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 December 31, 1997

                                       OR

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

     For the transition period from _________ to _________


                         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  February  6, 1998 there were  3,123,154  shares of the  Registrant's
common stock issued and outstanding.


<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
                December 31, 1997 (Unaudited) and September 30, 1997         4

                Consolidated Statements of Earnings for the three
                months ended December 31, 1997 and 1996 (unaudited)          5

                Consolidated Statements of Changes in
                Stockholders' Equity for the three months
                ended December 31, 1997 (unaudited)                          6

                Consolidated Statements of Cash Flows for the three
                months ended December 31, 1997 and 1996 (unaudited)          7

                Notes to Unaudited Consolidated Financial Statements        8-9

     Item 2. Management's Discussion and Analysis of Financial
              Condition and Results of Operations                          10-13


Part II. OTHER INFORMATION                                                  14


         Signatures                                                         15

         Index to Exhibits                                                  16

         Earnings Per Share Analysis (Exhibit 11)                           17

         Financial Data Schedule (Exhibit 27)                               18


                                       -2-

<PAGE>


                         PART I - FINANCIAL INFORMATION




                                       -3-

<PAGE>
                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES
                                ----------------
                 Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
                                                            December 31,  September 30,
                                                            ------------  -------------
                                                                1997          1997
                                                                ----          ----
Assets                                                       (unaudited)
------                                                       
<S>                                                       <C>                 <C>    
Cash and amounts due from depository institutions         $     644,075       500,455
Interest-bearing deposits                                     6,162,522     1,590,529
                                                            -----------    ----------
   Total cash and cash equivalents                            6,806,597     2,090,984
Investment securities (fair value:  $1,824,000 at
  December 31, 1997 and $1,845,400 at September 30, 1997)     1,823,976     1,845,383
Investment securities, available for sale, at fair value     38,473,064    35,874,298
Mortgage-backed securities
  (fair value: $25,262,600 at December 31, 1997
  and $27,548,700 at September 30, 1997)                     25,386,962    27,869,570
Mortgage-backed securities, available for sale,
  at fair value                                              55,400,979    56,740,190
Loans receivable (net of allowance for
  loan losses: $353,000 at December 31, 1997 and
  $332,000 at September 30, 1997)                            99,022,327    97,244,031
Foreclosed real estate                                           79,000        79,000
Stock in Federal Home Loan Bank and
  Federal Reserve Bank of Chicago                             3,698,500     3,698,500
Accrued interest receivable                                   1,524,961     1,551,284
Office properties and equipment - net                         3,429,303     3,473,326
Prepaid expenses and other assets                               304,473       642,654
                                                            -----------   -----------
   Total assets                                             235,950,142   231,109,220
                                                            ===========   ===========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits                                                    126,200,919   125,746,001
Borrowed money                                               59,000,000    56,500,000
Advance payments by borrowers for taxes and insurance         1,639,116       722,141
Other liabilities                                             2,416,512     2,202,115
                                                            -----------   -----------
   Total liabilities                                        189,256,547   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;  3,977,467 shares issued and 3,119,187 
  shares outstanding at December 31, 1997
  and 3,109,220 shares outstanding at September 30, 1997         39,775        39,675
Additional paid-in capital                                   38,610,781    38,452,948
Retained earnings, substantially restricted                  22,387,731    22,100,190
Unrealized gain on securities available for sale,
  net of income taxes                                         1,545,560     1,382,560
Treasury stock, at cost (858,280 shares at
  December 31, 1997 and September 30, 1997)                 (12,117,799)  (12,117,799)
Common stock acquired by Employee Stock Ownership Plan       (2,497,900)   (2,550,800)
Common stock awarded by Recognition and Retention Plan       (1,274,553)   (1,367,811)
   Total stockholders' equity                                46,693,595    45,938,963
                                                            -----------   -----------
   Total liabilities and stockholders' equity             $ 235,950,142   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
                                                                     December 31,
                                                                 ------------------
                                                                 1997          1996
                                                                 ----          ----
                                                                     (unaudited)
<S>                                                         <C>             <C>      
Interest income:
  Loans                                                     $ 2,046,023     1,874,077
  Mortgage-backed securities                                  1,424,569     1,519,515
  Tax-exempt securities                                         332,537       389,768
  Interest and dividends on other investments                   277,460       318,655
  Dividends on FHLB and FRB stock                                63,728        54,731
                                                              ---------     ---------
     Total interest income                                    4,144,317     4,156,746
                                                              ---------     ---------

Interest expense:
  Deposits                                                    1,650,303     1,531,170
  Borrowings                                                    896,110       911,129
                                                              ---------     ---------
     Total interest expense                                   2,546,413     2,442,299
                                                              ---------     ---------

