27.9  million at September 30, 1997 due primarily
to  repayments.  Mortgage-backed  securities  available-for-sale  decreased $5.1
million to $51.6  million at June 30, 1998 from $56.7  million at September  30,
1997 due primarily to purchases of $7.0 million  exceeded by repayments of $12.1
million.  Loans receivable  increased $9.5 million to $106.7 million at June 30,
1998 from $97.2 million at September  30, 1997 due primarily to new  residential
loan  originations of $23.5 million and residential  construction loan purchases
of $1.4 million exceeding  repayments of $15.8 million.  Originations  increased
due to relatively attractive interest rates available.

Total  deposits  decreased  $3.3 million to $122.4 million at June 30, 1998 from
$125.7  million at September 30, 1997 due to savers  seeking  higher  returns in
alternative investments.  Federal Home Loan Bank advances increased $3.0 million
to $59.5 million at June 30, 1998 from $56.5 million at September 30, 1997.  The
additional advances were used primarily to fund loan growth.

Stockholders'  equity  increased  $1.5 million to $47.4 million at June 30, 1998
from $45.9  million at  September  30, 1997 due  primarily to net income of $1.5
million, proceeds of exercised stock options of $162,000 and reductions in stock
acquired  by the RRP and  ESOP  plans  of  $550,000,  partially  offset  by cash
dividends  paid  totaling  $804,000.  At June 30,  1998 book value per share was
$15.18,  an increase of $.40 from $14.78 at September 30, 1997.  The Company had
paid a cash  dividend of $.06 per share each quarter  starting  with the quarter
ended  September 30, 1996,  and increased the dividend to $.10 per share for the
quarter  ended  December 31, 1997,  and to $.12 per share for the quarter  ended
March 31, 1998. At June 30, 1998,  there were  3,123,154  shares of common stock
outstanding.


                              Results of Operations

The  Company's  results of  operations  depend  primarily  upon the level of net
interest income,  which is the difference  between the interest income earned on
its interest-earning assets such as loans and investments,  and the costs of the
Company's  interest-bearing  liabilities,  primarily deposits and borrowing. Net
interest  income  depends  upon  the  volume  of  interest-earning   assets  and
interest-bearing  liabilities  and the  interest  rate  earned  or paid on them,
respectively.  Results of operations  are also  dependent  upon the level of the
Company's  non-interest  income,  including fee income and service charges,  and
affected by the level of its  non-interest  expenses,  including its general and
administrative expenses.


                     Comparison of Operating Results for the
                     Quarters Ended June 30, 1998 and 1997.

Net Income.  The  Company's  net income for the three months ended June 30, 1998
was $462,000 as compared to $292,000 for the same period in 1997, an increase of
$170,000. This increase was due primarily to increases in net interest income of
$37,000, loan related fees of $47,000,  rental income of $26,000 and an increase
in gains on the sale of investments  available-for-sale  of $110,000,  partially
offset  by an  increase  in the loan loss  provision  of  $12,000,  non-interest
expense of $22,000, and income taxes of $29,000.

Interest  Income.  Total  interest  income for the  quarter  ended June 30, 1998
increased  $62,000  to $4.2  million  from  $4.1  million  a year  ago due to an
increase in average  interest-earning  assets of $4.6 million to $225.0  million
from  $220.4  million,  partially  offset by a decrease  in the yield on average
interest-earning assets to 7.37% from 7.41%.


                                      -10-

<PAGE>

Interest  Expense.  The Company's  interest  expense  increased  $25,000 for the
quarter ended June 30, 1998 compared to a year ago due to an increase in average
interest-bearing  liabilities  to $183.3  million at June 30,  1998 from  $178.4
million a year ago,  partially  offset by a decease in the average interest rate
to 5.43% from  5.52%.  The  increase  in average  interest  bearing  liabilities
resulted  from an increase in the  average  balance of savings  deposits of $6.2
million  partially offset by a decrease in the average balance of borrowed money
of $1.3 million.

Provision for Loan Losses.  The  determination  of the allowance for loan losses
involves  material  estimates that are susceptible to significant  change in the
near  term.  The  allowance  for loan  losses is  maintained  at a level  deemed
adequate  to  provide  for losses  through  charges to  operating  expense.  The
allowance  is based  upon  past loss  experience  and other  factors  which,  in
management's  judgement,  deserve current recognition in estimating losses. Such
other factors  considered by management  include  growth and  composition of the
loan  portfolio,  the  relationship  of the allowance for losses to  outstanding
loans, and economic conditions.

The  Company's  provision for loan losses was $42,000 for the quarter ended June
30,  1998  compared  to  $30,000  for  the  same  quarter  in  the  prior  year.
Non-performing loans increased to $428,000 from $184,000 at March 31, 1998.

