Exhibit 13

                       1998 Annual Report to Stockholders

<PAGE>
FINANCIAL HIGHLIGHTS

(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended June 30,                                                    1998              1997
------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>        
   Net interest income .............................................     $     4,924       $     8,066
   Income (loss) before tax provision and gain (loss) on securities           (1,388)            2,769
   Net realized and unrealized gain (loss) on securities ...........          (1,705)              494
   Special SAIF assessment .........................................                               830
   Net income (loss) ...............................................          (1,859)            2,002
   Return on average  assets before  special SAIF  assessment ......           (0.34%)            0.50%
   Return on average assets after special SAIF assessment ..........           (0.34%)            0.39%
   Return on average equity before special SAIF assessment .........           (7.56%)           10.52%
   Return on average equity after special SAIF assessment ..........           (7.56%)            8.34%

At June 30
   Total assets ....................................................     $   484,397        $  446,797
   Total loans .....................................................         163,546            93,958
   Total securities ................................................         291,531           318,480
   Total deposits ..................................................         178,311           136,175
   Stockholders' equity ............................................          22,664            24,994
   Common shares outstanding .......................................       3,275,886         3,256,738

Average Balances
   Assets ..........................................................     $   538,981       $   507,407
   Loans ...........................................................         116,982            78,545
   Core retail deposits ............................................         136,594           116,210
   Other deposits ..................................................          15,168            20,592
   Total deposits ..................................................         151,762           136,802

Per Share
   Basic earnings (loss) per share .................................     $     (0.57)      $      0.61
   Diluted earnings (loss) per share ...............................           (0.57)             0.61
   After tax basic earnings (loss) excluding special SAIF assessment           (0.57)             0.78
   Book value, fiscal year end Market price, fiscal year end .......            6.92              7.67
                                                                              11.250            12.125
Asset  Quality  at June 30
   Non-performing  assets  to total  assets ........................            0.18%             0.25%
   Loan  loss reserves to non-performing loans .....................          126.32%            63.39%

Capital Ratios at June 30 (Harrington Bank)
   Tangible capital ................................................            6.88%             6.96%
   Core capital ....................................................            6.88%             6.96%
   Risk-based capital ..............................................           21.92%            31.14%
</TABLE>
<PAGE>                         
Financial Review
----------------


14    Selected Consolidated Financial Data

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

29    Consolidated Balance Sheets

30    Consolidated Statements of Operations

31    Consolidated Statements of Changes in
         Stockholders' Equity

32    Consolidated Statements of Cash Flows

34    Notes to Consolidated Financial Statements

56    Independent Auditors' Report

<PAGE>
Selected Consolidated Financial Data

The following table presents selected  consolidated  financial and other data of
the Company for the five years in the period ended June 30,  1998.  The selected
consolidated  financial data should be read in conjunction with the Consolidated
Financial Statements of the Company, including the accompanying Notes, presented
elsewhere herein.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At or For the Years Ended June 30,                                 1998          1997          1996            1995         1994
                                                                ---------     ---------     ---------       ---------    ---------
<S>                                                             <C>           <C>           <C>             <C>          <C>      
Balance Sheet Data
   Securities held for trading and available for sale ......... $ 291,531     $ 318,480     $ 321,897       $ 249,274    $ 174,347
   Loans receivable-net .......................................   163,546        93,958        65,925          37,010       20,682
   Total assets ...............................................   484,397       446,797       418,196         300,174      211,688
   Deposits ...................................................   178,311       136,175       135,143         115,312      108,300
   Securities sold under agreements to repurchase .............   240,396       245,571       219,067         130,217       54,651
   Federal Home Loan Bank advances ............................    26,000        26,000        26,000          31,000       31,000
   Note payable ...............................................    13,495         9,995         8,998           9,200        7,880
   Stockholders' equity .......................................    22,664        24,994        23,117          10,361        5,926
   Stockholders' equity per share .............................      6.92          7.67          7.10            5.28         4.20

Income Statement Data
   Interest income ............................................ $  33,956     $  34,474     $  23,484       $  17,560    $  13,607
   Interest expense ...........................................    29,032        26,408        18,004          12,779        8,284
                                                                ---------     ---------     ---------       ---------    ---------
     Net interest income ......................................     4,924         8,066         5,480           4,781        5,323
   Provision for loan losses ..................................       147            92            (1)             15           (3)
                                                                ---------     ---------     ---------       ---------    ---------
   Net interest income after provision for loan losses ........     4,777         7,974         5,481           4,766        5,326
   Retail banking fees and other income .......................       295           239           256             238          267
                                                                ---------     ---------     ---------       ---------    ---------
   Total net revenue ..........................................     5,072         8,213         5,737           5,004        5,593
   Operating expenses .........................................     6,460         5,444         3,740           3,167        2,519
                                                                ---------     ---------     ---------       ---------    ---------
   Income before tax provision and gain (loss) on securities ..    (1,388)        2,769         1,997           1,837        3,074

   Gain (loss) on sale of securities held for trading .........      (775)       (1,623)        1,834              66       (2,169)
   Gain on sale of securities available for sale ..............                                                                392
   Unrealized gain (loss) on securities held for trading ......      (930)        2,117        (1,960)          1,535          710
   Permanent impairment of securities available for sale ......                                                  (414)        (610)
                                                                ---------     ---------     ---------       ---------    ---------
     Net gain (loss) on securities ............................    (1,705)          494          (126)          1,187       (1,677)
                                                                ---------     ---------     ---------       ---------    ---------
   Income before income tax provision and cumulative effect
     of change in accounting for deferred income taxes ........    (3,093)        3,263         1,871           3,024        1,397
   Income tax provision .......................................    (1,234)        1,261           648           1,171          391
   Income (loss) before cumulative effect of change in
     accounting for deferred income taxes .....................    (1,859)        2,002         1,223           1,853        1,006
                                                                ---------     ---------     ---------       ---------    ---------
   Cumulative effect of change in accounting for deferred
     income taxes (2) .........................................                                                                (79)
   Net income (loss) .......................................... $  (1,859)    $   2,002     $   1,223       $   1,853    $     927
                                                                ---------     ---------     ---------       ---------    ---------
   Basic earnings (loss) per share ............................ $   (0.57)    $    0.61     $    0.57       $    1.20    $    0.66
                                                                ---------     ---------     ---------       ---------    ---------
   Diluted earnings (loss) per share .......................... $   (0.57)    $    0.61     $    0.56       $    1.20    $    0.66
                                                                ---------     ---------     ---------       ---------    ---------
   Cash dividends per share ................................... $    0.12     $    0.03           N/A             N/A          N/A
                                                                ---------     ---------     ---------       ---------    ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                             <C>           <C>           <C>             <C>          <C>      
Performance Ratios
   Return on average assets (3) ...............................     (0.34%)        0.50%         0.37%           0.76%        0.44%
   Return on average equity (3) ...............................     (7.56)        10.52          9.49           22.24        14.98
   Interest rate spread .......................................      0.79          1.43          1.64            2.13         2.63
   Net interest margin ........................................      0.94          1.62          1.73            2.10         2.64
   Average interest-earning assets to average interest
     bearing liabilities ......................................    102.73        103.67        101.55           99.57       100.25
   Net interest income after provision for loan losses to total
     other expenses (3) .......................................     73.95        172.82        146.55          150.49       211.43
   Total other expenses to average total assets (3) ...........      1.20          0.91          1.13            1.30         1.19
   Full service offices .......................................         7             4             3               2            2

Asset Quality Ratios (at end of period)
   Non-performing loans to total loans (4) ....................      0.17          0.36          0.40            0.95         2.70
   Non-performing assets to total assets (4) ..................      0.18          0.25          0.32            0.59         1.34
   Allowance for loan losses to total loans ...................      0.22          0.23          0.18            0.33         0.51
   Allowance for loan losses to total non-performing loans ....    126.32         63.39         45.98           34.57        18.96

Capital Ratios (5)
   Tangible capital ratio .....................................      6.88          6.96          6.27            6.12         6.07
   Core capital ratio .........................................      6.88          6.96          6.27            6.12         6.07
   Risk-based capital ratio ...................................     21.92         31.14         30.10           24.62        21.40
   Equity to assets at end of period ..........................      4.68          5.59          5.53            3.45         2.80

</TABLE>

(1)  On May 6, 1996, the Company sold 1,265,000 shares of common stock at $10.00
     per share to investors  in an initial  public  offering  resulting in gross
     proceeds  of  $12,650,000  to the  Company.  Net  proceeds  after  offering
     expenses were $11,437,000.
(2)  Reflects  the  Company's  adoption of  Statement  of  Financial  Accounting
     Standards  ("SFAS") No. 109,  "Accounting for Income Taxes," effective July
     1, 1993.
(3)  For comparability  purposes, the 1997 fiscal year ratios exclude the effect
     of the special SAIF assessment of $830,000.
(4)  Non-performing  loans consist of non-accrual  loans and accruing loans that
     are  contractually  past due 90 days or  more,  and  non-performing  assets
     consist of  non-performing  loans,  real estate  acquired by foreclosure or
     deed-in-lieu  thereof  and a single  non-agency  participation  certificate
     classified as substandard.
(5)  Regulatory  capital ratios apply to the Bank  (Harrington  Bank,  FSB) as a
     federally chartered savings bank.


14
<PAGE>
                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations


Harrington  Financial  Group,  Inc.   ("Harrington"  or  the  "Company")  is  an
Indiana-chartered,  registered  thrift holding company for Harrington  Bank, FSB
(the  "Bank").  The  following  financial  review  presents  an  analysis of the
Company's  operations and financial  position for the periods  presented in this
annual report.

General

Harrington's   business  strategy  focuses  on  achieving   attractive   returns
consistent with prudent risk management. Harrington has sought to implement this
strategy by (1) expanding its banking  locations and product  offerings in order
to build a strong community  banking franchise through de novo branching and the
pursuit of  acquisition  opportunities;  (2)  controlling  interest rate risk by
matching the interest rate sensitivity of its assets to that of its liabilities;
(3)  controlling  credit  risk  by  maintaining  a  substantial  portion  of the
Company's assets in  mortgage-backed  securities and  single-family  residential
loans and by  applying  conservative  underwriting  standards  and  credit  risk
monitoring;  and (4) utilizing excess capital balances through the management of
a hedged investment portfolio.

Harrington  invests  primarily in  mortgage-backed  and related  securities  and
originates  (both  directly  and  through   correspondents)   loans  secured  by
single-family  residences  located  primarily  in Indiana  and the  Kansas  City
metropolitan  area.  While  Harrington  has greatly  expanded  its  portfolio of
originated mortgage loans,  approximately 60% of its assets currently consist of
purchased  mortgage-backed  and  related  securities  that are  hedged to reduce
interest rate risk. Although mortgage-backed securities often carry lower yields
than traditional  mortgage loans, such securities generally increase the quality
of the Company's  assets by virtue of the  securities'  underlying  insurance or
guarantees,  are more liquid than individual  mortgage loans, and may be used to
collateralize borrowings or other obligations of the Company. The funds invested
in the securities portfolio can be quickly redeployed to pursue retail expansion
opportunities as they arise.  Furthermore,  in March 1998, the Company commenced
the  origination of commercial  mortgage and  commercial  and  industrial  loans
through a newly  developed  commercial  loan  division.  This activity  provides
further  diversification  of business lines and fulfills a critical component of
the Company's community banking strategy.

Harrington's  funding  strategy  focuses  on  accessing  cost-efficient  funding
sources,  including  securities sold under agreements to repurchase,  retail and
non-retail  deposits and Federal Home Loan Bank ("FHLB")  advances.  The Company
continues to build a  community-oriented  banking  operation in order to sustain
loan  originations  and deposit  growth,  benefit from  economies of scale,  and
generate  additional  fee  income.  Management's  primary  goal  is to  increase
stockholders' value, as measured on a risk-adjusted total return basis.

To reduce the institution's exposure to interest rate risk, the Company utilizes
interest  rate  risk  management   contracts  and   mortgage-backed   derivative
securities in conjunction  with regular  adjustments  to the  composition of the
Company's  investment  portfolio.  Harrington marks a substantial portion of its
assets and interest  rate  contracts to market in order to fully account for the
market  value  changes in the  Company's  investment  portfolio.  This method of
accounting  is  consistent  with  Harrington's   strategy  of  active  portfolio
management  and provides the Company with the  flexibility to quickly adjust the
mix of its interest-earning  assets in response to changing market conditions or
to take advantage of retail growth opportunities.
<PAGE>
The Company  recognizes that marking  substantially  all of its assets to market
subjects Harrington to potential earnings volatility. Market value volatility is
not unique to  Harrington  as most  unhedged  financial  institutions  have even
greater volatility in market values. The difference is that Harrington  reflects
the changes in market values directly in earnings, while most other institutions
do not.

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

In addition to historical information,  forward-looking  statements contained in
this  annual  report are  subject to risks and  uncertainties  that could  cause
actual results to differ materially from those reflected in the  forward-looking
statements.  Factors  that  could  cause  future  results  to vary from  current
expectations  include, but are not limited to, the impact of economic conditions
(both  generally  and more  specifically  in the  markets  in  which  Harrington
operates),  the impact of  competition  for  Harrington's  customers  from other
providers  of  financial  services,  the impact of  government  legislation  and
regulation  (which  changes from time to time and over which  Harrington  has no
control),  and other  risks  detailed in the Annual  Report and in  Harrington's
other Securities and Exchange Commission ("SEC") filings.  Readers are cautioned
not to place undue reliance on these forward-looking  statements,  which reflect
management's  analysis  only as of the date  hereof.  Harrington  undertakes  no
obligation to publicly revise these forward-looking statements to reflect events
or  circumstances  that arise after the date hereof.  Readers  should  carefully
review the risk factors described in other documents  Harrington files from time
to time with the SEC,  including the Quarterly  Reports on Form 10-Q to be filed
by  Harrington  in 1998 and 1999 and any  Current  Reports  on Form 8-K filed by
Harrington.

                                                                              15
<PAGE>
Asset and Liability Management

In general,  financial  institutions  are negatively  affected by an increase in
interest rates to the extent that interest-bearing liabilities mature or reprice
more rapidly than  interest-earning  assets.  The lending  activities of savings
institutions  have   historically   emphasized  the  origination  of  long-term,
fixed-rate loans secured by single-family residences,  and the primary source of
funds of such  institutions  has been  deposits,  which  largely  mature  or are
subject to repricing within a shorter period of time.

This factor has  historically  caused the income and market  value of  portfolio
equity ("MVPE") of savings institutions to be more volatile than other financial
institutions.  MVPE is defined as the net present value of the cashflows from an
institution's  existing assets,  liabilities and off-balance sheet  instruments.
While having  liabilities  that reprice more frequently than assets is generally
beneficial to net interest income and MVPE in times of declining interest rates,
such an  asset/liability  mismatch is generally  detrimental  during  periods of
rising interest rates.

The  Company's  management  believes  that its  asset and  liability  management
strategy,  as discussed below,  provides Harrington with a competitive advantage
over other financial institutions. Harrington's ability to effectively hedge its
interest rate exposure through the use of various financial  instruments  allows
the  Company  to  acquire  loans and  investments  which  offer  attractive  net
risk-adjusted spreads whether the individual loans or investments are fixed-rate
or adjustable-rate or short-term or long-term. Similarly, the Company can choose
a  cost-effective  source of funds and  subsequently  engage in an interest rate
swap or other hedging transaction so that the interest rate sensitivities of its
interest-earning assets and interest-bearing liabilities are generally matched.

Harrington's asset and liability management strategy is formulated and monitored
by the  Boards  of  Directors  of both  the  Company  and  Bank,  the  Company's
wholly-owned  subsidiary.  The  Boards'  written  policies  and  procedures  are
implemented by the Investment  Committee of the Bank,  which is comprised of the
Chief Executive Officer,  Chief Investment Officer, and three outside directors.
The Investment  Committee meets at least monthly to review,  among other things,
the  sensitivity of the Bank's assets and  liabilities to interest rate changes,
investment  opportunities and the performance of the investment portfolios,  and
the past month's  purchase and sale activity of  securities.  The Committee also
provides guidance to management on reducing interest rate risk and on investment
strategy and consults  with the Chief  Operating  Officer of the Bank  regarding
retail  pricing and funding  decisions  with respect to the Bank's overall asset
and liability  composition.  In accordance  therewith,  the Investment Committee
reviews the Bank's  liquidity,  cash flow needs,  interest rate  sensitivity  of
investments,  deposits and  borrowings,  core deposit  activity,  current market
conditions and interest rates on both a local and national level.

Harrington has contracted with Smith Breeden Associates,  Inc. ("Smith Breeden")
for the  provision of consulting  services  regarding,  among other things,  the
management of its investments and borrowings, the pricing of loans and deposits,
and the use of various financial instruments to reduce interest rate risk. Smith
Breeden is a  consulting  firm  which  renders  investment  advice and asset and
liability   management  services  to  financial   institutions,   corporate  and
government  pension  plans,  foundations,  Smith  Breeden's  mutual  funds,  and
government  agencies  nationally.  Certain directors of the Company and the Bank
are principals of Smith Breeden.
<PAGE>
The  Investment  Committee  regularly  reviews  interest  rate risk by utilizing
analyses  prepared by Smith  Breeden with  respect to the impact of  alternative
interest  rate  scenarios  on net interest  income and on the Bank's  MVPE.  The
Investment  Committee also reviews analyses prepared by Smith Breeden concerning
the impact of changing market volatility,  prepayment forecast error, changes in
option-adjusted spreads and non-parallel yield curve shifts.

MVPE analysis is used by regulatory  authorities for assessing an  institution's
interest  rate risk.  The extent to which  assets will gain or lose value net of
the gains or losses of liabilities and/or interest rate contracts determines the
appreciation  or  depreciation  in equity on a market-value  basis.  Such market
value  analysis is intended to evaluate  the impact of immediate  and  sustained
parallel  interest  rate  shifts upon the market  value of the  current  balance
sheet.

In the  absence of the  Company's  hedging  activities,  the MVPE of the Company
would  decline as a result of a general  increase in market  rates of  interest.
This  decline  would be due to the market  values of  Harrington's  assets being
generally  more  sensitive  to interest  rate  fluctuations  than are the market
values  of the  Company's  liabilities  due to  Harrington's  investment  in and
origination of generally  longer-term  assets which are funded with shorter-term
liabilities.  Consequently, the elasticity (i.e., the change in the market value
of an  asset  or  liability  as a  result  of a change  in  interest  rates)  of
Harrington's assets is greater than the elasticity of its liabilities.

Accordingly,  the primary goal of  Harrington's  asset and liability  management
policy is to effectively  increase the  elasticity of the Company's  liabilities
and/or  effectively  contract the elasticity of the Company's assets so that the
respective  elasticities  are matched as closely as  possible.  This  elasticity
adjustment can be accomplished internally by restructuring  Harrington's balance
sheet or externally by adjusting the elasticities of 

16
<PAGE>
Harrington's  assets  and/or  liabilities  through  the  use  of  interest  rate
contracts,  such as interest  rate swaps,  collars,  caps,  floors,  options and
futures.  Harrington's strategy is to hedge either internally through the use of
longer-term  certificates  of deposits or less  sensitive  non-defined  maturity
(transaction) deposits, FHLB advances and mortgage-backed  derivative securities
or externally through the use of various interest rate contracts.

External hedging involves the use of interest rate swaps, collars, caps, floors,
options and futures.  The notional amount of interest rate contracts  represents
the underlying  amount on which periodic cash flows are calculated and exchanged
between  counterparties.  However,  this  notional  amount does not  necessarily
represent the principal amount of securities  which would  effectively be hedged
by that interest rate contract.

In  selecting  the type and amount of interest  rate  contract  to utilize,  the
Company  compares  the  elasticity  of a  particular  contract  to  that  of the
securities  to be  hedged.  An  interest  rate  contract  with  the  appropriate
offsetting  elasticity  could have a notional  amount much greater than the face
amount of the securities being hedged.

An interest rate swap is an agreement  where one party  (generally  the Company)
agrees to pay a fixed  rate of  interest  on a  notional  principal  amount to a
second party (generally a broker or money center bank) in exchange for receiving
from the second party a variable  rate of interest on the same  notional  amount
for a predetermined  period of time. No actual assets are exchanged in a swap of
this type and interest payments are generally netted.  These swaps are generally
utilized  by  Harrington  to  synthetically   convert   fixed-rate  assets  into
adjustable-rate assets without having to sell or transfer the underlying assets.

At June 30, 1998,  Harrington was a party to four interest rate swap  agreements
held in its trading  portfolio.  The agreements had an aggregate notional amount
of $121.0 million and maturities  from January 1999 to April 2001.  With respect
to these agreements, Harrington makes fixed interest payments ranging from 6.12%
to 6.58% and  receives  payments  based upon the  three-month  London  Interbank
Offered Rate ("LIBOR").