     Net interest income before provision for loan losses     1,597,904     1,714,447
Provision for loan losses                                        21,000         4,618
                                                              ---------     ---------
     Net interest income after provision for loan losses      1,576,904     1,709,829
                                                              ---------     ---------

Non-interest income:
  Loan fees and service charges                                  13,047        18,671
  Gain on sale of investment securities, available for sale     131,237          -
  Other income                                                   32,178        18,496
                                                              ---------     ---------
     Total non-interest income                                  176,462        37,167
                                                              ---------     ---------

Non-interest expense:
  Compensation, employee benefits, and related expenses         661,856       727,826
  Advertising and promotion                                     143,426        83,764
  Occupancy and equipment expense                               185,959       196,033
  Data processing                                                32,298        29,290
  Insurance expense                                              18,238        17,313
  Federal insurance premiums                                     19,115        57,061
  Legal, audit, and examination services                         62,192        88,722
  Other operating expenses                                       74,164        91,766
                                                              ---------     ---------
     Total non-interest expense                               1,197,248     1,291,775
                                                              ---------     ---------

Net income before income taxes                                  556,118       455,221
Provision for federal and state income taxes                     97,328        62,880
                                                              ---------     ---------

      Net income                                            $   458,790       392,341
                                                              =========     =========

Earnings per share - basic                                        $ .16           .11
                                                                    ---           ---
Earnings per share - diluted                                        .15           .11
                                                                    ---           ---
Dividends declared per common share                               $ .06           .06
                                                                    ---           ---
</TABLE>

See accompanying notes to consolidated financial statements.

                                       -5-
<PAGE>


                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES
                                ----------------
           Consolidated Statements of Changes in Stockholders' Equity

                                   (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 
   December 31, 1997:
  Net income                                               458,790                                                          458,790
  Adjustment of
   securities to fair value,
   net of tax effect                                                   163,000                                              163,000
  Tax benefit related to
   employee stock plans                         9,786                                                                         9,786
  Exercise of stock
   options (9,967 shares)            100      115,767                                                                       115,867
  Amortization of award
   of RRP stock                                                                                                 93,258       93,258
  Contribution to fund ESOP loan               32,280                                              52,900                    85,180
  Dividends declared on
   common stock                                           (171,249)                                                        (171,249)
                                  ------   ----------   ----------   ---------   ----------     ---------    ---------   ----------
Balance at December 31, 1997    $ 39,775   38,610,781   22,387,731   1,545,560  (12,117,799)   (2,497,900)  (1,274,553)  46,693,595
                                  ======   ==========   ==========   =========   ==========     =========    =========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       -6-

<PAGE>
                           DAMEN FINANCIAL CORPORATION
                                AND SUBSIDIARIES
                                ----------------
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                     December 31,
                                                                 ------------------
                                                                 1997          1996
                                                                 ----          ----
                                                                     (unaudited)
<S>                                                        <C>                <C>    
Cash flows from operating activities:
  Net income                                               $    458,790       392,341
  Adjustments to reconcile net income to
   net cash from operating activities:
     Depreciation                                                58,876        49,277
     Amortization of cost of stock benefit plans                178,438       158,854
     Provision for loan losses                                   21,000         4,618
     Decrease in deferred loan income                           (89,651)      (65,690)
     (Increase) decrease in prepaid and deferred federal
      and state income taxes                                    283,517      (151,297)
     Gain on sale of investment securities,
      available for sale                                       (131,237)        -
     Decrease in accrued interest receivable                     26,323       145,700
     Increase in accrued interest payable                        38,900        23,900
     Decrease in other assets                                    39,731        88,185
     Increase (decrease) in other liabilities                    79,372      (754,028)
                                                             ----------     ---------
Net cash provided by (for) operating activities                 964,059      (108,140)
                                                             ----------     ---------

Cash flows from investing activities:
     Purchase of investment securities, available for sale   (4,074,729)   (1,603,709)
     Purchase of investment securities                             -           (8,317)
     Purchase of mortgage-backed securities,
      available for sale                                     (2,009,139)   (4,025,957)
     Proceeds from sales of investment securities,
      available for sale                                        381,237          -
     Proceeds from maturities of investment securities,
      available for sale                                      1,498,963     1,950,522
     Proceeds from maturities of investment securities           21,407        13,345
     Proceeds from maturities of mortgage-backed securities,
      available for sale                                      3,351,339     1,751,077
     Proceeds from maturities of mortgage-backed securities   2,482,608     1,437,026
     Disbursements for loans                                 (5,064,593)   (3,594,268)
     Loan repayments                                          3,354,948     4,417,911
     Property and equipment expenditures                        (14,853)      (56,564)
                                                             ----------    ----------
Net cash provided by (for) investing activities                 (72,812)      281,066
                                                             ----------    ----------