The Company  will  continue to monitor  its  allowance  for loan losses and make
future  additions to the  allowance  through the  provisions  for loan losses in
light of its level of loans and as economic conditions dictate.  There can be no
assurance that the Company will not make future provisions in an amount equal to
or greater than the amount provided during recent periods, or that future losses
will not exceed estimated amounts.

Non-Interest  Income.  The  Company's  non-interest  income was $220,000 for the
quarter ended June 30, 1998 compared to $24,000 for the same quarter a year ago.
The  increase of $196,000  was due  primarily  to an increase of $110,000 in net
realized gains on securities  available for sale, an increase of $47,000 in loan
fees  due to  increased  lending  activity  and  increased  prepayments,  and an
increase in other  non-interest  income of $39,000 due  primarily  to  increased
rental income from previously vacant office space.

Non-Interest  Expense. The Company's  non-interest expense increased $22,000 for
the  quarter  ended June 30,  1998 due  primarily  to an  increase of $57,000 in
professional  fees, an increase of $53,000 in  compensation  and benefits and an
increase in data processing expenses of $25,000,  partially offset by a decrease
in  advertising  and promotion of $100,000 due to a decrease in loan and special
certificate  promotions  and a decrease in occupancy  and  equipment  expense of
$21,000.

Provision for Income Taxes.  Tax expense for the quarter ended June 30, 1998 was
$93,000  compared  to $65,000  for the same  quarter in 1997.  The  increase  of
$28,000 was due primarily to an increase in pre-tax income partially offset by a
lower effective tax rate caused by an increase in low-income housing tax credits
and state income tax-exempt securities.


                     Comparison of Operation Results for the
                    Nine Months Ended June 30, 1998 and 1997.

Net Income. The Company's net income for the nine months ended June 30, 1998 was
$1.5  million as  compared to $1.2  million  for the same period in 1997,  or an
increase  of  $237,000.  An  increase  in net  gains on the sale of  investments
available-for-sale of $245,000, an increase of $97,000 in loan fees, an increase
of $54,000 in rental income,  and a decrease of $42,000 in non-interest  expense
was  partially  offset by a decrease  in net  interest  income of  $139,000,  an
increase in the loan loss provision of $44,000,  and an increase in income taxes
of $40,000.

Interest  Income.  Total interest income for the nine months ended June 30, 1998
increased  $123,000 to $12.5 million from $12.4 million a year ago due primarily
to an increase in the yield on average  interest-earning assets of .08% to 7.43%
from 7.35%, partially offset by a decrease in average interest-earning assets of
$146,000.

                                      -11-

<PAGE>

Interest  Expense.  The Company's  interest expense  increased  $263,000 to $7.6
million  for the nine months  ended June 30, 1998 from $7.3  million a year ago.
The increase was due to an increase in average  interest-bearing  liabilities of
$6.1 million to $183.5  million at June 30, 1998 from $177.4 million a year ago,
as well as an increase in the average rate to 5.50% from 5.49%.  The increase in
average  interest-bearing  liabilities  resulted from an increase in the average
balance of savings  deposits of $6.6 million  partially  offset by a decrease in
the average balance of borrowed money of $500,000.

Provision for Loan Losses.  The  determination  of the allowance for loan losses
involves  material  estimates that are susceptible to significant  change in the
near  term.  The  allowance  for loan  losses is  maintained  at a level  deemed
adequate  to  provide  for losses  through  charges to  operating  expense.  The
allowance  is based  upon  past loss  experience  and other  factors  which,  in
management's  judgement,  deserve current recognition in estimating losses. Such
other factors  considered by management  include  growth and  composition of the
loan  portfolio,  the  relationship  of the allowance for losses to  outstanding
loans, and economic conditions.

The  Company's  provision  for loan losses was $81,000 for the nine months ended
June 30, 1998  compared  to $37,000 for the same period in the prior year.  This
year's provision was due primarily to an increase in mortgage loans, home equity
line of credit loans, and commercial loans.

The Company  will  continue to monitor  its  allowance  for loan losses and make
future  additions to the  allowance  through the  provisions  for loan losses in
light of its level of loans and as economic conditions dictate.  There can be no
assurance that the Company will not make future provisions in an amount equal to
or greater than the amount provided during recent periods, or that future losses
will not exceed estimated amounts.

Non-Interest  Income. The Company's  non-interest  income increased $420,000 for
the nine  months  ended June 30,  1998 to $650,000  from  $230,000  for the same
period one year ago. The  increase was due  primarily to an increase of $245,000
in net realized gains on the sale of investments available-for-sale, an increase
of $97,000 in loan  fees,  and an  increase  of  $54,000 in rental  income  from
previously vacant office space.