The net expense  (income)  relating to Harrington's  interest rate swaps held in
the trading  portfolio was $313,000,  $330,000 and  $(168,000)  during the years
ended June 30, 1998, 1997 and 1996,  respectively.  The approximate market value
of the interest  rate swaps which are  maintained  in the trading  portfolio was
$(397,000) and $581,000 as of June 30, 1998 and 1997, respectively.

The  Company  also  has one swap  whereby  it pays a  floating  rate  (based  on
three-month LIBOR) and receives a fixed rate of 6.96%. Harrington's floating-pay
swap,  which has a  notional  amount of $7.5  million,  is not  included  in the
Company's  trading  portfolio.  This swap is used to modify  the  interest  rate
sensitivity of certain certificates of deposit issued by the Bank.

The net income relating to Harrington's  floating-pay swap was $70,000, $130,000
and $129,000 during the years ended June 30, 1998, 1997 and 1996,  respectively.
This income is netted  against  interest  expense in the Company's  Consolidated
Statements of Income. The approximate market value of the Company's floating-pay
interest  rate  swap  (which  is  not  reflected  in  the  Company's   financial
statements) was $137,000 and $91,000 as of June 30, 1998 and 1997, respectively.
<PAGE>
An interest rate cap or an interest rate floor consists of a guarantee  given by
the issuer (i.e., a broker),  to the purchaser (i.e., the Company),  in exchange
for the payment of a premium.  This guarantee states that if interest rates rise
above (in the case of a cap) or fall below (in the case of a floor) a  specified
rate on a specified  interest  rate index,  the issuer will pay to the purchaser
the difference  between the then current market rate and the specified rate on a
notional principal amount. No funds are actually borrowed or repaid.

Similarly,  an interest  rate collar is a  combination  of a purchased cap and a
written floor at different  strike rates.  Accordingly,  an interest rate collar
requires no payments if interest rates remain within a specified range, but will
require  the  Company  to be paid if  interest  rates rise above the cap rate or
require  the  Company  to pay if  interest  rates  fall  below the  floor  rate.
Consequently,  interest  rate caps are a means of reducing  interest  expense by
placing a ceiling on the cost of  floating-rate  liabilities,  or offsetting the
caps on the coupons inherent in the Company's adjustable rate mortgage loans and
securities.  Interest  rate floors  permit  Harrington  to maintain  its desired
interest rate spread in the event that falling  interest rates lead to increased
prepayments with respect to the Company's mortgage-backed and related securities
portfolio requiring reinvestment at lower rates.

At June 30, 1998,  Harrington  held seven interest rate cap  agreements,  twelve
interest  rate floor  agreements  and one  interest  rate  collar in its trading
portfolio. These contracts, which expire from October 1998 to June 2004, have an
aggregate notional amount of approximately $391.1 million. The interest rate cap
agreements provide for a payment, depending on the particular contract, whenever
the defined  floating  rate  exceeds  6.50% to 9.00%.  The  interest  rate floor
agreements provide for a payment, depending on the particular contract, whenever
the defined  floating rate is less than 5.00% to 7.00%. The interest rate collar
provides for a payment whenever the defined floating rate is greater than 10.25%
or less than 5.25%.

                                                                              17
<PAGE>
The aggregate net expense (income) relating to the Company's interest rate caps,
collars and floors held in the trading  portfolio was $223,000,  $(370,000)  and
$(220,000)  during the years ended June 30, 1998,  1997 and 1996,  respectively.
The  approximate  market value of Harrington's  interest rate caps,  collars and
floors which are  maintained in the trading  portfolio was $4.6 million and $5.1
million as of June 30, 1998 and 1997, respectively.

Harrington also has four interest rate caps with aggregate  notional  amounts of
$90.0 million which are not held in the Company's trading portfolio. These caps,
which mature from May 2001 to May 2008, provide for a payment,  depending on the
particular contract,  whenever the defined floating rate exceeds 6.00% to 7.00%.
The  instruments  are used to effectively  cap the interest rate on a portion of
the Company's  securities sold under  agreements to repurchase and the Company's
floating-rate  borrowing  from the FHLB.  Net expense on the caps was  $257,000,
$178,000  and  $25,000  for the  years  ended  June 30,  1998,  1997  and  1996,
respectively.  The approximate  market value of the caps, which is not reflected
in the Company's financial statements, was $2.5 million and $351,000 at June 30,
1998 and 1997, respectively.

Interest  rate futures are  commitments  to either  purchase or sell  designated
instruments  at a future  date for a  specified  price.  Futures  contracts  are
generally traded on an exchange,  are marked-to-market  daily and are subject to
initial and maintenance margin  requirements.  Harrington  generally uses 91-day
Eurodollar  certificates of deposit contracts  ("Eurodollar  futures contracts")
which are priced off LIBOR as well as Treasury Note and Bond futures  contracts.
The Company will from time to time agree to sell a specified number of contracts
at a  specified  date.  To close out a contract,  Harrington  will enter into an
offsetting position to the original transaction.

If interest  rates rise,  the value of the  Company's  short  futures  positions
increases.  Consequently,  sales of futures  contracts  serve as a hedge against
rising  interest  rates.  At June 30, 1998,  Harrington had sold  Eurodollar and
Treasury  Note  futures   contracts  with  an  aggregate   notional   amount  of
approximately $2.8 billion.  The Company had total gains (losses) on its futures
contracts  of $(8.6)  million,  $(3.9)  million and $1.9  million for the fiscal
years ended June 30, 1998, 1997 and 1996, respectively.

Options are  contracts  which grant the  purchaser  the right to buy or sell the
underlying asset by a certain date for a specified price. Generally,  Harrington
will  purchase  options on financial  futures to hedge the  changing  elasticity
exhibited  by  mortgage  loans  and  mortgage-backed  securities.  The  changing
elasticity  results  from the  ability of a borrower  to prepay a  mortgage.  As
market  interest  rates  decline,  borrowers  are more  likely to  prepay  their
mortgages,  shortening  the  elasticity of the  mortgages.  Consequently,  where
interest  rates are declining,  the value of mortgage  loans or  mortgage-backed
securities  will  increase at a slower rate than would be expected if  borrowers
did not have the ability to prepay their mortgages.

Harrington,  therefore,  generally purchases  out-of-the-money calls and puts so
that the increase in value of the options resulting from interest rate movements
offsets the reductions in MVPE resulting from the changing  elasticity  inherent
in the Company's  balance sheet. At June 30, 1998,  Harrington had 660 purchased
options  contracts  with an aggregate  notional  amount of  approximately  $66.0
million.  The net  expense  relating  to the  Company's  options  contracts  was
$943,000,  $770,000 and $640,000  during the years ended June 30, 1998, 1997 and
1996,  respectively.  The  approximate  market  value of the  Company's  options
contracts which are maintained in the trading  portfolio was $50,000 and $24,000
as of June 30, 1998 and 1997, respectively.
<PAGE>
The following table summarizes the periodic  exchanges of interest payments with
counterparties  including  the  amortization  of premiums paid for interest rate
contracts  as  discussed  above.  Such  payments  and  amortization  amounts are
accounted for as  adjustments  to the yields of securities  held for trading and
are reported as a separate component of interest income.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                          1998          1997           1996
                                            ------        ------         ------ 
<S>                                         <C>           <C>            <C>    
Interest rate contract
 (income) expense:
   Swaps ...........................        $  313        $  330         $ (168)
   Caps, floors, and collars .......           223          (370)          (220)
   Options .........................           943           770            640
                                            ------        ------         ------ 
Net interest expense on
    interest rate contracts ........        $1,479        $  730         $  252
                                            ======        ======         ======
</TABLE>

The above table does not include  realized and unrealized  gains and losses with
respect to the market  value of  interest  rate  contracts  held in the  trading
portfolio.  Such gains and losses are generally  offset by  fluctuations  in the
market  value  of the  Company's  assets  held for  trading.  All  realized  and
unrealized gains and losses pertaining to interest rate contracts in the trading
portfolio are reported as other income in the Company's Consolidated  Statements
of Operations.

Harrington  is  subject  to the risk that its  counter-parties  with  respect to
various interest rate contracts (such as swaps,  collar,  caps, floors,  options
and futures) may default at or prior to maturity of a particular instrument.  In
such a case,  the Company might be unable to recover any  unrealized  gains with
respect to a particular contract.

18
<PAGE>
To  reduce  this  potential  risk,  the  Company  generally  deals  with  large,
established investment brokerage firms when entering into these transactions. In
addition,  if the  Company  enters  into an interest  rate  contract  with a non
AA-rated (or above) entity and the Company has an  unrealized  gain with respect
to such contract, the Company generally requires the entity to post some form of
collateral  to secure its  obligations.  Furthermore,  the  Company has a policy
whereby it limits its unsecured  exposure to any one  counterparty to 25% of the
Bank's equity  during any  two-month  period and 35% of the Bank's equity during
any one-month period.

The Office of Thrift  Supervision  ("OTS")  requires each thrift  institution to
calculate  the  estimated   change  in  the   institution's   MVPE  assuming  an
instantaneous,  parallel  shift in the Treasury  yield curve of 100 to 400 basis
points  either  up or down  in 100  basis  point  increments.  The  OTS  permits
institutions  to perform this MVPE analysis using their own internal model based
upon  reasonable  assumptions.  The Company  retains  Smith Breeden to assist in
performing the required  calculation  of the  sensitivity of its market value to
changes in interest rates.

In estimating the market value of mortgage loans and mortgage-backed securities,
the Company utilizes various  prepayment  assumptions  which vary, in accordance
with historical experience, based upon the term, interest rate and other factors
with  respect  to the  underlying  loans.  At June 30,  1998,  these  prepayment
assumptions varied from 5% to 36% for fixed-rate  mortgages and  mortgage-backed
securities  and  varied  from  14% to 31%  for  adjustable  rate  mortgages  and
mortgage-backed securities.

The following table sets forth at June 30, 1998 the estimated sensitivity of the
Bank's MVPE to parallel yield curve shifts using  Harrington's  internal  market
value  calculation.  The table demonstrates the sensitivity of the Bank's assets
and  liabilities  both  before  and after the  inclusion  of its  interest  rate
contracts.

The table set forth below does not  purport to show the impact of interest  rate
changes on Harrington's equity under generally accepted  accounting  principles.
Market value changes only impact the Company's  income  statement or the balance
sheet (1) to the extent the affected  instruments are marked to market,  and (2)
over the life of the instruments as an impact on recorded yields.
<TABLE>
<CAPTION>
(Dollars in thousands)
Change in
<S>                                         <C>           <C>           <C>           <C>          <C>    <C>           <C>
Interest Rates (In Basis Points)(1) ....        -400          -300          -200          -100      --        +100          +200

Market value gain (loss) of assets .....    $ 34,498      $ 25,182      $ 17,057      $ 10,498      --    $(17,232)     $(38,546)
Market value gain (loss) of liabilities       (4,698)       (3,576)       (2,451)       (1,279)     --       1,436         3,064
                                            --------      --------      --------      --------     ----   --------      --------  
Market value gain (loss) of net
   assets before interest rate contracts      29,800        21,606        14,606         9,219      --     (15,796)      (35,482)
Market value gain (loss)
    of interest rate contracts .........     (22,328)      (18,097)      (13,535)       (8,070)     --      12,845        30,307
                                            --------      --------      --------      --------     ----   --------      --------  
Total change in MVPE(2) ................    $  7,472      $  3,509      $  1,071      $  1,149      --    $ (2,951)     $ (5,175)
                                            --------      --------      --------      --------     ----   --------      --------  
Change in MVPE as a percent of:
   MVPE(2) .............................        21.2%          9.9%          3.0%          3.3%     --        (8.4)%       (14.7)%
   Total assets of the Bank ............         1.5%          0.7%          0.2%          0.2%     --        (0.6)%        (1.1)%

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Change in
<S>                                         <C>           <C>
Interest Rates (In Basis Points)(1) ....        +300          +400

Market value gain (loss) of assets .....    $(61,294)     $(83,934)
Market value gain (loss) of liabilities        4,825         6,624
Market value gain (loss) of net
   assets before interest rate contracts     (56,469)      (77,310)
Market value gain (loss)
    of interest rate contracts .........      49,820        69,985
Total change in MVPE(2) ................    $ (6,649)     $ (7,325)

Change in MVPE as a percent of:
   MVPE(2) .............................       (18.8)%       (20.8)%
   Total assets of the Bank ............        (1.4)%        (1.5)%


</TABLE>
(1)  Assumes  an  instantaneous   parallel  change  in  interest  rates  at  all
maturities.
(2) Based on the Bank's pre-tax MVPE of $35.3 million at June 30, 1998.


                                                                              19
<PAGE>
Since a large portion of  Harrington's  assets is recorded at market value,  the
following table is included to show the estimated impact on the Company's equity
of  instantaneous,  parallel  shifts in the yield  curve,  and  constant  option
adjusted  spreads  on assets and  liabilities.  The  assets  and  interest  rate
contracts included in the table below are only those which are either classified
by the  Company  as held for  trading  or  available  for sale  and,  therefore,
reflected at market value.  Consequently,  Harrington's  liabilities,  which are
reflected at cost,  are not  included in the table below.  All amounts are shown
net of taxes, with an estimated effective tax rate of 39.0%.
<TABLE>
<CAPTION>
(Dollars in thousands)
Change in
Interest Rates (In Basis Points)                        -400          -300        -200          -100    --        +100        +200 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>         <C>           <C>          <C>   <C>         <C>   
After tax market value gain (loss) of assets       $  16,770     $  12,180   $   8,161     $   4,788    --    $ (7,051)   $(15,600)
After tax market value gain (loss) of interest       (12,283)       (9,681)     (6,998)       (4,050)   --       6,287      14,889
   rate contacts                                   ---------     ---------   ---------     ---------          --------    --------  
                                                    

After tax gain (loss) in equity                    $   4,487     $   2,499   $   1,163     $     738    --    $   (764)   $   (711)
                                                   ---------     ---------   ---------     ---------          --------    -------- 
After tax gain (loss) in equity as a percent of     
   the Company's equity at June 30, 1998                19.8%         11.0%       5.1%           3.3%   --        (3.4)%      (3.1)%

<CAPTION>
Change in
Interest Rates (In Basis Points)                         +300        +400                                        
---------------------------------------------------------------------------                            
<S>                                                 <C>         <C>                                        
After tax market value gain (loss) of assets        $ (24,792)  $ (34,012)                     
After tax market value gain (loss) of interest         24,588      34,729
   rate contacts                                    ---------   ---------   
                                                                          
After tax gain (loss) in equity                     $    (204)  $     717  
                                                    ---------   ---------                      

After tax gain (loss) in equity as a percent of                                
   the Company's equity at June 30, 1998                 (0.9)%       3.2%        

</TABLE>
Changes in Financial Condition

General. At June 30, 1998, Harrington's total assets amounted to $484.4 million,
as compared to $446.8 million at June 30, 1997. The increase in total assets was
primarily due to a $70.0 million increase in the Bank's loan portfolio which was
partially offset by a $38.3 million decrease in the securities portfolio and due
from broker account.

Cash and Interest-Bearing  Deposits. Cash and interest-bearing deposits amounted
to $11.8  million  and $9.5  million  at June 30,  1998 and 1997,  respectively.
Harrington  actively  manages  its  cash  and cash  equivalents  based  upon the
Company's  operating,   investing  and  financing  activities.  Based  upon  the
Company's current size, cash and cash equivalents  generally  fluctuate within a
range of $5.0 million to $20.0 million.  Harrington generally attempts to invest
its excess liquidity in higher yielding assets such as loans or securities.
<PAGE>
Securities  Held for  Trading  and  Available  for Sale.  In order to reduce the
Company's  credit risk  exposure,  to enhance  balance sheet  liquidity,  and to
utilize excess capital balances,  Harrington  maintains a substantial portion of
its assets in a hedged  mortgage-backed  and related securities  portfolio,  the
securities  of which are  primarily  issued  or  guaranteed  by U.S.  Government
agencies or government sponsored enterprises. Almost all of these securities and
their related interest rate risk management contracts are classified as held for
trading and,  pursuant to SFAS 115,  are reported at fair value with  unrealized
gains and losses  included in  earnings.  The  remainder of the  securities  are
classified as available for sale and thus also reported at fair value,  but with
unrealized  gains and losses  excluded from  earnings and reported  instead as a
separate component of stockholders' equity.

Securities  held  for  trading   (consisting  of   mortgage-backed   securities,
mortgage-backed  derivative  securities,  interest  rate  contracts  and  equity
securities)  amounted to $290.6  million and $317.4 million at June 30, 1998 and
1997, respectively. Securities classified as available for sale (consisting of a
non-agency  mortgage-backed  security and  municipal  bonds)  declined from $1.1
million at June 30, 1997 to $922,000 at June 30, 1998.

Loans  Receivable.  At June 30, 1998,  loans  receivable  (net of the  Company's
allowance for loan losses) amounted to $163.5 million, an increase of 74.1% over
the June 30, 1997 total of $94.0 million. Harrington has significantly increased
its community  banking  operations,  particularly the origination (both directly
and  through   correspondent   mortgage  banking   companies)  of  single-family
residential loans. Loans originated  through  correspondents  must meet the same
pricing and underwriting standards as loans originated internally.

Allowance  for Loan Losses.  At June 30, 1998,  Harrington's  allowance for loan
losses  totaled  $360,000,  compared to $213,000 at June 30,  1997.  At June 30,
1998, the Company's allowance  represented  approximately 0.2% of the total loan
portfolio  and 126.3% of total  non-performing  loans,  as  compared to 0.2% and
63.4% at June 30, 1997. The ratio of total  non-performing  loans to total loans
amounted  to 0.2% at June 30,  1998  compared  to 0.4% at June 30,  1997,  which
reflects  Harrington's  emphasis on maintaining  low credit risk with respect to
its operations.

20
<PAGE>
Although  Harrington  management  believes that its allowance for loan losses at
June 30, 1998 was  adequate  based on facts and  circumstances  available  to it
(including  the  historically  low level of loan  charge-offs),  there can be no
assurances  that  additions  to the  allowance  will not be  necessary in future
periods, which could adversely affect the Company's results of operations.

Deposits.  At June 30, 1998,  deposits  totaled $178.3  million,  as compared to
$136.2 million as of June 30, 1997.  Retail  deposits  increased  $43.3 million,
from  $123.5  million  at June 30,  1997 to  $166.8  million  at June 30,  1998,
primarily due to Harrington's  strategy of rapidly building a community  banking
franchise.  Non-retail deposits declined by $1.2 million during the same period,
for a total increase in deposits of $42.1 million.

Borrowings.  At June 30, 1998,  reverse  repurchase  agreements and dollar rolls
(both of which are  securities  sold  under  agreements  to  repurchase  and are
accounted  for as a financing)  totaled  $240.4  million,  as compared to $245.6
million as of June 30, 1997.

Advances from the FHLB of  Indianapolis  remained  stable at $26.0 million as of
June 30, 1998 and 1997.  At June 30,  1998,  the FHLB  advance was  scheduled to
mature in fiscal  1999,  with an  average  interest  rate  thereon  of 5.6%,  as
compared to 5.8% at June 30, 1997.

The Company's  note payable  amounted to $13.5 million and $10.0 million at June
30, 1998 and 1997,  respectively.  The note payable  relates to a loan  facility
which was used to refinance,  to a significant  extent,  the unpaid balance of a
$10.0 million  acquisition loan which financed the Company's  acquisition of the
Bank.

Stockholders' Equity.  Stockholders' equity decreased from $25.0 million at June
30, 1997 to $22.7  million at June 30, 1998.  This decrease was due primarily to
the $1.9 million of net loss  recognized  during  fiscal  1998,  the purchase of
treasury  stock  amounting  to $1.5  million  and the  payment of the  Company's
quarterly  dividends of $.03 per share, or $395,000 in total.  This decrease was
partially  offset by the $1.1 million raised in connection  with the exercise of
existing  stock options during fiscal 1998 and the $283,000 tax benefit from the
exercise of non-qualified stock options.

Results of Operations

Summary of  Operations.  Harrington  reported  net loss of $1.9 million or $0.57
basic loss per share for the year ended June 30, 1998  compared to net income of
$2.0 million or $0.61 basic earnings per share for the year ended June 30, 1997.
This $3.9 million or 192.9%  decrease in net income was due  primarily to a $3.1
million decrease in net interest income, a $2.1 million decrease in other income
(loss) and a $1.0 million  increase in operating  expenses,  which was partially
offset by a $2.5 million decrease in the income tax provision.

Net  income for the year ended  June 30,  1997 was $2.0  million or $0.61  basic
earnings per share,  compared to $1.2 million or $0.57 basic  earnings per share
for the year ended June 30, 1996.  The $779,000 or 63.7%  increase in net income
was due primarily to a $2.6 million increase in net interest  income,  which was
partially offset by a $1.7 million increase in operating expenses which includes
the Savings Association  Insurance Fund ("SAIF") special assessment of $830,000,
and a $613,000 increase in the income tax provision.