Cash flows from financing activities:
     Proceeds from exercise of stock options                    115,867          -
     Deposit receipts                                        17,233,287    18,490,759
     Deposit withdrawals                                    (17,900,523)  (18,538,973)
     Interest credited to deposit accounts                    1,122,154     1,103,541
     Proceeds from borrowed money                            21,200,000    57,200,000
     Repayment of borrowed money                            (18,700,000)  (58,800,000)
     Increase in advance payments by borrowers
      for taxes and insurance                                   916,975       893,532
     Dividends paid on common stock                            (163,394)     (216,685)
                                                             ----------    ----------
Net cash provided by financing activities                     3,824,366       132,174
                                                             ----------    ----------

Increase (decrease) in cash and cash equivalents              4,715,613       305,100
Cash and cash equivalents at beginning of period              2,090,984     1,181,231
                                                             ----------    ----------

Cash and cash equivalents at end of period                 $  6,806,597     1,486,331
                                                             ==========    ==========

Cash paid during the period for:
     Interest                                              $  2,507,513     2,418,399
     Income taxes                                                 2,388       210,000
                                                             ==========    ==========
</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 December 31, 1997, the results of operations for the three months
ended  December  31,  1997 and 1996 and cash  flows for the three  months  ended
December 31, 1997 and 1996.  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
month  period  ended  December 31, 1997 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 month periods ended  December 31, 1997
and 1996 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  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 month period ended  December 31, 1996 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 No.  127"),  "Deferral  of the
Effective  Date of Certain  Provisions of FASB Statement No. 125". The statement
delays for one year the  implementation  of SFAS No.  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 No. 125 (those
not  deferred  by SFAS No.  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 No. 125,  management does
not  believe  that  adoption  of the  portions  of SFAS No.  125 which have been
deferred by SFAS No. 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. The Company has
not yet determined the impact of adopting this statement.

         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.  The  Company  has not yet  determined  the  impact  of  adopting  this
statement.

         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

                December 31, 1997 compared to September 30, 1997


Total assets  increased  $4.8 million to $236.0  million as of December 31, 1997
from  $231.1  million  as  of  September  30,  1997.  Interest-bearing  deposits
increased  $4.6  million to $6.2  million as of December 31, 1997 as compared to
$1.6 million at September  30, 1997.  Investment  securities  available-for-sale
increased  $2.6 million to $38.5 million at December 31, 1997 from $35.9 million
at  September  30, 1997 due  primarily to purchases of $4.1 million and a market
value  increase of $273,000  exceeding  sales and  maturities  of $1.9  million.
Mortgage-backed  securities  held to maturity  decreased  $2.5  million to $25.4
million at  December  31,  1997 from $27.9  million at  September  30,  1997 due
primarily to repayments. Mortgage-backed securities available-for-sale decreased
$1.3  million  to $55.4  million at  December  31,  1997 from  $56.7  million at
September  30,  1997 due  primarily  to  repayments  of $3.4  million  exceeding
purchases of $2.0  million.  Loans  receivable  increased  $1.8 million to $99.0
million at  December  31,  1997 from $97.2  million at  September  30,  1997 due
primarily  to new  loan  originations  of $5.1  million  and loan  purchases  of
$253,000  exceeding  repayments of $3.4  million.  Loan  originations  consisted
primarily of mortgage loans and home equity line of credit loans,  and increased
due to promotions and favorable interest rates.

Total  deposits  increased  $455,00 to $126.2  million at December 31, 1997 from
$125.7 million at September 30, 1997. The increase was primarily due to interest
credited.  FHLB advances increased $2.5 million to $59.0 million at December 31,
1997 from $56.5 million at September 30, 1997.  The increased  advances were the
result of cash flows necessary for loan originations.

Stockholders'  equity  increased  $755,000 to $46.7 million at December 31, 1997
from $45.9 million at September 30, 1997 due primarily to net income of $459,000
for the three months ended  December  31,  1997,  an increase in net  unrealized
gains of $163,000 and proceeds of $116,000  from the exercise of stock  options.
At December 31, 1997, there were 3,119,187 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 December 31, 1997 and 1996.

Net Income.  The  Company's  net income for the three months ended  December 31,
1997 was  $459,000  as compared  to  $392,000  for the same  period in 1996,  an
increase of $67,000.  This increase was due primarily to an increase in gains on
the  sale of  investments  available-for-sale  of  $131,000  and a  decrease  in
non-interest expense of $95,000,  partially offset by a decrease in net interest
income of $116,00 and an increase in income taxes of $34,000.