Non-Interest  Expense. The Company's  non-interest expense decreased $42,000 for
the nine  month's  ended June 30,  1998 from the same  period one year ago.  The
decrease  resulted  primarily  from  decreases in  advertising  and promotion of
$137,000,  occupancy and  equipment  expense of $62,000,  and federal  insurance
premiums of $37,000,  partially  offset by increases of $44,000 in  compensation
and benefits,  data  processing  expense of $29,000,  and  professional  fees of
$116,000.

Provision for Income Taxes.  Tax expense for the nine months ended June 30, 1998
increased  $40,000 to $337,000 compared to $297,000 for the comparable period in
1997. The increased expense was due to an increase in pre-tax income.


                                      -12-

<PAGE>

                         Liquidity and Capital Resources

The  Company's   principal   sources  of  funds  are  deposits  and  borrowings,
amortization and prepayments of loan principal and  mortgage-backed  securities,
maturities of investment securities and income from operations.  While scheduled
loan  repayments and maturing  investments are relatively  predictable,  deposit
flows and early loan repayments are more  influenced by interest  rates,  floors
and caps on loan rates, general economic conditions and competition. The Company
generally  manages the pricing of its deposits to be competitive and to increase
core deposit relationships, where practicable.

The Company's most liquid assets are cash and cash equivalents, which consist of
interest bearing deposits and short term highly liquid investments with original
maturities  of less than three  months  that are  readily  convertible  to known
amounts  of cash.  The  level of these  assets  is  dependent  on the  Company's
operating,  financing and investing  activities during any given period. At June
30, 1998 and September 30, 1997, cash and cash equivalents  totaled $828,000 and
$2.1 million respectively.

The primary financing activities of the Company are deposits and borrowings. For
the nine months ended June 30,  1998,  deposits  decreased  $3.3 million and the
Bank's net (proceeds less repayments) financing activity with the FHLB increased
$3.0 million.

The Company  anticipates  that it will have  sufficient  funds available to meet
current  commitments.  At  June  30,  1998  the  Company  has  outstanding  loan
commitments  totaling $3.9 million,  and unused lines of credit granted totaling
$1.3 million.

The Bank is subject to the capital  regulations of the Office of the Comptroller
of the Currency ("OCC").  The OCC's regulations  establish two capital standards
for national banks: a leverage requirement and a risk-based capital requirement.
In addition,  the OCC may, on a case-by-case basis, establish individual minimum
capital  requirements for a national bank that vary from the requirements  which
would  otherwise  apply  under OCC  regulations.  A national  bank that fails to
satisfy the capital requirements established under the OCC's regulations will be
subject to such administrative action or sanctions as the OCC deems appropriate.

The  leverage  ratio  adopted  by the OCC  requires  a minimum  ratio of "Tier 1
capital" to adjusted  total  assets of 3% for national  banks rated  composite 1
under the CAMEL rating system for banks.  National  banks not rated  composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their  operations.  For  purposes  of the OCC's  leverage
requirement,  Tier 1 capital generally consists of common  stockholders'  equity
and retained  income and certain  non-cumulative  perpetual  preferred stock and
related  income,  except  that no  intangibles  and certain  purchased  mortgage
servicing  rights and  purchased  credit card  relationships  may be included in
capital.

The risk-based capital requirements established by the OCC's regulations require
national  banks  to  maintain  "total  capital"  equal  to at  least 8% of total
risk-weighted assets. For purposes of the risk-based capital requirement, "total
capital"  means Tier 1 capital  (as  described  above)  plus  "Tier 2  capital",
provided  that the amount of Tier 2 capital  may not exceed the amount of Tier 1
capital,  less certain assets.  The components of Tier 2 capital include certain
permanent and maturing  capital  instruments that do not qualify as core capital
and general valuation loan and lease loss allowances up to a maximum of 1.25% of
risk-weighted assets.

The OCC has revised its  risk-based  capital  requirements  to permit the OCC to
require  higher  levels of capital for an  institution  in light of its interest
rate risk. In addition,  the OCC has proposed  that a bank's  interest rate risk
exposure would be quantified  using either the  measurement  system set forth in
the proposal or the institution's internal model for measuring such exposure, if
such  model  is  determined  to  be  adequate  by  the  institution's  examiner.
Management  of the  Bank has not  determined  what  effect,  if any,  the  OCC's
proposed  interest  rate  risk  component  would  have  on  the  Bank's  capital
requirement if adopted as proposed.

At June 30,  1998,  the Bank had Tier 1  capital  of $41.1  million  or 17.8% of
adjusted  total  assets  and Tier 2 capital  of $41.5  million or 45.8% of total
risk-weighted assets.