                                                                              21
<PAGE>
Average  Balances,  Net Interest  Income and Yields  Earned and Rates Paid.  The
following  table  presents for the periods  indicated the total dollar amount of
interest from average  interest-earning assets and the resultant yields, as well
as the interest expense on average interest-bearing liabilities,  expressed both
in dollars and rates,  and the net interest  margin.  The table does not reflect
any effect of income taxes.  All average balances are based on average month end
balances  for the  Company and average  daily  balances  for the Bank during the
periods presented.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                                         1998                             1997                 
--------------------------------------------------------------------------------------------------------------
                                                  Average              Yield/    Average                Yield/   
Interest Rate (1)                                 Balance  Interest     Rate     Balance    Interest     Rate
--------------------------------------------------------------------------------------------------------------
<S>                                              <C>      <C>         <C>        <C>         <C>       <C>    
Interest-Earning Assets:
   Interest-bearing deposits ................    $ 14,590 $    792      5.43%    $ 22,727      1,197     5.27%                      
   Securities held for trading (2) ..........     386,640   23,947      6.19      390,867     26,808     6.86                  
   Securities available for sale (3) ........       1,039       91      8.76        1,375        133     9.67                  
   Loans receivable, net (4) ................     116,982    8,734      7.47       78,545      6,087     7.75                  
   Federal Home Loan Bank stock .............       4,858      392      8.07        3,179        249     7.83 
                                                 --------  -------    ------    ---------    -------   ------ 
   Total interest-earning assets ............     524,109   33,956      6.48%     496,693     34,474     6.94%
                                                 --------  -------    ------    ---------    -------   ------                     
Non-interest-earning assets .................      14,872                          10,714 
                                                 --------                        --------                     
   Total assets .............................    $538,981                        $507,407                     
                                                 --------                        -------- 
Interest-Bearing Liabilities:                                                                                 
   Deposits:                                                                                                  
     NOW and checking accounts ..............    $  6,788      166      2.45%   $  4,697        124     2.64% 
     Savings accounts .......................      25,666    1,117      4.35      20,463        844     4.12  
     Money market deposit accounts ..........       2,235      101      4.52       1,886         82     4.35  
     Certificates of deposit ................     117,073    6,919      5.91     109,756      6,416     5.85 
                                                 --------  -------      ----    --------     ------   ------  
    Total deposits ..........................     151,762    8,303      5.47     136,802      7,466     5.46  
   Securities sold under agreements                                                                           
       to repurchase ........................     319,578   17,905      5.60     306,034     16,391     5.36  
    Federal Home Loan Bank advances .........      27,488    1,843      6.70      26,089      1,644     6.30  
                                                                                                              
    Note payable ............................      11,355      981      8.64      10,168        907     8.92
                                                 --------  -------      ----    --------     ------   ------    
   Total interest-bearing liabilities .......     510,183   29,032      5.69%    479,093     26,408     5.51% 
                                                 --------  -------     -----    --------     ------   ------    
Non-interest bearing liabilities ............       4,200                          4,307  
                                                 --------                       --------                      
Total liabilities ...........................     514,383                        483,400                      
Stockholders' equity ........................      24,598                         24,007  
                                                 --------                       -------- 
Total liabilities and stockholders' equity ..    $538,981                       $507,407     
                                                 --------                       --------                      
Net interest income; interest rate spread (5)             $  4,924      0.79%              $  8,066     1.43% 
                                                          --------    ------               --------   ------  
Net interest margin (5)(6) ..................                           0.94%                           1.62% 
Average interest-earning assets to                                    ------                          ------  
   average interest-bearing liabilities .....                         102.73%                         103.67% 
                                                                                                              
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                   1996                                       
                                                   ------------------------------------                       
                                                    Average                     Yield/  
                                                    Balance      Interest       Rate                   
                                                   ------------------------------------                       
<S>                                                <C>           <C>           <C>       
Interest-Earning Assets:                      
   Interest-bearing deposits ................      $  14,520     $     780        5.37%  
   Securities held for trading (2) ..........        243,862        18,034        7.40   
   Securities available for sale (3) ........          2,672           194        7.26   
   Loans receivable, net (4) ................         52,399         4,276        8.16   
   Federal Home Loan Bank stock .............          2,533           200        7.90   
                                                   ---------     ---------      ------                        
   Total interest-earning assets ............        315,986        23,484        7.43%  
                                                   ---------     ---------      ------                        
Non-interest-earning assets .................         13,952                             
   Total assets .............................      $ 329,938                             
                                                   ---------     ---------      ------                        
Interest-Bearing Liabilities:                                                           
   Deposits:                                                                            
     NOW and checking accounts ..............         3,813           110        2.88%  
     Savings accounts .......................        15,922           613        3.85   
     Money market deposit accounts ..........         1,777            77        4.33   
     Certificates of deposit ................       103,981         6,351        6.11
                                                   ---------     ---------      ------  
    Total deposits ..........................       125,493         7,151        5.70   
   Securities sold under agreements                                                     
       to repurchase ........................       148,523         8,352        5.62   
    Federal Home Loan Bank advances .........        27,586         1,596        5.79                         
    Note payable ............................         9,553           905        9.47   
                                                   ---------     ---------      ------                        
   Total interest-bearing liabilities .......       311,155        18,004        5.79%  
                                                                                        
Non-interest bearing liabilities ............         5,894  
                                                   ---------     ---------      ------  
   Total liabilities ........................       317,049                             
Stockholders' equity ........................        12,889 
                                                   ---------     ---------      ------  
Total liabilities and stockholders' equity ..      $329,938                             
                                                   ---------     ---------      ------           
Net interest income; interest rate spread (5)                     $  5,480       1.64%  
                                                   ---------     ---------      ------           

Net interest margin (5)(6) ..................                                    1.73% 
                                                   ---------     ---------     -------  
Average interest-earning assets to                                                      
   average interest-bearing liabilities .....                                  101.55%  
                                                   ---------     ---------     -------  
</TABLE>
<PAGE>

(1)  At June 30,  1998,  the  yields  earned  and rates  paid  were as  follows:
     interest-bearing  deposits,  5.34%;  securities  held for  trading,  6.10%;
     securities  available for sale, 7.77%;  loans  receivable,  net 7.37%; FHLB
     stock,  8.00%;  total  interest-earning  assets,  6.55%;  deposits,  5.50%;
     securities  sold under  agreements to  repurchase,  5.65%;  FHLB  advances,
     5.64%; note payable,  8.64%;  total  interest-bearing  liabilities,  5.68%;
     interest rate spread, 0.87%.

(2)  Both the interest and yields earned on the Company's  securities  portfolio
     reflect the net interest  expense incurred with respect to various interest
     rate contracts (such as interest rate swaps, collars, caps, floors, options
     and  futures)  which were  utilized to hedge the  Company's  interest  rate
     exposure.  During the years  ended June 30,  1998,  1997 and 1996,  the net
     costs of hedging the  Company's  interest rate exposure with respect to its
     securities held for trading amounted to $1.5 million or 0.77%,  $730,000 or
     0.37% and $252,000 or 0.21%, respectively.

(3)  The average  balance  reflects  the carrying  value of  available  for sale
     investments  net of the  average  valuation  allowance  related to a single
     non-agency participation certificate of $155,000, $276,000 and $447,000 for
     the years ended June 30, 1998, 1997 and 1996, respectively.

(4)  Net of deferred  loan fees,  loan  discounts  and  undisbursed  loan funds.
     Includes  nonaccrual  loans.  Interest on nonaccrual loans is recorded when
     received.

(5)  Excluding the costs of hedging the Company's  interest rate exposure (which
     has  effectively  reduced  the yields  earned on the  Company's  securities
     portfolio), the Company's interest rate spread amounted to 1.07%, 1.58% and
     1.72%,  and the Company's net interest margin amounted to 1.22%,  1.77% and
     1.81% for the years ended June 30, 1998, 1997 and 1996, respectively.

(6)  Net   interest   margin  is  net   interest   income   divided  by  average
     interest-earning assets.


22
<PAGE>
Rate/Volume Analysis - The following table describes the extent to which changes
in  interest  rates  and  changes  in  volume  of  interest-related  assets  and
liabilities  have affected the Company's  interest  income and interest  expense
during the periods indicated.  For each category of interest-earning  assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume  (change in volume  multiplied  by prior year  rate),  (2)
changes in rate (change in rate multiplied by prior year volume),  and (3) total
change in rate and  volume.  The  combined  effect of  changes  in both rate and
volume has been  allocated in proportion to the absolute  dollar  amounts of the
changes due to rate and volume.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                                      1998 vs. 1997                       1997 vs. 1996
---------------------------------------    -----------------------------------    ----------------------------------
                                                  Increase                              Increase
                                                 (Decrease)            Total           (Decrease)         
                                                   Due to             Increase           Due to              Total  
                                             Rate        Volume     (Decrease)     Rate          Volume    Increase 
                                             ----        ------     ----------     ----          ------    -------- 
<S>                                        <C>          <C>          <C>          <C>          <C>          <C>     
Interest-earning assets:
  Interest-bearing deposits ...........    $     36     $   (441)    $   (405)    $    (16)    $    433     $    417

  Securities held for trading and
     securities available for sale ....      (2,593)        (310)      (2,903)      (1,377)      10,090        8,713
  Loans receivable, net ...............        (230)       2,877        2,647         (225)       2,036        1,811
  Federal Home Loan Bank stock ........           8          135          143           (2)          51           49
                                           --------     --------         ----     --------     --------       ------

     Total interest-earning assets ....    $ (2,779)    $  2,261         (518)    $ (1,620)    $ 12,610       10,990
                                           --------     --------         ----     --------     --------       ------

Interest-bearing liabilities:
   NOW and checking accounts ..........    $    (10)    $     52           42     $    (10)    $     24           14
   Savings accounts ...................          49          224          273           46          185          231
   Money market deposit accounts ......           3           16           19         --              5            5
   Certificates of deposit ............          71          432          503         (279)         344           65
                                           --------     --------         ----     --------     --------       ------
     Total deposits ...................         113          724          837         (243)         558          315
   Securities sold under agreements
     to repurchase ....................         772          742        1,514         (415)       8,454        8,039
   Federal Home Loan Bank advances ....         108           91          199          138          (90)          48
   Note payable .......................         (29)         103           74          (54)          56            2
                                           --------     --------         ----     --------     --------       ------

     Total interest-bearing liabilities    $    964     $  1,660        2,624     $   (574)    $  8,978        8,404
                                           --------     --------         ----     --------     --------       ------

Increase (decrease) in net
     interest income ..................                              $ (3,142)                              $  2,586
                                                                     --------                               --------        
</TABLE>
<PAGE>
Interest Income. For the year ended June 30, 1998,  Harrington's interest income
decreased by $518,000 or 1.5% to $34.0 million,  compared to the year ended June
30, 1997. This decrease was primarily due to a $2.9 million decrease in interest
income on the Company's  investment  portfolio including the increase in the net
interest expense on interest rate contracts maintained in the trading portfolio.
This decrease was partially offset by a $2.6 million increase in interest income
from the loan portfolio.  The 67 basis point decline in interest income from the
investment portfolio was largely a result of the Company's shifting of assets to
low initial rate GNMA  one-year  adjustable  rate  mortgage  securities  and the
shifting of the  portfolio's  fixed rate mortgage  investments  to lower coupons
with lower accounting yields but higher option adjusted spreads. The increase in
interest  income on the loan  portfolio was a direct result of the $38.4 million
increase in the level of the average loan portfolio  which was partially  offset
by a 28 basis point decline in the interest yield earned caused  primarily by an
overall decline in the level of interest rates during fiscal 1998.

For the year ended June 30,  1997,  Harrington's  interest  income  increased by
$11.0  million or 46.8% to $34.5  million,  compared  to the year ended June 30,
1996.  This increase was  primarily due to an $8.7 million  increase in interest
income on the Company's investment portfolio,  including the increase in the net
interest expense on interest rate contracts maintained in the trading portfolio,
and a $1.8  million  increase in interest  income from the loan  portfolio.  The
increase in interest income 

                                                                              23
<PAGE>
from the Company's investment portfolio was a direct result of deploying capital
raised in the  Company's  initial  public  offering  (IPO) which  increased  the
average  portfolio by $145.7  million which was  partially  offset by a 53 basis
point decline in the interest yield earned.  The increase in interest  income on
the loan  portfolio  was a direct  result of the $26.1  million  increase in the
level of the average loan  portfolio  which was  partially  offset by a 41 basis
point  decline in the interest  yield earned.  The decreases in interest  yields
earned  were  primarily  caused by an overall  decline in the level of  interest
rates during fiscal 1997.

Interest  Expense.  For the year  ended  June 30,  1998,  Harrington's  interest
expense increased by $2.6 million or 9.9% to $29.0 million, compared to the year
ended June 30, 1997. This increase was primarily due to a $31.1 million increase
in the  level of  average  interest-bearing  liabilities  and an 18 basis  point
increase in the cost of  interest-bearing  liabilities  resulting mainly from an
increase  in  the  funding  costs  for  securities  sold  under   agreements  to
repurchase.

For the year ended June 30, 1997,  Harrington's  interest  expense  increased by
$8.4  million  or 46.7% to $26.4  million,  compared  to the year ended June 30,
1996. This increase was primarily due to a $167.9 million  increase in the level
of average interest-bearing liabilities which was partially offset by a 28 basis
point decrease in the cost of interest-bearing liabilities resulting mainly from
an overall decrease in the interest rates during fiscal year 1997.

Net Interest  Income.  Net interest income decreased by $3.1 million or 39.0% to
$4.9 million  during  fiscal year 1998 as compared to fiscal year 1997.  For the
year ended June 30,  1997,  Harrington's  net interest  income  amounted to $8.1
million, compared to $5.5 million for the year ended June 30, 1996.

Provision for Loan Losses.  The provision for loan losses is charged to earnings
to bring the total  allowance to a level  considered  appropriate  by management
based  on the  estimated  net  realizable  value of the  underlying  collateral,
general economic conditions, particularly as they relate to the Company's market
areas,  historical  loan  loss  experience  and  other  factors  related  to the
collectibility  of the Company's loan portfolio.  While management  endeavors to
use the best information  available in making its evaluations,  future allowance
adjustments may be necessary if economic  conditions change  substantially  from
the assumptions used in making the evaluations.

Harrington  established  provisions  (recoveries)  for loan losses of  $147,000,
$92,000  and  $(1,000)  during  the years  ended June 30,  1998,  1997 and 1996,
respectively.   During  such  respective  periods,   loan  charge-offs  (net  of
recoveries)  amounted  to  $0,  $(1,000)  and  $0,  respectively.  Although  the
Company's non-performing loans remain low, given the growth in the mortgage loan
portfolio and the initial  production of commercial related loans, the Company's
analysis of loan reserve  requirements  indicated that additional  reserves were
prudent.  The allowance for loan losses as a percentage of total  non-performing
loans  was  126.3%  and  63.4% at June  30,  1998 and  1997,  respectively.  The
allowance  for loan losses as a  percentage  of total loans was 0.2% at June 30,
1998 and 1997.

Other  Income  (Loss).   Other  income  (loss)  is  comprised  of  two  distinct
components:  gains and losses on the Company's investment securities and hedging
instruments,  and fee and other  income from retail  bank  operations.  Gains or
losses on  investments  and hedges which have been sold are reported as realized
gains or losses,  and market  value  gains or losses on  investments  and hedges
which remain in the  Company's  portfolio  are reported as  unrealized  gains or
losses.
<PAGE>
Management's  goal is to attempt to offset any change in the market value of its
securities  portfolio  with the change in the market value of the interest  rate
risk management contracts and mortgage-backed  derivative securities utilized by
the  Company  to hedge its  interest  rate  exposure.  In  addition,  management
attempts to produce an overall  gain with  respect to its  securities  portfolio
through the use of option-adjusted  pricing analysis.  The Company utilizes such
analysis to select  securities  with wider  spreads for  purchase  and to select
securities  to  sell  for a gain as  spreads  tighten  (net of the  gain or loss
recognized with respect to related interest rate contracts).

However,  the use of  mark-to-market  accounting  for the trading  portfolio can
cause  volatility  in reported  earnings due to short-term  fluctuations  in the
market  value  of the  securities  relative  to that of the  hedge  instruments.
Harrington  accepts this volatility and realizes that a major benefit of marking
assets to market is that it provides  shareholders with more timely  information
on the economic  value of the Company's  portfolio and it allows  flexibility to
grow or reduce investments as opportunities allow.

The following table sets forth information regarding other income (loss) for the
periods shown.

<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                           1998         1997         1996
-------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>   
Gain (loss) on sale of
   securities held for trading .......      $  (775)      $(1,623)      $ 1,834
Unrealized gain (loss) on
   securities held for trading .......         (930)        2,117        (1,960)
Other (1) ............................          295           239           256
                                            -------       -------       -------
Total other income (loss) ............      $(1,410)      $   733       $   130
                                            =======       =======       =======
</TABLE>

(1) Consists primarily of loan servicing fees and late charges, checking account
fees,  trust and  investment  management  service fees,  rental income and other
miscellaneous fees.

24
<PAGE>
Total other income (loss) amounted to $(1.4) million for the year ended June 30,
1998. This total consisted of a net realized and unrealized loss of $1.7 million
on the trading portfolio, plus fee and other retail bank income of $295,000. The
loss on the trading  portfolio,  net of hedges,  reflects  only a portion of the
total income (loss)  produced from this  portfolio in fiscal 1998.  Total income
from this  portfolio  consists  of both  interest  income and net  realized  and
unrealized gains and losses on the investments and hedges.

The Company seeks to produce a positive  spread between the total income of this
portfolio and one month LIBOR, the Company's marginal cost of borrowing.  In the
fiscal years 1998,  1997, and 1996, this portfolio  produced a net hedged spread
to one  month  LIBOR  of  0.15%,  1.47%  and  1.44%,  respectively.  The  weaker
investment  performance of the Company's hedged mortgage securities portfolio in
fiscal year 1998 can be attributed to the low interest rate and flat yield curve
environment which, together with the associated prepayment  uncertainty,  caused
investors to demand a larger spread between the rates on mortgage securities and
comparable duration securities. Management expects that this situation, although
negatively affecting the returns in fiscal 1998, to provide favorable investment
management opportunities for Harrington in future periods.

Total other income  amounted to $733,000 for the year ended June 30, 1997.  This
total consisted of a net realized and unrealized gain of $494,000 on the trading
portfolio,  plus fee and other retail bank income of  $239,000.  The net gain in
fiscal 1997 can be attributed to such factors as  opportunistic  trades  between
fixed and  adjustable  rate  securities at favorable  relative  option  adjusted
spreads,  the  general  tightening  of  mortgage  spreads to the  related  hedge
instruments,  and the use of a higher mix of  interest  rate swaps to  financial
futures  in hedging  that  shifts a portion of hedge  expense  from the  trading
portfolio gain to net interest income.

Total other income  amounted to $130,000 for the year ended June 30, 1996.  This
total was  comprised of fee and other  retail bank income of $256,000  which was
reduced by a net realized and unrealized loss of $126,000 on securities held for
trading.  The  securities  loss  resulted  from changes in the market  values of
mortgage-backed  securities  which  were not  entirely  offset by changes in the
market values of the interest rate contracts in the trading portfolio.

Other  Expense.  In order to enhance  the  Company's  profitability,  management
strives to maintain a favorable level of operating expenses relative to its peer
group. During the years ended June 30, 1998, 1997 and 1996, total other expense,
excluding the special SAIF  assessment,  as a percentage of average total assets
amounted to 1.2%,  0.9% and 1.1%,  respectively.  The following table sets forth
certain information regarding other expense for the periods shown.
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                                1998        1997        1996
--------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>   
Salaries and employee benefits .............      $3,295      $2,174      $1,776
Premises and equipment .....................         805         532         466
 Special SAIF assessment ...................                     830
FDIC insurance premiums ....................          86         180         276
 Marketing .................................         183         136         200
Computer services ..........................         243         165         143
Consulting fees ............................         287         281         232
Other (1) ..................................       1,561       1,146         647
                                                  ------      ------      ------
   Total other expense .....................      $6,460      $5,444      $3,740
                                                  ======      ======      ======
</TABLE>
 
(1) Consists  primarily  of costs  relating  to  postage,  forms  and  supplies,
    professional fees, supervisory assessments and other miscellaneous expenses.

The principal  category of  Harrington's  other expense is salaries and employee
benefits,  which increased by $1.1 million or 51.6% and $398,000 or 22.4% during
fiscal 1998 and 1997,  respectively.  A major cause of these  increases  was the
continuing  implementation of Harrington's  community bank expansion strategy. A
total of six new banking  locations were opened since May 1994, with three being
opened in the third quarter of fiscal year 1998, and the administrative  support
at the home office was increased as well. In addition,  new employees were hired
in connection with the growth in the Bank's mortgage lending  operations and the
development of the Bank's commercial loan department.