Interest  Income.  Total interest income for the quarter ended December 31, 1997
decreased  $13,000  compared  to a  year  ago  due  to  a  decrease  in  average
interest-earning  assets of $4.5 million to $222.7 million from $227.2  million,
partially offset by an increase in the yield on average  interest-earning assets
to 7.44%  from  7.32%.  The  decrease  in  average  interest-earning  assets was
partially due to the  utilization of $9.8 million during 1997 for the repurchase
of Company stock.

                                      -10-

<PAGE>



Interest  Expense.  The Company's  interest expense  increased  $104,000 for the
quarter  ended  December  31, 1997  compared to a year ago due to an increase in
average interest-bearing liabilities to $182.1 million at December 31, 1997 from
$176.8 million a year ago, and the average interest rate increased to 5.59% from
5.52%.  The increase in average interest  bearing  liabilities  resulted from an
increase in the average  balance of savings  deposits of $7.3 million  partially
offset by a decrease in the average balance of borrowed money of $2.0 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  $21,000  for the  quarter  ended
December  31, 1997  compared  to $4,600 for the same  quarter in the prior year.
Non-performing loans increased to $275,000 from $197,000 at September 30, 1997.

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 $176,000 for the
quarter ended  December 31, 1997 compared to $37,000 for the same quarter a year
ago. The  increase was due  primarily to an increase of $131,000 in net realized
gains on thrift equity securities  available-for-sale and an increase in service
fees of $13,000.

Non-Interest  Expense. The Company's  non-interest expense decreased $95,000 for
the quarter  ended  December  31, 1997 to $1.2 million from $1.3 million for the
same quarter of 1996 due primarily to a decrease of $66,000 in compensation  and
related  expenses,  a decrease of $38,000 in federal insurance  premiums,  and a
decrease of $27,000 in  professional  fees,  partially  offset by an increase in
advertising costs of $59,000.

Provision for Income Taxes.  Tax expense for the quarter ended December 31, 1997
was $97,000  compared to $63,000 for the same quarter in 1996 due to an increase
in pre-tax income.

                                      -11-

<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
December 31, 1997 and September 30, 1997, cash and cash equivalents totaled $6.8
million and $2.1 million respectively.

The primary financing activities of the Company are deposits and borrowings. For
the three months ended December 31, 1997,  deposits  increased  $455,000 and the
Bank's net (proceeds less repayments) financing activity with the FHLB increased
$2.5 million.

The Company  anticipates  that it will have  sufficient  funds available to meet
current  commitments.  At December  31, 1997 the  Company has  outstanding  loan
commitments  totaling  $1,215,000,  and unused lines of credit granted  totaling
$1,143,000.

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 December 31, 1997,  the Bank had Tier 1 capital of $39.8  million or 17.4% of
adjusted  total  assets  and Tier 2 capital  of $40.2  million or 45.7% of total
risk-weighted assets.

                                      -12-

<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).

                                                 December 31,      September 30,
                                                     1997               1997
                                                 ------------      -------------
                                                    (Dollars in Thousands)
Non-accruing loans:
 One-to-four family..........................     $  275             $  197
 Multi-family................................         -                  -
 Commercial real estate. ....................         -                  -
 Consumer....................................         -                  -
                                                    ----               ----
   Total.....................................        275                197
                                                    ----               ----
Foreclosed assets:
 Commercial and multi-family real estate.....         79                 79
                                                    ----               ----

Total non-performing assets..................     $  354             $  276
                                                    ====               ====

Total as a percentage of total assets........        .15%               .12%
                                                     ===                ===

For the three months ended December 31, 1997,  gross interest income which would
have been recorded had the  non-accruing  loans been current in accordance  with
their original terms amounted to $6,300.

In addition to the  non-performing  assets set forth in the table  above,  as of
December 31, 1997,  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 January 6, 1998 the Board of Directors  approved a cash  dividend of $.10 per
share to be payable  February 13, 1998 to  shareholders of record on January 31,
1998.

In addition,  on January 13, 1998,  Damen  Financial  Corporation  announced the
appointment  of  Albert  C.  Baldermann  to its  Board  of  Directors  effective
immediately.

                                      -13-

<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 December 31, 1997.


                                      -14-

<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: February 6, 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)


                                      -15-

<PAGE>



                                INDEX TO EXHIBITS


Exhibit No.                                                             Page No.
-----------                                                             --------

   11        Statement regarding Computation of Earnings Per Share         17

   27        Financial Data Schedule                                       18


                                      -16-