                                      -13-

<PAGE>

                              Non-Performing Assets

         The  following   table  sets  forth  the  amounts  and   categories  of
non-performing assets in the Company's portfolio. Loans are reviewed monthly and
any loan whose collectibility is doubtful is placed on non-accrual status. Loans
are placed on non-accrual  status when principal and interest is 90 days or more
past due, unless, in the judgement of management,  the loan is well collaterized
and in the process of collection. Interest accrued and unpaid at the time a loan
is placed on non-accrual  status is charged against interest income.  Subsequent
payments are either applied to the outstanding  principal balance or recorded as
interest income,  depending on the assessment of the ultimate  collectibility of
the loan. Restructured loans include troubled debt restructuring (which involved
forgiving a portion of interest or  principal  on any loans or making loans at a
rate materially less than the market rate). At June 30, 1998, the Company had no
restructured loans or foreclosed assets.

                                                      June 30,     September 30,
                                                        1998           1997
                                                      --------     -------------
                                                        (Dollars in Thousands)
Non-accruing loans:
  One-to-four family.............................      $ 350           $ 197
  Multi-family...................................         53              --
  Commercial real estate. .......................         --              --
  Consumer.......................................         25              --
                                                       -----           -----
    Total........................................        428             197
                                                       -----           -----
Foreclosed assets:
  Commercial and multi-family real estate........         --              79
                                                       -----           -----
Total non-performing assets......................      $ 428           $ 276
                                                       =====           =====
Total as a percentage of total assets............        .18%            .12%
                                                       =====           =====

For the nine months ended June 30, 1998,  gross interest income which would have
been recorded had the  non-accruing  loans been current in accordance with their
original terms amounted to $25,700.

In addition to the  non-performing  assets set forth in the table  above,  as of
June 30, 1998, there were no loans with respect to which known information about
the possible  credit problems of the borrowers or the cash flows of the security
properties  have  caused  management  to have  concerns as to the ability of the
borrowers to comply with present  loan  repayment  terms and which may result in
the future inclusion of such items in the non-performing asset categories.

Management has considered the Company's  non-performing  and "of concern" assets
in establishing its allowance for loan losses.


                     Impact of Inflation and Changing Prices

The  consolidated  financial  statements and related data presented  herein have
been prepared in accordance with generally accepted accounting  principles which
require the measurement of financial  position and operating results in terms of
historical dollars without  considering changes in the relative purchasing power
of money over time due to  inflation.  The primary  impact of  inflation  on the
operations of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more  significant  impact on a financial  institution's  performance than does
inflation.  Interest rates do not  necessarily  move in the same direction or to
the same extent as the prices of goods and services.

                               Recent Developments

On July 10,  1998,  Damen  Financial  Corporation  announced  its  intention  to
repurchase up to 5% of its  outstanding  shares in the open market over the next
six month period.

On July 21, 1998,  the Board of Directors  approved a cash  dividend of $.12 per
share to be payable August 17, 1998 to shareholders of record on July 31, 1998.

The  Board  of  Directors  has  determined  that  the  1999  Annual  Meeting  of
Stockholders will be held on January 25, 1999 at 9:30 A.M.


                                      -14-

<PAGE>

                           PART II - OTHER INFORMATION


Item 1.   LEGAL PROCEEDINGS
          -----------------
          None.

Item 2.   CHANGES IN SECURITIES
          ---------------------
          None.

Item 3.   DEFAULTS UPON SENIOR SECURITIES
          -------------------------------
          None.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          ---------------------------------------------------
          None.

Item 5.   OTHER INFORMATION
          -----------------
          Not applicable.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

          (a)  Computation  of earnings  per share  (Exhibit 11 filed  herewith)
               Financial Data Schedule (Exhibit 27 filed herewith)

          (b)  No reports on Form 8-K were filed  during the quarter  ended June
               30, 1998.

          (c)  Amended and Restated Bylaws.


                                      -15-

<PAGE>

                                  SIGNATURES


     Pursuant to the  requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                           DAMEN FINANCIAL CORPORATION
                           ---------------------------
                                   Registrant



DATE:  August 10, 1998


BY: /s/ Mary Beth Poronsky Stull
    ----------------------------
    Mary Beth Poronsky Stull
    President, Chief Executive Officer and Director
    (Duly Authorized Representative)


BY: /s/ Gerald J. Gartner
    ----------------------------
    Gerald J. Gartner
    Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)


                                      -16-

<PAGE>

                                INDEX TO EXHIBITS


     Exhibit No.
     -----------
          3           Amended and Restated Bylaws

         11           Statement regarding Computation of Earnings Per Share

         27           Financial Data Schedule


                                      -17-