Premises  and  equipment  expense  increased by $273,000 or 51.3% and $66,000 or
14.2% during  fiscal 1998 and 1997,  respectively.  The increase in premises and
equipment  expense  during the periods was  primarily  due to the opening of new
branches during fiscal years 1998 and 1997.

During the year ended June 30, 1997,  all  SAIF-insured  financial  institutions
were  required  to  pay  a  special   assessment  to  recapitalize   that  fund.
Harrington's special assessment, which was based on the Bank's level of deposits
at March 31, 1995, was $830,000.  However, beginning January 1, 1997, the Bank's
Federal Deposit Insurance  Corporation  ("FDIC")  insurance rate dropped from 23
basis  points to 6 basis  points on its  deposits.  Excluding  the special  SAIF
assessment,  FDIC insurance  premiums decreased $96,000 or 34.8% for fiscal 1997
compared to fiscal 1996. During fiscal 1998, FDIC insurance  premiums  decreased
$94,000 or 52.2%  primarily due to the decrease in the FDIC insurance rate which
was offset by an increase in deposit base.

Harrington incurred marketing expense of $183,000,  $136,000 and $200,000 during
the years ended June 30, 1998, 1997 and 1996, respectively.  The fluctuations in
marketing  expense during the periods reflected the advertising costs associated
with the opening of the Bank's new branch offices during fiscal 1998 and 1997.


                                                                              25
<PAGE>
Computer  services  expense  increased  by $78,000 or 47.3% and $22,000 or 15.4%
during fiscal 1998 and 1997, respectively.  Computer services expense relates to
the fees paid by  Harrington  to a third party who performs the  Company's  data
processing  functions  as well as to the third party  servicer  who performs the
back-office  functions  with  respect  to the  Company's  trust  and  investment
management  services.  The increase in expense for the years  presented  relates
primarily  to the  increase in the number of deposit and loan  accounts  held by
Harrington.

Harrington  has  contracted  with Smith Breeden to provide  investment  advisory
services and interest rate risk analysis.  Certain  stockholders  of the Company
are also principals of Smith Breeden.  The consulting fees paid by Harrington to
Smith  Breeden  during the years ended June 30, 1998,  1997 and 1996,  which are
based on the Company's asset size, amounted to $287,000,  $281,000 and $232,000,
respectively.

Income Tax Provision. The Company received an income tax benefit of $1.2 million
during  fiscal  1998 as  compared  to income  tax  expense of $1.3  million  and
$648,000  during  the years  ended  June 30,  1997 and 1996,  respectively.  The
Company's effective tax rate amounted to 39.9%, 38.6% and 34.6% during the years
ended June 30, 1998, 1997 and 1996,  respectively.  The Company's  effective tax
rate for the year ended June 30,  1996 was lower  than the  effective  rates for
fiscal  years 1998 and 1997  primarily  due to increased  permanent  differences
relative to the level of pre-tax income in fiscal 1996.

Liquidity
---------
The Bank is required under applicable federal  regulations to maintain specified
levels of "liquid"  investments  as defined by the OTS. As of November 24, 1997,
the  required  level of such liquid  investments  was  changed  from 5% to 4% of
certain  liabilities  as defined by the OTS.  In  addition  to the change in the
percentage  of  required  level of  liquid  assets,  the OTS also  modified  its
definition  of  investments  that are  considered  liquid.  As a result  of this
change,  the level of assets  eligible  for  regulatory  liquidity  calculations
increased considerably.

The total eligible regulatory liquidity of the Bank was 15.58% at June 30, 1998,
as compared  to 5.25% at June 30,  1997.  At June 30,  1998,  the Bank's  liquid
assets as defined by the OTS  totaled  approximately  $82.2  million,  which was
$61.1 million in excess of the current OTS minimum requirement.

The Bank  maintains  liquid assets at a level  believed  adequate to support its
normal operations,  including funding loans and paying deposit withdrawals. Cash
flow  projections  are  regularly  reviewed and updated to ensure that  adequate
liquidity is maintained.  Cash for these purposes is generated  through the sale
or maturity  of  securities,  the receipt of loan  payments,  and  increases  in
deposits  and  borrowings.  While the level of loan and deposit  activity is not
entirely  under the control of the Bank, the sale of securities and increases in
borrowings are entirely at the Bank's discretion and thus provide a ready source
of cash when needed.

As a  member  of the  FHLB  System,  the  Bank  may  borrow  from  the  FHLB  of
Indianapolis.  FHLB  advances  may be obtained  on very short  notice due to the
Bank's blanket  collateral  agreement  with the FHLB. In addition,  the Bank can
pledge  securities  for  collateralized  borrowings  such as reverse  repurchase
agreements  and  quickly  obtain  cash  whenever  needed.   In  the  opinion  of
management,  Harrington has sufficient cash flow and borrowing  capacity to meet
current and anticipated funding commitments.
<PAGE>
The Bank's liquidity,  represented by cash and cash equivalents,  is a result of
its operating,  investing and financing  activities.  During the year ended June
30, 1998, there was a net increase of $2.3 million in cash and cash equivalents.
The major  sources of cash during the year included  $680.8  million in proceeds
from sales and  maturities of securities  held for trading,  a $42.1 million net
increase in deposits and an $11.3 million  decrease in amounts due from brokers.
Partially  offsetting  these sources of cash,  the major uses of cash during the
fiscal year were  purchases of  securities  for the trading  portfolio of $657.2
million and loan originations, net of repayments, of $70.0 million.

Year 2000
---------
The Year 2000 issue is the result of computer  programs  being written using two
digits rather than four to define the applicable  year.  The Company's  computer
programs and those of  third-party  computer  related  providers may recognize a
date using "00" as the year 1900 rather than the year 2000. This situation could
result in system failures or  miscalculations  causing  disruption of operations
that could affect the ability of the Company to operate  effectively and service
customers.

The Company's State of Readiness.  The company is preparing for the year 2000 by
testing and evaluating both its information  technology (IT) and non-information
technology  systems.  The Company does not have any mission  critical  processes
that are dependent on non-IT systems. The non-IT systems,  such as the telephone
system, are either currently compliant or are expected to be compliant in fiscal
year 1999. The IT systems used by the Company have been or are being tested. The
components of the IT systems being  examined are: 1) personal  computers  (PCs),
hardware and software, 2) data service bureau, and 3) other service providers.


26
<PAGE>
Hardware and software on all PCs have been  inventoried and tested.  The limited
number of PCs and software that were not Year 2000  compliant have been replaced
or are scheduled to be replaced in the fourth quarter of calendar year 1998.

Given the  expiration of the Bank's data  processing  agreement with its current
service  provider in early calendar year 1999,  the Company has been  evaluating
its data  processing  requirements  under  its  strategic  plan and  considering
alternative  solutions  to meet these  requirements.  The Company  has  recently
selected another data service  provider,  FISERV Vision,  to replace its current
provider.  The conversion to this system is expected to be accomplished in March
of 1999. FISERV has provided the Company with assurances that the Vision product
is Year  2000  compliant,  and the  Company  will be  conducting  tests  on this
software system to confirm this compliance.

If,  for some  unexpected  reason,  the  Company  is unable to  accomplish  this
conversion  to  FISERV,  then it would  retain  its  current  vendor  and ensure
compliance with Year 2000 through written assurance from the vendor and adequate
testing of the  operating  system.  The existing  data service  vendor is making
progress  toward  making its operating  systems Year 2000  complaint and expects
this objective to be achieved in the third quarter of calendar year 1998.

Other service providers, such as the Company's financial advisors or the FHLB of
Indianapolis, are either Year 2000 compliant or are keeping the Company apprised
of their progress  towards being Year 2000  compliant.  As part of the Company's
Year 2000  compliance  program,  the Company  will be  monitoring  the  vendors'
progress  toward  compliance  and, if necessary,  testing systems to help ensure
compliance.

The Costs to Address the Company's  Year 2000 Issues.  The limited number of PCs
and  software  that  were not Year 2000  compliant  have  been  replaced  or are
scheduled to be replaced in the fourth  quarter of calendar year 1998.  The cost
of  replacing  these  machines  and  software  is  estimated  to be  $43,500  in
capitalized fixed assets in fiscal year 1999.

The Risks of the  Company's  Year  2000  Issues.  The  Company  has  established
parameters and processes for management to identify material customers, evaluate
their  preparedness,  assess their credit risk and implement  controls to manage
the risk arising  from their  failure to properly  address Year 2000  technology
issues. The Company faces increased credit,  liquidity,  or counterparty trading
risk when customers encounter Year 2000-related problems. Customers that must be
evaluated  and  monitored  are those that,  if  adversely  impacted by Year 2000
technology issues,  represent a significant financial exposure to the Company in
terms of either  credit  loss or  liquidity.  The  organizations  that have been
identified  as material  customers of the Company  will be monitored  because of
their reliance on technology for their successful business operations.

Failure of borrowers,  counterparties or servicers to address Year 2000 problems
may increase  credit risk to the Company  through the inability of these parties
to meet the terms of their  contracts and make timely  payments of principal and
interest to the Company.  Liquidity  risk may result if  depositors,  lenders or
counterparties  experience Year 2000-related  business disruption or operational
failures and are unable to provide funds or fulfill  funding  commitments to the
Company.  Capital  market  counterparties,  such as  trading  counterparties  or
interest rate swap or interest rate cap/floor counterparties,  provide contracts
that allow the  Company to enter into  forward  commitments  to purchase or sell
securities or to use hedges to reduce  interest rate risk.  Liquidity and credit
risk  may  result  if  capital  market  counterparties  are  unable  to  fulfill
contractual commitments due to operational problems caused by the Year 2000 date
change.
<PAGE>
In those cases where the Company is not fully satisfied that its  counterparties
will be Year 2000 ready,  mitigating  controls will be established such as early
termination  agreements,   additional  collateral,   netting  arrangements,  and
third-party payment arrangements or guarantees. In cases where the Company has a
high degree of  uncertainty  regarding a  counterparty's  ability to address its
Year  2000  problems,   the  Company  will  avoid  all  transactions  with  that
counterparty that mature on or after January 1, 2000 with liquidity,  credit, or
settlement risk. The Company will not resume normal transaction activities until
the counterparty has demonstrated that it is prepared for the Year 2000.

The Company's  Contingency  Plan-Data  Service  Bureau.  In the event,  the data
service bureau used by the Bank fails to operate  satisfactorily  after the turn
of the century,  the Bank would be forced to operate on a manual  system until a
conversion  could be made to a different  service bureau or the existing service
bureau  corrects its problems.  The Bank would  establish  ledger cards for each
customer  account and would  manually post  transactions  to the cards each day.
Transactions  would also be batched and manually  posted to the general  ledger.
The ledger cards would be balanced to the general ledger. The ledger cards would
be balanced to the general ledger  frequently to provide some assurance that the
manual system is functioning accurately.

The Bank would have to make some  temporary  changes in its product  menu during
the time  operating on a manual  system.  For instance,  the Bank would probably
discontinue originating mortgage loans because of the complexities involved with
them.  The Bank would also stop  opening new checking  accounts.  The Bank might
have to  convert  its  existing  checking  accounts  to savings  accounts  (with
appropriate  advance 


                                                                              27
<PAGE>
notice and disclosures to the customers) so that the Bank could more efficiently
process these accounts.  The Bank would also have to put a temporary  moratorium
on ATM transactions because the Bank would be effectively running in an off-line
mode.

Undoubtedly, the Bank would experience significant deposit run-off were the Bank
to function in such a limited capacity for any length of time. However, the Bank
has a substantial  mortgage-backed  security  portfolio  which provides the Bank
with ready liquidity should the need arise to liquidate deposits.

Investment  Securities.  The Company  has  received  assurances  that most major
brokers  with which it trades are Year 2000  compliant.  Many  smaller  regional
brokers have yet to provide these  assurances.  Beginning in November  1999, the
Company will no longer enter into any  transactions  with regional  brokers that
are not Year 2000 compliant.  In this way, the Company will control its exposure
to Year 2000 risks with these  brokers.  After the turn of the  millennium,  the
Company will carefully  evaluate regional brokers  individually  before resuming
business with them.

Most of the Company's securities are in safekeeping at the FHLB of Indianapolis,
which is progressing towards being Year 2000 compliant.  If the FHLB is not Year
2000 compliant by 1999, the Company will engage a new safekeeping  agent that is
compliant.  Similarly,  if any assets are pledged with brokers, the Company will
verify  well before the end of 1999 that those  brokers  are  already  Year 2000
compliant and if not, these assets will be pledged only with Year 2000 compliant
brokers.

Personal  Computers.  By the end of calendar  year 1998,  the Company  will have
replaced  or  upgraded  all of its  personal  computers  which  failed Year 2000
compliance  tests.  Thus,  it is  expected  that  the  Company's  PCs will be in
compliance  when the  century  turns.  The  Company  has  previously  tested the
software  used on its PCs,  and those  software  packages  that did not properly
handle the Year 2000 have been replaced.

Other Vendors and Service  Providers.  The Company is closely  monitoring all of
its other  vendors and service  providers to determine if they will be Year 2000
compliant on a timely basis.  If any vendors or service  providers  have not yet
become Year 2000  compliant  by the end of the first  quarter of  calendar  year
1999, the Bank will  immediately  find a replacement  vendor or service provider
who is compliant. It is possible,  although unlikely, that increased cost to the
institution could result from engaging replacement vendors.

General.  The costs of the project  and the date on which the  Company  plans to
complete  the Year  2000  compliance  program  are  based on  management's  best
estimates  which were derived  utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these  estimates will be achieved,  and actual  results could differ  materially
from these estimates.

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  (except  with  respect to  securities  which are carried at
market value),  without  considering changes in the relative purchasing power of
<PAGE>
money  over  time  due  to   inflation.   Unlike  most   industrial   companies,
substantially  all of the assets and  liabilities of the Company are monetary in
nature.  As a  result,  interest  rates  have a more  significant  impact on the
Company's performance than the effects of general levels of inflation.  Interest
rates do not necessarily  move in the same direction or in the same magnitude as
the prices of goods and services.

Recent Accounting Pronouncements
--------------------------------
The Financial Accounting Standards Board has issued Statement Nos. 130, 131, and
133 that the Company will be required to adopt in future periods.  See Note 1 to
the  consolidated   financial   statements  for  further   discussion  of  these
pronouncements.


28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS 

(Dollars in thousands except share data)
June 30,                                                                             1998          1997
----------------------------------------------------------------------------------------------------------
ASSETS                                                                             

<S>                                                                               <C>            <C>     
   Cash ......................................................................    $  1,567      $   1,207
                                                                                               
   Interest-bearing deposits (Note 13) .......................................       10,212         8,309
                                                                                  ---------     ---------
     Total cash and cash equivalents .........................................       11,779         9,516
   Securities held for trading - at fair value (amortized cost of
     $289,137 and $314,953) (Notes 2, 8, 13) .................................      290,609       317,355
   Securities available for sale - at fair value (amortized cost of
     $924 and $1,183) (Note 2) ...............................................          922         1,125
   Due from brokers ..........................................................                     11,308
   Loans receivable  (net of allowance for loan losses of
     $360 and $213) (Note 3) .................................................      163,546        93,958
   Interest receivable, net (Note 4) .........................................        2,318         2,080
   Premises and equipment, net (Note 5) ......................................        5,614         4,424
   Federal Home Loan Bank of Indianapolis stock - at cost ....................        4,878         4,852
   Deferred income taxes, net (Note 10) ......................................          240
   Income taxes receivable (Note 10) .........................................          435         1,118
   Other .....................................................................        4,056         1,061
                                                                                  =========     =========
TOTAL ASSETS .................................................................    $ 484,397     $ 446,797
                                                                                  =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY

   Deposits (Note 6) .........................................................    $ 178,311     $ 136,175
                                                                                                  
   Securities sold under agreements to repurchase (Note 7) ...................      240,396       245,571
   Federal Home Loan Bank advances (Note 8) ..................................       26,000        26,000
   Note payable (Note 9) .....................................................       13,495         9,995
   Interest payable on securities sold under agreements to repurchase (Note 7)          282           300
   Other interest payable ....................................................        1,596           787
   Advance payments by borrowers for taxes and insurance .....................          785           585
   Deferred income taxes, net (Note 10) ......................................                      1,249
   Accrued expenses payable and other liabilities ............................          868         1,141
                                                                                  ---------     ---------
     Total liabilities .......................................................      461,733       421,803
                                                                                  ---------     ---------

COMMITMENTS AND CONTINGENCIES (Notes 13, 14, 16)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                               <C>            <C>     
STOCKHOLDERS' EQUITY (Notes 1, 10, 11, 12, 16):
   Preferred Stock ($1 par value) Authorized and unissued -
     5,000,000 shares
   Common Stock:
   Voting ($.125 par value) Authorized - 10,000,000 shares,
     issued 3,399,938 and 3,256,738 shares,
     outstanding 3,275,886, and 3,256,738 shares .............................          425           407
   Additional paid-in capital ................................................       16,962        15,623
   Treasury stock, 124,052 shares at cost ....................................       (1,467)
   Unrealized loss on securities available for sale, net of deferred
     taxes of $1 and $23 .....................................................           (1)          (35)
   Retained earnings .........................................................        6,745         8,999
                                                                                  ---------     ---------
     Total stockholders' equity ..............................................       22,664        24,994
                                                                                  =========     =========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................    $ 484,397     $ 446,797
                                                                                  =========     =========
</TABLE>
See notes to consolidated financial statements.

                                                                              29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Dollars in thousands except share data)

Years Ended June 30,                                                         1998         1997        1996
------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S>                                                                       <C>          <C>          <C>     
   Securities held for trading .......................................    $ 25,426     $ 27,538     $ 18,286

   Net interest expense on interest rate contracts maintained in
     the trading portfolio  (Note 13) ................................      (1,479)        (730)        (252)
   Securities available for sale .....................................          91          133          194
   Loans receivable (Note 3) .........................................       8,734        6,087        4,276
   Dividends on Federal Home Loan Bank of Indianapolis stock .........         392          249          200
   Deposits ..........................................................         792        1,197          780
                                                                          --------     --------     --------
                                                                            33,956       34,474       23,484
                                                                          --------     --------     --------
INTEREST EXPENSE:
   Deposits (Notes 6, 13) ............................................       8,303        7,466        7,151
   Federal Home Loan Bank advances (Note 8) ..........................       1,843        1,644        1,596
   Short-term borrowings (Note 7) ....................................      17,905       16,391        8,352
   Long-term borrowings (Note 9) .....................................         981          907          905
                                                                          --------     --------     --------
                                                                            29,032       26,408       18,004
                                                                          --------     --------     --------

NET INTEREST INCOME ..................................................       4,924        8,066        5,480
PROVISION (CREDIT) FOR LOAN LOSSES (Note 3) ..........................         147           92           (1)
                                                                          --------     --------     --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ..................       4,777        7,974        5,481
                                                                          --------     --------     --------
OTHER INCOME (LOSS):
   Gain (loss) on sale of securities held for trading (Notes 2, 13) ..        (775)      (1,623)       1,834
   Unrealized gain (loss) on securities held for trading (Notes 2, 13)        (930)       2,117       (1,960)
   Other .............................................................         295          239          256
                                                                          --------     --------     --------
                                                                            (1,410)         733          130
                                                                          --------     --------     --------
OTHER EXPENSE:
   Salaries and employee benefits (Note 12) ..........................       3,295        2,174        1,776
   Premises and equipment expense (Note 5) ...........................         805          532          466
   SAIF assessment (Note 16) .........................................                      830
   FDIC insurance premiums ...........................................          86          180          276
   Marketing .........................................................         183          136          200
   Computer services .................................................         243          165          143
   Consulting fees (Note 15) .........................................         287          281          232
   Other .............................................................       1,561        1,146          647
                                                                          --------     --------     --------
                                                                             6,460        5,444        3,740
                                                                          --------     --------     --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                       <C>          <C>          <C>     
INCOME (LOSS) BEFORE INCOME TAX PROVISION (BENEFIT) ..................      (3,093)       3,263        1,871
INCOME TAX PROVISION (BENEFIT) (Note 10) .............................      (1,234)       1,261          648
                                                                          ========     ========     ========
NET INCOME (LOSS) ....................................................    $ (1,859)    $  2,002     $  1,223
                                                                          ========     ========     ========

BASIC EARNINGS (LOSS) PER SHARE (Note 1) .............................    $  (0.57)    $   0.61     $   0.57
                                                                          ========     ========     ========

DILUTED EARNINGS (LOSS) PER SHARE (Note 1) ...........................    $  (0.57)    $   0.61     $   0.56
                                                                          ========     ========     ========
</TABLE>
See notes to consolidated financial statements.

30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
(Dollars in thousands except share data)

                                                                                                Additional                    
                                                                     Shares        Common         Paid-in        Treasury     
                                                                   Outstanding      Stock          Capital         Stock      
                                                                   ---------     ----------     ----------     ----------     
<S>                                                                <C>           <C>            <C>            <C>            
BALANCES, JULY 1, 1995 .......................................       980,813     $      245     $    4,183                    

   Stock split 2 for 1 .......................................       980,813
   Stock options exercised (Note 12) .........................        30,112              4            161                    
   Issuance of common stock under initial public offering ....     1,265,000            158         11,279                    
   (Note 1)
   Net income ................................................                                                                
   Net change in unrealized gain (loss) on securities
     available for sale, net of deferred tax of $(4)...........                                                               
                                                                  ----------     ----------     ----------     ----------     
BALANCES, JUNE 30, 1996 ......................................     3,256,738            407         15,623                    
   Net income ................................................                                                                
   Cash dividends declared on common stock ($0.03 per share) .                                                                
   Net change in unrealized gain (loss) on securities   
     available for sale, net of deferred tax of $(23).........                                                                
                                                                  ----------     ----------     ----------     ----------     
BALANCES, JUNE 30, 1997 ......................................     3,256,738            407         15,623                    
     Stock options exercised (Note 12) .......................       143,200             18          1,056                    
     Tax benefit from exercise of non-qualified stock options                                          283                    
     Net loss ................................................                                                                
     Cash dividends declared on common stock ($0.12 per share)                                                                
     Purchase of treasury stock ..............................      (124,052)                                  $   (1,467)    

     Net change in unrealized gain (loss) on securities
       available for sale, net of deferred tax of $22.........                                                                
                                                                  ----------     ----------     ----------     ----------     

BALANCES, JUNE 30, 1998 ......................................     3,275,886     $      425     $   16,962     $   (1,467)    
                                                                  ==========     ==========     ==========     ==========     

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                  Unrealized                     Total      
                                                                     Gain         Retained    Stockholders'       
                                                                   (Loss)        Earnings       Equity      
                                                                 ----------     ----------    ----------    
<S>                                                              <C>            <C>            <C>          
BALANCES, JULY 1, 1995 .......................................   $       61     $    5,872     $  10,361 
                                                                                                         
   Stock split 2 for 1 .......................................                                           
   Stock options exercised (Note 12) .........................                                       165 
   Issuance of common stock under initial public offering ....                                    11,437 
   (Note 1)                                                                                              
   Net income ................................................                       1,223         1,223 
   Net change in unrealized gain (loss) on securities                                                    
     available for sale, net of deferred tax of $(4)...........         (69)                        (69) 
                                                                 ----------     ----------      -------- 
BALANCES, JUNE 30, 1996 ......................................           (8)         7,095       23,117  
   Net income ................................................                       2,002        2,002  
   Cash dividends declared on common stock ($0.03 per share) .                         (98)         (98) 
   Net change in unrealized gain (loss) on securities                                                    
     available for sale, net of deferred tax of $(23).........          (27)                        (27) 
                                                                 ----------     ----------      -------  
BALANCES, JUNE 30, 1997 ......................................          (35)         8,999       24,994  
     Stock options exercised (Note 12) .......................                                    1,074  
     Tax benefit from exercise of non-qualified stock options                                       283  
     Net loss ................................................                      (1,859)      (1,859) 
     Cash dividends declared on common stock ($0.12 per share)                        (395)        (395) 
     Purchase of treasury stock ..............................                                   (1,467) 
                                                                                                         
     Net change in unrealized gain (loss) on securities                                                  
       available for sale, net of deferred tax of $22.........           34                          34  
                                                                 ----------     ----------    ---------- 
                                                                                                         
BALANCES, JUNE 30, 1998 ......................................   $       (1)    $    6,745    $   22,664 
                                                                 ==========     ==========    ========== 
</TABLE>
See notes to consolidated financial statements.


                                                                              31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Dollars in thousands)
Years Ended June 30,                                                   1998          1997          1996
--------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>           <C>           <C>      
   Net income (loss) ..........................................    $  (1,859)    $   2,002     $   1,223
   Adjustments to reconcile net income (loss) to net
     cash provided by (used) in operating activities:
     Provision (credit) for loan losses .......................          147            92            (1)
     Depreciation .............................................          348           235           210
     Premium and discount amortization on securities, net .....        1,434         1,925         1,887
     Amortization of premiums and discounts on loans receivable          150             9           (37)
     (Gain) loss on sale of securities held for trading .......          775         1,623        (1,834)
     Unrealized (gain) loss on securities held for trading ....          930        (2,117)        1,960
     Loss on disposal of premises and equipment ...............          115
     Deferred income tax provision ............................       (1,245)          605          (913)
     Increase in interest receivable ..........................         (238)         (273)         (454)
     Increase (decrease) in interest payable ..................          791          (883)          278
     Decrease in accrued income taxes .........................                       (115)          (80)
     Purchases of securities held for trading .................     (657,211)     (913,766)     (390,743)
     (Increase) decrease in amounts due from brokers ..........       11,308        (6,934)       (4,374)
     Proceeds from maturities of securities held for trading ..       28,438        26,398        25,407
     Proceeds from sales of securities held for trading .......      652,380       888,429       290,209
     (Increase) decrease in other assets ......................       (2,995)          239           640
     (Increase) decrease in income taxes receivable ...........          700        (1,118)
     Increase (decrease) in accrued expenses ..................         (273)       (1,590)        2,374
     Increase in other liabilities ............................          200           193           128
                                                                   ---------     ---------     ---------
          Net cash provided by (used in) operating activities .       33,895        (5,046)      (74,120)
                                                                   ---------     ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of Federal Home Loan Bank of Indianapolis stock ...          (26)       (2,207)         (145)
   Proceeds from maturities of securities available for sale ..          259           879           422
   Loan originations, net of principal repayments .............      (69,885)      (28,134)      (28,877)
   Purchases of premises and equipment ........................       (1,653)       (1,554)         (923)
                                                                   ---------     ---------     ---------
       Net cash used in investing activities ..................      (71,305)      (31,016)      (29,523)
                                                                   ---------     ---------     ---------
</TABLE>
                                                                     (Continued)


32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
 
Years Ended June 30,                                                            1998         1997          1996
----------------------------------------------------------------------------------------------------------------- 
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                         <C>           <C>           <C>   
   Net increase in deposits ............................................       42,136         1,032        19,831
   Increase (decrease) in securities sold under agreements to repurchase       (5,175)       26,504        88,850
   Proceeds from issuance of common stock under initial public offering                                    11,437
   Proceeds from stock options exercised ...............................        1,074                         165
   Proceeds from Federal Home Loan Bank advances .......................       99,000         3,300        10,000
   Proceeds from note payable ..........................................        3,500         2,300           800
   Principal repayments on Federal Home Loan Bank advances .............      (99,000)       (3,300)      (15,000)
   Principal repayments on note payable ................................                     (1,303)       (1,002)
   Dividends paid on common stock ......................................         (395)          (98)
   Purchase of treasury stock ..........................................       (1,467)
                                                                            ---------     ---------     ---------
       Net cash provided by financing activities .......................       39,673        28,435       115,081
                                                                            ---------     ---------     ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................        2,263        (7,627)       11,438
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .........................        9,516        17,143         5,705
                                                                            ---------     ---------     ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...............................    $  11,779     $   9,516     $  17,143
                                                                            =========     =========     =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    Cash paid for interest .............................................    $  29,624     $  25,434     $  18,354

    Cash paid for income taxes .........................................          321         1,889         1,600
</TABLE>

Noncash  activities  occurred  consisting  of a decrease in current and deferred
income tax payable and a  corresponding  increase in additional  paid in capital
from the tax benefit from exercise of non-qualified stock options of $283 during
fiscal year 1998.


See notes to consolidated financial statements.

                                                                              33
<PAGE>
NOTES TO CONSOLIDATED 
FINANCIAL STATEMENTS


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      ------------------------------------------
      Business of the Company - Harrington  Financial Group,  Inc. ("HFG" or the
      "Company") is a savings and loan holding company  incorporated on March 3,
      1988 to acquire and hold all of the outstanding common stock of Harrington
      Bank, FSB (the "Bank"), a federally  chartered savings bank with principal
      offices in Richmond,  Indiana and branch  locations in Hamilton County and
      Marion County,  Indiana.  On May 6, 1996 the Company sold 1,265,000 shares
      of common  stock at $10.00 per share to  investors  in an  initial  public
      offering  resulting in gross proceeds of  $12,650,000 to the Company.  Net
      proceeds to the Company after offering expenses were $11,437,000.

      Basis of Presentation - The consolidated  financial statements include the
      accounts of HFG and the Bank. All  significant  intercompany  accounts and
      transactions have been eliminated. The preparation of financial statements
      in conformity  with  generally  accepted  accounting  principles  requires
      management  to make  estimates  and  assumptions  that  affect the amounts
      reported  in the  financial  statements  and  accompanying  notes.  Actual
      results could differ from those estimates.

      Cash and Cash Equivalents - All highly liquid investments with an original
      maturity of three months or less are considered to be cash equivalents.

      Securities  Held  for  Trading  and  Available  for  Sale -  Statement  of
      Financial  Accounting  Standards  (SFAS) No. 115,  Accounting  for Certain
      Investments  in Debt and Equity  Securities,  addresses the accounting and
      reporting  for   investments  in  equity   securities  that  have  readily
      determinable fair values and all investments in debt securities.  SFAS No.
      115 requires these  securities to be classified in one of three categories
      and accounted for as follows:

         * Debt  securities that the Company has the positive intent and ability
           to hold to maturity are classified as  "securities  held to maturity"
           and reported at amortized cost.

         * Debt and equity securities that are acquired and held principally for
           the purpose of selling  them in the near term with the  objective  of
           generating  economic  profits  on  short-term  differences  in market
           characteristics  are classified as "securities  held for trading" and
           reported at fair value,  with unrealized gains and losses included in
           earnings.

         * Debt and equity  securities not classified as either held to maturity
           or trading  securities are  classified as  "securities  available for
           sale" and reported at fair value,  with unrealized  gains and losses,
           after  applicable  taxes,  excluded  from  earnings and reported in a
           separate component of stockholders' equity.  Declines in the value of
           debt securities and marketable  equity securities that are considered
           to be other than temporary are recorded as a permanent  impairment of
           securities available for sale in the statement of operations.
<PAGE>
      Premiums and  discounts are amortized  over the  contractual  lives of the
      related  securities  using the level yield method.  Purchases and sales of
      securities are recorded in the balance sheet on the trade date.  Gains and
      losses from  security  sales or disposals  are  recognized as of the trade
      date in the statement of operations for the period in which securities are
      sold or  otherwise  disposed  of. The Company  also  enters  into  forward
      contracts to purchase or sell securities held for trading.  Changes in the
      fair value of the  forward  contract  are  recognized  in earnings as they
      occur.  Securities purchased or sold under a forward contract are recorded
      at their fair values at the settlement date.

      The Company's trading portfolio  consists of  mortgage-backed  securities,
      mortgage-backed security derivatives,  equity securities and interest rate
      contracts,  which  accordingly  are  carried at fair value.  Realized  and
      unrealized  changes in fair values are  recognized  in other income in the
      period in which the changes occur. Interest income from trading activities
      is included in the  statement of operations as a component of net interest
      income.

      The Company's available for sale portfolio consists of municipal bonds and
      a non-agency participation certificate.

      Fair  values of  securities  are based on quoted  market  prices or dealer
      quotes.  Where such quotes are not  available,  estimates of fair value of
      securities  are based  upon a number of  assumptions  such as  prepayments
      which may shorten the life of such  securities.  Although  prepayments  of
      underlying  mortgages  depend  on  many  factors,  including  the  type of
      mortgages,  the  coupon  rate,  the  age of  mortgages,  the  geographical
      location of the underlying real estate  collateralizing  the mortgages and
      general  levels of market  interest  rates,  the  difference  between  the
      interest  rates on the underlying  mortgages and the  prevailing  mortgage
      interest rates generally is the most  significant  determinant of the rate
      of prepayments.  While  management  endeavors to use the best  information
      available in  determining  prepayment  assumptions,  actual  results could
      differ from those assumptions.

      Financial  Instruments Held for Asset and Liability  Management Purposes -
      SFAS No. 119,  Disclosure About  Derivative  Instruments and Fair Value of
      Financial  Instruments,  addresses  disclosures  of  derivative  financial
      instruments such as futures,  forward rate agreements,  interest rate swap
      agreements,  option contracts and other financial instruments with similar
      characteristics.  SFAS No. 119 requires  disclosures 

34
<PAGE>
      about amounts and the nature and terms of derivative financial instruments
      regardless of whether they result in off-balance-sheet  risk or accounting
      loss. The Bank has incorporated the requirements of this statement in Note
      13.

      The Bank is party to a variety of interest  rate  contracts  consisting of
      interest rate futures,  options,  caps,  swaps,  floors and collars in the
      management of the interest rate exposure of its trading  portfolio.  These
      financial  instruments  are  included  in the  trading  portfolio  and are
      reported at market value with realized and unrealized  gains and losses on
      these instruments recognized in other income (see Note 2).

      The Bank enters into certain  other  interest  rate swap  agreements  as a
      means of managing the interest rate exposure of certain  inverse  variable
      rate deposits.  The Bank also entered into interest rate cap agreements to
      effectively fix the interest rate on a portion of the Bank's floating-rate
      securities  sold under  agreements to repurchase and on the Bank's Federal
      Home Loan Bank advance. The premiums paid to enter into such interest rate
      cap  agreements  are included in other assets and are amortized  using the
      straight-line  method  over  the  related  term of the  agreements.  These
      interest rate agreements are accounted for under the accrual method. Under
      this method,  the  differential  to be paid or received on these  interest
      rate agreements is recognized over the lives of the agreements in interest
      expense.  Changes  in  market  value of  interest  rate  swaps  and of the
      interest  rate  caps  accounted  for  under  the  accrual  method  are not
      reflected in the  accompanying  financial  statements.  Realized gains and
      losses on terminated  interest rate swaps  accounted for under the accrual
      method  are  deferred  as an  adjustment  to the  carrying  amount  of the
      designated  instruments and amortized over the remaining  original life of
      the  agreements.  If the designated  instruments are disposed of, the fair
      value of the interest rate swap, interest rate cap or unamortized deferred
      gains or losses are included in the  determination  of the gain or loss on
      the disposition of such instruments.  To qualify for such accounting,  the
      interest rate swaps are  designated to the inverse  variable rate deposits
      and the  interest  rate caps are  designated  to a portion  of the  Bank's
      securities sold under agreements to repurchase and the Bank's Federal Home
      Loan Bank advance which alter the  designated  instruments'  interest rate
      characteristics.

      Due from Brokers  consists of amounts  receivable from sales of securities
      in which the transactions have not settled as of the balance sheet date.

      Loans Receivable are carried at the principal amount outstanding, adjusted
      for  premiums  or  discounts  which  are  amortized  or  accreted  using a
      level-yield  method. SFAS No. 114 and No. 118, Accounting by Creditors for
      Impairment of a Loan and Income Recognition and Disclosures,  require that
      impaired loans be measured based on the present value of future cash flows
      discounted at the loan's effective  interest rate or the fair value of the
      underlying  collateral,  and specifies alternative methods for recognizing
      interest  income on loans that are  impaired or for which there are credit
      concerns.  For purposes of applying these  standards,  impaired loans have
      been  defined  as all  nonaccrual  commercial  loans  which  have not been
      collectively evaluated for impairment.  An impaired loan is charged off by
      management as a loss when deemed uncollectible although collection efforts
      continue and future recoveries may occur.
<PAGE>
      Discounts  and  premiums on  purchased  residential  real estate loans are
      amortized to income using the interest method over the remaining period to
      contractual maturity.

      Nonrefundable origination fees net of certain direct origination costs are
      deferred  and  recognized,  as a yield  adjustment,  over  the life of the
      underlying loan.

      Allowance  for  Losses - A  provision  for  estimated  losses  on loans is
      charged to operations based upon management's  evaluation of the potential
      losses. Such an evaluation, which includes a review of all loans for which
      full collectibility may not be reasonably assured,  considers, among other
      matters, the estimated net realizable value of the underlying  collateral,
      as applicable,  economic  conditions,  historical loan loss experience and
      other  factors  that are  particularly  susceptible  to changes that could
      result  in a  material  adjustment  in the  near  term.  While  management
      endeavors to use the best information available in making its evaluations,
      future  allowance  adjustments  may be  necessary  if economic  conditions
      change substantially from the assumptions used in making the evaluations.

      Interest  Receivable - Interest  income on securities and loans is accrued
      according  to the  contractual  terms of the  underlying  asset  including
      interest  rate,  basis and date of last payment.  Income on derivatives of
      mortgage-backed securities is recorded based on projected cash flows using
      the median of major  brokers'  prepayment  assumptions  for the underlying
      securities.  The Bank  provides an allowance  for the loss of  uncollected
      interest on loans which are more than 90 days past due.  The  allowance is
      established  by  a  charge  to  interest  income  equal  to  all  interest
      previously  accrued,  and income is  subsequently  recognized  only to the
      extent that cash payments are received until,  in  management's  judgment,
      the borrower's  ability to make periodic  interest and principal  payments
      returns to normal, in which case the loan is returned to accrual status.

      Premises and Equipment are carried at cost less accumulated  depreciation.
      Depreciation is computed on the straight-line method over estimated useful
      lives ranging from 3 to 40 years.  Maintenance and repairs are expensed as
      incurred while major additions and improvements are capitalized. Gains and
      losses on dispositions are included in current operations.


                                                                              35
<PAGE>
      Federal Income Taxes - The Company and its wholly-owned  subsidiary file a
      consolidated  tax  return.  Deferred  income tax  assets  and  liabilities
      reflect the impact of temporary  differences between amounts of assets and
      liabilities for financial  reporting purposes and basis of such assets and
      liabilities as measured by tax laws and regulations.

      Earnings  Per Share - Earnings  per share of common  stock is based on the
      weighted average number of common shares  outstanding during the year. All
      per  share   information  has  been  restated  to  reflect  the  Company's
      two-for-one stock split in October 1995.

      The Company adopted SFAS No. 128, Earnings per Share, for fiscal year 1998
      with all prior period  earnings per share data  restated.  This  statement
      established new accounting standards for the calculation of basic earnings
      per share as well as diluted  earnings  per share.  The  adoption  of this
      statement did not have a material  effect on the Company's  calculation of
      earnings  per share.  The  following is a  reconciliation  of the weighted
      average  common  shares  for the  basic  and  diluted  earnings  per share
      computations:
<TABLE>
<CAPTION>
Years Ended June 30,                           1998         1997         1996
--------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>      
Basic earnings per share:
   Weighted average common shares .......    3,285,166    3,256,738    2,160,233
                                             ---------    ---------    --------- 

Diluted earnings per share:
   Weighted average common shares .......    3,285,166    3,256,738    2,160,233

    Dilutive effect of stock options ....       24,876       42,214       40,914
                                             ---------    ---------    --------- 

    Weighted average common and
        incremental shares (1) ..........    3,310,042    3,298,952    2,201,147
                                             ---------    ---------    --------- 
</TABLE>

         (1) The calculation for diluted  earnings per share for the fiscal year
         ended June 30, 1998 was based upon the weighted  average  common shares
         as the effect of the stock  options were  anti-dilutive  due to the net
         loss for the year.


      New Accounting  Pronouncements - In June 1997, SFAS No. 130, Comprehensive
      Income,  was issued and becomes effective for fiscal years beginning after
      December  15,  1997 and  requires  reclassification  of earlier  financial
      statements for comparative purposes. SFAS No. 130 requires that changes in
      the  amounts  of  certain  items,  including  gains and  losses on certain
      securities,  be shown in the financial  statements.  SFAS No. 130 does not
      require  a  specific   format  for  the   financial   statement  in  which
      comprehensive  income  is  reported,  but  does  require  that  an  amount
      representing  total  comprehensive  income be reported in that  statement.
      This statement will result in additional  financial statement  disclosures
      upon adoption.
<PAGE>
      Also  in June  1997,  SFAS  No.  131,  Disclosures  about  Segments  of an
      Enterprise and Related Information, was issued. This Statement will change
      the way  public  companies  report  information  about  segments  of their
      business in their annual financial  statements and requires them to report
      selected  segment   information  in  their  quarterly  reports  issued  to
      shareholders.  It also requires entity-wide disclosures about the products
      and services an entity provides,  the material countries in which it holds
      assets and  reports  revenues,  and its major  customers.  SFAS No. 131 is
      effective for fiscal years beginning  after December 15, 1997.  Management
      has  not yet  determined  the  effect,  if any,  of  SFAS  No.  131 on the
      consolidated financial statements.

      SFAS  No.  133,   Accounting  for  Derivative   Instruments   and  Hedging
      Activities,  was  issued  in June  1998 and is  effective  for all  fiscal
      quarters of all fiscal years beginning after June 15, 1999. This statement
      establishes  accounting and reporting standards for derivative instruments
      and for hedging  activities.  It  requires  that an entity  recognize  all
      derivatives  as either assets or liabilities in the statement of financial
      condition  and  measure  those  instruments  at  fair  value.  If  certain
      conditions are met, a derivative may be specifically  designated as a fair
      value hedge, a cash flow hedge, or a hedge of foreign  currency  exposure.
      The  accounting  for changes in the fair value of a  derivative  (that is,
      gains and losses)  depends on the intended use of the  derivative  and the
      resulting designation. Management has not yet quantified the effect of the
      new standard on the financial statements.

      Reclassifications  of certain  amounts  in the 1997 and 1996  consolidated
      financial statements have been made to conform to the 1998 presentation.


36
<PAGE>
2.    SECURITIES
      ----------
      The  amortized  cost and  estimated  fair  values of  securities  held for
      trading and securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

                                 
                                                                       Gross       Gross
                                           Amortized   Unrealized    Unrealized     Fair
Year Ended June 30, 1998                      Cost       Gains         Losses       Value
------------------------------------------------------------------------------------------
<S>                                         <C>         <C>          <C>          <C>     
Securities held for trading:
   GNMA certificates ...................    $142,951    $  1,282     $     14     $144,219
   FHLMC certificates ..................      50,555         808          134       51,229
   FNMA certificates ...................      57,252       1,000            8       58,244
   Commercial mortgage backed securities      17,540         248                    17,788
   Non-agency participation certificates       1,884          33           42        1,875
   Collateralized mortgage obligations .      10,930         484                    11,414
   Residuals ...........................         309          55                       364
   Interest-only strips ................       1,118           5          605          518
   Principal-only strips ...............         599         119                       718
   Interest rate swaps .................                                  397         (397)
   Interest rate collar ................          38                       60          (22)
   Interest rate caps ..................       2,384                    2,157          227
   Interest rate floors ................       3,410       1,423          393        4,440
   Options .............................          68          19           37           50
   Futures .............................                                  257         (257)
   Equity securities ...................          99         100                       199
                                            --------    --------     --------     --------
Totals .................................    $289,137    $  5,576     $  4,104     $290,609
                                            ========    ========     ========     ========


Securities available for sale:
   Municipal bonds .....................    $    319    $     16                  $    335
   Non-agency participation certificate          605                 $     18          587
                                            --------    --------     --------     --------

Totals .................................    $    924    $     16     $     18     $    922
                                            ========    ========     ========     ========
</TABLE>
                                                               

The Bank's  collateralized  mortgage obligation (CMO) portfolio at June 30, 1998
consisted  of three agency  investments  with an  estimated  remaining  weighted
average life of 7.5 years.

                                                                              37
<PAGE>
<TABLE>
<CAPTION>
                                                          Gross      Gross
                                           Amortized   Unrealized  Unrealized     Fair
(Dollars in thousands)                       Cost         Gains      Losses       Value
-----------------------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>          <C>     
Securities held for trading:
   GNMA certificates ...................    $165,894    $  2,291    $     83     $168,102
   FHLMC certificates ..................      41,194         401          79       41,516
   FNMA certificates ...................      68,800         628          73       69,355
   Non-agency participation certificates       2,545          42          85        2,502
   Collateralized mortgage obligations .      25,789         295          52       26,032
   Residuals ...........................         508         566          38        1,036
   Interest-only strips ................       2,028          41         620        1,449
   Principal-only strips ...............         821          42           3          860
   Interest rate swaps .................                     626          45          581
   Interest rate collar ................          50                      58           (8)
   Interest rate caps ..................       3,025                   1,480        1,545
   Interest rate floors ................       3,916         572         947        3,541
   Options .............................          78                      54           24
   Futures .............................                     356                      356
   Equity securities ...................         305         159                      464
                                            --------    --------    --------     --------
Totals .................................    $314,953    $  6,019    $  3,617     $317,355
                                            ========    ========    ========     ========

Securities available for sale:
   Municipal bonds .....................    $    317    $     18                 $    335
   Non-agency participation certificate          866                $     76          790
                                            --------    --------    --------     --------
Totals .................................    $  1,183    $     18    $     76     $  1,125
                                            ========    ========    ========     ========
</TABLE>

The Bank's CMO portfolio at June 30, 1997  consisted of four agency  investments
with an estimated remaining weighted average life of 16.1 years.

For a complete discussion of the Bank's Risk Management Activities, see Note 13.

38
<PAGE>
The  amortized  cost and  estimated  fair values of  securities  by  contractual
maturity are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
                                                      
                                              Held for Trading        Available for Sale
                                            --------------------     -------------------
                                            Amortized      Fair      Amortized      Fair
Year Ended June 30, 1998                      Cost        Value        Cost       Value
-----------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>         <C>                                  
Debt securities (due after 1 year through
   5 years) .............................                            $    319    $    335
Mortgage-backed securities ..............    $268,298    $271,480
Non-agency participation certificates ...       1,884       1,875         605         587
Collateralized mortgage obligations .....      10,930      11,414
Mortgage-backed derivatives .............       2,026       1,600
Interest rate contracts .................       5,900       4,041
Equity securities .......................          99         199
                                             --------    --------    --------    --------
                                             $289,137    $290,609    $    924    $    922
                                             ========    ========    ========    ========
</TABLE>
      Securities with a total amortized cost of  $245,510,000  and  $255,387,000
      and a total fair value of $248,537,000  and  $257,826,000  were pledged at
      June 30, 1998 and 1997,  respectively,  to secure  interest rate swaps and
      securities  sold under  agreements to repurchase.  As of June 30, 1998 and
      1997,  the Bank had a blanket  collateral  agreement  for the Federal Home
      Loan Bank advances instead of utilizing specific securities as collateral.

      Activities related to the sale of securities are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
                                                                    
Year Ended June 30,                                       1998        1997        1996
----------------------------------------------------------------------------------------
<S>                                                     <C>         <C>         <C>     
Proceeds from sales of securities held for trading .    $652,380    $888,429    $290,209
Gross gains on sales of securities held for trading       46,537      44,324      30,492
Gross losses on sales of securities held for trading      47,312      45,947      28,658

</TABLE>

                                                                              39
<PAGE>
3.    LOANS RECEIVABLE
      ----------------
      Approximately 78% of the Bank's loans are to customers in Wayne,  Hamilton
      and Marion  counties in Indiana or  surrounding  counties.  The  portfolio
      consists primarily of owner occupied single family residential mortgages.

      Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)                                                                                           
June 30,                                                   1998          1997
--------------------------------------------------------------------------------
<S>                                                     <C>           <C>      
Loans secured by one to four family residences:
  Real estate mortgage .............................    $ 154,148     $  90,914
  Participation loans purchased ....................          188           226
Commercial .........................................        4,723           258
Property improvement ...............................        1,248           690
Loans on savings accounts ..........................          221           252
Consumer and home equity lines of credit ...........        2,288         1,446
Other consumer loans ...............................          253
                                                        ---------     ---------
Subtotal ...........................................      163,069        93,786

Unamortized push-down accounting adjustment ........         (113)         (136)
Undisbursed loan proceeds ..........................           (6)           (9)
Net deferred loan fees, premiums and discounts .....          956           530
Allowance for loan losses ..........................         (360)         (213)
                                                        ---------     ---------
Loans receivable, net ..............................    $ 163,546     $  93,958
                                                        =========     =========
</TABLE>

      The principal balance of loans on nonaccrual status totaled  approximately
      $285,000  and  $336,000 at June 30, 1998 and 1997,  respectively.  For the
      years ended June 30,  1998,  1997 and 1996,  gross  interest  income which
      would have been  recorded  had the Bank's  nonaccruing  loans been current
      with their  original  terms  amounted  to  $15,000,  $6,000,  and  $6,000,
      respectively.  At June 30,  1998 and June 30,  1997,  the  Company  had no
      impaired loans required to be disclosed under SFAS No. 114 and No. 118.

      The Bank  had  commitments  to  originate  or  purchase  loans  consisting
      primarily  of  real  estate  mortgages  secured  by  one  to  four  family
      residences approximating  $11,863,000 and $3,182,000 excluding undisbursed
      portions of loans in-process at June 30, 1998 and 1997, respectively.

      The  Bank  has  transactions  in the  ordinary  course  of  business  with
      directors,  officers, employees and an affiliate (Smith Breeden Associates
      Inc.,  see Note 15).  Loans to such  individuals  totaled  $1,927,000  and
      $228,000 at June 30, 1998 and 1997, respectively.

      The amount of loans  serviced for others totaled  $3,411,000,  $4,657,000,
      and $5,587,000 at June 30, 1998,  1997 and 1996,  respectively.  Servicing
      loans for others  generally  consists  of  collecting  mortgage  payments,
      maintaining   escrow  amounts,   disbursing   payments  to  investors  and
      foreclosure processing.  In connection with loans serviced for others, the
      Bank held  borrowers'  escrow  balances of $27,000 and $31,000 at June 30,
      1998 and 1997, respectively.
<PAGE>
      Loan  servicing  fee income  included in other  income for the years ended
      June  30,  1998,   1997  and  1996  was  $15,000,   $19,000  and  $23,000,
      respectively.

      An analysis of the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended June 30,                             1998         1997         1996
--------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>  
Beginning balance ......................        $ 213        $ 120        $ 121
Provision for loan losses ..............          147           92           (1)
Recoveries .............................                         1
                                                -----        -----        -----
Ending balance .........................        $ 360        $ 213        $ 120
                                                =====        =====        =====
</TABLE>

      As a  federally-chartered  savings bank,  aggregate commercial real estate
      loans may not  exceed  400% of  capital as  determined  under the  capital
      standards provisions of FIRREA. This limitation was approximately $133 and
      $124 million at June 30, 1998 and 1997,  respectively.  Also under FIRREA,
      the  loans-to-one  borrower  limitation  is  generally  15% of  unimpaired
      capital and surplus which,  for the Bank, was  approximately $5 million at
      June 30,  1998 and  1997.  The  Bank was in  compliance  with all of these
      requirements at June 30, 1998 and 1997.


40
<PAGE>
4.    INTEREST RECEIVABLE
      -------------------
      Interest receivable is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30,                                                        1998       1977
--------------------------------------------------------------------------------
<S>                                                            <C>        <C>   
Loans (less allowance for uncollectibles - $15 and $6) ...     $  744     $  413
Interest-bearing deposits ................................          2         34
Securities held for trading ..............................      1,543      1,599
Securities available for sale ............................         29         34
                                                               ------     ------
Interest receivable, net .................................     $2,318     $2,080
                                                               ======     ======
</TABLE>

5.    PREMISES AND EQUIPMENT

      Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30,                                                  1998            1977
--------------------------------------------------------------------------------
<S>                                                     <C>             <C>    
Land ...........................................        $ 1,003         $ 1,003
Buildings and leasehold improvements ...........          4,422           3,510
Furniture, fixtures and equipment ..............          1,673           1,059
                                                        -------         -------
Total ..........................................          7,098           5,572
Less accumulated depreciation ..................         (1,484)         (1,148)
                                                        -------         -------
Premises and equipment, net ....................        $ 5,614         $ 4,424
                                                        =======         =======
</TABLE>

      Depreciation  expense  included in operations  during the years ended June
30, 1998, 1997 and 1996 totaled $348,000, $235,000, and $210,000 respectively.
<PAGE>
6.    DEPOSITS
      --------
<TABLE>
<CAPTION>
(Dollars in thousands)

June 30,                                 1998                    1997
--------------------------------------------------------------------------------
                                               Weighted                 Weighted
                                                Average                  Average
                                  Amount         Rate      Amount         Rate
                                  ------         ----      ------         ----
<S>                              <C>             <C>      <C>              <C>  
NOW accounts ................    $  8,202        2.39%    $  4,778         2.42%
Savings accounts ............      31,076        4.37       20,523         4.18
Money market deposit accounts       2,705        4.43        1,930         4.00
                                 --------                ---------         ----
                                   41,983                   27,231
                                 --------                ---------         ----
Certificates of deposit:
1 year and less .............     113,237                   74,586
1 to 2 years ................      13,169                   19,437
2 to 3 years ................       3,570                    7,486
3 to 4 years ................       3,198                    1,845
Over 4 years ................       3,154                    5,590
                                 --------                ---------
                                  136,328        5.96      108,944         5.88
                                 --------        ----    ---------         ----
Total deposits ..............    $178,311                 $136,175
                                 ========                =========        
</TABLE>

      Certificates  of  deposit  in the  amount  of  $100,000  or  more  totaled
approximately   $25  million  and  $18  million  at  June  30,  1998  and  1997,
respectively.

      A summary of certificate  accounts by scheduled  fiscal year maturities at
June 30, 1998, is as follows:
<TABLE>
<CAPTION>
                                                            
(Dollars in thousands)       1999        2000        2001        2002        2003     Thereafter    Total
                           --------    --------    --------    --------    --------    --------    --------
<S>                        <C>         <C>         <C>         <C>         <C>         <C>         <C>   
       3.00% or less ..                                                    $      1    $      8    $      9
       3.01%-5.00% ....    $  9,877    $    953    $     55    $     72         100                  11,057
       5.01%-7.00% ....     100,665      11,050       2,725       1,152       1,863         742     118,197
       7.01%-9.00% ....       2,384       1,158         117       1,974         169         271       6,073
       9.01% or greater         311           8         673                                             992
                           --------    --------    --------    --------    --------    --------    --------
          Totals ......    $113,237    $ 13,169    $  3,570    $  3,198    $  2,133    $  1,021    $136,328
                           ========    ========    ========    ========    ========    ========    ========
</TABLE>
                                                                              41
<PAGE>
      Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                              1998         1997         1996
--------------------------------------------------------------------------------
<S>                                             <C>          <C>          <C>   
NOW accounts ............................       $  166       $  124       $  110
Savings accounts ........................        1,117          844          613
Money market deposit accounts ...........          101           82           77
Certificates of deposit .................        6,919        6,416        6,351
                                                ------       ------       ------
                                                $8,303       $7,466       $7,151
                                                ======       ======       ======
</TABLE>
      Interest  expense on  certificates of deposit is net of interest income on
      interest rate contracts of $70,000,  $130,000,  and $129,000 for the years
      ended June 30, 1998, 1997 and 1996, respectively.

      For a complete  discussion of the Bank's Risk Management  Activities,  see
      Note 13.

7.    SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
      ----------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                                         1998         1997         
--------------------------------------------------------------------------------  
<S>                                                         <C>         <C>                                    
Securities sold under agreements to repurchase:
  Same securities ......................................    $240,396    $191,664
  Substantially identical securities ...................                  53,907
                                                            --------    --------
                                                            $240,396    $245,571
                                                            --------    --------
  Accrued interest on securities sold under agreements
  to repurchase ........................................    $    282    $    300
                                                            ========    ========
</TABLE>

      At June 30, 1998,  securities sold under  agreements to repurchase  mature
within one month.

      An analysis of securities sold under  agreements to repurchase,  excluding
related accrued interest, is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                              1998         1997         1996
--------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>     
Maximum amount outstanding at any month-end .    $342,094     $343,427     $219,067
Daily average amount outstanding ............     319,579      306,034      148,524
Weighted average interest rate at end of year        5.65%        5.47%        5.21%
</TABLE>
<PAGE>
      Assets pledged to secure  securities  sold under  agreements to repurchase
      are concentrated among six and seven dealers as of June 30, 1998 and 1997,
      respectively.  The Bank exercises control over the securities pledged when
      the same security is repurchased. Assets pledged are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                                    1998              1997          
--------------------------------------------------------------------------------
<S>                                                   <C>               <C>  
Mortgage-backed securities:
  At amortized cost ........................          $245,510          $249,018

  At fair value ............................          $248,537          $251,317
</TABLE>
      An  analysis  of the  amount  at risk  under  repurchase  agreements  with
      counterparties  exceeding 10% of stockholders'  equity at June 30, 1998 is
      as follows:
<TABLE>
<CAPTION>
                                                                              Weighted
                                                   Amount        Accrued       Average
                                                Outstanding     Interest       Maturity
 (Dollars in thousands)                                                       (in days)
---------------------------------------------------------------------------------------
<S>                                               <C>           <C>              <C>
        Federal Home Loan Mortgage Corporation    $ 34,214      $     30         11
        Federal National Mortgage Association      118,648           136         10
        Merrill Lynch ........................       8,100             8         19
        Morgan Stanley Market Products, Inc. .       2,527             3         27
        Nomura Securities International, Inc.       42,232            60         16
        First Union ..........................      34,675            45         15
                                                  --------      --------
                                                  $240,396      $    282
                                                  ========      ========
</TABLE>
8.    FEDERAL HOME LOAN BANK ADVANCES
      -------------------------------
      Advances from the Federal Home Loan Bank of Indianapolis are as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)

June 30,                     1998                           1997
--------------------------------------------------------------------------------
                                     Variable                       Variable
                                    Weighted                       Weighted
Fiscal Year                          Average                        Average
  Maturity            Amount          Rate           Amount          Rate
  --------            ------          ----           ------          ----
<S>                 <C>               <C>          <C>               <C>
    1999            $ 26,000          5.64%
    1998                                           $ 26,000          5.78%
</TABLE>
      As of June 30, 1998 and 1997, the Bank had a blanket collateral  agreement
      for the Federal  Home Loan Bank  advances  instead of  utilizing  specific
      securities as collateral.

42
<PAGE>
9.    NOTE PAYABLE
      ------------
      At June 30, 1998, the Company  maintained a $15,000,000 loan facility from
      Mercantile Bancorporation, Inc. (formerly Mark Twain Bank) consisting of a
      revolving  line  of  credit  of  $5,000,000,   of  which   $3,500,000  was
      outstanding  as of June 30,  1998,  and a  $10,000,000  term loan of which
      $5,000 had been  repaid  under the term loan at June 30,  1998.  Quarterly
      interest-only  payments,  based on the prime  rate  published  in the Wall
      Street Journal (8.50% at June 30, 1998),  are payable through  maturity of
      June 2000. The unpaid principal balance  outstanding is payable in full in
      June 2000.

      As of June 30,  1998,  the loan was secured by the  Harrington  Bank,  FSB
      stock held by HFG, a blanket  security  interest  in all of the  Company's
      assets and the assignment of certain life insurance policies owned by HFG.
      Under  the  terms of the  agreement,  the  Company  is  bound  by  certain
      restrictive  debt  covenants.  As of June 30, 1998,  HFG was in compliance
      with all such debt covenants.

10.   INCOME TAXES
      ------------
      An analysis of the income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                             1998         1997        1996
--------------------------------------------------------------------------------
<S>                                            <C>          <C>         <C>                                
Current:
  Federal ................................     $     7      $   451     $ 1,203
  State ..................................           4          205         358
Deferred:
  Federal ................................        (989)         484        (776)
  State ..................................        (256)         121        (137)
                                               -------      -------     ------- 
Total income tax provision (benefit) .....     $(1,234)     $ 1,261     $   648
                                               =======      =======     =======
</TABLE>

      The difference  between the financial  statement  provision  (benefit) and
amount computed by using the statutory rate of 34% is reconciled as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                                         1998        1997        1996
------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>         <C>    
        Federal statutory income tax at 34% ..........    $(1,052)    $ 1,109     $   636

        Tax exempt interest and dividends ............        (12)        (14)        (29)
        State income taxes, net of federal tax benefit       (166)        185         129
        Amortization of fair value adjustments .......         (1)        (12)        (53)
        Other, net ...................................         (3)         (7)        (35)
                                                          -------     -------     -------
        Total income tax provision (benefit) .........    $(1,234)    $ 1,261     $   648
                                                          =======     =======     =======
</TABLE>
<PAGE>
      The Company's deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                                          1998       1997        
--------------------------------------------------------------------------------
<S>                                                          <C>        <C>     
Deferred tax assets:
  Net operating loss carryforward .......................    $ 1,016
                                                                          
  Tax benefit from exercise of non-qualified options ....        266
  Bad debt reserves, net ................................         15
  Deferred compensation .................................         24    $    35
  Deferred loan fees/costs, net .........................          1          9
  Differences in depreciation methods ...................          3          2
  Unrealized loss on securities available for sale ......          1         23
  Other .................................................         57         27
                                                             -------    -------
                                                               1,383         96
                                                             -------    -------
Deferred tax liabilities:
  Bad debt reserves, net ................................                    43
  Unrealized gain on securities held for trading ........        793        951
  Differences in income recognition on investments ......        350        351
                                                             -------    -------
                                                               1,143      1,345
                                                             -------    -------
Deferred income taxes, net ..............................    $   240    $(1,249)
                                                             =======    =======
</TABLE>

      The Company's net operating loss carryforward expires in fiscal year 2013.

      Retained  earnings at June 30,  1998 and 1997  includes  approximately  $3
      million of income that has not been  subject to tax because of  deductions
      for bad debts  allowed for federal  income tax purposes.  Deferred  income
      taxes have not been provided on such bad debt deductions since the Company
      does not intend to use the  accumulated  bad debt  deductions for purposes
      other than to absorb  loan  losses.  If, in the  future,  this  portion of
      retained  earnings is used for any  purpose  other than to absorb bad debt
      losses,  federal  income  taxes may be imposed on such amounts at the then
      current corporation income tax rate.

      In August 1996, the "Small Business Job Protection Act of 1996" was passed
      into law.  One  provision  of the act repeals the special bad debt reserve
      method for thrift  institutions  currently  provided for in Section 593 of
      the  IRC.  The  provision   requires  thrifts  to  recapture  any  reserve
      accumulated  after 1987 but  forgives  taxes owed on reserves  accumulated
      prior to 1988.  The Bank has  delayed  the  timing of this  recapture  for
      taxable years 1998 and 1997 as certain  residential loan test requirements
      were met. The six year recovery  period for the excess reserves will begin
      in taxable  year  1999.  The  adoption  of the act did not have a material
      adverse effect on the Company's consolidated financial position.

                                                                              43
<PAGE>
11.   REGULATORY CAPITAL REQUIREMENTS
      -------------------------------
      The  Bank  is   subject  to  various   regulatory   capital   requirements
      administered  by the federal  banking  agencies.  Failure to meet  minimum
      capital   requirements  can  initiate   certain   mandatory  and  possibly
      additional discretionary actions by regulators that, if undertaken,  could
      have a direct material effect on the Bank's  financial  statements.  Under
      capital  adequacy  guidelines  and the  regulatory  framework  for  prompt
      corrective  action,  the Bank must meet specific  capital  guidelines that
      involve  quantitative  measures  of the Bank's  assets,  liabilities,  and
      certain  off-balance-sheet items as calculated under regulatory accounting
      practices.  The Bank's capital amounts and classification are also subject
      to  qualitative  judgments  by  the  regulators  about  components,   risk
      weightings, and other factors.

      Quantitative  measures that have been  established by regulation to ensure
      capital  adequacy require the Bank to maintain minimum capital amounts and
      ratios  (set  forth in the table  below).  The Bank's  primary  regulatory
      agency,  the OTS, currently requires that the Bank maintain minimum ratios
      of tangible  capital (as defined in the regulations) of 1.5%, core capital
      (as defined) of 4%, and total  risk-based  capital (as defined) of 8%. The
      Bank is also  subject  to prompt  corrective  action  capital  requirement
      regulations  set  forth  by  the  Federal  Deposit  Insurance  Corporation
      ("FDIC").  The FDIC requires the Bank to maintain  minimum capital amounts
      and ratios of total and Tier I capital (as defined in the  regulations) to
      risk-weighted  assets (as defined),  and of Tier I capital (as defined) to
      average  assets (as defined).  Management  believes,  as of June 30, 1998,
      that the Bank  meets  all  capital  adequacy  requirements  to which it is
      subject.

      As of June 30, 1998 and 1997,  the most recent  notification  from the OTS
      categorized the Bank as "well capitalized" under the regulatory  framework
      for prompt corrective  action. To be categorized as "well capitalized" the
      Bank must maintain minimum total risk-based,  Tier I risk-based and Tier I
      leverage  ratios as set forth in the  table.  There are no  conditions  or
      events since that notification  that management  believes have changed the
      institution's category.
<PAGE>
<TABLE>
<CAPTION>
                                                                                                To Be Categorized as 
                                                                                                  "Well Capitalized"  
                                                                                                     Under Prompt       
                                                                          For Capital             Corrective Action     
(Dollars in thousands)                               Actual            Adequacy Purposes             Provisions   
----------------------------------------------------------------------------------------------------------------------- 
                                                Amount     Ratio      Amount        Ratio      Amount           Ratio
<S>                                            <C>           <C>       <C>           <C>       <C>              <C>
As of June 30, 1998:  
Tangible capital (to total assets) ........    $33,240        6.88%    $ 7,247       1.50%         N/A            N/A
Core capital (to total assets) ............     33,240        6.88%     19,326       4.00%         N/A            N/A
Total risk-based capital (to risk weighted
  assets) .................................     33,596       21.92%     12,262       8.00%     $15,328          10.00%
Tier I risk-based capital (to risk weighted     
  assets) .................................     33,240       21.69%        N/A        N/A        9,197           6.00%
Tier I leverage capital (to average assets)     33,240        6.88%        N/A        N/A       24,158           5.00%
                                               -------       -----     -------       ----      -------          ----- 

As of June 30, 1997:
Tangible capital (to total assets) ........    $31,031        6.96%    $ 6,687       1.50%         N/A            N/A
Core capital (to total assets) ............     31,031        6.96%     13,375       3.00%         N/A            N/A
Total risk-based capital (to risk weighted
  assets) .................................     31,239       31.14%      8,025       8.00%     $10,032          10.00%
Tier I risk-based capital (to risk weighted     31,031       30.93%        N/A        N/A        6,020           6.00%
  assets)  
Tier I leverage capital (to average assets)     31,031        6.96%        N/A        N/A       22,292           5.00%
                                               -------       -----     -------       ----      -------          ----- 
</TABLE>

44
<PAGE>
12.   EMPLOYEE BENEFIT PLANS
      ----------------------
      Profit-sharing   plan  -  The   Bank  has  a   qualified   noncontributory
      profit-sharing  plan for all  eligible  employees.  The plan  provides for
      contributions  by the Bank in such amounts as its Board of  Directors  may
      annually determine.  Contributions  charged to expense for the years ended
      June  30,  1998,  1997  and  1996  were  $87,000,  $85,000,  and  $39,000,
      respectively.

      Stock  options  - The  Company  has  granted  stock  options  to  existing
      stockholders,  officers,  directors and other  affiliated  individuals  to
      purchase  shares of the  Company's  stock at prices at least  equal to the
      fair market  value of the stock on the date of the grant.  The options are
      nontransferable  and are forfeited  upon  termination  of  employment,  as
      applicable.   At  June  30,  1998,  all  outstanding  stock  options  were
      exercisable through May 2008. The following is an analysis of stock option
      activity for each of the three years in the period ended June 30, 1998 and
      the stock options outstanding at the end of the respective years:
<TABLE>
<CAPTION>
                                                     1998                     1997                     1996
                                                           Weighted                  Weighted                 Weighted
                                                            Average                   Average                   Average
Years Ended June 30,                           Shares        Price       Shares        Price       Shares        Price
-----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>          <C>           <C>           <C>         <C>     
  Outstanding, beginning of fiscal year ..    176,450     $    8.08    $ 155,700     $    7.70     163,200     $   7.32
  Granted ................................     31,950         12.11       21,000         10.89      26,612         7.51
  Exercised ..............................   (143,200)         7.50                                (30,112)        5.48
  Forfeited or expired ...................     (5,200)        11.25         (250)        10.00      (4,000)        7.50
                                             --------     ---------    ---------     ---------    ---------     -------
  Outstanding, end of fiscal year ........     60,000     $   11.33    $ 176,450     $    8.08    $ 155,700     $  7.70
                                             ========     =========    =========     =========    =========     =======
  Options exercisable at end of
  fiscal  year ...........................      8,310     $   10.42        2,500     $   10.00           --        --
                                             ========     =========    =========     =========    =========     =======
</TABLE>

      As of June 30, 1998,  options  outstanding  have exercise  prices  between
      $10.00 and $12.50 and a weighted average  remaining  contractual life of 9
      years.

      The Company  applies APB Opinion No. 25,  Accounting  for Stock  Issued to
      Employees,  and  related  interpretations  in  accounting  for the  plans;
      accordingly,  since the grant price of the stock  options is at least 100%
      of the fair  value at the date of the grant no  compensation  expense  has
      been recognized by the Company in connection  with the option grants.  Had
      compensation cost for the plans been determined based on the fair value at
      the grant dates for awards under the plan  consistent  with the fair value
      method of SFAS No.  123,  Accounting  for  Stock-Based  Compensation,  the
      Company's  net per share  would have  decreased  to the pro forma  amounts
      indicated below:
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)

Years Ended June 30,                          1998        1997       1996
---------------------------------------------------------------------------- 
<S>                                         <C>         <C>        <C>          
Net income (loss):
  As reported ..........................    $ (1,859)   $  2,002   $  1,223
   Pro forma ...........................    $ (1,875)   $  1,995   $  1,221

Basic earnings (loss) per share:
  As reported ..........................    $ (0.57)    $  0.61    $  0.57
  Pro forma ............................    $ (0.57)    $  0.61    $  0.57

Diluted earnings (loss) per share:
  As reported ..........................    $ (0.57)    $  0.61    $  0.56
  Pro forma ............................    $ (0.57)    $  0.60    $  0.55
</TABLE>


                                                                              45
<PAGE>
      The weighted  average fair value of options  granted was $3.72,  $3.42 and
      $1.51 in fiscal years 1998, 1997 and 1996, respectively. The fair value of
      the  option   grants  is   estimated  on  the  date  of  grant  using  the
      Black-Scholes  option  pricing  model  with  the  following   assumptions:
      dividend yields ranging from 0% - 1.04%,  risk-free interest rates ranging
      from 5.29% - 6.62%,  expected  volatilities  ranging  from 0% - 26.83% and
      expected  lives ranging from 23 days to five years.  The pro forma amounts
      are not  representative  of the effects on reported  net income for future
      years.

      Employee Stock Ownership Plan - The Company  established an Employee Stock
      Ownership Plan (ESOP) on February 5, 1996 for employees of the Company and
      the Bank.  Full-time  employees  of the Company and the Bank who have been
      credited with at least 1,000 hours of service during a twelve month period
      are eligible to participate in the ESOP.  During the 1997 fiscal year, the
      ESOP purchased  5,000 shares at $10.25 per share which have been allocated
      to eligible  employees.  During the 1996 fiscal year,  the ESOP  purchased
      7,000 shares in the initial  public  offering which have been allocated to
      eligible  employees.  Contributions  are  allocated to eligible  employees
      based on their  eligible  compensation  as defined in the ESOP  Agreement.
      Gross  compensation  expense  (i.e.  the  value of shares  contributed  or
      committed to be  contributed  to the ESOP by the Company) for fiscal years
      1998, 1997 and 1996 was $73,000, $51,000 and $70,000, respectively.

13.   RISK MANAGEMENT ACTIVITIES
      --------------------------
      The Bank closely  monitors the sensitivity of its balance sheet and income
      statement  to  potential   changes  in  the  interest  rate   environment.
      Derivative  financial  instruments  such as  interest  rate  swaps,  caps,
      floors,  collars,  futures,  and options are used on an aggregate basis to
      protect the trading  portfolio and certain  liabilities  from adverse rate
      movements.  The Bank's  objective,  with regard to managing  interest rate
      risk, is to maintain at an acceptably low level the  sensitivity to rising
      or falling rates of its market value of portfolio equity.

      Interest  rate swaps are  contracts in which the parties agree to exchange
      fixed and  floating  rate  payments  for a  specified  period of time on a
      specified (notional) amount. The notional amount is only used to calculate
      the amount of the periodic interest payments to be exchanged, and does not
      represent the amount at risk.  The Bank uses swaps to modify the effective
      duration  of  various  assets  and  liabilities.  The  floating  rates are
      generally  indexed  to the  three-month  London  Interbank  Offered  Rates
      (LIBOR).

      Interest rate caps and floors are instruments in which the writer (seller)
      agrees to pay the holder  (purchaser) the amount that an agreed-upon index
      is above or below the specified cap or floor rate, respectively, times the
      notional  amount.  In return  for this  promise  of future  payments,  the
      purchaser  pays a premium  to the  seller.  The  notional  amount is never
      exchanged  between the two parties  and does not  represent  the amount at
      risk.  The Bank  purchases  interest  rate caps and  floors to reduce  the
      impact of rising or  falling  interest  rates on the  market  value of its
      trading  portfolio.  The  interest  rate caps and  floors  generally  have
      indexes  equal to one or three month LIBOR,  except for one interest  rate
      cap which is tied to the five year Constant Maturity Treasury.
<PAGE>
      The Bank is a party  to an  interest  rate  collar  which  also is used to
      manage  interest  rate risk in the trading  portfolio.  The interest  rate
      collar  consists of an interest  rate cap held by the Bank and an interest
      rate floor written by the Bank.  The notional  amount of the interest rate
      collar is based on the  balance  in the  collection  accounts  of  certain
      Merrill Lynch collateralized mortgage obligation trusts.

      Interest rate futures contracts are commitments to either purchase or sell
      designated  instruments  at a future date for a specified  price.  Initial
      margin  requirements are met in cash or other instruments,  and changes in
      the  contract  values are  settled in cash  daily.  The Bank  enters  into
      futures contracts when these instruments are economically  advantageous to
      interest rate swaps, caps and floors.  The Bank uses primarily  Eurodollar
      contracts  which  are  structured  in  calendar  quarter   increments  and
      therefore  result in a much larger  notional  amount than longer  maturity
      swap,  cap or  floor  contracts  which  represent  a series  of  quarterly
      repricings.

      Financial  options are contracts which grant the purchaser,  for a premium
      payment,  the  right  to  either  purchase  from or sell to the  writer  a
      specified financial instrument under agreed-upon terms.  Financial options
      to buy or sell securities are typically  traded in standardized  contracts
      on organized exchanges. The Bank purchases financial options to reduce the
      risk of the written financial options embedded in mortgage related assets.

      Cash restrictions - The Bank maintained  $2,100,000 and $1,300,000 at June
      30, 1998 and 1997,  respectively,  in U.S. Treasury Securities,  which are
      considered  cash  equivalents,  as a deposit with a broker for its futures
      activities.

      Credit risk - The Bank is  dedicated to managing  credit risks  associated
      with hedging  activities.  The Bank  maintains  trading  positions  with a
      variety of  counterparties or obligors  (counterparties).  To limit credit
      exposure  arising from such  transactions,  the Bank  evaluates the credit
      standing of  counterparties,  establishes limits for the total exposure to
      any one counterparty, monitors exposure against the established limits and
      monitors  trading  portfolio  composition  to  manage  concentrations.  In
      addition,  the  Bank  maintains  qualifying  netting  agreements  with its
      counterparties  and  records  gains  and  losses on  derivative  financial
      instruments net in the trading portfolio.

46
<PAGE>
      The Bank's exposure to credit risk from derivative  financial  instruments
      is  represented  by the fair value of  instruments.  Credit  risk  amounts
      represent the replacement cost the Bank could incur should  counterparties
      with  contracts in a gain  position  completely  fail to perform under the
      terms of those  contracts  and any  collateral  underlying  the  contracts
      proves to be of no value to the Bank.  Counterparties  are  subject to the
      credit approval and credit monitoring policies and procedures of the Bank.
      Certain  instruments  require  the Bank or the  counterparty  to  maintain
      collateral  for all or part of the  exposure.  Limits for  exposure to any
      particular  counterparty  are  established  and  monitored.   Notional  or
      contract   amounts   indicate  the  total  volume  of   transactions   and
      significantly  exceed  the  amount of the  Bank's  credit  or market  risk
      associated with these instruments.

      The  following  off balance  sheet  positions  are  included in the Bank's
      trading  portfolio and are thus  reported in the  financial  statements at
      current fair value.
<TABLE>
<CAPTION>
(Dollars in thousands)

June 30, 1998
------------------------------------------------------------------------------------------------------------------------
                             Contract or           Estimated
                              Notional            Fair Value                        Weighted Average Interest Rate
                               Amount       Asset       Liability        Payable        Receivable      Cap        Floor
                               ------       -----       ---------        -------        ----------      ---        -----
<S>                        <C>           <C>            <C>                <C>             <C>         <C>          <C> 
Interest rate swaps:
  Pay fixed rate ...       $  121,000                   $     397          6.16%           5.67%         N/A         N/A
Interest rate caps .          133,000    $      227                         N/A             N/A         7.92%        N/A
Interest rate floors          250,000         4,440                         N/A             N/A          N/A        6.25%
Interest rate collar            3,076                          22           N/A             N/A        10.25%       5.25%
Futures ............        2,780,300                         257           N/A             N/A          N/A         N/A
Options ............           66,000            50                         N/A             N/A          N/A         N/A
                           ----------------------------------------------------------------------------------------------
                           $3,353,376    $    4,717     $     676
                           ==========    ==========     =========

<CAPTION>
(Dollars in thousands)

June 30, 1997
----------------------------------------------------------------------------------------------------------------------- 
                             Contract or           Estimated
                              Notional            Fair Value                           Weighted Average Interest Rate
                               Amount       Asset       Liability    Payable        Receivable      Cap           Floor
                               ------       -----       ---------    -------        ----------      ---           -----
<S>                        <C>           <C>            <C>            <C>             <C>          <C>           <C> 
Interest rate swaps:
  Pay fixed rate ...       $  267,500    $      581                     5.92%          5.80%          N/A          N/A
Interest rate caps .          133,000         1,545                      N/A            N/A          7.92%         N/A
Interest rate floors          275,000         3,541                      N/A            N/A           N/A         6.38%
Interest rate collar            4,268                  $    8            N/A            N/A         10.25%        5.25%
Futures ............        1,546,400           356                      N/A            N/A           N/A          N/A
Options ............           77,900            24                      N/A            N/A           N/A          N/A
                           ----------    ----------    ------        --------------------------------------------------
                           $2,304,068    $    6,047    $    8
                           ==========    ==========    ======

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)

Years Ended June 30,                           1998                   1997
----------------------------------------------------------------------------------- 
                                              Monthly                Monthly
                                              Average                Average
                                             Fair Value             Fair Value
                                       -------------------------------------------- 
                                        Asset    Liability      Asset     Liability
<S>                                    <C>         <C>         <C>         <C>
Interest rate swaps:
 Pay fixed rate ..................                 $  376      $  952      $   45
Interest rate caps ...............     $  720                   2,389

Interest rate floors .............      4,946                   4,945
Interest rate collar .............                     19                      13
Futures ..........................                    256                      95
Options ..........................        125                     154
                                       -------------------------------------------- 
                                       $5,791      $  651      $8,440      $  153
                                       -------------------------------------------- 
</TABLE>

                                                                              47
<PAGE>
      The following table shows the various components of the Company's recorded
      net gain on its trading  portfolio.  All realized and unrealized gains and
      losses are reported as other income in the  statement of  operations.  The
      periodic  exchanges of interest  payments and the amortization of premiums
      paid for contracts are accounted for as adjustments to the yields, and are
      reported on the statements of operations as interest income.
<TABLE>
<CAPTION>
(Dollars in thousands)

                                         Realized       Unrealized    Net Trading
                                          Gains/          Gains/         Gains/
Year Ended June 30, 1998                (Losses)         (Losses)       (Losses)
--------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>     
Interest rate contracts:
Swaps .............................       $    13        $  (978)       $  (965)
Caps ..............................                         (677)          (677)
Floors ............................                        1,405          1,405
Collar ............................                           (2)            (2)
Futures ...........................        (7,961)          (613)        (8,574)
Options ...........................           332             36            368
                                          -------        -------        -------
Total .............................        (7,616)          (829)        (8,445)
MBS and other trading assets ......         6,841           (101)         6,740
                                          =======        =======        =======
Total trading portfolio ...........       $  (775)       $  (930)       $(1,705)
                                          =======        =======        =======

<CAPTION>
(Dollars in thousands)

                                         Realized       Unrealized    Net Trading
                                          Gains/          Gains/         Gains/
Year Ended June 30, 1997                 (Losses)         (Losses)       (Losses)
--------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>     
Interest rate contracts:
Swaps .............................                      $   (39)       $   (39)
Caps ..............................                         (862)          (862)
Floors ............................                         (810)          (810)
Collar ............................                           32             32
Futures ...........................       $(5,045)         1,140         (3,905)
Options ...........................           114            (65)            49
                                          -------        -------        -------
Total .............................        (4,931)          (604)        (5,535)
MBS and other trading assets ......         3,308          2,721          6,029
                                          -------        -------        -------
Total trading portfolio ...........       $(1,623)       $ 2,117        $   494
                                          =======        =======        =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)

                                         Realized       Unrealized    Net Trading
                                          Gains/          Gains/         Gains/
Year Ended June 30, 1996                 (Losses)         (Losses)       (Losses)
--------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>     
Interest rate contracts:
Swaps .............................       $(1,116)       $   839        $  (277)
 Caps .............................                         (316)          (316)
Floors ............................                       (1,430)        (1,430)
Collar ............................                          135            135
Futures ...........................         2,522           (650)         1,872
Options ...........................           256             76            332
                                          -------        -------        -------
Total .............................         1,662         (1,346)           316
MBS and other trading assets ......           172           (614)          (442)
                                          -------        -------        -------
Total trading portfolio ...........       $ 1,834        $(1,960)       $  (126)
                                          =======        =======        =======
</TABLE>

48
<PAGE>
      The  following  table sets forth the  maturity  distribution  and weighted
      average interest rates of financial instruments used on an aggregate basis
      to protect the trading  portfolio  from adverse rate movements at June 30,
      1998.
<TABLE>
<CAPTION>
(Dollars in thousands)

Maturities During Fiscal
Years Ending June 30,                            1999           2000             2001          2002          2003       Thereafter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>             <C>           <C>           <C>
        Interest rate swaps-Pay fixed rate

         Notional amount .................     $100,000       $ 16,000        $  5,000

         Weighted average payable rate ...         6.12%          6.27%           6.58%

          Weighted average receivable rate         5.66%          5.69%           5.66%

        Interest rate caps

          Notional amount ................                      37,000          10,000                      $ 66,000       $ 20,000

          Weighted average cap rate ......                        8.09%           6.50%                         7.71%          9.00%

        Interest rate floors

          Notional amount ................       60,000         30,000          70,000        $ 20,000        60,000        15,000

          Weighted average floor rate ....         6.42%          6.50%           6.50%           6.00%         5.75%         6.50%

        Interest rate collar

          Notional amount ................                                                                                   3,076

          Weighted average cap rate ......                                                                                   10.25%

          Weighted average floor rate ....                                                                                    5.25%

        Futures
          Notional amount ................      766,300        479,000         505,000         475,000       348,000       207,000

        Options
         Notional amount .................       66,000
</TABLE>
      The following  interest rate hedges are not included in the Bank's trading
      portfolio.  Interest  rate  swaps are used to  modify  the  interest  rate
      sensitivity of certain  certificates of deposit issued by the Bank.  These
      certificates  of  deposit,   called  inverse  variable  rate  CDs,  adjust
      according  to a formula in such a way as to pay a higher  rate of interest
      when the index falls,  and a lower rate of interest  when the index rises.
      As of June 30, 1998 and 1997, the Bank held approximately $5.2 million and
      $6.2 million of inverse variable rate CDs, with original terms to maturity
      ranging from three to ten years.  The Bank  utilizes  interest  rate swaps
      with the same notional amount as the inverse  variable rate CDs to convert
      such  certificates  of deposit  effectively  to fixed rate  deposits.  The
      interest  rate swaps  protect  the Bank  against  the  exposure to falling
      interest rates inherent in these CDs.
<PAGE>
      The Bank also has  interest  caps  which are used to  effectively  cap the
      interest rates on specific floating-rate  borrowings. As of June 30, 1998,
      the Bank held  three 6% and one 7%  interest  rate caps  which are used to
      effectively  cap  the  interest  rates  on  a  portion  of  the  Company's
      securities sold under agreements to repurchase and the $26 million Federal
      Home Loan Bank advance. As of June 30, 1998, the caps had a total notional
      amount of $90  million and reprice  based on the three  month  LIBOR.  The
      repricing  characteristics of the Company's  floating-rate  borrowings are
      similar in nature to those of the related  interest  rate cap  agreements.
      The  securities  sold under  agreements to repurchase and the Federal Home
      Loan Bank advance  reach their  maturities  before the  maturities  of the
      matched  interest rate caps;  however,  it is the Bank's intent to replace
      the   floating-rate   borrowings   when  they   mature   with   additional
      floating-rate  liabilities,  which will be designated against the interest
      rate caps.

      The Bank had a 7% interest rate cap as of June 30, 1997, which was used to
      effectively cap the interest rate on the Company's  floating-rate  Federal
      Home Loan  Bank  advances.  As of June 30,  1997,  the cap had a  notional
      amount of $30 million and repriced based on the three month LIBOR.


                                                                              49
<PAGE>
      The market values of the  following  interest rate swaps and interest rate
      caps are not reflected in the Company's financial statements. The periodic
      exchanges of interest  payments  and the net expense of the interest  rate
      caps are included in interest expense in the statements of operations.
<TABLE>
<CAPTION>
(Dollars in thousands)
                              
                                       Contract or      Estimated Fair Value    Weighted Average Interest Rate
                                         Notional      -------------------------------------------------------- 
 June 30, 1998                            Amount       Asset       Liability       Payable       Receivable
---------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>           <C>               <C>             <C>  
       Interest rate swaps:
         Pay floating rate .........     $ 7,500     $   137                         5.74%           6.96%
       Interest rate caps ..........     $90,000     $ 2,495                          N/A             N/A


<CAPTION>
(Dollars in thousands)
                              
                                       Contract or      Estimated Fair Value    Weighted Average Interest Rate
                                         Notional      -------------------------------------------------------- 
 June 30, 1997                            Amount       Asset       Liability       Payable       Receivable
---------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>           <C>               <C>             <C>  
       Interest rate swaps:
         Pay floating rate ........      $ 7,500     $    91                         6.00%           6.96%
       Interest rate cap ..........      $30,000     $   351                          N/A             N/A
</TABLE>

      The  following  table sets forth the  maturity  distribution  and weighted
      average  interest  rates of the  interest  rate swaps used to protect  the
      inverse  variable  rate CDs from adverse rate  movements  and the interest
      rate  caps used to cap a  portion  of the  Bank's  securities  sold  under
      agreements to repurchase and the Federal Home Loan Bank advance as of June
      30, 1998:
<TABLE>
<CAPTION>
(Dollars in thousands)

Maturities During Fiscal
Years Ending June 30,                           1999        2000       2001        2002     2003      Thereafter
---------------------------------------------------------------------------------------------------------------- 
<S>                                            <C>        <C>        <C>         <C>        <C>        <C> 
Interest rate swaps-Pay
floating rate
  Notional amount ..........................              $ 7,500
   Weighted average payable rate ...........                 5.74%
  Weighted average receivable rate .........                 6.96%

Interest rate caps
  Notional amount ..........................                         $ 30,000                          $ 60,000

  Weighted average cap rate ................                             7.00%                             6.00%
</TABLE>

50
<PAGE>
14.   CREDIT COMMITMENTS
      ------------------
      The Bank is a party to  commitments to extend credit as part of its normal
      business  operations to meet the financing  needs of its customers.  These
      commitments  involve, to varying degrees,  elements of credit and interest
      rate  risk in  excess  of the  amount  recognized  in the  balance  sheet.
      Exposure to credit loss in the event of  nonperformance by the other party
      to  the  financial   instrument  for   commitments  to  extend  credit  is
      represented by the contract amount of those instruments. The Bank uses the
      same credit policies in making commitments as it does for on-balance-sheet
      instruments.  Unless noted otherwise, the Bank does not require collateral
      or other security to support financial instruments with credit risk.

      The  following  table sets forth the Bank's real  estate loan  commitments
      whose contract  amounts  represent credit risk and the applicable range of
      interest rates for such loan commitments.
<TABLE>
<CAPTION>
(Dollars in thousands)

June 30,                               1998                      1997
--------------------------------------------------------------------------------
                                         Interest                    Interest
                            Amount         Rates         Amount        Rates
                            ------         -----         ------        -----
<S>                         <C>         <C>             <C>         <C>         
Fixed rate ............     $11,863     6.75-10.00%     $   573     7.625-8.375%
Adjustable Rate .......                                   2,609     6.50-7.50%
                            -------                     -------
                            $11,863                     $ 3,182
                            =======                     =======
</TABLE>

15.   RELATED PARTY TRANSACTIONS
      --------------------------
      The Company has contracted with Smith Breeden Associates,  Inc. ("SBA") to
      provide  investment  advisory  services and interest  rate risk  analysis.
      Certain  stockholders and directors of HFG are also principals of SBA. The
      amount of consulting  expense relating to SBA for fiscal years ending June
      30, 1998, 1997 and 1996 was $287,000,  $281,000 and $232,000 respectively.
      SBA has a commercial loan  outstanding with the Bank at June 30, 1998, see
      Note 4.

16.   STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
      -------------------------------------------
      Liquidation  account  - On  July  10,  1985,  the  Bank  converted  from a
      federally  chartered  mutual  association to a federally  chartered  stock
      association through the issuance of 463,173 shares of common stock ($1 par
      value)  at a price  of $8 per  share.  From  the  proceeds,  $463,000  was
      allocated to capital stock at the par value of $1 per share and $2,919,000
      which is net of  conversion  costs of $324,000 was allocated to additional
      paid-in-capital.

      The Bank established a special liquidation account (in memorandum form) in
      an amount equal to its total retained  earnings as of June 1, 1984 for the
      purpose of granting to eligible  savings account holders a priority in the
      event of future  liquidation.  In the event of future  liquidation  of the
      converted institution (and only in such event), an eligible account holder
<PAGE>
      who continues to maintain his savings account shall be entitled to receive
      a  distribution  from the  liquidation  account.  The total  amount of the
      liquidation  account  will  be  decreased  in  an  amount  proportionately
      corresponding  to  decreases in the savings  accounts of eligible  account
      holders on each subsequent annual determination date.

      Dividend  restrictions - Regulations provide that the Bank may not declare
      or pay a cash  dividend  on or  repurchase  any of its stock if the result
      thereof would be to reduce the  consolidated  stockholders'  equity of the
      Bank below the amount required for the liquidation  account (as defined by
      regulations).  Under the capital distribution  regulations of the OTS, the
      Bank,   as  a  "Tier  1"   institution,   is  permitted  to  make  capital
      distributions  during a calendar year up to one hundred percent of its net
      income to date during the calendar  year plus the amount that would reduce
      by one-half its surplus capital ratio, as defined, at the beginning of the
      calendar  year.  Under  this  limitation,  $7,362,000  was  available  for
      dividends at June 30, 1998.

      Reserve  Requirements  -As of June 30, 1998,  the Bank was not required to
      maintain reserve balances with the Federal Reserve Bank.

      SAIF  Assessment -On September 30, 1996, the President  signed into law an
      omnibus appropriations act for fiscal year 1997 that included, among other
      things, the  recapitalization  of the Savings  Association  Insurance Fund
      (SAIF) in a section  entitled  "The Deposit  Insurance  Funds Act of 1996"
      (the Act).  The Act  included a  provision  where all  insured  depository
      institutions  would be charged a one-time special assessment on their SAIF
      assessable  deposits as of March 31, 1995. The Company  recorded a pre-tax
      charge of $830,000 during the year ended June 30, 1997.


                                                                              51
<PAGE>
17.   FAIR VALUES OF FINANCIAL INSTRUMENTS
      ------------------------------------
      The  following  disclosures  of the  estimated  fair  value  of  financial
      instruments are made in accordance with the  requirements of SFAS No. 107,
      Disclosures about Fair Value of Financial Instruments:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30,                                         1998                    1997
------------------------------------------------------------------------------------
                                        Carrying      Fair      Carrying      Fair
                                         Value        Value      Value        Value
                                        --------------------------------------------                                    
<S>                                     <C>         <C>         <C>         <C>     
ASSETS:
 Cash ..............................    $  1,567    $  1,567    $  1,207    $  1,207
  Interest-bearing deposits ........      10,212      10,212       8,309       8,309
 Securities held for trading .......     290,609     290,609     317,355     317,355
 Securities available for sale .....         922         922       1,125       1,125
 Loans receivable, net .............     163,546     166,400      93,958      94,800
 Interest receivable ...............       2,318       2,318       2,080       2,080
 Federal Home Loan Bank stock ......       4,878       4,878       4,852       4,852
 Due from brokers ..................                              11,308      11,308

LIABILITIES:
 Deposits ..........................     178,311     178,400     136,175     136,200
 Securities sold under agreements
   to repurchase ...................     240,396     240,400     245,571     245,600
 Federal Home Loan Bank advances ...      26,000      26,000      26,000      26,000
 Interest payable on securities sold
   under agreements to repurchase ..         282         282         300         300
 Other interest payable ............       1,596       1,596         787         787
 Note payable ......................      13,495      13,495       9,995       9,995
 Advance payments by borrowers for
   taxes and insurance .............         785         785         585         585

OFF BALANCE SHEET HEDGING
  INSTRUMENTS:
 Interest rate swaps ...............                     137                      91
 Interest rate caps ................       3,595       2,495         685         351
</TABLE>

      The  estimated  fair value amounts are  determined  by the Company,  using
      available  market  information  and appropriate  valuation  methodologies.
      However,  considerable judgment is required in interpreting market data to
      develop the estimates of fair value. Accordingly,  the estimates presented
      herein are not  necessarily  indicative  of the amounts the Company  could
      realize  in a  current  market  exchange.  The  use  of  different  market
      assumptions and/or estimation  methodologies may have a material effect on
      the estimated fair value amounts.

      Cash,  interest-bearing deposits, interest receivable and payable, advance
      payments  by  borrowers  for taxes and  insurance  and note  payable - The
      carrying  amounts of these items are a  reasonable  estimate of their fair
      value.
<PAGE>
      Loans  receivable  - The fair value of loans  receivable  is  estimated by
      discounting  future  cash  flows at  market  interest  rates  for loans of
      similar  terms  and  maturities,   taking  into  consideration   repricing
      characteristics and prepayment risk.

      Securities  held  for  trading  consist  of  mortgage-backed   securities,
      collateralized  mortgage  obligations,  residuals,  interest-only  strips,
      principal-only  strips,  interest  rate swaps,  an interest  rate  collar,
      interest  rate caps,  interest  rate floors,  options,  futures and equity
      securities.  Fair  values  are  based on  quoted  market  prices or dealer
      quotes.  Where such quotes are not  available,  fair value is estimated by
      using quoted market prices for similar securities or by discounting future
      cash flows at a risk adjusted spread to Treasury.

52
<PAGE>
      Due from brokers  consists of amounts  receivable from sales of securities
      in which the  transactions  have not settled as of the balance sheet date.
      The fair value is  determined  by the carrying  amounts of the  securities
      sold.

      Federal  Home  Loan Bank  stock - The fair  value is  estimated  to be the
      carrying value which is par. All  transactions in the capital stock of the
      Federal Home Loan Bank of Indianapolis are executed at par.

      Deposits  - The fair  value  of NOW,  savings  and  money  market  deposit
      accounts is the amount  payable on demand at the reporting  date. The fair
      value of fixed maturity  certificates  is estimated  using rates currently
      offered for deposits of similar remaining maturities.

      Securities sold under  agreements to repurchase - Fair values are based on
      the discounted  value of contractual  cash flows using dealer quoted rates
      for agreements of similar terms and maturities.

      Federal  Home  Loan  Bank  advances  - The  fair  value  is  estimated  by
      discounting future cash flows using rates currently  available to the bank
      for advances of similar maturities.

      Off balance sheet hedging  instruments  consist of interest rate swaps and
      interest rate caps used to modify the interest rate sensitivity of certain
      certificates  of deposits,  a portion of the Bank's  securities sold under
      agreements  to  repurchase  and the Federal Home Loan Bank  advance.  Fair
      values  are based on quoted  market  prices or dealer  quotes.  Where such
      quotes are not  available,  fair value is estimated by using quoted market
      prices for similar  securities  or by  discounting  future cash flows at a
      risk adjusted spread to Treasury.

      Commitments  - The  estimated  fair  value  of  commitments  to  originate
      fixed-rate  loans is  determined  based on the fees  currently  charged to
      enter into similar agreements and the difference between current levels of
      interest  rates  and the  committed  rates.  Based on that  analysis,  the
      estimated fair value of such  commitments is a reasonable  estimate of the
      loan commitments at par.

      The fair  value  estimates  presented  herein  are  based  on  information
      available to management as of June 30, 1998 and 1997.  Although management
      is not aware of any factors that would significantly  affect the estimated
      fair value amounts,  such amounts have not been  comprehensively  revalued
      for purposes of these consolidated  financial statements since such dates,
      and therefore,  current  estimates of fair value may differ  significantly
      from the amounts presented herein.


                                                                              53
<PAGE>
18.   HARRINGTON FINANCIAL GROUP, INC. FINANCIAL INFORMATION
      (PARENT COMPANY ONLY)
      ------------------------------------------------------
      The following  condensed  balance sheets as of June 30, 1998 and 1997, and
      condensed  statements of operations  and cash flows for the three years in
      the period ended June 30, 1998 for Harrington Financial Group, Inc. should
      be read in  conjunction  with the  consolidated  financial  statements and
      notes thereto.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(Dollars in thousands)
                                                                                             
June 30,                                                    1998         1997 
--------------------------------------------------------------------------------
<S>                                                      <C>           <C>     
ASSETS

Cash and cash equivalents ..........................     $  1,944      $  3,500
 Securities held for trading .......................          199           464
Deferred income taxes, net .........................          791
Income taxes receivable ............................           23           124
Other assets .......................................          146            55
Intercompany receivable (payable) ..................            5            (1)
Investment in subsidiary ...........................       33,240        30,997
                                                         --------      --------
TOTAL ASSETS .......................................     $ 36,348      $ 35,139
                                                         ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Note payable .......................................     $ 13,495      $  9,995
Deferred income taxes, net .........................                         63
Accrued expenses payable and other liabilities .....          189            87
                                                         --------      --------
    Total liabilities ..............................       13,684        10,145
                                                         --------      --------

Common stock .......................................          425           407
Additional paid-in capital .........................       16,962        15,623
Treasury stock .....................................       (1,467)
Unrealized loss on securities available for sale ...           (1)          (35)
Retained earnings ..................................        6,745         8,999
                                                         --------      --------
    Total stockholders' equity .....................       22,664        24,994
                                                         --------      --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .........     $ 36,348      $ 35,139
                                                         ========      ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)

Years Ended June 30,                                       1998        1997        1996                                          
----------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>   
Dividends from subsidiary ...........................                $ 4,000     $   855
Interest income from securities held for trading ....    $     6          76           8
Interest on deposits ................................         18           8          12
Gain on sale of securities held for trading .........         94          12          42
Unrealized gain (loss) on securities held for trading        (59)        105          28
                                                         -------     -------     -------
    Total income ....................................         59       4,201         945
                                                         -------     -------     -------

Interest expense on long-term borrowings ............        981         907         905
Salaries and employee benefits ......................        263         231         105
Other expenses ......................................        249         315          12
                                                         -------     -------     -------
    Total expenses ..................................      1,493       1,453       1,022
                                                         -------     -------     -------

Income (loss) before equity in undistributed earnings     (1,434)      2,748         (77)
Income tax provision (benefit) ......................       (566)       (509)       (359)
Equity in undistributed earnings of subsidiary ......       (991)     (1,255)        941
                                                         -------     -------     -------
Net income (loss) ...................................    $(1,859)    $ 2,002     $ 1,223
                                                         =======     =======     =======

</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Years Ended June 30,                                                1998         1997        1996 
---------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>          <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...........................................    $ (1,859)    $  2,002     $  1,223
Adjustments to reconcile net income (loss) to net
  cash provided by (used
  in) operating activities:
  Decrease (increase) in other assets .......................         (91)          27            8
  Decrease (increase) in income taxes receivable ............         118         (124)
  Decrease (increase) in intercompany receivable ............          (6)          71          (70)
  Increase (decrease) in accrued expenses and other
    liabilities .............................................         102          (10)          83
  Gain on sale of securities held for trading ...............         (94)         (12)         (42)
  Unrealized gain (loss) on securities held for trading .....          59         (105)         (28)
  Purchases of securities held for trading ..................      (2,000)                     (545)
  Proceeds from sales of securities held for trading ........       2,300          203          314
  Deferred income tax provision .............................        (588)          53           16
  Increase in accrued income taxes ..........................                      210          211
  Decrease (increase) in undistributed earnings of subsidiary         991        1,255         (941)
                                                                 --------     --------     --------
     Net cash provided by (used in)
       operating activities .................................      (1,068)       3,570          229
                                                                 --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital contributions to subsidiary ........................      (3,200)      (6,240)      (6,792)
                                                                 --------     --------     --------
     Net cash used in investing activities ..................      (3,200)      (6,240)      (6,792)
                                                                 --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock
   under initial public offering ............................                                11,437
 Proceeds from stock options exercised ......................       1,074                       165
 Proceeds from note payable .................................       3,500        2,300          800
 Principal repayments on note payable .......................                   (1,303)      (1,002)
 Dividends paid on common stock .............................        (395)         (98)
 Purchase of treasury stock .................................      (1,467)
                                                                 --------     --------     --------
     Net cash provided by financing activities ..............       2,712          899       11,400
                                                                 --------     --------     --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........      (1,556)      (1,771)       4,837

CASH AND CASH EQUIVALENTS,
 Beginning of year ..........................................       3,500        5,271          434
                                                                 --------     --------     --------

CASH AND CASH EQUIVALENTS,
 End of year ................................................    $  1,944     $  3,500     $  5,271
                                                                 ========     ========     ========
</TABLE>
                                                                              55

<PAGE>
INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Harrington Financial Group, Inc.
Richmond, Indiana
-----------------------------------

We have  audited the  accompanying  consolidated  balance  sheets of  Harrington
Financial Group, Inc. and its subsidiary (the "Company") as of June 30, 1998 and
1997,  and  the  related  consolidated  statements  of  operations,  changes  in
stockholders'  equity and cash  flows for each of the three  years in the period
ended June 30, 1998. These financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial  position of Harrington  Financial Group, Inc.
and its  subsidiary  as of June 30,  1998 and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.





/s/DELOITTE & TOUCHE LLP
------------------------
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
July 27, 1998

56